Study finds tall people at top of wages ladder
– title of article on The Age website.
No prizes for guessing which economist and blogger is behind this research finding.
Update: The paper itself.
Category: Economics
When a conclusion appears as an assumption (or more dubious arguments for university funding)
Funded by Universities Australia, KPMG have produced a report modelling the economic effects of increased investment in higher education. As an exercise in persuading Treasury, it is almost certain to fail.
Perhaps because of the way Universities Australia specified the project, the report assumes that this increased investment comes from the government. But this is not an assumption that can simply be built into an economic model. It is a highly contentious conclusion that never receives the arguments it needs.
The obvious alternative assumption is that students pay some or all of the increased investment. Under current HELP loan scheme arrangements this would still cost taxpayers, because of bad debts and interest subsidies, but not as much as direct subsidies.
Indeed, even setting aside the interests of taxpayers, it is highly likely that there would be more efficient investment and higher return if investment is determined privately rather than publicly.
Continue reading “When a conclusion appears as an assumption (or more dubious arguments for university funding)”
The economy and elections
Commenter Krystian asks:
Do government get tossed out because of difficult economic times, or more because of their own incompetence plus the presence of difficult economic times?
Andrew Leigh has asked himself exactly that question, and come to the (data-laden) conclusion that unemployment does affect election results but ‘luck’ – global or national economic conditions – counts for more than ‘competence’, how well a jurisdiction is doing relative to the gobal or national economy.
He puts this down to
something psychologists call ‘the fundamental attribution error’, which is the fact that humans aren’t very good at separating situational factors from ability when making assessments.
But it seems voters used to believe that governments have more influence over the economy than they do now. The Australian Election Survey has a question about what effect respondents think the government will have on the economy twelve months from now. The first couple of times the question was asked, in 1987 and 1990, about 60% of respondents thought that the government could have either a good or a bad effect.
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Speaking truth to populism
From the 60 Minutes interview with Pacific Brands boss Sue Morphett, introduced as the most hated woman in Australia:
ELLEN FANNING: … Does the Australian consumer have to accept some responsibility for this decision?
SUE MORPHETT: They do. We all do. Long, long gone are the days where, actually, Australians are prepared to pay more for Australian-made goods and the only way that we’ll pay for Australian-made goods is if they’re giving us something that buying elsewhere or cheaper isn’t giving us.
Evidence and economic reform
An article in the latest issue of federal Treasury’s Economic Roundup publication argues for the importance of evidence in ‘creating a broad base of community support for reform’. The authors, Joann Wilkie and Angelia Grant, use the economic reforms since 1983 as their case study.
I’ve no doubt that evidence and analysis was important in shaping elite views on economic reform. I’m not sure, however, that they make a convincing case on public support for the reform process. The main reason for saying this is that the polling we have suggests that the public opposed most of the specific economic reforms, with mixed survey results on their attitudes towards the whole reform process.
The problem is evident in contradictions within the article. The authors say that influential experts and commentators were important in ‘convincing the public to support tariff reform’. But their own data a couple of pages on clearly shows that most people continue to support tariffs. Wilkie and Grant note, as I did in a 2004 article, that polling does show understanding of the argument that free trade benefits consumers. However, on my analysis concern about jobs is the over-riding consideration.
Similarly, privatisation almost always polls poorly, and while there were some mixed results in early industrial relations polling, opinion was strongly against WorkChoices.
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The long-term politics of budget deficits
As a childless person on an above-average income – ie, the principal victim class of the tax-welfare system – I am pleased with the Coalition’s stance on massive budget deficits. I’ll be paying for it in the long run (and consistent with the permanent income hypothesis, I am increasing my savings to maintain stable long-term living standards).
But personal interests aside, I am interested in the long-term politics of this. The most detailed polling on this to date (pdf), though based on an online panel, finds majority public support for the government: 51% supporting Rudd’s approach, 33% Turnbull’s, and 16% undecided.
However, the latest package of handouts hasn’t changed confidence in Australia’s capacity to withstand the GFC, which has been hovering around 60% since October last year. Nor has it changed approval of the government’s performance since November last year. (The Opposition’s disapproval has substantively increased, from 35% to 44%).
The Pollytics blog is convinced that this is a disaster for the Coalition. Maybe. But less that twelve months ago the public was also buying the then media-macroeconomic wisdom that we needed a contractionary fiscal policy, of which the Coalition was sensibly (even more so in retrospect) sceptical.
The medium term politics depend on how Australia’s performance in the GFC is judged, and what effect is attributed to the handouts. The longer-term politics depend on attitudes to public debt and tax. If my theories are right, the underlying tax and spend public opinion dynamic should be turning back towards lower taxes. The Coalition’s current stance, along with their historic advantages as the more-favoured party on tax, could help them take advantage of any swing back towards preferring lower tax.
What do higher education subsidies achieve?
This year, the federal goverment has budgeted to spend around $4 billion subsidising higher education tuition. Strangely, though most people in higher education politics think we should spend more than this, nobody seems quite sure what this expenditure is supposed to achieve. The Bradley report confessed that ‘there is no easy basis on which to determine the “right” mix of public and private contributions’. This was not just an empirical problem; it was a conceptual problem too.
The most defensible theory of higher education subsidies is that by fiddling with prices via subsidies demand for education is increased to socially desirable levels and/or supply is increased by making it more attractive for higher education providers to offer disciplines that might otherwise be under-supplied.
Behind this theory is an argument about externalities. In comments over the weekend, commenter Rajat Sood suggested that the widely varying share that Commonwealth subsidies make of per student funding, from as little as 16% for law to more than 80% for science, may reflect (at least approximately) the ‘social externalities’ involved. The idea here is that because not all the benefits of higher education are captured by the student, in a pure market they won’t pay the prices set and higher education will be ‘under-produced’.
But this theory does not fit with current system design. Under the quota system, suppliers do not receive price signals, so they cannot respond to extra demand or provide extra supply. Under a voucher scheme, they would receive price signals. But as my Issue Analysis paper argued the effect of the combined subsidy-price cap system recommended by Bradley would mean that suppliers would receive price signals that would encourage them to reduce supply below what a pure market would provide. So the effect of Commonwealth fiddling with prices would be the opposite of what the externalities theory says it should be.
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The resilience of party stereotypes
The Newspoll results reported in this morning’s Australian show the Coalition’s lead over Labor as the party which would best handle the economy has been reduced to a statistically insignificant 1%.
While the paper’s article on the poll rightly sees this as bad news for the Liberals, putting it in the context of other questions asked in the same poll it shows that there is some resilience in party stereotypes when questions are framed broadly.
When Newspoll’s respondents were asked whether the federal government was doing a good job handling the current economic crisis, 63% said yes. Even 31% of Coalition voters agreed. 57% thought that the stimulus would be good for the economy, with again 31% of Coalition voters agreeing. 48% of respondents thought they would be better off over the next 12 months due to the package. When asked whether the Coalition would do a better or worse job handling the crisis, more thought worse (39%) than better (33%). Only 28% of Newspoll’s respondents believed the Coalition would deliver a better stimulus package.
But though the Coalition is clearly well behind on the major economic issue of the day, on the more abstract question of who would better handle the economy they remain fractionally ahead, showing the reserve of credibility on this issue they have built up over many years.
(It would be interesting to know the question order in this survey; this result would be more interesting if this question was asked after rather than before the specific questions.)
Labor and ‘neoliberal’ policy
One of the most difficult problems Kevin Rudd faced in writing his Monthly essay was the extensive, and indeed dominant, role of the Hawke and Keating Labor governments in implementing ‘neoliberal’ policies.
When he says that the political home of neoliberalism in Australia is the Liberal Party he is giving the Howard government more credit (from a reformist perspective) than is warranted by the historical evidence. While the Coalition moved further ahead on labour market deregulation, waterfront reform and the privatisation of Telstra than was likely under Labor, most of the major reforms had already taken place by the time Howard took office in 1996, and what the Coalition did was incrementally advancing or fine-tuning reform processes initiated by the previous government.
Apparently when the Coalition introduces a market reform it is ‘economic fundamentalism’, but when Labor implements a market reform it is ‘economic modernisation’.
The differences between social democratic market reformers and ‘neoliberal’ reformers are larger in their underlying philosophical perspectives than in their substantive policies. In The Australian this morning, Dennis Glover put it this way:
Rudd does not believe the free market is an end in itself; it exists to serve society. For Rudd greater social equality is a moral good.
GDP and well-being
One irritating feature of the subjective well-being research is its preoccupation with GDP, or rather its preoccupation with what it thinks is our preoccupation with measuring production. It’s there again in the new economic foundation‘s recent National Accounts of Well-Being: Bringing real wealth onto the balance sheet.
The proposition that GDP cannot be used as an all-purpose proxy for societal well-being is a banality, not a critique. Nobody who believes that it is such a proxy is cited in this publication, and for good reason: nobody of any intellectual or political signficance (and quite possibly nobody at all) believes this to be the case. It is one of a vast number of statistical series collected and used in policy. Government policy is more likely to reduce than increase GDP through regulation and taxation steering resources away from their most productive uses.
The main point of National Accounts is to call for more regular collection of statistics on well-being, broadly defined. They’ve made a start with (in conjuction with Cambridge University) an interesting survey taking a multi-faceted look at well-being around Europe.
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Andrew Norton 