Monday, August 08, 2011

The importance of simple questions in economics

At the end of last month in Socrates, questions, management & public policy my focus was on the importance of questions in testing approaches in both management and public policy. As it happened, the examples I used were productivity, microeconomic reform and Aboriginal policy.

Today's Australian newspapers contain some interesting stories that bear upon my discussion.

Start with this editorial in the Australian, Open-ended questions as new world order emerges. This quote sets the tone:

Any pundit, however, who seizes on the development to predict the long-term, ongoing decline of the US, or to advise a move away from market-based economics towards centralism and bigger government, is deluded. To the contrary, the downgrade underlines the importance of fundamental economic principles and demands that Barack Obama, and both sides of American politics, as well as other debt-ridden nations, respond with unflinching resolve to rebuild their budgets and restore prosperity.

Now compare the editorial with this piece by economics writer Ross Gittins in the Sydney Morning Herald, What economists don't know about productivity. This quote sets the tone:   

Economists are trained to believe in the need for ''more micro reform''. They'd want it even if our productivity performance was fine. You get the feeling the physician is prescribing his favourite medicine without bothering to think much about the patent's symptoms.

The contrast is striking. The Australian editorial  is based on one set of assumptions, Mr Gittins sets out an alternative view. While Mr Gittins position is closer to mine, both pieces can be tested by asking simple questions, and that was part of my point. 

Now go to this story by Phillip Coorey in the Sydney Morning Herald, Billions spent but Aborigines little better off, says report. The story begins:

THE circumstances of most indigenous Australians are hardly any better today than they were 40 years ago, despite governments having spent tens of billions of dollars, a scathing internal report to federal cabinet says.

The Strategic Review of Indigenous Expenditure, prepared by the federal Department of Finance, finds that despite efforts by successive Commonwealth, state and territory governments, progress against Aboriginal disadvantage has been ''mixed at best''. Outcomes have varied between ''disappointing'' and ''appalling''.

Matthew Franklin in The Australian has a longer report. Now here the two papers' reports are similar; my focus is on the failure in Aboriginal policy, the example used in my earlier post.

It's not just that Government policy has failed to achieve the objectives set. To a degree, Government policies over a very long period have actually created the problems, including the creation of a statistical construct "Aboriginal and Torres Strait Islander people"  that lacks meaning. By this, I mean simply that the diversity of Australia's Aboriginal peoples is such that the use of universals, statistical averages, is bound to mislead. Again, this is something that you can test by simple questioning. 


Rummuser said...

"The senses do not give us a picture of the world directly; rather they provide evidence for the checking of hypotheses about what lies before us."
~ Richard Gregory.

"The real world is a construct, and some of the peculiarities of scientific thought become more intelligible when this fact is recognised."

~ Donald O. Hebb

"It is nonsense to found a theory on observable facts alone. In reality the very opposite happens. It is theory which decides what we can observe."

~ Albert Einstein to Heinsberg.

I come from a tradition of saving to purchase needed things. I use a credit card as a substitute for cash and mostly use a debit card to avoid settling bills every month. I have led a peaceful life and am all for a balanced budget at the macro level with no or minimum borrowings. Such balancing can be done by matching revenues, ie a proper taxation system with minimum expenditure by governments. Where things go wrong is when taxation at the consumption end spreads the responsibility equally but does not extend the duties on those who are at higher incomes equally. Hayek, Ayn Rand et al simply ignore justice and equity and I believe that we have fallen into the trap of inequity with our democracies. I am not a socialist or a leftist, but would call myself a libertarian with a heart.

I do not know if we will see equity in my life time, but some fresh approaches to economic thinking and implementation is over due, failing which, the kind of eruptions that we now see all over the world will become more frequent and cost more lives and loss to wealth.

Jim Belshaw said...

Interesting set of comments, Ramana. The quotes bring out different perceptions. I think that I would also probably call myself a libertarian with a heart, although I would allow for a greater Government role, including borrowings.