Quick reactions on stimulus package, Mark 2

John Quiggin68 Comments

As expected, the government has announced a new round of fiscal stimulus, and the Reserve Bank has cut interest rates by a further 1 per cent, incidentally achieving a further devaluation of the dollar. All of that is likely to stimulate economic activity, but will it be enough and will it be in the right directions.

The magnitude of the package, $42 billion over 2 years, amounts to around 2 per cent of GDP per year, which is pretty modest given the scale of the crisis. But it follows the $10 billion package from late last years, and is virtually certain to be followed by more. I’d be surprised if the deficit is held under 5 per cent of GDP for 2009-10, and deficits are likely to continue for quite a few years. With fiscal stimulus of that magnitude and interest rates near zero, it ought to be possible to keep the inevitable recession to a relatively modest scale, assuming (a big one) that the international financial system is on the road to stabilisation.

The main concern I have with the package is that it continues a heavy focus on construction. That sector has been the first (apart from the finance sector itself) to take a big hit, but it won’t be the last. It’s great building schools, but we need to be hiring teachers, teachers aides and support staff to work in them. As I’ve mentioned before, human services are the most labor-intensive areas of the economy, and also an area that’s been constrained in the era of economic liberalism that is now coming to an end. Hopefully, we’ll see more action on this front, and on direct measures to help the unemployed in the Mark 3 package.

I also have some concerns about the idea of insulating homes. That’s great if it’s additional to the impact of the emissions trading scheme, but not so great if all it does is make it easier for electricity companies to meet their targets.

Easter in January

John Quiggin19 Comments

As many readers will have noticed, the supermarkets began selling Easter items like eggs and hot cross buns early in January, just as they were clearing out the remaining Christmas stock. I must say this is a sorry commentary on what is supposed to be a consumer society

* First off, what about those of us who want to celebrate Christmas and Easter at the same time? If the stores could get their act together and put on the Easter items a couple of weeks earlier this would be easy, but they seem to stick to the tradition of one festival at a time

* Valentines Day is only a couple of weeks away, but there’s scarcely anything in the way of Valentine’s items. Given that Valentines falls in the middle of the Easter season surely it’s not beyond the capacity of the marketing guys to come up with Valentine-themed Easter eggs, or Heart-Cross buns

* There’s no risk of going short on gluttony during Lent, but there’s a long drought from Easter to Halloween, with only Mother’s Day and Father’s Day to provide options for excess consumption. Surely they could invent an Australian version of Thanksgiving and put it in midwinter.

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Refuted economic doctrines #5: Trickle down

John Quiggin90 Comments

The idea that policies favorable to the wealthy, such as financial deregulation and favorable tax treatment of capital income, will ultimately benefit everybody has been described, pejoratively, as ‘trickle down’ economics.

The same idea been summed up, more positively, in the aphorism ‘a rising tide lifts all boats’ attributed to John F Kennedy, and a favorite of  Clinton advisers such as Gene Sperling and Robert Rubin. (It should be noted that this phrase is also used in the context of debates over free trade and over the effects of macroeconomic expansion. While it generally implies that we should focus on expanding aggregate income without too much concern over distribution, it is less sharply focused than the ‘trickle down’  pejorative.

Whatever you call it, trickle down economics is one of the casualties of the financial crisis. I’m not the first to point this out, and I’m sure I won’t be the last, but here’s a piece summing up my thoughts.

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Charles Stross seminar at Crooked Timber

John Quiggin11 Comments

Among other things, I’ve been busy over the last few months putting together a Crooked Timber book event discussing the work of Scottish science fiction writer Charles Stross. The idea is that members of the CT group, and some invited guests write posts on the book(s) in question, the author responds and the whole thing is thrown open to comments. Our guest line-up this time is stellar, including Brad DeLong, Paul Krugman and Ken MacLeod. If you’re interested in SF, the literature of ideas in general or the future of book reviewing, go and have a look.

25 years of the Mac

John Quiggin35 Comments

The Macintosh computer just turned 25 Johnny Got His Gun move . I bought one of the original 128K Macs not long after they came out. I remember being reluctation to shell out $50 for a box of 10 400k floppy disks (these were the the 3.5″ type that weren’t actually floppy, and became standard on IBM PCs quite a few years later). I thought I was unlikely ever to need 4 megabytes of storage, so I got the store to sell me what was left in a box they’d already opened. And I was pretty dubious that anyone could really use the 512K of RAM offered in w the top-of-the-line “Fat Mac” which came out soon afterwards. It didn’t take me long to discover my error and upgrade.

I’ve owned just about every model since then**, and Macs have been a huge part of my life. I’d find it hard to estimate the increase in my productivity* associated with using Macs instead of typewriters or command-line computers back in the 1980s and early 1990s. This question was the subject of long-running religious wars which persisted until quite recently, but after the emergence of Windows it became pretty clear that the Mac style of computing was the only serious option, and that people who didn’t want to use Apple Macs for one reason or another would only have to wait a few years for the MS knockoff (next instalment, Windows 7).

For a while in the 90s, it seemed likely that Windows would prevail, but the return of Steve Jobs to Apple changed all that. Now, there’s a lot of talk that minimal net-based computers will take over, but such talk has been round many times before (smart terminals, thin clients and so on) and never gone anywhere. At this point in my life, I’m pretty confident Macs will be around as long as I am.

* That was before blogs which soaked up an awful lot of that excess productivity, though with lots of compensating benefits.

** Though not, IIRC, the Mac SE/30, listed here as the best Mac ever. At the time it came out, I was using a Mac II at work, and a much-upgraded original Mac at home.

The Australian case for nationalisation

John Quiggin71 Comments

The speed with which bank nationalisation has risen to the top of the policy agenda has found the economics profession largely unprepared. The literature on property rights that developed in the 1970s produced a range of arguments in favour of private as opposed to public ownership which had at least some influence on the widespread adoption of privatisation policies in the 1980s and 1990s. Although subsequent theoretical and empirical developments, such as the discovery of the equity premium puzzle and developments in agency theory cast doubt on the claims of the original literature, the profession had moved on, and showed little interest in revisiting the issues. As Joshua Gans observes,

the main contributions have come from Australian economists who did this research a decade ago only to be told by international journals that as privatisation had occurred everywhere by then, no one was interested in the conditions under which government ownership would be preferable.

and notes “I guess that view is wrong.” Unsurprisingly, I was among those who tried, with limited success, to interest the international profession in this question.

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