Rana Roy

Poll 64

Panelists were asked to comment on two questions: 

Is the budget likely to achieve its aim of getting inflation back within the RBA target band by the end of this year and back to 2.75% by mid next year?

And

On May 14, the government delivered a budget designed, in the Treasurer's words, to "focus on fighting inflation in the near term and then growth in the medium term " - What grade would you give the budget, given that objective? A, B, C, D, E or F

Wes Mountain/The Conversation, CC BY-ND https://creativecommons.org/licenses/by-nd/4.0/

NOT SURE The only strictly honest answer I can offer is ?Not sure?. There is a clear case for ?Yes?. The combined actions of the government and the RBA have already succeeded in putting inflation on a downward trend. And the budget?s measures on energy bills and rent assistance will engineer a sizeable reduction in the headline inflation rate ? as will the resulting reduction in inflation-indexed social security increases. Moreover, since I expect the RBA to base its own decisions on underlying inflation rather than this one-time engineered reduction in the headline rate, I do not expect a near-term reduction in the RBA cash rate and any consequent inflationary stimulus from such an interest rate cut. On the other hand, there is also a case for ?No?. First, there is clearly an inflationary stimulus from the Stage 3 tax cuts that will start to build up steam. And at some point ? perhaps already in the 2024-2025 fiscal year, perhaps later ? the deficits projected in the budget could well become real deficits ? as distinct from being deliberately pessimistic forecasts by the treasury, as I argued in regard to last year?s Budget, citing Chris Richardson on this point. The rivers of gold that flow into the treasury?s coffers through high-volume exports at advantageous terms of trade spring from the rising prosperity, and consequently rising effective demand, of people in other lands, in China and India and elsewhere. In an increasingly turbulent, conflict-ridden geopolitical and geo-economic landscape, these rivers may cease to flow quite as fully as they have to date. Hence, my answer: ?Not sure?.

C

To be precise: the C grade in answer to this first question is the composite of a B grade in regard to the first objective of ?fighting inflation in the near term? and a D grade in regard to the second objective of ?growth in the long term?. And the B grade in regard to the first objective is itself the composite of an A grade in regard to the fiscal year ending in June 2024 and a C grade in regard to future years. First, credit where credit is due! In the May 2023 poll in response to the 2023-2024 budget, I was ?more than happy? to award an A grade to it on the specific question of its effectiveness in keeping inflationary pressures in check. I am more than happy to do the same for this Budget ? and for just the same reason. As I said last year, ?our most immediate and demanding economic challenge is to reduce inflation without triggering a recession?. Meeting this challenge requires a scalpel, not a sledgehammer: that is, delivering modest Budget surpluses, by way of saving part of the revenues flowing from our advantageous terms of trade and enabling the Reserve Bank to maintain interest rates at a modestly elevated level. The treasurer has succeeded in meeting this challenge. In stark contrast to the 14 years between July 2008 to 30 June 2022, he has delivered two budget surpluses in a row, exerting a slow and steady downward pressure on inflation without triggering a recession, and enabling the Reserve Bank to maintain modestly elevated interest rates. Today's real cash rate (adjusted for inflation) is above zero but less than 1%. In regard to the future years forecast in the forward estimates, I am more sceptical of the likelihood of success. For 2024-25, the treasurer has proposed a clear enough strategy: reducing the headline rate of inflation by way of subsidies to reduce energy bills for all and subsidies to reduce rent payments for those tenants in receipt of Commonwealth Rent Assistance. He has also projected a cumulative budget deficit of well over $100 billion for the four fiscal years from July 2024 to June 2028. But since all this is the subject of the second question in this poll, I shall not duplicate my answer here. In awarding a D grade to the Budget in regard to the second objective of ?growth in the long term?, I am being polite to a fault. This Budget does not contribute to securing growth in the long term. As I have argued on many a previous occasion, the Australian economy, apart from its highly successful and high-productivity resource extraction industries, is not currently configured to deliver long-term growth. Too much capital is diverted from the productive economy as a result of the high share of bank lending allocated to the process of bidding up house prices ? as well as the high share of government spending allocated to cleaning up the results of repeated crises and seemingly systemic institutional failures in education, health, childcare, aged care, and other essential services. In lieu of addressing this vast and well-trodden territory, let me address the one major new initiative announced in this budget specifically on the issue of long-term growth ? the 10-year, $22.7 billion programme called ?A Future Made in Australia? ? see https://budget.gov.au/content/factsheets/download/factsheet-fmia.pdf ? and prefigured in the prime minister?s speech on ?Australia as a renewable energy superpower? that formed the subject of our March 2024 poll ? see https://www.pm.gov.au/media/hunter-nexus-dinner. In my answer to our March 2024 poll, I wrote: ?The point, however, is that any new multibillion-dollar initiative needs to be (a) founded on an accurate understanding of the nature and modalities of the energy transition that is actually being progressed across the world (including in such ?minor? countries as China and India, the former ranking first and the latter ranking third in their share of world GDP as measured by purchasing power parity, and neither of which was deemed worthy of mention in the Prime Minister?s speech), and (b) sufficiently well-crafted, and informed by a sufficiently-wide consensus, to be sustainable beyond the next 10 months in the case of the United States and the next 14 months in the case of Australia.? The point applies equally to the proposals and commentary provided in this Budget. First, in order to establish who is and who is not a current and potential major player in the field, consider the current global distribution of economic output and industrial and technological capacities. Of course, the United States remains a colossus. But according to IMF data, the combined share of global GDP accounted for by the three core countries of the so-called BRICS+ group of less-developed nations ? the Russian Federation (2.95%), India, (7.86%), and China, (19.01%) ? already account for a greater share of world gross domestic product than the ?major advanced economies? in so-called G7 club, at 29.64%. See here: https://www.imf.org/external/datamapper/PPPSH@WEO/OEMDC/ADVEC/WEOWORLD And according to the April IMF World Economic Outlook, whilst the United States succeeded in growing its GDP at 2.5% in 2023, none of the others in the G7 group of advanced economies managed any more than 1.1%. In contrast, the Russian Federation grew at 3.6%, China at 5.2%, and India at 7.8%. See here: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024, at the statistical appendix, tables A2 and A4. The same applies ? indeed, it applies more strongly ? if we consider metrics of industrial and technological capacities, including basic metrics such as the number of engineers and engineering graduates. In regard to the energy transition, it must surely be obvious that China holds a dominant position. According to one estimate, from the Griffith University?s Asia Institute, in 2023, China held a 68% share in electric vehicles, a 74% share in lithium batteries, and an 86% share in solar modules. See here - https://news.griffith.edu.au/2024/05/09/chinas-new-three-exports-dominate-the-2023-global-green-transition/ Importantly, my point on industrial and technological capacities when considering potential major players comes into play here. For example, whilst China will surely continue to maintain a dominant position, the decisions by India and the United States to invest in solar module production on a serious scale are expected to result in these two countries greatly expanding their global market share ? not so much at the expense of China as much as at the expense of everyone else! See here: https://www.asiafinancial.com/china-to-dominate-global-solar-supply-chain-for-next-decade. Finally, it is necessary to interrogate and understand the rationale informing the actions of both major and minor players in the field. If the German and UK governments are now opening up coal mines, it is not necessarily in the belief this will hasten the transition to Net Zero. If the US Government is imposing a 100% tariff on Chinese electric vehicles, even as it draws down its Strategic Petroleum Reserve to keep petrol prices low at the pump, it is not simply in the belief that this is the fastest route to decarbonising passenger transport. In short, there comes a time when ?green-washing? old-fashioned geopolitical power plays simply will not wash! And that time might well come soon, if President Biden?s green-washed trade war were to be replaced in January 2025 by what would simply be President Trump?s trade war. Of course, on the basis of a more accurate understanding that the parallel processes of the energy transition and the trade and economic wars are accelerating de-globalisation, there remains much to do in securing Australia?s national interests and in pursuing ambitious but achievable goals in this new global landscape. And at least some of the expenditure itemised in ?A Future Made in Australia? are indeed relevant to the pursuit of achievable goals: ?investing $566 million in open science by supporting Geoscience Australia to map Australia?s endowments of critical minerals and national groundwater systems? and ?undertaking a strategic examination of Australia?s research and development (R&D) system? are two obvious examples. See here: https://budget.gov.au/content/factsheets/download/factsheet-fmia.pdf. Nonetheless, I maintain that an accurate understanding of current and future global trends would deliver a strategy for an achievable Australian future rather different to that outlined in ?A Future Made in Australia?. But this is certainly not the place to expand any further on the subject.

Poll 63

April Poll - panellists were asked about the GST deal with Western Australia.  The following two questions were posed: 

"Is the long-standing arrangement broadly the best method of distributing the nationally-collected GST revenue?" and "Should the 2018 changes be kept or scrapped?"

YES - There are good reasons to seek to reduce, as far as possible, the scope for subjective political discretion in large-scale spending, taxation, and (re)distribution decisions ? and to increase, as far as possible, the scope for an objective determination of outcomes by means of pre-agreed formulae and in the service of pre-agreed ends. And there are good reasons to support the particular end being pursued in this instance: namely, maintaining a balance between the various states and territories, as a proxy for maintaining a balance between the various regions of Australia ? also known as the principle of ?equalisation?. The difficulty here is that the pre-agreed formula needs to be, and to remain over time, robust in several particulars. Inter alia, it needs to be (1) sufficiently well-specified in all its relevant elements so as to ensure that we are not simply replacing discretionary decision-making by politicians with discretionary decision-making by bureaucrats (2) sufficiently transparent to ensure that it is sufficiently understood by all the relevant stakeholders (3) sufficiently uncontentious in the literal sense of not being regularly and repeatedly contested by one or more of the said stakeholders. In regard to (1), I am not convinced that the pre-2018 formula was quite as robust as its supporters claim. But the argument is a complex one and I shall not prosecute it here. In regard to (2), it seems clear that the pre-2018 formula was not sufficiently understood by all the relevant stakeholders. Witness, for example, the farcical debate, following the Federal election of 2010, regarding the relative ?generosity? of Abbott?s ?offer? to Wilkie on Tasmanian hospital funding versus Gillard?s ?offer? to Wilkie on the same item ? a farcical debate which nonetheless helped to determine the formation of the Federal Government in 2010. In regard to (3), it is common knowledge that the pre-2018 formula was in fact regularly and repeatedly contested ? including in particular by Western Australia. And here it is important to acknowledge that this contestation is not merely ? or not only ? an instance of opportunism on the part of Western Australia and other ?rich? states. For there is indeed a real conflict here between two well-established principles: the principle of ?equalisation? and the principle of ?equal treatment?. It is a conflict that is present in multiple fields of policy, including most obviously in taxation. But whereas the most well-paid individuals are able to offset the equalising effects of progressive taxation through many a means (raising pre-tax salaries to maintain post-tax incomes, shielding income in safe havens of untaxed or lightly taxed wealth, and so on), even the most well-resourced state is unable to offset the equalisation imposed through the Commonwealth Grants Commission. Finally, in the wake of the collapse of the pre-2018 formula in 2018, we must now acknowledge that the pre-2018 formula has not stood the test of time. It is not a complex matter of evaluating the merits of the formula. On this point, it is simply a matter of acknowledging the facts.

Scrapped

I think there are good reasons to seek to reduce the scope for subjective political discretion in large-scale spending, taxation, and (re)distribution decisions ? and to increase the scope for an objective determination of outcomes by means of pre-agreed formulae and in the service of pre-agreed ends. The post-2018 ?formula? abandons any defensible effort at an objective determination of the (re)distribution of GST revenues and replaces it with a series of ill-defined, arbitrary, and changing aims, targets and constraints: thus, ?reasonable equalisation?, ?not less than 70 per cent?, ?not less than 75 per cent?, ?not less than the lowest of Victoria and New South Wales?, et cetera. The result is an almost-textbook example of a horse drawn by a committee. There are several possible ways to secure a more politically sustainable and more economically successful dispensation. Two such possibilities are described below as Option A and Option B. Option A would seek to re-establish a consensus in support of the principle of equalisation. This would require articulating and communicating the full rationale for this end, including inter alia its contribution to (1) the general welfare (2) the self-interest of the ?poorer? states, and (3) the self-interest of the ?richer? states. Remarkably, (3) is rarely articulated anywhere even though it applies everywhere. Thus, Paris would not benefit if an impoverished rest-of-France were to decamp to Paris, London would not benefit if an impoverished rest-of-Britain were to decamp to London, and so on. Option A would also require developing and agreeing on a new formula by which this end is to be achieved ? one which improves upon the old, including in regard to the particulars identified in my answer to the first question. Thus, the new formula should be (1) sufficiently well-specified (maximising the mathematical determination of the result and minimising the need for discretion) (2) sufficiently transparent (minimising the scope for misunderstanding); and (3) sufficiently uncontentious (once it has been agreed anew at the level of both the Federal Government and the level of the States and Territories). Option B would seek to establish a new consensus embodying a ?historic compromise? between these two well-established principles: the principle of equalisation and the principle of equal treatment. And the most obvious form in which to implement this compromise would be by way of a 50/50 split. Thus, 50% of GST revenue would be distributed to the states and territories on the basis of a formula aimed purely at equalisation and 50% on a per capita basis. Whether or not the ?poorer? states and territories could be persuaded to agree to such a dispensation is not something I care to prejudge here. But there is an important consideration that has been largely missing from the debate and which lends support to a solution such as Option B. The underlying economic issue addressed by the principle of equalisation is not the distribution of GST revenues, and/or pre-GST grants, to the states and territories. For economists, as distinct from constitutional historians, the latter is merely a proxy for something else. The question is whether the underlying economic issue of securing a sustainable balance between regions is best addressed exclusively through the GST formula or whether it requires the Commonwealth to develop the foresight, planning capacity and policy tools to play a more active and responsible role. If the Commonwealth is to do so, it would be well-advised to settle the GST debate once and for all in order to equip itself better to discharge this responsibility.

Poll 62

Panellists were asked "Which of the options set out below best describes the kind of approach the Australian government should take to the US Inflation Reduction Act? (Pick 1)"

Subsidies generate rent-seeking and are inefficient

Not provide any support

I have long been, and continue to be, engaged in assisting governments, in Europe, Asia and Africa, develop and execute policies and programmes aimed at sector-wide and/or economy-wide industrialisation and/or reindustrialisation/reshoring ? including in the special field of the energy transition, involving both the electrification of economic activity and the development and decarbonisation of the electricity grid (mainly, it should be noted, by means of nuclear and hydropower to date: for example the nuclear- and hydro-based ?green grid? of France). I therefore wish to stress that my sceptical answer to the question in today?s poll does not reflect any sort of general, let alone ideological, opposition to ?multi-billion dollar initiatives? in this field. Rather, my answer rests on highly specific reasons for scepticism, as set out below, regarding any imminently prospective multibillion-dollar initiative by the Australian Government in response to the US Inflation Reduction Act as it is currently configured. 1. Australia today is experiencing what Peter Martin has rightly described as ?the biggest dive in living standards in half a century?. Real GDP per capita has fallen through the 2023 calendar year, quarter by quarter. Real household disposable income per capita has fallen through both the 2022 and 2023 calendar years and for the whole of the term of the current Government. Quarter by quarter, if not literally day by day, Australians have become poorer. This lived reality in which we find ourselves today makes no appearance whatsoever in the Prime Minister?s speech on ?Australia as a renewable energy superpower?, going ?toe-to-toe?, if not ?dollar-for-dollar?, with ?the unprecedented investments the United States and the EU and Japan and Korea are making in their industrial bases?. Indeed, it rarely makes any appearance in any pronouncements by the Australian Government or the Australian governing class more generally. Against this background, I suggest that the Australian government would be better advised to spend the remaining months until the next election concentrating for once on the modest task of preventing a further collapse in Australian living standards rather than initiating a multibillion-dollar redistribution of the components of domestic demand or the components of our international trade ? at best a speculative investment with only long-term returns and at worst a bad investment and an invitation to unproductive rent-seeking, as argued below. 2. The Prime Minister?s proposal to go ?toe-to-toe? with the United States and the other countries named above rests on a particularly shaky premise: namely, that the United States and all these above-named countries will continue with their current policies as currently configured. In the case of the United States, the likelihood is that the suite of policies embodied in the Inflation Reduction Act will be very substantially reconfigured. The United States will elect a new President and a new Congress in less than eight months? time; a new Administration and a new Congress will take office in 10 months? time. As of today ? see the top right-hand columns on this link, https://www.realclearpolitics.com/ ? President Biden trails President Trump by 2 points in a two-way match-up in the average of polls, by 3 points in a 5-way match-up, and by 4 points in the key battleground states. Importantly, President Biden's job approval rate stands at 39% ? I repeat, 39% ? with 56% of the electorate registering their disapproval. And President Trump?s party also leads President Biden?s party on the generic congressional ballot. This is not to presume that the results of the US election can be predicted with any great confidence today. But given that it is more likely than not to yield a Republican rather than Democrat President and Congress, and given that even the election of a Democrat President and Congress would not guarantee a continuation of current policies as currently configured, rushing to place a multibillion-dollar bet on a continuation of the US Inflation Reduction Act, as currently configured, seems more than a little unwise. As for the other countries named in the Prime Minister?s speech, I can only say that he must have access to sources beyond my ken. From the published data of the relevant international agencies (the IMF, the World Bank, the OECD, et al.), and from my own work with international and European agencies, I thought that much of the European Union, including its largest economy, Germany, is in recession ? as is Japan. Indeed, the only thing that is ?unprecedented? with the ?industrial bases? in these countries today is the unprecedented deindustrialisation that seems to be afflicting Germany! To be sure, Germany, Japan and Korea have conducted remarkable, even unprecedented, recoveries in times past. But once again it would surely be wiser for Australia to wait for the recovery of these economies, consider the policy landscape that emerges thereafter, and then assess how best to respond to it. 3. Australia is already an energy superpower. And the Prime Minister is entirely correct to believe that Australia can remain an energy superpower in a future world of renewable energy. The point, however, is that any new multibillion-dollar initiative needs to be (a) founded on an accurate understanding of the nature and modalities of the energy transition that is actually being progressed across the world (including in such ?minor? countries as China and India, the former ranking first and the latter ranking third in their share of world GDP as measured by purchasing power parity, and neither of which was deemed worthy of mention in the Prime Minister?s speech (b) sufficiently well-crafted, and informed by a sufficiently-wide consensus, so as to be sustainable beyond the next 10 months in the case of the United States and the next 14 months in the case of Australia. In the absence of the above-named conditions, (a) and (b), any new multibillion-dollar initiative is likely to become, like so many past and present multibillion-dollar initiatives, an open invitation to unproductive rent-seeking and a needless gift of billions to the said rent-seekers.

Poll 61

Worried economists call for a carbon price, a tax on coal exports, and ‘green tariffs’ to get Australia on the path to net zero

Introduce an economy-wide cap and trade carbon price | Expand the safeguard mechanism to cover more facilities to mimic a broader carbon price | Expedite the development of nuclear energy

If the Commonwealth government and/or state and territory governments wish to lose the next election they face, they could enact, with immediate effect, all manner of ?brave? policies to decarbonise the economy at a faster pace ? using the word ?brave? after the fashion of the late Sir Humphrey Appleby. The problem is that the said policies would be reversed by the incoming governments and the matter would be put on the back burner for a decade. We have been through this movie before ? precisely a decade ago. What the Commonwealth government should do ? and it is the Commonwealth that needs to take the lead ? is to commence immediately the work of preparing ambitious but credible policies, with a track record of success elsewhere in the world, and present these to the electorate with the aim of winning a mandate to proceed accordingly. Of the list above, my preferred options are as follows: 1. Expedite the development of nuclear energy. From my own research, and more especially from my perspective as a member of the Evaluation Council of France?s sovereign green bond programme, reviewing and evaluating a continuing programme of customised research, I am convinced that the development and deployment of nuclear energy is the quantitatively greatest contribution that we could make to a faster pace of decarbonisation. If France today can justly claim to be the greenest country in the European Union, this is primarily due to the contribution of its nuclear energy assets, albeit building on the contribution of its older hydroelectric assets.France?s most recent investments in wind and solar energy contribute to decarbonisation primarily insofar as they permit a greater export of nuclear energy to the rest of the European Union. The Council aims to publish precise and up-to-date evidence on this point early in 2024 and will make the publication available here: https://www.aft.gouv.fr/en/green-oat. In any case, the evidence suggests that, for now and the near future, globally and in Australia, the principal alternatives to fossil fuels, in the total primary energy supply and more narrowly in electricity generation, that are technically deployable and sufficiently scalable are, on the one hand, the modern, clean renewables of nuclear and hydro and, on the other, the primitive, polluting renewables of various types of biomass. See: https://www.iea.org/data-and-statistics/charts/total-primary-energy-supply-by-fuel-1971-and-2019 https://www.energy.gov.au/data/energy-consumption https://www.energy.gov.au/data/renewables. 2. Introduce an economy-wide cap and trade carbon price. For any country that already makes full use of nuclear and hydropower, and for all countries on a continuing basis, the most effective and efficient source of decarbonisation, by far, is an economy-wide carbon tax or an economy-wide cap-and-trade carbon price. In all my published work, I have recommended the former in preference to the latter. But I accept that either of these can be designed to make much the same contribution to decarbonisation (if not necessarily to government revenues, distributional equity, or the general welfare). And by far the best source of evidence on this point is to be found in the OECD environment database. See here: https://data.oecd.org/environment.htm. 3. Expand the safeguard mechanism to cover more facilities, to mimic a broader carbon price. In some respects, this is the most interesting, not to say intriguing, of the options named above. If this option could indeed ?mimic a broader carbon price? to a sufficient extent, and if it were to stand a clearly better chance of securing an electoral mandate than a carbon tax or cap-and-trade carbon price, I would be minded to place my third preference above my second preference. However, I would need to conduct, and/or review and judge, detailed research on this point before I could affirm such a conclusion with sufficient confidence. In any case, I would rank this option above the option of ?increasing the carbon price presently paid by big polluting facilities, via the safeguard mechanism? ? for much the same reasons as I prefer broadening the tax base of the GST to increasing its rate, reasons too obvious to need detailing here.

Poll 60

Australia’s leading economists believe Australia can sustain an unemployment rate as low as 3.75% – much lower than the latest Reserve Bank estimate of 4.25% and the Treasury’s latest estimate of 4.5%.

.

With due apologies, my answer to the first question is 'non-compliant': any unemployment rate that is consistent with ?present policy settings? will be inconsistent with ?full employment?. From Oscar Wilde?s report in The Importance of Being Earnest, we know that Lady Bracknell found the very idea of adults being re-christened ?grotesque and irreligious?. Now I do not take quite so harsh a view of all acts of re-christening. But to re-christen Milton Friedman?s ?natural rate of unemployment? first as ?NAIRU? (?non-accelerating inflation rate of unemployment?), and then as ?full employment?, seems to me to display a contempt for ordinary language that reminds one of the worst excesses of French post-modernism. And I presume we all know what that unfortunate movement led to! In ordinary language, ?full employment? obtains when all those who are able and willing to work do in fact work ? taking into account the inevitable frictions and time-delays in moving from one position to another. In a technical language that does not do violence to ordinary language, full employment implies a zero rate of ?structural? and ?cyclical? unemployment, with any residual unemployment being nothing other than a temporary ?frictional? state coinciding with the voluntary decisions of workers to move from one position to another. The RBA provides a good summary of the relevant definitions here. Hence, if past experience is any guide, full employment would entail, normally, an unemployment rate of circa 1%. (And if past experience is not an appropriate guide, it is incumbent on any government committed to ?full employment? to do the research required to establish the relevant rate of ?frictional unemployment? in the present day.) To be sure, there will be, periodically, abnormal circumstances when some degree of ?cyclical unemployment? may be unavoidable. For quite independently of anything to do with the labour market qua causal factor, there is such a thing as the business cycle. Hence, there will be brief ? and I stress brief ? periods when governments committed to full employment may need to accept an unemployment rate of circa 2%. And that is just how it was in Australia in the quarter-century from 1949-50 to 1973-74 ? as is shown in RBA data, quoted in David Richardson?s 2019 Australia Institute report,?Tolerate Unemployment but Blame the Unemployed: The Contradictions of NAIRU Policy-Making in Australia?, Figure 2, page 22. The unemployment rate fluctuated between 1% and 2% for almost all of this period, with two spikes below 1% and one brief spike above 2%, peaking at 2.6%. That is full employment as I understand the term. Subsequently, beginning in the late 1970s in the United States and the United Kingdom, one by one, governments across the OECD world abandoned the commitment to full employment ? a process that was more or less completed by the end of the 1980s. In part, this entailed accepting with equanimity an official rate of unemployment far above 2% ? at least twice as much, more usually three times as much, sometimes more. In greater part, it entailed a re-definition of unemployment itself. In Australia, for example, someone able and willing to work full-time but who worked ?1 hour? or more in the reference week is counted as employed, not unemployed; someone able and willing to work but who is not able to start ?immediately? is counted as a non-participant rather than unemployed; and so on. Analysing Australian data for 2018, the Australia Institute report cited above concludes: ?the implication of 5 per cent ?official? unemployment is a level of true unemployment and underemployment (counting the officially unemployed, marginally attached non-employed, and underemployed) that is closer to 20 per cent. It stretches the imagination to believe that 20 per cent is in any way ?natural?.? See Richardson, pages 22-26: https://australiainstitute.org.au/wp-content/uploads/2020/12/Tolerate_Unemployment_but_Blame_the_Unemployed-WEB.pdf This is the background against which we need to assess the scope for ?full employment? under ?present policy settings?. Thus, even if fiscal and monetary policy aimed to achieve, and pro tempore succeeded in achieving, an official unemployment rate of 2% ? and, to date, no decision-maker has spoken of a number as low as 2% ? the result would be a true level of unemployment far above full employment. At best, one would see the reduction in official unemployment combined with a concomitant reduction in hidden unemployment, leaving the true level at or near a double-digit rate. At worst, one would see a movement between the classifications of officially unemployed, under-employed and marginally attached non-employed, leaving the true level of unemployment unchanged. Moreover, so long as the search for ?full employment? remains a search for ?NAIRU?, we will never be able to stabilise the level of unemployment at the lowest feasible NAIRU. The point here is not simply that NAIRU is notoriously difficult to estimate: published estimates have been highly volatile ? with estimates for Australia ranging between 2.3% and 9.5%, and the RBA?s own estimates ranging widely over time. (See Richardson, pages 16-17, and ibid., Figure 1, page 18.) The point is that it is condemned to be a moving target. Statistically, there is no stable, well-defined relationship between unemployment and inflation. The reason for this is obvious: the labour market is, obviously, not the only generator of inflation (or ?accelerating? inflation or ?prolonged? inflation). Several centuries of statistical data may be called as evidence here but I shall limit myself to only two relevant cases. In Australia, over the period between 1949-50 and 1953-54, as the Korean War came and went, inflation accelerated to circa 20% before falling back to circa 1%, whereas the unemployment rate, under the then regime of full employment, remained confined to a range between circa 0.5% and circa 1.5%. (See Richardson, Figure 2, page 22.). So the question is: what was the value for Australia?s NAIRU when inflation accelerated to 20%? In the case of the present inflation, Germany is perhaps the most striking exemplar of the point at issue. In the five-year period to July 2023, we find as follows: German inflation remained reliably below 2% until the great take-off in 2021. It then accelerated to 8.8% in October 2022, held at 8.7% in January and February 2023, before falling back to a still abnormally high 6.2% in July 2023. It is clear that inflation is not on course to return to below 2% and it is entirely possible that it will spike again as winter approaches. Over the same period, German unemployment has fluctuated within a relatively narrow range between 5% and 6%, with a brief spike above 6% at the peak of the COVID lockdown. (See here ? and here). https://tradingeconomics.com/germany/inflation-cpi https://tradingeconomics.com/germany/unemployment-rate Once more, the question is: what was the value for Germany?s NAIRU through this period? To sum up: if NAIRU is to be derived from the actual incidence of ?accelerating inflation? irrespective of whether or not that inflation is generated in the labour market, then it will always be a moving target, incompatible with ?full employment? as understood in ordinary language. On the other hand, if NAIRU is to be derived from a purely theoretical model restricted to only such inflation as is generated in the labour market, with all other things being held strictly constant, its relevance to policy becomes severely limited. Moreover, since we know that full employment is compatible with low and stable inflation over extended time periods, even in our living memory, it is not at all obvious that inflation generated in the labour market is a function of the general rate of employment, as distinct from more specific factors requiring more specific remedies. A final point: the RBA is not the party responsible for the policy settings that have delivered the present regime of high unemployment. Across the OECD world, including Australia, central banks have long maintained, and continue to maintain, negative real interest rates. The responsibility for high unemployment resides with governments ? governments that have enabled and encouraged de-industrialisation, deskilling of labour, oligopolies in product markets restricting output and employment, and monstrous distortions in the finance and housing markets resulting in the redirection of credit from productive ends to the parasitic activity of bidding up housing prices. I conclude therefore that the RBA would be well-advised to inform the government that full employment means full employment, a la Australia?s experience from 1949-50 to 1973-74, a rate of unemployment of no more than 2%; to declare that the tools for restoring full employment are in the hands of the government, not the RBA; and to play the ball back into the government?s court. Regarding the second question, nominating measures that would bring down the NAIRU, it follows that I cannot recommend any particular suite of policies specifically designed to reduce NAIRU. Inter alia, such a recommendation would entail, potentially, a damaging volatility in the quantitative values of the recommended policies in order to align them with the changing values of NAIRU. Any reduction in unemployment per se is welcome. And I do not wish to criticise any good-faith efforts to reduce unemployment. However, I must observe that each and every one of the policy options listed above has been tried in the recent past ? in some cases, repeatedly, and with great fanfare. It is highly doubtful that repeating them yet again will result in a large reduction in unemployment, let alone a restoration of full employment. Rather, my preferred option would be to commence the more difficult task of mapping the pathways to restoring full employment, and the reforms and investments in labour, product and capital markets required to that end. But this is not the place to pen that essay.

Poll 59

Our panellists were asked the following 2023 budget question: "On May 9, the government delivered a budget designed, in the Treasurer's words, to strike a balance between relief, repair and restraint'.  What grade would you give the budget, given that objective: A, B, C, D, E or F?"

Wes Mountain/The Conversation, CC BY-ND - https://creativecommons.org/licenses/by-nd/4.0/

Overall rating: C - Keeping inflationary pressures in check: A

C

OVERALL COMMENTS: In my judgement, the budget prescribed the right macroeconomic medicine but used a wrong linguistic description of what it had prescribed. Therefore, interpreting the above question literally, and grading the budget purely in terms of its stated objective of striking 'a balance between relief, repair and restraint' rather than in terms of its macroeconomic efficacy, I cannot grade it above a 'C'. There was a perfectly coherent and cogent message that the Australian treasurer could have delivered on budget night. It goes something like this: 'Our most immediate and demanding economic challenge is to reduce inflation without triggering a recession. To that end, we are obliged to prioritise restraint over immediate cost-of-living relief, to save and sterilise the better part of the large increase in revenues received, to add as little as possible to aggregate demand. This is the budget restraint that Australia had to have'. Indeed, on some occasions, the treasurer has made this point, and made it well. In The Australian on May 10 he said his predecessors, Prime Minister Howard and Treasurer Costello saved only 30% of revenue upgrades. His immediate predecessors saved only 40%. He and Finance Minister Katy Gallagher Katy saved 87%. And then he 'went and spoilt it all by saying something stupid like, I love you'. (Sinatra) Consider the following: 1. From the numbers in the budget papers, and from the treasurer?s own words as cited above, it is clear that the budget prioritised savings, and that ?targeted cost-of-living relief? did not receive anything like an equal priority ? even though it is listed as the first priority in the list of ?budget priorities? (Budget Paper No. 1, Statement 1, page 3). 2. In ordinary language, cost-of-living pressures impact most negatively on those whose real incomes are most reduced in percentage terms by the increase in consumer prices. From earlier-published ABS data, we know that real wages suffered a record decline in calendar year 2022 (see here). The budget breaks down the decline by fiscal years but the message is much the same (see budget Paper No.1, Table 1.1). And yet there is no ?cost-of-living relief? targeted specifically to workers suffering a decline in their real wages ? even if many workers will share in the one-off $500 reduction in electricity bills and some will share in the expected increase in access to Medicare bulk-billing. Rather, the vast majority of workers ? that is, those earning less than $126,000 per year ? will pay up to $1,500 in additional tax this year, and every year, as a result of the termination of the Low and Middle Income Tax Offset. 3. The bulk of the ?targeted cost-of-living relief? has been allocated to those on Centrelink payments that are automatically increased in line with the increase in consumer prices ? that is, to those whose real incomes have been largely unaffected by the recent surge in inflation. I support the increase in Centrelink payments ? indeed, I support a much larger increase in the JobSeeker payment and am on record for doing so ? but I do not support this needless assault on ordinary language. The correct technical term for this policy is 'a fair shake of the sauce bottle' ? not 'targeted cost-of-living relief'. 4. However described, some part of the modest increase in payments and concessions to those on incomes below $126,000 per year is at risk of being clawed back through a policy change that has gone largely unremarked: namely, the circa $3 billion increase in expected revenues from the increased excise tax on tobacco products. Can we really be sure that all of this revenue will be extracted only from the ?top end of town? ? from, say, former treasurers and former finance Ministers who go on to become ambassadors to the United States or a Secretary-Generals of the OECD? Or could it be that other people, people on AusStudy or JobKeeper or Single Parent Payments, will also be caught in the net? 5. In sum, the budget provides very little cost-of-living relief to those whose real incomes have suffered the greatest decline and only a slightly-less-unfair shake of the sauce bottle to those on the lowest incomes. Given the constraints, this may have been the responsible thing to do ? but let?s not speak of charity, or even balance. INFLATION COMMENTS: Here, I am more than happy to grade the Budget as A. In my judgement, and accepting the world of constraints as it exists rather than as I would like it to be, the budget is likely to achieve the maximum-feasible sustainably-downward pressure on inflation. Consider the following: 1. On any comparative measure, the Budget is tough. To repeat the treasurer?s words: ?Katy and I saved 87%.? Had it been much tougher, had the treasurer and the finance minister saved 100% of the upward revisions or more, it could well have triggered a recession or the first signs of it ? and, therewith, a likely reversal of both fiscal and monetary policy in response to a recession or in anticipation of it. A tough policy that is unsustainable is not actually tough. Consider only the fate of the apparently-tough budget announced in 2014 by the then treasurer and the then finance minister. 2. The Budget is tougher than it looks. I make bold to predict that, in 12 months? time, the treasury will need to report another mysterious ?surge in revenues?. Spoiler alert: there is no mystery here. The dramatic collapse in commodity prices and hence in Australia?s terms of trade forecast again in the budget (see Budget Paper No. 1, Table 2.2, footnote ?f?, page 58, and also Chart 2.28, page 74, and Box 2.4, Table 1, page 76) will not materialise. It is not meant to be an accurate forecast. Rather, it is, as Chris Richardson put it when interviewed by the ABC on Budget night, ?Treasury?s hollow log?. (And in the highly unlikely circumstance of such a collapse, implying as it does a collapse in growth in China and India and ASEAN, et al., we will not need a tough budget.) 3. By appearing to be less tough than it actually is, the budget leaves sufficient room for monetary policy to do its requisite work. What seems to have escaped the notice of the arithmetically-challenged is that the real policy interest rate of the Reserve Bank of Australia remains deeply in negative territory. So too does the policy interest rate of the US Fed ? and the Bank of England ? and the European Central Bank. To conquer inflation as well as to liberate the productive economy, we need to put an end to the regime of negative real interest rates, which has so long served to deliver undeserved riches to the undeserving rich.

Poll 58

When panellests were asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.

Photo credit by Joshua Hoehne on Unsplash

Equity picks: Wind back the capital gains exemptions on the family home Increase resource taxes Introduce or increase land taxes (possibly with cut in stamp duty) Equity picks: Increase resource taxes Wind back the capital gains exemptions on the family home Introduce or increase land taxes (possibly with cut in stamp duty)

Efficiency comments: On the criterion of allocative efficiency, the taxation of economic rent ? the rent derived from gains in the unimproved value of land, including land used for owner-occupied housing, from scarce natural resources, and from equivalent monopoly positions ? is the single most suitable source of public revenue. This is the conclusion reached by every major economist of every major school in the modern history of our discipline, including Fran?ois Quesnay, Adam Smith, David Ricardo, Karl Marx, L?on Walras, and Milton Friedman. This is a conclusion confirmed by every major real-world example of the public capture of economic rent, including by the British Crown in respect of land in Hong Kong, by the Norwegian State in respect of Norway?s oil and gas resources, and by several and various OECD member-country governments in respect of the auctioning of 3G mobile telephone radio spectrum licenses in the early twenty-first century. Today, the Commonwealth Treasury?s February 2023 document (see Item 1 in Table 1.1) provides some new and important evidence to confirm this conclusion in regard to Australia in 2023 ? and none to contradict it. Equity comments: I am well aware that there are often difficult trade-offs to be made between efficiency and equity in regard to the detail of tax policy. Indeed, much of my own professional work is devoted to negotiating precisely such trade-offs in the field of environmental taxation, and especially so in the case of the emerging and developing economies. Nonetheless, in the case of Australia in 2023, I am not in possession of any conclusive evidence to suggest any obvious conflict between efficiency and equity in respect of my selection from the list above, for it is, overwhelmingly, the ?undeserving rich? who enjoy the private appropriation of economic rent. Taxing economic rent is, I submit, efficient and equitable pari passu. In contrast, many apparently equitable proposals, such as increasing taxes and/or reducing tax concessions on high incomes or corporate profits, can generate unintended consequences that damage not only efficiency but also equity.

Poll 57

Australia’s top economists have overwhelmingly endorsed intervention to restrain gas and electricity prices, with only three of the 47 leading economists surveyed believing the best thing the government can do is to leave things to the market.

Photo credit: Wes Mountain/The Conversation, CC BY-ND

.

Increase taxation of resource rents for gas producers and use proceeds to reduce electricity and gas

Quite independently of the current and prospective increase in the retail price of gas and electricity, I have long supported the increased taxation of resource rents for gas producers and the use of the proceeds to reduce electricity and gas prices for consumers. The taxation of the economic rent from land and natural resources is a prescription that follows from the long-established first principles of economics. Every serious economist ? from the time of Francois Quesnay and Adam Smith to the time of Ken Henry, of the Henry Review, and the present author, in multiple texts for the OECD and other international agencies ? has advocated it. It is, or at least ought to be, uncontroversial. At the same time, the alignment of the price paid by consumers to the marginal social cost imposed by their consumption ? whether by means of a tax to raise the price up to the level of the marginal social cost, a la Arthur Pigo, or by means of a subsidy to reduce the price down to the level of the marginal social cost, a la Howard Hotelling ? is also a prescription that follows from well-established first principles. Turning to the here and now: the price for gas and electricity paid by final consumers in Australia today is, in many instances, well above the marginal social cost. And the price paid by final consumers of electricity in Tasmania today ? where the marginal producer cost of our hydro-electric power is very low and its marginal external cost is zero ? is arguably the single greatest price distortion, the single greatest deviation of price from marginal social cost, applied to electricity anywhere in the world. It is only on the basis of this economic reasoning, and only to the extent mandated by this reasoning, that I support the increased taxation of resource rents for gas producers and the use of the proceeds to reduce electricity and gas prices for consumers. Beyond this, I certainly would not support market-distorting price caps and reductions simply because ?prices are rising?.

Poll 55

Australia’s top economists are divided about how to tackle ballooning inflation of 6.1% that’s forecast to climb to a three-decade high of 7.75% by the end of the year.

Wes Mountain/The Conversation, CC BY-ND

.

2.5%

I very much welcome the RBA Governor?s statement of August 2022 and its crystal-clear communication that ?The Board places a high priority on the return of inflation to the 2?3 per cent range over time? and that ?The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.? See here: https://www.rba.gov.au/media-releases/2022/mr-22-21.html I have long been critical of the ultra-dovish monetary policy pursued by the RBA and other central banks over several years and their ready tolerance of the inevitable consequence of that policy, namely, the massive inflation in asset prices and the attendant redistribution of wealth from the asset-poor many to the asset-rich few. See for example my answer to the National Economic Panel poll in November 2021: https://esacentral.org.au/polls-item/45408/top-economists-see-no-prolonged-high-inflation-no-rate-hike-next-year-q4/ I therefore welcome the RBA?s most recent decisions and statements on monetary policy not only for their intended contribution to the containment of consumer price inflation but also for their likely contribution to a reduction in asset price inflation. The prolonged rise in consumer price inflation since 2021 is, I think, the result of several negative supply shocks and not of ?excess demand?. But it is a non sequitur to conclude that monetary (and/or fiscal) policy aimed at reducing demand is therefore inappropriate. Whatever the cause in the imbalance of supply and demand, immediate action aimed at reducing demand will indeed be required to contain inflation ? if a correction to the insufficiency of supply is not immediately or fully available. In my November 2021 answer, I wrote that ?supressing this inflation will need deliberate corrective action: it will not pass of its own accord. Energy prices are likely to remain elevated for some time; supply chain disruptions will be overcome but the reconfigured, more-regionalised supply chains are likely to be more expensive than the global supply chains of yesteryear; consumer prices across the board will reflect these higher input prices; and wages will chase prices higher, and already doing just that.? Data that has emerged subsequently as well as new developments resulting from the recent policy actions of the collective West require a significant deepening of this sombre prognosis. The collective West needs to confront the fact of a long list of intractable negative supply shocks. These include: (1) the reduction in labour supply as a result of COVID, with millions dead, millions sick, and millions more sick-to-death of their work, especially those in hard manual trades, with a consequent reduction in participation rates (in regard to the United States, see inter alia https://www.npr.org/2022/07/31/1114375163/long-covid-longhaulers-disability-labor-ada) (2) the apparent coincidence of this result with a demographic bulge of natural retirements in several critical manual trades, such as trucking (3) the well-reported disruption of global supply chains as a result of COVID (4) the re-enforcement thereby of a long-established but much-neglected re-orientation of global trade flows, in particular, the inexorable rise of so-called ?South-to-South? trade, relative to ?South-to-North?, ?North-to-South?, and ?North-to-North? trade (see here: https://ourworldindata.org/trade-and-globalization) (5) what is best called the ?Biden tax?, in deference to President Biden?s suggestion to personalise the phenomenon: that is, the records-busting inflation in the price of oil and gas and food and fertilizer, etc., etc., as a result of the attempt by Western governments to deprive the world of exports from the Russian Federation and thereby to deprive the Russian Federation of revenues from the said exports ? an attempt that has failed in its intended effect (since the reduction in Russian exports in volume terms has been limited by China multiplying its imports of Russian gas and India multiplying its imports of Russian oil, and since the volume effect has been more than offset by the price effect) but which has nonetheless succeeded in enforcing a self-sanctioning of, and consequent inflation in, the collective West (6) the immense impetus to ?South-to-South? trade resulting from this sanctions war, as evidenced in several recent developments, such as, for example, the applications by major Asian, African and Latin American countries (including Iran, Turkey, Egypt, and Argentina) to join the BRICS (Brazil-Russia-India-China-South Africa) collective, and also the successful launch last month of the St. Petersburg-to-Mumbai transport corridor (see here: https://www.railfreight.com/corridors/2022/07/18/first-russia-rail-shipment-to-india-reaches-mumbai-with-more-to-come/) 7) the increasing possibility of a new ?Pelosi tax? to complement the ?Biden tax?: that is, shortages of, and price inflation in, critical exports from Taipei, Province of China, as a result of the inevitable disruption in cross-Strait relations between the island and the mainland, consequent to Speaker Pelosi?s recent visit to Taipei. Against this background, it is unsurprising that consumer price inflation continues its uninterrupted upward climb in North America and Europe, despite the fact that the US economy has already fallen into recession (see here: https://www.news.com.au/finance/economy/world-economy/us-unofficially-plunges-into-recession-after-economy-shrinks-for-second-quarter-running/news-story/f7c9cb10de6b5be87c4a2d8c952d97ea) and that the UK economy is about to fall into what the Bank of England now forecasts to be a particularly long-lasting recession (see here: https://www.bbc.com/news/business-62405037). Of course, as a major commodity exporter, Australia is well-positioned relative to most of the rest of the OECD block. As the RBA Governor noted in his statement of 2 August (see here: https://www.rba.gov.au/media-releases/2022/mr-22-21.htm): ?National income is also being boosted by a rise in the terms of trade, which are at a record high.? Moreover, there is now a major opportunity for Australia to increase energy exports to Europe in volume terms as well as price terms. Led by Germany and its Green Party Ministers, much of Europe is transitioning rapidly to a new energy mix, with a prominent role for high-polluting brown coal ? see inter alia https://www.nytimes.com/2022/06/19/world/europe/germany-russia-gas.html ? as well as expensive LNG shipped from across the far oceans, more polluting by far than Russian natural gas transported by pipelines. (After three decades of patient work on environmental externalities, I do have some difficulty with this ? but my personal discomfort is irrelevant to the matter at hand.) Hence, I am inclined to agree with Governor Lowe?s prognosis that Australia may well succeed in avoiding another recession ? if not necessarily with the Bank?s forecast of ?GDP growth of 3? per cent over 2022 and 1? per cent in each of the following two years? (see here: https://www.rba.gov.au/media-releases/2022/mr-22-21.htm). What Australia cannot avoid is the need for an undistracted and possibly long-lasting effort to arrest and reverse consumer price inflation, with monetary and fiscal policy working in concert. With luck, success in this effort will bring in its wake an asset price deflation ? for this last is a deflation that Australia has to have. Postscript: I have refrained from making a choice from the list of "other actions". I do not think it helpful to commence the necessary public dialogue with several various wish-lists from several various commentators. As a consultant to national governments and international government agencies, and as a former Australian public servant, I feel duty-bound to advise decision-makers and their research staff to confront, and to communicate, a more sombre prognosis. The sum of negative supply shocks that has triggered inflation may take several years to offset, and part of it may never be fully offset; therefore, controlling inflation may well require a short-to-medium-term retrenchment of demand; hence, the main challenge of fiscal policy may well be to create the space for the requisite social protection measures rather than choosing between various silver-bullets that promise to cure the insufficiency of supply.

Poll 54

Panellists were asked: 

"From this list, please pick the three issues you think will be the most important for the incoming government and should be the most important in the election".

Wes Mountain/The Conversation, CC BY-ND

.

Let us assume that federalelection campaigns provide an ideal opportunity for the contending political parties to conduct a serious, sober, and always-honest dialogue on how best to address the issues facing the country, whilst being always-wedded to the larger aim of maximising the general welfare. On this assumption, I would nominate "tax reform" as arguably the most important of the issues listed above. I do so because, quite apart from its potential to contribute to the general welfare directly and independently of other important issues, it is also the key to addressing many if not most of these issues, including the two examples I have chosen: namely, "climate and the environment", and "ousing availability and affordability". On tax reform, I would argue ? and I would invite the contending candidates to address the argument ? that, irrespective of the chosen level of taxation overall, the mix of taxes should make maximal use of welfare-neutral and welfare-enhancing taxes and minimal use of welfare-reducing taxes. That is, we should make maximal use of taxes on economic rents and external costs and minimal use of taxes on labour, capital, and consumption. The current reality is that economic rents and external costs are left largely untaxed, which in turn is attended by higher taxes on labour, capital, and consumption than would otherwise be the case. On climate and the environment, I would argue ? and I would invite the contending candidates to address the argument ? that, in line with the ever-growing body of evidence assembled in the OECD Environment data base, the most efficient and effective means of addressing climate change remains a consistent economy-wide de jure tax on carbon, which alone provides a permanent incentive for businesses and consumers in each and every sector to adopt new ways and means to reduce carbon emissions. The current reality is that the de facto tax on carbon (what the OECD calls the effective carbon rate, or ECR) varies widely between sectors, with carbon emissions in some sectors being over-taxed ? think petrol ? whereas others are left untouched. Moreover, there is an urgent need to attend to the relatively neglected issues of air, soil and water pollution ? in part by means of new and well-designed taxes on the external cost of pollution. (Globally, air pollution alone kills several million people each and every year, at a social cost of several trillion US dollars per year, as I have documented in several of my publications over the last decade.) On housing availability and affordability, I would argue ? and I would invite the contending candidates to address the argument ? that we need to institute inter alia a universally-applied tax on the gain in the unimproved value of land, at a level high enough to capture the economic rent embodied in that gain, and transfer it from the landowner to society as a whole. This alone would contribute greatly to transforming the housing market into a normal market, the site of the production and consumption of the essential good that we call shelter ? rather than being, as it is today, a happy hunting ground for seekers of unearned wealth in the form of ever-rising property prices, the consequence of which is that ever more of their fellow Australians are locked out of this market. Moreover, such a transformation of the housing market would enable inter alia a massive re-direction of lending from current unproductive use ? that is, bidding up property prices ? to potentially productive use in every sector. It would thereby make a positive contribution to addressing two other important issues listed above, namely, "employment/wages growth" and "support for businesses". Of course, the observant reader will have taken note of the assumption stated at the outset and on which my answer rests. And the observant reader may well conclude that my starting assumption is not at all well-founded and that the rest of my answer may therefore be set aside for the duration of the election campaign!

Poll 52

"What do you think the intake of permanent migrants should be in coming years"

Australia’s leading economists have overwhelmingly endorsed a return to the highest immigration intake on record, saying Australia should aim for at least 190,000 migrants per year as it opens its borders, up from the target of 160,000 per year set ahead of COVID.

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

.

190,000 is about right

190,000 ? the option I have selected ? is not a uniquely determined ?correct? answer to the question of what is the optimal planning level for permanent visas. For there is no uniquely determined correct answer to this question ? as should be obvious from a consideration of the nature of the variables mapped in Figure 2.1 on page 18 of the 2021 Intergenerational Report (IGR). https://cdn.theconversation.com/static_files/files/2011/Extract__Intergenerational_Report.pdf The best that the Commonwealth government can do is to arrive at its best estimate/guesstimate and to communicate it to one and all as clearly as possible. Rather, the point to stress here is this: once the government has agreed its planning level, there is an overwhelming case for maintaining a stable and predictable immigration programme at that agreed level. For this is the necessary condition enabling all other relevant parties both here and overseas ? individuals and households, private firms and government agencies, educational institutions and the various actors in every sub-sector of infrastructure, et al. ? to plan ahead accordingly. Therefore, and re-interpreting the question in this poll as follows, ?Given that Australia maintained a broadly successful immigration programme at a planning level of 190,000 permanent visas per year in the five years to 2018-19, and given that in the 2021 IGR the Government has agreed to return to the planning level of 190,000 per year from 2023-2024, should the Government maintain this level in the coming years??, my answer is ?Yes?.

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 4

"Following the next Federal election, the incoming Federal Government should commission an independent Review of the Reserve Bank of Australia."

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

Disagree

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 3 

"The Reserve Bank has, over the past 5 years, effectively used the tools available to it to achieve its goals of "maintaining the stability of the currency, ensuring full employment and furthering the 'economic prosperity and welfare of the people of Australia'."

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

Disagree

9

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 2

"When do you expect the Reserve Bank of Australia to next lift its cash rate?"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

.

5

2023

Poll 51

Our panellists were asked whether rate hikes would be necessitated in the United States, Britain and Australia.

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

Question 1

"The current combination of Australian fiscal and monetary policy poses a serious risk of prolonged above-target inflation."

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

Agree

9

Re Q1: Any answer to this question needs to define the term ?prolonged? more precisely in order to be meaningful. Inflation as measured by the official Consumer Price Index is currently running above target across the OECD world, including in Australia (and in the United States, where it is now at 6.2% per annum, the highest in three decades: see https://www.bbc.com/news/business-59236432). According to The Economist, ?most economists? think that this is ?temporary?, ?transitory?, and that ?it will pass?: see https://www.economist.com/graphic-detail/2021/11/06/a-handful-of-items-are-driving-inflation-in-america I too think that the current episode of inflation ?will pass?. But I think it will pass after years rather than months. My best guess is that it will run from 2021 to 2023 ? roughly the same period of time as the ?temporary?, ?transitory? inflation that obtained in the Weimar Republic from 1921 to 1923. Moreover, I think that supressing this inflation will need deliberate corrective action: it will not pass of its own accord. Energy prices are likely to remain elevated for some time; supply chain disruptions will be overcome but the reconfigured, more-regionalised supply chains are likely to be more expensive than the global supply chains of yesteryear; consumer prices across the board will reflect these higher input prices; and wages will chase prices higher, and already doing just that. Re Q2: With the notable exception of Turkey, central banks across the OECD world will surely lift interest rates from the floor before inflation gets wholly out of control. My best guess ? and it is only a guess ? is that the RBA will act in 2023, as will the ECB, and that the US Fed and the BoE will be obliged to act sooner, i.e., in 2022. Re Q3: One of the most welfare-consequential results of the combination of monetary, fiscal and general government policies over the past 5 years (and more) has been the grotesque inflation in the price of housing and, with it, the unearned enrichment of some Australians, the unearned suffering of other Australians, and the wholly unjustifiable widening of the inequality in wealth, status, and dignity, between the two groups. Now it is true that the main responsibility for this outcome, and therefore the main blame for it, lies with successive governments, and not with the RBA. It is also true that, on a personal level, every RBA official with whom I have conversed on the matter has been cognizant of and sensitive to the issues at stake. Nonetheless, institutionally, the RBA does bear its share of responsibility. Its decisions to deliver negative real interest rates, quantitative easing, and now above-target CPI inflation have been a factor in this outcome, enabling property-owners to pay off their debts, and to acquire yet more property, with undeserved ease ? as indeed did the indebted Prussian Junkers in the days of the Weimar Republic. Re Q4: Reviews and Royal Commissions have their place. The Royal Commission on banking practices revealed hitherto undisclosed facts and resolved hitherto disputed facts. This was an important achievement ? even if, to quote the words of a recent Nobel Laureate, it remains the case that ?All the criminals in their coats and their ties/Are free to drink martinis and watch the sun rise?. But the issue here ? in summary: how best to reconfigure the division of labour between monetary and fiscal policy so as to maximise the chances of delivering outcomes that maximise the general welfare ? do not involve undisclosed or disputed facts. It can be resolved only by a future Government that seeks to promote rather than subvert the general welfare.

Poll 50

Ahead of November’s Glasgow climate talks, our panellists were asked

"Australia would likely benefit overall from the national economy transitioning to net-zero emissions by 2050"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

An economy-wide carbon price (either via a cap-and-trade scheme or an emissions tax)

Uncertain

The proposition in Q1 is not sufficiently defined to permit a ?yes? or ?no? answer. Do we mean ?better off? in terms of per capita GDP or in welfare terms? Do we mean ?better off? in the year 2050 or in the future following 2050, appropriately discounted? Moreover, there are several possible pathways to ?net zero?. Some entail relatively modest costs; some entail very high costs. Some offer significant co-benefits in addition to reductions in CO2 emissions; some offer relatively little by way of co-benefits. In any case, the aim of this exercise should be to ensure a functioning and flourishing world economy in the twenty-second century and in the centuries to come, and to do so as efficiently as possible ? rather than to persuade ourselves that we will be ?better off? on every possible indicator in 2050 as a result of the announcements we make in 2021. As to the means to be adopted... In several contexts and capacities ? including especially as a member of the Evaluation Council of France?s Green Bond programme and as a participant in the discussions leading to the launch of the European Union?s ?NextGenerationEU? Green Bond programme ? I remain committed to exploring innovative means of tacking climate change and innovative ways of funding these means. Nonetheless, it remains true that the most efficient or ?least-cost? means of achieving the requisite reductions is through an economy-wide uniform carbon price, one that permanently incentivizes producers and consumers in every sector to seek less carbon-intensive solutions to their needs. There is an extensive, and regularly updated, database of evidence on this point available at https://www.oecd.org/environment/ I am aware that the Australian electorate implicitly rejected carbon pricing in the 2013 Federal election. But this does not mean that it is bound to reject carbon pricing for the rest of time. The electorate implicitly rejected the GST in the 1993 election but accepted its introduction seven years later. Eight years on from the 2013 election, it is perhaps time to revisit the issue of carbon pricing. If all major political parties in Australia are to commit themselves to ?net zero?, the electorate should surely be given the option to pursue this aim with the least-cost means available.

Poll 49

"What measures should Australian governments adopt to promote demand for vaccination once supply is no longer a constraint?"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

Cash incentives for vaccination;Lotteries with cash or prizes for the vaccinated;National advertising campaigns

The carrot is always preferable to the stick. And there is abundant evidence - see for example the latest issue of The Economist - that carrots such as cash incentives, lotteries, and advertising campaigns, are indeed effective in increasing the take-up of vaccination. As for more coercive measures such as "mandatory vaccinations" and "vaccine passports", the problem is this. The "leaders" of the "western democracies" have already presided over the preventable deaths of far too many. OECD countries make up a majority of the top 20 countries ranked by deaths per million (though, thankfully, Australia is not in this group). And this is in part a result of their own actions and non-actions: their flat-footed response at the start of the pandemic; their late and limited use of lockdowns; their too-early withdrawal of fiscal support; their repeated flirtations with the suggestion to "Let the bodies pile up high!"; and their continuous political point-scoring which has greatly undermined in the public's mind the message that this moment really is an emergency and not business-as-usual. So, I say to our prime minister, and to all the "leaders" of the "western democracies" - in the words that the then-Treasurer Scott Morrison once used in addressing Australia's banks - "They already dont' like you very much!" So, step lightly. Use the carrot, not the stick.

Poll 48

Our panellists were asked

"Higher wages growth is now a top priority of the RBA in its efforts to sustain stronger economic growth. Please identify the three of these government policies you think would best help deliver higher wages growth".  

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

.

None

The alternative I would propose is: Reforming industrial relations, and other relevant institutions, so as to boost the bargaining power of workers. Leaving aside the continuing controversies amongst economic historians on the record of real wages in the early years of industrialisation (cf. the Hobsbawm-Hartwell dispute), as well as in the pre-industrial era (cf. the outputs of the Maddison Project), we do possess reliable enough statistical data on the last 150 years to answer the question of what does and what does not ?deliver higher wages growth?. None of the ten bullet points listed above, per se, delivers the requisite result. I shall consider these ten bullet points in four clusters: (a) restraining growth in labour supply; (b) boosting productivity growth and business investment; (c) boosting aggregate demand; (d) reforming industrial relations. Re labour supply: It is true that a catastrophic collapse in labour supply can result in higher wages for the surviving workers for a more or less lengthy period ? the decades following the Black Death in Europe in the mid-fourteenth century being the most oft-cited example. But the result does not usually follow in the case of more modest, and less grisly, instances of restricting labour supply: there are other forces in play. The Spanish ?flu of 1918-2020 killed perhaps 50 million people (adjusted for population, the equivalent of 200 million people today, or 50 times the number of COVID-19 deaths to date). Many were working-age adults. It was followed by the introduction of restrictions on immigration into the United States, and by new borders and border controls across Continental Europe. But far from delivering wages growth, the decade of the 1920s witnessed wage stagnation and/or declining wages in the United States and much of Europe ? see https://eh.net/encyclopedia/the-u-s-economy-in-the-1920s/, Table 1, and https://www.oecd-ilibrary.org/economics/how-was-life_9789264214262-en, Table 4.6 ? even as it delivered endless riches to the likes of Tom and Daisy Buchanan. In contrast, consider the later, lengthy period of more or less uninterrupted growth in real wages: from 1940 to the mid-1970s in the United States, from 1945 to the end of the century in much of industrialised Europe and Australasia, and from the 1970s onward, successively, in newly industrialising countries across the world. In almost every case, this was accompanied by an expansion of the labour supply: through large-scale immigration (into the United States, Australasia, and from the European periphery to the European core); through an internal movement from family-owned farms to waged work in towns and cities; through increasing female participation in waged work; and so on. More recently, from the mid-1970s onward in the United States, and from the start of the twenty-first century in much of the rest of the old industrialised world, including Australia, we have witnessed a lengthy period of wage stagnation ? alongside an increasing labour supply resulting from immigration. But it is only by combining this datum with a cultivated amnesia regarding all the rest of the data for the century since 1920 that one can arrive at the false conclusion that restricting labour supply will deliver rising wages. Rather, what the record as a whole suggests is the presence of an independent force driving the movement of wages, irrespective of movements in labour supply. Re productivity growth and business investment: It is true that productivity growth and productivity-enhancing business investment play an essential role in economic development, including serving as a necessary condition for sustaining long-term wage growth. But they do not constitute a sufficient condition. Nor are they a proximate cause of wage growth: rather, the causal relation is the other way round. Productivity growth has been less than satisfactory in the old industrialised world for quite some time ? but it has not been absent. And this growth has been attended by wage stagnation. In the United States, real wage rates in 2019 stood at the same level as obtained 45 years previously. Or as a recent World Economic Forum report amusingly put it ? see https://www.weforum.org/agenda/2019/04/50-years-of-us-wages-in-one-chart/ ? ?today?s wages in the United States are at a historically high level with average hourly earnings in March 2019 amounting to $23.24 in 2019 dollars. Coincidentally that matches the longtime peak of March 1974, when hourly wages adjusted to 2019 dollars amounted to exactly the same sum.? Far from productivity growth automatically delivering wage growth, it is the growth in real wages that is one of the key drivers in the growth of productivity. This is partly though the Ricardian route of the movement of factors from low- to high-productivity sectors, and partly through the route mapped by Marx and later formalised by Sir John Hicks: the choice by firms of higher-productivity, more capital-intensive techniques in response to this actual and anticipated movement in relative factor prices. Re aggregate demand: Boosting aggregate demand per se does not deliver growth in real wages. Aggregate demand can also be boosted, as it has been boosted in Australia over the last eighteen months, by a combination of stagnant wages for workers with the flow of free money from the RBA via the banking system to asset-owners, who are also consumers of what the Government of New South Wales apparently regards as ?essential retail?, that is, ?designer handbags, luxury watches, $10,000 dresses? ? see https://www.abc.net.au/news/2021-07-16/sydney-covid-lockdown-retailers-open-jbhifi-gucci-lv/100296684 ? in a word, the Tom and Daisy Buchanans of our age. Re industrial relations reform: the architecture of trade unions, state and federal commissions, enterprise bargaining, and so on, is well-entrenched in Australia and in every other OECD country. And these self-same institutions ? and often the same individuals ? have delivered wage stagnation for decades past. Indeed, with some exceptions ? such as The Construction, Forestry, Maritime, Mining and Energy Union in Australia, The Associated Society of Locomotive Engineers and Firemen in Britain, and the International Brotherhood of Teamsters in the United States, each of which has succeeded in winning relatively high and rising wages for its members ? trade unions today do not focus primarily, let alone exclusively, on winning improved wages and conditions for their membership. Rather, they perform too many other roles: as a school for politicians, as an industrial police force suppressing unofficial strikes, and, especially in Australia, as a major player in the finance sector via their presence in the three-trillion dollar superannuation industry. So what is it that has delivered rising wages for prolonged periods in the course of the last 150 years, such as in the decades preceding the First World War and in the decades following the Second World War? The answer is not a mystery. From Britain to Brazil and from Sweden to South Korea, it has been the same story: the self-organization of workers as a class and their consequent self-assertion both in the workplace and in the public sphere, through trade unions and political parties that they themselves created. This is an independent variable, independent of the market, just as the system of nation-states and systems of land tenure are independent variables, independent of the market. But once set in motion it has enormous economic consequences: it delivers high and rising wages for workers, a powerful incentive for firms to invest continuously in higher productivity techniques, and general prosperity. For all these reasons ? the workers? own welfare, the productivity of our economy, and the welfare of society as a whole ? I share the RBA?s desire for higher wages growth. But I do not under-estimate the scale of the task. A good starting-point would be to reform industrial relations, and other relevant institutions, so as to boost the bargaining power of workers, including by restoring fully the right to strike. Given that landlords enjoy the right to withhold properties from the rental market, thereby enlarging the army of homeless people on our streets ? and given that firms enjoy the right to withhold investment and spend the cash on share buy-backs and the like, thereby weakening the productive capacity of our economy ? this is to do no more than level ever-so-slightly the highly-titled playing field of today. And if workers were indeed to seize the opportunity to assert their interests anew, it could well be that newly energised and focused trade unions will once again have a role to play. Witness for example the growing multi-sectoral membership of the International Brotherhood of Teamsters, now present in 23 sectors from airline pilots to bakery and laundry workers: see https://teamster.org/divisions/. But all this is necessarily a long-term process: the RBA will need to be patient.

Poll 47

This month, our panellists were asked whether Australia should take action to speed the transition to electric cars.

"As part of efforts to reduce carbon emissions, Australian governments should take action to accelerate the take up, or take no action to accelerate the take up of electric cars"

Photo credit "Wes Mountain/The Conversation, CC BY-ND"

.

9

What next?! Subsidised sedan chairs for ?the great and the good?, to enable them to virtue-signal their zero-emissions journeys as they ride around on the shoulders of coolies, conscripted through a new work-for-the-dole programme? So far as concerns the equity implications of the current campaign for subsidised electric vehicles (EVs), I can only applaud the Australian Government?s position, as articulated by Minister Angus Taylor: "We're not into subsidising luxury cars, it's not something we're going to do as a government" ? see link: https://www.abc.net.au/news/2021-06-09/electric-vehicles-victim-of-culture-wars-expert-says/100196982. Thankfully, the proposal does not pass ?the pub test?. But neither would it pass a comprehensive cost-benefit test. And for the benefit of those who wish to see, as I do, the rapid de-carbonisation of the transport sector as well as the minimisation of its several and various other externalities ? air pollution, accidents, congestion, and so on ? I should like to spell out at some length the larger case against Australian governments subsidising EVs, over and beyond its regressive impact on equity. Australia?s take-up of electric vehicles (EVs) lags most OECD countries primarily because most OECD countries ? including each and every one the member-states of the European Union who constitute a majority of OECD members ? impose a much higher effective rate of tax on CO2 emissions in road transport ? aka the ?effective carbon rate?, or effective rate of tax in OECD-speak. (See link: https://www.oecd-ilibrary.org/taxation/effective-carbon-rates_9789264260115-en.) They do so through a variety of instruments, including fuel taxes, mandatory fuel efficiency standards on new vehicles, and caps on CO2 emissions through the European emissions trading system, which prompt vehicle manufacturers to seek offsets through their sales of less CO2-intensive vehicles. (On this last point, see here ? https://www.abc.net.au/news/science/2021-04-20/australians-want-to-buy-electric-cars-what-is-stopping-us/100071550 ? for a useful if less than complete summary.) In contrast, consumer subsidies have played relatively little part in this story. A greater part in the recent story of EVs belongs to the recent ?regime change? in regard to diesel vehicles in the European Union and across much of the OECD world ? both through the tightening of EU regulations and the termination in several national markets of the long-standing tax preference to diesel relative to petrol, a tax preference which had helped to trigger a significant shift from petrol to diesel vehicles. Hitherto, vehicle manufacturers had been able to virtue-signal their contribution to mitigating long-term climate change, by means of more ?fuel-efficient? diesel vehicles, even as these same vehicles contributed to a rising toll of deaths and disabilities from air pollution in the here and now, as a result of generating a far higher count of fine particles known as PM2.5 (measuring less than 2.5 micrometres in diameter) of nitrogen oxides, and of the fraction of nitrogen oxides emitted as nitrogen oxides. Today, seven years after the first of my several successive studies for the OECD on The Cost of Air Pollution ? see link: https://www.oecd.org/env/tools-evaluation/thecostofairpollution.htm ? the major vehicle manufacturers finally understand that their task is to exit from both petrol and diesel. In short, the progress of EVs owes more to high and rising taxes that have served to raise the price of travel by petrol and diesel cars up toward its marginal social cost than to subsidies aimed at driving the price of travel by EVs to below its marginal social cost. Against this background, and for reason of its contribution to both the mitigation of climate change and to the fight against air pollution, I applaud and welcome the progress made by EVs in capturing a rising share of the global vehicles market. The share of new car sales claimed by EVs has already risen to 2.6% globally, and 3.5% in the European Union, even as Australia sits at 0.6% ? see link: https://www.abc.net.au/news/2021-02-25/electric-autonomous-cars-hype-v-reality-car-sharing/13178910. And given the recent and prospective technical progress in EVs relative to other also-promising technologies (such as, for example, hydrogen fuel cells), it is highly probable that EVs will be an important part of the decarbonisation of transport in the coming years and decades. Nonetheless, it should be stressed that EVs, and specifically electric cars, are but one of several channels by which to achieve the requisite de-carbonisation of transport (and the minimisation of its several other externalities). These channels include: (1) a mode shift to public transport, including especially already-electrified trains and trams (2) a greater take-up of active transport (walking and cycling) within cities (3) a reduction in the transport task itself: that is, a reduction in the sum of kilometres travelled, through the more extensive use of technology to enable remote working, virtual meetings, and so on ? the possibilities of which have been demonstrated abundantly in the last eighteen months. Subsidies to electric cars will do nothing to promote these developments and might well impede them. Finally, as the ABC?s science and environment reporter Nick Kilvert put it: "How green an electric car is, compared to a petrol car, depends on how green the grid is? ? see link: https://www.abc.net.au/news/2021-02-25/electric-autonomous-cars-hype-v-reality-car-sharing/13178910. And Australia?s grid is less green than that of many other OECD countries, including especially those countries that are leading the race on EVs. Therefore, the most advisable course for Australian governments to pursue today is to attend to the urgent tasks that are already on the policy agenda in this field: to facilitate (1) the mode shift to public transport (2) the greater take-up of active transport (3) the reduction of the transport task by means of technology (4) the greening of petrol cars by means of improved fuel efficiency standards (5) the greening of the grid. Progress on points (1) to (5) will contribute directly and immediately to de-carbonisation. It will also ensure that the future large-scale take-up of EVs in Australia ? which should obtain naturally as and when further technical progress in Europe and elsewhere drives down the (unsubsidised) market price of EVs to within reach of Australian consumers ? will be of greater environmental and economic benefit to Australia than it would be today.

Poll 46

"On May 11, the government delivered a budget designed, in the Treasurer's words, to 'secure Australia's economic recovery and build for the future'.  What grade would you give the budget given that objective, A, B, C, D, E, F?"

Photo credit Wes Mountain/The Conversation, CC BY-ND

.

B

Credit where credit is due! As Australia emerged out of the recession of 2020, with a contraction in GDP of 2.5% over the calendar year, the immediate question facing the Australia Government in its 2021 Budget was whether to maintain expansionary fiscal settings, in order to reduce unemployment to below its pre-COVID 19 level, or to declare victory, change course, and refocus on reducing the budget deficit and the public debt. By choosing the former option, the Government has chosen correctly in regard to this immediate question and should be applauded for it. In my answer to the 2020 Budget poll ? and ?in sorrow, not in anger? ? I graded the Budget a ?C?. At the time, I feared that the stimulus would be insufficient, both in regard to consumption and in regard to investment. On the former, I argued for an expansion of Jobkeeper and an increase in Jobseeker, on the latter, for a permanent extension to the full expensing of depreciable assets. The Government has provided a greater stimulus on both counts: on the first, by a somewhat more generous spend on Jobkeeper/Jobseeker/Jobmaker, etc., and also by an extension of the LMITO tax credit, on the second, by another temporary extension of full expensing. I am therefore content to grade the 2021 Budget a ?B? in regard to its contribution to fulfilling the first of its declared objectives: ?to secure Australia?s economic recovery?. To give a lesser grade would be less than gracious. Credit must also be given to the stimulus to the Australian economy supplied by Beijing, and to the productivity and generosity of the Chinese steel worker ? Australia?s own ?Ragged-Trousered Philanthropist? ? who somehow manages to absorb an iron ore price of more than US$200 per tonne and still produce competitively priced steel for the Chinese and world markets. Iron ore exports delivered A$102 billion to the Australian economy in 2019-20, as against A$77 billion in 2018-19, and, via taxes and royalties, ?a record $39.3 billion windfall for federal and state governments? ? see Geoff Chalmers, ?Miners deliver record $39bn windfall to boost government bottom lines?, The Australian, 18 May 2021. And the iron ore price today is delivering ?effectively US$180 a tonne of pure margin? ? see Su-Lin Tan, ?Australia-China relations?, South China Morning Post, 18 May 2021, https://www.scmp.com/economy/china-economy/article/3133821/china-australia-relations-start-mining-boom-20-canberra-rakes. This is a far higher economic rent than any OPEC member-country ever gained from a barrel of oil. In regard to its second objective ? ?to build for the future? ? I would give the Budget a far lower grade. I do not see much evidence here of a serious engagement with the question of the future: that is, with the key factors that are likely to shape it and the threats and opportunities that it is likely to present. But it might perhaps be more helpful to leave the grade as a ?B?, in appreciation of how the Government has answered the immediate question before it, and then to add below some thoughts on the question of the future. These are: 1. The Budget acknowledges that: ?downside risks to the outlook for the global economy from ongoing outbreaks of the virus in major economies, including India, could have implications for Australia?s domestic economy?. In fact, the sum of what has already obtained and what is very likely to obtain will indeed have implications for the Australian economy, which is highly dependent on the world economy ? including the implication of up-turning the assumptions used in the Budget forecasts. 2. COVID-19 is neither over nor trending downward. According to the Johns Hopkins University COVID 19 Dashboard, the count of daily cases in late April/early May 2021 was the highest yet, the count of daily deaths the second highest after January 2021 (and obviously likely to rise in the wake of the rise in the count of daily cases). See https://coronavirus.jhu.edu/map.html. 3. The death toll to date from COVID-19 is likely to have been far greater than the recorded official estimates. This week?s edition of The Economist ? see https://www.economist.com/briefing/2021/05/15/there-have-been-7m-13m-excess-deaths-worldwide-during-the-pandemic ? provides an estimate of ?excess deaths?, to date, of between 7.1 million and 12.7 million, with a central estimate of 10.2 million. It concludes: ?The official numbers represent, at best, a bit less than half the true toll, and at worst about a quarter of it.? Relatedly, the true ?scarring effects? over the long term are likely to be greater than in official estimates. 4. The IMF?s April projection of 6.0% growth for the world economy in 2021 ? see https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april-2021 ? included projections of 3.3% growth in real GDP for Japan, 8.6% for ?developing and emerging Asia?, and 12.5% for India. Indeed, all the international agencies? projections for 2021 included a projection of double-digit growth for India. As it happens, the Japanese economy contracted in Q1 and is almost certain to contract in Q2 as Japan battles its third wave of COVID-19, much of ?developing and emerging Asia? is doing worse than in April, and India today is drowning under the second wave. 5. India?s catastrophe is also a catastrophe for the world, and not only because of its weight in the world economy, as the world?s third largest economy (measured in PPP terms). India is also ? or rather has been, until now ? the world?s largest supplier (that is, exporter) of COVID-19 vaccines: see https://news.sky.com/story/covid-19-how-does-indias-pause-on-vaccine-export-hurt-other-nations-12290300. Given that India has supplied more than 20 times what the United States has done to date, it is clear that the three other manufacturing giants, China, the European Union and the United States, will need to scale up massively both the production of vaccines and the share of output exported. 6. Perhaps the world's developing and emerging countries will be able to source sufficient supplies in time, most likely from China, and perhaps India too will recover before too long. It is clear, however, that all this will have major implications for future trade, economic and geo-political relations, with South-to-South trade likely to become ever-more dominant. 7. If the Australian Government truly wishes "to build for the future", it would be well-advised to pay close attention to global developments and to play its role in the global arena constructively and generously. In this context, it does not reflect well on the Government that Budget 2021 cut foreign aid yet again. Nor does it reflect well on the Australian media and the "political class" that scarcely anyone took note of the fact.

Poll 43

"On 6 October, the Government delivered a budget designed, in the Treasurer's words, to 'rebuild our economy and create jobs'.  What grade would you give the budget given the objective?  A, B, C, D, E, F"

Photo Credit: Wes Mountain/The Conversation, CC BY-ND 

C

First, I should make it clear that I applaud the Government's decision to run large budget deficits to counteract the contraction in output and the rise in unemployment And I support the above-stated objective to "rebuild our economy and create jobs". Moreover, I would defend the Government's tax cuts against those of my fellow-economists who have adopted what I consider to be a counter-Keynesian, pro-cyclical policy stance of opposing all reductions in income tax, including the reduction of the tax rate applying to incomes between $37,000 and $45,000 per annum as well as the reduction in the marginal rate applying to incomes above $90,000 per annum. A final point in praise of the Budget: I fully support the focus on infrastructure and also the new focus on manufacturing. The macroeconomic multiplier effects and the social returns available here more than justify investments in these sectors in preference to simply adding more numbers to the public-sector payroll, one by one. It is therefore very much as 'critical friend', 'in sorrow not in anger', that I grade the Budget at a modest C rather than an A or a B. I do so because I strongly suspect that the counter-cyclical measures announced in the Budget will prove to be insufficient to meet the Government's own stated objectives. For example: in an immediate sense, it is likely that the negative impact of tapering and terminating the Jobkeeper scheme will overpower the positive impact of the new wage subsidies for new hires and that the net effect will be pro- rather than counter-cyclical. A larger plan was required to replace Jobkeeper: as I suggested in my pre-Budget comments, something like the IMF-recommended German Kurzarbeit scheme. And although I applaud the change in the depreciation regime, a change that was long overdue, it is likely to prove, in the present macro-economic context, insufficient to jump-start investment. As a counter-cyclical measure, and as a corrective to the decades-long bias against investment, what was required was the permanent introduction of 100% depreciation with a temporary allowance for depreciation at a rate greater than 100%. More importantly, the budget fails to recognise, let alone to address, the future contractionary effects of the massive redistribution that is now proceeding apace: a redistribution of wealth, incomes, market shares, employment shares, and life-chances. In my pre-budget comments, I had drawn attention to the "elephant in the room" that has gone virtually unremarked in the public debate: the 25 richest Australians have added $25 billion to their combined wealth during the COVID-19 pandemic, with Australia's richest person adding $6 billion over this period to take her total wealth up to $22.25 billion (see The Weekend Australian Business Review, September 19-20, 2020). Subsequently, in a data-rich speech on 15 October, Reserve Bank Governor Philip Lowe drew attention to the observable redistribution in employment: (1) from the young to the old, though every age cohort suffered job losses; (2) from most private-sector industries, which shed jobs, to public administration and finance, which actually added jobs; (3) from the first four income quintiles, which lost jobs, to the highest quintile, which gained jobs; and (4) from small firms to big firms, though both shed jobs. The likely result of these trends is just as Adam Creighton described it in his commentary on Governor Lowe's speech (see The Australian, October 16, 2020): a new, top-heavy distribution of income and "an economy more dominated by government, bureaucracy, ticket-clipping, and oligopolies". Now quite apart from its deleterious impacts on the general welfare, on social cohesion, on the future dynamism of the economy, and so on, this enlargement of the pre-existing and already-large inequalities in wealth and incomes is likely to defeat the stated objectives of monetary and fiscal policies aimed at reviving growth and employment -- a point demonstrated with some care in the March 2020 paper, Indebted Demand, by Atif Mian, Ludwig Straub, and Amir Sufi, of Princeton, Harvard, and Chicago Booth. Therefore, if the Australian Government wishes to succeed in its aim of reviving growth and employment, and if it wishes to secure a future for a market economy free of monopoly, it would be well-advised to prepare bolder policies than it has tabled to date, including in particular a permanent shift in the revenue base from the taxation of wages and competitive profits to the taxation of unearned privileges, that is, the taxation of estates, the taxation of economic rents, and the taxation of externalities.

Poll 44

"Ahead of a decision about any permanent increase expected early next year, The Conversation and the Economic Society of Australia asked 45 of Australia’s leading economists where they thought JobSeeker should settle."

Remain indexed in line with the CPI

My answer to the first question ? more precisely, my support for a $143 per week increase in the rate of the JobSeeker payment up to the level of the age-pension ? is wholly conditional on the current context. In the ?abnormal? context of the current recession, and so long as the recession continues, an elevated JobSeeker payment, without time-limitations, is defensible in its own right, independently of its positive macro-economic impact on aggregate demand. It is reasonable to suppose that the typical new entrant to the Jobseeker scheme will be involuntarily unemployed, having been made unemployed largely as a result of the deliberate actions of governments in imposing restrictions on economic activity as a key part of the management of COVID-19. And it is wholly unreasonable for governments effectively to make people unemployed and then penalise them with a JobSeeker payment set below the poverty line. In a ?normal? context, I would also support an elevated level of JobSeeker ? but only on condition that it is strictly time-limited. In such a context, the JobSeeker payment would serve to cover the temporary incidence of ?frictional unemployment? in an economy of full employment. By this, I mean an unemployment rate of less than 2%, as obtained in Australia and across much of the OECD world in the period of ?Les Trente Glorieuses?, the thirty years from 1945 to 1975. In short, the answer to the poverty of unemployment is full employment. There is nothing ?progressive? in accepting a world of permanently high ?structural unemployment?, combined with continuing, time-unlimited payments to the resulting poor, and only so long as they do remain poor. Sadly, however, today?s ?progressives? place themselves, all too often, far to the right of yesteryear?s Tories. Regarding indexation, if the new starting level of JobSeeker is appropriately determined, and if consumer price index is correctly calculated, I see no difficulty in indexing the rate of increase in JobSeeker to the rate of increase in the index. As I argued above in my answer to the first question, JobSeeker should serve to cover the temporary incidence of ?frictional unemployment?. It is not obvious why it should attempt to enable the unemployed to attempt to ?keep up with the (employed) Joneses?. The more important point to make is that now is not the time to be planning for the post-recession details of the JobSeeker payment. Now is the time to do our utmost to plan for a post-recession economy of full employment, rather than an economy of permanently high structural unemployment.

Poll 42 

"The October budget will see the government announce additional policies to support recovery.  Please nominate the four programs you think would be the most effective (for an intervention of a given size) over the next two years"

Photo Credit: Wes Mountain/The Conversation, CC BY-ND 

Bring forward legislated personal income tax cuts, Wage subsidies or hiring bonuses (beyond JobKeeper), Permanently boosting JobSeeker (Newstart) beyond December 31, 2020, Infrastructure projects

My vote consists of two parts. First, I would nominate the option of infrastructure projects. This ought to be a current priority for the Australian Government (and governments elsewhere) because of the potency of infrastructure investment as a Keynesian counter-cyclical instrument. And it ought to remain a continuing priority for the Australian Government (and the governments of all the Anglophone countries) because of the very high social returns that are now available as a result of decades of under-investment. I have published extensively on the subject since my time as Chief Economist of the European Commission?s think-tank on infrastructure, when the European Union did succeed for a period in addressing its inherited infrastructure deficit. Interested readers can consult a user-friendly summary of my views on the subject, as well as that of my critics, in the Summer 2008 issue of the Journal of the Transport Economists? Group. Next, I would nominate ? simultaneously and indivisibly ? the three options related to supporting the incomes of workers, be they fully employed, fully or partially furloughed, newly employed, or newly unemployed: (1) ?bringing forward legislated personal income tax cuts?, (2) ?wage subsidies or hiring bonuses (beyond JobKeeper)?, and (3) ?permanently boosting JobSeeker (Newstart) beyond December 31, 2020?. And here I would commend to the reader the excellent recent note, of 18 September 2020, by Belinda Allen of the Commonwealth Bank?s Global Economic and Markets Research team. Allen argues that the temporary stimulus measures provided by the Government in 2020 have, temporarily, interrupted an underlying trend that now needs attention. Between 2016 and 2019, real household disposable income growth averaged just 1.4%. The share of gross income claimed by tax rose from ?a low of 11.8% in Q2 10? to ?a high of 15% in Q4 19?. And current and prospective pay cuts and wage freezes are now threatening to ?take real wages growth into negative territory?. Against this background, bringing forward the legislated income tax cuts will ?allow time for the Australia economy to heal?. Allen is right to argue that ?a permanent shift higher in income, brought about by a structural change, is more likely to incentivise households to deploy savings and spend?. By my calculation, however, the ?permanent shift higher? can and should be applied by means of each of these three options: not only the legislated tax cuts but also wage subsidies as a follow-up to Jobkeeper and an increase in the Newstart allowance. In regard to wage subsidies, the Australian Government would be well-advised to ignore the anecdotal chatter about ?zombie jobs? and to pay heed rather to the now considerable international evidence-base on the subject and in particular to what the IMF calls the ?gold standard? of this policy instrument, the German Kurzarbeit scheme. In regard to Newstart, there is now a near-universal consensus of opinion in favour of increasing it permanently above its pre-March 2020 level, even if there is not a universal agreement on what precisely the new level should be. I endorse this consensus. My final argument relates to the indivisibility of these three options. In my judgement, it is an error to advocate in favour of a permanent increase in Newstart, let alone an increase up to or above its post-March 2020 level of $28,990 per annum, at the same time as arguing against wage subsidies and the legislated cuts to income tax, including the reduction of the tax rate applying to incomes between $37,000 and $45,000 per annum. There are relativities here that need to be respected: society is obliged to compensate people for working, relative to not working; working full-time, relative to working part-time; working overtime, relative to working normal full-time hours; and working under onerous or dangerous conditions, relative to working under standard conditions. And it is a false egalitarianism that insists on maintaining a marginal tax rate of 37% on incomes above $90,000 per annum, including here the incomes of the mine workers who produce the iron ore that sustains the standard of living of all Australians, whilst leaving untaxed the unearned incomes, the inheritances and economic rents, that are the foundation of the wealth of the genuinely wealthy. Be it noted that ?the 25 richest Australians have added $25 billion to their combined wealth during the COVID-19 pandemic? ? with Australia?s richest person adding $6 billion over this period to take her total wealth up to $22.25 billion (see The Weekend Australian Business Review, September 19-20, 2020). In the context of the present moment, it seems peculiarly inapposite to argue against tax cuts for workers on seemingly egalitarian grounds.

Poll 41

"The legislated increases in compulsory super contributions, which are set to climb from 9.5% of wages to 12% over the next five years should...."

Photo Credit: Wes Mountain/The Conversation, CC BY-ND 

Be deferred

8

I have difficulty in answering this question. The difficulty consists in this. In the context of the worst global recession since the 1930s, it is desirable to avoid the damage to workers? welfare and to the macro-economy that would follow from proceeding as planned with an increase in compulsory superannuation contributions at the cost of a reduced growth in wages, let alone a reduction in real wages. On the other hand, it is also desirable to avoid the damage to social trust that might follow from abandoning the bipartisan commitment to increase superannuation contributions on which the present Parliament was elected. This is a trade-off that is inherently difficult to quantify. Given this difficulty, I have selected the option to ?defer? rather than to ?proceed? or to ?abandon?. This would avoid the breaking of promises and the resulting risk of damaging social trust. And it would ensure that any increase in superannuation contributions is triggered only when it would do less damage to workers? welfare and to the macro-economy than it would do today: that is, only after the current recession is well and truly over, and a strong and self-sustaining recovery has commenced (which last I consider unlikely to obtain by July 2021). Please note that I have refrained from presenting my own judgements on the principle of compulsory superannuation and its practice in Australia, or citing any part of the library of reference materials that informs these judgements. I have done so in the hope that those of my fellow-economists who are more supportive of compulsory superannuation than I am can agree with me on this single proposition: it is not a good idea to reduce workers? wages and current consumption in the midst of a once-in-a-century recession for the sake of projected benefits that are obtainable only in the long term.

Poll 40

"Governments should provide ongoing fiscal support to boost aggregate demand during the economic crisis and recovery, even if it means a substantial increase in public debt"

Photo Credit: Wes Mountain/The Conversation, CC BY-ND 

Strongly agree

9

To the best of my knowledge, the Australian Government has not proposed, nor is planning to propose, the withdrawal of ongoing fiscal support to boost aggregate demand during the economic crisis and recovery. The Prime Minister has said that such a suggestion is tantamount to ?fear-mongering?. Therefore, rather than running an argument against what may be well be a ?straw man?, I shall confine my comments to the second part of the proposition, the case for accepting a substantial increase in public debt as a result of this ongoing fiscal support.

Poll 39

"A freeze in the minimum wage will support Australia's economic recovery"

Photo credit: Wes Mountain/The Conversation, CC BY-ND 

Strongly agree

9

Joan Robinson once remarked (in Economic Philosophy, 1962): �The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.� I read this remark, along with much of her output, when in primary school in Calcutta in the 1960s; and the point she was making was immediately, and visually, obvious to me, in the contrast between the exploited but confident and combative class of employed workers on the one hand and the pauperised ranks of the unemployed on the other. Mutatis mutandis, millions of Australians in the coming fiscal year, 2020-21, are likely to face much the same choice: either a return to work, with a minimum wage frozen in nominal terms and wages across the board under pressure, or a reduction to the unhappy status of Centrelink �clients�, no longer on Jobkeeper nor on the enhanced Jobseeker, and policed anew by robots, robodebt collectors, and seemingly robotic Public Servants. In my judgement, the first outcome is preferable to the second, whether measured in welfare terms or in terms of its contribution to �economic recovery�. Moreover, it is very possible that, in this particular year, a freeze in the minimum wage in nominal terms might well translate into a small increase in real terms. If so, the welfare outcome for workers currently employed on the minimum wage will be little changed � whilst the gain in welfare for those who are enabled to return to work will be large. Doubtless, there are those who will argue that, in order to support aggregate demand and thereby support Australia�s economic recovery, governments should support submissions to raise the minimum wage - and should act directly to raise the wages of its own Public Servants. But the argument is a non-sequitur. Governments can and do support aggregate demand in a bewildering variety of ways, and are under no obligation to do so in a way that carries a high risk of cementing a state of high unemployment. Insofar as the larger macroeconomic aim here and now is to support and raise aggregate demand, the best and fairest way to do so � best in terms of allocative efficiency, fairest in terms of distributional equity � is for the Australian Government to provide a flat-rate �Universal Pro-Recovery Bonus� to all residents of Australia, and which could perhaps serve as a proto-type for a "Universal Basic Income" in the future. Finally, I should stress that I agree with a temporary freeze in the minimum wage as an emergency measure � to address the prospective emergency of mass unemployment. My general perspective remains as stated in the October 2017 National Economic Panel poll and the subsequent February 2018 Economic Society submission to the Senate Select Committee on the Future of Work and Workers: Australia needs to move beyond the sub-optimal equilibrium of stagnant wages and stagnant productivity that has obtained here and in much of the western world since the Global Financial Crisis of 2008, and on to a high-wage, high-productivity growth path, making full use of technological possibilities. The point, however, is that, in order to advance along the path uniting high and rising wages with high and rising productivity, workers must first of all be in work.

Poll 38

"The benefits to Australian society of maintaining social distancing measures sufficient to keep R<1 for COVID-19 are likely to exceed the costs"

Strongly agree

9

The proposition before us can be interpreted in two ways. Interpreted in a narrowly literal sense, we are being asked to assess the likelihood of a positive benefit-cost ratio exclusively from ?maintaining social distancing measures sufficient to keep R<1 for COVID-19? tout court. Interpreted more expansively, we are being asked to assess the likelihood of a positive benefit-cost ratio from maintaining the said measures as they are meant to operate in Australia today. That is: as one instrument in a larger intervention, which is also meant to include (1) the provision of additional resources to the health system aimed at supressing an increase in excess mortality from other causes; (2) fiscal policies designed to minimise job losses (Jobkeeper) and provide an enhanced safety net for those who do lose their jobs (Jobseeker); and (3) the provision of protective equipment and other safety measures for workers with unchanged or increased workloads, including not only all medical staff but also the millions of blue-collar workers who have kept the Australian economy and society functioning through the crisis (in food production, transportation, distribution and delivery, in mining and in manufacture, in garbage collection and in street-cleaning, and so on). Had I interpreted the proposition in a narrowly literal sense, my answer would have been ?Uncertain?. A definite answer, whether in the affirmative or in the negative, requires at a minimum an ex ante estimate of all-cause excess mortality over the relevant period in addition to an ex ante estimate of the reduction in mortalities from COVID-19 resulting from social distancing measures. And it is perfectly possible to imagine a hypothetical scenario of an inadequately resourced health system, a collapsed labour market, and a brutal reduction in conditions of work delivering an increase in excess mortality from other causes that is larger than the achieved reduction in mortalities from COVID-19. The affirmative answer I have recorded in this poll is conditional on the above-described expansive interpretation of the proposition being polled. My affirmative answer follows from a single simple epidemiological assumption and a single simple economic calculation. I assume that the official advice to the Australian Government on projected deaths from COVID-19 in a laissez-faire reference scenario is roughly correct. That is: ?up to 150,000 deaths?, derived from an infection rate of 60% and a fatality rate of 1%. And I note that this projection is roughly in line with projections for comparable countries by national and international government agencies and reputable independent research centres. Now I apply here ? as I have done in all my published studies for the OECD, WHO, UNDP, UNEP, et al. ? what I regard as the only well-founded method by which to measure the cost of mortalities at the level of society as a whole: the ?value of statistical life? (VSL), as derived from aggregating individuals? willingness-to-pay to secure a marginal reduction in the risk of premature death. The VSL value used in Australia is roughly $5 million. Hence, as at today, this gives us a gross benefit, relative to the reference scenario, of ?up to $750 billion? minus $0.5 billion for the deaths from COVID-19 to date, before deducting the relevant costs to arrive at the net benefit. Looking ahead, I expect deaths from COVID-19 in Australia to rise well above the current level of roughly 100. And I expect the costs of Australia?s mitigation measures to be very large. But I do expect the sum of these losses to be less than the initial ex ante gain of ?up to $750 billion?.

Poll 34

"In general, using more congestion charges in crowded transportation networks — such as higher tolls during peak travel times in cities, and peak fees for airplane takeoff and landing slots — and using the proceeds to lower other taxes would make citizens on average better off."

Strongly agree

9

The potential welfare gains from congestion pricing are very large – counting both the certain gains from de-congestion and the gains available if the resulting revenues are used to reduce the level of welfare-minimising taxes and/or raise the level of welfare-maximising investments. Having led several multi-country studies on the topic and having tabled the arguments and evidence to persuade successively the European Commission, the European Transport Ministers, the Transport and Environment Ministers of the OECD member-countries, et al., to endorse the principle of congestion pricing, I have no difficulty in agreeing with the above proposition with a high level of confidence. But having witnessed very little follow-up by way of decisions to introduce congestion pricing in practice, I have some difficulty in finding any useful words to add to the debate. Rather, let me invite readers to consult my short summary of the argument and evidence in the 13-page document, Roy, R. (2007), A Politician’s Guide to Efficient Pricing, ECMT, Paris, and my fuller treatment thereof in the 31-page document, Roy, R. (2008), “Mind-forg’d Manacles – The Constraints to Optimising Urban Transport Policy”, OECD, Paris.

Poll 28

Proposition 1: "Slowing the growth in the debt to GDP ratio should be a priority for Australian governments."

Proposition 2: "Slowing the growth in the debt to GDP ratio is a higher priority than income or corporate tax cuts."

1 - Disagree

2 - Disagree

1 - Long-term forecasts are not without risk of error but my strong expectation is that every well-functioning economy will carry a stock of public debt into the Day of Judgement, yielding a flow to interest to bond-holders up until the day preceding the Day of Judgement. The point is that public debt is the counterpart of an enduring asset class: it does not need to be “repaid”. What needs to be paid is the interest, preferably with a regularity and certainty that ensures that it is not burdened with a risk premium. According to The Economist, public debt in the advanced economies “has been about 105% of GDP on average since 2012”. And according to RBA stats, the differential between Australian and US 10-Year Government Bond Yields as at end March 2018 is zero. On this evidence, the growth in the Commonwealth Government’s net debt toward circa 20% of Australia’s GDP (or indeed of the sum of Commonwealth and State Government debt to circa 40% of GDP) is not obviously a matter of concern and does not signal any urgent need to prioritise a slowing thereof. That said, Australia has made poor use of this debt, with too little being spent on public investment and too much on public consumption (recurrent expenditure). If Australia continues to signal an inability to fund recurrent expenditure without recourse to borrowing, the interest rate at which it borrows may be penalised with a larger risk premium sometime in the future. To date, however, the main loss here is the sum of potential benefits foregone from the worthwhile public investments that governments have failed to execute.

2 - For the reasons stated above, I do not consider slowing the growth in the debt to GDP ratio to be a priority. In contrast – as has been persuasively argued by Saul Eslake in The Conversation – there is a clear case for cutting income tax, to offset the recent increase in the burden of direct taxes on households and in partial recompense for the on-going freeze on real wages. That said, I do not propose that tax cuts be funded by recourse to a higher level of public debt: public debt should be reserved for public investment. Rather, I should prefer to see reductions in income tax funded by reductions in those spending items that deliver zero or minimal additions to welfare and by increases in (and the closing of exemptions from) those taxes that do zero or minimal damage to welfare.

Poll 29

"A sustained increase in the number of new homes constructed each year, all else equal, will make housing cheaper than otherwise."

Agree

9

Given the phrasing of this proposition, it is difficult to disagree that ?a sustained increase in the number of new homes constructed each year, all else equal, will make housing cheaper than otherwise?. But it would be equally difficult to disagree with this proposition: ?the withdrawal of one or more or all of the various demand-side incentives to bid up house prices ? the tax treatment of negative gearing/the capital tax discount/the capital tax exemption on the primary residence/policy rates set at near-zero or negative in real terms/etc. ? all else equal will make housing cheaper than otherwise?. Therefore, whilst I welcome the RBA Discussion Paper as a valuable addition to the evidence base, I am not persuaded that the question of the quantitative contribution of the various ?drivers? to house price inflation has a settled answer that will not vary from place to place and from year to year. The key point here is that, as the document notes, ?rising house values in supply constrained markets ? [are] a driver of changes in the distribution of wealth and income?. Tightening supply is one among several means of achieving the same end ?to facilitate rising house values and therewith a regressive redistribution of wealth and income. If for any reason one of these means is temporarily disabled, other means are likely to be deployed more fully and to greater effect. As a general rule, the relevant decision-makers, in the lending institutions as well as in national, state and local government, will be led, by an invisible hand as it were, to take decisions that have the effect of enriching themselves and their kind. (See, inter alia, http://www.abc.net.au/news/2017-04-20/housing-affordability-decisions-made-by-big-property-investors/8454978.) Of course, we could as a society make a collective choice to take the punch-bowl away from the rent-seekers, treat housing as an essential consumer good and enact a suite of policies designed explicitly to bring down the cost of housing to the benefit of the majority. The relaxation and reform of planning restrictions would follow from that choice, as would various other means, including taxing away all residual economic rents, but they would do so as a means to that end. Sadly, we have yet to make that choice.

Poll 30

"Pricing of road-use for electric vehicles should be the same as fossil fuel-powered vehicles."

Strongly agree

9

If the proposition above is taken to mean that the PRICING of road use should be on the same basis – and not that PRICES for each instance of road use should be the same – then my answer is an emphatic yes. For more than twenty years and in dozens of published studies, I have argued that the only reliable way of internalising the several various external costs of road use – accidents, congestion, air pollution, CO2 emissions, etc. – is at the point of use. Neither the vehicle in the showroom nor its fuel can provide an accurate measure of the externalities in question, considered independently of the trip undertaken, the distance driven and the conditions under which it is driven. It is each trip itself that needs to be taxed so as to raise its price to its marginal social cost. We have the technology to do this and investing in its application to road pricing is the best investment that governments can make in this field. In contrast, every virtue-signalling short-cut proposed over the years, by way of subsidies and tax concessions to favoured vehicles and fuels, has ended in tears – the last major instance being the favourable tax treatment of supposedly climate-friendly diesel-engine vehicles leading to increased deaths from air pollution. Now if a consistent marginal cost pricing system were applied to each trip, some trips by electric vehicles would be charged more than trips of the same distance by conventional vehicles. To take an extreme example: an electric vehicle drawing its power from a National Grid supplied largely by coal and crossing a major-city CBD at peak hour would pay more, not less, than would a petrol-engine vehicle crossing an equivalent distance on an empty road. Of course, one can equally well imagine examples where an electric vehicle would pay less. The point is to ensure that each trip pays its correct price as determined at the time and place in question. The correct price cannot be determined by an a priori government decision to favour the latest product of the latest rent-seeker.

Poll 33

Proposition 1: "There is a significant risk that, either as a result of the findings and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry or as a result of the financial institutions' response to those findings, credit will become less readily available to Australian households or businesses."

Proposition 2: "Assuming credit becomes less readily available to Australian households or businesses, this will in turn have adverse consequences for the performance of the Australian economy."

1 - Uncertain (neither agree nor disagree)

2 - Disagree

1 - Any major reform that aims seriously to move from a suboptimal equilibrium to a more optimal equilibrium is likely to be disruptive and to carry the risk of unintended consequences. Consider for example the reforms that put an end to the rule of the Mafia in the Mezzogiorno or that of the drug cartels in Colombia. In principle, the same would apply to any major reform that aims seriously to put an end to the unethical, and prima facie criminal, practices exposed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. In the present case, however, the timetable for major changes to the governance and regulation of the finance sector is likely to be overtaken and overwhelmed by more powerful events: the deepening of the downturn in the housing cycle; a global tightening of liquidity with global QE scheduled to turn negative in early 2019; a global downturn in asset prices and in the real economy in 2019 and 2020. This is why I find it difficult to be certain of the impact of any follow-up to the Royal Commission: it may be that reforms resulting from its findings and recommendations will amplify the impact of other and more powerful events on the availability of credit to Australian households and businesses; it may be that such reforms will not happen early enough to have any discernible independent impact; or it may be that the requisite reforms will be delayed by the relevant decision-makers as part of their response to the downturn. My vote for “uncertain” should be read as the outcome of the above reflections.

2 - The Torah instructs us in Exodus 20:15: “Thou shalt not steal”. If the attempt to implement this instruction in response to the findings and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry were indeed to result in a discernible independent impact on the availability of credit (notwithstanding my doubts on this point as expressed in my previous answer), I would respond, paraphrasing Paul Keating, “This is the correction that Australia had to have.”

Poll 23

Question A: "Holding labor market institutions and job training fixed, rising use of robots and artificial intelligence is likely to increase substantially the number of workers in Australia who are unemployed for long periods."

Question B: "Rising use of robots and artificial intelligence in Australia is likely to create benefits large enough that they could be used to compensate those workers who are substantially negatively affected for their lost wages."

A - Uncertain

B - Strongly agree

Question A: No, I do not think the outcome in terms of the unemployment count can be derived from these specifications alone. The extent to which robots and artificial intelligence are put to use and their impact on the number of hours worked and the number of workers employed is a composite result of factor prices, aggregate demand and government policies – and these in turn will reflect the relative social power of the relevant “factors” (aka social classes). Where labour is strong, the reduction in hours required for a given level of output can be translated into a reduction in hours worked per worker rather than a reduction in the number of workers employed – or into an increase in aggregate demand and a sufficient increase in output to maintain the level of hours worked at the higher level of productivity. Where labour is weak, the result may be greater and more prolonged unemployment – or it may be a displacement from high-wage employment in the mainstream economy into low-wage employment at its periphery. But then, so long as labour is weak, the downward pressure on wages will act as a brake on continuing automation. Today in Britain, as Paul Mason observed recently, automated car-washes are being replaced by six men with a rag!

Question B: Yes, this statement is true under almost all conditions. Up to and including the point of total automation, the increasing use of robots and artificial intelligence delivers a net gain to society as a whole. It is then a question of how we choose to distribute that gain. At one extreme, we could continue to allow the primary gain to fall to the owners of capital and then attempt to recover part of it in taxes with which to “compensate the losers” to a partial extent – be it in the form of the dole, or “work-for-the dole”, or “retraining” for new “jobs” outside the trade-exposed sectors (for example: in car-washes, shoe-shine stands, etc.). At the other, we could recognise the fruits of centuries of scientific and technological progress as the collective patrimony of all and distribute to each, via a universal income, the consumer goods produced at a decreasing and ultimately zero marginal labour cost. Right now, however, we are stuck in a trap of stagnant wages, stagnant productivity, and stagnant growth. The immediate question therefore is how to spring this trap and return to the high-wage, high-productivity growth path that could take us to the threshold of abundance – not how to distribute the fruits thereof once we arrive thereat.

Poll 22

"As interest rates are at low levels by historical standards, federal and state governments, despite their public debt levels, should be borrowing more than they currently are to invest in infrastructure"

Agree

9

As I have argued elsewhere (for example: Roy, “Mind-forg’d Manacles”, OECD, 2008), governments should proceed with investments in infrastructure, and all other public investments, where the Net Present Value of such investments is shown to be clearly positive when tested against an economically justified discount rate – which latter will vary in time and place but is at around 3% in the case of the advanced economies today. The fact that market interest rates for government borrowing in recent years have fallen below the level of an economically justified rate discount rate – and have occasionally turned negative, as in the case of German Bunds – is not so much an additional argument in favour of greater public investment as a counter-argument against nervous Finance Ministries who worry that we cannot afford financially to proceed with investments that are indeed economically justified. Nonetheless, the counter-argument does apply here. Federal and state governments should proceed with, and can afford to proceed with, justified investments in infrastructure – which would, given the size of Australia’s infrastructure deficit, entail a higher level of investment that obtains today.That said, there is an important caveat that needs to be attached. Over the last decade of low interest rates, federal and state governments have done precious little to correct Australia’s infrastructure deficit: hundreds of millions of dollars have been collected in pay checks even as the costs of inaction have been in the billions. Indeed, there must now be some doubt as to whether Australia still possesses the requisite intellectual and institutional capacity to select, evaluate and deliver the requisite infrastructure investments. In this context, the most urgent need is a close public scrutiny of infrastructure policy – not a blank cheque to governments to go on a spending spree.

Poll 21

"The Finkel Review has recommended a mandatory certificate scheme that obliges electricity retailers to purchase a certain proportion of the electricity they sell from sources of electricity whose emission intensity is below a defined level. This is preferable to conventional approaches to the pricing of externalities, such as an emission tax or cap and trade scheme."

Strongly disagree

9

I am unaware of any compelling argument or evidence to suggest that “conventional approaches to the pricing of externalities” – to wit, Pigouvian taxes designed to align prices to marginal social costs – have been superseded by new and better instruments. The findings in the OECD study, Effective Carbon Prices, and in every relevant update in the OECD environmental policy database, demonstrate that the various alternative instruments – feed-in tariffs and other such subsidies for renewables, regulatory targets and quotas, tradeable renewables certificates – are more costly by orders of magnitude than either broad-based taxes on GHG emissions or GHG emissions trading systems. Indeed, this search for unconventional instruments has imposed not only a high resource cost in terms of euros/dollars per tonne of CO2 saved but also unintended environmental and social costs such as the ethanol fiasco in the United States, the shift from less-polluting petrol vehicles to more-polluting diesel vehicles across the world, and here and now a shift to diesel generators for electricity production in South Australia.

Poll 20

"For-profit provision of human services like health and education leads to poor client outcomes and high costs to government."

Agree

7

I agree with this statement or better still a slightly less emphatic version of it: for-profit provision of human services like health and education can often lead to sub-optimal client outcomes and costs to government. But I do not agree with what is often misread as its corollary: that non-for-profit public provision is necessarily superior. I agree with the statement for the simple reason that information asymmetries alone make it impossible for these sectors to mimic textbook-style competitive markets where rival producers are obliged to take consumer preferences as data and to seek profit solely by means of product improvements and cost-reducing innovations: neither the patient nor the pupil is well-placed to impose “consumer sovereignty”. Moreover, when this is combined with extensive government subsidies prompted by equity considerations, for-profit provision makes it all-too-possible for private providers to profit at the expense of both clients and taxpayers. In contrast, not-for-profit public provision is, in principle, better-placed to pursue and achieve welfare-maximising outcomes. And there is an abundance of examples to demonstrate the point: from the pioneering days of Britain’s National Health Service to the recent record of Finland’s education system. However, for all manner of reasons, from producer/managerial capture of the public provider to the interaction between public procurement and the for-profit supply chain, we also have examples aplenty of public provision delivering outcomes that are far from welfare-maximising. Consider the recent saga of Tasmania’s TAFE system (cf. sundry press article on the subject) or the egregiously sub-optimal results of US Government expenditure on health care (cf. Sir Angus Deaton’s essay in The Economist, July 15th-21st). I conclude therefore that those of us who wish to see a more welfare-positive provision of human services like health and education are best-advised to focus more on the requisite reform of public provision than on the spectre of privatisation.

Poll 16

"Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices."

Strongly agree

9

Yes, this is a highly distorting subsidy that should be removed, as should every other subsidy that serves to inflate house prices. But the withdrawal thereof will not suffice to deliver a full correction to the distortions in this market. The increase in land values, which is the main component of the increase in house prices, is pure economic rent accruing to some at the expense of others. It should be subject to a land value tax at an appropriately high rate. This would serve simultaneously to constrain the increase in house prices; to discourage land hoarding and encourage its most efficient use; to transfer any economic rent generated to society as a whole; and to enable government to use these revenues to replace all manner of distortionary taxes. However, I don’t expect any of this to obtain so long as our Ministers continue to spend their time and energy buying up investment properties (though not of course the time and energy required to make the necessary entries in the Parliamentary register).

Poll 14

"The social costs of gambling exceed the benefits (including consumer surplus from recreational gambling and tax revenue for governments)."

Disagree

5

Although the Mahabharata has been a life-long companion to me, I am not familiar with more recent literature on the social costs of gambling. Hence, I cannot answer this question with a high degree of confidence. Nonetheless, I am prepared to “take a punt” and answer it in the negative for the simple reason that the benefits from gambling are vastly under-stated in public discussion. They exceed by far the consumer surplus and tax revenues identified in the question itself. They include inter alia: a rare opportunity for social mobility in a society with high levels of generational inequality and social immobility (cf. Australia’s location in the Great Gatsby Curve as recorded in the paper by Mendolia and Siminski in the September issue of Economic Record); the educational value of witnessing wealth acquired transparently by luck in a society where many are misled to believe that the relative life-chances of plutocrats and paupers are determined by “merit”; the quantifiable benefits of both philanthropic and far-sighted for-profit investments by those who have made their fortunes in gambling and are therefore less likely to let their minds be dulled by conventional thinking (cf. the recent and prospective transformation of Hobart’s landscape resulting from David Walsh’s investments in Mona and other ventures and his proposed investments at Macquarie Point); and the hard-to-quantify but historically demonstrable benefits of permitting religious liberty for all, given that bans on gambling entail a violation of the religious liberty of some (cf. Stanley Wolpert’s discussion of the meaning of the Emperor Aurangzeb’s “war on gambling”). Let me end with a personal story. In 1983, as a postgraduate student with nothing but my debts to depend upon, I sought to borrow £1,000 from my bank to place on a bet at odds of 100 to 1 (a bet on India winning the Cricket World Cup). My bank manager refused – thereby depriving me of £100,000 (≈ $250,000 in 1983 dollars) and, with it, a passport out of poverty. Today, the ease with which I was able to make a little money through internet gambling on the result of the US Presidential election is something for which I am truly grateful.

Poll 18

"Given the Commonwealth Treasury?s ongoing difficulty in making accurate forecasts of some of the key economic variables underpinning the Budget ? in particular nominal GDP growth ? the Government should ?outsource? the economic forecasts used in framing the Budget to an independent agency (such as the Parliamentary Budget Office), as now happens in the United Kingdom."

Strongly agree

9

An independent Budget Office should help to restore the credibility of our economic forecasts and public confidence therein. Hopefully, it would also help to make the forecasts more accurate. For this last to obtain, we need an informed debate on some of the fundamental assumptions used in these forecasts. To take just one example, the continued use of the assumption that nominal and real GDP growth will always revert to "the average" just around the corner and continue at that average thereafter is an assumption that needs serious scrutiny; whilst any attempt at a fresh forecast each year will carry the risk of error, the use of this default assumption more or less guarantees error.

Poll 13

"Hillary Clinton is likely to be the superior US presidential candidate for the Australian economy and for Australia."

Disagree

7

Enlightenment, said Kant, is the capacity to use one’s reason without the guidance of another. Notwithstanding the guidance of the signatories to the “US Nobel Laureates for Hillary Clinton” Open Letter, my reason dictates an answer in the negative. I may be wrong and I hope I am wrong; but I fear I am right and I think it right to share my fears. If Hillary Clinton were to be elected President, I expect the following to obtain pari passu: she will win the Electoral College with considerably less than 50% of the popular vote; the Republican Party will retain control of the House and very likely the Senate; the Republican-led Congress will make the fullest use of the findings of recent and continuing FBI investigations (see the statements in response to the FBI Director’s letter of 6 November by Speaker Paul Ryan and by the Chairman of the RNC); the Republican leadership will do so armed with opinion polls showing the majority of Americans believe that Clinton acted “illegally” and/or “unethically” (McClatchyMarist poll) and that she is not “honest and trustworthy” (New York Times poll). In consequence, there is a serious risk of a re-run of the Richard Nixon Presidency à la 1973-1974 and, with it, a resulting policy paralysis across the key economic portfolios, including international economic relations – just at a time when bold policy responses are required to meet the mounting economic challenges facing American and global society. At the same time, I agree with the US Nobel Laureates where they identify Donald Trump’s proposals on trade, immigration, tax cuts and debt default as serious risks to the global economy. Thus, irrespective of who wins the Presidential election, I believe the result of the election will deliver a worse economic outcome for the US and for the world, including especially trade-intensive economies such as Australia, in the years immediately ahead of us – at least, over the calendar years 2017 and 2018 – than obtains as at today, 7 November 2016. In the context of this prognosis, the question of which of the candidates would deliver the worst variety of this worse outcome is a secondary issue and depends on too many unknowns to be answered with confidence: what matters is that we are likely heading for choppy waters and need to plan accordingly.

Poll 12

'The total benefit of current levels* of migration to Australia will outweigh the total costs to Australia's economy'.

Strongly agree

9

As a general rule, immigration will increase the general welfare in the sense that the gains to the sum of winners will outweigh any loss to the rest of society. This is usually the result of reductions in both intra- and inter-national barriers to entry, be they for goods, services, capital or labour. We should therefore expect the benefits of current and/or higher levels of immigration to Australia to exceed any costs. There are however three addenda – not amendments but addenda – that I should like to record. First, it is best to specify precisely the subject, the “who”, to whom these benefits and costs apply: welfare gains and losses are enjoyed and suffered by sentient beings rather than abstractions such as “the economy”. On a related note, I would argue that the sentient beings whose benefits and costs need to be counted here are all the residents of Australia, including the new immigrants. Finally, I would urge those who are not content to live by the Hicks-Kaldor rule that the gains to the winners need only be large enough to compensate the losers but rather wish to insist that the losers must in fact be compensated to specify precisely who needs to compensate whom. This could prove enormously helpful: to take a topical example: it would enable the winners from the withdrawal of the recent proposal to over-tax “backpackers” – in this instance, the backpackers themselves as well as farmers, related producers, all Australian consumers, et al. – to compensate the losers – in this instance, the relevant politicians and their PR agents who doubtless experienced some degree of “pain and suffering” once the folly of their proposal was made plain to one and all.

Poll 17

"In response to energy shortages around Australia, government policies requiring gas producers to reserve some production for domestic consumption are a good way to ensure that Australian consumers have access to sufficient gas supplies while still allowing for gas exports."

Agree

7

I have not had time to study this question in any depth or do any back-of-the-envelope number-crunching. But my guess is that the probable gains to the winners from the proposed action (the consumer surplus gains from lower prices; the avoidance of industrial shut-downs and bankruptcies and redundancies; the avoidance of deaths from hyperthermia; etc., etc.) will outweigh the probable costs to the losers (a reduction in the flow of economic rent to the monopolies in question; a reduction in the vicarious pleasure that we doubtless experience in witnessing the ever-greater enrichment of the said monopolies; etc., etc.). The only caveat I would enter here is the risk of unintended consequences: hence, given that I have not had time to study the question in depth, I am unable to write “strongly agree” or give my answer a 90% confidence rating.

Poll 10

"The Reserve Bank of Australia should be tasked with targeting nominal economic growth rather than inflation."

Disagree

7

In arguing in favour of Senator Xenophon’s proposal, Greg Jericho said: “Targeting nominal GDP resets the conversation.” I too want to reset the conversation – and I disagree with the proposal because I fear it would fail to do so. There is a case to be made in favour of NGDP targeting; and I accept that it might have been a difference for the better before and after the GFC. But, as ever, the answer to the question depends on the context. And the present context is that – as the RBA and central bankers around the world have been attempting to communicate in subtle and not-so-subtle ways – monetary policy is being asked to do way too much even as fiscal policy and other relevant policy tools have been missing in action. The result of this coupling has been a failure to revive demand and growth in tandem with a force-fed increase in asset prices and consequent wealth inequality. We cannot undo the past; and it is probably too late to halt the current downturn in growth before it takes us into recession. But the task ahead is to ensure that governments respond with appropriate action rather than continued inaction: in particular, with a manifold increase in public investment (in infrastructure, urban planning, renewal of energy and transport systems, education and training, the R&D required to realise the full potential of new technology – the sum of investments with high social returns is massive). The “great moral challenge”, to borrow a phrase, is to use public debt to increase public investment so as to bequeath a more expansive future for our “children and grand-children” – rather than scorn the gift that the world’s savers are offering governments at a price of near-zero. It is governments, not central banks, who need to be tasked anew.

Poll 9

"Assuming it is implemented, Brexit will deliver net economic benefits, on average, to UK citizens within its first 5 years."

Strongly disagree

10

Posting as I am from the great cosmopolis of London with nary a Brexiter in sight – and desirous as I am of preserving my equanimity in order to enjoy my summer in London – I shall refrain from all further comment.

Poll 8

"Australia will receive a bigger economic growth dividend in the long-run by spending on education than offering an equivalent amount of money on a tax cut to business."

Strongly agree

9

An affirmative answer to this question does not require a complex debate on the relative impacts of education spending versus business tax cuts. It only requires us to recognise that, given Australia’s system of dividend imputation, a change to the company-tax rate will generate little change in incentives for Australian investors. Treasury’s own modelling suggests that the proposed cut in the company-tax rate will yield only a modest increase in GDP “over the medium term” (c. 0.1 per cent per year). And an important paper by Dixon and Nassios at CoPS suggests that, under plausible assumptions, the modest increase in GDP would be accompanied by a fall in national income – by far the more relevant measure. We also need to consider a critical variable briefly flagged in the Dixon-Nassios paper: the current and prospective tax treatment of foreign-sourced income by tax authorities in the United States and other source-countries of foreign investment in Australia. Under plausible assumptions, it is entirely possible that a company-tax cut in Australia will yield little change in incentives for US and other foreign investors, and therefore little change in economic outcomes in Australia, but will represent rather a gift of tax revenues from the Australian Treasury to the US Treasury and those of other foreign governments – doubtless, a generous and high-minded thing to do but not exactly what is being sold to the Australian electorate. In contrast, all serious estimates of the impacts of increased spending on education, including recently by the OECD, suggests the likelihood of an above-zero return.

Poll 7

"The recently released 2016-17 Commonwealth Budget projects that the Australian Government's underlying cash balance will return to surplus by 2020?21*. Australian politicians should rebalance the budget with greater urgency."

No opinion

9

I am sorry to say that I cannot answer the question for the simple reason that I cannot accept its premises. I refer in particular to the projected cumulative growth of nominal and real GDP growth over the period in question, including at three and five per cent per annum, respectively, from 2017-18 inclusive. IMO, the cumulative growth will undershoot these projections by something like 50% - but I am quite prepared to consider informed opinion to the contrary.  But in any event it does not make sense to substitute an automatic default assumption in place of an informed assessment for the medium term – surely that is something that should be reserved strictly for the long term. To put it another way, I can offer no comment as a fashion critic of the “return to surplus” when the obvious point to be made is that the Emperor has no clothes. It is only when the Emperor is prepared to put on some clothes that we can make a judgement on the degree to which we need to tighten the belt.

Poll 6

"As the Chinese economy makes its transition from investment-led to consumption led growth, the Australian service sector which currently accounts for around 20% of total exports, will produce a second 'Chinese economic windfall' for Australians."

Strongly disagree

9

If "windfall" refers to rising prices that deliver economic rents, as distinct from expanding volumes at a competitive rate of return, then the answer is no. Thanks to the unprecedented pace of China's industrialisation and urbanisation, Australia has indeed enjoyed an extraordinary "windfall" of rents in the first decade-and-a-half of the present century. For example: from the turn-of-the-century base to its peak, iron ore prices rose by a factor of nine whilst oil prices rose by factor of three. And Australia's monopoly position in iron ore, shared only with Brazil, exceeds that of any single oil-exporter. But there is no reason to expect the new Chinese economy to deliver a comparable "windfall" of rents for the Australian services sector. Rather, Australia will need to compete for its share of the Chinese market with other advanced economies: with the US and the UK in education, with Germany and France in engineering services, with France in tourism, and so on. So, we would do well to recognise that the technologies, skills, practices and mind-sets needed to compete in these fields are not necessarily the same as those needed to collect the fruits of monopoly.

Poll 5

"Government investments in major sporting events usually generate net benefits for the city or region where the investment is made."

Uncertain (neither agree nor disagree)

7

When posed at this level of generality – with no specification of time or place or definition of "major sporting event" in the question itself (as distinct from the e-mail invitation) – this question cannot be answered with much confidence either in the affirmative or in the negative. Hence, the only safe answer here is "neither agree nor disagree". But as a practitioner of cost-benefit analysis (CBA), let me make three observations on the subject. (1) In any given jurisdiction in the OECD world, even the most ambitious CBAs in the field (for example, the London Olympics) are often held to less exacting standards than is required in other fields of public investment (for example, London's CrossRail). (2) And yet, and once again staying within the OECD world only, available benefit-cost ratios (BCRs) for investments in sporting events are nowhere near as high as is often obtainable in several other fields of public investment, such as health, education, infrastructure and environmental protection. (3) It is difficult to judge the relative merits of public investments in Australia since both the standards and the level of standardisation of CBAs leave much to be desired.

Poll 4

"New tax incentives for investments in technology and innovation businesses and start-ups are likely to be inefficient."

Agree

7

I agree – with regret. In principle, there is a clear case for intervention to support innovation if, and insofar as, social returns are greater than private returns. And there is much to be welcomed in the Government's Innovation Statement, including the more conventional measures on CSIRO funding, science education, and so on. But in order for an intervention to be "efficient" (i.e., welfare-positive), it must first be "effective": in the present case, it must generate a measurably higher level of innovation that would otherwise obtain. Taken in isolation, the "new tax incentives for investments in technology and innovation businesses and start-ups" are likely to be too limited to be effective: i.e., too limited in size and scope relative to the incentives that the tax system currently provides for investments in all manner of non-innovative, unproductive and welfare-negative activity, including especially in real estate. Arguably, therefore, the best way for Australia to encourage investment in technology and innovation would be to withdraw the current tax incentives to keep bidding up the prices of "little boxes made of ticky-tacky … little boxes all the same".

Poll 3

"Giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash."

Uncertain (neither agree nor disagree)

1

To respond in the festive spirit: I cannot admit a scenario in which a human agent is faced with such a choice at Christmas time and am therefore unable to answer the question. As every child knows, "we" do not give Christmas presents - Santa does. And it would, I think, be presumptuous of us to advise him. Rather, let us be grateful for what we receive. Merry Christmas to one and all!

Poll 2

"Aligning Sunday penalty rates for hospitality, entertainment and retailing industries with the current levels for Saturday, as proposed in the Productivity Commission's draft report, will lead to more employment and greater availability of services in these industries on Sundays."

Agree

7

The answer is probably "yes" but the question itself is a little under-cooked. The proposed re-alignment of penalty rates should lead to an increase in employment and output "in these industries on Sundays" (though the interaction with other aspects of the labour market as well as the tax and social security systems may well limit the gains). But perhaps the more relevant question – and one that is more difficult to answer – is whether such a re-alignment alone would lead to an "economy-wide" increase in employment and output.