Saturday, January 26, 2008

US & Australian economies

This is a simple story about current US events. Lulled by continuing, uninterrupted prosperity US citizens spent too much – the last 10 years have been a credit-driven spending frenzy. Now it is payback time and because many asset prices (housing and stocks) remain high the potential for a severe prolonged contraction is there.

If there is a recession it might be much more severe than those in 1990/91 and 2001. Joseph Stiglitz is one of the economists on the left of politics who commands my upmost respect. He agrees that the downturn might be long and deep and favours a fiscal response with strong short-term as well as longer-term impacts. Strengthening unemployment insurance, supporting State budgets and limiting foreclosures on mortgages should have decent sort of short-run effects in strengthening the US economy as overspent consumers cut back.

While most of us have been focusing on the inflation bogy and making public expenditure cuts, Fred Argy has been thinking about a fiscal expansion program for Australia if we move into a recession because of US developments. He wants short-term stimuli but also, like the good old leftie Laborite that he is, Fred wants to upgrade ‘public infrastructure’. He might even be right in this – it is certainly sensible to think of contingency plans. These fiscal plans will be important if the real risk of an inexperienced Labor Party damaging the economy with policy bravado actions in the short-run are realised and a monetary overreaction drives a highly leveraged Australian economy into a downward spiral.

But the shocker inflation number of 3.6% announced a few days ago – the highest annual inflation rate for 16 years - poses real dilemmas for the Labor Party and the RBA. Should the RBA raise interest rates further to constrain demand or should it pay most attention to the effects of a possible US recession on the Australian economy which might in fact eventually call for a rates easing? Dealing with inflation offers few short-term benefits and costly impacts on security markets but significant longer term benefits in terms of avoiding the need for a major monetary contraction that will tip the economy into recession.

I think it is important to diagnose the source of the current inflationary impulse and to make sure that wage increases do not feedback by turning once-and-for-all-price increases into ongoing inflation. That is going to be difficult to do in a government most of whose front bench are economic illiterates and ex-trade union officials.

Are these right wing fantasies? What does the new ACTU Secretary Lawrence say? According to The Australian today ACTU secretary Jeff Lawrence insisted that an increase in living costs had to be considered in wage claims. Mr Lawrence said ....there was no evidence that wage increases were causing inflation and in a decentralised enterprise bargaining system and negotiations will take place and all the parties will look at the various factors, and increases in the cost of living is clearly one of them. Inflationary pressures are the ‘result of international pressures and the failure of the previous government. Clearly, workers and unions are entitled to take that into account’.

The situation is ominous. Wage demands may not have caused the recent price increases but they can initiate ongoing inflation. The objective of interest rate increases is to dampen demand. There is no case for compensating workers for fuel and food price increases since these increases represent real additional costs to nthe economy.

Seeking wage catch-up in this situation was the reason for the last period of Labor Party-induced stagflation and there is the potential for a repeat particularly if the Labor Party drones pick away at the decentralised wage system to ensure the survival of their major funders, the unions.

35 comments:

whyisitso said...

Harry,

The latest inflation appears to have been caused by escalating petrol prices, increasing primary production prices because of the drought, and by increasing rents. Neither of the first two are caused by controllable economic management factors, and the third is a catch-up after years of stagnating rents and the resulting declining yields on investment housing. Investors stopped investing in housing about 2004 when the price boom collapsed.

The oil price and the drought therefore constitute a decline in our standard of living and this has to be accepted by the unions. There must be no compensating wage increases not justified by productivity increases. That would feed inflation directly and no doubt Stevens had this in mind.

Slim said...

Investors and shareholders routinely expect 10-15% per annum return, CEOs expect 25-30% annual bonuses - all for the good of the economy, of course.

But woe-be-tide any workers seeking to have their meagre wages keep up with cost of living increases - it would be bad for the economy, of course.

For example, Victorian teachers are paid up to $10,000 less per annum than their NSW counterparts, but are being offered 3.25% in the next agreement covering 2007-2010. This doesn't even keep up with current inflation rate!

It's OK for everyone to want more - except for wage and salary earners. Bollocks!

hc said...

Slim,

It is exactly your argument that is the source of Labor's problems. If unions start playing catchup with cost-of-living increases we are sunk. An inflationary spiral will be set in operation with the inevitable eventual need for a monetary crunch and consequent high unemployment.

I agree 100% with whyisitso. Price increases do to the drought and higher petrol prices do reduce our standard of living and we need to learn to adapt to this.

I doubt investors will get 10% returns annually over the next few years. I agree salaries to CEOs are far too high and increasing too quickly. But we can either pressure shareholders to be more careful with their money or live with this exploitation. We can live with a cost push inflationary spiral induced by labour.

Slim said...

"It is exactly your argument that is the source of Labor's problems."

It is a problem for governments of any persuasion especially when working people experience the steady erosion of the value of their wages in real terms.

What irks me is the attitude that the lowest paid must bare the real pain of restraint for the sake of 'the economy', as though their contribution to society is somehow less than rich folk. It's good for rich folk to get richer, but not poor folk, not even when their real remuneration is going backwards.

So let's see some leadership by example here. How about every politician, CEO and bureaucrat showing us how it's done by eschewing all pay increases until inflation is under control? I'd like to see that. Otherwise it's simply hypocritical for people earning $100K+ to moralise about the importance of people on $10-20 an hour exercising restraint for the good of the economy. Humbug!

whyisitso said...

One of the problems we have in Australia is the relatively unsophisticated methodology in determining the cost of living.

We can determine how prices of individual products or services vary over time well enough, but not their effect on the average consumer. This was well illustrated a couple of years ago when the destruction of the banana crop sent prices up five-fold, and was reflected in a blip in the CPI. But most consumers responded by not buying bananas or by cutting their purchases by 80% or so. The methods used to measure the effect on CPI were not flexible enough to measure this change in demand. I'd like to see some figures on how much the escalation of petrol prices for example were reflected in reduced demand and hence on the average cost of living.

I realise the weightings of products over time are adjusted by the statistician, but methods need to be found to make these adjustments closer to real time.

Spiros said...

So when the drought breaks, and world oil prices go down, it'll fine for unions to chase big wage increases?

hc said...

whyisitso, The effects you mention are well-understood limitations of price indices such as CPI. They do exaggerate the extent of price changes. Its a universal problem - not just an Australian one.

Spiros, wages should reflect productivity - if prices fall workers will enjoy the benefits of such via greater real incomes.

Slim, You are still wrong and the strength of your conviction - evidently shared by the ACTU Secretary endangers australian growth and the welfare of wage earners.

Slim said...

Harry - simply asserting that I am wrong doesn't make it so. If there is need for restraint why is it solely the duty of the low paid?

So wages earners should earn less in real terms in order that they will be economically better off in the long term? I can see the appeal in that for people who are not wage earners. Sounds like snake oil to the rest of us.

As for strength of conviction if it wasn't for those pesky union types we'd still be living in an economic paradise with most of us in indentured slavery with three hours off a week to attend church and children under ten would be working in mines and factories. Oh wait, that is still the case in many underdeveloped economies.

Anyway, the reality is that there will be increasing wage pressures as people struggle ever harder to make ends meet and no amount of economic moralising will change that. We live in an economy that encourages excess consumption, indeed, demands it, so it is hardly surprising that the workers want more of what they see flagrantly flaunted all around them by rich folk.

If a worker has to lose his house from mortgage default he is not alone. There are many in my part of the world who will have to make do by delaying those extensive renovations to the beach house and put off upgrading the wife's Merc until inflation and interest rates are under control. We all must carry our share of the economic burden!

Spiros said...

"wages should reflect productivity - if prices fall workers will enjoy the benefits of such via greater real incomes."


If world oil prices fall and so petrol prices fall, where is the increase in productivity?

Anyways, are we not in the world of mutually beneficial deals with enterprise bargaining? If employers and employees agree on a wage rise, why should third parties say that that is very naughty and not in the national interest?

hc said...

Spiros (& Slim), its a basic point. Wages have nothing to do with social justice. To claim they do is equivalent top the proposition that all Australian workers have the right to incomes of $500,000 annually.

Wages reflect worker productivities which determine incomes. These wages (& other sources of income) can be taxed and redistributed to achieve social justice but the wages must be left as a signal to business.

Your contrary claims embody the worst type of trade unionist nonsense. Moreover, they are not just wrong - they are damaging.

By the way Slim I always though the nickname reflected the fact that you were, well, a fatty. You look trim in the pic.

Anonymous said...

"It's OK for everyone to want more - except for wage and salary earners. Bollocks!"

that's true in a free labour market. However if labor sets up some sort of union payoff racket then all bets are off.

Change that. Let the ALP have exactly what they want to do and we'll see where the penny drops.

I'm waiting. In fact I can't sleep wanting to see where this finally settles.


jc

Anonymous said...

Investors and shareholders routinely expect 10-15% per annum return,

Umm, Slim, they don't expect it as you put it. they hope to get that sort of return. Little different when you're putting your capital at risk compared to union based demands with the law on your side. Doncha think?

Let’s focus on the dark side of growing corporate profits. I guess it would be far better if corporate profits were falling or flat as it would sure eliminate the surplus in a hurry with a large increase in unemployed.

CEOs expect 25-30% annual bonuses - all for the good of the economy, of course.

Oh, I get it the free labour market only works for executives and semi skilled at mining companies. It does not work for anyone else.

You just gotta love the left.

Harry,
Infrastructure spending should be left to the private market to decide. What boon doogle union rort do you think we would get with wall to wall labor squandering taxpayer money on their constituencies

Fred’s solution would make things worse rather than better. Government spending would never get us out of any fix. It would simply cause more problems. It certainly didn’t help the Japanese in the 90’s.

Lowering personal/corporate taxes, eliminating the CGT and accelerated depreciation is the only solution to getting out of a recession.


JC

Slim said...

I appreciate that it is currently fashionable to regard wages as being purely a function of productivity (leaving aside the 'productivity' of many of our CEOs) with no role as an agent of social justice.

But it is also arguable that the relative prosperity of today's wage earners has largely come about historically through social justice action pushed by trades unions, not merely by businesses responding to signals indicating productivity increases! It has been fought for, tooth and nail. Otherwise prospects for the lowly wage earner may not have otherwise improved significantly since the Victorian Era.

It's an old argument. Ultimately, all the clever people making lots of money through speculative ventures are dependent on workers at the bottom, without whom there is no product and no service to profit from. A rich person will never convince a poor person that continuing to be poor is the path to a better economic future, despite a plethora of economic theories and models. To the poor it may as well be voodoo.

There are equity issues involved - especially when the disparity between wage earners and the wealthy continues to grow. It is as though the attitude is that rich people automatically deserve their improved circumstances whereas wage earners don't. They should be abstemious for the sake of Teh Economy when once it was for Teh Empire.

In the case of teachers the consequences of underpayment are becoming rather dire and certainly detrimental to Teh Economy - unless of course the intent of the Howardian years was to actually decrease the overall level of education in order to develop a cheaper workforce.

Anyway, what's Australia Day good for if we can't celebrate the convict serf class having a go at their mercantile masters?

I am slim - never been over 10.5 stone in the old money. As my Mum always says - you can't fatten a thoroughbred! The name was inspired by a cowboy shirt I bought as part of a performance persona - it had Slim something or other on it. Slim Pickens is a pun of course, for those of us generally living close to the bone, economically speaking. There was famous actor of the same name who happened to be the guy riding the A-Bomb in Dr Strangelove.

Happy Australia Day. Oi! Oi! Oi!

Slim said...

"Umm, Slim, they don't expect it as you put it. they hope to get that sort of return. Little different when you're putting your capital at risk compared to union based demands with the law on your side. Doncha think?"

Shareholders do expect 10-15% per annum return otherwise they sell up and move on, so there is pressure on corporations to return 10-15% profit growth per annum by any means possible, foul or fair.

I don't see how 'putting your capital at risk' (most of which is borrowed anyway) is somehow more economically noble, meritorious or challenging than humble wage earners seeking sufficient remuneration for their labours to keep a family surviving from paypacket to paypacket.

"Oh, I get it the free labour market only works for executives and semi skilled at mining companies. It does not work for anyone else."

Not at all - but why is it that those who profit handsomely from it preach parsimony to the rest of us? There is a fundamental hypocrisy here as old as mankind. The rich always think the poor have too much and the poor always think the rich have too much.

Slim said...

"Infrastructure spending should be left to the private market to decide."

By what immutable law of economics? Absolute nonsense. The private market has profited immensely from public infrastructure investment. Private works well for some things, Public better for other things. A rational approach is better than an ideological one.

"What boon doogle union rort do you think we would get with wall to wall labor squandering taxpayer money on their constituencies"

And this is different from the gold medal standard Howardian pork-barrelling how?

The democratic process has determined that we have a government committed to increased public spending. Better get used to it for the next little while. We've had 30 years of free-market economic rationalism - it's worked for some things, failed in others. I suspect we're moving to a more pragmatic, evidence based approach to public administration. Such is politics. It won't be the end of the world.

jc said...

I appreciate that it is currently fashionable to regard wages as being purely a function of productivity (leaving aside the 'productivity' of many of our CEOs) with no role as an agent of social justice.

Fashionable? You mean 400 years of economic debates reaching the conclusion that rising living standards are a direct function of rising productivity were wrong? Perhaps you could explain how exactly and if looks like a winning argument Harry could put you up for a Nobel Prize in economics. I mean that. You could actually win the prize if your argument was good enough.




But it is also arguable that the relative prosperity of today's wage earners has largely come about historically through social justice action pushed by trades unions, not merely by businesses responding to signals indicating productivity increases!

Oh really. Perhaps you could explain just how this social justice theory of yours achieved this nirvana. See above for explanation.


It has been fought for, tooth and nail. Otherwise prospects for the lowly wage earner may not have otherwise improved significantly since the Victorian Era.

If there wasn’t a rise in productivity and an increase in the capital to labor ratio we would be living no differently than the Victorians. But continue to mythologize as I find it amusing.



It's an old argument. Ultimately, all the clever people making lots of money through speculative ventures are dependent on workers at the bottom, without whom there is no product and no service to profit from.

Nice to see Marx isn’t quite dead. That was Marx’s argument who took it from Ricardo. That argument was demolished 200 years ago but it continues to rear its ugly head often enough to be more than annoying.


A rich person will never convince a poor person that continuing to be poor is the path to a better economic future, despite a plethora of economic theories and models. To the poor it may as well be voodoo.

It doesn’t matter what eiher of these people think or say to each other as the market will decide the rate at which the hirer can be the service of someone’s labor. The market can only provide the going rate for his labor service. It can’t do more without creating surplus- unemployment. But you an always try to refute the marginal productivity theory.


There are equity issues involved - especially when the disparity between wage earners and the wealthy continues to grow.

Well you had better try communism then because capitalism will always produce wage and wealth differentials. By the way communism doesn’t work.



It is as though the attitude is that rich people automatically deserve their improved circumstances whereas wage earners don't.

Nonsense. No advocate of free labour markets says workers should be paid less than the going wage. People should always receive the full value of their labor. However we object to goverments imposing laws whereby unions can rort the system at will. The legal system should never favour any party in wage negotiations and bosses should always have the right lockout as well as the right to seek compensation for losses as a result of breach of contract.


They should be abstemious for the sake of Teh Economy when once it was for Teh Empire.

Lost me here.

In the case of teachers the consequences of underpayment are becoming rather dire and certainly detrimental to Teh Economy - unless of course the intent of the Howardian years was to actually decrease the overall level of education in order to develop a cheaper workforce.

Well that’s what you end up with an industry is based on soviet command and control type economics. Shortages develop.

Anonymous said...

By what immutable law of economics? Absolute nonsense.

Really? So the government ought nationalize Telstra to turn it into captured capital for the union movement. The private market as always achieved a superior outcome.

The private market has profited immensely from public infrastructure investment. Private works well for some things, Public better for other things. A rational approach is better than an ideological one.

Ok, so tell us what infrastructure is in dire need?




"What boon doogle union rort do you think we would get with wall to wall labor squandering taxpayer money on their constituencies"

And this is different from the gold medal standard Howardian pork-barrelling how?


Who said I supported Howard?


The democratic process has determined that we have a government committed to increased public spending. Better get used to it for the next little while.


Yea and?

We've had 30 years of free-market economic rationalism - it's worked for some things, failed in others.

No we didn’t. We have had socialist governments over those years.

I suspect we're moving to a more pragmatic, evidence based approach to public administration. Such is politics. It won't be the end of the world.

We shall see. I wouldn’t want to hazard a guess. I’ll wait for the evidence to roll in.

jc said...

I appreciate that it is currently fashionable to regard wages as being purely a function of productivity (leaving aside the 'productivity' of many of our CEOs) with no role as an agent of social justice.

Fashionable? You mean 400 years of economic debates reaching the conclusion that rising living standards are a direct function of rising productivity were wrong? Perhaps you could explain how exactly and if looks like a winning argument Harry could put you up for a Nobel Prize in economics. I mean that. You could actually win the prize if your argument was good enough.




But it is also arguable that the relative prosperity of today's wage earners has largely come about historically through social justice action pushed by trades unions, not merely by businesses responding to signals indicating productivity increases!

Oh really. Perhaps you could explain just how this social justice theory of yours achieved this nirvana. See above for explanation.


It has been fought for, tooth and nail. Otherwise prospects for the lowly wage earner may not have otherwise improved significantly since the Victorian Era.

If there wasn’t a rise in productivity and an increase in the capital to labor ratio we would be living no differently than the Victorians. But continue to mythologize as I find it amusing.



It's an old argument. Ultimately, all the clever people making lots of money through speculative ventures are dependent on workers at the bottom, without whom there is no product and no service to profit from.

Nice to see Marx isn’t quite dead. That was Marx’s argument who took it from Ricardo. That argument was demolished 200 years ago but it continues to rear its ugly head often enough to be more than annoying.


A rich person will never convince a poor person that continuing to be poor is the path to a better economic future, despite a plethora of economic theories and models. To the poor it may as well be voodoo.

It doesn’t matter what eiher of these people think or say to each other as the market will decide the rate at which the hirer can be the service of someone’s labor. The market can only provide the going rate for his labor service. It can’t do more without creating surplus- unemployment. But you an always try to refute the marginal productivity theory.


There are equity issues involved - especially when the disparity between wage earners and the wealthy continues to grow.

Well you had better try communism then because capitalism will always produce wage and wealth differentials. By the way communism doesn’t work.



It is as though the attitude is that rich people automatically deserve their improved circumstances whereas wage earners don't.

Nonsense. No advocate of free labour markets says workers should be paid less than the going wage. People should always receive the full value of their labor. However we object to governents imposing laws whereby unions can rort the system at will. The legal system should never favour any party in wage negotiations and bosses should always have the right lockout as well as the right to seek compensation for losses as a result of breach of contract.


They should be abstemious for the sake of Teh Economy when once it was for Teh Empire.

Lsot me here.

In the case of teachers the consequences of underpayment are becoming rather dire and certainly detrimental to Teh Economy - unless of course the intent of the Howardian years was to actually decrease the overall level of education in order to develop a cheaper workforce.

Well that’s what you end up with an industry is based on soviet command and control type economics. Shortages develop.

conrad said...

I agree with Slim on the fact that people should be able to try to get any wage they can. This "don't take a pay rise for the country" business is nationalistic rubbish. If my pay rise leads to consequences for others thats just bad luck in my books. If interest rates have to go up because some section of the community happens to be able to get big pay rises and others can't, then thats just the way life is. Those people should be glad they are in one of the lucky professions (which presumably will start attracting more people to solve this problem if wages stay high enough long enough). It seems to me that the only alternative is that we restrict the only groups we can -- whom I imagine are a minority of workers, and we end up with shortages such as those found in primary and high school teaching, or we end up with the hopeless universities we have now because too many people went overseas or changed professions. That does everybody a disservice in the long term, especially all those that will become the trash because of it (i.e., the average young Australian).

Incidentally JC, there is little correlation between the way schools are set up and efficacy of them across countries. I believe the biggest correlate is overall wages. There was article in the Economist some time ago looking at that (which is from a big OECD report I believe). The only way deregulation is going to work is if all schools can charge whatever they want, and schools are not free to those who can conceivably pay. I can't imagine ever happening.

hc said...

Conrad, On this basis the economy should operate as a set of producer monopolies with counterveiling labour union monopsonies. The value of competition will be discarded entirely. This would be totally crazy since the value of competition disappears.

The anything goes approach to wage setting led to double digit inflation and unemployment in the 1980s, early 1990s and 17% interest rates.

Wages should reflect productivity and that is what competition enforces. Social justice objectives with respect to income equality should be pursued via the tax and transfer mechanisms of government not by sending wrong signals to firms.

Slim said...

Maybe it's all the lazy days of summer but I'd momentarily forgotten that for some people Economics is the One True Faith by which all truths and human experience must be measured and determined. When the unionist sinners, heretics and Unbelievers are banished from The Promised Land, the Second Coming will be upon us and Friedman will descend from Above and there will be a Thousand Years of Free Market Paradise for the True Believers. Or something.

the market will decide the rate at which the hirer can be the service of someone’s labor. The market can only provide the going rate for his labor service. It can’t do more without creating surplus- unemployment. But you an always try to refute the marginal productivity theory.

Well actually, no. Back on Planet Earth we have a mixture of free market and controlled economies, public and private ventures and institutions. Trades Unions are still legal and can undertake industrial action in support of their claims.

Victorian teachers are now paid 15% less than their NSW counterpart and remain the lowest paid in the country. The relative remuneration for teachers has declined by 50% in a generation. Present remuneration is failing to keep up with the cost of living and is a major contributing factor in a growing crisis in the supply of teachers. I can foresee that the AEU will abandon their industrial campaign once they understand it's all about marginal productivity theory. What were they thinking? They should accept their lot with magnanimity and appreciate that it is for the good of The Economy.

A Free Market Economy might solve all these things but we don't actually have one, nor is it likely anytime soon. Everyone is grabbing what they can. Why should we expect teachers or wage earners be any different. Geese and Ganders.

conrad said...

HC,

you could look at if from the other side. At present the government abuses its single buyer status so much that we now have a mess across the entire education spectrum (and no doubt other areas too -- its just the obvious one you can see -- I'd hate to see figures from the rest of the public service). Thus you have lots of people basically subsidizing others through lower wages than they would otherwise get. No doubt this in part responsible for all the problems we have now in terms of labor market shortages,6% CAD, etc., since we can't create skilled people anymore. It seems to me that this problem is worse than it seems, since part of the problem is a long term perception of the government(s), since even if wages were increased now to levels that would allow a sustainable system, people still wouldn't do it as a career, since it forces you to trust the government over your lifespan. Is this outcome really better than if wages were somewhat than now?

In addition, I fail to see how you can pursue social objectives via redistribution in this case. What you have is people earning a reasonable amount compared to average (65k is over average), so there is no a-priori reason to want to subsidize them. However, they aren't earning enough for their skill levels/jobs demands (and hence the shortages), so it isn't clear to me how you could fix this problem without higher wages.

Anonymous said...

Maybe it's all the lazy days of summer but I'd momentarily forgotten that for some people Economics is the One True Faith by which all truths and human experience must be measured and determined.

For economic man it is, but then free market economics isn’t based on quasi religious beliefs and myths like those on the left. There are hundreds of years of hotly debated economic subjects that back up my thesis whereas yours is not. It’s interesting that when lefties are confronted with this reality they then attack market economics with myths and religious faith based dogma.


When the unionist sinners, heretics and Unbelievers are banished from The Promised Land, the Second Coming will be upon us and Friedman will descend from Above and there will be a Thousand Years of Free Market Paradise for the True Believers. Or something.

No one needs to be banished, Slim. All that we want avoid in seeing is union thuggery getting hold of the law to help them in their attempt to stand over people.

.

Well actually, no. Back on Planet Earth we have a mixture of free market and controlled economies, public and private ventures and institutions.

Yea and? So economic laws don’t apply then? LOL



Trades Unions are still legal and can undertake industrial action in support of their claims.

Sure they can. But if they break an agreement the union and their members ought to be personally sued for breach of contract.

Victorian teachers are now paid 15% less than their NSW counterpart and remain the lowest paid in the country. The relative remuneration for teachers has declined by 50% in a generation.<> Present remuneration is failing to keep up with the cost of living
They maybe getting paid 15% less, Slim because the cost of living differential between the two cities is different.

I can foresee that the AEU will abandon their industrial campaign once they understand it's all about marginal productivity theory. What were they thinking? They should accept their lot with magnanimity and appreciate that it is for the good of The Economy.

They ought to take up their argument with the state labor government.



Conrad:

Education is a huge soviet command and control structure. I wouldn't begin to debate the problems associated with it other than dismantling the entire thing.

Jc

Slim said...

Oh dear, we're back to the 'laws' of economics again! Care to list them?

There are no laws of economics, only ideas and theories reflecting our understanding and experience, and even these change with time and circumstance.

Economics as a soft science - like psychology or sociology - a useful tool in helping humans to understand economic behaviour, and usually most efficacious when applied with the wisdom of hindsight. At what point in time has economic theory been transmogrified into laws and reality?

It’s interesting that when lefties are confronted with this reality they then attack market economics with myths and religious faith based dogma.

I presume this is some kind of strawman as I haven't drawn on myths or religious faith based dogma in expressing my point of view here. Unless you mean my satirical take on the fervent belief some of us hold on the supremacy of free-market economic theory as the solution to the problems of society?

All that we want avoid in seeing is union thuggery getting hold of the law

I wasn't aware of any moves for the union thugs to get hold of the law. Did I miss something? The role of unions may well be amended with Rudd's minimal changes to SerfChoices, but legislatively recognising and restricting the activities of unions hardly amounts to a legal takeover. Those Liberal Party union scare ads weren't meant to be taken literally.

They maybe getting paid 15% less, Slim because the cost of living differential between the two cities is different.

NSW and VIC are states so I suspect this is one of the least likely explanations.

Good luck with dismantling the education system. If you need some help I have a few ideas. But in the meantime the uncompetitive remuneration of Victorian teachers will only exacerbate the growing shortage of teachers and marginal productivity theory is unlikely to see them abandon their claims. I guess we'll just have to import them from underdeveloped countries to make up the balance.

Anonymous said...

Oh dear, we're back to the 'laws' of economics again! Care to list them?

Where do I start when you seem not understand or even know what a demand supply curve would look like or the direct relationship between rising living standards and productivity. Most of what you suggest is semi-religious dogma to make it look as though you have some understanding of economics and rational man. You clearly don’t otherwise you wouldn’t be confusing personal preferences with economic thought.


There are no laws of economics, only ideas and theories reflecting our understanding and experience, and even these change with time and circumstance.

Oh really? I’m sure Harry could lend you a few introductory texts for beginners if you asked nicely.


Economics as a soft science - like psychology or sociology - a useful tool in helping humans to understand economic behaviour, and usually most efficacious when applied with the wisdom of hindsight.

Analysing past history economics events.

At what point in time has economic theory been transmogrified into laws and reality?

Oh so you’re a creationist then seeing evolution and the big bang haven’t been proved yet under your stricture for those things that don’t meet your personal preferences and assorted religious beliefs.

presume this is some kind of strawman as I haven't drawn on myths or religious faith based dogma in expressing my point of view here. Unless you mean my satirical take on the fervent belief some of us hold on the supremacy of free-market economic theory as the solution to the problems of society?

No straw man around here, Slim. And I certainly didn’t see any satire in your economically incoherent thoughts.

I wasn't aware of any moves for the union thugs to get hold of the law.

We shall see what they come up with. Unless I am mistaken the ALP did run the campaign against less market influence on the labour market, didn’t they?

I guessing here , but Rudd’s happiest day may have been the morning after the election because I more than a little certain that his recent discussions with the RBA where they explained their response to above productivity wage hikes would have scared the living hell out of him.




Did I miss something? The role of unions may well be amended with Rudd's minimal changes to SerfChoices, but legislatively recognising and restricting the activities of unions hardly amounts to a legal takeover. Those Liberal Party union scare ads weren't meant to be taken literally.

See above.




But in the meantime the uncompetitive remuneration of Victorian teachers will only exacerbate the growing shortage of teachers and marginal productivity theory is unlikely to see them abandon their claims.

On the whole, Victorian teachers are a very unproductive and ineffective lot. The real strategy would be to make them more responsive to market based competition. I have no opinion on their wage claim.
Jc

Slim said...

On the whole, Victorian teachers are a very unproductive and ineffective lot.

A rather bold and sweeping declaration I would think. And your evidence is? By what criteria?

How does one measure the productivity and effectiveness of economists (as opposed to bean counters and stock jockeys)?

hc said...

JC,

I generally agree that Victorian teachers are underpaid. Its pretty hard to get enthused about making a career in something that involves an upper limit to salary of $70,000.

I have experienced poor productivity from teachers but that might reflect the supply situation. I have particular gripes with the teaching of junior school mathematics where teachers seem to believe mathematics = arithmetic. BTW the problems I saw were is private not public schools.

But part of this problem stems from the low salaries that don't reward tough teaching roles. Part of it also reflects an antiquated approach to curriculum design.

I have not seem any studies that provide general insights into the productivity of teaching in Victoria.

Anonymous said...

thanks Harry. I'll take your word for it.

Maybe I'm just very hostile to their union representatives.

However most of them support a socialist system. This is how socialism works (unresponsive to market forces) so maybe they're getting back their just deserts.

JC

Anonymous said...

A rather bold and sweeping declaration I would think. And your evidence is? By what criteria?

That’s easy. The moment parents are able to afford a private school for their kids they’re out of the public system in a flash. Achievement is superior at public schools judging from the testing I have seen. Nearly all parents think so too.

How does one measure the productivity and effectiveness of economists

Output of work produced by number of hours.



(as opposed to bean counters and stock jockeys)?

Accountants would be the same way.

Stock jockeys? I have lived through most of the technological changes that occurred in trading. If you really want to know I would be happy to explain it to you, but I don’t want to fill up Harry’s site.

jc

Slim said...

However most of them support a socialist system.

And the evidence for this sweeping generalisation is? Or is it public education = socialism? Hardly a rigorous conclusion or cogent argument.

The moment parents are able to afford a private school for their kids they’re out of the public system in a flash.

Evidence? Is this all parents or only some? The shift to private education is due to any number of factors, foremost of which would be the systematic defunding of the public sector for more than a decade. Parents will follow the funding and resources. Unless you have evidence to support your contention that it is due to the productivity and effectiveness of teachers?

Achievement is superior at public schools judging from the testing I have seen.

Glad you agree! How is this so if you reckon public teachers are unproductive and inefficient?

Nearly all parents think so too.

And the evidence is? 'Nearly all' is 51%, 95%? Merely your opinion?

Anonymous said...

Correction

Achievement is superior at PRIVATE schools.

jc

Peter said...

JC, you seem very hostile towards the unions and any views which are not akin to pure capitalism.

It seems to me that your views are rather extreme. I don't believe that any pure ideology is the right way. Whether it be communism or capitalism, they're just pure fantasy. A balance is needed.

Slim said...

Achievement is superior at PRIVATE schools.

The extent to which figures such as ENTER scores bear this out - it really is only a matter of small degree. One would expect higher achievement at private schools, given the greater resource allocation and most importantly, selective intake and the capacity to refuse to carry students who don't fit easily with the system.

Otherwise is there is not a lot of difference - certainly with regard to the productivity and effectiveness of teachers - I recall that Andrew Leigh has some figures in this regard. Many public schools (such as mine) routinely outperform most private schools re ENTER scores.

I had one cohort of students at Year 12 who were statistically combined with a number of local private schools who had all assessed their students' coursework at A+. Mine, of course, came out at the bottom. A VCAA review revealed that one of my student's performance was among 3 perfect scores statewide and scores were adjusted accordingly. Some lilly guilding had clearly occurred.

It's rather difficult to make meaningful comparisons between public and private outcomes without taking into consideration a range of factors, as any good economist would know, and without valid data with which to support conclusions.

Apparently an economist's productivity and effectiveness can be measured by 'output of work produced by number of hours.'

What? No specific performance criteria? If teachers were measured by the same yardstick they'd be up there with the best.

If anything, teachers and schools are so burdened by demands of accountability bureaucrats that it actually detracts from the capacity to do the real job of helping students to learn.

Anonymous said...

Achievement is superior at PRIVATE schools.

The extent to which figures such as ENTER scores bear this out - it really is only a matter of small degree. One would expect higher achievement at private schools, given the greater resource allocation and most importantly, selective intake and the capacity to refuse to carry students who don't fit easily with the system.

Nonsense. Very few schools make any selection. Most take what they are given and work with that. I know for a fact that the most expensive private co-ed school takes pride in not making any selection.


Otherwise is there is not a lot of difference - certainly with regard to the productivity and effectiveness of teachers - I recall that Andrew Leigh has some figures in this regard. Many public schools (such as mine) routinely outperform most private schools re ENTER scores.

Yes. Some do but we’re talking about big numbers here. Melbourne High is not going skew the figures although it rates very highly.


I had one cohort of students at Year 12 who were statistically combined with a number of local private schools who had all assessed their students' coursework at A+. Mine, of course, came out at the bottom. A VCAA review revealed that one of my student's performance was among 3 perfect scores statewide and scores were adjusted accordingly. Some lilly guilding had clearly occurred.

See what I said earlier about the law of big numbers. It takes a lot of kids in the public schools to produce one outstanding result compared to private schools.



It's rather difficult to make meaningful comparisons between public and private outcomes without taking into consideration a range of factors, as any good economist would know, and without valid data with which to support conclusions.

It’s not as hard as you want to make it sound.


Apparently an economist's productivity and effectiveness can be measured by 'output of work produced by number of hours.'

What? No specific performance criteria? If teachers were measured by the same yardstick they'd be up there with the best.


Look, you’re delving into an area you simply don’t understand. You would be best not to go there. But I’ll provide a quick summary.

The chief economist at Morgan Stanley can now go to China and write his report from his hotel room. Previously he would have needed a fax machine. His secretary at the other in NYC would have had to type the whole thing for him and then send it out by facts or mail.
He has enjoyed an increase in productivity seeing he is able to communicate with his clients almost instantaneously.


If anything, teachers and schools are so burdened by demands of accountability bureaucrats that it actually detracts from the capacity to do the real job of helping students to learn.

so you’re hankering for the private sector now.


Jc

Anonymous said...

JC, you seem very hostile towards the unions and any views which are not akin to pure capitalism.

Not at all. I'm very hostlie to unions having the laws stacked for them.

It seems to me that your views are rather extreme. I don't believe that any pure ideology is the right way. Whether it be communism or capitalism, they're just pure fantasy. A balance is needed.

Supporting the idea of leaving people alone is not really an ideology. We have come so far down the socialist, statist road now that we think it is.

jc