When too much theory is barely enough . . .

It’s funny. I think academia is too theoretical, and politics isn’t theoretical enough. In this post I’ll defend the second proposition on politics, and if I manage it, a subsequent post will defend the first. I’m  also thinking particularly about the ALP.  In a sense my proposition is commonplace – that they’re not too good at ‘the narrative’ as we’ve come to call it.

It’s also a commonplace that elections appear more as auctions than they did a generation ago. Yet in what’s a pretty much zero sum game, participating in an auction is a dangerous business.  Of course you have to bid in the auction, you can’t go into it with people thinking you’re going to make them worse off. But how are the punters going to keep tabs on all those promises you make?  Not only don’t they understand the transmission mechanisms and the difference between where a tax notionally falls (GST and PAYE are notionally paid by business) and who really ends up feeling the tax in their hip pocket (who does?). But even if they cared to spend lots of time adding up the parties’ various promises like Charles Darwin added up the pros and cons of getting married (a pro was that his wife would be better company than a dog which on all accounts she ended up being) how are they going to divine it through the spin and counterspin of the parties and the fog of the media’s infotainment coverage?

That’s where you’re much better off selling the vision itself, not just the benefits. Despite the great collapse of ideology in the last couple of generations, it’s not the case that the two parties don’t have recognisably different sympathies (however much they feel they’re actually able to indulge them).  The ALP is more concerned with ‘fairness’ and those doing less well. The Libs would argue that their own philosophy actually delivers fairer and better results for all, including those not doing that well – especially in the long term. But they’re more inclined to emphasise the importance of incentives to encourage people to make money – and to discourage them from doing harm.

But a core part of the ‘progressive’ agenda that’s somehow gone missing here is the idea that the progressive agenda is more thoughtful, less tied to special interests and the custodian of enlightened thinking about things, that the conservatives are too stupid or two self interested to defend.  ((I’m speaking in terms of political rhetoric, not saying conservatism is stupid, though in the US and to a lesser extent here, it seems to be going into a new stupid phase. ~ NG))

A uniting theme of progressive thinking should be the idea of the mixed economy and the interplay of public and private motives.  In that vein, as someone pointed out to me recently, in setting up the various ‘my’ sites – myhospitals, myschools – mightn’t it have been a stronger message for the ALP Govt to call them ‘our hospitals’, ‘our schools’? And at the level of policy, plenty of ideas in the body of public policy thinking – I’m thinking, not surprisingly of economics – which provide guidance. The classic example is Keynesian management of the cycle. Following the advice of its bureaucrats, the ALP Govt managed one of the most successful fiscal stimuluses in the world from late 2008 on, but a lot of its defence of its actions accepted the basic non-Keynesian narrative – that it was doing it to save ‘jobs’ which left unchallenged the counterpoint that these jobs were charity jobs, that people with jobs were paying for the people without. But this wasn’t true. They were doing it just as much for profits as for jobs. Just as much for efficiency as for equity.

And of course they failed to stand and defend themselves against the ‘gotcha’ coverage of the school building program – which again reinforced the narrative.

I see this pattern repeated in numerous places – a higher level explanation of what’s going on goes begging – for lack of real conviction. The ALP’s defence of the NBN basically accepts the premise of its opponents – that it needs to be commercially viable to be successful.  ((As has been pointed out to me, there is at least an ulterior motive to this manoeuvre which is the desire to do the funding ‘off budget’ so that the investment in the NBN does not act as a drag on the budget – though this brings to mind a further issue which is why we don’t distinguish more between capital and recurrent items in our budget accounting. ~NG)).  But that’s nonsense.  Do they know that economists have written about the merits of marginal cost pricing since the 20 and 30s and developed the theory of public goods in the 50s and beyond?  The strange thing about all this is that, unlike some of the issues they took on in the 70s and 80s – things like reducing industry assistance – these ideas can be much more effectively transmitted into the populist playbook. The ALP could be out there taunting the Opposition saying that only the Opposition thinks that the internet should be regarded as a private rather than a public good (or managed deliberately to optimise its benefits as a public good) and that that means Australians will not only get worse broadband under the Coalition, they’ll get more expensive broadband under the Coalition.

Of course it’s sometimes possible to detect such ideas in the melange of arguments they use to defend their policy, but there’s no real identification with the issue except for its ability to deliver some goodies to the electorate in the huge mix of goodies on offer. I’d argue the same on the various agendas regulars here will have seen me bang on about.

  • Fiscal policy governance – we need better institutions to optimise the fiscal stance. And like it did with National Competition Policy, the ALP could make a virtue of the necessity of its minority status – which is already seeing the introduction of the Parliamentary Budget Office – and take it further – God knows the ALP suffers for its determination to present itself as fiscally responsible against the psychological prejudices of the electorate that figures that the Libs must be better with money since they represent it!
  • This leads directly to the issue of governments borrowing more to invest in public assets. The states could easily double investment in infrastructure (levying charges on it where appropriate) and if necessary accept a (temporary) downgrade from AAA to AA. That would give us around another $100 billion to invest in infrastructure.  Will someone tell me that wouldn’t be popular?  Oh yes, their opponents get to bang on about the credit downgrade (if there is one) but the government could point to the infrastructure going in and ask which bits would be stopped by an alternative government. Instead we stick to the script of debt minimisation.
  • Regulation – the current basic philosophy of ‘regulation review’ has not changed since it was introduced by the Hawke Govt as ‘minimum effective regulation’ in 1986. Nothing wrong with keeping regulation to the minimum that’s effective.  That’s an important agenda (which no-one’s managed to deliver on particularly well).  But hey, regulation is the third arm of govt – along with monetary and fiscal policy. Isn’t it time we balanced a desire to reduce unnecessary regulation with a desire to regulate as well as possible where we do regulate? To focus on optimising regulatory benefits at least as much as minimising regulatory costs?
  • Banking – as I’ve argued elsewhere the government’s package on banking competition could have built the institutions necessary (as it did with HECS) (pdf) to make banking more efficient, cheaper and fairer.

 

This entry was posted in Economics and public policy, Philosophy, Political theory, Politics - national. Bookmark the permalink.
Subscribe
Notify of
guest
21 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
john
john
10 years ago

“Somewhere about the 1950s, the break with history acquired the
force of a generalized paradigm shift in academic culture. One
discipline after the other in the human sciences cut its ties to history,
strengthened its autonomy with theory and self-oriented critical
analysis, and produced its meanings without that pervasive historical
perspective that in the nineteenth century had permeated the selfunderstanding
of almost every branch of learning. ….. Rosalind Krauss, drawing on Clement Greenberg, has well expressed
the internalistic orientation of the modernist paradigm shift: “[A]
modernist culture’s ambition [is] that each of its disciplines be
rationalized by being grounded in its unique and separate domain
of experience, this to be achieved by using the characteristic methods
of that discipline both to narrow and ‘to entrench it more firmly
in its area of competence.'”
Carl E. Schorske

john
john
10 years ago

History and the Study of Culture
Author(s): Carl E. Schorske
Source: New Literary History, Vol. 21, No. 2, History and… (Winter, 1990), pp. 407-420
Published by: The Johns Hopkins University Press
Stable URL: http://www.jstor.org/stable/469262

My wife is a historian and really has a powerful owls ability to spot and swoop ontasty possums !

Dave
Dave
10 years ago

It’s all well and good to establish and frame policy using economic theory, but this only resounds with an electorate that (a) understands that theory or (b) is willing to take that theory on trust.

It seems that Labor does well with neither explanation nor trust. In that context, they have resorted to simpler – if fallacious – reasoning: eg that the NBN will be profitable.

Of course, it is in practice harder to convincingly argue a falsehood, since even simple arguments undermine it: eg if the NBN is profitable, why isn’t it being privately funded? So understanding and trust become even worse.

And so it goes.

Gene
Gene
10 years ago

Nick, arguing the NBN will earn a commercial rate of return means NBN expenditure doesn’t hit the budget bottom line, which is obviously of some advantage to the Government. This is clear from the NBN Implementation Study(Chapter 8 – Funding the NBN):

“Consistent with Government’s objective that NBN Co operates commercially, the ABS has classified the company as a Public Non-Financial Corporation (PNFC). Being classified as a PNFC is important for a number of reasons. First, it sets expectations about the company operating on a commercial basis and limits the use of subsidies. Second, as equity investments in a PNFC are not part of the federal budget, it enables those investments to be evaluated in the context of building an enduring business with direct returns rather than being evaluated as part of annual federal budget expenditure.”

So I agree with you economic theory wouldn’t necessarily require that it earn a commercial rate of return to be viable, but the politics of the budget deficit mean that the NBN may never have happened without it being classified as a PNFC.

Tel
Tel
10 years ago

The ALP could be out there taunting the Opposition saying that only the Opposition thinks that the internet should be regarded as a private rather than a public good (or managed deliberately to optimise its benefits as a public good) and that that means Australians will not only get worse broadband under the Coalition, they’ll get more expensive broadband under the Coalition.

I’m not sure exactly what you mean by “the internet” as goods, because the internet is big and complex and represents many things to many people. I will consider the more restrictive case of a piece of communications cable running from my house to some node or exchange building.

Is the cable rivalrous? Yes. Any given cable can only take data at some limited rate, and whatever volume of data that I’m using cannot also be used by anyone else. This applies all the way from my endpoint, right through “the internet” as a whole to whatever I’m trying to connect with (a website or something). Modern cables are getting faster, so my usage as a percentage of the maximum rate is getting smaller, but then again, the number of users is also growing, and the data requirements for applications is growing (e.g. web pages get more images, videos, etc).

Is the cable excludable? Yes. The cable that goes to my house, is for my use and if you read the contract I’m explicitly forbidden to offer that up for general use. What’s more, a person living far away from me wouldn’t have any use for the cable going to my house, they would need their own cable.

Seems to me that the theory for NBN being a public good is decidedly weak, given that what NBN is primarily doing is providing last mile cabling to Australian houses.

Pedro
Pedro
10 years ago

I agree with Nicholas (except about there being natural monopoly). The NBN debate should be squarely on the issue of whether it makes sense for the govt to build a gold-plated broadband system irrespective of the financial return. The distraction about the business case doesn’t just get the money off the budget, it helps hide the fundamental stupdity of the whole thing.

I think that the ALP govt is crap on the narrative because they are crap on the policy. The previous ALP govt was largely good on policy and the narrative too.

derrida derider
derrida derider
10 years ago

It’s also a commonplace that elections appear more as auctions than they did a generation ago.

Ya reckon? It was Bob Menzies who said “elections are like Christmas for the voters – they each expect a present”. And Ben Chifley spoke of “the most sensitive nerve of all – the hip pocket nerve”.

If anything people now are slightly less liable to focus on “what do I get out of it?” and more on “what does this mean for the country?”. The traditional “Beer, cigs up!” headlines after a Budget seem less prominent in favour of “fixing the debt” or “crushing incentives” or “fair go” narratives. And forty years ago the debate on the NBN would have focused on “how much will it cost me?” rather than whether it met the technical definition of a public good.

Then again, maybe it’s the idealistic baby boomers who are the unusual generation. Maybe future cohorts will be more like their grandparents rather than their parents. I hope not.

john
john
10 years ago

If narrative is identity , then this Gov talks in circles

desipis
10 years ago

DD, I’m pretty sure I’ve seen constant coverage of how the ‘cost of living’ keeps going up: power bills, food, housing, etc. I guess there may be more of a focus on how the government generally affects peoples lives/wallets rather than just the direct interactions through taxes or transfers. However the way its discussed still seems to have a “me me me!” attitude attached to it.

Pedro
Pedro
10 years ago

DD, I ws thinking the same thing, but then decided that the narrowing of serious policy differences probably has increased the auction effect.

Tel
Tel
10 years ago

Tel, once installed the cable has spare capacity and the marginal cost of using it is near to zero.

Sure, there’s an installed copper cable running the “last mile” up to my front door, and I probably only operate that cable at 5% utilisation. At least in principle, you are welcome to buy the unused bandwidth. For a very reasonable rate you can come sit on my front step and use the Internet… only at those times when I’m not using it of course (but I can’t tell you before hand exactly when that will be). Surely an attractive deal?

What’s that? Not very convenient sitting on a concrete step in Sydney? Well sorry mate but that’s where the cable goes to.

Needless to say, cables require maintenance and eventually upgrades, and those things cost money. So every dollar spent on infrastructure in Darwin is largely useless to the people of Sydney and vice-versa. That’s no a marginal cost of zero in my books, and yes there is a very large economic incentive for the people of Sydney to see as much money spent in Sydney as possible.

It gets worse when you consider not only does geographic rivalry exist, but also temporal rivalry. There are well established peak periods and dead periods so just because the long-term average utilisation is quite low, during that burst of peak activity the utilisation is very high. In order to achieve you objective of “marginal cost of near to zero” you would have to deliberately over-provision the links by a large margin… and that also costs money. You are of course, more than welcome to wake up at 3AM and enjoy the fast links while everyone else sleeps. Sydney roads are great at 3AM, but crap during the 8 hours of peak period. Strangely, most people don’t want that, they want access to resources at their convenience, not someone else’s.

We can talk about how the NBN pricing plan recognises these factors if you like, but you are going to be up against it convincing people that this rivalry does not exist at all.

BTW: these things also play out when it comes to considering the natural monopoly factors, but it would take a lot of space to explain it in detail. Suffice to say, the real natural economic monopoly for last mile fixed-line communications is a smallish regional area… certainly not a nation the size of Australia.

Government would like a national monopoly primarily for the same reasons that Queen Elizabeth I wanted a carriage service monopoly back in Mother England, but that’s another story again.

Pedro
Pedro
10 years ago

Tel, given wireless, how can there be a natural monopoly even in the suburban street?

john
john
10 years ago

I believe that there are real limiters on wireless, with the growth in the numbers high band width Iphone sort of stuff . Anny tec types around?

Tel
Tel
10 years ago

given wireless, how can there be a natural monopoly even in the suburban street?

Based on the current off-the-shelf technology, wireless wins in terms of convenience, portability, etc and fixed-line wins in terms of price, and high bandwidth (with regards to “last mile” links). For long-haul intercity links, or international links fiber wins by a stupidly large margin, but Australia is not short of long-haul intercity links, and NBN is not interested in international links.

Thus, there will always be a market for wireless and always a market for fixed-line, but exactly where the boundary falls between those markets depends on evolving technology and price. If fixed-line becomes a monopoly and wireless is competitive, then probably price will swing somewhat in favour of wireless and away from fixed line.

Looking at the “natural monopoly” concept, you must understand that for microwave communications (such as mobile phones), the distance of propagation from any given tower is quite limited. Although you can use the same phone in any capital city, you are not using the same mobile tower. However, the fact that you move around between cities brings up a compatibility question. With global compatibility standards (and 3G has become established as king for the time being), the “natural monopoly” for a wireless operator might not be all that large. The same geographic rivalry that exists amongst fixed lines, also exists in wireless infrastructure — building extra mobile towers in Sydney does nothing useful for wireless coverage in Darwin, and vice versa. For that matter, the temporal rivalry also exists. Everyone has incentive to demand infrastructure built in their local area.

As for the future, phased array wireless can (at least in theory) create virtual cells as required, and thus massively multiply the aggregate bandwidth available to wireless. The iBurst system did this, and I can say from personal experience that it worked very well. However, iBurst was expensive and ultimately died because they could not get enough subscribers to cover costs. With all technology, more powerful equipment becomes cheaper over time, there will be a break-point where phased arrays drop down to consumer price levels (and patents expire!) but there’s a big jump between what’s possible in theory, and what can be built for an acceptable price. Once the 3G standard (and it’s descendants) become locked in as compatibility standards, the phased array technology will need to seamlessly translate between regular cellular towers and virtual cells (so the consumers can’t detect any difference). I’m sure someone is working on it as we speak.

It may be a complete coincidence that under Sol Trujillo, we saw Telstra invest heavily in 3G wireless and simultaneously invest as a research partner in the over-the-horizon radar technology (JORN) which was built around a phased array. Draw your own conclusions on where that’s going, I’m sure you won’t get any details from Telstra regarding how close they are to breakthrough, and I’m only guessing here (YMMV).

Alex
Alex
10 years ago

I agree with your first point about political debate. I have a suspicion that the government doesn’t explain its ideas because it doesn’t really understand them. It could have won a fight with the miners, it could win a fight over carbon tax (the NBN I don’t understand so well), and public goods more generally by explaining to the public what was at stake and making the point that it is in the public interest to retain some of the earnings on what the nation owns for offsetting against risk, spending on health, on education etc, for reducing income tax and taxes on small business etc etc.

I get the impression that, insofar as these guys think, they don’t really understand any of the basic theory. They are like rabbits caught in the feeble spotlight of badly taught first year micro-economics.

2. On your yet to be delivered second point I suspect I may disagree. The problem is not enough theory of the sort of political-economic kind you seem to have in mind.
Social science in Australia is dominated by stories about particular events or a sort of so called theory about culture and the like which is beside the point for this discussion. There is only one non-economics faculty in Australia that I know of teaches social choice theory or game theory or formal theory more generally in a systematic manner. This leaves undergraduates, and whatever they grow up to be, poorly equipped to deal with debates about public goods, the relation between states and markets and easy prey to simple economic slogans.
Economics also seems to be in bad shape for lack of undergraduate training in theory. It is not the fault of academic economists. I suspect, like arts and social science faculties they are responding to demand. How many undergraduates understand the theoretical foundations for the relations between the state and the market, or appreciate that the market is simply a one player game with a particular structure, or that utility curves are simply a mathematical assumption required to allow us to use a certain set of techniques? Who understands general equilibrium theory, or is able to appreciate the triviality of the Coase theorem, or the difference between neo-classical and Marxian models, or the capital controversy, or the limits to markets? Despite what the critics like to say the financial crisis wasn’t the result of a failing of economic theory. It was the result of the fact that many of its most vocal supporters (including Greenspan) didn’t seem to understand it.

To paraphrase the great Yogi Berra – ‘too much theory is not enough’