Voting with their feet, and following the business cycle

John Quiggin14 Comments

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).

The inevitability of red tape

John Quiggin23 Comments

I have a piece in The Guardian pointing out that the Abbott government’s Red Tape Reduction program is basically cover for a couple of big measures benefit the mining and gambling industries.

A bigger question raised by the piece: why does bureaucracy and red tape seem to grow without limits? Anyone who has ever worked as an academic, faced with a proliferation of pro-vice-chancellors, executive deans and multiple layers of hierarchy has certainly asked this question, and there’s nothing unusual about academics. The uselessness of administrators is the central theme of the comic strip Dilbert, popular in offices around the world.

The obvious explanations are
(a) stupidity; and
(b) administrative bloat benefits administrators and they are the ones who make the decisions

I don’t think either of these works adequately. Stupidity is certainly common, but the phenomenon is too pervasive to be explained in this way. As regards administrative self-interest, the problem is that senior executives could potentially gain a lot by cutting mid-level bureaucracy, and many have tried (remember ‘flatter organizations’ and ‘lean and mean’).

My own hypothesis is that every big mistake (for example, an undetected embezzlement or a mishandled episode of harassment) produces a permanent bureaucratic response designed to prevent a recurrence. This is very costly to reverse (who wants to deal with the first big embezzlement just after they downsized the accounting department) even if it would, in some sense, be less costly to put up with occasional failures. Moreover, for both good and bad reasons, I think we are, as a society, becoming less tolerant of institutional failures across a wide range of activities (systematic wrongdoing by financial institutions is a major counterexample but, I think, exceptional). So, we have more checks and balances, and more bureaucrats to enforce them.

Sandpit

John Quiggin61 Comments

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).

Bad for the client, bad for the bottom line

John Quiggin21 Comments

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.
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Plan B

John Quiggin62 Comments

Now that the Senate has rejected Pyne’s university deregulation plan, the obvious question is, what is Plan B? The first, negative answer: there is no acceptable plan that will deliver what the advocates of deregulation wanted, namely a highly stratified system, catering to a smaller minority of the population than at present, and topped by high-status institutions comparable to Yale and Harvard. That’s the US model and, as a system for educating young people, as opposed to generating research and reproducing a tiny elite, it’s been a miserable failure.

The correct way to think about this is to begin with the core objective of the process: to provide young Australians with post-school education that fits them for work in a modern economy and life in a modern society. That leads to two main principles

* A single system encompassing both universities and post-school technical education with easy flow between the two
* Uncapped access with an objective of (near) universal participation in some form of post-school education
* As with school education, the aim should not be stratification by quality, but the provision of a high-quality education for all, with resource allocation based on educational needs, not institutional history or individual wealth

I’ll leave aside, for the moment, the problems of the TAFE sector, though these are, I think, more urgent and difficult than those of the universities.

The big problem with what I’m proposing is that it will require more money for undergraduate education. That’s because the existing system relies on a mixture of student payments (through HECS), government funding and a cross-subsidy from fee-paying overseas students. There’s no substantial scope to get more money from overseas students, so the more domestic students the more thinly that cross-subsidy is spread. Similarly, although more government funding is merited, maintaining existing funding on a per-student basis while expanding numbers is probably too much to hope for. However, a clear focus on the core goal of universal post-school education would help a lot, though it necessarily poses some tough choices.

Broadly speaking, the goal I’m thinking about is to maintain existing teaching resources per student, while expanding access to cover a steadily increasing proportion of the population.

Some ideas are listed below (over the fold)

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Neither up nor down

John Quiggin30 Comments

I’ve had the unusual experience of being cited as an authoritative expert* by both the Oz and AFR this week. Unfortunately, the Oz got the story wrong, and the AFR report, while correct on a careful reading, is misleading. The issue is the impact of electricity privatisation on power prices.

Direct comparisons suggest that consumer prices don’t differ much between NSW and Queensland (with public ownership) and SA and Vic (with privatisation), though SA is highest.

The advocates of privatisation have focused on distribution charges, showing in the process that they don’t understand the National Electricity Market reforms they and their ideological allies pushed through in the 1990s. Under the system of regulation, distributors are allowed to charge a price sufficient to cover their “efficient costs”, which are determined in large measure by benchmarking against other distributors. So, if private firms are more efficient than public firms, that should have no effect on regulated distribution charges, only on relative profitability. **

As the AFR and Oz both gleefully pointed out, that analysis contradicts what they called Luke Foley’s “great lie”, that prices will rise if privatisation takes place. Unfortunately, it also contradicts the equal and opposite lie, that prices will fall if privatisation takes place. The AFR gives a misleading headline, but is correct in the body of its report, saying “The prices charged by the government-owned NSW network companies will go down – not up – whether or not they are leased out to private operators.” That contradicts Foley’s claims, but also the opposite claims made by the Liberals.

I look forward to the AFR and Oz correcting this error and presenting the correct analysis (only joking!).

More seriously, I’m hoping to do a proper analysis of electricity prices and why they have risen so much under the NEM, contrary to the predictions of the micro reform lobby of which both the Oz and the Fin are part.

* Of course, I was cited in an “even the liberal New Republic …” way. The AFR noted, reasonably enough, that I was opposed to privatisation. The Oz went full-on as only the Oz can do, reprinting some of Michael Stutchbury’s hit piece, written for them before he jumped ship to the Fin. Since this piece earned me a very nice write up in the New York Times, I guess I can’t complain.

** Disclosure: I was for some years, a member of the Queensland Competition Authority, which regulated distribution charges. I’ll write more about this, if I get time.

The US government didn’t lose the War on Poverty: it changed sides

John Quiggin72 Comments

I made this observation in comments on a Crooked Timber post, and got some pushback, so I thought I’d take a look back at the data

US Households in Poverty, 1959-2013
US Households in Poverty, 1959-2013

Both the number and the percentage of families in poverty dropped sharply during the 1960s when the “War on Poverty” was being waged actively, and remained near their all-time lows through the Nixon and Carter years until 1979, when the Volcker recession hit, followed by the election of Ronald Reagan. These events can reasonably be said to mark the point at which the government unequivocally changed sides.

The number of households in poverty has risen steadily since then and is now higher than in 1959, the year for which the poverty level was first defined by Mollie Orshansky. The poverty rate has remained consistently higher than in the 1970s, except for a brief deep at the peak of the late-1990s boom.
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