Noah Smith has posted an interesting interview with Sarah Paine who looks at the distinction between maritime powers (in modern history, Britain and the US) and continental powers (everyone else). Paine sees maritime powers as beneficent creators and upholders of a peaceful and rules-based international order
It’s a distinction I’ve discussed in the past, but with very different views. Here’s a full-length response
The maritime/continental distinction is crucial, but not in the way suggested here. The era of maritime dominance is over.
That’s partly because the UK is now negligible as a power, and the US isn’t as dominant as it was.
But it’s mainly because ships are an old technology that hasn’t advanced much over the past century or so, either in commercial or in military terms. Average speed has barely changed since the advent of steam. Meanwhile aerospace (including drones and missiles) and telecoms have advanced massively.
In military terms, navies ceased to be useful long ago (once aircraft and missiles no longer needed carriers to cover vast distances). No one noticed until recently because there hadn’t been any significant naval combat (the Falklands war had lessons, but they were ignored). But the humiliating defeat of Russia’s Black Sea Fleet by a country whose own navy lasted one day in the Ukraine war tells the story. Ships can’t hide in the open sea any more, and they can’t escape from missiles and drones.
In commercial terms, air has replaced sea transport in most high-value goods trade (particularly passenger travel), and telecommunications has made transport of all kinds less relevant.
Ships are still important for bulk transport, but the economic importance of “vital trade routes” was always overstated, and is now negligible. If the current ME conflict continues, we’ll see this. Or rather we won’t see it because the economic impact of longer shipping times will be imperceptible against the general background noise of economic shocks.
Meanwhile, maritime powers (the UK, then US) have made up rules that benefit them (for example, Freedom of Naval Operations) and erected them into sacred principles. Attempts to coerce continental powers like China into respecting those rules will achieve nothing, while risking an accidental outbreak of war.
Continuing my discussion of the recent upsurge in pro-natalism, I want to talk about the idea that, unless birth rates rise, society will face a big problem caring for old people. In this post, I’m going to focus on aged care in the narrow sense, rather than issues like retirement income, which depend crucially on social policy.
Staffing requirements in Australia amount to aroundone full-time staff member per residents. So the “average” Australian requires about one full-time working year of aged care in their lifetime, or about 2.5 per cent of a working life. This is, as it happens, about the proportion of the Australian workforce currently engaged in aged care.But what if each generation were only half the size of the preceding one? In that case, the share of the labour force required for aged care would double, to around 5 per cent.
If you find this scary, you might want to consider that children aged 0-5 require more care than old people, and for a much longer time. Because this care is provided within the family, and without any monetary return, it doesn’t appear in national accounts.
But a pro-natalist policy requires that people have more children than they choose to at present. To the extent that this is achieved by subsidising the associated labour costs (for example, through publicly funded childcare), it will rapidly offset the eventual benefit in having more workers available to provide aged care.
And that’s only preschool children. There’s a significant childcare element in school education, as we saw when schools closed at the beginning of the pandemic. And school-age children still require plenty of parental care. (I’ll talk about education more generally in a later post, I hope).
Repeating myself, none of this is a problem when people choose to have children, more or less aware of the work this will involve (though, as everyone who has been through it knows, new parents are in for a big shock). But it’s clear by now that voluntary choices will produce a below-replacement birth rate. Policies aimed at changing those choices will have costs that exceed their benefits.
This Crooked Timber post on declining population has prompted me to get started on what I plan, in the end, to be a lengthy critique of the pro-natalist position that dominates public debate at the moment. My initial motivation to do this reflected long-standing concerns about human impacts on the environment but I don’t have any particular expertise on that topic, or anything new to say. Instead, I want to address the economic and social issues, making the case that a move to a below-replacement fertility rate is both inevitable and desirable.
I’m going to start with a claim that came up in discussion here and is raised pretty often. The claim is that the more children are born, the greater the chance that some of them will be Mozarts, Einsteins, or Mandelas who will contribute greatly to human advancement. My response was pre-figured hundreds of years ago by Thomas Gray’s Elegy Written in a Country Churchyard. Gray reflects that those buried in the churchyard may include some “mute inglorious Milton” whose poetic genius was never given the chance to flower because of poverty and unremitting labour
But Knowledge to their eyes her ample page Rich with the spoils of time did ne’er unroll; Chill Penury repress’d their noble rage, And froze the genial current of the soul.
Billions of people alive today (the majority of whom are women) are in the same situation today, with their potential unrealised through lack of access to education and resources to express themselves. Rather than adding to their numbers, or diverting yet more resources away from them, we ought to be focusing on making a world where everyone has a chance to be a great poet or inventor.
Foreshadowing future argument The political difficulties of achieving the necessary redistribution are immense. We are unlike to achieve even the basic targets set out in the Sustainable Development Goals for 2030. But even supposing that the world were a fairer place, it is unlikely that we can provide the kind of education necessary for full participation in a modern economy while having more than two children each (that is, more than one child per parent) on average. The fact that fertility rates in all development countries are below this level is a reflection of economic reality, not the product of social decadence. I’ll be expanding on this point a lot, so I’d welcome it if the discussion focused on the main part of the post.
In my latest Guardian piece, I argue that, unless we pay attention to the purchasing power of wages, talk about the “cost of living” is like the sound of one hand clapping
The policy debate about the cost of living is among the most confused and confusing in recent memory. All sorts of measures to reduce the cost of living are proposed, then criticised as being potentially inflationary. The argument implies, absurdly, that reducing the cost of living will increase the cost of living.
The issue here is that the “cost of living” is an essentially meaningless concept, rather like the sound of one hand clapping. The problem isn’t the cost of buying goods, but whether our income is sufficient to pay for those goods. For most of us, that means the real (inflation-adjusted) value of our wages, after paying tax and (for homebuyers) mortgage interest.
Photoshopped version of a Getty image
In the famous Harvester decision of 1907, Justice Henry Bournes Higgins of the Arbitration Court determined that a family of five could live in “frugal comfort” on 42 shillings ($4.20) a week, less than the price of a cup of coffee today. On this basis, he set the basic wage at 42 shillings a week, or about nine cents an hour for the then-standard 48-hour working week.
Looking back over the past century or so, the cost of buying a basic bundle of necessities (and some modest luxuries) has risen almost continuously. But, fortunately, wages and other incomes have risen much faster. So while people complain about the cost of living today, few of us would want to go back to the frugal comfort of 1907.
Looking at more recent history, the consumer price index rose faster for much of the 1980s than it has done over the last few years. Inflation was a significant problem for macroeconomic management and financial markets. But the “cost of living” was not a big issue because wages were indexed under the Prices and Incomes Accord. Some small reductions in real wages were compensated for by the reintroduction of Medicare and improvements in superannuation.
The Accord, focused on real wages, produced a gradual decline in inflation rates, while maintaining standards of living. By contrast, the current discussion of policy in terms of the cost of living has produced incoherent policies and declining living standards.
The natural policy response to concerns about the cost of living is to seek reductions in prices that are politically sensitive (such as petrol, electricity and basic groceries) and to provide ad hoc relief to groups seen as “doing it tough”. This has included wage increased to offset inflation for particularly “deserving” groups (minimum wage earners and aged care workers), even as the real value of most wages remains far below pre-pandemic levels. Labor estimates the value of their 2022-23 cost-of-living relief package at $14.6bn.
In the neoliberal context, any benefits given to one group of wage earners or welfare beneficiaries must be offset by costs imposed on another. The ad hoc nature of policy responses to the perceived cost-of-living crisis reflects the incomplete and inadequate nature of this framing of the issue. But it is not the worst consequence.
The crucial problem with “cost of living” thinking is the implication that the problem will be resolved by reducing the inflation rate, ideally with a rapid return to the Reserve Bank target range of 2-3%. In this way of thinking, the worst thing that could happen is for wages to rise enough to offset past inflation. Such an adjustment, it is claimed, could set off an inflationary spiral.
A rapid reduction in inflation, achieved by holding real wages below their pre-pandemic level suits the institutional interests of the Reserve Bank, which are centred on its primary objective of price stability. But Australian workers would be better served by a gradual reduction in inflation, without real wage cuts, as was achieved in the 1980s under the Accord.
If the decline in real wages wasn’t bad enough, the Albanese government has made matters worse by eliminating the low and middle income earners tax offset (LMITO), introduced in 2018 by then treasurer Scott Morrison as part of a tax reform program designed to culminate in 2024-25 with stage three, massively skewed towards high-income earners.
LMITO was supposed to expire in 2020, but the Morrison government repeatedly shied away from raising taxes on middle-income earners at a time when real wages were failing.
Jim Chalmers and Anthony Albanese had no such qualms and scrapped LMITO from 2022-23 onwards. Over the government’s remaining term, the resulting increase in taxes will more than cancel out all the cost-of-living relief trumpeted in the last budget. Meanwhile, the stage-three tax cuts will ensure that high-income earners are returned to the lowest average tax rates in recent history, last seen under the Howard government’s final package of tax cuts.
In the end, the “cost of living” isn’t about the prices on grocery shelves, it’s about the distribution of income. In Australia, income has shifted from wages to profits and from low- and middle-income earners to those in the top 10% of the income scale and, even more, to the handful of “rich listers” whose growing wealth has outstripped that of ordinary Australians many times over.
I’ve been working a bit on inflation and the highly problematic concept of the ‘cost of living’ (shorter JQ: what matters is the purchasing power of wages, not the cost of some basket of goods). As part of this, I’ve been looking at how particular prices have changed over time, focusing on basics like bread and milk.
One striking thing that I found out is that, until quite late in the 20th century, the standard loaf of bread used to calculate consumer price indexes in Australia weighed 4 pounds (nearly 2kg). That’s about as much as three standard loaves of sliced bread. Asking around, this turns out to be the largest of the standard sizes specified in legislation like the Western Australian Bread Act which was only repealed in 2004, AFAICT.
Going back a century or so further, the Speenhamland system of poor relief in England specified the weekly nutrition requirements of a labouring man as a ‘gallon loaf” of bread, made from a gallon (about 5 litres) of flour, and weighing 8.8 pounds (4kg). Bread was pretty much all that poor people got to eat, so the amount seems plausible.
But why one huge loaf rather than, say seven modern-size loaves? And turning that question around, why are our current loaves so much smaller?
The New Year has barely started, but the world of academia seems to be back to work, and sending me a variety of gifts, some more welcome than others. Coincidentally or otherwise, it’s also the day I’ve moved to semi-retirement, a half-pay position involving only research and public engagement.
Most welcome surprise: an email telling me I’ve been elected as a Fellow of the Society for the Advancement of Economic Theory. In the way academia works, some friendly colleagues must have proposed this, but I had no idea at all
Most culturally clueless: A request for a referee report, due in three weeks. This is January in Australia – only the most vital jobs get done
Most interesting: An invitation to join the editorial board of Econometrics, an MDPI journal in which I have published an article of which I am quite proud, though of course it has received almost no attention. MDPI is a for-profit open access publisher, which regularly deals with accusations of predatory behaviour. A search reveals that the existing editors have resigned, something which is happening a bit these days.
I’m in n>2 minds about this. I think that journal rejection rates in economics are absurdly high, in a way that damages intellectual progress. Eric has expressed the same view regarding philosophy, which is closer to economics in cultural terms than any other discipline (Macarena’s post is highly applicable to econ).
On the other hand, I’m always dubious about the motives of for-profit firms (that includes the “reputable” firms like Elsevier and Wiley).
And on hand #3, I’ve just semi-retired, and I don’t feel like taking on a fight in which I have no dog.
So, I’ll probably stick with the plan of spending more time at the beach, working on my triathlon times, and trying not to get too depressed about the state of the world, at least those bits I can do nothing too change.
It’s now just over 18 months since the 2022 election, so we are halfway through the the Albanese government’s term. At this point, it looks highly unlikely that the government will be returned with an outright majority, whenever the next election is held. So, it’s worth thinking about the government’s strategy, why it has apparently failed and whether it ever had a chance of success.
Even before the 2019 election Albanese was positioning himself to challenge Shorten from the right if Labor did badly in the Longman by-election. That didn’t happen and Labor went into the election with all the opinion polls pointing to a narrow win. When the result turned out to be a narrow loss, the political class took that as an emphatic rejection of Shorten’s ambitious program rather than the result of contingent factors (Shorten’s lack of likeability, Bob Brown’s disastrous convoy to Queensland, a lousy campaign etc).
Having dumped the 2019 platform, Albanese adopted a strategy based on the idea that Labor could spend its first term demonstrating its competence in managing and tweaking the policies inherited from the LNP, modified with a handful of signature initiatives: the Voice, the Housing Australia Future Fund, and a Federal ICAC (if there were any others, I’m not aware of them). Success implementation of this strategy would, it was hoped, build popular support for more progressive (though not radical) policies in Labor’s second term.
The second part of this strategy has failed comprehensively. The Voice referendum was always a long shot, but Albanese’s mishandling of it ensured a crushing defeat. The fraudulent nature of HAFF made it an easy target for the Greens, who forced Labor to massively enlarged it. The issue of rental affordability now belongs to the Greens even more than before.
Federal ICAC has happened, but it was always going to be a damp squib. Contrary to the hopes of some Labor supporters, we aren’t likely to see Morrison or his ministers in ICAC’s sights, although they were discredited by the Robodebt Royal Commission. More importantly, while avoiding (so far) the excesses of ministers like Stuart Robert, Labor hasn’t significantly improved on the LNP in terms of transparency or probity – Nathan Albanese’s Chairman’s Lounge membership being a small but telling example for the vast majority of us who fly economy and buy overpriced airport food.
By contrast with the lack of significant new Labor policies, we’ve seen a steady stream of reviews of LNP policy on higher education, infrastructure, migration and the NDIS. There have been changes to the previous government’s policies on industrial relations and climate change, where the ferocity of opposition from the Murdoch press and the mining sector has obscured the modesty of the actual policies.
The government and its sympathisers in the media, notably Katharine Murphy and Michelle Grattan, feel that they aren’t getting enough credit for this activity which they see, in Grattan’s words as a ‘tsunami’ of policy, while the media generally is distracted by scandals over detainees. Similarly, they point to a bunch of small-bore measures seen as addressing the ‘cost of living’ problem, and say that doing anything more would make inflation worse.
But this is Parliamentary Triangle bubble thinking at its worst. Reviewing and adjusting existing policies is important and keeps ministers and public servants busy, but it doesn’t give voters any reason to re-elect a government, even if it has a somewhat more competent team. It’s no surprise that the public and the media are more interested in scandals, real or imaginary.
The framing of a decline in real wages as a ‘cost of living’ problem is inherently reactionary and has led the government to support the explicit Reserve Bank policy of holding wages down as a way to reduce inflation. Unsurprisingly, this hasn’t done anything to alleviate the actual situation of wage-earners dealing with falling real incomes.
Even worse, by maintaining the previous government’s tax policies, Labor has chosen to deliver the regressive components – axing the Low and Middle Income Earners tax offset and the Stage 3 tax cuts, while Morrison retains the credit for the more progressive Stages 1 and 2.
Coming back to the calendar, the government will be going into election mode after the 2024-25 Budget. That doesn’t leave much time for policy initiatives that aren’t already well in train. The only real chance for a policy reset is a big change to the Stage 3 tax cuts. I don’t think that will be enough to save Labor’s majority but it would provide a basis for a genuine contest with Dutton, which I think he would lose. Without a new tax policy, the question isn’t whether Labor will retain a majority but whether it will get a second term at all.
John Quiggin 