The Greens oppose the CPRS not because it is too weak, but because it will point Australia in the wrong direction with little prospect of turning it around in the timeframe within which emissions must peak, says Senator Christine Milne.
Rudd’s stimulus furphy won’t create jobs
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The government has committed to spending many billions of dollars in stimulating the economy. An important issue is how we evaluate the effectiveness of that spending. An obvious measure is the impact on employment; rather unemployment. Unemployment is currently 5.8% — a level last seen in October 2003. Australian attitudes to unemployment have changed so much that this level is now seen as being high. It is high; it is high now and it was high in 2003. Unfortunately this figure doesn’t really tell us much about unemployment at all. For example, the participation rate may have changed over time, or the definition of unemployment may have changed. The notion of unemployment is not just an economic construct; it is a social construct too. How many people are not working out of the population that can be expected to be working? Answering this question requires value-judgements as to what constitutes ‘working’, and who can be expected to be working. As our understanding and acceptance of disability and mental health increases we may decide that certain categories of people may no longer be expected to work. This gives rise to the criticism that the long-term unemployed are simply being dumped on the disability pension. Some of this may well happen, but how can we be sure? Who is the ‘we’ that makes decisions about definitions of unemployment? The upshot is that the unemployment data are riddled with arbitrary definitions and changes in those definitions over time. This makes time-series comparisons difficult. The ABS calculates an Hours Worked variable that is less likely to be distorted by definitional issues, but it may well have other problems. The good thing about this variable is that more hours worked indicates more economic activity, while fewer hours worked means less economic activity. Since the middle of last year there has been a substantial drop-off in the number of hours worked in Australia. This is not unusual or unexpected — the global economy is in recession and the Australian economy has slowed down quite substantially. What is interesting, however, is that the last few years Hours Worked has been above the long-term trend and Australia has simply returned to trend. That doesn’t mean that Australia won’t overshoot and be below trend, but right now Australian Hours Worked is at the long term trend. That is the fact — the interpretation of that fact is going to be contested.
The government is arguing that their stimulus packages have “saved jobs”. But it is difficult to reconcile that statement with the fact that Hours Worked is at the long term trend. Unless the spending has been so finely calibrated that it has perfectly compensated for a decline in employment it is very unlikely that the stimulus package could deliver this result. In any event there was little unemployment in those areas the government has targeted vis-à-vis construction and education. It is far more likely that employers and employees have made use of greater labour market flexibility to negotiate reductions in Hours Worked. This is far preferable to laying-off staff – an activity that has substantial fixed costs — and then re-employing them later. This is one of the advantages of market flexibility; it allows individuals to negotiate terms and conditions that suit local and individual needs. It especially allows them to quickly renegotiate under conditions of unexpected turbulence. Unfortunately, Australia seems to be moving away from greater flexibility in the labour market. To the extent that decreased labour market flexibility leads to higher unemployment and fewer hours worked this is not a welfare enhancing reform. Had the current global financial crisis occurred next year and not in 2007-8 the employment consequences may have dire. Unemployment at the last recession in the early 90s rose to unacceptable levels and Hours Worked fell dramatically. So far we have avoided this catastrophe but with increased labour market regulation and government intervention we might not next time. Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University and a senior fellow at the Institute of Public Affairs. |
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12 Comments
Do we have to put up with this man’s self-serving tripe in Crikey? He’s a fully paid-up member of the Conservatariat and will use any eans at his disposal to seek to discredit the Rudd government’s economic policies.
Shame, Crikey, shame. This stuff isn’t even justified in the name of ‘balance’.
Do we have to put up with this man’s self-serving tripe in Crikey? He’s a fully paid-up member of the Conservatariat and will use any means at his disposal to seek to discredit the Rudd government’s economic policies.
Shame, Crikey, shame. This stuff isn’t even justified in the name of ‘balance’.
So he’s a Professor of Economics. They, as a group, haven’t exactly covered themselves in glory of late. So that makes what he says highly questionable and suspicious, and not worth serious consideration.
Blah blah blah — an economist’s predictions are as useful as a horoscope these days. Only serves to affirm what we already think.
You’re sounding like a broken record IPA man.
We’ve had Sinclair Davidson’s type of economics - they failed. Taxpayers should insist on a good dose of unemployment at RMIT beginning with Davidson and Kates.
Mr Davidson is a stooge of the scorched earth division of the Liberal Party. His fundamentalist economic views have been shredded by the global financial crisis. Everything he says is compromised by his blinkered ideology. Why do you bother giving him a soap box??
blah, blah, blah, blah, blah
… a senior fellow at the Institute of Public Affairs.
Never mind paying economists, why are they even fed?
Crikey, this really is simplistic stuff to justify a predetermined position. Sure, it is possible that Australia maintained its long term trend of hours work despite the biggest financial crisis since the great depression because of the ‘labour market flexibility’ so beloved by capitalists. But Australia has had ‘labour market flexibility’ for at least 5 years: why has Australia kept on trend while unemployment has skyrocketed in most other OECD countries since the financial crisis? And Australia’s labour market ‘flexibility’ is far less than that of the US, which is continuing to suffer increased unemployment, altho the rate of increase is slowing.
Presumbaly there are several factors explaining Australia’s relatively favourable position. But there is 1 new factor which coincides with the impact of the financial crisis. Umm, what could that be, I wonder?
Heh, I started reading this and I was thinking, “Wow, this RMIT guy sounds just like an IPA guy…” Then I got to the end of the article.
Not even a scan for me, but one item I hope Sinclair Davidson does write about in Crikey: I heard on abc that 20 trillion has been paid by the developed economies since that investment house went down 12 months ago.
More than the cost of ANYTHING ever before - WW1 and 2, Vietnam, moon shot, and so on. Except perhaps eco system services which are externalised anyway so economists can apply their self indulgent assumptions.
20 trillion dollars. Now that’s what I call a credibility gap for a unfettered market based system.
Okay after a quick scan - this picks up Mr Gallop (from memory eg with Fran Kelly abc rn some weeks ago) about tracking reduced hours worked. “A tragedy” but is it? Actually what does society really need, rather than bosses want? (You know the bosses with faith in the market which saw $20 trillion in value piss into the ocean.)
With high mechanisation and hunger for a richer democracy people should work LESS hours. They should work more productively, and participate more in social life including their democracy which is different to work hours.
The protestant work ethic and the populate or perish crowd will find this anathema but that’s so 19th century let alone 20th. And given the GFC and sustainable ecology limits to growth, less is more with a premium on equity - while always allowing for individual expression and aspiration.
Sinclair davidson should get with the modern conservative economic program and take a trip to France and see what Nicolas Sarkozy is doing. His economic advisor has worked with Sarkozy to incorporate a Happiness Index into GDP, which allows leisure time and time with family to be a function of the nation’s productivity calculation.
Davidson, Kates and their ilk are anachronistic economic dinosaurs.