John Quiggin

Chris Bertram’s CT post on the Browne reforms[1] in UK Higher Education has prompted me to write a post I’d half-planned a while ago, after seeing this familiar (to Australian eyes) claim.

Too many universities simply state a desire to “achieve excellence in teaching and research” and appear unable to carve out a market niche, Professor Beer said.

The idea that a pseudo-market system (centralised control but with sharper price incentives) will generate diversity is one of many illusions that were exposed during the Australian reform era of the 1990s. Faced with pressure to find a market niche and select a “flagship” program, 37 Australian universities (out of 37) decided that business education and a multitude of specifically labelled vocational degrees were the right niche and that an MBA would be a good flagship. This is scarcely surprising: given the incentives, business degrees were the obvious profit centre. It’s only as the reform program has faded from memory that we are seeing serious attempts at diversity like the “Melbourne model”

However, similar choices didn’t produce a homogenous outcome. Rather, the historical hierarchy (century-old sandstones at the top, former teachers colleges at the bottom) which had been somewhat muted when funding flowed a little more freely, re-emerged stronger than ever. At the top, there was enough surplus to maintain, more or less, the full range of disciplines as well as the long-established professional schools (law, pharmacy and so on). The further down the scale you went the less of the arts, humanities and sciences survived. This apparently came as a surprise to the Australian equivalents of Professor Beer.

Even more bizarre was the shock expressed by some market advocates when they discovered that, with a customer base consisting of 18-year olds (who understood their own preferences), and parents (who mostly knew very little about units), the market produced very little demand for anything that was hard and didn’t purport to offer training for a well-paid job. Some of them seriously appeared to think that the market would kill off critical theory in favor of good old-fashioned classical education. In fact, provided the pill was sugar-coated with film studies and pop culture, critical theory didn’t do too badly, at least relative to old-style humanities. I myself am affiliated with the QUT Centre for Creative Industries, which derives much more from crit theory than from lit crit.

Australia has a long history of importing policies that have already failed in the UK. It’s a source of mild schadenfreude to see the trade going in the opposite direction for once.

fn1. As always, I use “reform” to mean “change in structure” with no implication of approval or disapproval. Given the history of C20, most reforms consist, in large measure, of undoing some previous reform.

The bailout of the US financial sector through the Troubled Assets Recovery Program (TARP) looks to have been fairly successful on its own terms – the banks have become profitable again and the final estimated loss to the government is relatively small. That doesn’t change the fact that the government took on huge risks for negative returns, without any reason to expect that the future behavior of the banks will change.

But all of that was based on assumptions of an orderly resolution of the mortgage crisis. Those assumptions now look very dubious, as the legal consequences of the practices of the financial sector during the bubble, ranging from sloppiness to outright fraud, manifest themselves.
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I just did an interview with ABC Radio Lismore about the latest proposal to divert water from the Clarence River to the Murray Darling Basin. Apart from the environmental effects (disastrous according to the studies I’ve seen) proponents of ideas like this seem to be unaware of a crucial fact. Water is heavy. A megalitre of water (worth maybe $200 as bulk supply to irrigators) weighs 1000 tonnes. Pumping that much mass over even a low mountain range is prohibitively expensive. You can overcome that with tunnels if the gradients are steep enough, but the Great Dividing Range is pretty broad in Northern NSW.

And, don’t get me started on the really crazy projects like Colin’s Canal.

Apparently the Mont Pelerin Society is meeting in Sydney. The proceedings are apparently unpublished, which is a pity, since I would be interested to see how, if at all, members have adjusted their views in response to the Global Financial Crisis. In the absence of this, we can all think about the maxim “bad things come in threes”.

The last meeting of which I heard anything[1] was in Reykjavik, at which time the MPS was happy to share in the glory of its proteges such as David Oddson. There was also a meeting in Chile in 1981, notable for producing an endorsement of the Pinochet regime from Hayek The Chilean economy ran into a severe crisis shortly thereafter. So, let’s hope that this meeting passes off uneventfully, and without any nasty aftershocks.

fn1. Google suggests there have been plenty of other meetings, but these are the only ones I heard anything about.

News of the Grog’s Gamut debacle has reached my former home of Townsville, where the appalling Townsville Bulletin (aka Bully) publishes a splendid piece of invective against cowardly bloggers “who hide under the veil of anonymity, taking cheap shots to satisfy their trendy social agenda”. The author of this marvellous diatribe deserves some recognition, but sadly …

(H/T The Political Sword

… but we still can’t water the lawn. As I predicted more than a year ago, the gates have been opened at Wivenhoe Dam, and water saved at substantial cost last year is now flooding down the Brisbane River. Yet, anyone who wanted, for whatever crazy reason, to water their lawn today would be breaching Brisbane’s permanent water restrictions, which forbid watering on Mondays (why Monday? – I have no idea). And watering the lawn between 10 am and 4 pm is never allowed.

It makes sense to require water-efficient sprinklers, taps and so on – investment in such measures now will pay off in a drought. But, when water is plentiful, there should be no restrictions on when and how it is used. That way, restrictions will have more bite when they are actually needed.

It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

Presumably relying on his Queensland government sources to get their sums right, ABC business reporter Peter Ryan writes

The biggest public share offer in more than a decade is expected to raise more than $5 billion for the Queensland Government … The Government will retain between 25 and 40 per cent of QR and will sell up to 1.68 million shares at between $2.50 and $3.00 a share. Individual investors will pay no more than $2.80 a share.

It’s a good thing all that money will be used to build new schools [1], since some arithmetic lessons are clearly in order. Unless all the shares are sold to institutions at the maximum price, there is no way the revenue can reach $5 billion.

fn1. I’m joking of course. As I and other economists have explained at tiresome length in the past, the sale of income-earning assets cannot, in any meaningful sense, finance social investments like schools and hospitals. The taxes that would (in the absence of asset sales) be required to finance debt for additional investments must be used instead to replace the income lost from the assets that have been sold.

The problems of the Murray Darling Basin have been developing for more than a century. I’ve been working on this issue for 30 years, during which, despite a series of policy initiatives too long to list, the situation in the Basin has got worse in most (not all) respects. So, it’s not surprising that the attempt to provide a comprehensive plan for the future involves a drawn-out process. The big question (which the Risk and Sustainable Management Group at UQ will be addressing in a workshop later this month) is: Have we finally got it right?

My general view is optimistic. If the politics can be negotiated, and if the government is willing to spend around $5 billion on buying back overallocated water rights, we can probably reach a solution that is economically, environmentally and socially sustainable.

The Draft Plan proposes a reduction in water use for irrigation of between 3000 and 4000 Gigalitres (GL). That range reflects two fairly tight constraints. Anything less than 3000 GL won’t achieve environmental sustainability. Anything more would imply unacceptably large impacts on irrigated agriculture.

Here’s the rough arithmetic on the irrigation side, which is broadly consistent with the modelling done by my Group, some of which was used along with research by ABARE in preparing the draft plan. A 30 per cent cut in water use will result in a 15 per cent reduction in the gross value of agricultural output, and a smaller reduction in net returns to farmers.

The big change required to achieve this kind of reduction in water use is a shift from irrigated rice production to dryland agriculture. Since yields on irrigated lands are much higher that will imply a reduction in our total grains output. Still the impact is much smaller than, for example, the effect of the current overvaluation (relative to long-run value) of the Australian dollar.

Importantly, although the changes in the Draft Plan have been referred to as “cuts in allocations” this is incorrect. Although the National Water Initiative proposed cuts where water resources had been over-allocated in the past, the Draft Plan calls for the entire reduction in water use to be treated as a change in government policy, meaning that the Commonwealth will bear the cost. It’s already been made clear that this reduction will be achieved entirely by voluntary buybacks and conservation measures.

While there are some opportunities for conservation, the most cost-effective mechanism in most case is buying back entitlements. Now that the drought has broken, I’d guess the likely price for entitlements will be around $1500/ML suggesting a cost of buyback (or similarly cost-effective conservation) of between $4.5 billion and $6 billion. It’s not clear whether buybacks that have already taken place will be counted towards this. There’s enough money allocated to the National Water Plan/Water for the Future to cover this cost, though most of it is currently earmarked for on-farm works.

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

Another thread for lengthy debates, off-topic exchanges, long posts on regular hobby-horses etc.

I’m sure quite a few regular commenters are keen for me to lift my ban on discussions of nuclear power (imposed to prevent the threadjacking effects of this topic). So, I thought I would open it up to all comers with a couple of observations of my own:

(1) Nuclear power isn’t going away any time soon. Nuclear plants generate a lot of power and most of them seem likely to outlive their originally planned operational lifetime. So, there doesn’t seem to be much point in being “anti-nuclear” in the sense of hoping for a world without nuclear energy – that horse bolted decades ago.

(2) Except in China (and maybe India) nuclear power isn’t getting bigger any time soon. Following the failure of Obama’s energy bill and the GFC, the US “nuclear renaissance” is dead in the water, and the same is true in Europe. While residual anti-nuclear sentiment plays a role here, the big problem is economics.

(3) The only plausible path to an Australian nuclear power industry involves the use of modern plant designs and regulatory systems with a proven track record in the US and/or Europe and Japan. Given point (2), that path won’t open up any time soon. So, for the foreseeable future, nuclear isn’t an option for Australia, and there is little or nothing we can, or should, do about it. When there, are, say 50 new plants in the developed world with 5-10 years of operating history behind them, it would make sense for us to take another look. On the most optimistic possible projections, that might happen sometime after 2030.

That’s it from me. I won’t moderate the thread except to delete personal attacks and similar violations of the comment policy.

The Queensland government has cited an alleged financial crisis as one of its spurious justifications for the sale of public assets, but apparently it can find a spare billion or so to spray on yet another sporting event which will almost certainly return little or nothing in revenue. I had my say on the Commonwealth Games bid here and here. The ABC story includes Treasurer Andrew Fraser’s admission that the proceeds of the asset sales, which were supposedly going to finance schools and hospitals, are the source of this luxury expenditure.

I’m happy to say that on this occasion I was accurately quoted in the Oz. The reporter Roseane Barrett did her job properly, and there was no editorial interference, presumably because the story was critical of a Labor government.

I wasn’t quite sure whether I was presenting my own dangerous ideas, or talking about the dangerous ideas of the zombie economists, but either way it was a fun event. I’ve attached the presentation in various formats PPT and PDF (v large) formats, and a font you may need to read it.
DangerousZombiesPDF
bloodyFont
DangerousZombies

It looks like last weeks MMB has devolved into a back-and-forth, so I’m opening up a new sandpit for such interchanges

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

As I’ve mentioned a few times, the Oz is extremely sensitive to blogospheric criticism. In response, its typical MO has been an unsigned editorial, or a piece by a ‘staff writer’, in which unnamed and unlinked (but easily identifiable) bloggers are castigated for their sins. Typically, the piece ends with a flourish of bravado, in which the brave, though anonymous, editorialist, backed only by the multi-billion dollar resources of News Corporation, pledges to carry on in defiance of the powerful, but unnamed, bloggers arrayed against it.

The script has been reversed, however, in the case of Grog’s Gamut, a pseudonymous political blog which made some useful contributions during the election campaign. Apparently acting under the misconception that public servants aren’t allowed to engage in political activity, Oz journalist James Massola took on himself to out the blogger concerned. He works in the film section of what was the Department of Environment, Heritage, Water and the Arts, which suggests that the potential for political activity to compromise his public service role is, shall we say, limited.

There are still some decent journalists working for the Oz, but the paper itself is a sad joke. On the other hand, as Steve Hind observes, the downmarket spiral of the Age and SMH (at least in their online versions) means that there is not much competition.

A long time ago, I read an article whose author had read through all the leading economics journals from the 1930s. The striking finding was that only a tiny proportion of the articles published in those years concerned the Depression and what to do about it. This struck me as a disastrous state of affairs, and has been one factor in pushing me to comment on the important issues of the day, rather than to a narrow specialisation.

But, having attended the Australian Conference of Economists for the last couple of days, I have to say that a future historian of economic thought will be able to rewrite much the same article about the current crisis. Only a handful of papers presented at the conference have dealt with the crisis, even indirectly, and most of those have concluded that we only need marginal adjustments to our current way of doing things.

The opening plenary session, for example, was on inflation targeting and the main message was that, all things considered, inflation targeting worked pretty well in the Global Financial Crisis. Some tweaks might be needed in the future, but then again they might not. This was the same conclusion as at the Reserve Bank 60th Anniversary meeting earlier this year, and I find it pretty hard to believe.

About the best I can say is that, against this background, my Zombie Economics book stands out.

It’s time (past time in fact), once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

Sydney readers get a couple of chances to hear me say in person what I write here. I’ll be speaking at the Australian Conference of Economists, at Darling Harbour Dockside, Monday morning on Zombie Economics. Also, the following Sunday at the Festival of Dangerous Ideas at the Opera House.

A new sandpit, the place for off-topic rants and lengthy one-on-one debates no-one else can really follow, because they missed the crucial contradiction between comment #347 and comment #186. Seriously, that kind of extended comments-thread debate is part of blogging, and I wouldn’t like to lose it. But, so far, confining it to the sandpit seems to be working pretty well.

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.

I’ve been living with the text of Zombie Economics for a long time and the cover art came out a while back. But now I finally have my hands on a physical copy of the book, and it’s surprising what a difference the real object makes. My immediate reaction was to open it with dread, sure that some terrible error would jump out at me, but that didn’t happen (no doubt the reviewers will find them, but that’s their job).

With that out of the road, I’ve been filled with irrational confidence. “Surely”, I think, “even the most jaded traveller, passing this book on the airport bookstall, will feel impelled to buy it”. No doubt, this optimistic glow won’t survive the arrival of actual sales figures, but I’m enjoying it while it lasts.

One of the big themes in the debate over university education has been that we should have a more differentiated system, rather than a ‘one-size fits all’ solution. This view is shared by market-oriented reformers and by some traditionalists, who look back nostalgically to the days when each state had one university, catering to a small elite, while the rest went to tech, or teachers college or (for the majority) the school of hard knocks. In the idealised view, universities would compete with diverse offerings, and the informed market choices of consumers (18-year olds and their parents) would produce an ideal outcome.

In reality, the quasi-market policies that have been dominant for the last couple of decades have reduced diversity on all dimensions except one. Before the reforms that began in the 1980s, the tertiary sector included many different types of institutions (unis, CAES, institutes of technology and TAFE), and the 1970-vintage universities consciously sought to provide an innovative alternative to the long-established sandstones. Now, there are just universities and TAFE. Policies encouraging universities to nominate “flagship” programs produced the unsurprising (but apparently unexpected) result that everyone went for MBAs and no-one for pure mathematics. Responsiveness to consumer demand produced plenty of courses in cinema studies and very few in classics. And so on. There are still some attempts at doing things differently, such as the “Melbourne model”, but overall the pattern is one of identical responses to identical incentives.

On the other hand, the reforms have amplified long-standing inequalities in wealth and status between universities. Despite the rhetoric of competition, the relative rankings of Australian universities were determined more than 100 years ago, when the sandstone universities were established, followed by the precursors of the “Dawkins universities”. The reforms did not shake these rankings, but they widened the gap between the sandstones and the 1970-vintage unis – before the reforms, a university was a university, and status differences were much less important.

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I can’t bring myself to post about the latest manoeuvring for numbers in the Parliament, and nothing much is going to happen on policy until that’s all resolved. So, since exercise seems to be one of the topics in which nearly everyone is interested (and there are lots of other blogs devoted to the topic on which *everyone* is interested), I thought I would expand on my last post. That post made it seem as if I’m focused on running, but actually I try for a more diverse portfolio
* Group training, three or four times a week
* Running, 5k or so, twice a week, mostly on treadmill or soft surfaces. I was running further and on hard surfaces but cut back when I started getting knee pain
* Cycling, 20-30km, once or twice a week, plus riding into work intermittently
* Swimming, 500m-1K, two or three times a week
That seems to be enough to keep my muscles a bit sore most of the time, but to avoid obvious injury to my joints. Following some problems a few months ago, I’ve been getting some useful advice from my physiotherapist and a sports podiatrist on how to avoid knee injuries from running.

As I mentioned a while back, I’ve been doing a bit of running and, unsurprisingly, had knee problems. One response has been to take drinks made of a foul-tasting powder containing glucosamine sulphate and chondritin, which has been widely held out as having promise in relieving symptoms of osteoarthritis. There were some promising case studies, enough to prompt both widespread use, including by me, and a full-scale trial and meta-analysis.

The tests results are now in, and I have mixed feelings in reporting that the both glucosamine sulphate and chondritin appear to be useless. (H/T Neurologica, but link isn’t loading). I was tempted to finish off what was left, on the theory that it might be doing some good anyway, but my commitment to evidence-based policy, along with the fact that the stuff tastes foul, has prevailed.

Out it goes. Now, if anyone can recommend a good broad-spectrum placebo, I’m in the market.

It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit. As always, civilised discussion and no coarse language please.