Wednesday, 12 May 2010

On budgets and stimulus packets

Last night the Australian Federal Budget came down, and it was mostly pretty boring.  Apparently this year 'responsibility' is in, with measures (ie great big taxes on the resources sector and tobacco) the key to a planned return to surplus a few years early.

It would of course have been nice to see some signs of an actual real policy direction or two rather than just some whimpy posturing, but that is more than one can reasonably expect of this Government. 

In fact the figure that speaks the loudest about what the Government's preoccupations are (viz firefighting and keeping control over what Ministers might get up to over actual policy development) is the boost of staff in the Department of Prime Minister and Cabinet from around 500 to 700.  Oh for the days when Prime Ministers actually slept at night and their care and feeding required far less than half that....(though it has to be admitted that it was the Howard Government that was responsible for a fair swag of  centralist expansion, despite coming to office with a promise to cut PM&C to 90 or so). 

Predictably, the various social justice lobby groups are put out at the lack of goodies to promote social inclusion. 

Well folks, remember that we have an election campaign coming up.  There will be plenty of goodies.  The challenge for all lobbies is to make the case for why their preferred targets should get the loot.

And to remember that in the end, the overall health of the economy is far more likely to make a real difference to the poor and underprivileged than any individual targeted measures.  What in the end is better after all - boosting the level of unemployment benefits or getting someone a job?  I can assure you it is the latter!

Indeed one of the more interesting commentaries goes to one of the debates we are probably going to have to have later this year, namely was the Government excessively profligate in its stimulus package response to the Global Financial Crisis (poor delivery issues aside), and how much credit can the Government claim for our reasonably healthy economic state (well assuming it doesn't all fall apart as a result of the Resources Tax and interest rate increases). 

Crikey's Possum Comitatus argues that some of the data in the budget papers gives a boost to good old-fashioned Keynesianism, showing that the bigger the stimulus package, the higher a nation's GDP last year was.  It suggests that had the Opposition gotten their way and the package been much smaller, we would have had zero or even negative economic growth rather than the 1.4% growth we actually had.

Sobering stuff.


Louise said...

It suggests that had the Opposition gotten their way and the package been much smaller, we would have had zero or even negative economic growth rather than the 1.4% growth we actually had.

Modern economics are a joke. It's all about Tokens, not Things.

Terra said...

Hmm, I'm an economist Louise....

Louise said...

This is the awkward point in a conversation where one says, "Some of my best friends are economists." Well, I did not say that economists are a joke!

But there is something decidedly wrong with a system of thought which *focusses* on Tokens and not Things. I mean, in a global meltdown, does the labour suddenly disappear off the face of the earth? Do the crops stop growing and the water stop flowing? Do the supplies of steel and wool suddenly disappear? No. All that happens is that the system of exchange goes haywire. In which case the solution is to get a new system of exchange. There are already alternatives in existence now, such as LETS and freecycle.

Prof Ian Harper (I think?) told the Parliamentary Prayer Breakfast attendants last year (in Hobart) that his science is at about the same level of expertise as medicine was when doctors were prescribing leeches! Ever since then, when hearing people discuss economics on the radio, I have taken to saying, "I prescribe three leeches" or similar.

Terra said...

With all due respect to Professor Harper, I'm not quite convinced that economics is as useless as all that (or for that matter that medicine has advanced much in efficacy beyond the age of leeches - which are back in vogue by the way - but that's another days debate, for when I'm feeling less pain from my three month old allegedly healed/healing fractures!).

The 'tokens' are just a way of measuring the value of the 'things', alternative exchange systems are not really different from money conceptually, and potentially subject to exactly the same problems of rapidly changing value in response to changing circumstances. The trick is to have properly regulated markets and focus on approaches to reducing volatility.

But in any case the problem in my view is not economics per se, but the failure by politicians to heed its lessons, or to give appropriate weight to the interests of us out there on the ground as opposed to organised lobby groups.

Louise said...

We just had a terrible case here in Tas of a woman who prostituted her 12yo daughter. The girl had sex with some 100 men over a few weeks at $100 a go or $150 without condoms. Obviously this is illegal and the mother has gone to prison.

Suppose some idiot parliamentarian (probably a Green and probably a woman) suddenly decided, for no apparent reason, that this kind of thing ought to be legal. Suppose, in addition, she persuaded over half the house to vote for such a change (not beyond the realms of possibility, I believe) then the money this girl earns is added to the GDP and contributes to "growth" - correct? The problem with the tokens is that they do not really see justice. And very often not reality either.

Take another instance. Suppose my friend Jacqui and I decide to babysit for each other every day. She looks after my kids in the morning, I look after hers in the afternoon. It's a fair swap and we're happy. But then one day some political doofus announces that it shall be illegal to babysit without being paid. So Jacqui and I continue to do what we were already doing, but now we pay each other for it, $20 a go. I pay her $20 in the morning and she writes me a receipt. She pays me with the very same $20 bill (!) in the afternoon and I write her a receipt. After 60 days of this (12 working weeks) we each now have enough "income" (having shoved the same $20 bill back and forth)to have to file a tax return and, from now on, to pay tax on our "earnings"! So all this contributes apparently to the GDP, but nothing has actually been added in real terms. We are doing no more or less than we were doing before and all this money being "earned" is just the same token being passed back and forth with a record thereof.

There is no objection per se to tokens, but if they are not connected deeply to things (ie The Real) they are useless and tell us very little.

Economics per se is as noble a science as any other, but it is the nature of its more modern manifestation to remove The Real from the whole equation. It is the *overemphasis* on the tokens which is problematic, not the tokens themselves which are just a system of exchange.

Are there some states now where prostitution is legal and therefore part of the GDP? (I don't know the answer to that btw, it's a genuine question).

Terra said...

OK first there is a distinction between economic concepts and what is actually measured in the real world by ABS.

An economist would ideally love to capture the value of 'unpaid' work' and other types of value in GDP. You've given the example of childminding, on which there is an interesting political debate going on at the moment as to exactly how much those unpaid hours are worth to society as a whole (as opposed to just the families involved who implicitly give it a value by deciding on whether/how much each husband and wife will work).

Another example is cooking - a meal in a restaurant counts for GDP whereas a homecooked one doesn't (only the cost of the raw ingredients, to the extent that they are purchased in the market economy are captured). Say a recession hits, people lose jobs so eat out much less and cook/grow their own instead - the figures make it look like GDP has fallen more than it really has.

A third kind of example is when an activity has good or bad side-effects that aren't captured in the market price paid/received - for example the health costs associated with tobacco use but largely paid for by the taxpayer, or the effects of prostitution, or on the positive side, the benefits of children having a full-time parent at home.

Lots of thinking has gone into how to deal with this issue, and economists regularly attempt to estimate the value of these things in order to guide policy-making. In terms of including them on an ongoing basis in GDP however in the end, it would just involve to much bureaucracy to try and do it.

So the next question is, does a measure of activity in the market economy tell us anything useful?

For the reasons suggested by the examples above, GDP etc are obviously not perfect measures. Still, they do tell us something important about how things are going at a broad level. If GDP falls, people are buying/sellling less, and so people do lose their jobs with real consequences for themselves and their families.

Its true that the only 'value' measure attributed to GDP is what people are prepared to pay for it, so morally bankrupt activities can count towards it in principle (I think Holland has legal prostitution). But that isn't the fault of economics - its the fault of politicians, and us for electing them - for allowing those activities to be legalised in the first place.

Louise said...

Certainly, bad laws are the fault of politicians and the people who elect them and re-elect them. And economics, as I say, is as noble a science as anything else, but like medicine, it cannot be utterly divorced from ethics. The two main types of economies are capitalist and socialist, but the reason the first social encyclical of the Church was called Rerum Novarum ("the new things") was b/c those two economies are quite new phenomena.

It follows that Christians ought to dig around and see if there ever was anything better historically, or at least concede that a better kind of economy might possibly be brought into existence in the future.

Louise said...

btw, did my last comment get munched? I only ask b/c I was wanting to copy something from it.

Louise said...

Also, I'm sorry to hear about your fractures. I pray they do heal well and you are preserved from the dreaded Mr Athur Itis.

Terra said...

Sorry about your comment Louise - its there now - thought I had moderated it but for some reason didn't go through.

Thanks for the prayer on the dreaded Mr A in particular!

I'm not convinced that economics per se is totally divorced from ethics - it would after all be perfectly possible in principle for the Government to instruct ABS to not count certain things in GDP. And the Government can and does distort the price for some less desirable consumption items by taxing them highly.

Can we find a better model from the past? I'm not convinced from my studies of history I've seen it. Can we develop a better one for the future? I sure hope so - and in a sense that is the fundamental mission of economics. Economics is not really tied to capitalism per se, despite the close (and unhealthy) association that has developed in our culture.

Louise said...

No, certainly economics as a discipline is not necessarily tied to Capitalism. And also, economics is *necessarily* tied to morality/ethics, IMO, which is why it irks me when some economists act as though they are indeed totally divorced. Not unlike scientists who argue that one can divorce science from ethics.

I should say that had I known you were an economist, I would not have "picked on you" in this manner!

Louise said...

Incidentally, I have a cousin in his early/mid forties who is so harassed by Mr A he can no longer work physically (and would probably be hard pressed to work at a desk job). He walks like an old man, poor soul. This was due to his rugby injuries as a young man. One expects it in old people, but not in those who ought to be at their peak in terms of career/vocation etc.

Terra said...

Don't worry Louise not feeling picked on - and I've largely left my economist days behind anyway. Did you read the Manne vs Ergas debate in the Oz yesterday - i think you would find it interesting.

Louise said...

No I didn't - thanks for the tip.