Ross Gittins cites some interesting questions used by some of my QUT colleagues to assess cognitive biases before undertaking a study of investment behavior. Here you go: Try to answer before reading on or checking comments:

Give me high and low estimates for the average weight of an adult male sperm whale (the largest of the toothed whales) in tonnes. Choose numbers far enough apart to be 90 per cent certain that the true answer lies somewhere between.

Don’t like that one? Try this: give me high and low estimates of the distance to the moon in kilometres. Choose numbers far enough apart to be certain that the true answer lies somewhere between.

Now something more personal. When you buy a Lotto ticket do you feel more encouraged regarding your chances if you choose the number yourself rather than using a computer-generated number?

Read More »

There has been even more media excitement about the fact that New Zealand is currently experiencing more rapid economic growth than Australia. This is largely due to the fact that the two economies are in different phases of the medium term macroeconomic cycle.

However, there is another important factor that needs to be taken into account in making comparisons of this kind. Given access to the same technology, and with similar levels of education, poor countries will grow faster than rich ones, and will eventually converge to similar level of income. There’s a huge literature on this, to which I contributed a little bit back in the 1990s. The key finding is that, on average and under the conditions just stated, we should expect to see a poorer country make up around 2 per cent of the income gap with a richer country each year. That is, convergence will typically take around 50 years (there’s some tricky Zeno-style paradoxes here, which I don’t have room to discuss)

How does this affect comparisons between Australia and New Zealand. The IMF estimates here give income per person of 45138 for Australian and 33626 for New Zealand. So Australia’s income is about 35 per cent above the New Zealand level. The two countries were roughly on a par until the 1970s.

The standard convergence estimate is that NZ should make up about 2 per cent of that gap (or 0.7 per cent of GDP) each year. If the gap is larger, NZ could reasonably be said to be outperforming Australia for the year in question, relative to the standard 50 year timeframe for convergence. If the gap is smaller, NZ is doing worse than par.

Among the regular themes in the Australian business press is the claim that we are being outperformed, in economic terms, by New Zealand. I collected a bunch of such claims here, and they were even more prevalent (but hard to find now, being pre-Internet) in the late 1980s. I’m seeing the same theme recurring today (too many repetitions to link).

This is a recurring rather than a continuous theme: there are long periods during which Oz-NZ comparisons are absent from the press. So, if you took the Australian press at face value, it would be reasonable to suppose that Australia was becoming relatively poorer than NZ, not continuously, but in a series of downward steps.

In fact to a close approximation, the reverse is the case. But because market economies are cyclical, there are inevitably brief periods when the NZ economy is on an upswing and Australia in a slowdown or recession. It is only at such times that the business press notices New Zealand’s existence.

A point often made at such times is that net migration from NZ to Australia has slowed to a trickle, usually with the implication that this marks the end of the long term movement. In reality, the cyclical nature of net migration has been a marked feature of movement patterns, ever since the beginning of mass migration westward across the Tasman. The starting point was 1973 Closer Economic Relations Trans-Tasman Travel agreement, which coincided with the beginning of New Zealand’s relative decline. The authority here is Jacques Poot, and this 2009 paper sums up the story.

Interestingly, the flow has continued, unabated though still cyclical, despite the Howard government’s move to exclude Kiwis from welfare payments (arising, IIRC, from a dispute over concerns that NZ’s more liberal immigration policy would provide a ‘backdoor’ path to Australia).

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

My report on the NSW governments proposal to sell (they prefer to say “lease”, but it’s a sale) assets and then undertake a large-scale infrastructure program notionally funded by the proceeds cited the former Secretaries of the NSW and Victorian Treasuries the point that selling income-generating assets does not create a ‘bucket of money’ that can be used to fund non-income-generating infrastructure. I made the claim that regardless of their attitude to privatisation, economists (at least when writing honestly on the subject) would agree with this.

My point was proved, twice over, a couple of days ago. The main point was proved when global bank UBS released a research note headed headlined “Bad for the budget, good for the state“. Of course, UBS supports privatisation, but the adverse effect on the budget was obvious.

However, it turns out that a different part of UBS is advising the Baird government on privatisation. A quick call from the Premier’s office produced a revised version of the note with the offending phrase removed. This proved, via the contrapositive, the parenthetical aside in my claim.

The episode raises the question: what reliance can be placed on published reports from firms like UBS cited in support of government policy? Of course, the same question is equally applicable to reports like my own, which more commonly oppose government policy? A few thoughts over the fold.
Read More »

I’m doing some work on the proposed Trans Pacific Partnership Agreement, currently being negotiated in secret by diplomats and business representatives from 12 countries. Two facts of interest
(a) Australia’s Trade Minister Andrew Robb is claiming that a final agreement might be reached by mid-March. While this looks over-optimistic, it implies there is a near-final text
(b) Obama has sought “fast-track” negotiating authority, but there is no sign that this is going to happen soon, given that quite a few Democrats oppose the deal outright, and many Republicans are hostile to anything that would give Obama more authority.

The idea of “fast track” is that the Administration cuts a deal and Congress is bound (by having agreed to the fast-track rules) to give it a Yes/No vote, with no amendments. The assumption (I think) is that, if amendments were permitted, they would proliferate to the point where the legislation would fail to implement the agreement with other parties, who might then back out. Of course, the result is that Congress is, in effect, buying a pig in a poke. Given the unlikelihood of an outright rejection of such a massive deal, they have to accept whatever Obama puts before them. The flip-side is can no individual Congressperson has to explain why they didn’t seek protection for whatever local ox might be gored by the deal: they can respond that they had no choice.

My question is: Suppose that the final text is agreed and made public before fast-track authority is granted. What would be the chances of Congress agreeing to a Yes/No vote, and what difference would it make? There are a lot of issues to be raised here about international relations, trade agreements and US politics, none of which I have a clear feel for. So, I’d be interested to hear what others think.

Ernst and Young, leading consultants to the Queensland government have released a report claiming that electricity costs would be lower under privatisation. Although the report was commissioned by private infrastructure lobby group Infrastructure Partners Australia, it’s just a rehash of the same line EY have been pushing for years in similar reports commissioned by pro-privatisation governments. The central claim is that electricity prices have risen more in Queensland and NSW, under corporatisation than in Victoria and SA, under privatisation. What they don’t tell you is that this merely offsets increases imposed in the leadup to privatisation, with the result that retail prices are much the same in all four states, and far higher than when the process of market reform (supposedly to reduce prices through competition) began in the 1990s. Here’s the response I issued:

Media Release

Professor John Quiggin, of the University of Queensland criticised the Ernst and Young report on privatisation of the electricity industry.
The Ernst and Young report ignores the biggest factor leading to higher electricity prices throughout Australia: the failed process of market reform, corporatisation and privatisation of which the LNP government’s asset sales is a part,Professor Quiggin said.
Although the problems have differed from state to state, there is no evidence that states which undertook full scale privatisation in the 1990s have performed any better. South Australia has some of the highest electricity prices in the world, and Victorian prices are comparable to those in NSW and Queensland.

That’s the title of my review of the Queensland LNP proposal to privatise most of the state’s remaining public enterprises. There’s a report here from the Brisbane Times covering most of the main points. I also did an interview on Steve Austin’s ABC show, sandwiched between LNP Treasurer Tim Nicholls and pro-privatisation economist Judith Sloan.You can listen here