Trump and Tribalism (crosspost from Crooked Timber)

May 24th, 2016 62 comments

Watching the rapid consolidation of the Republican Party around the candidacy of Donald Trump, I’ve tried to make sense of this in terms of the “three party system” analysis I presented a few months ago. I saw the Republicans as the “hard neoliberal” party relying on the votes of (white Christian) tribalists and making symbolic gestures in their direction, but largely ignoring them, particularly if their interests came into conflict with those of big business.

What’s become clear since then, I think, is that the Republican Party apparatus (politicians and party officials) is more tribalist than this analysis suggested. Faced with the prospect of electing their hated tribal enemy, Hillary Clinton, as President, the vast majority look like backing Trump (some, but not all of them, holding their nose as they do so).

From a hard neoliberal viewpoint, this makes no sense. Clinton’s Democratic Leadership Council background is that of the stereotypical soft neoliberal. Her candidacy is the best chance of maintaining the long-running alternation in office between the hard and soft variants of neoliberalism. Admittedly, she will be pulled to the left by the general shift exemplified by the Sanders insurgency, but she is unlikely to do anything that would fundamentally undermine capitalism. By contrast, a Trump takeover of the Republican Party would be a disaster for neoliberalism (which does *not* mean it would be good for the left). That would be the inevitable result of a Trump victory. Even a creditable defeat, which would be blamed on the old establishment, could leave the tribalists in control of the organization.

The only groups where the #NeverTrump analysis seems to hold sway are the business donor class and the remnants of the rightwing intelligentsia (hard to believe they were carrying all before them only 20 years ago). The donors obviously have no interest in throwing money at someone like Trump. As for the intelligentsia, even if they were willing to embrace Trump, it’s obvious he has no use for any but the most total hacks, and not even many of those.

Categories: World Events Tags:

Monday Message Board

May 23rd, 2016 26 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

The two-party preferred fallacy

May 22nd, 2016 17 comments

Back in the 1970s, when the idea of analyzing voting and poll results in terms of the “two-party preferred vote, it was a major advance. Even though Australia has had preferential voting since (I think) 1921, it was poorly understood, to the point that when a candidate or party with plurality of votes lost on preferences, it was seen as a source of justified grievance (not helped by the fact that both the DLP and the Australian Democrats were splitoffs from a major party that aligned mostly with the other major party).

But that was in the days when Parliaments (or at least Lower Houses) were almost invariably made up solely of members of the major parties. Just as in the 1970s, the facts have changed but concepts haven’t caught up with it. Even though it’s now very common for the government to have a minority of seats, and such governments have worked very well, pundits still treat this outcome as an aberration, a “hung Parliament”. This is reflected in the continued use of the two-party preferred measure, which presumes that the last two candidates in any electorate, after preferences are distributed, will be those of the major parties. So, for example, Green votes for Adam Bandt are allocated between Labor and Liberal parties and used to forecast the election outcome, even though Bandt’s preferences will never be distributed.

There are various ways this could be fixed. The ideal one, in my view, would be to replaced “two-party preferred” with a seat-by-seat allocation of votes to “two most preferred”. That would need big samples to be reliable, but there are a variety of techniques that could be used to mitigate the problem.

The big benefit of this is that we could then see whether or not the poll was predicting an outright majority for one party. Assuming equal luck in marginal seats, a poll giving more than 50 per cent of the “two most preferred” vote to one party would imply a majority of seats for that party.

My reading is that most of the current polling yields a deliberative (or, as our pundits persist in describing it, “hung”) parliament as the central estimate, with enough error to allow either side the chance of majority. Given the likely alignment of independents and Greens a deliberative parliament would probably allow the formation of a Labor minority government. That raises the thorny question of the relationship between Labor and the Greens, which I will deal with in another post if I get time.

Categories: Oz Politics Tags:

Minimum wages and predistribution: Extract from Economics in Two Lessons

May 15th, 2016 44 comments

A bit out of order, this is another draft extract from my book-in-progress, Economics in Two Lessons. It’s part of the chapter on income distribution, meant to follow the section on unions, and precede the Australia-US data point and the discussion of corporate profits [links to CT, but all published here also]. After this, I plan to conclude the “predistribution” part of the chapter with a discussion of intellectual “property”, then move on to “redistribution” through taxation and public expenditure.

As always, encouragement is welcome, constructive criticism even more so.

Read more…

Categories: Economics in Two Lessons Tags:

Predistribution and profits: extract from Economics in Two Lessons

May 15th, 2016 14 comments

Over the fold, another extract from my book-in-progress, Economics in Two Lessons. Encouraging comments appreciated, constructive criticism even more so.

Predistribution and profits

As we’ve seen in previous sections, the social constructions of property rights and institutions surrounding employment makes a big difference to the determination of wages and working conditions. These social constructions affect ‘predistribution’, the distribution of income and wealth that arises before the effects of taxes and public expenditure are taken into account.

Predistribution is equally relevant to the other big source of personal income: profit derived from private businesses and corporations. Without legal structures designed specifically to protect businesses from the risks of failure, profits would be far less secure, and the difficulty of establishing and running a business much greater. Corporate profits are not a natural outcome of a market society, but the product of specific structures of property rights introduced to promote corporate enterprise.

The risks of running a business in the 18th century, and well into the 19th, were substantial and personal. There was no such thing as bankruptcy: a business failure meant debtors prison, where debtors could be held until they had worked off their debt via labor or secured outside funds to pay the balance.

After a brief and disastrous experiment in the early years of the 18th century (the South Sea Bubble), joint stock companies were also viewed with grave suspicion.

The prevailing view was Quoted in John Poynder, Literary Extracts (1844), vol. 1, p. 268. [1]

Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like.

This is often misquoted as

“Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?

Adam Smith was similarly scathing, though with more of a focus on the principal-agent problem

The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

Exceptions were made only for specially authorised quasi-governmental ventures like the East India Company, focused on foreign trade. In general, limited liability companies were not permitted in Britain or most other countries. The partners in a business were jointly liable for all its debts.

These same rules applied in Britain’s American colonies and continued to prevail in the United States until the middle of the 19th century. The introduction of personal bankruptcy laws put an end to debtors prison, greatly reducing the risks of running a business. The creation of the limited liability company was an even more radical change.

These changes faced vigorous resistance from advocates of the free market. David Moss, in When All Else Fails, his brilliant history of government as the ultimate risk manager, describes how the advocates of unlimited personal responsibility for debt were overwhelmed by the needs of business in an industrial economy. The introduction of bankruptcy and limited liability laws took much of the risk out of starting and operating a business.

By contrast, in Economics in One Lesson, Hazlitt doesn’t mention limited liability or personal bankruptcy and seems to assume (like most defenders of the market) that these are a natural feature of market societies. More theoretically inclined propertarians have continued to debate the legitimacy of bankruptcy and limited liability laws, without reaching a conclusion.

This debate over whether bankruptcy and corporation laws are consistent with freedom of contract is really beside the point. The distribution of income and wealth is radically changed both by the existence of these institutions and by the details of their design. In particular, the massive accumulations of personal wealth made possible by capital gains from share ownership would simply not exist. Perhaps there would be comparable accumulations of wealth derived in some other way, but the owners of that wealth would be different people.

A crucial policy question, therefore, is whether current laws and policies relating to corporate bankruptcy and limited liability have promoted the growth of inequality and contributed to the weak and crisis-ridden economy that has characterised the 20th 21st century. The combination of these factors has produced absolute stagnation or decline in living standards for much of the US population and relative decline for all but the top few per cent.

There can be little doubt that this is the case. As recently as the 1970s, a corporate bankruptcy was the last resort for insolvent companies, typically leading to the liquidation of the company in question. As well as being a financial disaster, and a source of shame for all those involved. For this reason, nearly all major companies sought to maintain an investment-grade credit rating, indicating a judgement by ratings agencies that bankruptcy was, at most, a fairly remote possibility.

Since that time, bankruptcy has become a routine financial operation, used to avoid inconvenient liabilities like pension obligations to workers and the costs of cleaning up mine sites, among many others. The crucial innovation was “Chapter 11”, introduced in the Bankruptcy Reform Act of 1978.

The intended effect of Chapter 11 was that companies could reorganise themselves while going through bankruptcy, and re-emerge as going concerns. The (presumably) unintended effect was that corporate managers ceased to be scared of bankruptcy. This was reflected in the spectacular growth of the market for ‘junk bonds’, that is, securities with a high rate of interest reflecting a substantial probability of default. Once the preserve of fly-by-night operations, junk bonds (more politely called ‘high-yield’) became a standard source of finance even for companies in the S&P 500.

At the same time, legislative changes and the growth of global capital markets greatly enhanced the benefits of corporate structures, while eliminating many of the associated costs and limitations. At the bottom end of the scale, the ‘close corporation’ with only a handful of shareholders, became the standard method of organising a small business. This process was aided by a long-series of pro-corporate legislative changes and court decisions (notably in Delaware, which has long led the way in this process, and where vast numbers of US companies are incorporated). At the top end, the rise of global financial markets from the 1970s onwards allowed the creation of corporate structures of vast complexity, headquartered in tax havens and organised to resist scrutiny of any kind.

At the behest of these corporations, governments have negotiated agreements supposedly designed to ensure that corporate profits are not taxed twice in different jurisdictions. In reality, using a combination of complex corporate structures and governments (notably including those of Ireland and Luxembourg) eager to facilitate tax avoidance in return for a small slice of the proceeds, the effect has been to ensure that most global corporate profits are not taxed even once in the countries where they are earned.

What can be done to redress the balance that has been tipped so blatantly in favor of corporations. The obvious starting point is transparency. Havens of corporate secrecy, from Caribbean islands to US states like Delaware must be made to reveal he true ownership of corporations, in the same way that tax havens like Switzerland, used mostly by wealthy individuals, have been forced to disclose the ownership of previously secret accounts.

The use of complex corporate structures to avoid tax is a much more difficult problem to tackle. Some measures are being taken to attack what is called “Base Erosion and Profit Shifting’, but past experience suggests that slow-moving processes of this kind will at best keep pace with the development of new forms of avoidance and evasion. It’s necessary to re-examine the whole structure of global taxation agreements. Instead of focusing on the need to avoid taxing corporate profits twice, the central objective should be to ensure that they are taxed at least once, in the place where they are actually generated.

More generally, though, the idea that corporations are a natural part of the economic order, with all the human rights of individuals, and none of the obligations needs to be challenged. Limited liability corporations are creations of public policy, useful to the extent that they promote the efficient use of capital but dangerous to the extent that they facilitate gross inequalities of income and opportunity.

Categories: Economics in Two Lessons Tags:

Identity crisis (repost from 2014)

May 13th, 2016 17 comments

When I posted the following piece two years ago, I didn’t suppose it would be enough to kill the absurd idea that “most Australians pay no net tax”. But, given its obvious kinship with Mitt Romney’s disastrous “47 per cent” catchphrase, I felt sure that hardheads on the political right would kill it off before it lined them up on the losing side of a class war.[1] Not for the first time, I was wrong. So, here’s a reprint.

In the latest issue of Gerard Henderson’s Sydney Institute Quarterly, Adam Creighton, economics correspondent at the Oz, “explains why most Australians pay no net tax”. That’s a striking conclusion, so I checked it out. Creighton has discovered that most Australians get about as much back in transfer payments and public services as they pay in taxation. The poor get a bit more, and the rich a bit less.

To save Creighton some work in future, can I suggest he consider the budget identity constraint “Expenditure = Income”. Since the government spends on services and transfer payments roughly the same amount as it raises in tax revenue[2], it’s obvious that, for the average Australian the same identity must hold, with income renamed as “tax paid” and expenditure as “transfer payments and public services”.

Next up: Why there is no net travel into the CBD

fn1. Romney wasn’t silly enough to push this line in public. He got caught using it at a donors meeting, when someone secretly filmed him.

fn2. Taking account of the seignorage from inflation, returns on assets, intertemporal transfers through debt etc, this rough equality becomes an identity. Please, no arguments about deficits, and especially about MMT. The point of this post is a really simple, and doesn’t need this kind of complication.

Categories: #Ozfail, Tax and public expenditure Tags:

Why is global finance so profitable (crosspost from CT)

May 12th, 2016 21 comments

In a recent post, I asserted that

activities like tax avoidance/evasion and regulatory arbitrage aren’t peripheral flaws in a financial system primarily concerned with the efficient global allocation of capital. They are the core business, without which the profits of the global financial sector would be a tiny fraction of the $1 trillion or so now reaped annually

As I’m working on income distribution issues my long-running book project, this seems like a good time to see if this claim can be backed up by hard numbers.

First up, here’s my source for the $1 trillion number (actually $920 billion). As a plausibility check, I’ve tried to estimate the total size of the global financial sector. Various sources, including Wikipedia estimate that the banking and insurance sector accounts for 7-8 per cent of US gross product. Extrapolating to world gross product of about $80 trillion that would give around $6 trillion for the total size of the sector. The US is almost certainly more financialised than the world as a whole. Still, the profit number looks about right. A trickier question is whether the rents accruing to managers and top professional in the sector should be counted as part of profits. I’d guess that these rents account for at least another $1 trillion, but I have no real idea how to test this – suggestions welcome.

Is tax avoidance/evasion and regulatory arbitrage a big enough activity to account for a substantial share of a trillion dollars a year? Gabriel Zucman estimates that there’s $7.5 trillion stashed in tax havens, of which around $6 trillion is untaxed. He estimates the tax avoided at $200 billion . I’ll estimate that half of that ($100 billion) is creamed off in financial sector, mostly as profits or rents. That implies a profit margin of a bit under 2 per cent, which seems reasonable.

Tax evasion by wealthy individuals is only a small part of the story. Legal tax avoidance is almost certainly more important. Most of that involves companies, but it’s important to distinguish between “close” corporations, which hide the activities of an individual or family and large global corporations. I don’t have any idea how to measure the cost of avoidance through close corporations. As regards global corporations, Zucman estimates that “a third of U.S. corporate profits, or $650 billion, are purportedly earned outside the country, with a cost to the US of $130 billion a year . Extrapolating to the world as a whole, that would be at least $500 billion. Again, assuming the financial sector creams off half of the sum, we get $250 billion (the fact that the finance sector itself accounts for around 40 per cent of all corporate profits means there’s a problem of recursion that I haven’t worked through)

Then there’s manipulation of exchange rate and bond markets. I have no idea how to measure this, but given that the notional volume of trade in some of the markets concerned is measured in the hundreds of trillions, it seems plausible that the profits and rents from market-rigging must be at least in the tens of billions.

These are probably the biggest scams, but there’s also regulatory arbitrage, privatization (a huge source of rent over recent decades), domestic tax avoidance and more.

Adding them up, I’d suggest that $500 billion a year is a low-end estimate for the profits and rents associated with various forms of anti-social financial sector activity.

There’s lots of potential error around these numbers, but the order of magnitude seems reasonable to me. As against the claim that the explosion in financial sector activity and profits over the past 40 years has been driven by the benefits of a more efficient allocation of capital by rational markets, the claim that it’s all about tax-dodging and socially unproductive arbitrage seems pretty plausible.

Obviously, the social cost of a financial system devoted to undermining tax and regulatory systems far exceeds the profits earned from the activity. That’s true of any kind of socially destructive, but privately profitable, activity. But the problem is greater in the case of financial sector activity because of the disastrous effects of financial crises.

Sandpit

May 9th, 2016 28 comments

A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

Categories: Regular Features Tags:

Election open thread

May 9th, 2016 60 comments

For once I feel pretty happy about my predictions: a Labor win in a class war election. Have your own say on this or any election-related topic.

Categories: Oz Politics Tags:

Monday Message Board

May 9th, 2016 3 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

Rubin gets it right (crosspost from Crooked Timber)

May 8th, 2016 11 comments

Crises upend all kinds of assumptions, and the crisis in the Republican Party is no exception. Who would have thought, for example, that the National Review crowd might end up voting for the Libertarian candidate while lots of self-described libertarians are backing Trump.

At least as surprising to me is that, among all the attempts from establishment Repubs to understand the disaster that has befallen them, the most insightful and accurate (that is, the closest to my own analysis) has come from Jennifer Rubin at the Washington Post, someone I’ve never before taken seriously. Unlike nearly all the NeverTrumpers she accepts the obvious implication of the fact that around half the Republican electorate has gone for Trump’s tribalism

The GOP discovered (in part, through Sen. Ted Cruz’s collapse despite perfect mechanical execution) that there is no majority supporting the Reagan agenda. Certainly, Cruz was a politician of limited talent and imagination, but if he could not sell the “three-legged stool” to the masses, perhaps there are no masses receptive to that sort of stuff. Even in a GOP primary, there is no majority looking to roll back gay rights or give huge tax breaks to upper-income Americans.

Second, she nails the role of climate change denialism in the intellectual collapse of the political right

Along with all of this, conservatives have to end their intellectual isolation and self-delusions. They need to stop pretending that climate change is not occurring (the extent and the proposed solutions can be rationally discussed) or imagining that there is a market for pre-New-Deal-size government. Conservatives must end their infatuation with phony news, crank conspiracy theories, demonization of well-meaning leaders and mean rhetoric

Contrast that with, say, Will and Krauthammer, who denounce Trump in extreme terms, but peddle lunatic conspiracy theories themselves.

In this context, I was struck by this piece headlined The outlandish conspiracy theories many of Donald Trump’s supporters believe. Despite the headline and the spin in the text, the data reported in the article shows that Trump supporters are only marginally more likely than Cruz and Kasich voters to accept the standard set of Republican conspiracy theories. To give a fairly typical example,

Fifty-two percent of his supporters said [the claim that vaccines cause autism] was possibly or definitely true, compared to 49 percent of those who supported Cruz and 45 percent of those who supported Kasich

These differences are barely outside the likely margin of error in a poll of this kind. The differences between groups of Repub voters on any given issue are far smaller than the differences arising from more or less extreme conspiracy theories (for example, only about 20 per cent of each group think that the Sandy Hook shootings were faked).

If there is one prediction that can safely be made it is that the Republican party of 2017 will be very different from that of 2015, before the Trump eruption. Whether it moves in the direction of sanity remains to be seen.

Categories: World Events Tags:

Polls vs punters: an explanation?

May 6th, 2016 35 comments

Nearly a month ago, I noticed that betting markets were giving long odds (3.5 to 1) against a Labor win in the (presumably) forthcoming election. That would be a good bet if you thought Labor had a better than 22 per cent (1/(1+3.5)) chance of winning. Given that the polls were pretty much tied, I thought those were good odds.

Since then, the polls have moved steadily in Labor’s favor to the point where their lead is just about statistically significant in a meta-analysis (add lots of independent samples and the margin of error declines). At the same time, the government has barely had a good news day. Their one big hit, the kerfuffle about 10-year projections of tobacco tax revenue (a bipartisan policy) blew up in their faces a few days later when Turnbull and Morrison couldn’t/wouldn’t state the cost of their company tax plan. It seems that they had the $50 billion number ready, but had hit on the clever plan of having the Treasury announce it today, just before Parliament is dissolved so that Labor couldn’t … I’m not sure what (cue underpants gnomes). As a result of all this, the pundits, who dismissed the idea of a Labor win as implausible until very recently, are now coming around to the idea

Yet despite all this, the odds are barely unchanged at 3.3 to 1. That’s good for anyone who gives Labor a 23 per cent chance. There are a few possible explanations of this

(a) The idea that betting markets are highly rational aggregators of information is wrong
(b) Those betting in these markets have inside information or else insights unavailable to the rest of us.
(c) The markets don’t really exist in any substantial form and are just a publicity stunt for the bookmakers. That’s the argument of this 2013 article by Michael West, whom I’ve usually found to be sensible and reliable.

Categories: Economics - General Tags:

Pirates ! (Militarism Whack-a-Mole #173)

May 2nd, 2016 17 comments

Making the case against militarism is very reminiscent of climate denial whack-a-mole. Demolish one spurious argument, and you’re immediately presented with another. For example, my post showing that the economic benefits of “keeping sea lanes open” could not justify more than a trivial proportion of current naval expenditure, got hardly any substantive responses (apart from tiger-repelling rocks), but a great many saying “what about the pirates?”.

I’ve done the numbers on this one, and they look pretty clear-cut. There are a bunch of estimates on the web of the annual cost of piracy ranging from $1 billion to $16 billion a year.

This seems implausibly high. The amount actually stolen by pirates or paid as ransoms is far smaller, less than a billion a year at its peak, AFAICT. Looking in detail, there’s a fair bit of double counting here (both actual losses and the insurance premiums which offset them are counted, for example), and the high-end numbers typically include some estimate of the cost of naval deployments on anti-piracy patrols. In particular. Still, in the spirit of fair play, I’ll go with $15 billion a year as an upper bound.

Turning to the US Navy* budget, it’s currently just shy of $400 billion a year. That supports a fleet of 272 “deployable battle force” ships, implying an annual cost of $1.5 billion per ship. So, the annual cost of piracy is the same as the cost of about 10 ships. To put it another way, reducing the fleet by one ship, and scaling down anti-piracy operations accordingly would have to increase global piracy by 10 per cent to yield a loss to the global shipping industry greater than the savings to the US (I leave aside the question of why the global shipping industry is such an important recipient of US foreign aid).

Having played military whack-a-mole many times before I can anticipate the responses in my sleep. So, I’ll open the comments threads, resist the temptation to take part, and whack the inevitable moles in a later post.

* The US spends more than other developed countries, but I don’t think the others get any more ship for their shilling, capability-adjusted.

Categories: World Events Tags:

Budget bubble

May 1st, 2016 5 comments

The stream of leaks about Tuesday’s budget suggest that the process was still in turmoil until the last minute. If the last round of leaks are broadly accurate, it looks like a budget that will fit fairly neatly into a class war frame. On the tax side, the government has long been floating a cut in company tax rates and the removal of the budget emergency levy on incomes above $180k. At the last minute, they have apparently decided on an increase in the threshold (currently $80 000) for the 37 per cent marginal tax rate.

Presumably, Morrison and Turnbull think that this will be a vote-winner for people concerned about being pushed into higher tax brackets, or already in the higher brackets. How may such people are there, and who are they? Let’s suppose that the budget measures compensate for the bracket creep since Labor left office. The income tax statistics for 2012-13 showed that, at that time, 18.6 per cent of tax returns reported income of $80 000 per year.

Assuming a 10 per cent increase in nominal incomes since then, I estimate that around 5 per cent of taxpayers would have entered the 37 per cent bracket since then. Of course, most of these would be paying 37 per cent on only a tiny fraction of their income, but people don’t always judge these things sensibly. Still, a budget measure targeted at 5 per cent of taxpayers (a good deal less than 5 per cent of the electorate, even taking account of the fact that many are in couple families) doesn’t seem like an election winner.

The real punch of the measure is that everyone on incomes currently over $80 000 will benefit. Assuming a 10 per cent increase, the full benefit of $360 per year (the 4.5 cent difference in marginal rates, applied to $8000) would go to everyone with a taxable income above $88000. That’s about 25 per cent of the 12 million who file income tax returns or 3 million people.

Those above $180 000 will also benefit from the removal of the 2 per cent emergency levy, which is a much bigger deal for the beneficiaries. Anyone earning over $200k will gain at least $400 from this measure, more than from the tax cut

The threshold change I’ve calculated would cost around $1 billion a year to benefit a relatively small group of voters, most of whom are already Liberals and the rest of whom (including me, for example) are unlikely to be all that responsive to tax cuts.

As a political strategy, this doesn’t make obvious sense. I suspect, however, that most politicians and political commentators (particularly, though not only, on the conservative side) make their political estimates on the basis of people they know, many of whom are exercised about bracket creep, and very few of whom make less than $80 000 a year. I recall studies where members of the political class were asked to estimate the median Australian income, and got the number drastically wrong. The social bubble is reinforced by the intellectual bubble created by an increasingly fact-free rightwing world view.

Bubble thinking isn’t exclusively a problem of the political right. But it’s more prevalent there than at any time in the recent past. It may well prove the Turnbull government’s undoing.

* Peter Martin makes the same point about median incomes. After seeing a lower number in his article, I’ve corrected my original estimate of the budget cost, which was too high.

Categories: Economics - General Tags:

A data point on minimum wages

April 29th, 2016 23 comments

I’m currently working on a section of my Economics in Two Lessons book dealing with minimum wages in the context of predistribution policies, so I thought I would compare Australia with the US, where the idea of a $15/hour minimum wage is currently a hot topic. In Australia there are two kinds of minimum wage. The PPP exchange rate is estimated at $A$1.30 = $US, which is fairly close to the market exchange rate at present, so I’ll give both $A and estimated $US equivalents

The standard minimum wage for workers aged 21 and over is $A17.29 hour ($US13.30) applying to employees under standard award conditions. These include four weeks annual leave, sick leave, employer contributions to pension plans and so on.

More comparable to the situation of US minimum wage workers are “casual” workers, employed on an hourly basis. Casual workers get a loading of at least 25 per cent, bringing the wage up to at least $A21.60 an hour ($US16.60), to compensate for the absence of leave entitlements. In addition, they have entitlements including:

* “Penalty” rates for weekend and night work (usually a 50 per cent loading, 100 per cent on Sundays)
* For workers employed on a regular basis, protection against unfair dismissal.

The policy question is: what impact have these high minimum wages had on employment and unemployment. That’s too big a question to answer comprehensively, but we can look at the obvious data points: the official unemployment rates (5.7 for Oz, 5.5 per cent US) and the 15-64 employment population ratios (72 per cent for Oz, 67 per cent US). So, it certainly doesn’t look as if the Australian labor market has been crippled by minimum wages.

Note: I’ll respond in advance to the widespread misconception that Australia is a special case due to mineral resources. Mining accounts for about 2 per cent of employment in Australia, and (because most mines are owned by multinationals) its contribution to Australian national income is also so, probably around 5 per cent.

* Workers aged 18 get about 70 per cent of the adult minimum, equivalent to around $US11.50 for casuals. But the great majority of US minimum wage workers (about 80 per cent) are 20+.

Predistribution: wages and unions (extract from Economics in Two Lessons)

April 28th, 2016 10 comments

Over the fold, an extract from my book-in-very slow-progress, Economics in Two Lessons. I’m getting closer to a complete draft, and I plan, Real Soon Now, to post the material so far in a more accessible form. But for the moment, I’ll toss up an extract which is, I hope, largely self-sufficient. Encouragement is welcome, constructive criticism even more so.

The book is aimed at a US audience (if it goes well, an Australian edition will follow, as with Zombie Economics). So, there are US-specific institutional points, but the general argument is applicable more broadly.

Read more…

Categories: Economics - General Tags:

What do Australian economists think about policy?

April 28th, 2016 10 comments

Jan Libich of La Trobe University has a new book out called Real-World Economic Policy: Insights from Leading Australian Economists. Each chapter has a fairly accessible introduction to an economic policy issue, along with an interview with an Australian economist: examples include Bob Gregory, Andrew Leigh and Warwick McKibbin. It’s useful both as an intro text and to get a bit of insight into how some of our leading economists think about the issues facing Australia.

Categories: Books and culture, Economic policy Tags:

Defending Australian institutions

April 27th, 2016 34 comments

The (presumably) forthcoming double dissolution will raise many issues. But most of them can be summed up as the defence of Australian institutions that have been under attack by radical extremists. I’m referring to such institutions as the ABC, CSIRO, the weekend, public education, the union movement, the fair go and our natural environment. Mention of any of these is enough to raise a derisive sneer from the radical rightwing apparatus that dominates much of Australian politics, most obviously the supporters of Tony Abbott who (ludicrously) call themselves “conservatives”. Turnbull promised something better but he is campaigning against all the institutions I’ve mentioned. It’s time to tell those who want to undermine our way of life in the name of free market ideology and rightwing tribalism where they should get off.

Categories: Oz Politics Tags:

Anzac Day, 101 years on …

April 25th, 2016 13 comments

101 years on from the first landings at Gallipoli, Australian troops are still at war over the remains of the Ottoman Empire. Hardly anyone is fully aware of the history, which is one of the reasons we keep on repeating it. So, while we remember those who answered our country’s call, and particularly those who never returned, we should take the time to understand why they were there, and the futility of the wars in which we have engaged in the Middle East.

The struggle over the declining Ottoman Empire began well before the Great War itself, and was the proximate cause of the War (Sarejevo, where the Archduke Franz Ferdinand was assassinated was a former part of the Ottoman Empire, taken by Austria Hungary in 1878 and formally annexed in 1908). For much of this time, Britain was allied with Turkey, trying to check the expansion of the Czarist Russian Empire. But, as it happened, when the Great War broke out, Britain and France were part of the Triple Entente with Russia, and the Turkish government decided that its best hope for survival lay with Germany. So, Australia was at war with Turkey.

The object of the Gallipoli campaign was to force a passage through the Dardanelles, allowing the Western allies to provide aid to Russia and, if possible, knock Turkey out of the war. The ultimate war aim, formalized in the Sykes-Picot agreement was to partition the Middle East between Britain and France, with Britain getting what is now Iraq and France getting Syria and Lebanon*.

British control over Iraq continued until the mid-1950s, when the US moved in with the Baghdad Pact, later CENTO, one of the network of Cold War alliances modelled on NATO. But Iraq pulled out, and partially the Anglo-American oil holdings, setting the stage for two decades of conflict as the Americans sought to maintain the Middle Eastern sphere of influence they had inherited from Britain.

That culminated in Saddam Hussein’s seizure of power in 1979, and his decision to launch a war with Iran, in which he received extensive support from the US. The rest is recent enough history not to need repeating. The present chaos is the outcome of a century of Western involvement, colliding with the many and varied aspirations of people in the region.

Perhaps one day, Australian armed forces will leave the Middle East, and return home for good. That would be the best possible way to celebrate Anzac Day. In the meantime, Lest We Forget.

* A variety of contradictory promises were also made to the Russians (seeking more territory), the Arabs (seeking independence) and the Zionists (seeking a Jewish homeland). But, with minor variations, it was the Sykes-Picot deal that was implemented in practice.

Categories: World Events Tags:

The Smart State saves Queensland

April 24th, 2016 31 comments

I’ll be talking tomorrow (Tuesday) at the Queensland Jobs Growth Summit organized by the University of Queensland School of Economics and The Australia Institute.

The core point of my presentation is that the resilience of the Queensland economy, despite the end of the coal boom reflects the transition to a knowledge based economy, symbolized by the Beattie government’s “Smart State” strategy and the opposite of the nostalgic and reactionary Four Pillars (agriculture, mining, construction and tourism) strategy pushed by the LNP.

Categories: Economic policy Tags:

I, for one (comment here)

April 21st, 2016 5 comments

Something went wrong with the “I, for one” post, so I’m attempting to open a comments thread for it here.

Categories: Economics - General Tags:

test

April 21st, 2016 2 comments

Test

Categories: Economics - General Tags:

I, for one … (crosspost from Crooked Timber)

April 20th, 2016 Comments off

This para, presented matter-of-factly in the middle of a New York Times piece about the Repub convention bringing older strategists out of retirement, surprised more than, perhaps, it should

Paul Manafort, 67, all but disappeared from American politics in recent decades to advise international leaders, including strongmen like Ferdinand E. Marcos, the former dictator of the Philippines, and Viktor F. Yanukovych, the deposed former president of Ukraine. Now, though, Mr. Manafort, who worked for the Ford campaign 40 years ago, is the lead convention strategist for Donald J. Trump

Combined with the link back to Joe McCarthy, I feel a bit as if we have moved on to some alternative reality timeline (I remember a great one, where Nixon won in 1960, and an author is trying to pitch the actual history of the 60s as an alternate reality story – CT commenters advises that it’s Divergence, by Barry Malzberg).

Categories: World Events Tags:

A Royal Commission to end all (or most) Royal Commissions

April 18th, 2016 28 comments

In political terms, it’s hard to fault Labor’s call for a Royal Commission into the banking system. It’s a neat riposte to the government’s Double Dissolution trigger, the ABCC bill derived from the Royal Commission into trade union corruption, which spent $100 million to announce that it had discovered a handful of cases of petty corruption*, claimed to be “the tip of the iceberg”. (That was one of a string of Royal Commissions set up as political vendettas by the Abbott government, none of which found anything useful.) The hypocrisy of this effort, when we are daily bombarded with evidence of corruption in business, finance and the LNP itself is obvious, and the proposed Commission provides a convenient political hook. And doubtless there will be plenty of evidence of individual wrongdoing, real or alleged.

However, I don’t think this proposed Commission will be any more useful, in practice, than Abbott’s. The problem with the banks is not so much breaches of the rules but the rules themselves. What we need is another inquiry which, unlike the Campbell, Wallis and Murray inquiries is not run by advocates of financial deregulation.

The Royal Commission we should really have is one into Abbott’s Royal Commissions, taking the same nakedly political approach as those Commissions did. The Commissioners, the counsel assisting and the government ministers who called the Commissions should be questioned on the political understandings with which they approached the job, the waste of public money involved. With luck, that would deter any future use of Royal Commissions as partisan vendettas, and leave them to inquire into real issues of public concern, where the powers of Royal Commissions really are necessary.

Finally an observation and a question: Having been critical of the TU Royal Commission, I’ve tried to be consistent in the prediction that this one will be similarly ineffectual. Did any of those now arguing that we don’t need a Royal Commission into banking make the same observation about TURC?

* As far as I know, no union offical has yet been convicted of a corruption offence as a result of the Commission’s work, while at least four prosecutions have failed or been dropped. My guess is that the total number of convictions will end up below 10, and the total amount of money involved not much more than a million dollars. That’s a pretty appalling return for $100 million of public funds that could have been used to protect the community against armed robbers and burglars, not to mention white collar criminals.

Categories: Economic policy, Oz Politics Tags:

Sandpit

April 18th, 2016 20 comments

A new sandpit for long side discussions, idees fixes and so on. Discussions about climate policy and related issues can be posted here, along with the usual things.

Categories: Regular Features Tags:

Monday Message Board

April 18th, 2016 9 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

Gas and climate change

April 16th, 2016 60 comments

As well as posting here, I have a couple of articles in the Conversation about the end of the coal era (I’ll give links in a subsequent post, if I get time). In all cases, I’m getting lots of people saying that the reduction in coal use in is entirely/overwhelmingly due to low gas prices caused by the rise of shale gas. So, I thought it was time for a post on the subject. I want to make three points

(1) This claim is presented in global terms, but it’s really specific to the US. There is no global market for gas, and the expansion of fracking is not global (it’s big in the US and in Queensland, but not many other places).

(2) The claim is out of date as applied to the US. New electricity generation capacity there is now dominated by renewables (still true even after capacity factors are taken into account, I think)

(3) The continuing low price of gas (like that for coal and oil) is being drive, in large measure, by competition from renewables

I also want to talk about different views on the role of gas in the decarbonization process, but I’ll leave that for another time.

Categories: Economics - General, Environment Tags:

Cruising for a bruising

April 15th, 2016 19 comments

Rather inconveniently for the government, it had no sooner dismissed calls for more tax revenue from the usual lefty suspects (including me), when Moody’s came out with a warning that the much-loved AAA credit rating couldn’t be saved with expenditure cuts alone*.

Scott Morrison came back with a line that must have sounded like a good idea at the time. On the one hand “of course there will be revenue measures in the budget”. But, unlike Labor “additional revenue would be applied to reducing the tax burden in other parts of the economy”

That sounds good if you say it quickly enough. But let’s put some specifics in there. It seems clear that “revenue measures” means higher tobacco taxes. and “reducing the tax burden in other parts of the economy” means cuts in the company tax rate and the budget repair levy. So, Morrison’s budget message is

we’re going to tax smokers to fund cuts in company tax and tax relief for top income earners.

Good luck with that.

Of course, Labor is also planning higher tobacco taxes. But they will be able to say that they are using the revenue to fund better health services. And, of course, Labor has been consistent while the tobacco hike will be another backflip for the LNP (unless they get cold feet and do a double backflip, as seems entirely possible).

I’ve given up betting on elections after being unable to collect my winnings when Intrade collapsed a few years back. But for those so inclined, I’d recommend a look at Sportsbet, who are still offering 3.5 to 1 against Labor supplying the next PM (minor aside: most scenarios for so-called “hung” parliaments would lead to this outcome)

* I’m not a believer in ratings agencies, as I’ve said many times, and I don’t think a AAA rating is particularly meaningful. However, the core input to the rating is an estimate of future budget balance, so it’s not all that surprising that Moody’s, looking at the same data, have reached the same conclusion as I did.

Categories: Oz Politics Tags:

The Oz makes the case for higher taxes

April 14th, 2016 13 comments

A couple of days ago, I was one of fifty signatories to a letter opposing the proposed cut in company tax rate and rejecting the general idea that Australia needs lower taxes. We got excellent coverage from the ABC, Fairfax papers and so on. But by far the most extensive was from The Australian. I counted at least four stories all with a prominent run on the website

* A straight new story, though of course replete with phrases like “the left wing establishment”
* The IPA attacking the signatories as the “fatuous fifty”
* Shorten also attacking the company tax cut as a recipe for “mayhem”
* A front page piece saying a tax increase is a lazy way of solving our problems

Not so long ago, the Oz would have ignored a statement like this (or stuck it in a short story on the inside pages) with the plausible justification that it’s just a bunch of lefties saying what lefties usually say. The fact that they felt the need to reply over and over is revealing, in two ways.

Read more…

The awkward squad

April 13th, 2016 65 comments

Looking back, the G20 meeting in Brisbane marked a historic turning point in global climate policy. Before G20, the big problem had been the unwillingness of any of the big emitters (US, China and India) to make the first move. The joint statement by Obama and Xi Jinping broke the logjam, with the result that India moved away from its longstanding position that poor countries should have the opportunity to repeat the mistakes of the past before dealing with the problems of the future. This shift was reflected in the successful outcome in Paris, and with the arrival of Peak Coal in both the US and China. India is still expanding its use of coal, but renewables are growing much faster, and imports are already declining.

With all the big players on board, the immediate problem in climate change policy is what might be called the awkward squad – a group of second- and third-rank countries that are, for one reason or another, trying to push ahead with fossil fuels. These include Poland, Saudi Arabia, Turkey, Vietnam and, of course, Australia. Until the recent election, the Harper government in Canada was part of the awkward squad and a comfortable ally for Abbott and the LNP denialists. But Harper’s defeat appears to have provoked a broader rethinking with even the Conservatives moving to a pro-planet position.

As the awkward squad shrinks (Vietnam is already showing signs of rethinking) the remaining members are going to find their position in the international community less and less comfortable. That is, of course, unless the Republicans win the US Presidential election. In that case, the whole world will have a lot to worry about.

Categories: Environment Tags: