Brad de Long gives a rather unenthusiastic case for thinking Kerry will be a better economic manager than Bush. The first and most convincing of his proposed reasons is that

The Bush administration always does much worse than you anticipate, no matter how low your expectations are

The others are the quality of his team and the fact that he will restore proper processes.

The reason Brad doesn’t display more enthusiasm is that Kerry hasn’t given much ground for it. He has a plan to cut the deficit in half, but then, so does Bush[1].

I’d like to offer an argument based on political business cycles to suggest that Kerry has to do better than Bush.
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In today’s Fin (subscription required) Sinclair Davidson has a response to my earlier article on the Greens’ economic policy. A couple of points in response. First, although he’s kind enough to describe me as “one of Australia’s leading theoretical economists[1]”, he’s happy to dismiss proposals for a Tobin tax as coming from the lunatic fringe, without noting that the late James Tobin was considerably more eminent than either of us as both a theoretical and a policy economist (at least that’s what the Nobel Prize committee thought). Similar ideas have been put forward by a more recent Nobel Prizewinner, Joseph Stiglitz. Of course, there are plenty of equally prominent economists who oppose the idea, but it’s certainly not outside the range of legitimate debate.

The second is a fallacy I’ve pointed out previously in Davidson’s work for the CIS. The Greens assert that middle-income earners pay more of their income in tax than high-income earners. Davidson denies this. His evidence? Australian Taxation Office data on the ratio of tax paid to taxable income. But the primary method of avoiding (and for that matter, evading) tax is the use of legal, semilegal and illegal devices for reducing your declared taxable income. Davidson’s ATO data proves nothing more than that the income tax scale is progressive. The Greens, and many others, assert that tax avoidance is sufficient to offset this progressivity. This is hard to prove either way[2], but Davidson has not even addressed the issue.

fn1. A backhanded compliment in the context of policy discussion, but still a compliment’s a compliment

fn2. My own estimate, FWIW, is that the two roughly cancel out.

Ross Gittins has an excellent piece on the intellectual property aspects of the US FTA. There’s nothing that will be news to readers of this blog or, even better, that of Kim Weatherall (who I see has also linked to Gittins) but it’s good to see the message getting out to a wide audience. Perhaps this will help to put a bit of steel in Iron Mark’s spine.

The discussion on the Greens’ economic policy has been really great, and very helpful to me. Its helped me in working the short extract I posted into an opinion piece for the Fin, which came out today (posted below the fold). I’d like to thank everyone who took part in the discussion – in more or less subtle ways, they’ve helped to improve the final article.
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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.

There’s quite a good piece on Public-Private Partnerships by Graeme Hodge in today’s Age. Fair and balanced, but providing some justified scepticism. Meanwhile the news page of the same paper has a perfect example of the magic pudding mentality that still underlies most advocacy of PPP arrangements.

Brian Caldwell, the outgoing dean of education at Melbourne University, has called on the Bracks Government to follow the lead of the Blair Government in Britain, which is rebuilding schools in partnership with the private sector…Professor Caldwell said that while the Government was moving “quite impressively” to improve the quality of buildings, the cost in many schools was enormous.He called on the Government to adopt the policy of the Blair Government, which is rebuilding schools in urban areas. It often involved the private sector building schools and leasing them back to the Government, which paid them off over 25 years.

Caldwell doesn’t mention cost savings or risk transfer or any of the other reasons why PPPs might be worthwhile, he just seems to think that this is a way of getting money for nothing.

Caldwell on to say that the British PPP program is “coupled with redesigning the educational programs of the schools.” But there is, in general, no link between PPP construction and educational programs, which are typically still public in these cases. Conversely, there are plenty of examples of partial or complete privatisation of education in systems where the public maintains ownership of the school buildings (as with PPP construction, the record of such ventures is mixed at best).

While collecting links for my previous post, I came across this quote from Minister for Financial Services and Regulation, Joe Hockey.

In 1930 the Bank of England sent Sir Otto to Australia to help us work through our financial problems caused by the Great Depression. The result was that Sir Otto Niemeyer had a profound impact on our recovery.

So profound, in fact, that the Depression was still in full swing when World War II broke out nearly a decade later.

It turns out the Hockey was announcing the inauguration of a “Sir Otto Niemeyer” scholarship at the Australian Graduate School of Management, supported by

• The Commonwealth Treasury;
• The Reserve Bank of Australia;
• The Australian Prudential Regulatory Authority;
• The Australian Competition and Consumer Commission
• The Australian Securities and Investments Commission and
• The Australian Bureau of Statistics.

This is an absolute disgrace, and all of these institutions should be ashamed of themselves. I doubt that anyone in Australian history has caused as much economic hardship as Otto Niemeyer.

Moreover, there was no question of error in his actions. Niemeyer knew that, if the British banks he represented were to be receive repayments of their loans (overvalued thanks to deflation) Australian living standards would have to fall, and unemployment would have to rise. He delivered precisely that outcome. He had previously done precisely the same in Britain, having been the leading advocate of the disastrous return to pre-war gold parity in 1925.

Ice Station by Matthew Reilly. Readers might have picked up by now that my taste in reading is fairly omnivorous, but techno-thrillers are outside my normal range. However, given that the author is Australian, I was struck by the introduction which seemed to promise an evil genius role for a character named Otto Niemeyer, and decided to read on. In fact, he remains peripheral. As compensation, though, you get to encounter (I am not making this up!), mutated sea-elephants. Despite the absence of laser-beams, they are very ill-tempered. If you can overlook this kind of thing, and like the genre, Reilly is actually pretty good.

Restored to pride of place on the blogroll, the inimitable Don Arthur has returned to blogging.

I’ve also added The Drawing Board an Australian Review of Public Affairs, published by the School of Economics and Political Science at The University of Sydney. An article I’ve done on Labor’s economic policy should be published there soon has just (this minute) been published there.