Category: Economic policy

UK leading the way

John Quiggin19 Comments

The announcement by the UK government (Conservative-LibDem coalition) that it would aim to reduce CO2 emissions by 50 per cent, relative to 1990 levels, by 2025 has had a significant impact on the Australian debate and is likely to have a greater impact as time goes on.

In part this reflects the fact that, understandably if not entirely justifiably, Australians pay a lot more attention to news and ideas from the UK and US than from, say, France or Germany. The British announcement cuts the ground from under many of the claims being made by the denial/delusion/delay lobby in Australia.

* The idea that “Australia risks getting out in front of the world” is obviously false. Even assuming we get a carbon tax, leading on to an emissions trading scheme later this decade, we will be a decade or so behind the UK and other EU countries, which introduced an ETS in 2005

* The view that it is impossible, in a modern economy to reduce emissions substantially without a radical reduction in economic activity is obviously not shared by the UK government which (unlike the critics) has actually done the analytical work required to show that large reductions can be achieved at very little economic cost, and is now implementing the required policy. I’ve demonstrated this point over and over on this blog, and the negative responses have amounted to little more than “La, la, I’m not listening”, but hopefully a practical demonstration will have more effect

* As part of the longstanding intellectual trade with the UK, we get a regular flow of delusionist speakers like Lord Monckton out here (fair’s fair, we did send them Clive and Germaine after all). Demolition jobs like this one, from a leading British Tory, might make their audiences a bit more sceptical

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Swan on Keynesian policy

John Quiggin27 Comments

Wayne Swan has a Fabian Essay defending the Keynesian credentials of the Rudd and Gillard government. The central argument is sound enough

if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again. That means a speedy return to surplus.

But there are a couple of big problems. The first is one of timing. The 2009-10 Budget, which included a large deficit as a Keynesian stimulus, proposed a return to surplus by 2015-16. This was seen at the time as quite ambitious – most developed countries have no obvious path back to surplus.

Nevertheless, by May 2010, with economic conditions much stronger than expected, it seemed as if the government had not been ambitious enough and the target date was brought forward to 2012-13.

Over the past year, however, the economic news, both locally and globally, has mostly been bad, with natural disasters producing short-term shocks, and the US and Europe mired in heavy debt and sluggish recovery. The economy has slowed a bit and tax revenue has fallen short of expectations. Unsurprisingly, on the government’s current policy settings, the return to surplus would be delayed, though probably still ahead of the original 2015-16 target.

From a Keynesian point of view, that’s exactly what should happen. Although the slowdown isn’t enough to justify an active fiscal stimulus, the standard Keynesian prescription would be to allow the automatic stabilizers to work, smoothing the path back to full economic recovery. Unfortunately, that’s not what the government is doing.

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Financial transactions tax letter

John Quiggin12 Comments

From my incoming email

Groups across the world are inviting economists who are qualified by post-graduate degree (Master or PhD) to sign a letter in support of a financial transactions tax (see below). The goal is 1000 signers by Friday, April 8th.
Economists can sign the open letter by entering their details in the comments box at this link: or emailing euderzo@oxfam.org.uk.

Last year, 350 economists from all over the world signed a letter in support of a financial transactions tax, and over the past year there has been significant political movement towards implementing the FTT in Europe and some other countries. The campaign for the so-called ‘Robin Hood Tax’ is now hugely popular in many countries (www.robinhoodtax.org). The French have made an FTT a priority for their presidency of the G20 and there is a real chance of a breakthrough in the coming six months.

I’ve also had some contact with the organizers who would like some Australian academic economists (I take this to mean having an academic position in an Australian econ department) who would state their support as a group. If any of my readers fall into that category, please email me.

The fruitpickers lament

John Quiggin52 Comments

Way back in the 1970s, I spent a couple of short spells as an unemployed layabout, one of which was ended when I took a job as a fruitpicker, making (IIRC) $2 a day, which even then wasn’t food money (I wasn’t very good at it). Fortunately, the job included some basic accommodation and all the blackberries you could eat. And, even then the whinging from employers who claimed to be unable to get enough pickers was an old story.

Now, I see Tony Abbott is pushing the same line, wanting to stop dole payments in any district where there are (claimed to be) vacant fruitpicking jobs. After four decades of this stuff, we ought by now to have some actual evidence. So, I have a few questions

First, has there ever been occasion when significant volumes of fruit have gone unpicked because of a shortage of pickers? [1]

Second, has there been any occasion on which demand for fruitpickers has been enough that a person with no prior experience could make substantially more than the minimum wage (currently about $15/hour). ? [2]

And if, as I strongly suspect, the answer to both questions is No, what does that tell us about the expectations of the whinging employers. (I suggest, a ready supply of below-minimum wage workers, available on demand when needed, and ready to be sacked the moment they are not)

fn1 Not a strike, or some particular farmer so objectionable that all ir workers quit

fn2 I know that experienced pickers can do a bit better than this, but that’s not the relevant issue here.

What should the RBA be doing?

John Quiggin45 Comments

My son called the other day to say I’d been mentioned in the Fin as a possible candidate for the the Board of the Reserve Bank. If I were a serious contender, this would be the cue for me to adopt a pose of grave silence on all policy issues, interspersed by gnomic observations to be pored over for their inner meaning. I’m not a serious contender (even if it’s nice to be thought of as someone who might be) so this seems to be a good time for unsolicited advice to whoever gets appointed.

In the short term, I’m pretty happy with the settings of macroeconomic policy. The Rudd government and the RBA got the monetary and fiscal stimulus right in 2009, and the move back to fiscal surplus and neutral settings for monetary policy has been paced appropriately (the government’s insistence on relying on spending cuts rather than scrapping the last stage of the tax cuts promised in 2007 was a big mistake in terms of budget policy, but that’s a different issue).

My concern is rather with longer-term issues arising from the GFC. First, it no longer makes sense to separate monetary and fiscal policy as sharply as was done in the pre-2007 period, given that, in any real emergency, the two will have to work together. That doesn’t imply doing away with central bank independence (we’ve had an independent central bank since the RBA was established) but it does imply a degree of co-ordination between RBA and Treasury more like the relationship that prevailed before the 1990s.

Second, the inflation targeting approach, based on Taylor rules, failed globally in the leadup to the crisis and during the crisis. An important lesson (which Stephen Bell and I, among others, pointed out before the crisis) is that low and stable inflation rates do not imply a stable economy. In fact, they may contribute to the growth of asset price bubbles (what Minsky terms the shift from hedge to speculative finance). There’s still a lot of room for discussion about what should replace inflation targeting, but full employment needs to be given more weight than in the past.

Third, the separation between monetary policy and prudential policy needs to be re-examined. Everything went well in Australia, but the problems overseas suggest we need to take another look at this.