Category: Economic policy

Can any evidence convince the right?

John Quiggin53 Comments

Along with nearly 60 other Australian economists, notably including John Hewson, Justin Wolfers and Harry Clarke, I’ve signed my name to a public statement urging agreement on a fair, economically efficient and environmentally effective policy to price and limit carbon emissions.

I’m not naive enough to expect that this will have much of an effect, any more than previous statements of this kind I’ve signed. The problem is not, as you might think, that there is serious disagreement among economists on the issue. Opponents of market-based policies to limit carbon emission have tried in the past to organize counter-statements, and have failed miserably. Outside the set of IPA hacks, most recently seen defending the ludicrous claims of the tobacco lobby, there is essentially no disagreement on this (although there is plenty of dispute about the best design, the optimal price and so on).

The problem is, rather, that there is no evidence, and no clever way of framing the issue that is going to convince the tribal right to go against their shibboleths on this issue. If there were, the actual experience of a carbon price of $24/tonne would have done so. In the leadup to the introduction of the carbon tax/price, Tony Abbott described it as a ‘wrecking ball’ that would destroy the Australian economy. Two years later, the economy is still here and not even the government pretends that removing the carbon tax is going to yield any significant benefit.

And the same is true more generally, notably in the US. This NY Times article by Brendan Nyhan makes the point

Once people’s cultural and political views get tied up in their factual beliefs, it’s very difficult to undo regardless of the messaging that is used.

While this is always true to some extent, it’s far more true, at present, of the right (in English speaking countries) than of the left, and far more true of the right today than in the past.

In the end, there’s no way to persuade those on the political right to accept factual truths about (for example) climate change, without also persuading them to abandon the political right.

Lifters and leaners

John Quiggin33 Comments

I have a piece up at The Guardian looking at Hockey’s adaptation of the “47 per cent” line made famous by Mitt Romney. The focus is not so much on demolishing the claim (Greg Jericho did a more comprehensive job on this) but on the state of delusion that would allow Hockey to think that this kind of claim would be favorably received. After all, even Romney didn’t use the 47 per cent line in public: he was caught on video talking to rightwing donors.

The “job-killing” carbon tax

John Quiggin155 Comments

Tony Abbott hasn’t exactly covered himself in glory on his overseas trip. But he has found one ally: Canadian PM (at least until next years election) Stephen Harper, also a climate denialist. They made a joint statement denouncing carbon taxes as “job killing”. I didn’t notice any massive destruction of jobs when the carbon price/tax was introduced in 2012, but rather than do my own analysis, I thought I’d take a look at the government’s own Budget outlook, to see how many jobs they claim to have been destroyed by the carbon tax, and what great benefits we can expect from its removal. Here’s the relevant section of the summary (note that the outlook is premised on the Budget measures being passed)

The Australian economy is in the midst of a major transformation, moving from growth led by investment in resources projects to broader?based drivers of activity in the non?resources sectors. This is occurring at a time when the economy has generally been growing below its trend rate and the unemployment rate has been rising. During this transition, the economy is expected to continue to grow slightly below trend and the unemployment rate is expected to rise further to 6¼ per cent by mid?2015.

In this environment, the Government is focused on implementing measures to support growth and jobs while putting in place lasting structural reforms to restore the nation’s finances to a sustainable footing. The timing and composition of the new policy decisions mean that the faster pace of consolidation in this Budget does not have a material impact on economic growth over the forecast period, relative to the 2013?14 Mid?Year Economic and Fiscal Outlook (MYEFO).

Since MYEFO, the near?term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth. This is partly offset by weaker business investment intentions, particularly for non?resources sectors.

The outlook for the resources sector is largely unchanged from MYEFO. Resources investment is still expected to detract significantly from growth through until at least 2015?16, as reflected in the outlook for investment in engineering construction which is forecast to decline by 13 per cent in 2014?15 and 20½ per cent in 2015?16. Rising resources exports are only expected to partially offset the impact on growth. Overall, real GDP is forecast to continue growing below trend at 2½ per cent in 2014?15, before accelerating to near?trend growth of 3 per cent in 2015?16.

The labour market has been subdued since late 2011, characterised by weak employment growth, a falling participation rate and a rising unemployment rate, although outcomes since the beginning of 2014 have been more positive. The unemployment rate is forecast to continue to edge higher, settling around 6¼ per cent, consistent with the outlook for real GDP growth. Consumer price inflation is expected to remain well contained, with moderate wage pressures and the removal of the carbon tax.

The reference to the CPI effects of the carbon price (around 0.4 per cent) is, as far as I can tell, the only mention in the whole of the Economic Outlook statement.

Campus reflection

John Quiggin54 Comments

That’s the mild pun the Chronicle of Higher Education picked for my article (paywalled, but I’ve put my draft version over the fold) making the point that a higher education system is, in important respects, a mirror of the society that created it, and that it helps to recreate. I make the point that, like the US health system and labor market, the US higher education does a great job for the 1 per cent who go to the Ivy League Schools (and whose parents are mostly in or close to the top 1 per cent of the income distribution), does an adequate but expensive job for the next 20 per cent or so, and leaves everyone else in the lurch.

This is important in the context of the Abbott governments proposed removal of caps on fees for higher education, explicitly aimed by Education Minister Pyne at creating a system in which we might have institutions like Harvard and Yale. I plan to write more on this, but the central point will be that, far from creating more places at existing universities, fee deregulation will give them incentives to shrink, pushing students out to the alternatives now being funded under HECS: for-profit institutions and the TAFE system (which has its own funding crisis), corresponding to the bottom tiers of the US education system, where all the recent growth has taken place.

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If it looks like a debt, walks like a debt and quacks like a debt …

John Quiggin11 Comments

I’ve finally got around to checking out the big-ticket item (estimated value $28 billion) in the Queensland government’s privatisation program, involving the electricity distribution sector. It’s called a Non-Share Equity Interest, and the Treasury web page explains its appeal to the government.

Under this option the State retains 100 per cent ownership of the ordinary shares in the network businesses and assets. Private sector participation occurs through a hybrid security instrument, a Non–Share Equity Interest (NSEI).

The private sector contribution will equate to the net funding for the capital expenditure requirement and therefore represents new capital injections.

The NSEI security is debt in its legal form, but classified as equity for tax and accounting purposes and these characteristics give the security it’s (sic) “hybrid” form. (emphasis added)

The returns on the NSEI are sculpted to reflect the holders proportionate interest in dividends and tax equivalents paid by the network businesses separately.

In other words, the government is replacing debt raised by the Queensland Treasury Corporation from the private sector with an instrument that’s almost identical, but is classified as equity, and can therefore be presented as a reduction in debt

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Licenses for cyclists?

John Quiggin95 Comments

NSW Transport Minister Duncan Gay (seemingly one of the few NSW Ministers still in his job) has raised the idea of licenses for cyclists, in response to growing numbers of fatal and near-fatal accidents and (entirely justified) pressure for action against motorists who endanger fellow road users.

He can expect a negative response for a number of reasons. A license scheme is problematic, most obviously because children are (and should remain) free to ride bikes, but can scarcely be expected to pay license fees or sit for an exam. But the policy goal could be achieved without a license. All that is needed is to create a general right to cycle on roads, with no requirement to obtain a license, but with the courts having the power to suspend that right for cyclists who commit traffic offences. There’s no longer any practical requirement for a physical license. If an offender doesn’t have formal ID, a photograph or a phone would be enough to confirm identity in 99 per cent of cases (sad, perhaps, but true).

Then there’s the question of registration. Again, that’s a system that makes much more sense for cars than for bikes. But, if we had a proper system of road pricing, there wouldn’t be much difficulty in including bikes, though I suspect economic analysis would show their contribution to road costs to be very low.

Reviewing the Commission of Audit’s opening night

John Quiggin42 Comments

I played my little part in the political theatre that was the Commission of Audit, with about 15 seconds on ABC Lateline. I’m pleased to see that other reviewers agreed with me in dismissing this tired remake of the 1988 and 1996 hits as stale and derivative. Attempts to gin up a bit of excitement by introducing the minimum wage as a new villain wnet nowhere, and reviving the golden oldie (last performed by Malcolm Fraser in the 1970s) of returning income tax powers to the states fell flat. And of course, a supposed audit of the public finances with tax expenditures cut out of the show is like Hamlet without the Prince. About the only thing to be thankful for is that they toned down the Hockey-Abbott melodrama of a debt crisis and budget emergency, preferring instead some dark murmurs about ominous long term trends.

I give it one star.