Catallaxy Files

I thought that this cartoon my daughter sent me might appeal to the Cat crowd.

I came across a newspaper article a while ago which endorsed this proposition – that people feel better being unemployed than working in a self-described ‘bad’ job. I felt impelled to investigate the underlying research.  It turns out that the research paper emanates from the ANU – but there is an important caveat: it controls for financial hardship.  Que?  Surely, the worst aspect of being unemployed is financial hardship.  The paper assumes away the most important factor.

Anyway, I had a piece in the Oz yesterday on what I found out.

Is having a ‘bad’ job worse than being unemployed?  According to some researchers, people would prefer to be unemployed than put up with working in an inferior job, as judged by lack of control, insecurity and perceived unfair pay.

No doubt, many people will baulk at this conclusion.  Responses will vary from “get over it” and “better a job than no job” to “don’t be a job snob” and “let’s remove taxpayer funded income support for the unemployed”.

But should we believe the premise that people are better off being unemployed compared with working in a self-assessed ‘bad’ job?  The question clearly begs another – what defines a ‘bad’ job?

By way of background, no one disputes the fact that, overall, those in employment have higher reported levels of life satisfaction than the unemployed.  By the same token, the unemployed are not as unhappy as many might suspect.  By the process known as habituation, the unemployed appear to get used to their circumstances and achieve levels of life satisfaction above despair.

The research of Peter Butterworth and his colleagues at the Australian National University accepts this reality, but asks whether the different features of jobs can affect recorded mental health.  They conclude that “the mental health of those who were unemployed was comparable or superior to those in jobs of the poorest psychosocial quality.”

The psychosocial quality of jobs is defined by reference to answers that survey respondents gave to questions about job demands and complexity; job control; job security; and pay fairness.

Arguably, there is circularity to this approach.  Respondents who express dissatisfaction with their jobs in these areas are deemed to have ‘bad’ jobs as measured by their psychosocial quality which, in turn, is reflected in the respondents’ poor mental health.  There is a real question of whether the variable being explained (self-reported mental health) is essentially the same as the explanator (perceived quality of job) – what economists refer to as the problem of endogeneity.

Another important limitation of the study is that the results control for income, using experience of financial hardship as the variable.  Now most people would consider that the worst thing about being unemployed is the financial hardship.  Moreover, the current level of the single Newstart allowance is only $243 per week.

With the minimum wage at $15.51 an hour or $589.30 per week for full-time work, there is a very substantial income gap between the unemployed and those employed on the minimum wage.  In fact, 16 hours per week of work provides more than the Newstart allowance.

A more interesting question – and one that is useful to policy makers – is what happens to low-paid workers over time?  (On Butterworth’s measure, not all ‘bad’ jobs are low-paid, although there is high degree of overlap because of the questions related to job control, job security and fairness of pay.) Is the route to higher paid, secure employment best sourced from a low-paid job or being unemployed? Read the rest of this entry »

Happily, I was not detained by the police upon my return, suggesting that liking the suburbs may not be a crime in Australia after all.  Here is another dispatch below.

To tell you the truth, I am not sure I have EVER hung around with so many pretentious, self-serving poseurs/tosspots in the one place.  I particularly  like the fact that the really important people, particularly the African leaders (who come with large accompanying parties),  insist on having a limousine and driver on permanent stand-by.

There were a whole lot of limousines parked outside my hotel – and this when it was -15 degrees outside.  The drivers had no choice but to leave the cars running.

Oh, and this would be for the leaders of the group of countries that needs a massive climate change adaptation fund paid for by the ‘rich’ countries.

For many of them, it was limousine to helicopter to corporate jet.  Gosh, you wouldn’t expect them to have to drive to Zurich and catch a commercial flight?

You will be pleased to know that the behaviour of one of our most senior business leaders was in complete contrast – exemplary, in fact.  She changed her shoes to walk between venues and to functions in the evening.  And she could not have been more friendly and considerate to everyone. She was returning to Australia on a commercial flight.

An American couple I had got to know – they were staying at the same hotel – had become concerned that I was not enjoying Davos.  I was missing the real Davos, they claimed.

For this reason, I attended one of the Ideas Labs on the future of cities, at their suggestion.  All was going quite well. There are some interesting issues surrounding the economic benefits of urbanisation, as well as the costs of congestion and loss of social amenity if cities grow too large.

I was being constructive and listened intently to the role that artists can play in urban renewal and adding to the vibrancy of city life.

The suggestion that I was a criminal came from left-field.  And my sin?  I like living in the suburbs.  The Professor of Architecture barked at me, “the suburbs come close to being criminal”.  Suburbs are responsible for profligate and irresponsible use of energy, it seems. The only future is higher vertical density.

When I tried to explain my position – that people have different tastes and preferences and these should be accommodated – I quickly realized that I was on a hiding to nothing.  None of the group had any sympathy for my position at all.

Since I was well and truly on the losing side, I decided to bait the group by pointing out the many fundamental errors that town planners have made in the past by trying to impose their visions for urban development in ways that don’t work or satisfy people’s wants.  Anyone been to Milton Keynes recently?  And let’s face it, Canberra has some basic flaws and it was planned from scratch.

The interesting thing about social engineers – the top-down planners of this world – is that they can both acknowledge past mistakes and continue to assume that, this time around, their advice will be perfect and capable of implementation.  It is really a version of von Hayek’s fatal conceit.

Now some of you may be asking whether there were any worthwhile sessions at Davos.  The one on the prospects for emerging economies was informative and entertaining.  The Deputy Prime Minister of Turkey was very impressive and had a good command of his brief.  Turkey has been growing strongly over the past several years.

The representative from Brazil was less impressive.  And I had not realized that there are real tensions between Brazil and China.  In explaining his country’s recent decision to increase the rate of tariffs on cars and trucks, he explained that his government just “wants to protect our jobs.”  Have we ever heard that before?

I particularly liked the young Vietnamese entrepreneur who jumped up to explain that he had started an engineering business that now employs 14,000 workers.  But because much of his business is with Japan, he needed to employ engineers and IT experts fluent in Japanese.  His response?  He has set up his own university that delivers courses in engineering and IT in Japanese, English and Vietnamese.  Some of his workers have now been poached by Japanese companies, which rather confirms the quality of the offerings.

Stephen Roach, former chief economist from Morgan Stanley and now Professor at Yale University, is a China fan, but expects growth to moderate in that country.  He is adding the MIST countries to the BRICS – Mongolia, Indonesia, South Korea (but this is already a rich country) and Turkey.

Another highlight was hearing Niall Ferguson discuss the eurozone crisis in terms of his earlier predictions that the currency union would never work and his current view that a fiscal union and federal arrangements will be the only means of saving the euro.

His estimate of the transfers that Germany would need to make to the rest of the eurozone counties to have a fully functioning federation was 8 per cent of GDP.  Given the political impossibility of this outcome, he predicted a result where the indebted economies have no or low growth for years and go cap-in-hand from time to time to be bailed out by Germany.  Angela Merkel’s term, More Europe, is actually code for More Germany.

The performance of the UK’s prime minister, David Cameron, was very striking. Not only is he  a consummate performer – he took unscripted questions from the audience – he was the only leader at Davos to stand up for the benefits of free markets.  This position was reinforced by the Chancellor of the Exchequer, writing in the Financial Times Weekend – “what we need now is a greater application of free-market principles, not cosy protection for vested interest.”  The relief of reading those words.

But to tell the truth, I can’t wait to get home, to a place where there are more rational and sensible thinkers per head of population than I ever realised.

Still in the Zurich airport but am enjoying watching the men’s final of the Australian Open on the big screen.  Could be worse.

This is the second piece on the Davos meeting in the Australian.  Had it not been for a couple of American women in the session on how to create jobs, I would have completely despaired.  Even so, where do the Europeans get off?

Friedrich von Hayek had a wonderful term for it – moral vanity.  And there was plenty on display during the second day of the World Economic Forum (WEF) annual meeting held in Davos.  Well-intentioned citizens, many holding senior positions in government, business, trade unions, universities and non-government organisations, concoct means of ‘solving’ economic and social problems from on high.

A number of sessions dealt with the problem of unemployment, particularly high youth unemployment, and the means of reducing joblessness.  One of the WEF Global Issues Groups (or is it one of the Global Agenda Councils?) is actually tasked with the challenge of devising means of job creation.This is not particularly surprising, given that the rate of unemployment in the Euro area now stands at 10.3 per cent and the rate inSpain is 22.9, in Greece 17.5 and nearly 10 in France.  The most recent figure for unemployment in the US is 8.5 per cent, which lower than its peak, but has been associated with a dramatic fall in participation. Read the rest of this entry »

I am sitting in the Zurich airport, waiting to catch the plane home.  I took an early bus out of Davos; I could not get out of the place quickly enough (picturesque though the area is, particularly Klosters.)

At a practical level, Davos is a complete nightmare.  There is security everywhere and entails taking off parkas, boots, watches, etc.  It was absolutely freezing outside and boiling inside.  It snowed most of the time but then the sun came out and turned the snow to sludge.

There were too many participants for the size of the congress centre (the numbers were increased after 9/11 when it was held in NY and have never been decreased – in fact, increased more) and it is necessary to book for sessions.  Interestingly the sessions that tended NOT to be booked out related to climate change.

Anyway, this is the first piece I wrote for the Australian.

I am high on a hill, but there’s not a lonely goat herd in sight.  The snow is banked up across Davos; the locals tell me that the last time it snowed like this was in the 1960s.

The daytime temperature has been minus 6.  It is much colder at night.  Walking to the various venues is quite a treacherous undertaking.  I wear my hiking boots everywhere. Security is tight:  off come the parka, other cold weather paraphernalia and the watch several times a day.

Once upon a time, Davos, located east of Zurich, was a low-rent ski resort, regarded as inferior to its neighbour Klosters.  But for the past 42 years, Davos has been the location for the World Economic Forum annual meeting.

This year, there are over 2600 participants attending – from business, government, international agencies, non-government organisations, universities and assorted other groups.

There are very few Australians in the crowd, with the numbers down on previous years.  Kevin Rudd is expected here today.  Craig Emerson is in the program to attend but I haven’t seen him around.  There is a very small contingent of Australian business people.

The media room is vast.  I am sitting next to one of the PR persons for Bono.  It must have been the look I gave him when he told me this, because he replied, “Yes, he is very annoying.”

There are literally hundreds of sessions and many have no connection at all to an economic forum. There are lots of presentations on science, art, music, foreign affairs and astrology.  (OK, I made that last one up.)

The cold weather adds piquancy to the many sessions on global warming and the need for urgent action. Read the rest of this entry »

Yes, I have made it to Davos, a picturesque ski resort west of Zurich.  It is snowing so much that the heliport has been closed, so the super-important politicians, leaders of international agencies and CEOs will have to drive up – if they come at all.  It is minus quite a lot.

I am going to swing by the Occupy Igloo site today; hats off to them if they really do stay in the igloos.  Hopefully they are well-constructed because it is very cold.

I am told to ignore Klaus’ drivel.  Recall his references to global leadership, social responsibility, capitalism has failed, etc.  It’s tempting to join the young’uns in the igloo if this talk continues.

My guess is that most of the discussion will be focused on the euro and the future of eurozone economies.  I can’t believe how wedded so many people are to the notion of greater integration being the solution – and a fast one at that.  When the economies are at such different points in terms of per capita income, labour force participation and budgetary/debt positions, I would be taking the other fork in the road – plan for an orderly exit of a number of countries from the eurozone.

Christine Lagard, IMF Managing Director, is typical of the “we just need more integration” camp:

THE global economy faces a depression-era collapse in demand if Europe doesn’t quickly act to dramatically boost the size of its debt crisis firewall, implement pro-growth policies and further integrate the eurozone, the head of the International Monetary Fund warned overnight.

But recent history demonstrates very clearly that the eurozone is not capable of doing anything quickly.

It is also hard to see how fiscal union would work without some form of tax harmonisation, perhaps central tax collection and effective prosecution for non-payment.  Given the history of non-compliance in Greece and Italy, in particular, it is hard to see this happening.

I will be looking forward to some discussion of my fork in the road – an orderly (could be disorderly, of course) withdrawal from the euro by the obvious candidates:Greece, Portugal, Italy, Spain and Ireland.  And what will be implications for the French and German banks which will need to write-off these countries’ debt on their books.

I am winging off to Davos tomorrow and, no, I don’t ski, and so will be attending the absolutely jammed program that has become the World Economic Forum Annual Meeting.  (It is very unkind of you who assume junket – it is minus 15 degrees Celsius at night, so there.)

At this distance, it looks very European and check out what the Founder and Executive Chairman of the WEF, Klaus Schwab, has to say:

Capitalism, in its current form, no longer fits the world around us.  We have failed to learn the lessons from the financial crisis of 2009. A global transformation is urgently needed and it must start with reinstating a global sense of social responsibility.

Global sense of social responsibility.  Que?

I have decided that Klaus is the Bernie Ecclestone of world economic/business/politics conferences.  Seeing there are 2,5oo participants including the President  of Azerbaijan – ok, David Cameron and Angela are also going – my guess is that I won’t actually meet Klaus.

Thankfully, there look as though there are lots of papers worth listening to, although I won’t be bothering with Joe Stiglitz’s presentation of the Private Eye awards for the roolly, roolly bad companies of the world.

I had this op-ed in The Australian yesterday.  Needless to say, we should all be wary of the scary big number – but my guess is that most Cats already are!  I also thank the Cat crowd for helping me think about this topic.

When I attended my first meeting after joining the Productivity Commission, a framed newspaper poster hanging on the wall of the boardroom caught my eye.  It screamed: TARIFFS COST US $2700 MILLION A YEAR.  It was taken from the front page of The Australian newspaper of 24^th September 1970.

At that time, the organisation was called the Industries Assistance Commission and one of its core missions, notwithstanding the name, was to estimate the economic cost of tariffs and other forms of import protection.  The poster had been signed by the key personnel working at the IAC at the time.

There is no doubt that the intent was to ram home the message of the high cost of tariffs, a cost borne by ordinary folk –  that is, us.  Note that the estimate had not been plucked out of thin air.  The Commission had devoted considerable resources to calculating effective rates of protection, the internationally used concept thatAustralia’s own Professor Max Corden had pioneered. The figure of $2.7 billion is an early example of the rhetorical value of a big number supporting a particular public policy position.

Professor Deidre McCloskey, an economist and historian from theUniversityofIllinoisatChicago, has studied the role rhetoric plays in economics.  To quote her: “most economists believe that once you have reduced a question to numbers you have taken it out of human hands. That’s where the rhetoric of quantification goes crazily wrong.”  She also asks the obvious question: “how large is large?”

She argues that “the point is to have standards of arguments, to go beyond the inconclusive rhetoric provided by pseudo scientific ceremony in most of modern economics of hypothesize, fit, significance-test, publish.”  Having said this, she would be the first to differentiate between ‘good’ rhetoric – where the numbers are plausible and suitably qualified – and ‘bad’ rhetoric – where the numbers are effectively invented, based on a series of absurd assumptions to suit a particular end. Read the rest of this entry »

John Quiggin had a very curious piece in the Fin yesterday, but the following comment was not unexpected – sort of channelling Krugman .

What is needed now is the abandonment of counterproductive austerity policies as a response to the slump in Europe and the US. Austerity should be replaced by a combination of short-term fiscal stimulus and long-run measures aimed at sustainable budget balance.

Now, pick yourself off the ground.

Just when was it that a European country or the US ran a short-term fiscal stimulus with a credible path back to budget balance?  I saw a figure the other day that in the last 50 federal budgets in the US, there have surpluses on only 5 occasions.

My point is that AUSTERITY is completely the wrong term because it suggests there will be a return to lazy, bloated, feather-bedded, large public sector economies with unrealistic entitlements and badly performing public enterprises … in due course.  That is, there is a belief that the European model is not really dead, just resting.

Now it has taken a long time, but it would appear that the game is actually up.  Witness the regional governments in Spain actually UNABLE to raise any more debt finance and, of course, Greece and Portugal teetering on the brink of bankruptcy.

More generally, the Quiggin piece is very strange indeed.  His points are:

• The world’s central banks were responsible for the GFC because of their obsession with inflation targetting;
• But – and this seems quite inconsistent with the above point – the cheap credit policy of Greenspan led to an unsustainable property bubble which the Fed did nothing about (central banks generally did nothing about asset price bubbles);
• Central banks have been doing nothing to get their economies moving recently (Que?  Zero interest rates/QE – is this nothing?);
• Central banks need to target nominal GDP and forget about targetting inflation;
• A bit of inflation is no bad thing as it will reduce the real value of government debt.

Wow, I thought … not.  STAGFLATION HERE WE COME.

And what about the RBA and its inflation targetting?  Has it not done a good job, and for a very long while,  since independence?

Now I know I am a bit of sad sack – yes, I need to get out more – but the other day, it was very very hot so we took ourselves off to the movies to see The Ides of March which had been recommended to us.  The choc-top was pretty good too, but very over-priced!

You must go and see it.  It was great – all that political intrigue and goodies turning out to be baddies.  All that political guff revealed as … guff.  It is quite topical too, with the nomination battle now on in the US.

Of course, George Clooney is pretty easy on the eye but I thought the rest of the cast were excellent, including Ryan Gosling, Paul Giamatti and Philip Seymour Hoffman.

I think it is about to go off, so do not delay.  There were only four people in the theatre when we went.

I had also loved two other movies by this director, Sideways and About Schmidt, so I guess it was no surprise that I enjoyed Ides too.

Nothing on the teev, apart from Arrested Development.  Any suggestions?  When is Breaking Bad coming back on?  How can I know how Walt and Jesse are getting along?