Nasty easter eggs

I’ve been trying to resolve my comment spam problems, including false positives, but without much success, as you can see from the recent comments. Please bear with me, and put up plenty of real comments to push these guys off the front page, while I try to delete them once and for all.

Howard channels Whitlam, part 2

The increasingly centralist tendencies of the Howard government have been obvious for a while. Howard’s latest statement that Australia would be better off without state governments is only a bit stronger than what he said last year. As I pointed out at the time, both Whitlam and Howard are wrong on this, and the whole idea of regional governments won’t stand up to even cursory scrutiny.

What makes the statements more significant now is the fact that Howard has control of the Senate and can therefore repudiate the GST deal had, more generally, do whatever he likes. It will be interesting to see whether professed defenders of federalism, like the National Party, stand up to him on this.

Bankruptcy again

I’ve been reading Todd Zywicki’s paper An Economic Analysis Of The Consumer Bankruptcy Crisis (1Mb PDF). Zywicki’s approach is to look at aggregate time-series data on a set of suggested causes of rising bankruptcy, suggest that the pattern for these time-series doesn’t match the observed increase in bankruptcy, The main point is, as he says,

Static or declining variables, such as unemployment, divorce, or health care costs, cannot explain a variable that is increasing in value, such as bankruptcy filing rates.

Hence, he says, the ‘traditional model’ of bankruptcy as a “last resort” outcome of financial distress is no longer valid. He therefore falls back on the residual hypothesis of changes in consumer behavior in the form of an increased willingness to resort to bankruptcy, possibly due to the rise of impersonal modes of lending and the decline of moral sanctions. Zywicki doesn’t mention the other obvious residual possibility: an exogenous increase in willingness to lend to high-risk borrowers, but symmetry suggests he ought to.

I don’t think Zywicki’s is the ideal research strategy (see below) but it has the advantage that anyone can play, armed only with Google. So let me point to a variable that has risen in the right way and could reasonably be expected to lead to rising rates of bankruptcy. That variable is the volatility of individual income, or, in simpler terms, the economic risk faced by the average person.

What this means is that the bankruptcy ‘crisis’ is an outcome of the general changes in the US economy over the past 30 years or so. If it weren’t for expanded credit and increased reliance on bankruptcy, the distress caused by growing inequality and income volatility would have been substantially greater. If bankruptcy laws are tightened, distress will increase. To put it simply, bankruptcy is the lesser of two evils.
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Polls and markets

For those interested in this continuing debate, Andrew Leigh and Justin Wolfers have a new paper (PDF) comparing the performance of polls and betting markets in predicting election outcomes.

For what it’s worth, I think the two are about equally good, at least when an election is about to happen. There’s no indication that markets have significant private information: for example, they react, and sometimes overreact to ‘news’ that turns out, in retrospect, to be misleading. But most of the time, they provide a pretty good summary of available public information.

This is not too surprising to me. Although I’m strongly of the view that financial markets are not fully efficient in the semi-strong sense of making optimal use of all public information, the violations are subtle (but important!). Tests of election markets simply don’t have the resolution to pick up subtle violations, as opposed to occasional single-point observations, for example, the collapse of the Bush bet when the first exit polls on election day suggested a Kerry win.

Draft submission to Parliamentary inquiry

At the suggestion of Andrew Bartlett, I’m planning on putting in a submission to the Parliamentary Electoral Matters Committee, which is currently conducting an inquiry into the electoral laws, as it does after every election.

The topic is the possibility that the Government may change the Electoral Act to require websites containing electoral material to identify a person authorising its content.

Comments would be much appreciated.
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A bit more on education

One interesting piece of information in the education debate surfaced yesterday. This was a study of disadvantaged kids undertaken by ACER for the Smith Family, which found that, on average, they underestimated the level of education required for the jobs they hoped to get and, correspondingly, planned to finish education too early. This was true both for boys (who mostly wanted trade jobs) and for girls (who were hoping for professional jobs). You can get the whole study here (PDF).

On the whole, this does not look good for Howard’s suggestion that leaving school at year 10 is a sensible idea. Of course, there are exceptions. If you have a job lined up, with a skilled trade apprenticeship and TAFE entry, this makes sense. But in this rare case, you probably don’t need the PM’s advice. The actual labour market experience, and educational attainment, of people who leave school in Year 10 is, in general, far less favorable than this.

Conversely, if the idea that parents are too concerned with encouraging their kids to go university had any basis, it would presumably be reflected in a decline in the wage premium for university graduates. No such premium decline was observed during the 1990s, despite the huge expansion in graduate numbers. Now that the number of domestic students has been held fixed for nearly a decade, it is likely that the premium is rising.