22 thoughts on “Monday Message Board

  1. Macroeconomics uses the geo-politically defined and empirically observable notion of ‘a country’ as a unit of analysis. The links between ‘countries’ is treated via the trade and capital accounts. The latter includes ‘direct foreign investment’ (acquisition of physical assets) and portfolio investment. Movements of people across country are not formally included in macroeconomic models but enter analyses via population growth and related variables.

    Much of development economics groups countries into income categories. One contributor to this area, the late Canadian economist Stephen Hymer, coined the notion of ‘uneven development’. [1]

    The study of ‘uneven development’ within countries has become an empirical research project in recent years. Unfortunately, the focus is on macroeconomic variables rather than Hymer’s notion of uneven development and its causes.

    Regarding NSW:

    ” the CBD, the inner northern suburbs and the Ryde district – delivered 24 per cent of Australia’s gross domestic product growth last financial year.”

    Source: “Sydney job seekers have far less competition than in the rest of NSW”, smh, 27March 2017.

    [1], Hymer was one author whose work inspired me for interpreting ‘technological advantage’ of multinational firms in a specific way for a theoretical GE model of a global economy without geo-politically countries but a finite number of local economies (defined in terms of technological knowledge available and locally available commodities and local consumers such that each local economy has at least 1 consumer and 2 commodities available in 1 location, involving at least one production technology). After I had finished this model of a partially segmented economy with multinational producers, I realised the structure and the associated wealth transfers apply potentially also within ‘countries’ (each country consisting of at least one local economy – potentially many). This is the reason for me being interested in the empirical research I’ve referred to.

    Anyone interested in this area may wish to look at the economic analysis for the planned 2nd airport in the Sydney region, Badgery’s Creek. Taking the numbers in this study (produced by one of the big accounting firms) at face value, the greatest share of benefits (monetary) go to the City (an area not exposed to noise and air pollution).

  2. I think you will find that macroeconomic analysis more specifically refers to an economy rather than a country. For example, the fourth largest economy in the world today is the State of California in the USA. That the Sydney CBD, and inner North plus Ryde, could account for almost a quarter of the GDP (presumably in money terms) is not surprising. Macroeconomics has its roots in the British economy of the 19th Century, with some links to the economy of Paris in the 18th Century. Income and expenditure analysis certainly began from the Circular Flow of Income model, set up and based on the physiocratic economic table. With the binding assumption of full employment equilibrium, central to macroeconomic analysis until the 1990s, GDP was estimated largely on Consumption expenditure. In fact, an underlying assumption was that all income was either, spent, or saved. This consumption bias is what hamstrings macroeconomic policy today. With hoarding, an extreme form of long term saving, reducing the power of consumption spending; the traditional policy responses of taxation, subsidy and interest rate manipulation became ineffective. Add to that the actions of multinationals in channeling investment (mainly portfolio investments) into tax havens and low tax regimes; and you have the receipt for stagnation now afflicting major economies (like the Euro zone).
    When the paper economy becomes more important than the real economy, at least to surplus units in an economy, then cities like Sydney, London, New York, Tokyo, Shanghai and Frankfurt dominate the GDP growth statistics. This concentration of investment can make the very concept of a country economically invalid. Take Britain for example, that is made up of southern England, northern England, middle England, Scotland, Wales and Northern Ireland (and even here I am aggregating sub-economies like rural areas). Now we know that London and a large part of southern England are the dominant growth areas for Britain’s GDP. Yet the same could be said for the USA (California, New York) and Japan (Tokyo, Osaka). the only time non-urban parts, of an economy, dominate is during, either, mining booms, or, food shortages. Empirical research can be misleading if it aggregates away regional differences. Multinational producers may dominate in urban areas and in mining regions, but macroeconomic analysis must allow for diversity if it wishes to be relevant. In more recent times, government macroeconomic actions have increasingly being held to a higher standard than mere Money GDP growth.

  3. This arena is too technically complex for a man of my (lack of) formal economic learning to enter. I shouldn’t comment but I will, lol. Two statements, one from E.G. and one from G.M. caught my eye. To quote;

    “the CBD, the inner northern suburbs and the Ryde district – delivered 24 per cent of Australia’s gross domestic product growth last financial year.” – E.G.

    “When the paper economy becomes more important than the real economy, at least to surplus units in an economy, then cities like Sydney, London, New York, Tokyo, Shanghai and Frankfurt dominate the GDP growth statistics.” – G.M.

    I think these comments say, or at least imply, more than a little about an economy which is over-financialised. Therein lies one of our most serious problems with the real extant economy. I would be interested in any thoughts, from qualified people, on this issue. I mean if it is not construed as off topic.

  4. Ikon,
    While Frankfurt is indeed an important node in the international finance network, the financial activities are relatively unimportant in the German national economy and the state in which Frankfurt is located, Hesse, is also not the main contributor to the national GDP. Furthermore, given its geographic location, Frankfurt is not only important for finance and insurance but also for air, train, road and water transport.

    You may wish to google German States by GDP. For the year 2015 this data source also includes GDP per capita for each state. Note the top GDP per capita for this year is recorded for the city state of Hamburg – the major port for international trade in physical goods. Hamburg also has a relatively strong finance sector – trade finance being among the elements.

    In contrast to Sydney and London, the real estate prices in Frankfurt are comparable to most larger cities (> 500,000) and much lower than those in Munich (Bavaria).

    I don’t know details for Tokyo and Shanghai.

  5. @Ernestine Gross

    Which makes me think that Frankfurt makes (or at least delivers) material goods too whereas the Sydney CBD, the inner northern suburbs and the Ryde district deliver only intangible services and proportion of these are probably parasitic rather than productive anyway.

    Did “the CBD, the inner northern suburbs and the Ryde district – deliver 24 per cent of Australia’s gross domestic product growth last financial year” without making or producing a single tangible thing? That’s interesting to contemplate if it’s true. I know (some) services can and do have a worth. I question the worth of a proportion of the services in the Sydney area (and not just Sydney). A big proportion of the financial services are parasitic. The Real Estate offices would be making inflated commissions from inflated house prices. This all counts as GDP I guess but this kind of churn does not produce much if anything of real use. Its worth is questionable.

  6. The problem with using market values is that market values reflect the relative preferences of the wealthy.

    [or, rather: market values are mean preferences weighted by disposable income [where “disposable” shifts depending on how high up the hierarchy-of-need the good/service is]; income disparity is so high in most areas that the weights assigned to the preferences of the less-than-wealthy can be ignored]

    [also: finance services don’t actually produce anything; finance profits come entirely from renting out capital, and like all rent represents pure gatekeeping. But you can’t exclude them from a less-than-whole-economy [whole-world] analysis of real incomes because they do represent money being transferred into or out of an area. Guess you just have to remember you need different statistics for different purposes, “how wealthy people are” vs “how much benefit an economy produces”.]

  7. “mean preferences weighted by disposable income”

    What about corporations?

    If cross-sectional then it would be disposable income plus borrowing capacity.

    If longitudinal then either no bankruptcy assumption or the opposite.

    “Guess you just have to remember you need different statistics for different purposes, …” Fully concur; often forgotten in various situations and by various users of statistics.

  8. It’s time for a group confession. Who among you voted Labor in 2004, either directly or by preference, in the hope that Mark Latham would become Prime Minister?

    [raises hand sheepishly]

  9. @Smith

    Me too, as can be checked by a search of the blog. As a slight defence, he wasn’t then the embittered enemy of all that he became after the defeat. But the potential was always there, and should have been evident.

  10. I don’t think that this essentialist idea of character should be taken that seriously. Sure, it’s wired-in to our psychology and at times seems to be raison d’être of mass and social media. This means that was a good evolved heuristic for handling social situation but doesn’t make it fundamental truth. It is also means it is likely to subsume our thinking.

    A more useful way of thinking about it is that different people have different and evolving characters, which develop in response to their life inputs. Latham seems to me – in retrospect, and maybe a bit at the time – a little lightweight as PM material though he did have some quite positive attributes as well. You might say that this descent into bitterness (or bitchiness) represents a character fault but things could have gone quite differently.

  11. We have a fatal attraction for egotistic charismatic politicians, then are surprised by what we chose.

  12. @John Quiggin

    The barely controlled aggression and immense chip on the shoulder were plainly evident at the time.

    But he wasn’t John Howard and that was all that mattered at the time.

  13. @Jim Birch

    “You might say that this descent into bitterness (or bitchiness) represents a character fault but things could have gone quite differently.”

    Vulnerabilities is perhaps another way of describing character faults and I’d say that Latham has lots of vulnerabilities, for example his pancreatitis.

    There is very little research available but it is possible that pancreatitis is characteristic of a certain type of personality and is manifested when the person is not coping.

    I agree with you that the existentialist view of character is not adequate to explain behaviour and outcomes, and that personality continuously evolves on the basis of, and in response to the environment and ongoing experiences. And things could have gone different for Latham as leader but it would have taken a functional workplace and a supportive society at the least, for this to happen and that was not the case with the Labor party of the time – I don’t know that it is any better now but one would hope so.

    I always found him to be way too neo-liberal; in particular his insistence that working class people should aspire and climb the ladder to wealth rather than aspire to increase their wealth in other areas that make people happy. His idea about subsidising share ownership was a bit silly I thought.

  14. Former NSW mines minister Ian Macdonald has been has been found guilty of unfairly granting a valuable mining licence to his mate John Maitland, who used to head the CFMEU’s coal mining division. Maitland was also convicted.

    From one news site: “Crown prosecutor Michael McHugh SC told the jury Maitland was from the same Labor faction as Macdonald and had supported his preselection to stand for the party in the NSW upper house.”

    That would be the Left faction which funnily enough is the same faction that McHugh’s mother, the former federal MP and Keating government minister Jeannette McHugh was a very prominent member of (and let me be clear, no one has ever accused her of being corrupt). McHugh’s father is the former High Court judge Michael McHugh who last year wrote the report on greyhound racing that ultimately destroyed Mike Baird’s political career.

    A lot of people live in Sydney, but in many respects it is a very small town.

  15. As a resident of Singleton in the Hunter Valley at the time I well remember the disbelief surrounding the Macdonald/Maitland ‘construct’ of a training mine to ‘disguise’ their joint criminal enterprise. It may have been the straw that broke the camel’s back and worth asking what the mining czar planned by way of a ‘training wage’. Still the lefty minister, university
    graduate and all, got by and went on to link with Eddie Obeid in another criminal enterprise yet to go to court. I only mention university to distinguish Macdonald from the likes of Rex Jackson prisons minister in the Wran era. Rex didn’t need a degree to determine which of his charges could afford a backhander for early release.

  16. @pablo

    Rex was also from the Left. Of course there has been plenty of corruption from the Labor Right (Obeid) and the Liberals. That’s the thing about the Rum Corps. It crosses party boundaries, ideological boundaries and social boundaries without a care in the world. No NSW Greens politician has yet been found to be corrupt, as far as I am aware, but it can only be a matter of time.

  17. The Senate has thrown out the government’s proposed s18C amendments. Brandis upset.

  18. @Mark

    Hilarious. The take away messages from the makers? Essentially these.

    “Nuclear power is profitable, that’s why we need big subsidies.”

    “If the project fails, it’s someone else’s fault.”

    “There’s nothing wrong with the design, the contractors just don’t know how to build it.”

  19. Two alternative ‘resource allocation mechanisms’, prices or quantities, are elementary knowledge to economists. On the face of it APRA, a policy arm of economic management in Australia, has chosen quantity restrictions as a policy mechanism to manage bank lending for real estate (‘mortgage lending’). That is, the proportion of interest only mortgage loans is to be restricted to 30% of all mortgage lending.

    In the misty world of the ‘free markets doctrine’, the ‘price mechanism’ is good and the quantity mechanism is bad. In this world of woolly words, nothing better can be expected from a red-tape creating regulator such as APRA than to choose a quantity mechanism rather than a price mechanism.

    But what is APRA supposed to do, given that the ‘price mechanism’ has been skewed by negative gearing and capital gains tax concessions in the asset market, called real estate? (Setting aside the fundamental problem of there not being a natural limit to debt creation; ie Radner’s theoretical general equilibrium model of a private ownership sequence economy with commodities and financial securities from the mid-1970s).

    On the aggregate level, APRA’s decision can be expected to reduce the demand for loans, which is motivated by capital gains, and therefore reduce debt driven speculative real estate price inflation as well as systemic risk of banks. But this measure does not remove the policy based disadvantage faced by potential owner occupiers compared to investors, magnified by wage growth restraints.

    Its more than misty, it has become murky.

    John Hewson published an article in the smh in which he argues that economics is particularly important now and he laments the decline of students of economics as well as the standing of economists in public and private work places. John Quiggin has published posts on this and related topics for quite some time.

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