There are special circumstances, but Singapore’s growth is still pretty incredible

And in some ways, it’s the incredible growth that makes you wonder whether in fact it has all that many useful lessons for other Asian countries.

Earlier today Tom Pepinsky posted a rather curious bit on Singapore’s economic development history. Pepinsky argues that  Singapore was not too poor by the standards  of the time, showing a graph that ranks countries by the per capita real GDP and converts this into a percentile score. Pepinsky asserts that ‘by the 1970s, Singaporean GDP per capita actually exceeded that of the UK’. As Pseudoerasmus pointed out on Twitter, that sounds kind of odd: the Maddison series of historical GDP data seems to suggest that Singapore’s per capita GDP exceeded the UK’s in 1994, not in the 1970s:

singapore Read the rest of this entry »

Debt bomb debt bomb, you’re my debt bomb (on the debt-to-GDP ratio)

Michael Cooney on Twitter pointed to one of the funnier mixed metaphors I’ve seen in a while: the headline on Samantha Maiden’s sneak peek at the intergenerational report: Screen Shot 2015-03-01 at 3.51.47 pm Does the bomb swallow us before it explodes, or after? You can’t blame a journalist for the headlines that get slapped on their articles (they don’t have any say on it at all) but there are some other aspects of the article itself that I think are a bit sloppy. Take the opening line:

AUSTRALIA faces a debt bomb so huge it will represent half the nation’s entire economy within two decades unless tough action is taken, according to Joe Hockey’s intergenerational report.

Or this sentence:

The report, to be released on Thursday, reveals if the Government did not change Labor’s current budget settings, net debt would represent a 50 per cent share of the nation’s entire economy within 20 years.

(Note, weirdly, the phrase: “Labor’s current budget settings”—the current government, a Liberal-National coalition, has been in power for two MYEFOs and one budget). Or again this assertion:

Without change over the next 50 years, net debt will swallow the economy and be equal to 100pc of the entire Australian economy by 2065.

Federal debt will apparently “represent” half the nation’s entire economy, or, apparently equivalently, be a “50 per cent share of the entire economy”. This is a strange way of talking about debt. Maiden is referring to the debt-to-GDP ratio, which is a fairly common way of providing some sense of scale to the size of a stock of debt. Maiden clarifies:

Australia’s gross domestic product (GDP) is a measures of national income and output and is equal to the total expenditures for all goods and services produced.

This is more or less right (it’s expenditure on all final goods and services produced within Australia’s physical borders—it doesn’t for example count intermediate goods, or goods produced by Australian-owned firms overseas) but it omits something very crucial. It’s the total output of an economy within a single year. Think of Australia’s debt as being the amount of water in a dam. It’s a single number: if it’s 100,000 megalitres, say, then that’s what it is: it’s not 100,000 megaliters per year, or per acre, or anything else: just one number that indicates how much water is in a hole in the ground. GDP, on the other hand, is like the amount of water that comes through the stream that flows into and out of your dam every year (200,000 megalitres a year, or whatever). Economists say therefore that debt is a stock, while GDP is a flow.

Now, it’s perfectly OK to compare a stock to a flow, as long as you know what the comparison then means. A debt-to-GDP ratio means, “How many years would it take to pay off the debt if we spent all of the proceeds from every final sale in the economy to paying the debt?” So when the Intergenerational Report forecasts a debt-to-GDP ratio of 100% in 2065 (a fifty-year forecast, by the way—good to do for fun, but imagine forecasting Australia’s GDP in 2015 back in 1965 and you’ll get a good idea of how accurate it’s likely to be), then what it means is it would take one year to pay off all debt if the proceeds of every final sale in the economy were devoted to that task.

What it does not mean is that net debt will be the same size as the economy, that it will “swallow” the economy, that it is in any way a numerical “share” of the economy, because none of these phrases make any economic sense at all.

To see what I mean, consider what would happen if the Earth moved a little tardier around its benevolent life-giving sun. Say that instead of taking 365.242 days to orbit the Sun, our planet took 730.484, or twice as long, to complete one orbit. Assuming nothing else changes, GDP will be twice as large (since the time frame for counting GDP is now the equivalent of two normal years). However, debt will be the same size in 2065 as it would have been under the old orbital arrangements, since, as we saw above, debt is a stock, and it doesn’t depend on how we measure time units*. In that case, the debt-to-GDP ratio will be 50%, not 100%! Crisis averted! The logical solution therefore to the threat of our economy being “swallowed” by debt in 2065 is to increase the statutory length of the year, no?

Debt-to-GDP ratios are interesting because they allow us to compare relative levels of debt across economies and across time periods. But they don’t tell us anything intrinsically interesting about an economy. There’s nothing special about a debt-to-GDP ratio of 100%, other than a sort of psychological effect that’s merely an astronomical and choice-of-base-10-numbering-system artifice, and reporters should be more careful about how they describe these things if they don’t want to mislead their readers.

There are other problems, generally speaking, with the reporting of Australian debt in the lead up to the Intergenerational Report: but here I refer you though to Michael Harris’s excellent piece on a number of conceptual and philosophical errors that people often make and to Sam Hurley’s piece on why we need to have a broader conception of what matters to future generations than just the net present value of future deficits.

(*Assuming interest accrues at an economically equivalent rate with these new longer years.)

Fitting an elephant with John Black

That John Black: he’s a genius. Today in the Australian he examines the recent Queensland state election, delving deep and long into demographic data and coming up with nuggets of high-carat wisdom. He can tell you that the poor voters who swung to Labor pay ‘relatively low rents and mortgages’ on ‘two or three-bedroom’ homes, and that they have ‘no internet connection.’ In general, it is “public housing tenants, Polynesians and persons speaking languages other than English” who comprise Queensland Labor’s vote, along with “single parents with young kids, female public servants, male and female transport workers, women aged 30-34 years and persons who were actively chasing jobs in latter part of 2013”. Why didn’t inner city Brisbane seats swing towards the ALP as much as others did? Well, the ALP didn’t appeal to “South African migrants” who are paying back mortgage debt, obviously. Read the rest of this entry »

Marine le Pen as General Boulanger

How is Marine le Pen a distinct possibility to replicate in 2017 the feat of her decrepit, racist, Holocaust-denying, probable war criminal father Jean-Marie, who managed to ooze his way into the second round of the Presidential elections in 2002? (“Votez escroc, pas facho” — one of the popular slogans in favour of Chirac — has an adaptability to it that could recommend itself to other European politicians, and was itself possibly cribbed from Edwin Edwards-inspired “Vote for the Crook. It’s Important” during the 1991 Louisiana gubernatorial elections). I don’t really know the answer, but I came across a quote I read a while ago in a book about 19th century French nationalism that has what literary critics might call resonance:

“The Boulangist state of mind is that of the malcontents from all sides: held by all those who are weary, all those who are discouraged, all those with frustrated ambitions, all the imbeciles who hold the Republic responsible for their failed harvests, all the fools who have preserved their love of gallantry, the sick who, finding it painful to lie on their left side, turn for no reason onto their right side…It is a feeling of worry and malaise, one that makes those who suffer from it prefer anything — an anything that seems almost alive — to the present state of affairs. It is that bad mood characteristic of old factions, powerless to return to the throne the prince of their choice, but ready to welcome any solution that isn’t the Republic. Without the Boulangist state of mind, what is General Boulanger? Nothing.”

(Joseph Reinach, my translation.)

Sentences I liked in 2014

Stealing a good idea from my betters (how else is one supposed to write), I thought I’d gather together some of my Kindle highlights from books I read this year. The books weren’t necessarily books that were released this year, by the way: just the ones I ended up reading.

The Portuguese pack up their belongings and flee from Luanda in the leadup to Angolan independence and the start of the Angolan civil war:

“Everybody was busy building crates. Mountains of boards and plywood were brought in. The price of hammers and nails soared. Crates were the main topic of conversation—how to build them, what was the best thing to reinforce them with….Self-proclaimed experts, crate specialists, homegrown architects of cratery, masters of crate styles, crate schools, and crate fashions appeared.” (Ryszard Kapuściński, Another Day of Life)

The problem of a gerontocratic élite casually deciding for themselves that whole fields of modern science are fraudulent is not new:

“for England is full of old admirals and generals and squires who use their leisure in solving the problem of perpetual motion or foretelling the date of the next war from the measurements of pyramids” (Rebecca West, Ending in Earnest: A Literary Log)

The House of Lords during the Asquith government:

“In normal circumstances the upper chamber was an empty place; it was only in crises such as these that it was filled with a horde of hereditary nobodies, possessed with the gentlemanly desire to do the wrong thing.” (George Dangerfield, The Strange Death of Liberal England)

From M. Şükrü Hanioğlu’s lively intellectual biography of the founder of the Turkish Republic: 

“Mustafa Kemal seems to have genuinely desired a multiparty democracy, but could not tolerate any criticism of his policies.” (M. Şükrü Hanioğlu, Ataturk)

The German Democratic Republic used to draw up annual Plans not just for the production of consumer goods and commodities, but also for literature:

“The authors of the Plan confessed that they had failed to produce an adequate supply of stories about factory workers and tractor drivers, but they would compensate for this shortcoming by publishing anthologies of older proletarian literature.” (Robert Darnton, Censors at Work: How States Shaped Literature)

Fiscal consolidation has always been contentious:

“Socialists insisted that business should pay through a one-time levy on business assets, or “seizure of real values.” In the spring of 1921 the German Social Democratic economics minister Robert Schmidt proposed that the wealthy should be required to turn over 20 percent of their stocks and bonds and that a 5 percent tax should be paid on the value of landed property. Business and property owners were aghast. As an alternative they constructively suggested raising sales and excise taxes, which conveniently fell on workers.” (Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession, and the Uses and Misuses of History)

The gnostic preacher Cerdon was a remarkably modern man:

“Cerdon rejected the Old Testament and of the New Testament he accepted only the Gospel of Luke, from which he picked the bits that suited him.” (Leconte de Lisle, Histoire populaire du Christianisme)

Zweig quoting Talleyrand on his political twin Joseph Fouché:

“One understands why Monsieur Fouché despises his fellow men; he has made so close a study of himself.” Fouché, in turn, when Talleyrand is made Vice-Grand-Elector of the Empire, remarks mockingly: “That was the only vice he lacked.” (Stefan Zweig, Joseph Fouché: Portrait of a politician)

Newspapers when they are run by the leaderwriter:

To Archbishop Whately’s dictum that it matters greatly whether you put truth in the first place or the second, the candid expounder of modern journalism would reply that he put truth second to what he conceived to be the national interest. (Walter Lippmann, Liberty and the News)

Though from the city, Mitch McConnell campaigns as though he was born in a coalmine:

‘This miscalculation was understandable, to a degree—if Mitch McConnell had seemed ill-suited to campaigning among his fellow Louisvillians, he seemed even more so out in the state’s outlying areas. He did his best to develop what Joe Whittle, the Republican state chairman at the time, calls his “mountain presentation”…’ (Alex MacGillis, The Political Education of Mitch McConnell)

The weirdness of Gandhi’s belief system and its afterlife:

“Quite how strange a pot-pourri this was, will not be found in the industry of glozing commentary that has grown up around his ideas, adjusting them for contemporary usage in much the same way as the Pentateuch becomes a blue-print for universalism and the Quran all but a trailer for feminism…The composition of Gandhi’s faith…was born of a cross between a Jain-inflected Hindu orthodoxy and late Victorian psychomancy, the world of Madame Blavatsky, Theosophy, planchette and the Esoteric Christian Union.” (Perry Anderson, The Indian Ideology)

On the stupidity of British libel laws (now somewhat muted):

The Duke of Brunswick’s Rule of 1849 states that every republication of an offending statement is actionable. It says much about how the dead hand of the past weighs on my country that I need to explain that twenty-first-century law takes its lead from the case of a corpulent and despised German princeling, whom the good people of Brunswick had had the sense to throw out in the revolutions of 1830.” (Nick Cohen, You Can’t Read This Book)

Some rough first thoughts on how much students subsidise research at Australian universities

Say you’re a university student. How much of the marginal cost of providing you with this university education is being covered by (a) your own contribution, deferred through HECS and (b) government payments to universities? The short answer is, we don’t really know.

Universities get about $15 billion of government money a year. This comes in various forms. Some of it comes from direct government grants (about 44% of operating revenue, according to the Commission of Audit), and some of it from student fees that have been deferred and so are paid by the government initially.

A lot of this is set aside for research. But not enough. When universities get research funding, whether from government or private sources, it is often not enough to cover the whole cost of research. Universities have to make up the difference somehow. There are special government funding programs to pay for the ‘indirect’ costs of research—the overheads that aren’t covered by specific grants—but universities sometimes have to look elsewhere for funding.

In a report for the Bradley Review of higher education funding, Thomas Barlow made a rough-and-ready estimate of the amount of research funding that was being paid for by cross-subsidisation from other university income sources (not just student fees) and came up with the following approximation: around 12% of all university revenue in 2006 was spent on research that was financed by ‘general university funds’, of which fees make up a substantial proportion.

I had a rough go at updating this figure for 2012, the latest year for which the ABS have released figures on research in universities. This requires a bit of judgement, since university funding arrangements have changed a bit since Barlow’s estimates, with the Systemic Infrastructure Initiative and the Institutional Grants Scheme wound down and the Sustainable Research Excellence in Universities and the Joint Research Engagement Program replacing them. Adding up all the programs which aim to provide money for the ‘indirect’ costs of research (laboratories, administrative staff, electricity: all the things the universities have to provide on top of the things that are paid for by research grants) and subtracting it from general university funds spent on research, and we find that about universities spent about $3.8 billion on research from the general funds (that is, funds that are not from government, donations or private commissions for the purposes of funding either the direct or indirect costs of research). That represents about 15% of universities’ operating revenue in 2012, up from the 12% Barlow calculated in 2006.

A substantial fraction of this $3.8 billion likely comes from fees, especially international student fees, but possibly some from domestic student fees as well.

This cross-subsidisation could be the result of perverse incentives in the system. With the demand-driven system put in place by the previous government, universities can enrol however many students they like. If each additional student is cross-subsidising research, and research excellence is the measure on which vice-chancellors are usually assessed, then each additional student provides a benefit to the university, since some of their fees are used to pay for research, and the cost of a degree might be more than the marginal cost of providing it. (Assuming there is no benefit to students of university research. Universities often claim that they have ‘research-led’ teaching, but to be honest, I’m sceptical.) Of course, governments pay for some of the sticker price of a degree, so there’s a sort of ‘counter-subsidy’: students subsidise deficient government funding, and governments subsidise students.

But when you hear that plumbers are subsidising future doctors by funding their education, remember that it’s not quite as simple as that.

Cut and paste, #2

Editorial in the Australian:

“Even with the hopeless Wayne Swan as treasurer, we never accepted that there was a ‘budget emergency’, the unforunate term used by Mr Abbott and Mr Hockey to accentuate the sense of crisis around an erratic administration.

Headline of economics editor David Uren’s column in the Australian, 13 September 2013:

Yes, Mr Abbott, there is a budget emergency

Headline of contributing economics editor Judith Sloan’s column in the Australian, 18 December 2013:

Joe Hockey hits right note on budget emergency

So who writes the economics editorials in the Australian?