Tuesday, February 17, 2009

What if Joe Hockey is Julie Bishop in new clothes?

The Coalition's new economic supremo may not be the ticket to credibility it urgently needs.

His predecessor Julie Bishop was ineffective not only because of what she calls the "ongoing commentary" about her role, but also because she didn't understand economics.

Within weeks of last year's May budget she was calling on the Prime Minister to "explain the reasons behind the budget forecast that 134,000 jobs will be lost in Australia by June next year."

But the budget hadn't made such a forecast. Quite the opposite. It had forecast a continuing increase in the number of Australians in jobs, albeit a smaller one that would be needed to stop the unemployment rate climbing.

The Shadow Treasurer had failed to understand the relationship between employment and unemployment. And she appeared not to have read the forecasts in the May budget...

She kept making the claim until November.

In December as the government began running down its projected 2008-09 surplus she said it had "spent virtually the entire reserves of the budget, the $21 billion that was built up over ten years - that money has now gone".

But the reserves that had been built up over ten years (far more than $21 billion) hadn't gone. They were still sitting in the Future Fund where the Coalition had left them. She had confused one year's budget surplus with an accumulation of budget surpluses. She had confused part of a flow with a stock.

It's the sort of confusion common among people who have difficulty getting their heads around mathematical concepts - people who have chosen not to specialise in the study of mathematics or science or economics.

This doesn't mean that the rest are innumerate, but it does mean that they haven't been drawn to the study of mathematical concepts.

As Julie Bishop said yesterday, she asked for the Treasury portfolio because "it had been something of a tradition in the Liberal Party for the Deputy Leader to hold that portfolio".

An astonishing 13 of the Coalition's 17 tertiary-educated frontbenchers are lawyers, among them Julie Bishop and Joe Hockey.

Lawyers can master economics, although it may not come easily. Peter Costello managed it. But it requires a different way of thinking and a genuine feel for mathematical relationships.

A week ago on Lateline Joe Hockey failed to demonstrate that feel. Confusing the current account deficit with the budget deficit he insisted that it had never reached 6 per cent of GDP, which is where it is. He's looking like a Julie Bishop.

The man he pipped at the post for the top economics job, Andrew Robb is one of the few Coalition frontbenchers to have an economics degree.

HT: Anonymous commenter

Edited, see
correction

45 comments:

Anonymous said...

And Swan has a PhD in eco, doesn't he?

Anonymous said...

Peter, It's great that we have journalists like you to keep the bastards honest.

Al

Anonymous said...

I thought the CAD was 3.2 % of GDP

Peter Martin said...

6% of GDP during the most recent financial year. The quarterly measures have fallen since then.

Anonymous said...

At page 2-26 of the Budget Papers No. 1.

"The expected slowing in non-farm GDP growth from slower global growth, tighter credit conditions and higher interest rates is expected to see employment growth
ease to 1¼ per cent in 2008-09, resulting in a gradual rise in the unemployment rate to 4¾ per cent by the June quarter 2009. The participation rate is forecast to fall slightly to 65 per cent."

So if the participation rate doesn't change much and the unemployment rate goes up that must mean that people who want to work can't work - why is it illegitimate to ask the government for an explanation?

Wayne Swan, PhD Econ, just told Sky News that the Japanese economy had crashed 3% in December, when he really means the December quarter. Will ALP shill Peter Martin write on this?

Anonymous said...

Still waiting for good ol' Wayne to give us an answer to the NAIRU question. It will be a year tomorrow that he was asked this. It looks like he is doing his own natural experiment with the economy to find out what it is...

Peter Martin said...

Dear Anonymous who referred to page 2-26 of the Budget Papers No. 1.

It is not illegitimate to ask the government for an explanation of the Budget forecasts and the thinking behind them.

It is illegitimate (well, it is wrong) to say that the Budget forecast job losses when it forecast job growth.

The quote you have picked out makes clear that the Budget forecast employment growth of 1¼ per cent.

Peter Martin said...

If only we had a hope of getting it!

Anonymous said...

Based on the Budget papers it can be shown that there would be 134,000 jobs short of the number of people wanting jobs.

Also there are, at least, 3 coalition frontbenchers with economics degrees.

Peter Martin said...

That is not the same as a "budget forecast that 134,000 jobs will be lost".

I have been through the front bench list and I can't find any other B.Ec's, although Dutton has a BBus(QUT).

Anonymous said...

Abbott and Minchin have B.Ec LlB and Stoe has a PhD in economics.

Anonymous said...

Peter, what about when the government talked about "creating" jobs? Also, you would know that the figures that refer to employment growth, etc., presented in the budget reflect the change in the stock of employed and unemployed. The gross flows into and out of employment, unemployment and NILF dwarf the changes in the stocks of those things (see the work of Gareth Leeves). Therefore, this whole discussion is a little bit silly isn't it, Peter?

Peter Martin said...

To the Anonymous who reminded me of the additional degrees earned by Abbott, Minchin and Stone, I've put in a correction for tomorrow's paper.

Thanks.

IF said...

The 2008-09 Budget Papers predicted "a gradual rise in the unemployment rate to 4¾ per cent by the June quarter 2009."

Yes, some employment growth was predicted, but the net outcome was also a predicted increase in unemployment.

Notwithstanding the above, former Treasurer Costello recently made the rather telling point in Parliament:

"The 2008 budget would be today probably the most worthless financial document in Commonwealth history. What it predicted would happen in this year bears no relation to reality. It can best be filed in the fiction section of the Parliamentary Library, because every one of its forecasts is now out of date."

Anonymous said...

Actually, it looks like Bishop was spot on and Martin owes her an apology.

Take the number of people the ABS says were employed at the time of the Budget: 10,687.6 (seasonally adjusted). Then take this number and look at two possible employment growth rates: that predicted by Treasury (1.25%) and the growth rate of 2007-08 (2.5%, which also happens to be the average growth rate over the last 5 years to June 2008).

This then gives you two employment predictions: Treasury's (10847) and the baseline (10981). The difference between them is... 134,000.

If the average growth rate of the last 5 years had continued, there would be 134,000 more people in jobs. Or, there will be 134,000 fewer people in jobs than there otherwise would have been.

Peter, if Bishop is wrong and those jobs haven't been "lost", then where exactly are they?

Peter Martin said...

Never created.

Anonymous said...

You criticise Bishop for saying that "the $21 billion that was built up over ten years."

Get real Peter, you are just being intentionally silly here.

The Budget surplus is indeed a flow, not a stock. But the flows aren't independent from year to year. They are determined to a large extent by previous policy decisions.

So I don't think it is unreasonable to say that the $21 billion surplus of 2007-08 was the product of 10 years of policy decisions, which is exactly what Bishop meant.

By the way, how many budget surpluses do you reckon Rudd will actually deliver, as opposed to projecting? Why don't you pull out all the quotes where Rudd says he has delivered a surplus, and put them in your worthless column?

Ben Eltham said...

Peter, I too bemoan the profusion of lawyers amongst our elected representatives but I wonder if training in economics is necessarily the solution.

I think the real problem in Canberra is the narrowness of the conceptual frameworks of many of our policy-makers - economists, lawyers and others.

It seems to me that a real issue is the lack of policy makers trained in thinking about complex systems - of which economists are one example, but which might also include ecologists, meteorologists, mathematicians ... even sociologists.

For instance, how many policy-makers even in Treasury do you think really understand the macro-economic models used to make these forecasts?

A great post, there's much food for thought here

Anonymous said...

Anonymous Liberal Spruiker talks about the worth of Peter Martin's columns. I find them very valuable and informative.

However, Anonymous Liberal's contributions are not quite so valuable. One of the main things he/she fails to understand is that Peter Martin is not spruiking for any particular party. He reports facts as he sees them and gives his economic opinions.

Anonymous Liberal would be well-advised to take note of the numerous occasions where he has quite rightly criticised the Rudd Government.

Al

Anonymous said...

"Anonymous Liberal would be well-advised to take note of the numerous occasions where he has quite rightly criticised the Rudd Government."

This is a fascinating development. Perhaps Peter could provide some links - his most damning comments about Rudd government incompetance, say an attack on why the Rudd government has been totally anable to produce a single budget surplus? Too hard, perhaps. Well give us, the reading public something.

KitchenSlut said...

"Lawyers can master economics, although it may not come easily. Peter Costello managed it. But it requires a different way of thinking and a genuine feel for mathematical relationships."

I know lawyers are mostly pretty ordinary ordinary human beings and worthy of contempt but what to make of this stunning display of extraordinary unjunstified hubris?

In contemporary Ozspeech ... mate you are a f***ing dickhead?

Well said Ben Eltham although a pity you have never responded to my queries through your web sources on why you have never pursued the small bars agenda in QLD after it was so important when you were trying to do the same thing but were refused? Funny that!

Don't wanna upset the Anna applecart at any cost mate?

KitchenSlut said...

Peter? How does the above quote fit with the Galbraithian aversion to mathematics in Economics?

Anonymous said...

The last thing we need is more economists!

IF said...

"Australia is in a stronger position than these countries because the government built a strong surplus last year as a buffer for tough times."
Mr Rudd
House of Representatives Hansard 3/2/09 p.6

I had read somewhere that the Government had made this extraordinary claim. A 'strong surplus' is something that the Rudd Government has neither built or delivered. Surely that is an 'inexactitude' on the part of the Prime Minister, given the projected Budget outcome of a $22.5 billion deficit?

Anonymous said...

Anonymous Liberal Spruiker, for the sort of proganda you'd like - go to www.liberal.org.au

Al

Anonymous said...

Al - you made a claim. Let's see your evidence.

Anonymous said...

Peter - I can't find your retraction in The Age. Is it online, or only in the print version?

Anonymous said...

I don't mind the fact that Martin is biased. That is his prerogative - and he is writing commentary after all.

What I do mind is that he acts as if he is being purely objective when that is clearly not the case.

Swan and Rudd have made numerous economic claims and statements over the past 15 months, a vast proportion of which have been highly dubious and ridiculous. Worse than that, they have implemented policies that could make things worse, not better, and claimed that these will create a total of more than 200,000 jobs, without a shred of evidence supporting this claim.

An unbiased columnist would have called them on out on these statements, but Martin has not.

As I said, that is perfectly fine -just don't pretend that there is no bias and that you aren't attacking one side of politics because you don't like them.

Marek said...

Anon

The question was asked and Peter provided links in the comments in the post titled

Just when it looked as stiumulus packages could achieve things...

baz said...

anonymous- there is a clear difference between minor "miss-speaks" and:

1. thinking australia might be on the right of the laffer curve or

2. apparently not knowing the difference between the CAD and budget deficits

Kid yourself otherwise if it helps alleviate the frustration you must be feeling right now

Anonymous said...

You don't have to think that Australia is on the right hand side of the Laffer Curve to believe that broadening the tax base and lowering rates could lead to higher tax revenue.

IF said...

Individuals facing very high effective marginal tax rates associated with benefits / transfer payments taper are likely to be on the right hand side of the Laffer Curve. Taxes imposed on demerit goods such as tobacco may also be on the right hand side of the Laffer Curve, for deliberate public policy reasons. In the same way that there is not one rate or type of tax, there is also not one Laffer Curve.

PS: if economic qualifications are a desirable requirement for the position, why isn't Dr Craig Emerson [BEc(Hons), MEc (Syd), PhD (ANU)] the Treasurer?

Anonymous said...

Look, here is an example of what I am talking about with Martin's bias.

On 4 February Wayne Swan said:
"If the proposition to bring forward the 2010-11 tax cuts were put and implemented by the Leader of the Opposition, the Leader of the Opposition’s proposed tax bring-forward would cost $11 billion, on a permanent basis—hence my observation earlier that they are in favour of higher deficits permanently."
See page 71 of the Hansard: http://www.aph.gov.au/hansard/reps/dailys/dr040209.pdf

Now Swan's statement complete and utter rubbish. Bringing forward these tax cuts - which are already legislated for - by one year has a one off cost, not a permanent cost.

And that one-off cost is a lot less than $11 billion.

So here is my question: Why didn't Martin pick up this massive Swan error? It clearly shows that (a) Swan does not know the difference between permanent changes and one-off changes and (b) Swan has no math skills whatsoever.

It is not a minor gaff. It is a huge, huge mistake. Swan has no idea about the costs of his own tax cuts. There are dozens of similar examples. So why doesn't Martin write about them, and instead only writes about alleged errors made by the Opposition?

Answer: because he is B-I-A-S-E-D.

Marek said...

Isn't what your describing the job of the opposition party? Isn't it their job to defend their own policy? The fact that the opposition hasn't been able to land a blow in the face of some(as you point out) terrible arguments from the govt, just proves the point that they are lacking credibility in the eyes of the public, and Hockey's recent performances haven't been very inspiring in that regard

Anonymous said...

Marek, you seem to want to blame government gaffs on the Opposition.

I would have thought that terrible arguments from the Government just proves the point that *the government* lacks credibility and that *Swan's* performances haven't been very inspiring in that regard.

You seem to be saying that if the Opposition doesn't pick up a government error, then we should lay blame at the feet of the opposition and ignore the error itself and pretend it didn't happen.

That's a very strange view of democracy, I must say.

Anonymous said...

Anonymous,

The tax cuts are NOT one-off.

They are in there year in year out.

They permantly add to the budget deficit.

On the other hand the $42b does not. To all extent and purposes they finish after the third year.
one-off handouts and spending on infrastructure is finite.

Not only does the Opposition want to spend almost as much as the Government, given they believe in the magic pudding of the tax cuts regainig of all their revenue, they will add to the deficit in later years

Marek said...

You seem to be saying that if the Opposition doesn't pick up a government error, then we should lay blame at the feet of the opposition

yes, if they can't even do that whats is the point of them even being there?

and ignore the error itself and pretend it didn't happen.

The error is about an opposition policy and the opposition don't even care about it and yet I'm supposed to?

Your right Swan is the worst alp performer, but Bishop was much much worse, hopefully Hockey is much better, but his past performances against Tanner have been pretty poor as well. IMO Tanner is much better than Swan though.

Anonymous said...

Oh dear. It looks like Wayne Swan is commenting on this blog. Good of you to join us Wayne.

Now Wayne, read your own Budget papers. The tax cuts are already legislated for and will come in.

Yes of course they are permanent but the Opposition wants to bring them forward by a year.

Now try to follow this. The Opposition's policy would have a one-off effect on revenue beyond the effect that would have occurred anyway when the tax cuts are brought in.

The Opposition's policy will not have a permanent revenue effect.

I think I know what is going here. Swan and Rudd both attended Nambour High. This explains a lot:


"Visit the website of his old high school, Nambour High School, open the curriculum pages for "Maths" and click on the link to "Senior Mathematics" and you will find the page is blank: there is no content."

http://www.theaustralian.news.com.au/story/0,25197,25069225-25192,00.html

Mentok the Mindtaker said...

Anonymous Liberal Staffer (ALS) appears to get hot under the collar because the blog owner doesn't write deep anyalysis of the rhetoric the govt deploys in an effort to score points off the Oppo in parliament. ALS needs to grow up AND get a life. This is POLITICS dummy not a university course.

jc said...

Peter:

I don't think we should be afraid of Hockey being another Bishop. Our real concern should be if he's as bad as Swan.

Peter Martin said...

I'd be much more worried if he was another Bishop.

Anonymous said...

Ah, Mentok victory is mine, thank you.

Resorting to personal attacks without a shred of intelligent argument shows that I have won the debate.

Nobody has refuted the fact that Swan has no idea about the tax cuts.

Which is hardly surprising since these tax cuts were originally copied from the Coalition.

I'm not seeking "deep analysis" of this.

It would be just enough for commentators to simply note these errors and move on.

But they can't even be bothered to do that.

Anonymous said...

That's because it isn't a "fact". Swan's statement was a deliberate distortion in the same way the Liberal's $200 billion debt was a deliberate distortion.

Perhaps the fact the latter was pointed out by various commentators and the former hasn't been (or hasn't been as widely so) offers some support for the idea of media bias. Whatever the case, the current flood of whining, screeching, conspiracy-theorist garbage filling up the comments sections of various sites is eerily reminiscent of the whining, screeching, conspiracy-theorist garbage that filled the comments sections of various sites when Labor was having a bad hair day in Opposition in years past.

Putting aside the dubious merits of either complaint, it's pretty pathetic to witness. So for your own sake, you might want to grab yourself a can of harden the f*ck up and maybe think about how to counter your actual opponents, instead of imagining more and then proceeding to try and create them.

Anonymous said...

Sorry, but it *is* a fact that Swan couldn't cost his own tax cuts. He stuffed up, pure and simple. It is there in the Hansard for all to see.

The fact is that the Opposition's policy involves bringing forward the tax cuts by a single year. That will have a one off revenue cost. It will not have a permanent revenue cost. And even if it did, that effect is nowhere near $11 billion. His own Budget numbers confirm that.

A competent Treasurer would know these things. But Swan does not. He is incompetent. That is a fact and it has nothing to do with the Opposition, Peter Martin's bias, or anything else.

And how exactly is the $200 billion claim a distortion? It is also there in black and white. Both the government and Treasury has said that this is the amount that will be borrowed. Where's the distortion? It is the government's own number.

Anonymous said...

"Anon

The question was asked and Peter provided links in the comments in the post titled

Just when it looked as stiumulus packages could achieve things..."

Thanks Marek. That is indeed the case.

Anonymous Liberal Spruiker is absolutely correct that bringing forward the tax cuts would be a temporary hit on revenues as the tax cuts are already budgeted for in future years.

As another Anon pointed out, there's plenty of dishonesty coming from the Liberals as well. How about some criticism of that ALS?

Al

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