Me at the Australian Institute of Family Studies

The AIFS puts on a mean Annual Conference. They fussed over us speakers trying to make sure we weren’t just a bunch of talking heads. I would have liked to have attended more of it, but had another conference at which I had pontification duties at the same time.

In any event, I participated in two very well ‘curated’ (as we say these days) panels, one lasting two hours – yes, that’s right. My opening statement to this panel is above, and the whole thing, should you wish to check it out is below. It was a great panel. And below it is a forty minute panel I was on which discussed families, behavioural economics and nudges more generally. That was just me and Sam Hannah-Rankin who seems, at least from the outside, to be doing a good job of running her innovation unit in DPC.

Posted in Uncategorized | Comments Off on Me at the Australian Institute of Family Studies

The decline and fall of Australian economics

Image result for economicsI reproduce here a fine review of what seems like a fine book. I’m not buying the book because of the outrageous price the academic publishers are charging. It’s an interesting story of practical contribution – economics as clarified policy commonsense as I like to think of it. But, along with so much else, it’s been swept away by the new philistinism managerialism. Academics are hitting their KPIs, filling in their forms, but making original contributions to Australian policy problems? Not so much.

It reminds me of something Tom Fitzgerald said in his Boyer Lectures a long time ago:

What is inspiring . . . is the example of Australian economists who arrived at independent conclusions contrary to the world orthodoxy, who invited criticism from the most eminent upholders of that orthodoxy, and, on being rejected, put their argument in an international forum, to gain ultimately a large measure of acceptance for their initial heresy.  Today they are far better remembered and admired by an eminent American economist, the Nobel Prize winner Paul Samuelson, than by any Australian counterparts.  . . .  Professor Samuelson has recently referred to them as ‘my-down-under-heroes’

If this beautiful, elegiac book does not move you to be proud to be an Australian or New Zealand economist then I fear you may need a heart transplant. A delicious little morsel at just over 250 pages, Alex Millmow’s A History of Australasian Economic Thought still manages to convey a distinct sense of what was a diverse but definably unique branch of economic thought in Australia and New Zealand. I commend Professor Millmow for this volume and recommend it highly.

The general problem with the history of economic thought, it seems to me (I am not a historian of economic thought), is the same as with all academic history. So involved in rooting out details of specific episodes and figures, it can be intimidating and apparently unnavigable for the generalist. Millmow’s book is a splendid corrective for this problem as regards the history of economic thought in Australia and New Zealand. It touches lightly on the various episodes in this history but with sufficient depth to give the reader a real appreciation for it, and sufficient orientation to it and the body of literature around it for the reader to seek deeper knowledge if they wish. Continue reading

Posted in Uncategorized | 1 Comment

The Royal Commission and the wages of complacency: Scandals as far as the eye can see

Cross posted from Inside Story

In 1943, back working where he’d been during the first world war, the now-famous economist John Maynard Keynes wrote to a friend:

Here I am back… in the Treasury like a recurring decimal — but with one great difference. In 1918 most people’s only idea was to get back to pre-1914. No one today feels like that about 1939. That will make an enormous difference when we get down to it.

And so it did.

And here we are like Keynes’s contemporaries in 1918. Keen to return to the set-up we know got us into this mess. In the midst of the financial services royal commission, scandals stretch as far as the eye can see. They are rife in finance, of course, but are also evident in the way professionals — from the commanding heights of academia to policy-makers and opinion leaders — have failed to move beyond a vision of reform that was already stale at its zenith in the 1980s and 90s. After the global financial crisis, that vision stands today bereft and becalmed, increasingly irrelevant in today’s financialised, professionalised, digitised world.

Trauma, intellectual growth and reform

The postwar reforms were profound, giving us a generation of unmatched prosperity. But there’s also a more recent time when we turned our back on the bad old days. In response to the recessions of 1975 and 1982, and after prime minister Malcolm Fraser’s feints towards economic liberalisation, the Hawke and Keating governments turned “economic rationalism” — as it was then called — into a comprehensive program to refurbish our economic institutions.

In each case reform was built on new understandings that had originated in the academy. Where the Keynesian revolution had underpinned postwar reform, post-1960s reform was founded on a cluster of ideas. They included George Stigler’s critique of “regulatory capture,” Milton Friedman’s popularising of proposals for unbundling of delivery from the financing of government services (using vouchers and income-contingent loans, for instance), and Ronald Coase’s idea of reassigning property rights to achieve specific objectives (think pollution permits and spectrum auctions).

All these men were University of Chicago economists favouring greater reliance on markets. But they thought of these ideas as technocratic rather than ideological. Many of them — like income-contingent student loans and the liberalisation of airlines, tariffs and agricultural subsidies — had egalitarian implications and were supported by many from the centre left to the centre right.

The institutional refurbishment following the second world war lasted twenty-five-odd years. But it was only a few years before the Hawke-era reforms atrophied into a reductive formula under which change that looked more rather than less “market-based” was preferred on principle. This might reflect the lobbying power of business even with centre-left governments. But it was also the product of faltering intellectual progress in the academy and the political class’s wider failure of imagination and empathy for the people for whom they ostensibly govern. Continue reading

Posted in Uncategorized | 22 Comments

Monetary policy settings: hawks, doves and the seat of the pants

What’s at stake in monetary policy? The most obvious answer is “jobs and growth” – to coin a phrase. The idea is that, by meeting its target of low and steady (2-3%) inflation, the RBA tries also to keep us as close as practicable to full employment. But, as we’ve realised since the GFC, there’s also “financial stability”. And right now they’re in some tension. For years the RBA has been reluctant to cut rates because low interest rates were what blew the financial bubbles that got us into this GFC problem – capiche?

Indeed, there’s been no shortage of people telling us that cutting rates as far as we already have is crazy. But there’s something else at stake. Economic ‘hawks’ and ‘doves’ are performing a different self-image. All pundits like to think they’re evidence based. Even so, those animal names came from military strategy. Hawks are serious and tough. What they have to say may not be nice, but they’re not afraid to tell us to take our medicine. They’re rigorous chaps.

Doves let in a little more love. Why some of them could even be chapettes (my spell-check suggests “chapattis” but I’ll just let that bit of algorithmic misogyny go through to the keeper). So how much is the debate a psychodrama between hawks and doves, and how much is it a careful weighing of the costs and benefits according to the evidence?

I’ve only read those complaining that rates are too low en passant as it were. I’ve not read them closely. So it enables me to propose a test which, in the full glory of my ignorance has some claims to objectivity. Here’s one commentator quoted by Gene Tunny which prompted me to pose my test.

…the RBA had recklessly underestimated the impact of its 2012 and 2013 rate cuts on house price growth and credit creation, which would precipitate a bubble and the need for unprecedented regulatory constraints on lending…

What I find unsatisfying about this is that it doesn’t paint the story as a dilemma which can only be solved by weighing pros and cons of the alternatives. It suggests that there’s one true path which, at least in principle, is pretty clear (perhaps the author sketched out the considerations I’m suggesting – I genuinely don’t know).

I think thinking this thing through needs to consider at least two things. Continue reading

Posted in Blegs, Cultural Critique, Economics and public policy | 5 Comments

A dash for the deserts? What the solar revolution could lead to.

One of the best pieces of scientific news the last decades has been the spectacular improvements in solar energy generation. The current world price was set in 2017 when the Dubai government bought a large future solar contract for 7.3 US cents per Kilowatt Hour,  a mere 1/6th of the price in 2010. Compared to the 1970s, solar cells now cost less than 1% of what they were then. Unless you own a coal mine, that counts as great news!

Let’s dream out loud a little as to what this revolution in solar might lead to this century. I expect solar to transform the deserts around the world, and I like the fantasy that solar power will be used to green Australia’s deserts by pumping desalinated water up to the top of the Dividing Range.

Before sharing such dreams, let us first discuss a few technological bottlenecks to wider-scale adoption. A continuing problem for solar is that it is intermittent, meaning that large-scale usage depends on technology to store surplus energy and transport it to and from the areas of generation to where it is used. Both long-distance electricity transport and large-scale storage remain very expensive and very limited in scope at the moment, despite technological advances in both.

As a rule of thumb, you lose 5% of the electricity for every 1,000 kilometres of electricity transport, and even that requires prohibitively expensive electricity lines. That rules out any fantasy wherein Australian solar farms supply New York!

Battery storage has come a long way since the 70s, with of course the big Tesla battery in South Australia showing that you can have large batteries that can turn on and off very quickly, which is important for solar applications because solar is very variable. Yet, even that battery is relatively small and not capable of storing whole days worth of population consumption, and it’s way too expensive as a storage device to allow solar to compete with fossil at the moment for large-scale supply to the grid. It’s current function is to smooth intermittent supply from fossil-fuel power stations, making fossil fuel more attractive!

In case you’re wondering: batteries in the form of ipads or electric cars are basically too small fry to make much of an impact on this equation.

You might think there is some clever combination that solves all problems. For instance, you might fantasise about storing surplus electricity by pumping up water to some high-mountain lake from which you later on draw electricity by having it fall down again. Think carefully about the main issues involved: you lose something like 20% of the energy pumping the water up at the mountain; you need very unusual mountainous terrain that allows you to have two large lakes from which the water tumbles and gets pumped up without much leakage at either end; and if the population is 2,000 kilometres away, you lose another 20% getting the electricity to and fro. All this is quite apart from the installation and running costs of the lakes, the pumps, the solar panels, and the electricity lines. From my reading, such a package is a long way off being commercially viable, and really only a longer-term dream for countries like China that have the requisite mountainous terrain. Continue reading

Posted in Business, Climate Change, Environment, Geeky Musings, Innovation, Miscellaneous, Politics - international, Science | 32 Comments

A new go at upgrading the stock of regulation

A particularly grotesque example of many things, only marginally related to the red tape busting agenda.

This post is worked up from a comment of mine on this Mandarin post on a new submission to the Thodey review intriguingly written by two Treasury officials in their own name.

It’s an interesting and (my guess is) productive contribution. Interesting also that people are being allowed to make submissions, though it would be useful to understand the extent to which these comments were cleared by their agency made more explicit. I am (again) guessing that suggestions that were not consistent with Treasury’s priors wouldn’t be welcomed as personal contributions.

It’s also worth noting, I think that this is an ‘in principle’ recommendation, rather like the original regulation review which was implemented in 1986, took nearly a decade to achieve more than the most desultory compliance in form, and has never been widely complied with in substance. So some examples of how it has worked in New Zealand would have been useful.

More fundamentally, the submission continues to partake of the old approach in which we see regulation review as being focused on minimising avoidable costs of regulation. That’s an important task. Why do we not also seek to optimise the benefits of regulation? Why does this require no oversight of the kind proposed in the submission? Secondly the submission doesn’t interrogate the way in which the current problems are really the product of the existing incentives in the system?

As we know (don’t we?) regulation review doesn’t work largely because line agencies see it as their role to ‘get up’ regulation for their minister. So they tick the boxes, but regulation review is very rarely an objective look at the problem looking for least cost/most benefit solutions. That’s not what ministers want and so it’s not what they get.

I suspect that, while it might have some benefits, the real question is the extent to which they would be limited by these kinds of conflicted incentives and what might be done about them.

Posted in Economics and public policy, regulation | 1 Comment

Rent Seeking in Elite Networks

Some more fascinating results in the ‘whodda thunk?’ category. You can track down the paper in various published and pre-published forms here. Note, while I’ve not changed any meanings, I’ve occasionally shortened a sentence without horsing around too much with [square brackets]. Otherwise elisions are marked with an ellipsis …

There’s growing recognition of the importance of social capital in improving economic outcomes. Social proximity can mitigate informational frictions, thereby enabling transactions otherwise inhibited by adverse selection and moral hazard problems. However, there’s also a dark-side exemplified in Adam Smith’s line “people of the same trade seldom meet” and echoed by Olson who identifies the emergence of self-serving interest groups created to further their own interests largely at the expense of others. Olson argues that, after a period of stable growth, countries have a tendency to accumulate rent-extracting institutions that ultimately lead to the decline of nations. 1

In this paper, we examine the role of elite social networks. … We obtain membership information of an important service club organization in Germany. … The objective of this network is to maintain its reputation as an elite network. … From the outset, it should be noted that our analysis focuses on firms whose CEOs are members of the same service club organization, which alleviates selection concerns to some extent. To quantify the effect of social connections on lending, our empirical strategy compares for the same firm, quarter by quarter, the financing provided by banks whose banker is a member of the same club branch as the firm’s CEO (in-group banks) to that provided by other banks (out-group banks). … Continue reading

  1. In a similar vein, Acemoglu and Robinson (2012) warn us about the role of colluding elites in establishing extractive institutions as a major impediment to economic prosperity.
Posted in Uncategorized | 2 Comments