Catallaxy Files

Andrew Leigh is one of the finest academic economists in Australia. He is also a good guy. All his work is evidence based and he does some very interesting research. Although he does think the ABC is a right-wing organisation. One of the things he has done is to consider the impact looks have on electoral outcomes.

Are beautiful politicians more likely to be elected? To test this, we use evidence from Australia, a country in which voting is compulsory, and in which voters are given ‘How to Vote’ cards depicting photos of the major party candidates as they arrive to vote. Using raters chosen to be representative of the electorate, we assess the beauty of political candidates from major political parties, and then estimate the effect of beauty on voteshare for candidates in the 2004 federal election. Beautiful candidates are indeed more likely to be elected, with a one standard deviation increase in beauty associated with a 1½ – 2 percentage point increase in voteshare. Our results are robust to several specification checks: adding party fixed effects, dropping well-known politicians, using a non-Australian beauty rater, omitting candidates of non-Anglo Saxon appearance, controlling for age, and analyzing the ‘beauty gap’ between candidates running in the same electorate. The marginal effect of beauty is larger for male candidates than for female candidates, and appears to be approximately linear. Consistent with the theory that returns to beauty reflect discrimination, we find suggestive evidence that beauty matters more in electorates with a higher share of apathetic voters.

The rumour about town is that Andrew – currently the youngest full economics professor in Australia – is looking to toss it in and is seeking preselection in Bob McMullen‘s Canberra seat. Of course, if that’s what he wants to do we all wish him well. But can we trust anything he says in future?

I think not. Here he is saying leadership doesn’t matter.

Leaders matter in autocracies, but not in democracies. The deaths of Ayatollah Khomeini and Mao Tse-Tung were followed by rapid improvements in living standards for ordinary Iranians and Chinese. But in a typical democracy, economic outcomes are unaffected when a leader passes away. Constrained by political parties, institutions and interest groups, democratic leaders have less scope to change the world than the typical biography (or autobiography) might have you think.

So by his own previous writings we know that he knows he’ll have little impact, and also, bad news for an economist, there is a pay cut involved. (Andrew – backbenchers earn less than full Profs and they’re cutting the travel perks – sorry. If you want to test theories of irrational behaviour – well that’s what the students are for).

Anyway, good luck.

The website of the Federation of Parents and Citizens’ Associations of NSW (PANDC) states that it is

committed to public education

Why? Shouldn’t a parents’ organisation be expected to be “committed to education excellence” or something like that?

What’s so special about public education? Surely most parents want their children to have a good education?

It has struck me that this Federation – purporting to represent the interests of parents – has come out strongly against the My School website launched by Julia Gillard which is probably the best reform undertaken by the Rudd Government to date.

Read the rest of this entry »

The Charter of Budget Honesty requires that an IGR be produced every five years. The first IGR was published with the 2002-03 Budget. The second was published in April 2007. And today the third IGR was published.

It projects a huge increase in population. IGR 2007 projected a population of 28.5 million by 2047. This IGR upgrades that to 36 million by 2050 – effectively an increase of more than 25 per cent in the less than two years since the previous IGR.

That in itself is worthy of a blog – why should we trust the estimate of 36 million over that of 28.5 million? How can less than two year’s worth of data allow a lifting of the population estimates by 1/4? And what does this mean for the emissions reduction target (see my ealier post Population Estimates and the CPRS of 12 October 2009).

But the issue I want to raise is that of productivity growth. Because the Prime Minister and Treasurer have been recently banging away about the need to increase productivity growth. With that I agree. But their methods are likely to do the reverse.

To wit: spending large amounts of taxpayers’ money on so-called nation building infrastructure without cost-benefit analysis. And re-regulating the labour market, making it more expensive to hire people and more difficult to fire them.

Both of these policies are more likely to reduce productivity growth rather than increase it.

And it seems that the IGR 2010 agrees.

Hidden away on page 163 of the 164 page document (not counting the preliminary pages) is this gem:

The slower labour productivity growth is a technical assumption based on the historical 30-year average. This is 1.6 per cent annually, compared with [1.75 per cent] in IGR 2007.

Well blow me down. Isn’t the labour productivity projection in IGR 2007 also based on a the historical 30-year trend (it is: see page 28 of IGR 2007).

So what’s different? Only the past two years (and the first two years of the 30 year trend).

This seems to me to be an acknowledgement that Labor’s productivity agenda isn’t expected to work.

Apology must be Kevin Rudd’s favorite word. He is either making no apology for some or other policy, or apologising on behalf of the nation. Well it seems he owes Barnaby Joyce an apology.

Prime Minister Kevin Rudd has accused Barnaby Joyce of irresponsibility after the Opposition’s new finance spokesman suggested the United States may default on its debt and force the world into an economic meltdown.
…
Mr Rudd has demanded Opposition Leader Tony Abbott confirm or repudiate Senator Joyce’s comments.

“For someone, as the alternative finance minister of Australia, to run around the place saying America could default, Australian state governments could default, that’s not responsible economic policy,” he said.

“That’s shooting from the lip, making it up on the run, I think being very, very irresponsible about basic Australian interests.”

The Wall Street Journal Asia reports

Trading in the credit-default swap market this week shows that investors now view a default by the U.S. Treasury as more likely than a default by the Coca-Cola Company. Until very recently, this scenario seemed about as likely as Coke winning a taste infringement suit against Coke Zero. Now the United States has taken its place next to Italy and Spain in a special club that no major country wants to join — countries whose debt is considered less safe than that of Blue Chip businesses.

Mr. Obama may not be deterred by the verdicts rendered by voters in Massachusetts, New Jersey and Virginia lately. But he won’t be able to ignore investors if they send Washington’s currently cheap borrowing costs soaring. That would surely be the result if markets become convinced that spending and inflation are destined to run out of control under the combo of Nancy Pelosi and Ben Bernanke. To be sure, we’re not there yet. But the recent financial crisis should have taught us that, when markets make up their mind that the story has changed, they can turn against you with blinding speed.

As the WSJ indicates we’re not there yet, but it seems Rudd has no idea about the potential risks out there. Does the government have a contingency plan, and if not, why not? The last time they got caught unawares, they paniced and blew the budget surplus and racked up heaps of debt. Australia simply cannot afford the kind of economic inexperience, yet supreme arrogance, that Rudd and his government display.

Following on from the previous post showing Rudd government spending I thought I’d compare the budget forecasts for both revenue and spending from the first Rudd Budget to the Latest MYEFO. Of course it would be even better to compare the last Howard government MYEFO (October 2007) to the latest MYEFO, but the numbers are not entirely comparable. One of the better Rudd government decisions was to include the GST as a federal government tax and outlay in the Budget papers. So the comparison is not ideal, but a lot of the first Rudd budget would consist of what they’d inherited, so I don’t imagine too much difference between the two (although Rudd did suggest that the reckless spending must stop).

We see that the Rudd government was forecasting very strong revenues in its first budget (blue line) – well above the 1970 – 2009 average. Also remember that the Rudd government had ‘matched’ most of the Howard election tax cuts. So in 2008 expected revenue was looking very good. The red line shows the latest MYEFO figures. The so-called ‘collapse in revenue’ is expected to be temporary and, in any event, could be described as a mean reversion to the long-run average. These are the government’s own figures. If they can’t make ends meet while collecting revenue at the long-run average then they are living beyond their means. Spending is too high.

Looking at the first Rudd budget forecasts (blue line) we see a small dip in the first year but after that forecast spending remains fairly stable at just below the long run average. So not too much ‘reckless spending’ was on the chopping board. But look at what has happened. Spending has exploded – this is discretionary spending, i.e. the Rudd government has chosen to spend this money. We have pushed out well above the long run average and unlike revenue this is hardly a mean reversion. As the Wall Street Journal Asia reported last year the Rudd government’s inability to balance a budget is due to their spending choices. The Rudd government is forecasting a rapid decline in spending (as a percentage of GDP) over the next couple of years. This will take a lot more discipline than they have shown todate (mind you, they might try to increase taxation and account for it as a reduction in tax expenditure – that kind of Enronesque accounting sends people to jail in the private sector).

Finally I thought I show the difference between the first budget and the latest MYEFO (notice the graphs ends a year earlier than the previous graphs).

Sure the Rudd government are collecting less revenue than they first expected, but look at the spending. They have ramped up spending faster than revenues have fallen.

(Just a couple of additional points; the graphs don’t go through the origin, I normally prefer that graphs show the origin. The Tax Expenditure figues came out Friday and hopefully I’ll get around to a post on that).