A backward look at productivity growth

John Quiggin4 Comments

I’ve been arguing with the Productivity Commission about microeconomic reform and productivity growth for nearly a decade. Our first round concerned prospective estimates of the benefits of National Competition Policy, aka the Hilmer Reforms. At the time these reforms were being debated, the PC (then called the Industry Commission) put out a study estimating that the reforms would permanently raise GDP by 5.5 per cent. I looked at their analysis and found lots of problems, which i discussed in this 1997 paper and also in my book, Great Expectations, and proposed an alternative estimate of 0.7 per cent.

The PC has just released a discussion draft, of a Review of National Competition Policy Reforms and it pretty much splits the difference, suggesting a net benefit equal to 2.5 per cent of GDP. It seems to me that some of the errors I criticised have been fixed either by changes to the modelling, or by the replacement of optimistic assumptions with observed outcomes. Some others remain, though. For example, all the reductions in prices for telecommunications appear to be treated as a benefit from reform even though there’s been a long-term technologically driven trend reduction of 5 per cent per year, going for many decades. In the last few years, the rate of price decline has slowed, and even been reversed.

More on this soon, if I get time.

Could Sharon save us?

John Quiggin33 Comments

The Israeli Parliament has voted to support Sharon’s plan for the removal of Israeli settlements from the Gaza strip, and also four of the least defensible settlements in the West Bank. It’s clear enough that Sharon does not intend this as the beginning of either a land-for-peace deal or a unilateral withdrawal from the West Bank. Rather, the idea is to freeze the peace process and remove the obstacles to the annexation of large slabs of the West Bank.

But events have a dynamic of their own. Sharon has broken, probably decisively, with the settlers and may well be forced to break with the rejectionists among his own supporters, such as Netanyahu. He’s going to need support for the fight against them, which will be bitter and possibly bloody. He won’t get that support for a plan based on permanent occupation of large parts of the West Bank, with a wall/barrier/fence cutting a “Palestinian entity” into a series of separate Bantustans. But he probably could get it for something close to Clinton/Barak, with two contiguous states, and border adjustments that brought most of the big “suburban” settlements into Israel in return for a trade of unoccupied land elsewhere, with or without the agreement of Arafat. This kind of policy would drive a wedge into the settler bloc, separating the ideological supporters of Greater Israel from those who just want somewhere to live in peace.

Given the long and miserable history of this dispute, a bad outcome is more likely in the short run. But, as I pointed out a while back, this is a problem with only one solution, and everyone knows what it is (to within a few square kilometres and parenthetical clauses). Sooner or later, that’s where things will end up. Since every day that this goes on adds more recruits to the ranks of Al Qaeda, I hope it’s sooner rather than later. Withdrawal from Gaza is a step in the right direction.

Faith and ideas

John Quiggin29 Comments

Don Arthur has had an interesting series of posts on religion and politics, including reference to Rocco Buttiglione, a candidate for the EU commission who has come under fire for his anti-gay views, which reflect his Catholic religious faith.

As I’ve said previously, I have no problem with people taking political stands based on their religious views. As far as I can see, almost no-one consistently objects to this. Most people who complain about mixing religion and politics do so only when they don’t like the religious views being expressed. Here for example is Gerard Henderson on Archbishop Peter Carnley, saying

on-elected religious leaders appear all too anxious to get involved with that which pertains to Caesar. It’s a pity, really. For the evidence suggests that clerical types perform at their best in the sacristy.

A couple of years later, he’s busy defending Pell and Jensen, and saying criticism of them is “a new form of sectarianism”. Henderson complains that there are leftwingers who welcome Carnley’s comments but expect conservative Christians to remain silent – this is about as fine a case of the pot calling the kettle black as I’ve ever seen.

But my main point in this post is a simple one. If you can’t take the heat, keep out of the kitchen. In modern pluralist societies, we have a general agreement that everyone has a right to their own religious views. Discrimination on grounds of religious faith is unlawful and even vigorous criticism of religious beliefs is generally considered distasteful. But a lot of religious people seem to expect the same convention to be extended into the political sphere, and to have their views treated with deference because they are religiously based. Consider this,

The Avvenire newspaper of the Roman Catholic Bishops Conference complained that the decision of the European Rights Commission to rule Buttiglione unfit for public office ‘because of what he thinks’ is ‘a sad sign for civilisation – not for religion.’

‘They have discriminated against a person on the basis of his faith and his ideas,’ the paper said.

This would be funny, if it weren’t put forward seriously. If we’re not supposed to discriminate between candidates for public office on the basis of their ideas, what should we do – choose them by lot?

While I was out

John Quiggin27 Comments

I’ve been off the air with database problems for a day or so, and missed some important developments. First, there was the bad news of the first Australian military casualties in Iraq, an unfortunate but inevitable development, given that insurgents are now operating freely throughout Baghdad, and even within the Green Zone. The Zarqawi group has claimed responsibility. This followed the earlier horrific massacre of Iraqi recruits, again claimed by Zarqawi.

Second, and closely related, the Zarqawi scandal has developed a further, with the Administration finally admitting on the record that the decision not to go after leading terrorist Zarqawi in the lead-up to the Iraq war was politically motivated. Money quote

Lawrence Di Rita, the Pentagon’s chief spokesman, said in an interview that the reasons for not striking included “the president’s decision to engage the international community on Iraq.” (from the WSJ, via Tim Dunlop

With a week to go, it’s probably too late for this disclosure to have any impact on the US election. But if anyone ever refers to George Bush as fighting a war against terrorism, just point them to the Zarqawi story. The failure to go after bin Laden in an effective fashion can be put down to this Administration’s routine incompetence. The failure to go after Zarqawi was simply criminal.

Finally, there was this piece by Barry Cohen, accusing the ALP of anti-semitism. In Cohen’s language criticism of Israel is anti-Semitism and criticism of Ariel Sharon is criticism of Israel. I’m sure examples of anti-Jewish prejudice can be found in the Labor party, but Cohen doesn’t produce any. There are more extensive responses here and here.

An afterthought on Bush vs Gore (crossposted on Crooked Timber)

John Quiggin5 Comments

I was thinking about the prospects for the US election and also about the probability of casting a decisive vote and it struck me that a situation like that of Florida in 2000 would have had a quite different outcome in Australia. In a situation where there were enough disputed votes to shift the outcome (and no satisfactory way of determining the status of those votes), the Court of Disputed Returns would probably order a fresh election. It seems to me that this is a better way of resolving problematic elections than attempts to determine a winner through court proceedings[1], though I’d be interested in arguments against this view.

In view of the long delay between election and inauguration, this solution would seem to be particularly appealing for the US. However, it seems clear from this page that the American constitutional tradition does not allow for such a possibility, preferring such devices as drawing the winner from a hat, if nothing better can be found. I wonder if there is a reason for this, or if it is just one of those things that doesn’t come up often enough for people to think about fixing it?

fn1. Obviously, once the situation arises, one side or the other will see an advantage in going through the courts, or allowing state officials to decide,and will oppose a fresh election. But ex ante, it seems as if agreeing to a fresh election in such cases would benefit both sides.

Larry Summers on the US trade deficit

John Quiggin5 Comments

Guy at Full Context went to hear Larry Summers talk about the US current account deficit. As he notes, Summers analysis was very similar to the one I presented here. Guy has some useful comments, and notes the following, attributed by Summers to Rudi Dornbusch

Things always happen later than you expect, but when they do happen they happen faster than you expect.

This may not be true of all things, but it is a pretty good description of the way unsustainable economic imbalances are resolved.

Factions

John Quiggin11 Comments

Given that Labor obviously has to do something more than wait for the housing bubble to burst, one simple (but not easy!) organisational step would be to abolish factions. That is, membership of any organised factional grouping ought to be treated like membership of a rival political party, as grounds for automatic expulsion. Of course, it would be impossible to prevent informal or secret factions from operating, as they do in all parties. But, to my knowledge, the only major political party anywhere in the world with a faction system comparable to Labor’s is the notoriously corrupt Liberal Democratic Party in Japan, and even here PM Koizumi is largely independent of the factions.

There was a time (from the 1950s split to sometime in the 1980s) when the factional groupings corresponded to ideological divisions. But that has long since ceased to be true. It’s probably true that the average member of the Left faction is a little more likely to favor a ‘progressive’ line on social issues than the average member of the Right and Centre, but that’s about the strength of it. Each of the major factions is subdivided into smaller groups, often little more than extended families, with their retainers and servants.

Nowadays, the factions exist because they exist. No-one is willing to bell the cat. However, this is the kind of thing Latham could take on, and perhaps even win. It would certainly be more in his line than Simon Crean’s lame achievement of changing the union voting ratio from 60 to 50 per cent[1].

fn1. While I’m dreaming, I’d like an end to the formal link between the unions and the ALP. And a pony.