Saturday, July 23, 2011

Keynesian economists keen on Gillard's way

They say if you laid all the economists in the world end to end, they still wouldn't reach a conclusion. In truth, though they do tend to be an argumentative lot, there's a fair bit of agreement between them - as you can see from the Economic Society of Australia's latest survey of its members' opinions.

Much of the agreement is on things you'd expect but there are a few surprises. If you judged professional economists' views by the articles you see them writing in the press, you'd conclude most were pretty libertarian, opposed to high taxation and government spending and suspicious of governments.

But the survey reveals them to be still quite Keynesian in their attitude towards managing the macro economy and quite willing to support government intervention in the economy to correct instances of market failure.

The survey also reveals their views to be more consistent with the policies of the federal Labor government than those espoused by the opposition. Almost three-quarters of respondents support the levying of a national tax on the excess profits of the mining industry, for instance. And 79 per cent believe "price-based mechanisms" rather than direct regulation are the more appropriate way to cut greenhouse gas emissions.

But price-based mechanisms could include the subsidies that are part of Tony Abbott's direct action plan. So a different question was asked of just those people attending the first session of the annual conference of economists last week.

This showed 59 per cent agreeing Julia Gillard's carbon tax package was "good economic policy," with 26 per cent disagreeing. By contrast, only 11 per cent agreed Abbott's direct action approach was good policy, with 62 per cent disagreeing.

Returning to the main survey, it had more than 570 respondents, 86 per cent of whom hold at least a bachelor degree with honours. More than 37 per cent have PhDs. Of those employed, 37 per cent are academics, 34 per cent work elsewhere in the public sector and 26 per cent in the private sector.

If you want agreement, try this: 85 per cent agree that an independent cost-benefit analysis should be published before any major public infrastructure project is approved. Almost three-quarters support congestion pricing of road use, indexation of the income-tax scale and abolition of the first home buyers grant (which harms rather than helps first home buyers by raising house prices).

More than 70 per cent want to abolish the baby bonus, 65 per cent the stamp duty on the conveyancing of homes and 64 per cent want increased skilled migration.

About 60 per cent oppose continuation of the government guarantee of bank deposits, support unilateral reduction of industry protection and believe there is a "natural rate" of unemployment to which the economy tends in the long run.

No surprises there. Now try these. Only 45 per cent are confident lowering the minimum wage would reduce unemployment. Only 42 per cent believe lowering marginal rates of income tax would increase work effort. A narrow majority supports increasing the rate of compulsory superannuation contributions.

About 58 per cent believe restrictions on capital flows into countries would significantly improve the stability and soundness of the global financial system. A third agree large trade deficits are bad for the economy but 38 per cent disagree.

Economists turn out to be great believers in using regulation to reinforce competition. Two-thirds say competition laws should be enforced vigorously to reduce market power from its present level. And three-quarters support the use of jail sentences for executives guilty of price fixing.

Here's a surprise: 62 per cent disagree with the contention that consumer protection laws reduce economic efficiency. Almost two-thirds oppose suggestions that Australia reduce its spending on overseas aid. And almost three-quarters say governments should provide greater economic incentives to improve people's diet.

If you think that makes them sound terribly politically correct, note this: 60 per cent oppose requiring companies to have a minimum number of women directors. And they narrowly favour basing income tax on family rather than individual income - 41 to 38 per cent - an idea no feminist would accept.

Another sign of lack of political correctness is they're pretty much equally divided on the use of nuclear power in Australia.

Now a question for you: how do you think they divide on whether increasing federal government power relative to the states would increase economic efficiency? Only 32 per cent agree, 35 per cent disagree and 33 per cent "neither agree nor disagree".

Turning to management of the macro economy, more than three-quarters agree a substantial cut in interest rates is an appropriate response to a severe recession. That says they believe governments should attempt to manage the economy through the business cycle. What makes them pretty Keynesian in their approach to macro management is that three-quarters believe a substantial increase in government spending is an appropriate response to a severe recession, while only 43 per cent support a substantial tax cut.

Just less than half believe the Reserve Bank should focus on low inflation rather than on employment or economic growth, with 35 per cent disagreeing. (I'd have been in the neither agree nor disagree category since, in practice, the Reserve focuses on both, as it should.)

What I don't understand is how all this can be true while an amazing 79 per cent believe inflation is caused primarily by growth in the money supply. Huh?

It's also clear economists are stronger supporters of the redistribution of income than you might expect. More than 44 per cent believe the government should adopt policies to make the distribution of income more equal than it is at present.

Two-thirds believe the government should cut middle-class welfare and increase the help given to the disadvantaged.

And they're equally divided on the proposition that the goods and services tax be increased to cover cuts in income tax and company tax.

If you think economists are mindless supporters of the Labor Party - as one leading libertarian has concluded - consider this. Less than a third back abolition of the private health insurance rebate and 46 per cent oppose it.

And they're equally divided on the proposition that all Australians should have access to fast broadband at a uniform wholesale price. Clearly, they're not all the way with Labor's sacred national broadband network.

What Economists Want