Economic policy for the 21st Century

That was the title for the John Freebairn lecture on public policy I gave in Melbourne on Monday (Sorry for not giving any advance notice, I’ve been a bit swamped). Having offered that ambitious title, I decided to confine myself to the subset of policy issues surrounding the knowledge economy, and how it renders the reform agenda of the 1980s obsolete or irrelevant.

I believe there will be a vodcast, but in the meantime here are Mac Keynote and PDF versions of the slides.

18 thoughts on “Economic policy for the 21st Century

  1. I managed to get to the talk. I may have been imagining it, but it seemed that there were more people in the foyer for the refreshments afterwards than there had been in the auditorium for the lecture proper (there were definitely spare seats, despite it ending up fully booked). At any rate, I did manage to get something to eat, though I did miss out on the party pies I saw some people with.

    More seriously, I didn’t manage to ask the following question I had ready:-

    More as history of economics than as economic history, it has long struck me that one of the economic consequences of Mr. Keynes was the derailing or sidelining of the lines of enquiry being pursued by Pigou and his school, particularly externalities and the Real Balance Effect (as opposed to psychologically driven Wealth Effects). What role you see for such things today?

    I also noticed that the talk’s contents either didn’t cover or left unstated the objectives that its proposals were meant to further; that may just have been my own misreading.

    I did notice something that I may email JQ about separately, as it might be too personal to bring out here.

  2. Why are the cable bundles in the slides apparently having bad sex?

    Anecdote on broadband: I recently bought a house in Perpignan in southern France. Asking about ADSL, I was told it’s been discontinued in my residential street. For new subscribers, it was optical fibre and 100mbs or nothing.

    The French success story is curious. The way I reconstruct it, there were at least two key factors.
    1. The success and then failure of the Minitel taught the French élite to accept flexibility and evolution in the IT revolution, so they signed up without reservation to the Brussels message of unbundling and competition in telecoms.
    2. Many French cities splurged in the 1980s on municipal cable TV networks, partly to allow them to discourage Arab immigrants from watching Arabic satellite TV. These networks were a huge waste of money – but it was later easy to repurpose the cable runs for optical fibre.

  3. What a great presentation, JQ. You could re-envigerate the nation for the next 50 years addressing the many issues raised there.

    One item I would add, or maybe I missed it, is that our national urban development plan has become unsustainably expansive and resource wasteful.

    In the seventies I attended a group called the Scientific Film Society. There was one particular film that meant a lot to me was about the marsh arabs of the Mesopotamian Marshes. Before their habitat was destroyed by Saddam Hussein these people gad a beautiful life style fully in harmony with their environment. I have been a hand held computer user since their first arrival with the Sharp hand held computer, and gave in my mind sedn the Marsh Arab existence in conjunction with global creativity inclusion through computers as being an ideal life style. Not for everyone of course, but it is an ideal model of minimal human environmental impact

  4. …..that I revere. Our community model has become far too rigid, unsustainably so, but I do not see the understanding in our government structures to recognise the situation or to affect a change of direction.

    The primary problem, as I see it, lays in what I call the Command Generation. The people with the greatest influence and the power to affect change are mostly Baby Boomers who manage structures primarily for the their personal economic and memory comfort.

  5. I really think JQ tgat you would do well to keep this subject up as a recurring theme of the nature of Brian Bahnish’s Climate Clippings. This theme is, after all, the real business ahead of us.

  6. Shorter Strocchi: 21st Century economic policy will have to be seriously Georgist. That is, a revolution in the economy will actually provoke a healthy reaction in policy.

    I whole-heartedly agree with the premise of the talk, that the liberal consensus on “reform” is very much anchored in the late seventies-early eighties “economic rationalist” agenda, which was pretty much exhausted by the early nineties. From a much less learned perspective Ive made the same point, in a vague hand-wavy gestural way, about the exhaustion of post-modern liberalism in general, in economics, ethnic, esthetic, estrogenic, epistemic and ethical aspects.

    Where I disagree with Pr Q is that I don’t think much refuge can be sought in the “knowledge economy”. Humans can only know so much, even when empowered by social media. The robot, for you really only need one to accumulate and distribute all symbolic knowledge, is going to make most tertiary education redundant. Krugman has been making this point for two decades.

    My solution to the exhaustion of reformatory mode is to use reverse and over-drive, that is mix in a certain amount of reactionary and revolutionary change.

    Instrumental revolution: embrace robotics in order to hasten the period of plenty.
    Institutional reaction: pick over our cultural traditions to see what can be found to bulwark us against the tsunami of anomie that threatens to swamp us once the last regular job disappears.

  7. @P.M.Lawrence

    Externalities are a big deal and have always been recognised as Pigou’s main legacy. The real balance effect is a historical detour – people who want to reach the same conclusion would do so these days via rational expectations and New Classical Economics.

  8. @Jack Strocchi
    Two predictions in that Krugman article you referenced I find interesting. The first is the idea that vehicle usage on roads will move to a share model. That seems possible if the promise of battery powered cars proves disappointing and/or the growth of urban populations continue to increase road clogging beyond tolerance.

    The other relates to the value of tertiary education. Krugman is right. A degree today is becoming ever more overrated in relation to its acquisition cost. Here is the paradox: as degrees become more costly, they also become more plentiful – the exact reverse of what applies to nearly all other commodities. Mass production is supposed to result in lower cost of purchase. But tell that to the vice-chancellors. Consumers of higher-ed are clearly being gouged here.

    Particularly as (intuition tells us) in many cases, possibly in most cases, an “uneducated” tradie earns more than a typical university graduate. (And intuition has a strange habit of being often more astute than, for example, government statistics, newspaper beatups, or similar urban myths.)

    The penny, Krugman argues (or argued, in the the article: 1996), will surely drop. Where then, the tertiary sector?

  9. John,
    What were you diagnosing as problems and advocating as solutions in the early 1980s?

  10. John Quiggin :
    @P.M.Lawrence
    Externalities are a big deal and have always been recognised as Pigou’s main legacy. The real balance effect is a historical detour – people who want to reach the same conclusion would do so these days via rational expectations and New Classical Economics.

    I meant the question from a policy point of view, not as a search into economic insights except as means to the end of policy construction. So, do you see any current or impending roles for tools derived or derivable from the Pigou school’s toolkit? For this purpose it does not matter whether they can be obtained from another view of things, any more than Prolemaic astronomy gave different results than Copernican ones once the latter were refined; my fairly strong suspicion is that people have had their attention drawn away from the Pigou school’s toolkit these days and, with some significant exceptions, ever since Keynes’s work.

    For what it’s worth, I suspect that externalities and what to do about them are currently highly relevant to the unemployment issue, and that the Real Balance Effect could well come into its own further down the track, as an automatic stabiliser as, when and if appropriate institutional changes have been made and bedded down. But I didn’t want to prejudice your take on this, or to ask one of those “questions” that is mostly telling the lecturer what the “questioner” thinks (which is also why I don’t want to give detail to back my suspicions just here, though I have brought some of them out on others of your comment threads).

  11. @historyintime

    In 1980, I saw the failure of Keynesian demand management as creating room for a socialist response. Obviously, that was way off the mark, as became pretty obvious over the subsequent decade. You live and learn.

  12. The slides set out JQ’s questions but not answers, so readers can only comment on the former. I missed the matter of the future of the traded sector of the economy as against the public and informal sectors: in slogan terms, the capitalist, socialist, and communist parts. A view from 20,000 feet suggests that the growth should occur in the latter two. For exemple, you would expect high growth in health, education, personal services, and culture, where socialism and communism (defined simply as sharing, with varied degrees of expected reciprocity and social pressures) to do well.

  13. @John Quiggin

    I don’t see any firm statistics in the ABC article or being linked to elsewhere. Have I missed something?

    It’s one thing to compare university graduates to those who went to year 12 and another things to compare university students to tradesmen. Am I the only person who knows all year 12 educated people do not become tradesmen? Some become unemployed, some become burger flippers and so on.

    Where are the actual statistics about trades earnings versus university graduates earnings?

  14. I wish somebody could reduce the current economic problem to a twitter feed, or less.

    Personally, I am sure the core problem in about 1980 was simply that ‘Government had gotten too large’.

    But now?

  15. I was most interested in the suggestion that we handled R&D better pre-1980 than now. I think that this applied to R&D for agriculture. The levy-matched-by-taxpayer model encouraged farming industry groups (in come cases) to move to the highest levy possible, 0.005 of production, meaning 1% of production went into R&D for the production and distribution and early stage processing sectors. Farmer groups advised on R&D needs and CSIRO, State ag. depts. and universities mostly did relevant work, short and long term, that meant Aust. farmers’ productivity increased faster than secondary industry, both because of take up of local R&D (through State dept. extension services) and capability to take up international R&D (mostly through ag. companies’ products and services). Not perfect, but it worked a lot better in R&D conduct, delivery and take up than today’s privatised and self-shrunk ‘grower-owned businesses’.

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