Month: November 2007

International comparisons

John Quiggin32 Comments

Not that long ago, international comparisons of income levels and so on were always done using market exchange rates. If this were still the standard practice, there would be some surprising news to report. On an exchange rate basis, Australia has a higher GDP per person than does the US (I’d guess the same would be true of more relevant measures like national income per person, though the gap would be a bit smaller because of our greater indebtedness).

Currently US GDP per person is around $US 44000. Australia’s is about $A51 300, which at a market exchange rate of 0.93 converts to about $US47700.

Before we break out the champagne, I’ll point out that these exchange rate comparisons aren’t really useful – this is obvious given that the $US/$a rate was heading for $0.50 not long ago, and is now headng for parity . Standard practice these days is to use a “Purchasing Power Parity” measure, based on the estimated relative cost of a standard bundle of goods and services. The estimated $UA/$A rate is around 0.70 which leaves us a fair way behind the US.

Although PPP estimates are better than those based on market exchange rates, they shouldn’t be treated as exact. They are statistical estimates, with a large margin of error, and the underlying economic theory (revealed preference) implies that even with perfect data, there is always a range of possible values for index numbers like this. Typical international comparisons should be taken to have a margin of error of 10 to 20 per cent.

In passing, a useful tip for students of the economy. If you want a round number estimate of the magnitude of any economic variable, you can approximate GDP as $1 trillion, population as 20 million, and income per person as $50 000. These will be accurate to within 10 per cent for another year or two.

Update In comments, Matthew Turner reminds me that he’s been making this point for years. I think I came up with it independently, but he was certainly first. Interestingly, Matthew calculates that the critical value for the euro/$ exchange rate, at which euro GDP per person exceeds US is $1.46. Yesterday, it hit 1.457.

Will Labor change it all? Should they?

John Quiggin26 Comments

A “gaffe” in Australian politics normally consists of speaking the truth when it is politically inconvenient. So, are Peter Garrett’s remarks that Labor would “change it all” after the election a “gaffe” in this sense, as suggested by the reporter in question, a joke, as Garrett said, or something in between.

My view is “something in between”. That is, there is no secret plan to junk Labor’s promises, but a lot of people wish there was.

In most elections, parties make promises, to secure electoral support, that they would rather not keep, either because they regard them as bad public policy or because they reward interest groups that are not seen as actually deserving such rewards. This election has seen plenty of that from both sides, with the biggest single example being Labor’s decision to match Howard’s tax cuts. Most Labor supporters would regard this as a bad promise in several ways. First, large advance commitments of this kind are bad macroeconomic policies. Second, it would be better to allocate more money to services like health and education. Finally, the tax cuts mostly reward the upper income groups that are the natural constituency of the Liberals.

Following the last two changes of Federal government, the incoming party fabricated a crisis and junked their inconvenient (“non-core”) promises. Much though I dislike a lot of the (com)promises Rudd has made, I hope Labor does not do the same. Democratic processes are more important then getting the best policy outcome in the short term.

Over the fold is an excerpt from a Fin article I wrote in September, suggesting that, despite the “me-too” nature of the campaign, the outcome will make a difference. I think the analysis is still right, except that the ferocity of the government’s anti-union campaign has shifted the ground a bit. If the government gets back in, even with a narrow majority, they will clearly feel justified in pushing through their maximal anti-union agenda. Conversely, the unions now know they have to stick with Rudd come what may, and he has an obvious interest in demonstrating his supremacy. So I suspect he’ll give them nothing more than the minimal changes that have been promised.
Read More »

Weekend reflections

John Quiggin48 Comments

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

The cohort effect

John Quiggin74 Comments

Lots of commentators have been surprised by the magnitude of the swing against the government in the opinion polls. Given that the economy is going well, and that on most issues divisions between the parties are not all that sharp, why should people change their votes? There are a number of potential reasons, including the increased salience of climate change and the fact that Rudd is a more attractive leader than any of his recent predecessors.

But one fact that doesn’t get so much attention is that much of the swing to Labor is coming from changes in the population of voters, rather than in changes of mind among voters. It’s well known that the Liberals have more support among older voters, and that Labor gets strong support from young voters and recent immigrants. But no-one seems to have drawn the obvious implication. If no-one changes their mind between elections, Labor gets an automatic increase in support as young people and migrants are enfranchised, while Liberal voters are more likely to pass away through old age (I’m not sure about Australians who move overseas and stop voting as a result).

How big is this swing? My rough guess is that we’ve added a million new voters since the last election and lost around half a million. If we assume two-thirds of the new voters go for Labor, and two-thirds of the departed supported the Liberals, that leaves the Liberal vote unchanged, but adds half a million votes for Labor, equal to a bit over 4 per cent of the total number of voters. Since the number of voters has increased, that should be reflected in, roughly, an increase of 2 percentage points in Labor’s share of the 2PP vote, and a decrease of 2 percentage points in the Liberals.

Read More »

Half a metaphor

John Quiggin17 Comments

I’m writing a piece (in the form of a debate with Jason Potts) on the Internet and non-market innovation (open source, blogs, wikis and Web 2.0 more generally) and the editors asked us to say something about digital literacy. I’ve never paid much attention to this metaphor, maybe because of excessive exposure to its predecessor, computer literacy.

It strikes me though, that discussion of digital literacy focuses almost entirely on reading (how to navigate the Web, find reliable information and so on). The things I’m talking about are forms of writing.

Thinking about the rise of text literacy, the distinction tends to be blurred a bit, because most (not all) people who learn to read also learn to write. Still, there’s plenty of discussion of the importance of writing to groups (women, working people) traditionally excluded from written culture.

So, I’m surprised at the neglect of this point in relation to digital literacy, especially because the Internet has done so much to break down the asymmetry between a small group of writers and a large group of readers that characterises most communications media. Having said this, I’m sure this point has been made many times before, and I invite readers to write in with good references.

As an aside, “computer literacy” programs in the late 70s and early 80s had, if anything, the opposite problem. Lots of emphasis on how to code in BASIC and very little appreciation of the potential for computers as tools for general use.