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.

Castro and Pinochet

John Quiggin116 Comments

Pinochet is dead, and it looks certain that Fidel Castro will soon follow him to the grave. I don’t have the same visceral loathing of Castro that I feel for Pinochet, whose brutal coup in 1973 was one of the big political events that formed my view of the world, along with Brezhnev’s invasion of Czechoslovakia five years earlier.

Viewed objectively, though, the similarities between the two outweigh the differences. Any good they have done (education in Cuba, economic growth in Chile) is less substantial than claimed by their admirers, and in any case outweighed by the central fact that, to impose the policies they thought were good, they were willing to jail, torture and kill those who got in their way. And Pinochet’s gross personal corruption is matched by Fidel’s conversion of his dictatorship into a family business, to be inherited by his brother.

Moreover, Pinochet and Castro were two sides of the same political coin. Pinochet justified his destruction of Chilean democracy by the fear that Allende would turn into a new Castro. Castro used Pinochet’s coup (among many other US-backed attacks on Cuba and other Latin American countries) as a justification for repressing domestic dissenters. The world will be a better place when both are gone and, hopefully, democracy comes to Cuba.

Update Predictably, Andew Bolt defends Pinochet. It’s important to observe that Bolt is even-handed in these matters. He would be just as eager to excuse Castro’s crimes if Fidel happened to change sides (hat tip: Tim Dunlop)

What I’ve been reading

John Quiggin23 Comments

Multiethnic Australia by Celeste Lipow McLeod. It’s aimed at a US audience, and gives a potted history of Australia since European settlement, from a pro-multiculturalist point of view. More here. Written after the Cronulla riots, the book maintains an optimistic viewpoint, which I think is broadly consistent with our history in the long run.

It’s worth remembering in this context that until quite recently, resentment about immigration and multiculturalism was directed mainly against East Asians. This was true both of Pauline Hanson and of the previous big backlash in the 1980s led by among others, Katherine Betts, Geoffrey Blainey and John Howard. In the decade since Hanson’s famous maiden speech, this kind of prejudice has ebbed dramatically, even as the number of Australians of East Asian background has increased rapidly. And the still older prejudices against Southern Europeans have disappeared almost entirely, along with most of the feelings of resentment and exclusion that were once very strong among these groups.

It may be a while before we overcome our current problems, but I’m confident we’ll do so in the end.

The Missing Link

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Club Troppo has a great new feature (actually, a revival of an old one from Ken’s days at the Parish Pump). Called the Missing Link, it’s an intelligent ‘best of Ozplogistan’ selection each Monday, Wednesday and Friday. Here’s a recent example

Once my slow-motion site redesign is finished, I’ll add a link to an RSS feed, but you can probably pick this up over at Troppo.

The equity premium and the Stern Review

John Quiggin6 Comments

Brad DeLong carries on the discussion about discounting and the Stern Review, responding to a critique by Partha Dasgupta that has already been the subject of heated discussion. As Brad says, all Dasgupta’s assumptions are reasonable, and his formal analysis is correct

But … The problem I see lies in a perfect storm of interactions:

This brings me to one of my favorite subjects: the equity premium puzzle and its implications, in this case for the Stern Review. I’ll try and explain in some detail over the page, but for those who prefer it, I’ll self-apply the DD condenser and report

Shorter JQ: It’s OK to use the real bond rate for discounting while maintaining high sensitivity to risk and inequality.
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Future of the Family Farm

John Quiggin30 Comments

My piece in Thursday’s Fin was about claims that the family farm is doomed. This is one of these notions that seems impossible to kill, having been around for decades, it looks as if it will outlast me. It seems to appeal to just about everybody. Sometimes its pushed by farmers who want more government aid. At the moment though, it’s mainly being run by economic rationalists who want to sweep away these small and allegedly inefficient operations.

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