Jessica Irvine

Reading a recent column by Jessica Irvine in the SMH leads me to the conclusion that economics in Sydney University (her alma mater) has not progressed beyond high school.

The first task of a university economics faculty is to dispel the notions gained at high school. Learning economics at high school is likely to reduce one’s capacity to understand economics. It is all about Marxism and capitalism with a little on supply and demand and not much else. Having assisted some high school students with their ‘economics’ I found that crucial concepts such as opportunity cost were ignored.

Irvine writes

Economics textbooks are hefty objects. Many a kinked neck and curved spine have resulted from children being forced to lug such weighty tomes between school and home.

Whether many students manage to read and absorb the often turgid contents of such books remains an open question.

But the Prime Minister, Julia Gillard, and the Treasurer, Wayne Swan, have proven diligent students. Many of the hallmark economic policies of this Labor government – pricing carbon, the mining tax, fiscal stimulus and even efforts to cap middle-class welfare – could be torn straight from the pages of your typical HSC economics textbook.

Forcing big polluters to pay for the pollution they emit is economics 101.

which makes me worry that she, along with Julia Gillard and Wayne Swan, have not progressed beyond high school economics. All of the measures cited involve opportunity cost and it is quite arguable whether they are sensible or otherwise.

Take the case of externalities “economics 101”. While in high school one might learn that “big polluters” should pay, in university one is likely to find a more nuanced approach, with questions such as:

  • what are the costs and benefits of the Government intervening in this market?
  • will making “big polluters” pay make any difference to global warming? If so, how much?
  • will the benefits of intervening outweigh the costs (using an appropriate discount rate)?
  • what are the likely effects (such as through incentives and behavioral change) of such intervention to market participants?
  • what are the risks of the intervention?
  • what is the most efficient and effective way to intervene?
If typical HSC economics textbooks consider that pricing carbon, the mining tax, fiscal stimulus etc are lay down misere policies, the Labor spin doctors have fully infiltrated schools and rational, logical thought is being replaced by slogans.

 

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43 Responses to Jessica Irvine

  1. Adding further to the incoherence, Irvine starts off talking about school students but ends up with a university phrase – Economics 101 would of course be the first year uni course. Obviously hackwork 🙂

  2. JamesK

    It’s Sycophacy 101.

    Why, she’s so brave is that hero and heroine are truly facing certain defeat.

    Maybe Jessica can help them snatch victory from the jaws of defeat?

  3. Sleetmute

    Good post Samuel – I had similar sentiments when I read it. Except I would say that high school economics needn’t skip around asking the types of questions you raise. I actually think HS economics has a lot more potential than most people believe. The problem with uni economics (at least first and second year) is that many academics feel compelled to keep trotting out out of date models like IS-LM to teach macro. That formularisation and modelisation is a real trap.

  4. Michael Sutcliffe

    My pro-liberty people I know who got that way via the intellectual sphere came via economics. If you are forced by the discipline to apply reason to the nature of all human action, most people eventually have to let go of their emotional approach and conclude things like “you can’t tax your way to wealth” or “are there any hidden costs to this such as removing positive incentives?” or “if we don’t encourage productivity we should expect living standards to drop”.

    I think the key is teaching more economics even if that involves large slabs of bad economics at the high school or even uni level.

  5. Michael Sutcliffe

    That’s ‘Most pro-liberty people I know…’

  6. Sean

    In the nature of balance, HS should really be teaching a balanced view of the great depression.

    Looking back, Hoover held wages too high in the belief that wealth is about prices alone. He was intent to see wages remain high even if this mean profits are wiped out. Without capital accumulation this is economic suicide. Unfortunately we only here about Keynesian heroics which suits governments fine, why not indoctrinate entire generations to believe that problems can be solved via the printing press.

  7. Sturt

    I can confirm that, at least when I studied there not too long ago, economics at Sydney was as described. I did four years there and did not discover the concepts of public choice, the knowledge problem, Ricardian equivalence, New Classical or any other approach which faulted old Keynesian orthodoxy until my real education began – when I stepped out of the academy.

  8. amcoz

    To borrow from SMITH, Adam; “… [her] imagination is baffled by the facts.”

  9. Milton Von Smith

    I look forward to the mrrt being explained in a textbook, particularly as the legislation hasn’t even been finalized yet

  10. .

    But the Prime Minister, Julia Gillard, and the Treasurer, Wayne Swan, have proven diligent students. Many of the hallmark economic policies of this Labor government – pricing carbon, the mining tax, fiscal stimulus and even efforts to cap middle-class welfare – could be torn straight from the pages of your typical HSC economics textbook.

    Sweet Jesus that’s worrying.

  11. daddy dave

    Tony Abbott has made it abundantly clear that the arguments set out in economists’ textbooks do not impress or interest him.

    She’s simply wrong.

    It’s certainly true that Direct Action is a winner-picking strategy (and therefore not to be endorsed by economists) but it has the advantage that it costs a lot less (which gets a tick of approval from economists) and doesn’t punish businesses via higher taxes (another tick).

    His comment about the quality of economists was poorly worded, but has been misinterpreted. I took it to mean that they were out of step with best practice in economics itself (ie they are practicing poor quality economics rather than good economics) rather than dismissing the discipline. In fact I have trouble to see how it could be interpreted any other way.

    Also, it’s highly disputable that introducing an artificial ‘market’ is really a “market solution.” Labor are introducing artificial obstacles and barriers to doing business in Australia, and sure, businesses can meet those challenges any way they can. However the main criticism of this tactic is that it is too severe and will mostly just punish our businesses and make them less competitive.

    To illustrate the example with an extreme – you could mandate 2 hour working days, and mandate that no business may use more than 10kW per day of electricity, and then wait for them to “adapt” to this “market solution”. But of course they wouldn’t adapt – they’d fold. The question is, how far to this end of the spectrum is the carbon tax? I don’t think Jessica has considered this question.

  12. Only one lesson needs to be taught in high school, that there is no free lunch.

  13. Actually the economics taught at Yale by Mendelsohn and Nordhaus is not even High School level, to judge from their paper (lead author Muller) in the AER August 2011 – Environmental Accounting for Pollution in the US Economy.

    There is a fundamental error that is the basis of the whole paper. This is the decision to evaluate various pollutants by reference to the apparent Gross External Damage created by those pollutants as a proportion of value added in the industries responsible for producing them. This leads MMN to find that in some of these industries “the fact that the GED exceeds the value added implies that if the national accounts included environmental costs, the true value added of these industries would actually be negative”, especially for coal fired electricity and all crop and livestock production!

    That is nonsense, and could only be the case if the industry in question did not raise its selling price to recoup whatever charge was imposed on its polluting output. Using Australian data it is evident that the demand for coal-fired electricity is both price inelastic and income elastic such that total demand for kWh has actually increased despite the 55% increase in the retail cost per kWh since June 2004, due to the mandated subsidies of solar and wind power purchases by generators that they recoup by raising retail prices pro rata.

    MOreover, it is a serious mistake to treat VA as the divisor, when the correct metric is of course the sales value of the product producing pollutants imposing external costs. The VA in an industry is simply the private incomes – profits, interest, and wages – derived by those producing goods with negative externalities. The value of the sales of the industry is what constitutes the value placed by society on an industry’s output. In the case of an intermediate good like coal, that remains true. Total sales value is of course a multiple of VA.

    The practical consequence is that the MMN claim coal-fired electric power has a GED*/VA ratio [GED* includes CO2 as well as SO2 etc] of 2.0 has much less force when the GED*/Sales ratio is only 0.305 (Sales of kWh X $0.084) (from their Table 2 and SI).

    Plans for Emissions Trading Schemes and the like are based on pricing the polluting output so as to make it uneconomic. Australia’s Carbon (sic) Tax will charge A$23 per tonne of actual CO2 emissions. VA is not the target, while the sales price is. As the Tax will be fully passed on, VA will not be affected unless there is a drastic drop in sales, and as the legislation provides for low income households to be over-compensated by transfers from the revenue raised by tax, and as many as 80% of all households will receive at least 100% compensation, there is no reason to expect any reduction in power sales – or VA.

    Perhaps equally disturbing is the MMN paper’s failure to mention the amazing reductions in the proportion of pollutants like SO2 and NOx in total GED* from 1990 to 2009. While coal’s CO2 emissions increased by nearly 200 billion tons over that period, SO2 emissions by the coal-fired power industry fell from 14.28 million tons to 5.5 million tonnes, and similarly for NOx (7.1 million tons to 2.4). Those figures raise the suspicion MMN used VA to make GED without CO2 seem more important than it is.

    Even more amazing in what purports to be cost-benefit analysis is that MMN 2011 disregard the findings of Mendelsohn, Nordhaus and Shaw AER 1994 of the undoubted very large positive social external benefits conferred by rising atmospheric [CO2] on crop production in the USA. Surely that rates a mention? Or would Yale students take to the streets if they did again?

    In fact the per capita carbon content of world cereal production increased rapidly (by c 27%) between 1961 and in 2007, and explains why the 6.6 billion alive in 2007 are better fed in aggregate than the 3.08 billion in 1961, given the similar increase in [CO2], (>20%), growth in that being the necessary condition for rising world food production.

    Even more mind-boggling is the MMN ranking of crop and livestock production as the 2nd and 3rd biggest polluters after coal-fired power. Thus they are to be taxed to oblivion as well, so that we can enjoy a diet 100% composed of synthetics? How very American!

    Finally, the MMN conclusion that “the national accounting system should measure [and subtract] the gross external damages caused by each industry and [add] subtract any costs for permits or pollution taxes incurred by firms” fails Economics 101 everywhere except Yale! The national accounts measure VA or national income either in the form of wages, interest, and profits, or of final consumption and investment. They never measure intermediate goods like electric power with or without any internalised costs of pollutants associated therewith, as MMN argue they should: “The gross external damages would be measured by multiplying emissions times the marginal damage of emissions at each location. This proposed framework would capture the full costs of production to society of each industry”. That statement vitiates the whole basis of the national accounts, which deal only with final consumption, not consumption of intermediate inputs.

    Thus the MMN paper argues in effect for closure of all hydrocarbon power generation because of its absolute negative effect on incomes in that sector if the external costs are taken into account, because although they “note that the finding of a negative adjusted value added does not imply that an industry should be shut down, rather, it indicates that a one-unit increase in output of that industry has additional costs that are higher than the revenues”. If that is not a sure road to bankruptcy, what would be?

  14. Jim Rose

    Forcing big polluters to pay for the pollution they emit is economics 101

    True is a large number of the polluters pay so that the aggregate global level of pollution falls.

    Not true, if a small number of polluters in one small country are made to pay.

    does tokenism pass a high school cost-benefit test?

  15. ar

    Congratulations on making through a Irvine article. I note she is cropping up lately on Sky News and Q&A, (and adding little). One appearance she made on Sky News she offered that the public was sick and tired of hearing about politics… which just happened to be the nature of the show she was on. Remarkable.

  16. Jim Rose

    public was sick and tired of hearing about politics

    I hope so.

    A sick and tired of politics publc would mean that any messages and new policies that the ALP puts forward to revive their dismal political fortunes will fall on deaf, disinterested ears.

    I do not think that an electorate with closed minds and waiting with baseball bats was her hope.

    what killed Rudd was the general public stopped listening to him. they switched-off so Gillard was installed to reopen the lines of communication.

  17. cohenite

    Great post Tim, as usual; the carbon TAX is the ultimate externality; designed to represent the environmental cost of CO2 and to address that environmental cost by causing the REAL cost of fossil fuels to be manifest. When the REAL cost of fossils is manifest an orderly transition to renewables, which have no external environmental cost, can occur and the environmental cost, shown by temperature increase, will be solved.

    That of course is a concoction of lies, delusions and ideology. Even if you believe that CO2 increase is caused by humans and does cause temperature increase the cost/benefit analysis done by various folk including Lomborg, Carlin, Hartley, Goklany and even Nordhaus clearly shows that the benefits of CO2 increase outweigh, greatly, the costs. The environmental externality, therefore, of burning fossils is a benefit not a cost. On this basis there should be a non-carbon tax on renewables NOT a carbon TAX on fossils.

    I have just read professor Davidson’s Drum piece on the Laffer curve. CO2 works, if you believe in AGW, in a similar fashion. That is, as CO2 increases its effect decreases by virtue of the operation of Beer-Lambert Law; saturation occurs and the heating effect can be shown to be asymptotic.

    I wonder whether the Laffer principle is true however; that is, as the tax rate reaches 100% the tax collection becomes zero; the premise of communism is that all earnings belongs to the state and that incomes are state beneficence. Looked at this way there is 100% tax rate and 100% tax collection.

  18. Julie Kirsten Novak

    I must admit I’ve never been a fan of her writing.

    In a piece she’s written today she says that policy worry-warts should concern themselves about Australia’s low public sector expenditure on education compared to the OECD average. For starters, I wonder if she’s never heard about not-for-profit Catholic or independent schools, or for-profit providers of educational services, and the expenditures they undertake?

  19. Judith Sloan

    I had the same sinking feeling, Samuel J, when I read that drivel. I particularly loved her defence of the carbon tax as tackling externalities when it won’t because these externalities can only be affected by coordinated global action. She obviously skipped class when the prisoners’ dilemmma/ tragedy of the commons was being taught. And of course Coase’s theorem was beyond her.

    But has anyone noticed how Gittins has given up economics (OK, I know, I know) and drifted off into pop-pschology and pop-neurology … very strange (and unconvincing).

    What is the SMH editor thinking?

  20. .

    In a piece she’s written today she says that policy worry-warts should concern themselves about Australia’s low public sector expenditure on education compared to the OECD average.

    Maybe it would be a bit easier for the public sector if we had a more rational tax system. The tax rate on building housing in NSW is 85%. The housing shortfall and shrinking revenues are an example of the laffer curve in action.

  21. JC

    She didn’t do economics it seems. She’s a political economy major.

    You many as well not go to uni.

  22. daddy dave

    The tax rate on building housing in NSW is 85%.

    Have you got a link for that?

  23. Art Vandelay

    Reading a recent column by Jessica Irvine in the SMH leads me to the conclusion that economics in Sydney University (her alma mater) has not progressed beyond high school.

    I used to work at one of Australia’s premier economic advisory and research agencies. We had a policy of not hiring anyone who had studied economics at Sydney Uni since those degrees were essentially useless.

  24. .

    Not exactly, but I’m right.

    http://www.propertyobserver.com.au/tax/hia-demands-tax-relief-for-new-housing-ahead-of-tax-summit/2011092951734

    The tax rate listed there is 44%. A wise man at the tax summit said houses in NW Sydney in house and land packages worth $640k, are composed of 46% tax.

    Do the maths. The tax rate is more than 85%.

    $294 400 of the $640 000 price is taxes. $345 600 is the tax base. This means the tax rate is over 85%.

    You pay this AFTER you have paid INCOME TAX and you have to borrow to pay this second and usurious tax bill.

    Tax base = $345 600
    Taxes = $294 400

    T/Tb = .851….

    Tax base x (1 + tax rate) = final sale price

    $345 600 x (1.851….) = $640k.

  25. Rafe

    When you do political economy at SU you come out sillier than you went in. So much for the cost and benefit of funding higher ed. In other words you have to go to uni to be as silly as the usual suspects.

  26. Tom Valentine

    Have any of these people heard of the shifting of taxes?We are suffering from the dominance of the ratbag school of economics at Sydney University-distinguished graduates-Albo,Steve Keen.Yes,Ross has given up economics.

  27. Michael Sutcliffe

    Hey dot, I’ve often thought a regular article/post on the real tax on everyday items would be informative, and if you kept it up you could maybe penetrate the public consciousness. Just analysis of one item at a time. You could start with petrol, which is around 60% tax by my calculations. Basically, an attempt to get visibility of the true cost of income tax, GST and the various excises and charges.

  28. Rafe

    Good to see you on the site Tom. Did you do a review of an HSC text for CIS back in 1990?

  29. bruce

    I remember around 1974, students at Sydney U were out on the lawn protesting for the addition of ‘political economy’ to the curriculum. It was meant to be a radical discipline from the start.

  30. bruce

    Perhaps better phrased:

    It was meant to be a Radical’s discipline from the start.

  31. daddy dave

    political economy

    Political economy most commonly refers to interdisciplinary studies drawing upon economics, law, and political science in explaining how political institutions, the political environment, and the economic system—capitalist, socialist, mixed—influence each other.

    It sounds like a sort of sociological study of the world of politics and business.

  32. Boy on a bike

    Advice to Jessica: “Don’t write crap”.

  33. Peter Patton

    My people inform me that Miss Irvine did not study Economics at the University, but “Political Economy.” ‘PE’ as it is known, is a separate department, which does not use Economics textbooks. It is taught by a kkkollective of geriatric Trots. The subject matter taught is more accurately titled Issues in Neo Marxism. Its graduates do very well in journalism, particularly Fairfax and the GayBC.

    The Economics department, OTOH, is the same as anywhere else, which means it is 50% as meaningless as PE, as it teaches the complete bullshit that is orthodox academic mathematical macroeconomics.

  34. Peter Patton

    Of course, the name ‘PE’ is very ironic, as classical political economy was all about being ‘economical’ with the ‘politics’, which is obviously inimical to the 21st century socialist mind.

  35. Peter Patton

    Along with Jessica Irvine, U.Syd ‘PE’ department produces types like THR bumchum, and Austudy Five leader, GPS white boy, Sammie Sparrow.

    http://overland.org.au/2011/10/occupy-melbourne-some-initial-thoughts/

  36. Gowest

    SMH journo’s could do with a couple of years study of “Unforseen Consequences 101”.

    PHd course for KRudd, and the rest of the ALPGreens.

  37. THR

    The subject matter taught is more accurately titled Issues in Neo Marxism. Its graduates do very well in journalism, particularly Fairfax and the GayBC.

    I’ve long suspected it, but now you’ve just proven that 10 year olds write your idiotic material.

  38. Peter Patton

    Nonsense, dear Space Occupier. Tis all about da neomarxism. You dig?

  39. THR

    ‘GayBC’? You’re 30 seconds away from doing ‘pull my finger’ jokes on the open thread.

  40. Peter Patton

    Sweetie, clearly you don’t know anybody who works for the GayBC.

  41. THR

    And clearly you don’t have that Breathalyzer attached to your keyboard yet.

  42. Tom Valentine

    I cannot recall it Rafe.
    Problem is that the ratbag school has many footholes in university departments and the media-afterall what else can its graduates do?It can even call on distinguished foreigners such as Stiglitz and Krugman.All of this does much to explain the pathetic level of economic discussion in Australia today.

  43. Chistery

    Economics 101

    That’s the room number were the Ministry of Love subjects people to their worst nightmares until they come away broken and acquiesce to the notion that Wayne Swan is the World’s Greatest Treasurer.

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