Word for Wednesday: productivity

John Quiggin10 Comments

In a vague sense, productivity means the ratio of outputs to inputs. Improvements in productivity arise from improvements in technology or new and better ways of organising production. Productivity can also decline if productive effort is diverted to wasteful ends, which may happen for a variety o reasons.

In m yexperience, most of the time, reported short-term changes in productivity are spurious, in a sense I’ll try to make more precise below. In thinking about this, I came up with the following proposed test/definition for an increase in productivity (it would also apply, with modification, to a reduction)

A change in productivity is sustainable if additional inputs of labour, capital etc could be added and would generate additional output at the new, higher level of productivity

The idea of this definition is to rule out as many as possible of the sources of spurious productivity gains, including

  • factor composition biases, such as the gain in average productivity from closing the weakest plants in an industry/economy
  • relative factor intensity biases, such as gains in labour productivity from an increase in the capital-labour ratio
  • factor use intensity biases, such as labor hoarding during recessions and work intensification arising from microeconomic reform

The most famous case of factor composition bias was the Thatcher productivity miracle, achieved primarily through plant colsures. Factor intensity bias is a chronic problem, which has been addressed through the construction of measures of multifactor productivity. Increased work intensity was the main source of the Australian productivity miracle in the 1990s.

(Since miracles are invariably spurious, I’ve avoided putting scare quotes around the term.)

FTA redux

John Quiggin4 Comments

A few days ago former Liberal hatchetman Michael Baume had an opinion piece (subscription required ?) in the Fin, denouncing ‘scaremongers’ who suggested that the US wanted to scrap the Pharmaceuticals Benefit Scheme as part of the proposed Free Trade Agreement, and quoting a string of official denials.

In today’s Fin, I read that the US is demanding ‘reform’ of the PBS. Anyone who has experienced reform in the last decade will be able to fill in the details.

This kind of dishonesty is par for the course in the pro-FTA camp. Alan Oxley of AUSTA has adopted precisely the same rhetorical slide. As I pointed out in my debate with Wolfgang Kasper onthis topic a few months ago

The Austra submission to the Senate Inquiry into the FTA denies any intention to ‘dismantle’ the scheme, but notes, ominously, that ‘there are features of the scheme that discourage investment by drug companies in Australia. Austa supports measures in the FTA which encourage more investment and job growth in Australia’. It is safe to conclude that the ‘features’ seen as discouraging investment and job growth are the same ones that provide Australians with access to affordable drugs.

What surprises me is not the dishonesty, but the belief that this kind of thing will take people in, when the facts are so easily available.

Ethanol

John Quiggin8 Comments

Margo Kingston has collected all the facts on the snap decision to impose excise on ethanol imports to the benefit of Australian ethanol producer Manildra.

Howard will undoubtedly get away with this, but until a few years ago, misleading Parliament over a decision involving more than a hundred million dollars, to the benefit of a party crony, would have been exceptionally politically damaging. As late as the 1980s, ministerial careers were ruined over far smaller sins.

Many factors have contributed to this, and standards declined markedly in the later part of the Hawke-Keating government, but undoubtedly public acquiescence in the ‘children overboard’ lies has been a big factor. Once it’s clear that you can lie about a policy issue, be caught, and still get away with it, the temptation to lie about money becomes overwhelming. It’s a safe bet that at least some of those involved in this process will end up with cushy post-political jobs as a result (see Reith, Wooldridge etc).

Update I am obviously hopelessly behind the times. Manildra has already hired Howard’s former chief of staff.

Sceptics in the White House

John Quiggin4 Comments

This Salon article has a pretty good roundup of the organisations promoting global warming “scepticism”, including funding sources.

For those more interested in the real science on this topic, I’ve run across an excellent hyperlinked resource entitled The Discovery of Global Warming. While the title makes the author’s viewpoint pretty clear, the treatment is admirably balanced. a very short summary

In the summer of 1988, the hottest on record, scientists’ claims that the Earth’s warming was already detectable focused public concern. But the many scientific uncertainties, and the sheer complexity of climate, made for vehement political debate over what actions, if any, governments should take.

Scientists intensified their research, organizing programs on an international scale. The world’s governments created a panel to give the best possible advice, negotiated among thousands of officials and climate experts. Around the end of the century the panel managed to establish a consensus with only a few dissenters. They announced that although the climate system was so complex that complete certainty would never be reached, it was much more likely than not that our civilization faced severe global warming.

I was particularly interested in the treatment of solar variability, a topic that’s been debated at length in the blogosphere.

The crucial para

The import of the claim that solar variations influenced climate was now reversed. Critics had used the claim to attack regulation of greenhouse gases. But if the planet reacted with such extreme sensitivity to almost imperceptible changes in the radiation arriving from the sun, the planet had to be comparably sensitive to greenhouse gas interference with the radiation once it entered the atmosphere.

All the essays are extensively hyperlinked, and the references are both extensive and wide-ranging.

Trailers

John Quiggin23 Comments

Everybody is pretty much blogged out with Iraq, but I was still a bit surprised that this report on the Iraqi “mobile germ lab” trailers seems to have passed without notice. Given that the official position of the coalition governments, including the Australian government is still that these trailers constitute proof that Iraq had biological weapons, the report that

Engineering experts from the Defense Intelligence Agency have come to believe that the most likely use for two mysterious trailers found in Iraq was to produce hydrogen for weather balloons rather than to make biological weapons

is of interest in itself.

But the report is more interesting because the trailers represent the clearest illustration of the way in which we got into a war where the official pretext was Weapons of Mass Destruction. Unlike, say, the Niger uranium or the dodgy dossier, this process was largely public, or made so by leaks, from day 1.

It’s clear that the Administration honestly thought they had found the smoking gun when the trailers first turned up, then doggedly held to that view as the contrary evidence mounted (the absence of any biological evidence, even on the second truck which had not been cleaned; the insistence of the Iraqi scientists that the truck was used to produce hydrogen; the absence of crucial components etc). In defending its position, the Administration did its best to suppress any alternative view from its own agencies and to prevent outside experts from access to the evidence.

This was the same pattern as we saw in the leadup to the war. A year ago, nearly everyone (including me) assumed that Saddam was hiding weapons, so Bush Blair and Howard felt free to overstate the strength of their evidence, pointing to specific sites and making specific claims which can now be seen to be ill-founded. After Saddam called their bluff and the inspectors went in, the process became more and more dishonest and the pressure directed against sceptics intensified.

In retrospect, it’s clear that the UN Security Council majority was absolutely justified. On the basis of the case presented to them, which solely concerned Weapons of Mass Destruction, there was no justification for halting inspections and going to war.

Of course, there was a better reason for going to war, namely to replace Saddam’s government with a democratic or at least non-totalitarian one. But reliance on the WMD pretext undercut this rationale, since it had to be claimed that war would not go ahead if Saddam complied with the weapons resolutions. Hence, it was not possible to do the things that would be required for a successful war of liberation, such as establishing a provisional government and getting it recognised. Instead, the coalition decided to wing it, on the assumption that victory and the discovery of weapons would legitimate the war.

This assumption now seems to be unravelling. If there has been progress towards a sustainable democratic government in Iraq, it’s not visible in the reports we are getting here.

Taxing and spending

John Quiggin7 Comments

Regular commentator Jack Strocchi has sent me several pieces criticising the Howard government for being fiscally lax. The one that comes closest to my assessment, though not on every point, is from John Edwards of HSBC. Key points:

Costello’s biggest reform, by contrast, has been the goods and services tax. It was a substantial political achievement, but as an economic reform it makes very little difference. The same is true of the sale of half of Telstra. He dramatically reduced Commonwealth debt, but since he did so mostly on the proceeds of Telstra the Commonwealth’s net liabilities are not much changed.

Costello deserves credit for formalising the independence of the central bank to pursue an inflation objective … and above all for not making mistakes which threatened growth.

As several readers have commented, my draft section on macro policy didn’t give the government due credit for simply not making big mistakes, and I’ll try to fix this.

Costello is not the evangelical conservative committed to small government and low taxes he purported to be in opposition. He is just another Victorian Liberal, carrying on the tradition of ample spending from ample taxes while pretending to do the opposite.

As I’ve said previously, I’m all for more taxing and spending, provided the priorities are sensible. My problems with the Howard government’s fiscal policies relate to budget balance (we really should have a surplus at this point in the cycle) and poor priorities. The draft section of my chapter follows.

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Request for help, part 2

John Quiggin5 Comments

I got some useful suggestions from readers for additional reading for my chapter on the economic policies of the Howard government. But most of the readings I have so far (with the exception of some Reserve Bank conference volumes) are critical of the government from a leftish perspective. Can anyone suggest an accessible source for
(i) an overview of economic performance under the present government (I was hoping to refer to the INDECS State of Play books, but they seem to have ceased in 1995
(ii) a defence of the government’s economic performance in general, or on specific issues
(iii) a critique from a free-market or other right-wing perspective (please, no debate on whether free-market = rightwing, I’m just trying to use commonly understood definitions).

What I'm reading

John Quiggin2 Comments

The Passions and the Interests by AO Hirschman. Hirschman is always worth reading – his Exit, Voice and Loyalty is a classic. The Passions and the Interests, is a piece of intellectual history describing the development of ideas about rational self-interest and the invisible hand.

I’m also reading Watershed by Ticky Fullerton. She’s an ABC reporter and the book is about Australian water issues, mainly, but not exclusively, the Murray-Darling. She gives a summary of blogger Chris Sheil’s excellent book Water’s Fall, including an appealing adjectival characterisation

Water’s Fall is eloquent and convincing, but should carry a health warning for any investment banker in the CBD. Such people would soon find themselves frothing uncontrollably at the mouth with outrage at a Quigginesque thesis, which blames almost all incompetence on greed and a general bias in favour of the shareholder over the consumer.

I’m not sure if ‘Quigginesque’ is an original coinage (I have the feeling Henry Ergas has used something similar) but I like it anyway.

Cultural monarchism

John Quiggin26 Comments

I can’t count the number of times I’ve read articles on the theme of Howard’s victory in the culture wars in the last three years. I’d say it must be about as many times as I read similar articles about Joh Bjelke-Petersen in the 1980s, and Keating and Kennett in the 1990s. In each case, almost as soon as they lost office, their supposed cultural dominance evaporated.

The assumption underlying all these articles is something that might be called ‘cultural monarchism’, since it works on the assumption that any elected leader whose political dominance is currently unchallenged must enjoy some sort of occult connection with mass culture, similar to that typically attributed to monarchs.

Bjelke-Petersen’s was perhaps the most substantial example of unchallenged dominance. He was in office for decades, and his government was ruthless in crushing opposition on all fronts, so he did manage to keep Queensland significantly different from the rest of Australia. But after one term of Labor, Bjelke-Petersen’s influence had faded, and by now it’s almost undetectable.

Keating’s supposed dominance was never anything more than a Press Gallery illusion. He was never popular, and won the 1993 election only by default. Far from Keating establishing a dominant orthodoxy issues like multiculturalism and the Republic, support for these causes was damaged by their association with him.

Howard’s supposed dominance is I think equally illusory – in fact, it consists in large measure of the fact that Keating’s illusory dominance has been dispelled. He has had a string of narrow election wins over unimpressive opponents, but his government has never been as popular as the Labor governments at state level.

As regards cultural dominance, the republic issue provides a good test, since its an issue where Howard clearly had a majority against him when he took office. He managed the issue adroitly to ensure the defeat of the referendum, but he’s made essentially no progress in rebuilding support for the status quo – at most he’s held the line. And I’d argue that monarchism has lost more ground in cultural terms under Howard than it did under Labor. Support for the British monarchy has virtually disappeared (although the Queen remains personally popular). The idea that the Governor-General should be an apolitical figurehead, answerable to the PM except in 1975-style emergencies, and exempt from political criticism has also lost ground.

Howard’s current poll majority would disappear if, for example, interest rates rose by a couple of percentage points and house prices fell correspondingly. And if that happens, in all probability, we’ll be reading similar stuff about Crean in a couple of years’ time.