Author: John Quiggin

Greens’ economic policy

John Quiggin68 Comments

Here’s an extract from a piece I’ve been working on which will appear in Adelaide Voices

Having been disappointed in the economic policy offerings of the major parties, it is natural for an economist to look to the offerings of the remaining serious alternative, the Greens (it seems unlikely that the Democrats will manage a serious run), with a mixture of hope and trepidation; hope because the Greens have generally been willing to take a stand and trepidation because the economic policy platforms of minor parties frequently contain large elements of wishful thinking, small-group hobby horses and plain irrationality

It turns out that trepidation is unnecessary. The Greens economic policy is, quite simply, the most coherent and intellectually-defensible document of its kind ever put forward by an Ausralian political party. At the level of broad principles, it begins with the recognition that economic policy must be financially, as well as environmentally and socially, sustainable. Far from seeking cheap popularity by arguing for both tax cuts and increased public expenditure, the Greens have insisted that public sector debt should be matched by adequate capacity to service debt, and that dubious financial expedients like the use of privatisation to reduce measured debt should be avoided.

The policy is just as good in detail as it is in broad outline. The proposed tax policy initiatives, including a return to full capital gains tax, an assault on tax avoidance and a carbon tax, are just the kind of initiatives that Labor ought to be proposing. Unlike the modern Labor party, the Greens have no hesitation in espousing equality as a goal of economic policy.

Sad to say, in most electorates, a vote for the Greens will have purely symbolic significance, and it will be the allocation of second preferences between Liberal and Labor candidates that really counts. Moreover, it is doubtful that many Green voters will be motivated primarily by concerns about economic policy. Nevertheless, anyone who decides to vote for the Greens on the strength of their support for the environment and opposition to war should be encouraged to know that they are also choosing a party with a policy that is economically as well as socially responsible. If only the major parties could claim as much.

I’d be interested in readers’ comments.

Monday Message Board

John Quiggin13 Comments

It’s Monday again, and time for the Monday Message Board. Post your comments on any topic (civilised discussion and no coarse language, please).

Since most of my regular commenters participate in MMB, this is a good time to announce that GG Sedgwick is running the 2004 Blog Comments Award.

There’s no category in the awards for this, but I’ve always believed that this blog has the best comments section in the Oz blogosphere, and one of the best anywhere. Thanks to all those who’ve made it so.

What I’m reading

John Quiggin11 Comments

The Yellow Admiral and Blue at the Mizzen by Patrick O’Brian. These are respectively the 18th and 20th in the Aubrey-Maturin series. I particularly enjoyed Aubrey’s role as a paternalist squire preventing the enclosure of a local commons – almost the only time in the entire series where he is heroic and successful by land.

Blue at the Mizzen brings me to the end of the series, always an ambiguous feeling for me. There’s still a couple I haven’t managed to get hold of, including The Nutmeg of Consolation and The Hundred Days. Perhaps I should set up one of those Amazon wishlists

Big government is good for economic freedom

John Quiggin6 Comments

Over at Marginal Revolution, Alex Tabarrok recently presented a graph showing a positive correlation between UN measures of gender development and the Fraser Institute’s Economic Freedom Index. Of course, Alex presented the usual caveats about causation and correlation, but he concluded “at a minimum the graph indicates that capitalism and gender development are compatible contrary to many radicals”

This prompted me to check out how the Economic Freedom index was calculated. The relevant data is all in a spreadsheet, and shows that the index is computed from about 20 components, all rated as scores out of 10, the first of which is general government consumption spending as a percentage of total consumption. Since the Fraser Institute assumes that government consumption is bad for economic freedom, the score out of 10 is negatively correlated with the raw data.

Looking back at Alex’s post, I thought it likely that high levels of government expenditure would be positively rather than negatively correlated with gender development, which raised the obvious question of the correlation between government consumption expenditure and economic freedom (as defined by the Fraser Institute index). Computing correlations, I found that, although it enters the index negatively, government consumption expenditure has a strong positive correlation (0.42) with economic freedom as estimated by the Fraser Institute. Conversely, the GCE component of the index is negatively correlated (0.43) with the index as a whole. By contrast, items with a strong ideological component, like labour market controls, were very weakly correlated with the aggregate index.
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McKibbin on the Castles-Henderson critique

John Quiggin7 Comments

Warwick McKibbin has a piece in today’s Fin (subscription required) endorsing the Castles-Henderson critique of the modelling behind IPCC projections of CO2 emissions. He refers back to a paper, with David Pearce and Alison Stegman, for the Lowy Institute (PDF file). I’ve read the paper and I think it’s broadly correct. On the other hand, I’ve previously argued that the Castles-Henderson critique is invalid (see also here). So what gives?
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The Google circle

John Quiggin6 Comments

I found this mildly snarky piece from Alan Wood in today’s Oz

Google’s worth is not only preoccupying Wall Street advisers and investors, but has generated a great volume of argument on the web itself, which can of course be tracked by using Google. One of the first into the fray was Australian economist John Quiggin, described on his own website as “more intelligent than Britney Spears”.

A popular market guess of the value of Google’s equity is $US20 billion ($28 billion) to $US25 billion, with more recent estimates of $US30 billion or more. Quiggin, who is in fact quite bright, said he couldn’t draw a plausible earnings path that would yield a present value of $US25 billion at any reasonable discount rate.

But what’s really interesting is that I didn’t have to look for the article. It was sent to me by Google news alerts. As I said in the original discussion, I use Google all the time, but unless text ads have a subliminal effect for which Google is being paid, I’ve never contributed a penny to its revenues, and quite possibly never will.” This implies that the social value of Google is more than its market value.

Why does the efficient markets hypothesis matter ?

John Quiggin23 Comments

Reading the discussion of earlier posts about the efficient markets hypothesis, it seems that the significance of the issue is still under-appreciated. In this post, Daniel Davies pointed out the importance of EMH as a source of pressure on less-developed countries to liberalise capital flows, which contributed to a series of crises from the mid-1990s onwards, with huge human costs. This is also an issue for developed countries, as I’ll observe, though the consequences are nowhere near as severe. The discussion also raised the California energy farce, which, as I’ll argue is also largely attributable to excessive faith in EMH. Finally, and coming a bit closer to the stock market, I’ll look at the equity premium puzzle and its implications for the mixed economy.
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More on the National Water Initiative

John Quiggin

I was overseas when the Council of Australian Governments (bearer of the unlovely acronym COAG) announced the details of the National Water Initiative. Based on the newspaper reports I read at the time, my preliminary evaluation was quite negative.

I’ve now had the chance to read the actual announcement and supporting documents, and I’m feeling a lot happier. The crucial clause is the one about reductions in water usage, which says

a framework that assigns the risk of future reductions in water availability as follows: –

* reductions arising from natural events such as climate change, drought or bushfire to be borne by water users,

* reductions arising from bona fide improvements in knowledge about water systems’ capacity to sustain particular extraction levels to be borne by water users up to 2014. After 2014, water users to bear this risk for the first three per cent reduction in water allocation, State/Territory and the Australian Government would share (one-third and two-third shares respectively) the risk of reductions of between three per cent and six per cent; State/Territory and the Australian Government would share equally the risk of reductions above six per cent,

* reductions arising from changes in government policy not previously provided for would be borne by governments, and

* where there is voluntary agreement between relevant State or Territory Governments and key stakeholders, a different risk assignment model to the above may be implemented;

This seems like a pretty good balance to me. The ten years to 2014 should provide enough time to deal reasonably with the worst mistakes of the past. After that, it’s fair enough that governments should bear most of the risk if they’ve still overallocated water.

A nice feature for me is that the time-scale fits neatly with my proposal for governments to meet environmental goals by purchasing reversion rights for water allocations in ten years’ time.

Scandal

John Quiggin15 Comments

As far as I can see, the Right seems to be winning the scandal wars just at the moment. I didn’t follow the Plame-Wilson scandal the first time around, so I can’t really tell how damaging or otherwise the latest claims from US and British intelligence may be to Wilson’s credibility. Similarly, although it seems clear that Sandy Berger has made a fool of himself , I have no idea what this means for anything that might possibly matter. Finally, it appears that last Thanksgiving in Iraq, Bush posed not with a fake turkey, but with a display turkey, never intended for carving but to adorn the buffet line. I’m glad that’s been cleared up.

All this confirms me in the view that the kind of “smoking gun” or “what did X know and when did s/he know it” scandal that has dominated politics since Watergate is a waste of everybody’s time. The real scandals are those that are, for the most part, on the public record.
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TANSTAAFL

John Quiggin10 Comments

I managed to prove Milton Friedman[1] right in fine style today. First I gave a talk on the FTA to about 700 high school students, which was supposed to sell them on the idea of studying economics at UQ. In return (and in addition to a small gift from the Queensland Economics Teachers Association) I got an invitation to lunch which I declined so I could lunch with the seminar speaker in my other department, Political Science and International Relations (it was Joe Camilleri, talking on Islam and the West). Arriving early, I ordered straight away to beat the rush, only to discover that, had I waited I would have had my lunch paid for out of some fund or another.

So, if there are any free lunches about, I wasn’t getting them today. Instead, I paid three times (giving the talk, turning up at the seminar and handing over the cash) and only got fed once. Fortunately, I love giving talks and (given a good speaker) like attending seminars.

fn1. Although Friedman and Robert Heinlein usually share the credit for this acronym, Tyler Cowen points out that it should actually go to Alvin Hansen, America’s most prominent early advocate of Keynesianism, and someone whom the average person with a TANSTAAFL bumper sticker might be surprised to find they agreed.