The talk I gave at the Whitlam Institute in July is up on SlowTV. Comments from Steve Keen and Guy Debelle.

John Roskam of the IPA in today’s Fin makes the correct opening point that the banks can’t have it both ways, benefitting from government guarantees while resisting close regulation. Since no one is suggesting removing the guarantees any time soon, the implications are, I think pretty obvious.

Pioneering Australian law blogger (now retired) Kimberlee Weatherall has asked me to plug the 2009 Fulbright Symposium, in Canberra 24-25 August 2009, which goes by the title “US-Australia Free Trade Agreement: The Last 5 Years, the Next 5 Years”. Speakers include original negotiators (Stephen Deady, and I think Mark Vaile), academics and trade commentators; including Professors Mac Destler, Bryan Mercurio and Justin Hughes as well as a range of Australian faces – right across the subject areas. There’s a full list/program at http://www.law.uq.edu.au/fulbright-program.

Yesterday, I have made a submission to the Senate Economics Committee Inquiry into the Bank Funding Guarantees.

My column in Thursday’s Fin was about the case for an inquiry into the Financial system. I quoted well-known free market economist Ian Harper who observed that the breakdown of the efficient markets hypothesis undermined the basis of our existing system of financial regulation, a point reinforced in today’s Fin by former Reserve Bank Deputy Governor, Steven Grenville. This elicited a letter from Sinclair Davidson, offering a faith-based defence of the efficient markets hypothesis as tautologically true, combined with a rather more interesting argument – since the EMH was only developed in the 1960s, it can’t have been responsible for earlier financial crises and therefore can’t be blamed for the current crisis.

This seems to me like an all-purpose Get Out of Jail Free card for economic theories. For example, since inflation occurred on many occasions before Keynes wrote the General Theory, it must be wrong to blame Keynesian macro theories for the inflation of the 1970s.

The problem here is that, even assuming that there is a 1-1 relationship between policies and outcomes, there are many different theoretical rationales for any given policy. EMH justified weak financial regulation and a laissez-faire attitude to financial innovation, but the same policies were justified in different ways long before EMH, and produced the same outcomes on a regular basis.

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A group of economists: (Joshua Gans, Nicholas Gruen, Christoper Joye, Stephen King, Sam Wylie and me) has issued a statement calling from a comprehensive inquiry into the financial system.

It’s over the fold

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Like a large proportion of the population (but unlike two lucky winners) I’m a little bit poorer after last week’s jackpot lottery. That might put me in the right frame of a mind for a visit to the Commonwealth Treasury next week where, among other things, I plan to talk about how to treat gambling in the context of the Henry Review of Taxation.

State governments are heavily reliant on revenue from gambling, which is a combination of explicit taxes and payments for monopoly privileges. But gambling (particularly casino gambling and racetrack betting) is socially destructive, since the majority of the revenue is derived from problem gamblers. And while restrictions on gambling were justified by these social ill-effects, the current structure of taxation actually makes things worse, by ensuring that gamblers lose faster. Policy must also deal with the fact that, for the great majority of participants (who only account for a minority of expenditure, however) gambling is harmless and pleasurable. That’s particularly true of non-instant lottery gambling.

I’ve been thinking about how to fix this, and I’ve had the idea of subjecting gaming enterprises like casinos to a (net) revenue cap. That is, rather than being restricted to a certain number of machines, tables and so on, they would be limited in the amount they could take from the machines in a given year. This would eliminate incentives to increase the take from gaming, and replace it with incentives to do more business selling food, drinks, entertainment and so on. It would also increase the incentive to comply with measures aimed at restricting the access of problem gamblers, since they would not change the gaming take and would presumably spend less on other goods and services. My worry, not fully worked out, is that gaming enterprises would just reduce service and extract their allowable revenue from the problem gamblers as cheaply as possible.

Any thoughts on this?

Belatedly, thanks to site crises, I’m linking to Nicholas Gruen, who organised this article in Wednesday’s Fin, signed by 21 prominent economists from across the political spectrum (text over the fold).

Combined with the good GDP number released the same day (I discussed it at Crooked Timber , this letter does as Peter Martin says, leave the opposition looking naked. They haven’t really offered any analysis to justify their opposition to economic stimulus, and unless the rest of the year brings really bad economic news, it’s hard to see them recovering any credibility on economic issues. Unsurprisingly, the government ran with it in Parliament , and the best Joe Hockey could do in response was to sneer at Bernie Fraser.

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I’ve been opining in all sorts of media on the Queensland government’s asset sales programs. A couple of general points, both favorable.

1. The government has said that the sale process will take 3-5 years, and that the assets won’t sold if the offers are inadequate. They need to be held to this
2. The privatisation story has swamped the abolition of the fuel subsidy. At some level, I think everyone recognises that this program was at best an unaffordable luxury in the current environment, and at worst a counterproductive and damaging misuse of public funds.

Coming to the asset sales, and with a whole day to reflect on a $7 billion program here are my provisional views

Good: Queensland Forests. State forestry has never made commercial sense, since the timber industry has always had effective control, ensuring no proper return on the public capital investment. There were moves towards reform, but plenty of obstacles. Easier to let a private buyer set commercial prices

Bad: Queensland motorways. Toll roads are bad, private toll roads are worse. We need a comprehensive system of road pricing, with congestion as the main driver. The existence of privately owned toll roads is a huge obstacle to this goal

Ugly: QR coal freight and coal terminals. There are potential gains here, but there are also some huge traps, as illustrated by disastrous rail privatisations elsewhere. And there will be a lot of problems with wages and working conditions to be sorted out. I don’t think the government will be able to get away with using privatisation as a backdoor route to large-scale redundancies, but a sale with union conditions attached will have obvious problems

Indifferent: Port of Brisbane. A regulated monopoly asset with secure returns. Selling this and using the proceeds to repay debt doesn’t really change anything but perhaps it will fool Standard and Poors.

For an economist, the most striking feature of the 2009-10 Budget is the reappearance of old-time Keynesianism, after more than three decades in which fiscal policy took a back seat and monetary policy was primarily based on inflation targeting. The rhetorical change from the ‘recession we had to have’, when ‘pump-priming’ was a dirty word, is striking.

And while the response to the 1989-91 recession eventually included a significant dose of fiscal stimulus, ‘eventually’ is the operative word. In 1989 the government and the Reserve Bank kept squeezing the economy long after everyone else could hear bones breaking. This time around, the first round of stimulus money was going into bank accounts before the contraction (as measured by quarters of negative GDP growth) had even begun.
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