Introducing induction vs deduction: the fall of economic history at MIT

I fear my foreshadowed posts on MOOCs will have to wait!

A post on Professor Greg Mankiw's blog led me this June 2013 paper by Peter Temin, The Rise and Fall of Economic History at MIT. I was attracted by the title because it seemed to bear upon issues that I was exploring in my own amateurish way in Sunday Essay - economists and the decline of economics. Browsing, my eye was caught by this quote:

A more widely repeated comment was made by Paul Samuelson to Walt Rostow over lunch one day. After Rostow made a claim that Samuelson disliked, Samuelson said, “Walt, you may be an economist among historians, but you are historian when you are among economists.”

That resonated! I wonder why?

I found Professor Termin's piece interesting but depressing. Interesting because of the history, depressing because it was a similar pattern at another place at a similar time. I leave it to you to read the full paper, but I wanted to make a few comments.

Termin suggests that economics at MIT came to rest on three legs: theoretical economics, econometrics and economic history. The theoretical and econometric legs combined, ultimately squeezing out economic history. Underneath this result was an intellectual conflict that I am only just becoming aware of.

On Wednesday, Belshaw’s World – Barratt’s story: can the academic present measure up to its past? looked at some aspects of changing academic life through a prism set by Professor Barratt's history of the Psychology Department at the University of New England. By its nature, the book is partially a history of the changing face of psychology as a discipline seen through the eyes of one man at one place.

Underlying the changes, is a shift from inductive to deductive study within Psychology. Inductive reasoning is bottom up, a kind of reasoning that constructs or evaluates general propositions that are derived from specific examples. By contrast, in deductive reasoning specific examples are derived from general propositions.

Putting this another way, theoretical economist built models based on certain assumptions and then refined and extended them. As deductive reasoning gained sway, the economic journals filled with articles that were ever more detailed explanations of ever narrowing points. These explanations became hypothesis that were then subject to scientific test. This explains the natural fit between the theoreticians and the quantitative economists. However, you could only test those things for which certain types of data were available.

Something of the same process happened in psychology. Professor Barratt was a deductionist, although he used the term hypothetico-deductionist to combine the idea of hypothesis drawn from models followed by tests. Mind you, he never went to the same extreme as some of the economists, always recognising that you had to move between the particular and the general, that observation of human behaviour had a place in the creation of ideas.

I do not want this to be a long post. I am just setting a scene. In the meantime, do read Professor Temin's paper.    

Academic conundrums

Tonight my main post elsewhere is Belshaw’s World – Barratt’s story: can the academic present measure up to its past?. I have a part completed post on MOOC, all these things link, that I will bring up tomorrow.

In reading books such as that of Paul Barratt Snr, I react along several dimensions: one is history, a second my response to current circumstances, Seriously, how can a teaching academic even maintain currency when they don't have time to research and reflect? 

Monday Forum - micro-management, the evils of performance measurement & whatever else you like!

Today's Monday Forum focuses on management. I leave it in your hands as to the direction we go!

Over on Managing the Professional Services Firm, Monday Management - common management problems: the micro-manager, continues the Monday Management series. Have you experienced micro-management? How did you cope?

In a responses to Sunday Essay - economists and the decline of economics, Winton Bates added some background experience on the UNE agricultural economics experience. I wonder what your views are on the decline of the traditional disciplines? Am I just an old fuddy-duddy? I suppose, and this is far worse, that I might be that and still right!

Winton,however, did far more. He sent me a Harvard Business School working paper on the dangers of goal setting. This was a wonderful gift, and one that I will come back to in a later post.

I have often written about the dangers and misuse of goal setting and performance measurement. Consider a simple example,

If each business wants to set stretch targets, to do well above average, then it follows that most will fail. That's fine, but what happens if it's our superannuation funds at stake? Has Australian super become almost a zero-sum game in which most of us must lose?

I leave it in your hands to comment. Just keep a loose focus on management, financial performance or indeed any form of performance!

Postscript

I had been vaguely aware of the OECD's Assessment of Higher Education Learning Outcomes (AHELO) project. The OECD describes it in these terms:

The OECD is carrying out a Feasibility Study for the Assessment of Higher Education Learning Outcomes. The purpose of this Feasibility Study is to see if it is practically and scientifically feasible to assess what students in higher education know and can do upon graduation.

More than a ranking, the AHELO assessment aims to be direct evaluation of student performance at the global level and valid across diverse cultures, languages and different types of institutions.

A full scale AHELO would be a a “low stakes” voluntary international comparative assessment designed to provide higher education institutions with feedback on the learning outcomes of their students and which they can use to foster improvement in student learning outcomes.

The thing that drew it to my attention were favourable references to the test as a way of forcing competitive standards on universities, citing in favourable terms the widespread and accepted use of standardised testing in schools. That makes it sound a little like a variant of MySchool for universities.

Postscript two

Comments still open. Two follow up questions from the discussion:

• Is goal setting at personal level fundamentally different from goal setting at organisational level?
• Well, not really from the questions, but the NSW Government has just released a new Performance Development Framework. Do you understand it? What do you think?

To set a context for the last question, this is the opening blurb:

The Public Service Commission’s task is to drive the most significant reforms the NSW public sector has seen in a generation to build a high-performance culture and enhance the sector’s ability to meet the community’s service needs.

Underpinning a high performance culture is an effective system for managing individual, team and organisational performance.

This framework contains the essential elements and mandatory guidelines for agency performance development systems and sets the approach for managing all aspects of employee performance in the NSW public sector.

Mmmm!

Sunday Essay - economists and the decline of economics

Today's Sunday Essay was triggered by a loosely connected overlap in my current reading.

My train reading at present is focused on the stories of the various disciplines that occupied central places at the University of New England for much of its earlier history. I am interested because it bears upon the broader history that I am writing (On writing a history of New England), but I also find it interesting because those stories reflect broader changes in the disciplines themselves, in the academy, and in Australian life. The three pieces that have been my focus this week are John Pullen's story of the rise, fall and very partial recovery in the teaching of the history of economic thought; Agricultural Economics in Australia, a collection of essays published to mark the sliver jubilee (1958-1983) of the establishment of agricultural economics at UNE; and Paul Barratt Snr's history of the psychology department.

Coincidentally, there were a number of blog posts that fed into my thinking in different ways: one was Don Aitkin's Higher Education, Lower Morale, an essay looking at changes in the academy; the second Winton Bates'  Should the GFC be viewed as a 'balance sheet' recession of the kind Irving Fisher wrote about in the 1930s?; the third Steve Keen's series on the self destruction of economics (here one, here two, here three).

By way of further background, I know very few economists now whereas they dominated my immediate environment when I first started working. That's partly because of changes in work and my interests. It's more, I think,  because there aren't actually very many economists around outside some narrowly defined spheres. There are fewer still generalist economists of the type that I once was.

It's odd, really. I can't talk economics properly with the few specialist economists I know because I don't understand the models that they are talking about, nor can I talk economics in a day to day work sense with colleagues because the analytical tools I use are simply unknown. There are no economists at all!  I have to try to translate, to fit, my thinking into quite different modes of thinking.

To begin my analysis with a quote from Steve Keen:

Economics has declined from 40 per cent of any business-oriented degree to 4 per cent in 40 years. For a profession obsessed with linear regression, it has suffered a near-perfect linear regression of its own.

In his presentation to the conference held to mark Agricultural Economics Silver Jubilee at UNE in 1983, Geoff Miller wrote:

It would be a mistake to infer that the influence of economists is on the wane. It most definitely is not. What is happening, however, is that proportionately fewer and fewer applied economists are willing to identify themselves as economists. They masquerade under the titles such as business manager. market analyst, administrator, treasurer and even bureaucrat!

Geoff was then Deputy Secretary at the Department of Primary Industries in Canberra. He went on:

This audience will be well aware that just as proportionately fewer applied economists identify themselves as economists, so too is proportionately less applied economics being taught in faculties that identify themselves as economics faculties. We are well into the era of the business school.

To Geoff's mind, the most useful economist was one who had been taught as rigorously to apply theory as the theory itself. He continued:

Good theorists with little training in applications, usually burn up all their energy (and other people's patience) telling policy decision-makers  why the data cannot be usefully employed, why no inferences can be drawn from the results of the analysis, or (at the other extreme) advocating excessively simplistic solutions to complex problems.

Now I don't completely agree with Geoff here for reasons that I will explain in a moment. But it is true that the greatest value to me of economics lies in the way that it helps me to understand and analyse problems, to come to quick judgements. even though I may struggle to express them sometimes in comprehensible form to people who do not have knowledge of the same analytical tools. It is equally true, and this has been an enormous frustration sometimes, that I have struggled with colleagues who demand that I comply with their economic models or ideological frameworks even though I am trying to articulate a new position that might help us to solve an immediate problem.

Economics at UNE was first taught as part of Arts. There were three features to the course.

The focus was on teaching, something that comes through in all the early history disciplines at UNE. It is also something that Don Aitkin feels that has been lost with the current emphasis on research. There were applied elements to the course and especially to the research carried out by staff since this focused especially on problems of development. Finally, the course was solidly grounded in the humanities.

This is where John Pullen's paper is instructive. For those doing honours, the history of economic thought was effectively a compulsory unit. You cannot study the history of economic though without becoming aware of the way in which views on economics, the resulting models, are human constructs grounded in the cultures of the time. UNE also developed a strong economic history school, another declined discipline, for just that reason.

Agricultural economics was fought for and emerged as a practical applied course bridging the gap between economics and agriculture. Solidly based on what would a little later be called neoclassical economics, it developed a series of analytical techniques that could be applied at farm or industry level. As a non-mathematician, I stood in awe of strange concepts like linear programming or the monte carlo model. So UNE had three streams: a generalist economic course; an applied economics course in agricultural economics; and an economics history course. From my perspective, the wheels then came off.

As an entry point here, I want to take the famous dispute at Sydney University that Steve Keen referred to between Professors Hogan and Simkin and those who saw the teaching of economics and economics as a discipline in different ways. Here I quote from Professor Hogan's obituary:

He was nothing if not a fighter. He believed that ''quantitative rigour'' was the foundation for solving real world problems, rather than sociological and political factors. He wanted to produce economists who would help the corporate world and government. Statistics, spread sheets and mathematics featured prominently in his thinking. In the end, he was not able to resist the overwhelming demands for a change of focus and his economics department was split.

Steve Keen was on the other side of that divide. To my mind, both sides were wrong, but both encapsulated trends holding at the time that are still playing themselves out.

Professors Hogan and Simkin were trying to introduce a rigorous applied content, a quantitative rigour. In so dong, they reduced the generalist stream. Two other professors of economics at the time ( tartly remarked over lunch that Sydney was training bad mathematicians and worse economists. However, those on the other side with their emphasis on political economy were not, in fact, arguing for a generalist course, but a generalist course of a particular type. It became an ideological debate.

  The logical joining of the two positions was to have a core general course with opportunities for specialisation on the generalist, humanities or applied side. This was not possible at Sydney nor. as it turned out, at most other places. The decline of economics as a discipline continued.

I accept that what I have said is partial. I imagine that those of both sides of the Sydney divide would disagree with at least parts of my assessment. Accepting that, if we jump forward, we find the University of Western Sydney retrenching thirteen economics staff including Professor Keen. This passed almost without notice. I am not in a position to judge the eternal dynamics involved. However, I can express my sadness.

Staying in the present, I now want to turn to Winton Bates' post, Should the GFC be viewed as a 'balance sheet' recession of the kind Irving Fisher wrote about in the 1930s?. Winton and I did economics at the same time at UNE. I went on to focus on history, Winton was in the agricultural economics stream, Despite that, we remain friends! 

The first part of the post deals with Mr Rudd's record, the second with Irving Fisher's views of the great depression. I have not been able to check Winton's references in the first part, they are behind firewalls, but both Henry Ergas and John Stone are ideological warriors. That doesn't mean that they are wrong on particular points, but you have to understand where they are coming from. Certainly based on Winton's reporting, I think that they are wrong, imposing a view of what happened on judgements that had to be made at the time.

I will write a proper post on this one not to attack Winton (I have a great respect for his views), but because it is important. I was in Shanghai when the GFC broke. I came back to a traumatised Australia where reactions seemed to me to be at total variance to the economic facts as I knew them. This actually drew me back into writing on macroeconomics, I field that I had left and did not expect to return to. Essentially, I could not match the gloom and doom scenarios to the basics of the Australian economy, so I took a contrary view. However, this did not lead me to oppose the stimulus measures, far from it. My concern at the time was the direction and balance of those measures.

The second part of Winton's post focused on Irving Fisher's views is, if I interpret the argument correctly. very similar to views expressed by Professor Keen. Essentially, a key part of the problem was the combination of levels of private debt with income and price variations.

In finishing today's post, I want to look briefly at economics models. All models are abstractions. This applies to the IS-LM model, to the AD-AS model, to the DSGE model or to Agent Base Models. Models are useful thing, but in each model the critical issue is the specification of relationships that underpin the model's working. If those change, then the model will give invalid results.

This is really why economic forecasters are in so much trouble. This is why so many older theories are being dusted off. The economic world has changed, and we are struggling to understand the changes. We have to look back to the past to develop new ideas for the future.

This is where, I think, the old economics comes in. I actually have no idea how a DSGE or Agent Based Model really works, although I can understand the basic principles. But I don't think that this matters. The foundation economics that I have done in those now ancient days, as well as my past practical experience as a professional economist, gives me the capacity to ask basic questions. That, I think, is what is really important.     

Saturday Morning Musings - economic overview

Today's Saturday Morning Musings has an economics focus. Nothing profound, just jottings on things that attracted my attention.

Globally, and leaving China aside for the moment, there are signs of continued economic strengthening.

In the UK, GDP rose 0.6 per cent in the June quarter following a rise of 0.3 per cent in the March quarter driven by the trade exposed sections of the economy. Not brilliant, but in the right direction. In Germany, the IFO Business Climate Index, a measure of business expectations, rose for the third months in a row to 106.2; a number above 100 suggests economic expansion.  In Japan, the Cabinet Office's July report stated that the Japanese economy was picking up steadily. In the US, the IMF concluded that  growth is slowly accelerating.

I expect European and US growth to continue to strengthen, if slowly, as budget contractionary effects ease and expansive monetary policy continues to support growth, The second is a problem in itself, of course, for the ending of quantitative easing is likely to be quite difficult in economic terms.

Regardless as to arguments about why and what could have been done better, Australia has been remarkably fortunate. In the UK, GDP is still below the pre GFC levels. The loss in national production and expenditure compared to Australia is huge.  

I left China aside for the moment. There Premier Li stated that 7 per cent was the bottom line below which the nation would not allow growth to fall. Mmmm! Leaving aside the miracles of Chinese statistical reporting, China faces a huge economic challenge in re-balancing its economy and moving to productivity and consumption driven growth. It also faces a growing demographic bomb, something that I have written about before.

What China really needs is economic growth in the rest of the world, growing demand for Chinese exports. This will buy time for the Chinese authorities to do the other restructuring that needs to be done. The Chinese economic engine has done its job so far as other places are concerned. It needs to refuel.

One of the interesting topics in Australian newspapers over recent weeks has been what we might call the middle income trap, How do growth countries such as China avoid stalling at middle income levels, failing to break through to higher incomes. Latin America is usually cited as the cautionary tale. For the moment, I just record. 

In Australia, ABS reported on Wednesday that the rise in the Australian all groups CPI for the June quarter was 0.4 per cent, bringing the yearly inflation figure to 2.4 per cent. This was greeted by commentators as providing evidence that inflation was under control, that the Reserve Bank had scope to further reduce the official cash rate. Now market forecasts are overwhelmingly in favour of a further reduction.

I'm not so sure. I don't do forecasts, who can know the minds of either the economy (it doesn't have one) or officials (they do). If I were the Bank. I would leave interest rates on hold. The market consensus appear to be that the Australian dollar will continue to fall. Overseas interest rates are nudging up. The Australian economy is weakening, but has not yet headed into recession territory. The Bank has the option of just letting things run, holding its powder to later.  

Staying In Australia, the end of the week was marked by reports of a ballooning Commonwealth Government deficit with projected revenue shortfalls of more than $A20 billion over the next four years. At the same time, a PWC report suggested that the combined annual deficits of Commonwealth and state/territory government could reach $A213 billion by 2040.

Expect further cuts in Government spending, another reason to reserve monetary policy weapons. We may need them.

Finally, According to newspaper reports during the week, the asset's of Australia's Future Fund passed $A100 billion as the depreciating value of the Australian dollar increased the value of the Fund's international investments. The fund was founded in 2006 to meet future pension liabilities of Commonwealth public servants. Not a bad idea considering what has been happening with Detroit and other US cities.   

Marshall Rudd & drummer boy Burke vs Admiral Abbott in new G&S show

This photo comes one of the refugee groups via Paul Barratt. The caption reads:

Another Australian Government anti-boat campaign billboard (see the circled sign) over Hazara massacre, Quetta 2011:"Don't come by boat; it's too dangerous"

Further comments follow the the photo. 

I have no idea whether this photo is accurate. But in those circumstances, the billboard would actually seem like an advertisement for people smugglers.

As I write, Mr Abbott has unveiled his military solution. Admiral Abbott read one headline. Meantime, Minister Burke has rushed off to Manus island for an on-ground investigation and to defend the Rudd solution.

This is all silly stuff, like something out of Gilbert & Sullivan. How have we let the debate get to this point?

There are no easy solutions on the refugee question. Our options really involve picking between the least bad solutions. The political refugee arms race is costing us a fortune, is twisting our foreign policy and is actually damaging our society. There is no rational debate anymore, just responses.

Refugees and the people smuggler subset is a global problem that has domestic implications. It is one of those hard problems that cannot be solved at domestic level. The only thing thing that we can control is our response.

I have this dream where one of our political leaders gets up and says we can't solve this problem, we can only respond as best we can. Here are the issues as we see them. This is what we are going to do. I know its not perfect, we will listen to arguments, we will change our approach as new evidence emerges, but that's where we stand.

In the meantime, we are driven back to Gilbert and Sullivan and H. M. S. Pinafore.    

When I was a lad I served a term
As office boy to an Attorney's firm.
I cleaned the windows and I swept the floor,
And I polished up the handle of the big front door.
I polished up that handle so carefullee
That now I am the Ruler of the Queen's Navee!

Marshall Rudd and Admiral Abbott should bear that in mind. In the end on something like this, ridicule is the only answer.

Update

The debate rolls on. The Lowy Institute blog has useful coverage from the PNG side: What the PNG asylum seeker deal really means for Australia's aid program provides an entry point. The story has received a degree of international coverage. This is the Wall Street Journal take. The UNHRCR has expressed concern.

Quickly reading across what coverage I could, the Australian popular response measured by comments is, as you might expect, very polarised. A key issue is will it work?

Update Two

This is the Economist's take on recent developments.

Useful guide to the rise of the extreme right in Europe

From time to time I have mentioned the GeoCurrents blog as a very useful reference source. This post by James Mayfield, Explaining the Rapid Rise of the Xenophobic Right in Contemporary Europe, is a very good if somewhat depressing example.

I drew a few take-messages from the analysis.

1. The variety and need to avoid stereotyping. I note this in part because of the tendency of some of my more ideological left colleagues to classify people and causes that I have supported as extreme right really just because they are different from prevailing left views
2. The need to avoid being complacent in an Australian context
3. The importance of economic factors, although this is clearly not universal.

Daniel Petre and the homogenisation of Fairfax

Tonight's short piece was triggered by a story in the Australian Financial Review suggesting that Daniel Petre may cease his connection with Fairfax over internal strategic disputes in the digital arena. For those who don't know him, Petrie is one of the most experienced people in Australia's digital sector.

One of the key disagreements cited was the decision to roll the regional mastheads into a combined Australian publishing operation. This, Petrie apparently argued, was a competitive error. I argued just the same thing at the time it happened. Those involved didn't understand market segmentation.

We are down track now and we can begin to see some of the effects.

One side effect, minor but annoying to me, is that I now have no single source for following through the various former Rural Press papers across Northern New South Wales. I have to spend more time. A more important effect is homogenisation. If you look at each regional site in isolation, they offer more. When you look at them together. you can see the commonalities.

At this level, they have lost something. Their use of Facebook, by contrast, is much better and has a local content.

Homogenisation is moat apparent with the metros. Fairfax has just introduced pay, so you only get so many page views before being locked out. Because I use the SMH so much, that happened to me. So I went searching. Then I found with certain key mastheads that I could get the same stories because they were all the same! The only thing that I couldn't find somehow were the very specific Sydney metro stories.

What we are talking about is actually brand destruction, the replacement of multiple mastheads appealing to different audiences by an increasingly common product. I don't think that's very sensible in commercial terms, nor is it necessary. Still, I suppose that it's easier to run.     

A note to regular readers

Over the next week or so you will begin to notice more purely professional posts. As part of another restructure in my writing, I have begun to migrate my irregular professional posts to this blog. I hope that this will add to the depth here, while helping me gain better focus.

Monday Management - introducing Common Management Problems

Some years ago I began a series of blog posts on the theme common management problems – and what to do about them. The posts drew from my practical experience as a manager and a consultant. I wrote them because I had found that many people who had acquired some form of management role actually didn’t know what to do in a practical sense.

The problem is especially acute in professional services because so much of the work is individual: individual in the way work is structured, individual in relation to clients, individual in the way performance is measured. There is limited scope to learn how to manage by actually doing. Problems exist even in those areas of professional services where projects and project management are the norm.

Project management is not the same as management, although many project management techniques are also management techniques. A professional discipline in its own right, project management centres on individual projects. These may be simple or complex. They may involve a single person or a much larger team of full and part time people. However, they do not necessarily provide you with the skills required to manage a team with functional responsibilities involving multiple activities with varying time horizons, where the focus is on the achievement of broader results rather than individual project outcomes.

Lack of management skills and experience may be an especial problem in professional services, but it is not limited to that sector. Management is a craft, not a science. It has to be learned through practice. Across sectors, the thinning of management structures has reduced the opportunities for people to grow into management through progressive learning by doing. The problem is compounded by the growing role of specialists in senior management roles and by modern management command and control structures that have reduced the authority and scope of responsibility of individual managers.

Interestingly, the widespread adoption of project based approaches within organisations has further compounded the problem. This may sound counter-intuitive. Surely these approaches play an important role in improving organisational effectiveness? Well yes, but many areas that have moved to project based approaches end by displaying many of the cultural features to be found in professional services. There is the same emphasis on individual matters or assignments; performance assessment becomes narrower; it becomes more difficult to attract attention too, or resources for, issues that fall outside current assignments.

Staff have always complained about managers and management. However, the volume of complaints seems to have risen significantly over the last two decades. Importantly, managers themselves complain about the difficulties they experience in managing properly, in simply coping with the demands placed upon them. A surprising number of those in apparently managerial roles express actual dislike for the management process. Their focus is on their personal performance, on the things that they have to do themselves. The need to deal with people, to be responsible for others with varying needs and personalities, is seen as an impediment to their own performance.

If project management is not the same as management, nor is administration. All managerial roles involve a degree of administration, another thing that many professionals complain about, but that is only part of the manager’s role. Administration focuses on rules and systems, while management focuses on the organisation of resources and especially people to set and achieve objectives and to undertake specific activities.

Finally, management is not the same as leadership, although a measure of leadership is a necessary part of management. A leader may or may not be a manager. Indeed, many of those who see themselves as leaders are in fact extremely bad managers! There is a certain irony in the parallel rise in emphasis on leadership and governance at a time when management as such has been in decline. These trends are connected, for governance is a control on leadership that has become more important as management has declined.

Can management be learned? Yes. Like any other craft, management skills can be learned, although management abilities (the final capacity to do) will vary between people. The keys are knowledge and practice. For that reason, I am drawing together and updating my previous posts to provide practical guidance to all those who wish to improve their management skills.

Postscript

I was asked about the current fad for activity based working and the associated idea of bossless teams. How do these fit with the type of argument I am mounting?

Later I will write something on both. However, for the present, activity based working is popular in certain larger professional services or certain financial firms where work is predominantly individual, or involves small variable teams. The term really relates to office design as much as it does to the organisation of work, although the first affects the second. It can be a productive approach.

Bossless teams rely on particular group dynamics and types of work and on the surrounding culture to be effective. I think that they actually first appeared in certain manufacturing activities, although I stand to be corrected there. Again they can work in particular circumstances, although in the end there is always a boss! 

In terms of the fit with my argument, the best way of organising work will always depend on the type of work. I don't think that either detract from my focus on the importance of management.

I would be interested in reactions from readers in terms of their own experience with these different forms.   

Melbourne, Sydney & Chinese residential investment

Interesting piece by Stephen Nicholls in the Age (Chinese prefer Melbourne to Sydney) that illustrates two aspects of Australian life, Chinese investment in Australian residential property playing out in the traditional rivalry between Melbourne and Sydney.

A survey of Chinese interest in investment in international property ranks Australia as number two after the US. That's actually remarkable in its own right. However, what attracted special interest was the apparent ranking of Melbourne in front of Sydney as favoured investment location. The photo from the Age shows a Toorak house purchased by a Chinese investor for $14 million.

Sydney people were not impressed. I quote from the story:

Sydney property agents expressed shock, then disbelief that Chinese buyers appeared to be more interested in Melbourne than Sydney.

"Melbourne's a great place to visit but I wouldn't want to live there and I think the Chinese feel the same way, said Richardson & Wrench Mosman principal Stephen Patrick. "Most of the Chinese want a water view and Sydney obviously wins there."

I am not in a position to comment on the relative attractiveness of the two cities beyond a wry smile. I can comment on Chinese interest in the area in which I currently live in Sydney. It's high and has been so for a long time. The driver here is the presence of the University of New South Wales with its large Chinese student cohort. This creates both rental and home purchase demand, for many parents buy a place for their children and as a longer term investment.

We are not talking top tier demand prepared to pay multi-millions for specific locations, rather mid tier demand in a price range from $A750,000 to $A1,500,000. The effects are quite noticeable. This is not a complaint, simply an observation.  

Sunday Essay - more on Rudd and refugees

Reaction to yesterday's post, Mr Rudd's shame, provides the entry point for this post. One of the difficulties of this type of debate lies in the way that different things get mixed together. Debate takes place at multiple levels, with apparent responses at one level actually triggered by other levels. It becomes very difficult to untangle it it all.

A Personal Perspective

Back in May 2011, I supported Julia Gillard's Malaysian solution (When perfection's not possible: Gillard & refugees) as possibly the best result from a difficult situation. There I tried to outline a few basic principles that guided my reaction. In November 2011, I wrote in a round-up post:

I haven't commented on the latest race to the bottom on Australian refugee policy. Back in May 2011, I supported the proposed "Malaysian solution" (When perfection's not possible: Gillard & refugees) as a possible path. Now Opposition, Greens and Government between them have delivered the worst possible outcome.

I know from conversations just how polarising this issue has become. My friend and fellow New Englander Paul Barratt has been blogging on the broader issue. The insanity of Australia excluding itself from its own migration zone makes me wish for Monty Python.

I am repeating this background now so you know my position. I have, I think, been consistent.

Life is riven with contradictions. One principle of the the political school I grew up in, I have called it New England populism, was that any government action involved some restriction on the freedom of some. We called it the oppression of the minority by the majority. For that reason, all Government actions must be subject to scrutiny. But that school also saw a strong role for Government in reducing oppression and in achieving the common good. This built an inherent tension into the political philosophy, a tension that could only be overcome by careful analysis to delineate the issues.

This view was in part captured by a commenter attempting to put the pro-restriction side.    

However, the flow of this debate is so predetermined-lest we step out of line on this, one sided - only the intelligentsia get a say and littered with preconceived ideals that I felt someone should show the other side of the coin.

Pardon me if I don't go with the flow on this but maybe a more rational policy could be formulated if all sides of the argument were heard rather than badging views that differ to yours as worthy of "nonsense more usually heard on talkback radio?"

My commenter stated, accurately enough, that he (she?: I think that it was a he) represented a very popular stream of opinion. Now without getting caught too much in the detail, I want to devote this short Sunday Essay to a delineation of some of the issues.

The Right of the Group

In a comment, kvd wrote:

But if you are willing, I'd like you to expand upon your I believe that any nation or group actually has a right to determine who should belong comment?

To my mind, all groups have the right to determine membership. However, this is not an unqualified right, for groups sit in a hierarchy that forces qualification on that right. Let me illustrate by example.

I was a member of a male club that was forced by law to admit female members. I objected. I was also resentful that certain female social organisations were allowed to remain gender based simply because they were female. I did not object to Rotary Clubs, for example, admitting female members. That struck me as very sensible. But it was a decision of the clubs in question, whereas in the case of the club I was talking about the change was imposed by force. Hence my resentment.

Australia is a bit like that club. We have the right to determine who should be admitted to the country, as does Japan. We have chosen by majority, although some still disagree, to be an open multi-ethnic society. Japan chose a different route. Both choices involve costs and risks.

Those choices were not made in isolation. All groups face external pressures. In Australia's case, the White Australia Policy was abolished in part because of the costs it imposed on the country via external reaction. Japan was able to maintain what is in effect ethnic exclusivity because that approach was not subject to effective external challenge.

In setting our group entry approach, Australian chose to join the refugee convention. Here we qualified the group's right to determine entry by accepting an externally created obligation. We did so in a very particular context, but the principle remains. Now we chafe at the constraints imposed. We seek to work our way around, to modify or even abrogate the convention.

That is our right as as a group, but it places us in a difficult position. Logically, if we disagree with the convention, we should withdraw. But we can't actually do that because of the costs and risks involved. So we temporise and try to fiddle. 

 Internal vs External Dynamics

All groups have their own internal dynamics. Those in positions of authority play upon those dynamics to maintain authority. In doing so, they appeal to group norms. The internal debates can be heated, for they involve questions of comfort and power. As indicated, all groups have to deal with external reactions. The interaction between the two determine what will happen.

I accept that I am restating things said earlier, but I have in mind a slightly different point.

To group members and those in power, the internal reactions are critical up to that point where external responses impose their own dictates. Many times on this blog I have cautioned about the way that Australia ignores external responses. By the time that external responses start to dominate, the group has actually lost its power to control its own destiny. That is an opinion, although I think that it is based on evidence.

In the current case, this is another opinion, my perception is that in the heat of the internal debate an internal issue has become so important that all sight has been lost of external considerations.

The Importance of Facts

To introduce this segment, let's look at just what Australia is paying for the PNG deal over and beyond direct costs. We have agreed to, and I quote from Mr Rudd:

We've agreed that Australia will now help with the redevelopment of the major referral hospital in Lae and its long term management needs.

We've agreed to fund 50:50 the reform of the Papua New Guinea university sector including next year by implementing the recommendations of the Australia-PNG education review.

We've also agreed to help PNG with the support they have sought in professional management teams in the health, education and law and order portfolios.

And Australia, Prime Minister, stands ready to assist PNG further with other development needs in the future.

So apart from the direct costs, we have agreed to what appears to be some very major funding commitments. Don't get me wrong, I am not opposed to those funding commitments in the context of our relations with PNG, just questioning the price that we are paying for our refugee solutions.

I have never seen a proper objective analysis of the price we are now paying for current refugee approaches, nor have I seen any benefit maximisation analysis. Now that we are spending so much. surely we are entitled to ask the question are we getting best value for money? I would have thought with the sums now involved, that that that was a reasonable question.

Will it all Work?

This is actually a very slippery question, for it depends upon the meaning attached to the word work. What is our objective?

If the aim is just to stop the boats, the most cost effective way is simply to destroy them. An alternative view was expressed by anon:

Finally here's a thought. Some may see this as cruel and inhuman but I bet it would stop the boats. Why not make it that the only way to be granted residency in this country is to arrive through the proper channels. If you arrive by boat or overstay your visa you will not be granted residency ever. Increase the intake if that's what you want but send out the message that nobody gets to stay unless they apply like many thousands of others have.

Now this may seem inhumane and would certainly have considerable costs in human and probably financial terms, but if absolutely and rigorously enforced without exception, could well be reasonably effective in terms of stopping the boats,

By contrast, the latest Rudd approach poses considerable risks.

A Question of Balance

I struggle a bit to understand why this matter has become just so important in political terms. I have listened to some really heated arguments. It's become another of those touchstone issues relating to divisions in Australian society.

To my mind, its a practical problem. We accept the refugee convention, We have a problem to which there is no perfect solution. What are our most cost-effective options taking our values into account?  How do we preserve our own values in the response? Can anyone tell me that?