There’s more to good policy than increasing GDP

John Quiggin25 Comments

My latest in The Conversation

There’s more to good policy than increasing GDP

By John Quiggin, University of Queensland

Economists are regularly criticized for worrying about Gross Domestic Product (GDP), and similar measures. The classic statement of the case was by Robert F Kennedy:

“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

“Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”

Much of the time, this criticism is misplaced. For the purposes of medium-term macroeconomic management, that is, trying to maintain full employment and low inflation, it is important to measure how much economic activity is going in aggregate. If aggregate demand is weak, for example, it is sensible to stimulate the economy by cutting interest rates or increasing public spending. GDP is the best single measure of economic activity, precisely because it captures all output, taking existing market prices as the measure of value.

In the longer term though, the problems with GDP start to matter, even in relatively narrow issues of economic policy. In measuring economic performance, as opposed to activity, GDP suffers from three major drawbacks in this respect

  • It’s Gross – that is, depreciation of physical and natural capital is not deducted

  • It’s Domestic – that is, it measures output produced in Australia, even though the resulting income may flow overseas[1]

  • It’s a Product – the ultimate aim of economic activity is not production in itself but the income it generates, which should be taken to include the economic value of leisure, household work and so on

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Crowdsourcing contest: global research on disease

John Quiggin18 Comments

In comments, David Barry, winner of the previous crowdsourcing contest writes

I would be interested in seeing how much global research funding goes towards different diseases. My goal here is to see if research funding into a disease is roughly proportional to the global burden of the disease, or if there are relatively under- and over-funded areas; the former might then be the best place for individuals to donate to, if they want to support medical research.

The global burdens are on the WHO’s website: http://www.who.int/healthinfo/global_burden_disease/estimates_regional/en/index.html I don’t know where I’d find funding statistics. As a first step, I’d be happy with just US/EU government agency funding data. For instance, the National Cancer Institute has a nice table here, http://www.cancer.gov/cancertopics/factsheet/NCI/research-funding

This is a great topic, and I encourage readers to look into it. I’d offer the minor caveat that research is conditioned to some extent by the availability of researchable topics. For example, I believe (though I’m happy to be proved wrong) that the mortality rates from prostate cancer are similar to those for breast cancer, but that breast cancer research gets much more funding. As I understand it, this is mainly because there don’t appear to be as many promising avenues for research on prostate cancer.

Also, a reminder that my crowdsourcing request for a simple model-based estimate of the date at which a minority of Census respondents will identify as Christian is now open. (Minor update: The proportion claiming Christian affililation fell from 64 to 61 per cent between 2006 and 2011. Simple extrapolation gives a target date of 2031. I’m sure a model with some demography would do better than this).

Impressive logic

John Quiggin32 Comments

Watching the 7:30 Report the other night, I saw Bronwyn Bishop (once touted as a possible PM) oppose legislation requiring automatic enrolment of 18-year olds to vote (already in place for state elections in NSW and Victoria). Her argument “it is a binding requirement, under the Electoral Act, for people to enrol themselves”. Umm, yes, and tomorrow, when the new legislation is passed, no such binding requirement will exist.

Washington’s Pattern of Military Overreach

John Quiggin28 Comments

That’s the headline for my latest piece in The National Interest. Opening paras:

On October 1, 1950, the forces of a U.S.-led coalition, acting under the authority of a UN resolution, drove the forces of the Korean People’s Army across the 38th parallel and back into North Korea. It was the culmination of a string of stunning military victories.

From the surprise North Korean invasion in June, U.S.-led forces had taken just four months to mount an amphibious landing at Inchon, break out from defensive lines around Pusan and drive the KPA into headlong retreat.

With the North Korean forces routed, the United States was in a position to dictate the terms of peace. Instead (with Russia absent) the United States secured a UN resolution demanding the reunification of Korea. By October 19, U.S. forces had occupied Pyongyang (the first and almost certainly the only time the United States captured a communist capital). Not satisfied with this, General Douglas Macarthur pushed on rapidly. By the end of October, his forces were close to the Yalu River, marking the border with China.

Census crowdsource

John Quiggin28 Comments

I’ve seen a bunch of reports from the census saying that the proportion of Australians reporting “no religion” has increased substantially, to around 22 per cent. I’d be interested to know if this is mainly a cohort effect (non-believing younger generations entering the population) or the result of people who previously reported a religious affiliation switching to reporting none. I’d be surprised if much of it was the result of people abandoning previous religious beliefs, as opposed to nominal affiliations, but I don’t think the data allows a test of this.

I just had a brilliant idea for how to motivate this effort. The first person to give a good answer gets to nominate the next topic for crowdsourcing. As a hint, the ideal way to answer the question would be to compare responses from a given age group in 2006 with the same group, now 5 years older, in 2011, adjusting, if possible for migration effects.

Update: The evidence, collected in the comments threads, suggests that cohort and conversion effects each account for about half of the shift.

The prize goes to David Barry, with honorable mentions to Aldonius and Luke Elford. I’ll give Dave first shot at proposing a new topic (in comments), but also invite suggestions from Luke and Aldonius. Meanwhile, I’m going to suggest something a bit more challenging for crowd-sourcing. If anyone would like to use the data to develop a simple model to project likely changes in stated Census affilations over the next two decades, with a specific focus on the question “When will (Census reported) Christian affilation become a minority response in Australia”, I’ll add a write up and send it as a joint post to The Conversation, the new(ish) academic-focused website.

Climate Change Authority

John Quiggin44 Comments

Some big news (at least for me). I’ve just been appointed as a member of the Climate Change Authority. I was pleasantly surprised by this – although I’m a strong supporter of the carbon price policy, I’ve been highly critical of the current government in other respects.

As regards the blog, the main implication is that I’m going to avoid posting anything that might constrain me as a member of the Authority (for example, views on policy issues) and also avoid polemical statements about climate issues. I’ll still post relevant information on the topic, and welcome debate in the comments section, but I won’t take an active part myself.

Pounds of flesh

John Quiggin19 Comments

In kindly sponsoring my effort in the Noosa Triathlon, where I’m supporting HeartKids (click on the button at the right to help) long-time commenter Jack Strocchi made a demand for a “pound of flesh” in return. Sad to say, I’m going to shortchange him. Based on past performance I expect to burn about 2500 calories (or about 10 Megajoules, just to make life hard for some of the computationally-challenged media figures we’ve been poking fun at lately). That corresponds to about 10 ounces (300g) of fat, most of which will be replaced in advance with a big pasta meal the night before the race. Of course, if I allow fluid loss, and weigh in just after the race, it will be more like 2kg.

One of the side benefits of taking up exercise is that I can now do all sorts of conversions of this kind. For example, a glass of red wine is about 150 calories (600 kJ)[1], and running uses about 75cals/km[2] so I have to run 2k to burn it, which seems like a fair deal. By contrast, despite their healthy image, a typical muffin is about 450cal/6km, definitely not worth it to me.

Perhaps I’m a bit too obsessed with numbers. But on matters of this kind, I’m with Lord Kelvin who observed

I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be.

Update A fun theoretical observation that just came to me, and which I don’t remember seeing anywhere else. It’s obvious and well known that, the heavier you are, the more energy you need just to move yourself about. In fact, a 50 per cent increase in body weight implies a 25 per cent increase in the energy intake needed to sustain a given level of activity (try this calculator). What this means is that there is a linearly increasing relationship between body weight and the energy intake consistent with maintaining that weight. Turning that around, any given energy intake is consistent with a unique stable weight, for given activity level. So, whatever your starting point, if you eat the amount consistent with your target weight, and change nothing else, you will end up there, sooner or later.

fn1. A "standard drink" is more like 100, but that's a small glass. If you are keeping count for driving purposes, two drinks of any kind usually amount to three standard drinks.

fn2. Surprisingly, so does walking. Energy consumption is determined mainly by distance travelled and body mass – the speed at which you go affects the rate of energy use, but not (much) the total over a given distance.

Oz out by a factor of 20

John Quiggin16 Comments

Today’s Oz runs the headline, “Carbon tax pushes Brisbane City Council rates up 40pc“, which, as a Brisbane ratepayer, I would have found alarming, if it had been printed in a newspaper, rather than a Murdoch rag. The story, bylined by Rosanne Barrett, reveals that the true number, according to Liberal Lord Mayor Graham Quirk, is 1.8 per cent[1], out of a total increase of 4.5 per cent. Blame for the ludicrous error must be shared between Barrett, who tried a beatup in her opening line, saying “AUSTRALIA’S biggest council has blamed the carbon tax for almost 40 per cent of its rates increase next financial year” and the Oz subeditor, who, not surprisingly, translated that into a 40 per cent increase in rates, not 40 per cent of a 4.5 per cent increase.

Update The headline has been (silently) corrected to read “Carbon tax helps push Brisbane City Council rates up $55”. Good to see the Oz reads me, though not, as a rule, vice versa. I picked the story up from the Making Environmental News digest service, to which you can subscribe here.

fn1. The numbers are disputed by the Labor Opposition.

Fundraiser update

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Thanks to some generous donations, we reached the $500 target over the weekend, though the display is not updating (at least for me). As promised, I’ve put in $500, and Flavio has done the same. With some additional donations we’re now over $1600. It would be great if we could make the $4000 target before the end of the financial year.

In front of the world?

John Quiggin35 Comments

Coincidentally, Australia’s carbon price will come into effect on the same day, 1 July, as the new feed-in tariffs for solar PV, wind and other renewable adopted in Japan as part of the response to the Fukushima disaster[1]. The tariffs are incredibly generous (around 50c/kwh on a net feed-in basis) and supposedly guaranteed for 20 years. I can’t see it lasting that long, but it will certainly make Japan one of the world’s biggest markets for renewables, having installed almost none until now. China has also adopted feed-in tariffs, but at more realistic prices around 20c/Kwh. These policies will ensure continuation of the spectacular growth in installations of renewable energy and the associated reductions in costs.

What does this make of the claim that Australia is moving ahead the rest of the world with the carbon price policy. There’s a sense in which it’s true – our experience with MRET and various state-level policies have shown that these are second-best options compared to a comprehensive carbon price. The Europeans can teach the same lesson, but it seems as if everyone has to learn it for themselves.

But the belief among economic doomsayers that we are the only country doing anything about this is just nonsense. Even in the US, where nothing can be done through legislation thanks to Republican delusionists, a combination of regulation and low gas prices is leading coal-fired power plants to shut down at a rapid rate.

At this point, the global choice is not between doing nothing and doing something. It’s between sensible market-based policies and costly second-best options, of which the worst is the “direct action” in which Tony Abbott claims to believe.

fn1. Two nuclear plants are also to be restarted, and presumably most of the rest will follow eventually. The government still wants to build more,