The US slowdown

John Quiggin2 Comments

I missed this piece by Brad de Long when it came out in December last year, but Jack Strocchi sent it to me recently, and I thought it would be worth responding to now. The headline The Slow Countries and lead-in

US productivity keeps growing – right through the bust. So what’s wrong with Europe?

give the general flavor. Here and elsewhere, Brad focuses on technology-driven change in ICT-producing and ICT-using manufacturing manufacturing has grown even faster, and argues that the US has proved clearly superior to Europe in this respect. To the extent that he’s a pessimist, Brad worries about the fact that, with slow output growth, all this productivity growth is driving employment down in the US. Brad suggests that Europe may catch up to the US in the next growth cycle, but worries that ‘something in the water’ (that is, a combination of restrictive labor market policies and deflationary macro policies) will prevent this. I disagree with a lot of this and, to sharpen things up, I’ll argue for the polar opposite case, that we’re going to see the US converging towards Europe in important respects over the next few years.
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Bully for Billionaires

John Quiggin5 Comments

Warren Buffett gets stuck into the Republicans over the greed of the rich in pushing for tax relief while paying less (proportionally) than almost anyone else. He also makes the obvious point that its the current account deficit and not the abandonment “strong dollar policy” that will ultimately drive down the US dollar, getting backup from fellow-billionaire George Soros

And while I’m saying nice things about billionaires, this Salon story says Bill Gates is giving away the bulk of his fortune mostly to people in poor countries. (Both Buffett and Soros are also notable for philanthropy).

At the very least, the latter report makes me feel less resentful about paying my Microsoft taxes (the effectively compulsory copy of Office I need primarily for file compatibility).

Going further, it makes me think about billionaires and egalitarianism. Certainly these guys are doing a lot of good with their money. And while there are other billionaires who don’t do anything positive, taken as a group the ultra-rich seem a lot more attractive than the merely rich, as represented, say, by the Bush administration. So perhaps a bit of inequality at the very top of the income distribution (a few billion-dollar fortunes and a corresponding reduction in the number of millionaires/multimillionaires) is not such a bad idea. With this much money it is possible for someone to a lot of good unilaterally.

Thought for Thursday

John Quiggin8 Comments

Readers of yesterday?s post Spin Cycle got a preview of my piece in today?s Fin (subscription required) and the debate in the comments thread has already anticipated some of the issues I raise. I commend a policy of higher taxes and more services to both parties. Here?s an extract

For Labor, a policy based on an explicit tax levy would provide a resolution of the inconsistency inherent in promising both the return of bracket creep and improvements in public services. Although such inconsistencies are par for the course in opposition, they will have to be resolved before Labor can present a credible program to the Australian electorate.

To take this course, Labor would have to drop the refrain that Howard’s is ?the highest taxing government in history?. The argument is bogged down in definitional disputes about whether the GST is a state or federal tax, and has gained no electoral traction.

By contrast, Crean’s proposals on health, education and the rehabilitation of the Murray-Darling have produced a strong positive response. In particular, the AC Nielsen Poll, showing Labor with 49 per cent of the two-party preferred vote is scarcely consistent with the view that the next election is unlosable for the government. With the right strategy, Labor would be a serious contender.

Looking back at the last ?unlosable? election, in 1993, it is evident that the threat to Medicare was a more potent issue than the much-overrated GST.
The government should also reconsider the wisdom of cutting taxes and services It might seem paradoxical to commend a policy of tax increases to the current government, but Howard and Costello have shown a surprising amount of flexibility on this score. Despite the disdain of economic purists, they have introduced a string of special-purpose hypothecated levies, and do not seem to have suffered electorally as a result.

Given the adverse reaction to the erosion of Medicare under this government, an increase in the Medicare levy to finance a return to bulk-billing would be a sensible political response. And, for a government that prides itself above all on not being like the Fraser government, it’s worth considering that Fraser scrapped Medicare and abandoned tax indexation. This government would do well to take the opposite course of action on both issues.

Observa's story

John Quiggin9 Comments

Observa has sent me a further instalment of his story of his family’s brush with paedophilia. As he observes “it has been a difficult task for me to write about an emotive issue, when I am largely a facts and figures technocrat.” I agree with Observa’s comment in the Monday Message Board that:

“My view is that society needs to discard its sense of taboo on the subject of paedophilia and separate fact from fiction. The outcomes for individuals are too important to be swept under the carpet.”

This is obviously a difficult issue, and the comments about it have lacked the dogmatic certitude that characterizes a lot of blogging (including a fair bit of mine, I admit). I’ve collected the entire thread into a single post, which you can read below.
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Spin Cycle

John Quiggin12 Comments

Responding to the post-budget opinion polls, most bloggers (myself included) have seen what they want to see Tim Dunlop focuses on the good news for Crean in the Age/SMH AC Nielsen Poll. Gareth Parker looks at the bad news in the Oz Newspoll, and Tim Blair (permalinks still bloggered) accuses the SMH of spin. As Rob Corr observes Tim B seems to have missed the fact that the SMH and Oz each have their own polls, both out on the same day.

But for the real spin story you have to visit the Newspoll site and read the raw poll numbers (downloadable as PDF). Newspoll found that 15 per cent of voters thought the budget would make them better off 38 per cent thought it would make no difference, and 32 per cent though it would make them worse off. This mildly negative result (fairly typical of responses over the 15 years Newspoll has asked this question) was spun by The Oz into a ringing endorsement ?53 per cent of voters thought the Budget would make them better off or no worse off ‘(emphasis added).

The AC Nielsen Poll asked a clearer question and got a clearer answer. Asked whether they would prefer the tax cuts announced in the budget or improvements in health and education, 20 per cent opted for the tax cuts and 77 per cent for improvements in services.

Bloggers redux

John Quiggin3 Comments

Ken Parish is back from a short hiatus, with a string of excellent posts and a new co-blogger, Geoff Honnor. Also back on air is Gummo Trotsky, whose posts include the best demolition yet of Keith Windschuttle’s paean to David Stove in The Killing of History. Those still off-air, and missed by their devoted readers, include Rob Schaap and Carita Kazakoff. The dozens I haven’t mentioned in either category can flame me in the comment box, or better still by posting about and thereby supplying me with the links I crave.

Still Bemused Too

John Quiggin

Brad de Long is Still Bemused

by the fact that there were 3.3 percent fewer hours worked in the nonfarm business sector in 2003:I (the first quarter of 2003) than in 2000:I. Such a prolonged shrinkage in hours worked–given America’s robust demographics–is an extraordinary labor market experience for the United States.

I’ve been thinking about this too, and, although I don’t have a fully worked-out story my view is that 2000 was exceptional, while 2003 is, in most respects, a return to normality. Looking at the decline in hours worked, between one-third and one-half is due to a decline in average hours per worker. This is a reversal of the historically unprecedented increase in average hours per worker that took place during the 1980s and 1990s.

At the same time, demand for labour was exceptionally strong. Employers were scouring remote rural areas, clamoring for access to prison labour and (Mickey Kaus’ favorite story) eager to take on former welfare recipients. The unemployment rate, at 4 per cent, was the lowest in recent times, but if anything that understates the tightness of the labour market. As things have slackened, there has been a big drop in participation

A final feature of the late 1990s was an incredible investment boom (the other side of the current account deficit). The result was that whereas labour productivity grew strongly in the late 1990s, multifactor productivity was relatively weak, a point that has attracted insufficient attention in assessments of the boom.

Not surprisingly, demand for labour was exceptionally strong. Everything fell in a heap when the bubble burst in 2001. As the investments in dotcoms and telecoms proved worthless, multifactor productivity actually fell. I would guess that MFP recovered a bit in 2002, but not much. Here’s some data I got from the Bureau of Labor Statistics MFP Home Page

Series Id:   MPU750023 (K)
Measure:     Multifactor Productivity (Index, 1996 = 100)
Sector:      Private Nonfarm Business

Year

1991 94.8
1992 96.7
1993 97.2
1994 98.2
1995 98.6
1996 100.0
1997 101.0
1998 102.2
1999 102.9
2000 104.4
2001 103.3

Manifestation

John Quiggin13 Comments

I’m going to do an interview with the 7:30 report about the proposed Free Trade Agreement with the US. If my bit isn’t cut and the whole piece isn’t bumped for something hotter (both normal occurrences in my experience with TV) it should go to air this evening.

If you prefer text to video as an information source, you can get a pretty good idea of what I’m going to say here. For the pro-FTA case, you can go here.

Update As half-predicted, the interview didn’t go to air. Another day, perhaps.

Update 21/5 The piece went to air tonight with a couple of soundbites from me.

The New Corruption

John Quiggin8 Comments

Tim Dunlop has some interesting thoughts on a factoid reported by Kevin Drum that Australians are less likely to pay bribes than inhabitants of any other country. (the Finns, though, are said to be the least corrupt).

The closest I’ve ever come to paying a bribe is once when I had to collect a very heavy consignment of household goods from the Sydney wharves and a friendly wharfie forklifted the stuff onto our truck in return for a very modest backhander. (Even in this notorious milieu, I wouldn’t have known what to do if my Dad hadn’t been with me).

Although it’s not relevant, I can’t record resisting that on the same visit I saw a squashed Ferrari. One of a consignment of six it had been accidentally dropped from a great height, compressing its already low-slung profile to a height of about a metre.

In part, my limited acquaintance with bribery reflects the fact that I grew up mostly in Canberra. Until about a decade ago, federal politics in Australia was corruption-free to an amazing extent. Ministers of both parties lost their jobs over minor breaches of customs regulations, and the idea of bribing a public servant was pretty much unthinkable.

Things deteriorated in the later years of the Hawke-Keating government as it became expected that government ministers and senior public servants would move on to high-paying corporate jobs. It didn’t take long for people to work out that a few well-placed favors given out in office could be repaid with interest subsequently, and we’ve recently seen instances of blatant corruption at the ministerial and senior public service levels. (I won’t risk the first blog defamation case by naming names – Australian readers will know who I mean, and others wan’t care).

All of this has been accelerated by reforms (I don’t bother putting scare quotes around this much-abused word any more) which have grafted a US-style patronage system onto a Westminster system of unconstrained executive government. The logical outcome is a system with all the ill-effects of patronage, but without any of the checks and balances. This hasn’t yet come to pass – there are too many old-style public servants, and ministers haven’t yet realised the full extent of their power – but things are getting worse every year.

Data mining redux

John Quiggin5 Comments

Daniel Davies (permalinks bloggered) has an excellent post on data mining, using everybody’s favorite example of dodgy research, John Lott. I discussed the same issue here and “with specific reference to Lott, here.

In practical terms, Davies suggests that economists should keep log books recording their estimation strategies. I’ve urged this kind of requirement in the past. The scandalous fact is, however, that in the great majority of cases, economists don’t even keep their datasets, at least not in a publicly accessible form. To be fair, Lott did at least make his data available, though he didn’t record the data mining that must have been necessary to derive results that were so uniformly favorable to his case.