Category: Books and culture

Trickling down

John Quiggin58 Comments

Among the zombie ideas refuted in my book, Zombie Economics, “trickle down” economics is the one that dare not speak its name. Even those who believe, or are paid to say, that favored treatment for the rich will benefit the poor mostly avoid the term “trickle down”, preferring bromides like “a rising tide lift all boats”.

But that didn’t deter Ian Young, Vice-Chancellor of ANU and head of the Group of 8 Universities (basically, those established first, which have, as elsewhere in the world, gained a permanent high-status position as a result). As I predicted not long ago, he wants to raise fees and reduce the number of students at elite universities, including ANU, allowing them to offer a more personalised education.

Young’s argument is that students excluded from the Go8 will “trickle down” to lower-status universities, giving them a chance to both increase numbers and raise standards. But this suggestion doesn’t stand up to the most cursory examination. Both logic and historical evidence suggests that all or most universities will follow the lead of the Go8. In both the UK and Australia, whenever universities have been given option to increase fees or hold them steady, nearly all have gone for the maximum increase.

Think about this from the position of a university in the tiers immediately below the Go8 in the prestige hierarchy, the 1970-vintage unis like Griffith and Macquarie, and the Universities of Technology. Both groups can fill all the places they have, and both, like all Australian universities are straining at the seams in terms of both physical space and overloaded staff. They could not possibly take in more students with their current finances. It makes perfect sense for them to do the same as the Go8, raise fees a lot, and pass on some of the benefits in the form of smaller classes.

There’s a cumulative effect here. Suppose the Go8 institutions reduce their student intakes by 30 per cent. A few of those will give up on uni altogether, deterred by higher fees, but most will try a second-tier uni, displacing other students who would otherwise have been accepted. On top of that, there will be less places in those uni, say another 30 per cent. So, something like 60 per cent of the students formerly admitted to these unis will be excluded.

At the bottom of the status scale, the hard-pressed regional universities and former CAEs probably won’t be able to raise their fees as much as the Go8. But they will still be in a position to raise fees and entry standards at the same time, and, if they choose, to reduce their numbers as well. This isn’t so much trickle down as a cascade effect.

Of course, if you believe the increasingly silly Business Council of Australia, this is all to the good. Its head, Catherine Livingstone (BA, Macquarie) thinks we need less university students. Her members clearly don’t agree, judging by their hiring patterns. The unemployment rate for university graduates is estimated at 3.3 per cent, about half that for non-graduates. Wages and participation rates are also higher.

To help poor people, give them money

John Quiggin87 Comments

The Oz (no link) is touting a campaign by Andrew Forrest to introduce an Australian version of the US “food stamps” system, replacing cash payments with a card that can only be used to buy an approved list of items. This is yet another step in the abandonment of economic rationalism by the political right. I’d be surprised if Forrest could get the support of any economist for this (though the recent performances of the IPA crew give me some pause). Free market advocates, following Milton Friedman, have long sought the replacement of in-kind benefits with cash. To those on the left, even where enthusiasm for markets is more qualified, the conclusion is reinforced by the obvious class warfare involved here. At best, someone like Forrest can be seen as a paternalist, hoping to protect the poor from themselves. But it’s obvious that the Murdoch press, and its target audience, want to punish the poor, not protect them.

As it happens, my slowly-progressing book has a section on just this issue, presenting the standard arguments of Friedman and others as part of the case for why markets work so well (when they do)

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Game of Thrones (Spoiler Alert)

John Quiggin20 Comments

Apparently, despite all the past experience, lots of people were shocked by the latest developments in Game of Thrones. Still, not everyone is willing to wade through 700-page volumes just to avoid being surprised by a wedding episode on their favorite show. So, as a public service, I’ve listed, over the fold, all the important and exciting developments in Volumes 4 and 5.

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Macroeconomics made easy?

John Quiggin10 Comments

In my book, Zombie Economics, I started the account of macroeconomics with the observation

Macroeconomics began with Keynes. Before Keynes wrote The General Theory of Employment, Interest, and Money, economic theory consisted almost entirely of what is now called microeconomics. The difference between the two is commonly put by saying that microeconomics is concerned with individual markets and macroeconomics with the economy as a whole, but that formulation implicitly assumes a view of the world that is at least partly Keynesian.

Long before Keynes, neoclassical economists had both a theory of how prices are determined in individual markets so as to match supply and demand (“partial equilibrium theory”) and a theory of how all the prices in the economy are jointly determined to produce a “general equilibrium” in which there are no unsold goods or unemployed workers.

I went on to observe how the pre-Keynesian approach had been revived by the “New Classical” school, and how the apparent convergence with “New Keynesian” economics had been shown to be illusory after the failure of Dynamic Stochastic General Equilibrium models to deal with the 2008 financial crisis and the subsquent, still continuing, depression.

With all of this, though, I still never thought of academic macro, in either saltwater or freshwater form, as being a simple reversion to the pre-Keynesian notion of general equilibrium, with no concern about aggregate demand or unemployment, even in the short run. It turns out that, at least for a large segment of the profession, this is quite wrong. I’ve just received a book entitled Big ideas in Macroeconomics: A nontechnical view by Kartik Athreya, an economist at the Richmond Federal Reserve who made a splash a few years back with a piece entitled Economics is Hard. Don’t Let Bloggers Tell You Otherwise, which, unsurprisingly, did not endear him to bloggers. As a critic of mainstream macro, I’m briefly mentioned, and I just got a review copy.

The new book is an attempt to simplify things, and indeed it has proved enlightening to me and also to Herb Gintis who contributes a blurb on the back, commending it as an accessible and accurate description of the dominant way of thinking about macroeconomics.

The easiest way to see why the book is so striking is to list some topics that do not appear in the index (and are not discussed, or only mentioned in passing, in the text). These include: unemployment, inflation, recession, depression, business cycle, Phillips curve, NAIRU, Taylor Rule, money, monetary policy and fiscal policy.

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A minor life hack (crosspost from Crooked Timber)

John Quiggin3 Comments

I’m currently reading Scarcity by by Sendhil Mullainathan and Eldar Shafir. At this stage, I’m inclined to sympathise with the unnamed colleague who commented “There’s already a science of scarcity. It’s called economics”. So far, it’s mostly straightforward applications of the observation that time and attention are scarce resources, combined with some fairly familiar observations from behavioral econ on how people fail to optimise either the first-order problems of allocating a tight budget or the second order problem of allocating time and attention to the first-order problem (my terms here, not theirs). However, I’m only part way through, and the authors promise to show how their approach differs from the way in which economists would normally think about this kind of problem.

This post is about a specific and well known observation cited by Mullainathan and Shafir. Faced with paying $100 for an item that could be had elsewhere for $50, most people are willing to put in a fair bit of effort (say, driving for an hour) to get the lower price.[^1] On the other hand if the item costs $1050 and could be had for $1000, people with reasonably high incomes mostly pay up, instead of driving to the other store. This is obviously inconsistent with standard opportunity cost.
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Restarting the History Wars: a decade of silence

John Quiggin25 Comments

Since it appears that the Abbott government intends to restart the History Wars, I thought I would point out that the leading warrior on Abbott’s side of the debate has now been AWOL for more than ten years. Nothing much has changed recently, so I’ll just repost (most of) my remarks from my last post on this topic, in April.

Long-term followers of this dispute will recall that, back in 2002, Windschuttle made quite a splash with The Fabrication of Aboriginal History, Volume One, Van Diemen’s Land, 1803-1847, which attempted a revisionist account of the tragic history of the Tasmanian Aborigines. He didn’t achieve much except to point out some sloppy footnoting in a fairly obscure recent history[1]. The main interest in the book was as an appetiser for the succeeding volumes, on Queensland and Western Australia, promised to appear on an annual schedule. Here, Windschuttle promised to refute the work of Henry Reynolds and others, who painted the frontier as a scene of prolonged violent warfare between the indigenous inhabitants and the white settlers who sought, successfully in the end, to displace and subdue them.

Year followed year, and promise followed promise, but Volumes 2 and 3 didn’t appear. Finally, in 2009, Volume 3 was published. Not only was there no Volume 2, but the new Volume 3 bore no resemblance to the book originally promised for 2004. Instead, it was a critique of the Stolen Generations report and the film Rabbit Proof Fence. Windschuttle said that this volume had been published “out of order”, and that the missing volumes 2 and 4 would appear “later”.

Even by Windschuttle’s standards, this is bizarre. The Stolen Generations debate refers almost entirely to the 20th century, so this volume, on his reasoning ought to come after the others, and be numbered as Volume 4.

It’s silly enough to see self-satisfied climate “sceptics” who can’t even calculate a standard error, but have convinced themselves they are smarter than professional scientists. But surely even the editor of a literary magazine ought to be able to count to three.

Of course, Windschuttle’s problems with the integers are trivial. His real offence was to attack scholars like Henry Reynolds on the basis of promised evidence he has been unable to deliver. It’s more than a decade since Windschuttle started this stuff and, to the best of my knowledge, he hasn’t published anything since then showing a single error in Reynolds’ work on the Queensland frontier, or that of the other historians he accused of fabrication. His “Sydney Line” website hasn’t been updated for years. If he has produced anything more substantial than opinion pieces, since the forgettable Volume 3, I haven’t been able to find it.

It’s pretty clear who is spinning the fabrications here. In the language of the tech sector, Windschuttle is a seller of vaporware.

fn1. The Tasmanian history Windschuttle wants to deny wasn’t invented by leftwing historians in the 1970s. It was the standard account in the very conservative version of history I was taught in primary school, based on the tragic and undeniable fact that a people who had lived in a harsh environment for thousands of years were wiped out almost completely in a couple of generations by a combination of disease, conflict and starvation.

Book plug: Pushing our luck, and more

John Quiggin10 Comments

I’ll be at Brisbane’s Avid Reader bookshop this evening, helping at the launch of Pushing our luck: ideas for Australian progress, a new book of essays from the Centre for Policy Development. We’ve got a few years to reflect on policy ideas now, so this is a good time to get started.

While I’m at it, I’m going to mention a bunch of books I’ve read, and intended to write about, but haven’t had time

Earthmasters: Playing God with the Climate by Clive Hamilton, is about geo-engineering, often presented as the backstop alternative to reducing greenhouse gas emissions. As the title indicates, this book is an argument that reliance on geo-engineering is a recipe for disaster. I agree, though I think it’s clear that sometime this century we are going to have to find a way to achieve, in effect, negative emissions, that is a situation where human and natural processes take more CO2 and methane out of the atmosphere than they put into it. That’s not exactly geoengineering, but it is a conscious intervention to change the atmosphere, or at least return it to an earlier state

Battlers and Billionaires: The Story of Inequality in Australia by Andrew Leigh, economist and MP. A great book on the looming end of the “fair go” in Australia. I’d put more emphasis on the role of policy and less on technology than Andrew does, but that puts me in a minority among economists.

The Infinite Resource by Ramez Naam. This is the book that Bjorn Lomborg ought to have written, instead of the silly and deceptive “Sceptical Environmentalist”. Naam doesn’t pretend that the risk of environmental catastrophe is spurious or that markets will fix the problem by themselves, but nonetheless has an optimistic take on the scope for innovation to allow the human race to not only survive but thrive.

Occupy the Future a volume of short essays arising from the Occupy movement. Lots of useful resources here

Masters of the Universe:Hayek, Friedman, and the Birth of Neoliberal Politics by Daniel Stedman Jones. Not a new topic, but a lot of new information and analysis – well worth reading.

The New American Economy:The Failure of Reaganomics and a New Way Forward From 2009, interesting in itself and because Bartlett is one of the most notable examples of the intellectual trend of conversion from right to left, evident since the late 1990s, and reversing the pattern of earlier decades.

Merchants of Doubt by Naomi Oreskes and Erik Conway Another older book, but indispensable now that the merchants of doubt and delusion have gained political power here

Bankers, Bureaucrats, and Central Bank Politics: The Myth of Neutrality by Christopher Adolph. Makes the obvious but vital point that central bankers aren’t neutral bureaucrats. For many, central banking is a step towards, or an interlude in, a career in the financial sector, and the policies they advocate while in the public sector reflect this.

That hasn’t left a lot of time for fiction, but I think I have now read everything by the late and much-missed Iain Banks (including all the SF stuff written as Iain M. Banks).