Warwick McKibbin in today’s AFR argues that Australia is in danger of mimicking the worst economic policies available by pursuing the European approach. He cites specifically the attempt to use a carbon pricing scheme to control greenhouse gas emissions, continued protectionist support for the car industry and an excessive reliance on redistributionist policies together with public funding of R&D. Its a patently absurd set of claims for an economy that is experiencing high economic growth with strong recovery from the GFC, low unemployment and low levels of public indebtedness. The McKibbin claims over carbon tax policies partly reflect the fact that the government did not adopt McKibbin-style reforms. A more realistic portrayal of Australia’s carbon policies would describe them as highly efficient ways of meeting greenhouse gas emission targets with close to negligible effects on our traded goods sector. It is annoying that someone who must surely understand the importance of such policies makes such irresponsible claims. Protection of the car industry is a policy failure but it is one we have lived with as a nation for 60 years – hardly an endorsement of any European model. Transfers of wealth to the industry are certainly much less distorting for the economy than the close to 50% tariffs that prevailed in the past and there are current difficulties in the manufacturing sector that reflect partly the over-valued character of the Aussi dollar – equivalently the undervaluation of the RMB and the US dollar. It is not clear to me that the flattening of Australian income tax schedules and softened capital gains tax laws can in any way be described as redistributive and measures such as the mining tax reforms would leave mining companies earning good profits with lower inefficiency costs. Do we over invest in R&D by means of public funding. I’d like to see a carefully put argument that we do – my instincts are that we under provide support for this potentially beneficial class of positive externalities.
The sensationalist claims in the McKibbin piece are exaggerated and without substance.
Update: As usual Catallaxy is quick to endorse the negative sentiments of McKibbin although he does not go as far as Alan Moran would like.
http://www.pc.gov.au/__data/assets/pdf_file/0014/37121/scienceoverview.pdf
“At an aggregate level, the available evidence suggests that Australia’s public
support of science and innovation is not in the ‘danger zone’ of demonstrable overor
under-funding. But as the Commission has highlighted, there are some stresses
on the system, including:
• emerging pressures in the academic and teaching scientific workforces,
stemming from aging and ongoing workplace inflexibilities;
• possible infrastructure inadequacies in universities;
• expanding needs for public good research, given new environmental, energy and
climate challenges; and
• the need for more effective collaborative arrangements between businesses and
universities.
But equally, there are areas where potential savings might be realised:
• the base R&D tax concession and some other business programs; and
• diminishing requirements for public funding for some traditional areas of
research, including research undertaken by public agencies for industry on noncommercial
terms.
The net balance of these contrary pressures is not clear. Nor is the balance between
emerging needs in science and innovation compared with competing priorities of
government spending, such as health or education, or lower taxation burdens for
Australians. Given that public spending on science and innovation is not in the
‘danger zone’, aggregate funding is best determined by a bottoms-up approach. This would involve judgment on a case-by-case basis in a budgetary context, supported
by Australia’s existing institutional processes and structures. While this process
usually works adequately, it needs to be informed by high quality evaluations as
well as other detailed evidence. Current practices are poor in some evaluation areas.
Several participants considered that the balance of public support had shifted
inappropriately towards applied R&D and commercialisation at the expense of basic
and strategic R&D. While there is no absolute standard against which to judge the
appropriateness of this shifting balance, when assessed against the rationales for
public support for R&D, there are dangers if the trend goes too far.
Australia’s State and Territory Governments are increasingly active in the provision
of public support for R&D. At the intergovernmental level, federalism risks
program proliferation, poor coordination and overlaps, but also creates some unique
experiments in new program design.”
I’m not sure aging is really such a problem for the academic or scientific workforce — it should be pretty easy to get people from overseas. China and Iran obviously have an oversupply of engineers/hard science people all desperate to leave under any circumstance (this is already the only way many engineering faculties operate now in Aus given the comparatively shitty salaries), and there are enough Americans/Europeans for everything else. Now perhaps that might lead to even less Australians doing science/engineering, which would make it hard for people that use postgraduates as lab slaves, but in the end there is an essentially limitless supply of foreigners in these areas, and you can get postgraduates easily in these areas also.
I’m not sure aging is really such a problem for the academic or scientific workforce — it should be pretty easy to get people from overseas. China and Iran obviously have an oversupply of engineers/hard science people all desperate to leave under any circumstance (this is already the only way many engineering faculties operate now in Aus given the comparatively relatively poor salaries), and there are enough Americans/Europeans for everything else. Now perhaps that might lead to even less Australians doing science/engineering, which would make it hard for people that use postgraduates as lab slaves, but in the end there is an essentially limitless supply of foreigners in these areas, and you can get postgraduates easily in these areas also.
Harry, I have followed your blog for a long time and I respect your opinions but after reading your comments re the Warwick McKibbin Fin article I felt you hadn’t read it or you came at it with preconcieved opions of him. I do not know him except that he was an Howard appointee to the R Bank and thus sacked by Labor at the first chance which is normal for both sides of politics. You made no mention that he was not saying what the Government should be spending the big bucks on, only that when they do it there should be an evaluation of the costs and benefits eg, NBN. He also says that the Productivity Commission is a unique institution to undertake such tasks. The present Government has disregarded all that Commission has recommended (as probably most previous Governments). What is your position on the Commission and cost Benefit analysis of large Government Expenditure?
Peter, Of course I support CBA applied to major projects and question the NBN. But the NBN does not mean Australia is replicating European experience. In fact our economy is completetely unlike the debt-burdened, low growth European economies. The general argument is sensationalist exaggeration and the claims regarding carbon pricing are unambiguously damaging.
Peter,
Warwick was not sacked at the first opportunity.
He served two terms and then the government appointed John Edwards to the Board.
I would have thought John’s financial market experience make him a far better person to have on the board.
It is unusual to have a person on the board for more than two terms.
Harry is correct. There is no analogy with Europe.
We has a very successful stimulus and an equally impressive fiscal consolidation.
“Warwick McKibbin in today’s AFR argues that Australia is in danger of mimicking the worst economic policies available by pursuing the European approach. He cites specifically the attempt to use a carbon pricing scheme to control greenhouse gas emissions..”
The Great Global Gruesome Greasum is crumbling in the last Euro bastion of the left Green scambos Harry-
http://notrickszone.com/2012/02/06/body-blow-to-german-global-warming-movement-major-media-outlets-unload-on-co2-lies/
What have all these idiots done to the reputation of science and the scientific method? We’ll need to clean out our sandstones root and branch after this.
And listen to Big Climate Bill McKibben switch into victim mode, after he makes a complete ass of himself with snow observations just like Flannery with rainfall-
“Telling the truth about climate change would require pulling away the biggest punchbowl in history, right when the party is in full swing. That’s why the fight is so pitched. That’s why those of us battling for the future need to raise our game. And it’s why that view from the satellites, however beautiful from a distance, is likely to become ever harder to recognize as our home planet.”
Whassamatter Bill? Losing your grip on the commanding heights and all the benefits of the polity as the CO2 bubble bursts everywhere? Now Bill’s the ‘victim’ fighting the good fight against insurmountable odds only out of ‘concern’ for his fellow man. Pathetic doesn’t even begin to describe these people.
Link here-
http://www.atimes.com/atimes/Global_Economy/NB09Dj01.html
It must be a pretty poor article that causes both observa and derrida derider to deride it as rubbish (admittedly on opposing grounds).
McKibbin is capable of much better than this but I reckon the bitterness of his falls from grace (both on the Mckibbin-Wilcoxen scheme and the RBA) has clouded his judgement. Put not thy trust in princes, Warwick.
I’m no fan of Labor (and coalition) industry policy, but its hardly likely to ruin the country – just make our living standards slightly lower than they otherwise would be. Same with the choice of the actual carbon tax/ETS versus Warwick’s scheme – I can see how his scheme has advantages, but not so much so that it would be worth politically endangering the whole carbon pricing regime. And his blusterings about redistribution are utter garbage produced by a macroeconomist who knows absolutely nothing of the tax and welfare literature and therefore applies the crudest of his Econ101 reasoning.