Our political class: the National Party

There are lots of things going wrong with Australian government, resulting, for example in its failure to deal with climate change. One of these things is the membership of our political class. The problems are widespread but I’ll start with the National Party. The name itself is a problem, dating back to the brief delusion, encapsulated by the Joh for Canberra campaign in the 1980s, that the Country Party (as it then was) could become the dominant rightwing party. To the extent this idea had any substance, it was based on the success of various Country Party spivs in securing seats in the Gold and Sunshine Coasts.

What we now have is the process in reverse – a string of upper class spivs posing as salt of the earth bushies, and being elected to rural seats. To take just a few examples:

Barnaby Joyce: an accountant, educated at Riverview

David Littleproud: a hereditary politician and agribusiness banker

Matt Canavan: born on the Gold Coast, UQ education, previously an executive at KPMG and an economist at the Productivity Commission

Bridget McKenzie: allegedly Bendigo-based Minister for Decentralisation, primary residence in the Melbourne suburb of Elwood

The current beleaguered leader, Michael McCormack will probably turn out to be the last National leader who could claim any real association with the land

Coming up: The Socialist Left

Baristas and coal miners: apples and oranges

ABC Fact Check has a piece looking at a claim by the Young Greens that “making lattes provides more Australian jobs than the entire coal industry.” The detail of the tweet included the claim that there were 86000 barista jobs compared to 52000 in the coal mining industry

The Fact Check Unit observed that the quoted firgure is for total employment in the cafe industry, not just barista. By comparing an estimate of the number of baristas to total employment in coal mining, the Fact Check Unit concludes that the claim is Incorrect.

There is an apples and oranges problem here. There are two reasonable ways to do this comparison

(a) Treat “barista” as shorthand for “someone who works in a coffee shop”. Then compare employment in the coffee shop sector, including “permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry” with employment in the coal mining sector, including managerial, professional and clerical staff, general trades workers and others.

(b) Define “baristas” to refer to the occupation of making coffee, and “coal miners” to refer to the occupation of “Drillers, Miners and Shot Firers”, that is, people whose occupation is extracting coal from the ground. Based on the proportion for mining as a whole, the latter is about 20 per cent of total employment in the mining industry.


Either approach, applied consistently, would imply that there are more baristas than coal miners. The fact check uses the first, broader definition for miners and the second narrower one for baristas. This is an apples and oranges comparison, and should be corrected.

Post materialism liberal enviro elitism

That’s how a Labor partisan on Twitter described my criticism in Independent Australia of Labor’s strategy of avoiding any policy difference with the Morrison government, and shutting down all discussion of the climate catastrophe until they get around to announcing a policy for the 2022 election. The one exception I noted (and the one that incited this response) was support for the coal industry. As I noted

Rather than offer a climate policy in response to the catastrophic bushfires of the last summer, Labor took the view that ‘the immediate focus should be on firefighters battling the blazes, people at risk and those grieving lost loved ones’. While scoring points on scandals like the sports rorts and cynically exploiting of divisions within the Government, Labor has put forward hardly a word of criticism of the Morrison Government’s policy position, let alone any alternative.

There have, however, been a couple of exceptions to this pattern of near-invisibility. First, Labor has made it clear that coal mining is here to stay and that the future of coal-fired power will be left to “the market”. Second, while displaying intense solicitude for those voters who switched their support to Pauline Hanson’s One Nation, Labor has engaged in co-ordinated and ferocious attacks on the Greens.

My article mainly focuses on the point that Labor can’t assume that it will have a reliable majority in Parliament, and therefore shouldn’t engage in partisan warfare with Greens and independents with whom deals will need to be made in future. But I’d like to discuss the whole “wait until 2022” thing a bit more.

No one expects an Opposition party to have a detailed election program at all times, and it’s unsurprising that Labor would want to reconsider some issues in the light of the 2019 loss. But I’ve never seen anything like the argument coming out of the Labor party that, since they aren’t in government, they shouldn’t be expected to have policies on anything, and shouldn’t vote against regressive and disastrous government policies. Even more striking is the corollary that the only decent thing to do about the climate disaster is to sit quietly and then vote for whatever policy Labor comes up with in two years time.

Maybe I was spoiled by several years in which that notoriously post materialist liberal enviro elitist, Bill Shorten, actually proposed policy, but I can’t remember any Opposition, from either side of politics, being as lame as this one. It’s fortunate, perhaps, the Morrison government is so incoherent and incompetent that it effectively functions as its own opposition.

Review of Economics in Two Lessons

Here’s a review of Economics in Two Lessons, by Nikki Dumbrell in the Australian Journal of Agricultural and Resource Economics. It’s the first in an academic journal, and captures all the main points nicely.

Free market economics (or ‘One Lesson Economics’, Hazlitt 1946) refers to the idea that markets, left alone with very minimal intervention, will achieve equilibrium and as such allocate resources to their most valued use. This idea is persistent. Indeed, famous schools of economic thought (and individuals’ careers) are built on this idea. Economics in Two Lessons, by Professor John Quiggin (Distinguished Fellow of the Australasian Agricultural and Resource Economics Society) recognises the importance of One Lesson economics but challenges the completeness of this way of thinking. He draws readers’ attention to where and how markets might be imperfect or might not exist and asks readers to consider how One Lesson economics might perform in these scenarios. The short answer is ‘poorly‘.

To tease out the shortfall of One Lesson economics and the importance of Two Lesson economics, the central theme of the book is opportunity costs. ‘The opportunity cost of anything of value is what you have to give up in order to get it‘ (p.3). The book is divided into two parts: Lesson One and Lesson Two. Each part includes an introduction to the lesson and subsequent chapters with examples. Quiggin summarises Lesson One as ‘market prices reflect and determine opportunity costs faced by consumers and producers’ (p.7). Lesson Two follows and broadens the scope from consumers and producers to society, ‘market prices don’t reflect all the opportunity costs we face as a society’ (p.8). In addition, Lesson Two extends the definition of opportunity costs to say that the opportunity cost of something of value (to you) includes not only what you must give up, but what others must give up as well.

The 70 years between the publication of Hazlitt’s (1946) book and this book has provided a number of real‐world examples for Quiggin to debate the value of One Lesson and Two Lesson economics in a critical analysis of market mechanisms and economic policy. For example, Quiggin draws on the Great Moderation, the Global Financial Crisis, increasing inequality, episodes of mass unemployment (for which most examples are accompanied by empirical evidence from the United States), and multiple forms of pollution such as chlorofluorocarbons linked to ozone depletion and climate change. The book balances this evidence of market failures with history of economic thought to deliver a well‐rounded understanding of the key differences between Lesson One and Lesson Two. It is important to note that the above‐listed examples relate to both microeconomic and macroeconomic issues. Quiggin points out that ‘in standard economics courses, analysis of opportunity costs, and market failure is typically confined to courses on microeconomics. This is a mistake. Lesson Two tells us that market prices don’t reflect all the opportunity costs we face as a society’ (p.152). Lesson Two also emphasises the importance of the opportunity costs of government choices, not just consumer and producer choices.

While opportunity costs are a foundation concept of economics, and an important instrument for Quiggin to illustrate how and why free markets can both succeed and fail, he also shows that it remains a concept difficult to grasp for many economists. For example, a survey of 200 delegates at the 2005 American Economic Association Annual Meeting (Ferraro and Taylor, 2005), drawn on by Quiggin, showed that only 22 per cent were able to correctly identify the opportunity cost of a decision in a hypothetical scenario. The clarity with which Quiggin writes on opportunity costs appears timely.

Another important contribution of this book is to remind readers that markets operate in a social environment. For example, property rights (that form the basis of trade in a market) are a social construct. Therefore, society and governments (not just consumers and producers) are intrinsically involved in the establishment and operation of markets. To forget or ignore this, as is often done by advocates of the free market, is detrimental.

This book has something to offer all new and long‐time students and practitioners of economics. Firstly, Quiggin’s ability to distil jargon and illustrate what can be complex concepts with real‐world examples makes this book accessible and thought‐provoking for all, regardless of any prior economic experience. Secondly, Quiggin recommends much relevant (often seminal) further reading for anyone who wishes to use this book as a launching pad to further discovery. Thirdly, as the earlier example from the 2005 American Economic Association Meeting indicated, many in the profession could use the clarity of economic thought that Quiggin offers. Ultimately, the book provides a framework to think about: (i) the challenges that arise when markets are missing or imperfect; (ii) the role for both market forces and government policy in response to economic problems; and (iii) the consequences (positive and negative) of different responses to economic problems. As we continue to face numerous complex economic problems, I hope to see this book and the ideas within it attract much attention.

The best books on Learning Economics

Following the release of Economics in Two Lessons, Sophie Roell of Five Books invited me to do an interview. The Five Books format is that the interviewee (usually an author) nominates the best five books (not including their own) on a given topic. My topic was the Best Books on Learning Economics, with the explanation

these are not textbooks for students studying economics. They’re books for the intelligent, general reader to learn what economics is about—and what the important issues are—without doing any actual [technical] economics.

I’ve picked books by Milton Friedman, Paul Ormerod, Tony Atkinson, Thomas Piketty, and Abhijit Banerjee & Esther Duflo. The interview is here.

The worst case is happening

A couple of years ago, I published an article on why “extremely unlikely” climate events matter. The central point was that climate outcomes with a probability of 5 per cent or less (“extremely unlikely” in IPCC terminology) were still much more likely than risks we take seriously in our daily life, like dying in a car crash). As an illustration, at the time the piece was written, it seemed less than 5 per cent probable that, within two years, many countries in the world (including Australia) would see catastrophic fires on the scale of those that have actually happened.

I made this point in an interview for an ABC story on economists’ views of the likely costs of 3 to 4 degrees of climate change. Most of those interviewed agreed with me that the costs were likely to be much higher than suggested by economics Nobelist William Nordhaus (with whom John Horowitz and I had a debate in the American Economic Review quite a while ago). We pointed out, among other problems, that a paper he had co-authored implied an optimal July temperature of -146 degrees Fahrenheit.

Nordhaus declined an interview, but his viewpoint was represented by Richard Tol. Longstanding readers will remember Tol as a commenter here who eventually wore out his welcome.

The other point I made in the interview was that the abstruse debate about discount rates central to much of the debate between Nordhaus and Nicholas Stern has turned out to be largely irrelevant. The premise of that debate was that the costs of unmitigated climate change would be felt decades into the future while the costs of mitigation would be immediate.

As it’s turned out, the costs of climate change have arrived much sooner than we expected. And the only mitigation options adopted so far have been low cost or even negative cost choices like energy efficiency and abandoning coal (more than justified by the health costs of particulate pollution).

That doesn’t mean discount rates are completely irrelevant. If we manage to decarbonize the global economy by 2050, benefits will keep accruing well after that. But even if we stopped the analysis at 2050, we would still have a substantial net benefit. The likely cost of near-complete decarbonization now looks to be less than a two per cent reduction in national income. Reducing the frequency and severity of disasters like the bushfires will more than offset that.

The statistical significance of focus groups

I’ve generally taken a pretty dim view of focus groups, which seem to be used mostly to detect and amplify unthinking prejudices. But, I have to admit, that probably is due at least in part to the fact that my prejudices aren’t very close to those of the median focus group participant. So, it wasn’t until I saw focus group results matching my own thoughts that I paid any attention to the question of whether the results actually meant anything.

According to the SMH report, participants in two Ipsos focus groups almost uniformly saw Morrison’s response to the bushfires as “pathetic” and “lacking empathy”. In each case, eight of nine respondents gave such negative views. Ipsos also concluded there was “little confidence” Labor leader Anthony Albanese would have provided better leadership, with descriptions like “weak” and “bland” being offered. Regular readers won’t be surprised to learn that I agree with both judgements.

But how much can we learn from an exercise involving only eighteen participants? Surprisingly, the answer is, quite a lot. Use q to denote the proportion of the population who approve of Morrison

If the population from which the group was drawn was evenly divided between approvers and disapprovers, the chance of getting results like this would be tiny. This table (look at N=18, x = 16, p 0.5) gives it at 0.000584. A classical hypothesis test would reject the null hypothesis (or, in the usual jargon, find a statistically significant effect) for any chance below 0.05. Using a more sensible, Bayesian approach, with just about any prior distribution, the updated estimate of for the distribution of q would lie entirely below 0.25 (25 per cent approval). We could do something similar for Albanese, but the exact numbers aren’t given.

These numbers are substantially worse than the approval/disapproval numbers given by Newspoll. So what is going on?

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