Bananas

John Quiggin33 Comments

I just ate my first banana since cyclone Larry. My intertemporal elasticity of substitution for bananas is too high (at least for time periods of a year) to justify buying them at $12/kg, but the sight of some lovely bananas at $8/kg was too much temptation for me.

This reminds of the story about Evelyn Waugh told (IIRC) by his son Auberon. Bananas had been unobtainable in England during the War, and Auberon and his two siblings had grown up hearing about this marvellous fruit. The first shipment after the War arrived and the government of the day (the only seriously socialist government in British history) decreed that every child in the country should have one. Waugh senior claimed his family’s allocation of three, cashed in the family ration of sugar and cream and ate the lot in front of his children.

Reviewing the Stern Review, again

John Quiggin28 Comments

Following the publication of this piece in the NY Times, I’ve had a string of email exchanges with Hal Varian, cc:ing Brad DeLong in the role of interested onlooker. I was surprised by the NY Times article since it included both a correct statement of the way in which Stern treats discounting and income redistribution (roughly speaking a 1 per cent change in income has the same value whenever it is incurred and whoever receives it) with a lot of statements that were either misleading or downright wrong, implying that the near-zero rate of pure time preference in the Stern Review implied a near-zero discount rate for cash flows.

Since Varian is one of the brightest and most technically careful people in the economics profession, I was unsurprised by the correct statement, but very surprised to see errors I’d already refuted when put forward by Arnold Kling, Bjorn Lomborg, Megan McArdle and others. Email revealed that the main problems arose from editorial attempts to ‘simplify’ things for readers, but we still have a lot of disagreements about the justifiability or otherwise of inherent discounting.

In any case, all this has spurred me on to produce my long-promised review of Stern on discounting, at least in draft form. Read, enjoy and criticise.

Mulrunji, again

John Quiggin19 Comments

It appears that neither criminal charges nor any kind of misconduct proceedings will arise from the death of an innocent man, Mulrunji, from injuries received in custody at Palm Island. What’s even worse, is that the Director of Public Prosecutions chose, not merely to state that there was insufficient evidence to proceed to trial, but to make a positive finding of accidental death, contrary to the findings of the Coroner on the same evidence. The Courier-Mail reported the decision as “overturning the findings of a two-year coronial inquest”.

As far as I can tell, the DPP has no power to do anything of the kind. Certainly, I can’t recall anything like this announcement in the past. Maybe someone with more legal background can clarify this. But even if the DPP hasn’t exceeded her powers, the statement was ill-advised and inflammatory.

As Noel Pearson points out, this isn’t the first dubious decision made by Leanne Clare, and something of a pattern seems to be emerging. If you’re on the outer with the establishment (Pauline Hanson, Di Fingleton) dubious charges will be pursued to the limit. But if you’re on the inside, things are very different. The government and the Police Force have mishandled this case from day one, and it’s unsurprising the the victim’s family feel that they have been railroaded.

And I agree with Federal Minister Mal Brough. We need a public inquiry into the whole tragic business, including the government’s handling of it.

Weddings

John Quiggin23 Comments

An interesting piece by Tim Colebatch about new data on weddings showing that only 40 per cent of weddings are now religious ceremonies. This, rather than answers to Census questions, is probably a good representation of the level of religious belief in Australia. Apart from cases where the parties have strongly conflicting religious beliefs, and choose a civil ceremony as a compromise, it’s hard to imagine a serious religious believer not wanting a religious ceremony for marriage. On the other hand, I doubt that many convinced non-believers these days would go for a church rather than a civil ceremony, given the range of options on offer.

Another interesting feature of the article is the assumption (probably accurate) that this trend is entirely driven by brides – the word “groom” doesn’t even appear.

Robson reverses reality

John Quiggin36 Comments

It turns out that Tim Blair’s post, linked below, is based on this piece by Alex Robson (a former colleague of mine and also briefly a blogger), who argues from claimed prediction errors by “leftist economists” (he’s kind enough not to mention me by name) that we shouldn’t trust climate science. His crucial point is that whereas we predicted that the 1996 budget cuts would cause increased unemployment

Howard did indeed reduce overall spending in real terms in the two years following the 1996 election, and he cut the size of the commonwealth public service in each year between 1996 and 2000. But following Howard’s “savage” budget cuts, the unemployment rate did not rise; it fell, from 8 per cent in 1996 to 6 per cent in 2000.

Unfortunately, Alex is being a little economical with the information he reports here. As can be seen below (courtesy of Economagic, unemployment did in fact rise following the 1996 budget cuts. It wasn’t as bad as it might have been (and was in New Zealand where monetary policy was messed up as well), but the facts are clear: contra Robson, unemployment did not fall, it rose.

The unemployment rate didn’t clearly resume its earlier decline until the shift to an expansionary fiscal and monetary policy during the Howard government’s second term.

Another piece of misdirection is the reference to cuts in the Commonwealth public service, largely driven by contracting out. This is a red herring, apparently designed to distract attention from the more relevant variable, public expenditure.

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Blair concedes defeat

John Quiggin38 Comments

Tim Blair quotes a statement I and others wrote in 1996, criticising expenditure cuts, and saying in part

More attention needs to be given to the role of government expenditure on repairing the nation’s rundown infrastructure, creating jobs and fostering industry and regional development. If necessary, increased taxation and other revenue options should be under consideration. Savage expenditure cuts are economically irresponsible and socially damaging.

As Blair points out^, this is an argument that has now been pretty generally accepted. Most of the cuts we were criticising have been reversed (not without doing damage along the way). Infrastructure spending is now a high priority for governments. Without getting into sterile arguments about whether or not the current Federal government is the highest taxing in Australian history, it’s clear that the idea of radical cuts in public expenditure and taxation, which Blair has long advocated, is politically defunct in Australia.

The case was well stated by one of our political leaders in 2004, when he observed

There is a desire on the part of the community for an investment in infrastructure and human resources and I think there has been a shift in attitude in the community on this, even among the most ardent economic rationalists.

He could just about have been quoting our words from 1996.

As I noted at the time

A new bipartisan consensus has emerged, in favor of the social-democratic policies that have, until recently, been derisively described as ‘tax and spend’.

The only surprise is that it has taken Blair so long to wake up to the fact that he’s on the losing side of this debate.

^ With yet another kind reference to my success in winning a Federation Fellowship.