Don Harding of La Trone University has been digging into the Budget Papers and he’s found something startling – Projections of a sharp decline in the labour share of national income. As he says, this seems implausible on the face of it, but if the projections are right it’s a much bigger deal than food or petrol prices.
Update I’ve add Don’s supporting calculations in Word and Excel formats
There’s been a fair bit of discussion of inflation in the comments threads. Bruce Bradbury of the Social Policy Research Centre has sent in a guest post (in a PDF over the fold), making the point that the cost of regular purchase, notably food, has gone up by more than the Consumer Price Index. This implies that irregular purchases (consumer durables like TV sets and cars) must have gone up by less than the CPI and in fact the inflation rate for these items over the past three years has been only 0.5 per cent. Bruce’s conclusion
This gap perhaps explains some of the divergence between the expressed concerns of consumers and the complacency of economists. Though consumers know that their next TV will be much better than their last one for much the same price, they are still struggling to meet their weekly supermarket and petrol station bills.
Today’s Fin (paywalled unfortunately) includes the neat neologism “Peak Car” from transport consultant John Cox, making the point that car travel in developed countries is unlikely to increase further. I’ve tended to disagree with Cox in the past: for example, with this 2006 piece, which stated that public transport is in terminal decline. This was just at the beginning of the recent resurgence in public transport use, particularly noticeable in Brisbane. Still he’s right about the peak, or more precisely plateau in car travel, matching what’s happening to oils supplies. I’d take it further and say that the inevitable (given no growth in supplies and increased demand from China and India) decline has probably already begun.
Calculated Risk points to this report from the US Dept of Transportation, showing the first yearly decline in several decades, and includes a graph which shows that the recent decline follows several years of flattening
Yesterday, I appeared on video a National Symposium to be held by the Australian Agricultural and Resource Economics Society in Adelaide (details here and program (PDF) here).
Unlike previous videoconferences I’ve done for smaller seminars (audience up to 30 who can fit into a dedicated venue) presenting to a big event like this posed lots of difficulties, though most were satisfactorily resolved at the end. After initially giving assurances that they could handle a videoconference, the venue advised that they didn’t have an ISDN line, or any adequate alternative, and that installing a line would cost thousands of dollars. We looked at various computer-based options, but eventually decided that we would be unlikely to get sufficient reliability and video quality that way, so I stepped back from the frontier and made a DVD of my presentation which I mailed to Adelaide. Even that fairly low-tech approach created some problems, as playback of computer-burned DVDs turns out not to be 100 per cent reliable. There was a scramble to find a setup that would play the DVD, but it all went well in the end.
The plan was to take questions by audioconference, and this was incorporated in a panel discussion where questions were addressed to several speakers. The organisation on this point was a bit ad hoc, and the sound quality was very poor. Fortunately, perhaps, the format only allowed for one or two questions per speaker.
A benefit of going this way is that it’s reasonably easy to make a podcast. Unfortunately, my slide design, which works fine on standard projection equipment, and seems to have gone OK in the DVD, is very hard to read in a small movie format. Even with this poky format, 30 minutes of video turns out to be too big to upload. I’ll have to split it into parts. I’ve attached the presentation for the moment, but even that is 8.3MB..
Overall, my experience here is an indication of some of the kinds of adjustments that need to be made if videopresence is going to replace air travel on a large scale. None of them are huge in themselves, but they reflect the marginal status of this option When the problems are overcome, the advantages, such as the permanent availability and reusability of the video and podcast will be substantial, but at the moment, it’s still on the bleeding edge.
According to Wikipedia, today is the International Day for Biological Diversity. I don’t tend to write much about this, but my concern over global warming is based, to a great extent, on the losses in biodiversity that will inevitably result from climate change, even at rates that don’t greatly damage human economic activity in general.
Getting back to serious business, that’s the title of a National Symposium to be held by the Australian Agricultural and Resource Economics Society in Adelaide tomorrow and Friday (details here and program (PDF) here).
I’ll be appearing, but not in person. As discussed previously, I tried to arrange a videoconference, but that didn’t work, so I went instead for a prerecorded video appearance, which will be followed a bit later by a panel discussion in which I’ll take part by audioconference. I’m arranging to have the video turned into a podcast and will post this, along with my presentation, for anyone interested.
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It’s hard to know how to keep up with news on the problem of mitigating CO2 emissions – there’s just so much happening – so I’m just going to jot down a few thoughts. This piece on wind power in Salon by Joseph Romm has a couple of particularly interesting snippets I want to jot down.
* since 2000, Europe has added 47 GW of new wind energy, but only 9.6 GW of coal and a mere 1.2 GW of nuclear
* The carbon price required for large scale expansion in wind power (to 20 per cent of all US electricity by 2030) is estimated at $50/ton
Given our larger area of land per person, I’d imagine the economics in Australia would be at least as favorable. Ignoring for the moment the demand response, the revenue associated with permits sold at $50/ton in Australia would be about $25 billion (given current emissions around 500 million tonnes). Taking account of an emissions reduction of at least 20 per cent*, revenue would be $20 billion (enough to fund the abolition of payroll tax and a reasonably generous compensation program for low-income households). The net welfare loss would be much less than this – given the many problems with payroll tax, there might even be a net gain.
* The Salon article is only on electricity, but there are comparable savings to be made in other areas.
Dan Hunter and I have a paper coming out in the Hastings Communications and Entertainment Law Journal, which economic and technical innovation is increasingly based on developments that don’t rely on economic incentive or public provision. The main examples, obvious enough for readers here, include open source software, blogs and associated technical and social innovations, and wikis. Abstract and links to SSRN over the fold.
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It’s unclear whether we are bound for a Post-American World in the near future, but it seems pretty clear that we are bound for a world in which the US dollar is no longer the unique ‘reserve currency’. The combination of chronically large trade and budget deficits and willingness of the US monetary authorities to tolerate sustained inflation means that decisions by national central banks to hold US dollar reserves are now driven by a desire to preserve the existing order rather than by calculations of risk and return. In the long run this can’t be sustained.
If the US dollar can no longer satisfy the requirements of a reserve currency, what are the alternatives? I can see two possibilities.
Among the outcomes produced by a market economy, real wages are arguably the most important single variable for most people. With inflation rising around the world, and sensitive prices like those of food and petroleum going up a lot, most people’s living standards depend mainly on whether wages grow faster than prices. I got a couple of pieces of info on this today, which illustrate the difference between data and anecdote.
In my morning email, the US Bureau of Labor Statistics (pdf file) advised that the US employment cost index (hourly wages + benefits) rose by 3.5 per cent last year, less than the inflation rate of about 4 per cent*. This continues a trend of declining real wages since 2003.
This afternoon, I looked at the NY Times to see a story about stagnant real wages in Europe, which began with a lengthy voxpop about a couple who had bought a breadmaker because baguettes were too dear, and continued in much the same vein. Deep within the article was the information that eurozone prices have risen by 22.5 per cent since 1999. But despite various claims about the declining purchasing power of wages, there is not a single piece of statistical evidence on wages anywhere in the story. Instead, we got a lengthy and inevitably inconclusive discussion of what constitutes the “middle class.
A quick visit to Eurostat reveals that Eurozone wages have risen about 30 per cent since 2000. German wages have increased by about 20 per cent, so the article’s claims of stagnation appear to be about right for Germany, but not for the EU as a whole. Of course, to do things properly you’d want to consider the impact of food prices on low-income households. But given the focus on the middle class, it seems reasonable to suppose that the price index measures the standard of living for the average middle class household reasonably well.
It seems sad that the NY Times has to cover issues like this by anecdote, but I guess it gets them a lot more readers than the BLS email statistics series.
* The US Fed prefers to focus on the “core” inflation rate, excluding food and energy prices, a use of “core” even more impressive than John Howard’s. so it says the rate is about 2 per cent. And the reforms to the CPI introduced by the Boskin Commission in the 1990s reduced the measured inflation rate by a percentage point or so, meaning that the current rate is comparable to 5 per cent inflation on the measures used in the 1970s and 1980s.
John Quiggin 