Month: October 2003

NILF bludgers?

John Quiggin20 Comments

A reader asks a question to which I don’t have an immediate answer

I’ve noticed that in general people are always concerned with the unemployed and how/why they don’t work etc. Often this attitude is negative, and this is certainly capilized by the goverment.

So what I wondered is why doesn’t this attitude doesn’t seem to also apply to people who don’t work but don’t collect benefits ? What I mean by this is that it seems clear there are lots of indirect benefits that people still receive/received even if they don’t work (roads, schooling etc.) and direct benefits too (health-care) that must cost the community. However, this group seems exempt from the negative criticism of those that collect unemployment benefits in particular, and sometime it is also positive (if you make enough money to retire at thirty, thats great!). Why ?

Any thoughts on this?

Explaining (away) the productivity miracle

John Quiggin7 Comments

There’s been a lengthy debate, in the blogworld and elsewhere about the causes of recent growth in US labor productivity, and the associated fact that reasonably good output growth has produced little or no employment growth. Brad de Long, in particular has discussed this at length. My preferred explanation, which I put forward here is that

Beginning with productivity, it’s only labour productivity that’s grown rapidly and seemingly anomalously. Capital productivity has declined markedly, as has multifactor productivity (a weighted average of capital and labour productivity) In part this reflects the economics of embodied technical change – as computing power has become cheaper it has been applied more intensively. But there’s also a big hangover effect from the bubble and bust, when crazy signals from capital markets led lots of firms to undertake unprofitable investments. Once some semblance of reality returns, the natural response is to cut back and it’s much easier to sack the least productive workers than to reduce capital stock. So labour productivity rises fast, but output growth is weak.

This NYT piece gives lots evidence, admittedly msotly anecdotal, to back up my analysis. The key statement is the

the slow process of working through a glut of boom-era investment that continues to litter the economy with underused factories [ is weighing on job creation]

Along with lots of case studies of soap factories is the point that

Not since the severe recession of the early 1980’s has capacity use in manufacturing stayed so low for so long, government data show. Production as a percentage of total capacity fell precipitously in the aftermath of the last recession, which ended in 2001, and 23 months into the recovery, the upturn has still not come. On average, manufacturers are using less than 73 percent of their capacity.

If multifactor productivity were really rising we’d expect to see new investment and hiring as US producers displaced competing imports, especially with the dollar depreciating. But there’s no sign of this so far.

Updated Brad de Long has responded to the same article with a restatement of his main argument

Louis Uchitelle frames the issue the wrong way around: there is no such thing as “overinvestment,” there is only too little aggregate demand. If you think that there is “overinvestment,” dropping the interest rate will cure you of that belief. At least, it will until you hit a liquidity trap… But it looks like that is no longer a dangerous possibility.

There’s a disconnect here between the macro arguments Brad is making and the micro arguments I’m making. My intuition is that the size of the US CAD indicates that deficient aggregate demand is not the problem. But I need to think more about this.

Meme watch

John Quiggin9 Comments

While I’m dubious about the validity of the Dawkins analogy between memes and genes, there’s no doubt that we need some sort of word for a minimal unit of argument that is subject to reproduction and selection, and meme seems to have become that word.

One I’ve noticed in particular among supporters of the Howard government is exemplified by Michael Baume in today’s Fin (subscription required). He writes that the Howard government has halved youth unemployment, then immediately follows up with the small print “since the Keating era peak in 1992”. If seen similar comparisons regarding interest rates and, I think even occasionally on inflation. In all these cases, the majority of the improvements occurred before Labor lost office.

In political terms, this is a straightforward case of claiming your opponents’ accomplishments as your own. Underlying this is the fact, which I’ve pointed out that, in economic terms, the Howard government is essentially a continuation of those of Hawke and Keating, with a gradual (and not continuous) slowdown in the pace of microeconomic reform.

As it’s normally used, this argument is clearly dishonest. There might be circumstances in which it could be used honestly, particularly in relation to policy instruments under direct government control. For example, if the government controlled interest rates, it might say that “we have kept interest rates low, and will always do so. By contrast, Labor allowed them to rise to 17 per cent”. But in terms of targets like unemployment, the natural base point for comparisons is 1996, not 1992, and the government’s performance looks most unimpressive.

Monday Message Board

John Quiggin9 Comments

Time as usual for the Monday Message Board. As the discussion on speeding has attracted a couple of abusive comments with foul language, I’ll stress the usual reminder that this is a PG-rated blog. No coarse language, and civilised discussion, please.

As always, comment on any topic that takes your fancy, but in the light of my recent exercise in bloggerative democracy, I’m interested in your thoughts on the question “What is the Next Big Thing in blogging/the Internet in general?”

The GG as a politician

John Quiggin7 Comments

As is often the case, I’m coming late to a story that more alert ploggers have covered at length, that of Governor-General Michael Jeffery’s remarks supporting pre-emptive military action. Roughly speaking, it seems that opinion is divided along left-right lines as might be expected. The left line, represented by my blogtwin, Tim Dunlop focuses on the Howard government’s hypocrisy in view of its criticism of less overtly political statements by William Deane. The right line, which I’ve seen but can’t now locate a good instance of, is that the hypocrisy is on the side of the left, who cheered Deane on, but are now deploring Jeffery. I have a couple of observations.

First, this is a typical instance of the policy dynamic under the current government. When faced with some aspect of Labor’s behavior in office (weak code of ministerial conduct, publicly funded political advertising and so on) the Howard government has initially deplored it and promised to do better. But when this inevitably proves inconvenient, the response is to take actions which are claimed to be in line with precedents from the Labor government but which in fact are “pushing the envelope”. Ministerial conflicts of interest and use of public money to fund political ad campaigns allow for much more impropriety (relative to the views of propriety that prevailed until the 1980s) than under the last Labor government (though who knows what the next one will be like).

In the present case, the government disliked Deane’s attempts to act as a social conscience, so it decided to appoint Hollingworth who seemed to have a track record that would protect him from adverse comparisons with Deane combined with a willingness to look dignified and stick to his script. When it turned out that the latter qualities, in operation as Archbishop of Brisbane, had produced some disastrous outcomes, the government decided to give up on neutrality and appoint someone who would speak out on their side of the debate.

The second point is that, as a result of this, it’s now clear that the post of Governor-General is a political one and that anyone who holds it is a politician. The natural conclusion is that a politician holding such an important office should have the legitimacy that can only be derived from popular election.

This is logically independent of the Republic issue. We can have an elected governor-general (David Solomon pushed this idea after 1975, and Ken Parish revived it recently) or an appointed president. Realistically speaking though, a move to directly electing the GG would lead straight to a republic with a directly elected president. By giving up on the idea of the GG as a neutral figurehead, the government has effectively conceded defeat on the main arguments against both a republic and direct election.

"John Quiggin" wins

John Quiggin10 Comments

The votes are in (53 of them, anyway) and the result is a resounding endorsement of the status quo. From the Australian daytime voting, it looked as if we might have to go to preferences, but a late surge from Western hemisphere voters produced an outright majority in favour of keeping “John Quiggin” as the name for this blog. The runner-up was “Quog” which was my least-favoured choice and attracted some negative comments from others.

This was interesting and I might try it again some time, just for fun.

Slowing down

John Quiggin18 Comments

We’ve been discussing speed quite a bit lately, and this story about the end of Concorde illustrates a point I’ve been making for some time. On most of the obvious measures, technological progress in transport stopped sometime in the late 1960s and, at the frontiers, we are now seeing retrogression.

In 1970, we had regular visits to the moon, and supersonic passenger flight via Concorde was on the way. Now we have neither. Even the space shuttle, designed as a low-cost “space truck” to replace the expensive moon program, is now headed for oblivion, with no obvious replacement.

At a more prosaic level, the 747 jumbo jet, introduced in the late 1960s, is still the workhorse of passenger air transport. Boeing’s attempts at producing a new generation of passenger planes have failed, and the likely replacement for the jumbo jet is the Airbus A380 – essentially just a double-decker jumbo. In all probability, this will be the standard for the next thirty or even fifty years. Of course we don’t have flying cars, or even personal helicopters, as most projections from 50 years ago supposed.

On the ground, cars are safer and more comfortable than they used to be, but the rate of innovation has slowed substantially, and as we’ve discussed, there’s been no increase in the average speed at which we travel – if anything the opposite. Here, for illustration are specs for the 1962 Holden EJ released just over 40 years ago. There are some obvious differences from the cars of today, but they are pretty minor. Go back another 40 years and you’re looking at this. Forty years more and even the bicycle is still is in embryo (the first modern one was made in 1885, predating the first Daimler and Benz cars by four years)

There are a couple of points to make here. The first is that, outside the areas of information and communications, technological progress has generally slowed. All the easy stuff (penicillin, jet aircraft, skyscrapers) had been done by the late 1960s. Only in IT and telecom does anything like Moore’s Law work in our favour.

The second is that while the relationship between transport and communications is complex, in the long run they are substitutes. We don’t need to send humans into outer space to tell us what’s there, because we can send cameras and telescopes and download the results. We don’t need to fly from London to New York in five hours when we can make a phone call for a few cents a minute.

Interestingly, this logic hasn’t prevented some industries, notably financial services, from clustering ever more closely in a handful of ‘global cities”. As I’ll argue in a later post, this says more about the dominance of crony capitalism in the financial sector than about the technological requirements of doing business.

Remembering Jim Cairns

John Quiggin4 Comments

Everybody else has had their say about Jim Cairns, and I suppose I should put my own thoughts on record, too, even if they are not particularly original. In my view, Cairns played a significant and essentially positive role in the Vietnam moratorium movement, and everything after that was largely irrelevant.

In talking about Vietnam, it’s important to remember not only that the war was wrong in itself, but that the government was conscripting young men (too young to vote against it*) to fight, rather than making a moral case strong enough to attract volunteers or paying wages high enough to make the army an attractive choice. Whereas it’s possible to make a case for the war itself (not, in my view, a convincing one) this was unequivocally wrong.

As regards the anti-Vietnam campaign, Cairns must get a fair bit of the credit for the fact that, despite some fringe violence, the movement never produced the kind of terrorist offshoots that emerged in the US and Europe.

Once the war was over, so was the role of someone like Cairns. He wasn’t a great minister, but that’s not surprising – the politics of the street don’t translate well into the requirements of public office. The kind of moral certainty that was needed for the Vietnam campaign was of little use in the period of chaos and compromise that emerged after 1974.

His infatuation with Junie Morosi led him to dishonest and arguably corrupt actions and contributed to the dismissal of the Whitlam government, but any social democratic government elected in 1972 was doomed in the face of the global economic crisis of the early 1970s.

I’m not a Melbournian so I only know of his later life, selling his books at the market and so on from occasional reports. It sounded rather sad, but substantially more honorable to the post-Parliamentary careers of a lot of other Labor MPs.

* As I recall, the govt acknowledged the untenability of its position by letting conscripts vote after they had been called up.

The costs and benefits of speeding

John Quiggin26 Comments

Various commentators (notably including Tom Nankivell) have raised the issue of the costs and benefits of current speed limits and of more or less rigorous enforcement of those limits, and have asked that I consider costs as well as benefits of enforcing speed limits. I’m going to give some back-of-the-envelope numbers in an effort to inform the debate. The total economic cost of road crashes in Australia is at least $20 billion per year (This BTRE study gives direct costs of $15 billion for 1996, but an analysis based on economic welfare theory would include substantial costs (for example, in the BTRE analysis, there is zero cost in the case when a retired person is killed instantly in a crash).

The main cost of speeding restrictions is that of additional travel time. Assuming that complete abolition of speed limits would reduce average travel time by 20 per cent (very generous, since a lot of travel is on congested roads where the speed limit isn’t a constraint), and taking the BTRE estimate that value of reduced travel time is $10/hour, the total travel time cost of speed limits is around $5 billion per year.

It’s pretty obvious that abolishing speed limits altogether would raise road death rates by more than 25 per cent (the NT is the only jurisdiction in Australia without speed limits and its death rates are several times higher than in the rest of the country, though there are other factors as well as speed in play). The same argument applies, essentially pro-rata to more limited relaxation of limits. It gets harder to justify further reductions as the limit gets lower, but I’d say there’s a pretty good case for more general application of 50k limits in suburban areas to cover everything except main roads.

Turning to other costs and benefits, the survey evidence I’ve seen suggests that the disutility imposed by speeders on other drivers (particularly through tailgating, forcing their way back into traffic etc) is at least as large as any psychic benefits gained by the speeders.

Finally, on the enforcement issue, one point that has secured a lot of agreement is that variance in speed is as much of a problem as speed itself. On the assumption that there are a large number of law-abiding drivers travelling at or near the legal limit, and vehicles such as trucks that cannot safely exceed the limit, this provides a strong argument for both rigorous enforcement and tight tolerances. It also implies that excessively slow driving should be penalised.

How much is water worth in the US ?

John Quiggin1 Comment

This NYT story shows the similarity between Australia’s water problems and those of the Western US. There as here, rights originally allocated to irrigators for little or nothing are being bought back at substantially higher values.

The San Diego district will pay market prices for the water, or about $258 per acre-foot at the outset. The farmers typically pay only delivery fees for their water, which amount to $15 or $20 per acre-foot.

If my arithmetic is correct, the market price quoted here is about $A300/ML while the farm delivery price is around $A20/ML. An acre-foot (enough to put a foot of water on an acre of land) is about 1.2 ML (a megalitre enough to put 10cm of water on a hectare of land) and in purchasing-power-parity terms, an Australian dollar is worth about $US0.70 which, coincidentally, is close to the current market exchange rate.