AlexWhite.org » Economics

Joe Hockey doesn’t understand productivity: Great news for Tony Abbott

admin — Thu, 20 May 2010 06:06:45 +0000

Joe Hockey’s budget reply speech yesterday to the National Press Club, universally described as a “shemozzle”, has revealed that the Shadow Treasurer doesn’t understand what productivity is. This is, of course, good news for Tony Abbott.

Joe Hockey doesn't know what productivity is. Photo: AAP: Alan Porritt.

Productivity is considered amongst neo-liberal economists as the key driver of economic growth and health. It is the key issue determining the rise and fall of Australia’s economic fortunes. The higher an economy’s productivity, the higher that country’s standard of living (measured in GDP).

Simply put, productivity is ratio of outputs (measured in the national accounts) to inputs (labour, materials, etc). It is a supply-side measure “capturing technical production relationships between inputs and outputs. But, implicitly, it is also about the production of goods and services that are desired, valued and in demand.” Productivity is important to the discussion around workplace relations because “productivity data are used to investigate the impact of product and labour market regulations on economic performance”.

Productivity is measured by aggregating labour productivity and capital productivity. Labour productivity defined as output per united of labour input (typically measured in hours of work), while capital productivity is efficiencies gained through capital stock (such as machines). Multifactor productivity is not widely used but is technically a better measure of productivity performance than labour productivity, and simply put is productivity improvements gained from better training, education, management practices and operational processes, rather than better machines or longer working hours.

Joe Hockey’s definition of productivity is:

Productivity growth, that is growth in GDP per capita…

He then goes into what the the Government should do to increase productivity.

This is, of course, unbelievably hypocritical (and also amazing that he gets productivity so wrong), because one of the main stated aims of WorkChoices was to increase productivity. The central objective, according to the then-Government was to “encourage the further spread of workplace agreements in order to increase productivity and hence the living standards of working Australians.” (Kevin Andrews, Hansard, 2 Nov 2005)

Hockey identifies the MUA/Webb Dock dispute as a good example of increasing workforce productivity. Working harder and longer is the most simplistic way to increase workforce productivity – and it just shows Hockey’s (and the Liberals’) lazy policy making that they consider this to be a good example.

Of course, during the WorkChoices period (2005-2007), productivity growth dropped, and there was negative growth in multifactor productivity in that period.

The Liberal Party, Joe Hockey and Tony Abbott want to bring WorkChoices back. Abbott is on the record as saying:

Let me begin my contribution to this debate by reminding members that workplace reform was one of the greatest achievements of the Howard government

Joe Hockey defended WorkChoices and the (false) claims that WorkChoices increases productivity.

Despite WorkChoices being a key plank in the Liberal Party’s economic plan to boost productivity (which it didn’t do), Joe Hockey has demonstrated that he doesn’t actually know what productivity is.

Good sources on productivity (that Joe Hockey should read):

Productivity Commission, Productivity Primer

Andrew Charlton, Ozonomics: Inside the myth of Australia’s economic superheroes, Random House Publishing, South Australia, 2007

OECD, OECD Compendium of Productivity Indicators, 2008

Why the conservatives are wrong on the economy

admin — Thu, 08 Apr 2010 22:11:44 +0000

UK Labour media master Alastair Campbell has an excellent post on his blog today about how the Tories consistently fail on strategy, even if they excel on tactics. He basically makes the point that even though the media is on their side, and they are able to get their line in the paper each day, their argument that Labour is to blame for the recession (rather than responsible for the recovery out of the global financial crisis).

Because Alastair’s blog is rather eccentric and doesn’t have a permalink to his articles (and it’s not currently in the Archive), I’ve reproduced the article below.

For the nth time, I will point out the difference between strategy and tactics and suggest that David Cameron and George Osborne are rather better at the latter than the former.

Watching Gordon Brown, Alistair Darling and Peter Mandelson take apart the Tories’ National Insurance deception – glad to see they were calling a spade a spade – was a reminder of that esssential Tory weakness.

They assume that if they get a good media hit out of something, they have won the day. And they think if they win enough days in the media war, they will win with the public.

Yet even with the media heavily loaded in their favour, and even with the hit they enjoyed with their NICs rabbit the other day, and the roll-out of business support, it does not appear to have had the desired efffect. And it is interesting that is they who want to move the debate away from this particular issue, and Labour and the Lib Dems who want to keep a focus upon it.

I had all but forgotten about the James Report until GB mentioned it this morning. It brought back awful memories of the last campaign in 2005 when this heavy tome was unleashed upon us, identifying all sorts of areas where government could save money and so fund the promises being made by the Tories.

It took a while, but bit by bit we pulled it apart until its credibility was gone. The same is now happening to the four page memo on which DC and GO appear to be basing their entire economic ‘strategy.’

By happy coincidence, this morning’s press conference took place against the backdrop of an OECD report suggesting the UK was better placed than other countries to emerge from the recession strongly.

That sense of recovery, and the government’s role in it, is without doubt one of the reasons why the Tories are failing to pull away in the way they had hoped to by this stage of the campaign. But the inexperience and judgement of DC and GO are also factors, as is the sense many people have of their elitism and their lack of connection with most people’s lives.

One of the most efffective parts of this morning’s event was when Alistair Darling reminded people of the serial misjudgements Osborne and Cameron made at the time the global economic crisis struck. This latest misjudgement – a promise of a tax cut without real explanation as to its funding days after saying the deficit was priority number 1 – stands in a long line.

As GB mentioned a few times in PMQs exchanges in the last year or so, the Tories were wrong on the recession and wrong on the recovery. Tactics will only take you so far if your strategic response to the single most important event of the last Parliament, and the single most important issue for the next one, is wrong.

Now, without over-emphasising the similarity, in my view the Liberals have made exactly the same mistake. They are focusing on debt and interest rates, and slamming the Stimulus Package that saved Australia from the recession that the UK and the rest of the OECD is experiencing.

This is a strategic error for the same reasons that it’s an error for the Tories to focus on National Insurance. Australia has the best economy in the developed world with amazingly low levels of unemployment, and most Australians recognise this fact.

Abbott (and Turnbull and Nelson) has picked the wrong side of this economic argument.

Some key message ideas for #NoCleanFeed

admin — Mon, 21 Dec 2009 06:23:56 +0000

The No Clean Feed campaign has exploded on Twitter, received extensive coverage on the tech blogs, several independent campaign sites, and has spawned its own “Glenn Beck” style domain registry controversy.

Unfortunately, much of the commentary, especially from “Pirate Party” officials, is shrill and near-hysterical in its pitch. Simply put, the majority of Australians, even if they don’t support the filter, aren’t going to buy into the idea that Australia is becoming a fascist-state or going down the Iran/China/North Korea totalitarian route.

Furthermore, it’s my view that most Australians do not believe that slow Internet equates to censorship. The things on the “Refused Classification” list include movies that feature either real s-x acts, violent s-x acts or depict underage s-x (e.g. Baise Moi or Ken Park). They also include Jihadist literature, fetish p-rn, and books on euthanasia. None of these things are “family friendly”. (I’ve written about my views on the classification system in this post.)

In discussion with some friends, I’ve prepared some key message ideas that are alternatives to the ones getting air play at the moment.

My contention is that the No Clean Feed campaign needs to not just oppose the filter, but propose an alternative.

The Government has clearly laid the ground on which the media debate is being had. Every time they get questioned about the filter, they frame the debate as one about “cyber safety” for families. In that context, it is near impossible to defend open access to fetish material, jihadi literature or movies with violent s-x scenes. I suggest avoiding commenting on the refused classification – most Australians aren’t going to be sympathetic to an argument that wants to allow free access to Jihadist propaganda, fetish images or advice on euthanasia. The civil liberties line sounds a lot like “geeks are complaining about not being able to download freaky p-rn as fast”.

The two areas that I think are strong arguments against the filter are:

Economics and productivity: The filter will destroy the productivity gains sought in the $43 billion National Broadband Network; and

Real cyber safety: The filter won’t stop or catch a single pedophile, whereas the $44 million spent on the filter could hire up to 300 new Federal Police who will actively hunt down and stop child s-x offenders.

To this end, I’ve prepared some key messages based around these two key themes.

Download the key messages here (pdf).
Download 1 page fact sheet (pdf).

The economics of climate change

admin — Mon, 19 Oct 2009 12:28:28 +0000

The economics of climate change, like the science of climate change, is becoming clearer.

The scientific evidence is saying that unless we rapidly and significantly reduce our carbon emissions, we face a climate catastrophe.

The economic evidence is also showing that the cost of inaction will far out-weigh the economic costs of action, and more than that: that early action now actually makes good economic sense.

Climate Progress has posted about a report for the Economics for Equity and the Environment Network (E3) found that with investments of 1-3% of global GDP, we could convert the global economy to clean energy, create jobs and stabilise the climate.

The take away message of the report is that we cannot afford to just have a little bit of climate policy.

From the report’s introduction:

Stopping global warming and protecting the earthâ€™s climate is a daunting challenge. To prevent a climate crisis we have to move quickly to transform the ways in which we create and use energy, develop petroleum-free transportation, and much more. These changes will not be free; there is already resistance to paying for the first steps along this road. Some think that reaching for more ambitious mitigation targets, and quicker reductions in emissions, would mean economic disaster. Some economists have become known for advocating only slow and modest responses to climate change, lest the costs of mitigation become too large. This report demonstrates that the ‘go slow’ recommendations are unjustified. A number of economic analyses, informed by recent scientific findings and using reasonable assumptions, suggest that more ambitious targets and quicker action make good economic sense. The warnings about climate change are growing steadily more ominous â€” but it has not, as a consequence, become impossibly expensive to save the planet. We can still afford a sustainable future.

The bad news about climate change relates mostly to the costs of inaction. As greenhouse gas emissions grow, it is the cost of doing nothing that is becoming unbearable, not the cost of taking action. If there is reason for optimism amidst the dire warnings it is this: the costs of insuring the planet against climate disaster are not prohibitive. The best estimates of the costs of a vigorous, immediate effort to rebuild the world economy around carbon-free technologies are still in the range of one to three percent of world output (GDP) per year, even with the more stringent emissions reduction goals we are supporting. Scientific research continues to yield evidence that climate change is occurring faster, and its consequences could be more severe, than previously expected: the costs of climate inaction, or even of delay in mounting a large-scale response to the climate crisis, are getting worse and worse.

We cannot afford a little climate policy, half-measures that would leave us all vulnerable to the immense risks of an increasingly destructive climate. We need a big initiative, a comprehensive global deal on protecting the earth’s climate by rapidly reducing emissions of greenhouse gases. Because the status quo is not sustainable, the most economical choice is to change, as quickly, cost-effectively, and comprehensively as possible. This study looks at both sides of the equation, beginning with the worsening news about climate risks (i.e., the costs of inaction), then turning to the costs of an adequate response.

This report is primarily looking at the economics of the 350ppm target. However, 350 is now seen as the very least we should be aiming at if we really want to avert dangerous climate change.

Just like no credible scientist is saying that climate change is not real, no credible economist is saying that early action to mitigate and adapt to climate change is worse for the global economy than doing nothing. The risks of doing nothing are simply too great.

What we need now is political leadership, both globally and in Australia.

Was Work Choices a Roadblock to Productivity?

admin — Tue, 01 Sep 2009 05:16:25 +0000

A critical assessment of the Work Choices laws in addressing its stated aims and objectives

The 2005 legislation, Workplace Relations Amendment (Work Choices) Act represented one of the most fundamental shifts in industrial relations laws and Commonwealth-State relations since Federation. With the principle aim of Work Choices to “unleash a new burst of productivity growth”, John Howard described â€œindustrial relations reform as “an article of faith for the Coalition parties”. This “article of faith” statement was also allegedly repeated in a speech to the 2005 Liberal Party Federal Council, although this appeal to ideology was not repeated in later public statements.

Using the corporations power in the Australian Constitution (Section 51(xx)), Work Choices sought to introduce a single national workplace relations system, overriding most state industrial relations systems. This in itself was remarkable, upheld by the High Court; until Work Choices it was widely believed that the Commonwealth’s direct role in industrial relations was limited by Section 51(xxxv), limiting powers to make laws to “conciliation and arbitration for the prevention and settlement of industrial disputes beyond the limit of one state”.

Work Choices elevated individual statutory agreements (Australian Workplace Agreements, AWAs) as the pre-eminent form of workplace agreement, with enterprise level workplace agreements (collective agreements) and state and Federal Awards relegated to lesser status. The arbitration system, encapsulated by the Australian Industrial Relations Commission (AIRC) that had been a feature of the Australian workplace relations system since 1904 had its role greatly reduced, with new Offices and Commissions responsible for overseeing the application of workplace agreements, setting of minimum wages and settling of industrial disputes.

When introduced to Parliament in November 2005, the Minister for Employment and Workplace Relations, Kevin Andrews MP said: “the Workplace Relations Amendment (Work Choices) Bill 2005 moves Australia toward a flexible, simple and fair system of workplace relations.” The central objective, according to the then-Government was to “encourage the further spread of workplace agreements in order to increase productivity and hence the living standards of working Australians.” For the Howard Government, Work Choices was not merely an economic argument, “it is a moral argument”, with the new laws to create a “good society” and a “brighter future”.

You can download the entire paper here.

A critical assessment of the Work Choices laws in addressing its stated aims and objectives by Alexander White is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 2.5 Australia License.

Labor must assert its economic credentials

admin — Tue, 02 Jun 2009 01:16:13 +0000

The recent spate of reporting of polls demonstrates that Labor must continue to assert its strong nation building narrative and economic credentials.

Labor and Kevin Rudd correctly judged the public’s mood by decrying the excesses of extreme capitalism and neoliberalism, and forging a renewed social-democratic path.

Despite the baying of the press gallery and conservative columnists and opinion writers, Australians are confident that Labor has the right political and economic strategy to see us through the global financial crisis.

Labor must continue to hold firm and ignore the ideologues in New Ltd, and by nervous nellies in its own party, who worry each time Hockey or Pyne criticise Labor over debt and deficit.

Rudd and Labor are on strong ground – the Keynesian strategies are exactly what is needed in these times, and there is an army of economists backing them.

Willful ignorance or straw man

admin — Tue, 03 Mar 2009 02:29:16 +0000

Alex Robson from Concept Economics has not bothered to read the Australia Institute paper into the CPRS emissions floor (pdf link). Amazingly, his uninformed and un-researched tirade against environmentalists was published in The Australian today.

Mr Robson writes:

Clearly, if the number of permits in circulation could never fall, then the Australia Institute view would be correct: if a business or individual were to reduce their emissions then the demand for permits would be lower than it otherwise would be, and commensurate number of permits would be freed up in the system for useelsewhere.

Hence the conclusion follows that there would be nothing that any individual or business could do to reduce aggregate emissions.

The logical flaw here is the assumption that the number of permits in circulation must be fixed and could not fall. This assumption is incorrect.

Under an ETS there is always another option for citizens who are concerned about climate change: the “buy and hoard” method of emissions reductions.

If individuals, families, businesses, or lobby groups such as the Australia Institute want aggregate emissions to fall below the Rudd Government’s target, they can contribute to this goal very easily: go into the market, buy permits, and permanently remove them from circulation by either hoarding them or destroying them.

Remember, cap and trade makes it illegal for a business to emit without a permit. By permanently removing permits from circulation, the buy-and-hoard method reduces the ability of businesses to emit: no ifs, ands or buts. Aggregate emissions would be lowered by the number of permits hoarded or destroyed, full stop.

In other words, as a simple matter of fact and logic, the argument that an ETS puts a lower bound on emissions cannot be sustained.

Robson’s diatribe heats up towards the end of his article:

Instead of going into the political marketplace and spending endless hours lobbying, why don’t green lobby groups form permit superfunds and buy permits from our largest emitters?

…

And therein lies the rub: deep down, climate zealots have always preferred government action and regulation to market-based alternatives and the voluntary exchange of permits for cash.

Many activists cannot accept the proposition that instead of lobbying and using political influence to get what they want, they might actually have to cough up the dough and put themselves at the mercy of market forces to achieve their aims.

They would rather compel the community as a whole to bear all the costs than to reduce their own lobbying output. The last thing they want to do is to go out into the market and try to persuade business to reduce emissions by paying them to do so, even though that is the logical and most straightforward way of reducing emissions under an ETS.

Of course, if he had bothered to read the Australian Institute paper, he would see that the scenario he presents as manifestly logical and foolishly overlooked by TAI, is, infact, presented by the Australia Institute (page 2)

Buy carbon permits directly and then rip them up. Because it is illegal for the top 1000 polluters to emit more greenhouse gases than the permits they have purchased allow, the only way to reduce Australiaâ€™s overall greenhouse gas emissions is to remove carbon permits from the system. There will then be fewer permits available to polluters, who will need to pay a higher price for the right to pollute. Carbon emissions will experience a net decline as a result.

Incredible.

Alex Robson is a senior economist for Concept Economics, but clearly the concept of actually reading the article you are criticising is a novel one.

As a side note, Alex Robson does not appear on the Concept Economics website as a senior economist.

UPDATE

Larvatus Prodeo on Alex Robson‘s previous forays into the climate change debate.