The unemployment numbers yesterday were again remarkably good relative to what is happening elsewhere in the world. The headline u/e rate is up to 5.8%. Since July last year we’ve lost about 160,000 full time jobs, but part time jobs are up about 127,000. Of course we need to create jobs to stop the unemployment rate from rising, but compare these numbers with the US. Paul Krugman this week pointed out that the US has lost more than 6 million jobs since the recession started, and it needed to create 8 million jobs to stop the unemployment rate from rising over the same period.
Tag: Joshua Gans
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You go your way, we’ll go ours..
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Government 2.0
Local Government first to 2.0.
In Australia, Government 2.0 is being pursued at a national level. However, in the US, some big cities have moved first. Here is an article about New York City’s initiatives and here is another about Boston’s moves [HT: Darren Challis] Early days yet but very interesting.
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Is inequality good for us?
Joshua Gans has a new paper out with Dan Andrews and Christopher Jencks, on the relationship between inequality and growth.
We reach a finding that is pretty standard in this literature – when we restrict the sample to 1960-2000, more inequality seems to be good for growth. However, if the inequality arises from a transfer from the bottom 90% to the top 10%, we’re skeptical that the bottom 90% get enough back in growth to make up for their loss in share.
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Fact vs Faith…
Joshua Gans – I was asked to write an opinion piece about Kevin Rudd’s essay in The Monthly on the GFC which, by the way, should stand for Great Fracking Complacency. It is in today’s Age and my opinion and disappointment speaks for itself. (Others seem more willing to carry ideological baggage than I am).
Forget ideology common sense should prevail
Joshua Gans
The Age, February 5, 2009
The global financial crisis is an opportunity for reform, writes Joshua Gans.
AS AN academic, I am a big fan of frameworks, philosophy and a sense of history. This is our bread and butter. They discipline us in being consistent and testing our assumptions against facts. And when I think of what I want in a leader, it is someone who can demonstrate that they can rise to that level. Our most recent example is Barack Obama, who is one of the greatest expositors and, potentially, implementers of collectivist theory and practical compromise that I have seen.
It was with that hope in mind that I read our Prime Minister’s essay in The Monthly, which was billed as a higher-level piece reflecting on those intellectual values in the context of an unprecedented economic event. And as a person who is generally a supporter of this Government, I knew that reflection was missing and I had hoped it would fill the void between the various actions this Government is taking and an underlying set of values. I am sorry to report that it fell far short of that hope. And it did so for several reasons. The most important of these is the dressing-up of what we are seeing as a flashpoint in the battle of ideologies. Rudd uses the term “neo-liberal” to describe the old and “social democrat” to describe the new. In neither case do we know what it all means. It seems to mean unbridled faith in markets versus a concern for public goods and the role of government. But is this a conflict we are seeing in Australia?
Economically, two things have come home. First, unchecked and unregulated financial markets can suck up energy and spew out distress. Second, that distress can spread from a single economy to economies that have had what appeared to be appropriate checks and balances.
While these challenge blind-faith adherence to markets, they do so not from a new ideology but to convince those denying the theory of market failure that such failure is a fact. They do not tell us that we need to be any more concerned about social equity or the role of government in, say, building infrastructure. There is a debate there but a financial meltdown does not give rise to ideological victory.
Rudd does better in the parts of the essay that eschew ideology and concentrate on past governmental failures. The fact that Howard and Costello rested on the laurels of economic fortune and did nothing to pay premiums on insurance against financial shocks and global recession is where Rudd has stronger claims. But that is a story of blindness to evidence and a lack of rigorous economic thinking, rather than ideological failing. After all, Howard presided over the largest growth in the size of the government and a set of irresponsible handouts at the end of office that burned any buffer for this crisis. If neo-liberalism means something, it surely is not that.
However, it is there that Rudd is somewhat exposed. I can vividly recall this time last year when fellow columnist Christopher Joye and I raised the problems in the mortgage-backed securities market
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Save Energy?
Should we bother trying to save energy?.
Not according to the Australia Institute who today came out with a press release on the insulation package, arguing that with the Carbon Pollution Reduction Scheme, it won’t reduce emissions.The Government says the scheme will help households save energy and cut carbon emissions by up to 49 million tonnes by 2020.
But the Australia Institute’s executive director Richard Denniss says the Government’s carbon pollution reduction scheme will just reallocate those emissions.
“The way the Emissions Trading Scheme is designed, every kilogram of emissions saved by a household frees up an extra permit for a big polluter,” he said.
This is something John Quiggin noted the other day. And strictly speaking, it is true for a public policy of this kind. So for the 2 tonnes in CO2 saved for each household per year or around 4 million in total, that is an equivalent amount of permits that can be used for something else.
So while that looks like reallocation of permits, it is actually focusing on the wrong thing. What it means is that the demand curve for permits will shift to the left by 4 million units. Depending upon its elasticity, that will translate into some reduction in permit prices. Is that a bad thing? Think about it. The environment is no worse off but the cost to the economy is reduced. And as that is the biggest constraint on stricter emissions targets that solves a policy impediment too.
Does this mean we should value the social return above the energy costs to insulation at the expected carbon price times 4 million per annum? Probably not. But it could be a much larger amount or a smaller amount. Regardless there is some benefit there.
Actually, if the Australia Institute were really wanting to go at this, it is better to think about the fact that the costs of producing the insulation will be borne this side of the ETS. That means that any pollution that production process gives rise to, especially given the extreme concentration of capacity (and hopefully not a big investment in it) at a relatively short period of time, will not be priced and so there will be no incentive to economise on emissions. But then again, this argument gets preciously close to being happy about the recession because it is good for the environment. Hmm, a slippery slope but I guess, to be honest, I can’t rule it out as a theoretical possibility.
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Super-schmoopa
The coming wave of Super and Tax debate… When will the country notice?
Josh Gans comments…..
I have thought for some time that the real crisis in consumer confidence would come when Australians received the 6 monthly superannuation account statements. I got mine in December and much to my surprise it appeared to have lost only a little more than I had put into over some relevant period; Costello tax breaks and all. Of course, finding out what the relevant period would have required reading the accompanying report and so I didn’t know if this was pre- or post-October. So the truly bad news may be another 6 months off for me. Frankly, not having much of a choice in the matter, I don’t really want to know.
Chris Joye today surveys what has happened in Australian super. It really isn’t pretty as you would have been better off putting your savings under the bed for the last three years — something, by the way, you are not allowed to do under our superannuation laws. It pretty much confirms what I have always thought. We are following a diversified strategy whereby we spread our investments over a whole range of assets depreciating in value. Phew, I wouldn’t like to think I was missing out on opportunities.
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Return of Depression Economics
Joshua Gans on Paul Krugman’s “The return of Depression Economics”.
Well I finished the revised edition of Paul Krugman’s The Return of Depression Economics. He wrote the original almost 10 years ago with much the same theme: that we have not solved the boom and bust cycle and risk of prolonged recession and even depression remains. He deserves kudos for considerable foresight then and it is worth remembering that in the updated version.
Krugman is more depressed in the revised edition than his first run. He doesn’t think there will be another depression but this time he wishes he could be sure of that. And in the intervening decade, there has been much to shake confidence. He lays much blame on the Greenspan era that allowed two bubbles to continue unabated but he leaves most scorn for the ’shadow’ financial economy that grew up away from regulators and about which we still have little knowledge — except that it was playing an important role that just disappeared.
The revised edition is a breezier read than the first. Lots have been cut out — including an index in the rush to press. And it is clear there are many bits of the story missing as I indicated yesterday. But it is timely and it provides an account of recent economic history that is clearly most relevant for the year ahead. It is a good time to pick this one up. Read it later and it might be too late.