The importance of crowding out

Economists generally use the term crowding out to describe the way in which Government spending can reduce private sector activity. However, the term can also be used more broadly to describe the way in which any form of Government support can reduce - crowd out - other activity.

In Australia, the provision of Government guarantees favoured the bigger banks. This support may have been necessary, but the end result was a big bank dominance of the Australian financial system at a level not seen since the 1950s or 1960s. In China, Michael Pettis suggests that one effect of Chinese Government stimulus support was to enhance the position of the  SOE (State Owned Enterprise) sector at the expense of small and medium business.

I am phrasing all this in broad terms because crowding out is actually a very useful concept in describing the way in which Government activities that favour one sector or activity can affect other immediately related sectors.

Australian December 09 employment statistics and their implications

The release yesterday by the Australian Bureau of Statistics of unemployment data for December attracted a fair bit of global attention with the seasonally adjusted unemployment rate down slightly from 5.6% to 5.5%. Mind you, this is still up 0.9% from a year before, but that's still not bad.

These statistics bounce round all the time, so its the trend that's really important. Here the first graph from the ABS shows trend and seasonally adjusted monthly employment data since December 08. You can see how the decline in total employment reversed itself over the second half of 2009.

The second graph shows the movement in the unemployment rate. You can see how the rise in unemployment slowed and then started to decline.

One very interesting statistic is the stability in the participation rate, the proportion of the working age population actually in the workforce. This was the same in December 08 and 09, around 65.2%. Often in times of economic downturn the participation rate falls, thus reducing the apparent rise in the unemployment rate.

The next graph shows total hours worked, all people. The period December 1999 to December 2001 covers the bottom point in the last major economic downturn. This is followed by a steady rise, and then a fall with the latest downturn.

The 1990-1991 downturn coincided with a period of economic restructuring. This was the period of downsizing, restructuring and process re-engineering, a trend that continued into the nineties.  This fed into and accelerated the downturn.

This downturn followed a period of significant and growing labour shortages. Many firms tried to preserve staff, reducing working hours rather than total employment. This provided something of a cushion, but was also a wise decision in most cases given the bounce-back in the Australian economy.

Men and women, however, had different experiences. 

The next graph shows female hours worked. While the overall pattern is broadly similar, the downturns are less pronounced, while the percentage increase in hours worked over the period from December 1999 is somewhat higher.

By implication, the shifts in male hours worked must have been greater.

The next graph also from ABS shows this quite clearly. The decline in male hours worked in both the 1990-91 and present downturn is far more pronounced.

One sad-side effect of the earlier downturn was that many men who lost their jobs were effectively forced into first long term unemployment and then, in many cases, premature retirement. The effect this time appears less pronounced.

A second side-effect of the last major recession was a very significant increase in long term unemployment  among young people. I do not have statistics at present to justify this assertion, my views are based on personal observation, but I believe it to be true. This accelerated a trend towards long term generational unemployment, something that was quite new in Australia. 

The effects here of the current downturn are likely to be less pronounced.

Australia retail sales and trade performance, November 2009

Slowly getting back into it after the break. I hope that those celebrating Christmas had a happy time. May 2010 be a good year for all of us.

This morning the Australian Bureau of Statistics released released Australian retail sales figures for November 2009, up 1.4% in seasonally adjusted terms over the previous month, a very substantial increase.    

The graph shows both trend and seasonally adjusted numbers since November 2007.

You can see the impact of the Australian Government's stimulus package in the seasonally adjusted estimates. The trend estimates flatten these out. What global financial crisis you might ask.

The ABS also released the trade figures for November.

My key concern here is the trend. You can see from the attached graph the way in which balance of trade on goods and services went positive when Australia needed it and then declined.

I have been monitoring this trend because I think that Australia's trade performance sets a key constraint on growth.

I was thinking over Christmas about global economic trends. My key concern remains my perception that the economic imbalances that triggered the global economic down turn remain and that, consequently, the recovery is still fragile.

This is before factoring in the effects of climate change.

In saying this, I do not want to get drawn into a debate on climate change. Here, and at the very least, we can say that actions by Governments to address climate change will have economic effects. Further, for planning purposes we at least need to consider what might happen in economic terms if the scientific projections are in any way correct.     

Christmas Greetings

I leave tomorrow for Mt Hotham for the Christmas break and will resume posting on my return.

It's been a funny mixed-up year, beginning with economic crash and ending with Copenhagen.

The series I began and still plan to finish on problems in modern public administration was side-tracked by a felt need on my part to try to get a better understanding of climate change issues. I had left this one aside, but then found that parts of the debate were going down the familiar tracks that I was writing about here. So I spent some time writing a series of posts on my personal blog just trying to tease things out for my own understanding.

There is nothing especially profound in the posts, simply a personal exploration to aid understanding.

My economics writing has diminished, simply because I had less to say that was original. I think that my main contribution in the second half of last year and first part of this year lay in the fact that I was writing from a different perspective to most commentators, driven by an apparent gap between the commentary and the statistics.

Hopefully over the Christmas break I will have a chance to review and re-group.

To those to whom it is relevant, may you have a happy and safe Christmas and may we all have a safe and successful new year.

I look forward to talking to you again in a little while.   

The case for reform in Australian public policy - food prices and Australian primary production 1

Sunday Essay - food prices and Australian primary production, a post on my personal blog, is a very simple analysis of the discussion generated by the apparent fact that Australian food prices  have been rising at the fastest rate among major developed economies.

Outside shock-horror elements, the discussion generated by the OECD report has been one-dimensional, generally centred on competition policy and the Woolworths/Coles duopoly. There has been very little discussion of the broader contextual issues.

I am not unbiased on this matter. My personal support for the rural sector and the country will be clear from my writing. That said, the broader issues do bear upon some of the points I have begun to develop in this series.

As I write, the Liberal Party has been imploding over the Government's emission trading scheme. In Australian responses to climate change - a background briefing, I made a distinction between problem (climate change) and response. I also pointed to the way that climate change was being used to justify a whole series of decisions: if a (climate change), then b (stop irrigation or whatever), creating a growing wave of opposition in the bush.

Policy does not develop in isolation. To a degree, one of the causes of policy failures lies in the way that Governments feel obliged to respond to what they perceive to be popular opinion. I will deal with the institutional factors - the rise of the "stakeholder" in a later post.

I am not saying that Governments should not consider public opinion. However, real problems arise where there is a disconnect between those arguing for a policy change and those who will be affected by a policy change. Simply put, it is easy to support something if there is no apparent cost to you. This problem is compounded by the existence of policy silos.

The question of the gap between Australia's indigenous people and the remainder of the Australian community has been a topic of much discussion. You have a range of initiatives intended to bridge that gap. However, very little of the discussion addresses a single key issue: many Aboriginal people live in country areas that have been in economic decline. Action to address the gap is likely to fail if you cannot address that decline.

Consider the case of Tooralee Station (here and here), a major irrigation property purchased and turned into to a national park to release water for the Darling River. Leaving aside the question of whether or not the purchase was value for money, something that I doubted based on rough back of envelope calculations, the purchase took something like 100 full and part time jobs out of the local Bourke economy.

At the same time, the Federal and NSW State Governments who funded the purchase of Tooralee Station are trying to address Aboriginal disadvantage in Bourke through measures such as new houses and coordinated service delivery. The obvious inconsistency between the action on Tooralee Station and the improvement in Aboriginal conditions in Bourke was not recognised or, at least, not discussed. I doubt that it was recognised.  

I will continue this argument in my next post.

Note to readers:

This is one of a month long series on the need for reform in Australia's approach to public policy and administration. Consider yourself the judge or jury as I present the evidence. Most posts will be short, introductions to other writing. My argument is that we now have a systemic pattern of failure. You have to decide whether or not I am right and, if so, what you think that we should do about it.

If you want to follow the whole series through, you can click reforming Australian public policy on the side bar. This will bring the whole series up. Alternatively, if you want to follow the whole series through from the first post, click here and then click next at the end of each post.

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The case for reform in Australian public policy – measurement and child welfare

In The case for reform in Australian public policy – introducing measurement I referred to the rise of the modern obession with measurement.

All Government policies and programs now come with cascading and generally very simple numeric perfomance measures. It seems so reasonable: if we don't measure, how can we assess perfomance?

As it happened, yesterday's Age carried an example of  the type of problem that can arise. I quote:

A scathing Ombudsman's report has identified gross deficiencies in Victoria's child protection service, with workers manipulating figures to cover up children neglected by the system.

The problem is that the performance measures become an end in themselves. Where, as is often the case, the figures are simplistic or even unachievable, then manipulation of results to meet targets or conceal the failure to meet targets can and does occur.

To my mind, this has now become something of a cancer eating away at the heart of Australia's system of public administration. Sounds extreme? Perhaps, but there is an increasing volume of evidence to support my position.

Note to readers:

This is one of a month long series on the need for reform in Australia's approach to public policy and administration.

Consider yourself the judge or jury as I present the evidence. Most posts will be short, introductions to other writing. My argument is that we now have a systemic pattern of failure. You have to decide whether or not I am right and, if so, what you think that we should do about it.

If you want to follow the whole series through, you can click reforming Australian public policy on the side bar. This will bring the whole series up. Alternatively, if you want to follow the whole series through from the first post, click here and then click next at the end of each post.

Next

A continued apology for slow posting

Sorry for the absence of posts. Normal service will resume shortly. I have just been heavily tied up on day to day issues.

Ramblings

No major post today, time is very short, just a few ramblings.

The bringing of a twelve year old Aboriginal child to court on the charge of receiving a stolen Freddo Frog (an Australian chocolate) plus sign makes an apparent mockery of the justice system. I say apparent because there may be things that I simply do not know. See Charged with receiving chocolate frog for details. See a news report here.

I cannot report on the accuracy of the following story because I have not investigated it. It was told to me by an Aboriginal colleague.

In the NSW juvenile justice system there are apparently mechanisms for avoiding the formal court process. These are designed to make the system quicker, fairer and more humane. The only problem is that they are time limited. Many Aboriginal people live in regional Australia in smaller settlements and do not have easy access to lawyers. By the time they can contact Aboriginal legal age and get a lawyer involved, the time for alternative procedures has passed. So they end before the courts where they are far more likely to go to jail.

Mr Rudd's apology to the forgotten children created very mixed feelings. You see, as part of my PhD thesis I investigated the history of NSW child welfare. I did so because my grandfather was a ward of the state who suffered at the Pokolbin Farm Home. Later when he became NSW Minister for Education and Child Welfare he had to suffer through the troubles and injustices at his beloved Yanco Farm Home.

I wrote a little of this in David Henry Drummond and the Importance of Compassion because the single most important thing that Drummond's experiences gave him was a sense of compassion. He never forgot what had been done to him.

When I investigated the NSW child welfare system, I did not do so from any perspective of right or wrong. The thought never occurred to me. Shit happens. Rather, I was concerned to understand what happened and why, how it influenced my grandfather.

I do not doubt Mr Rudd's sincerity, nor the hurt that has been imposed on people by past systems. I just think that responses are out of kilter. Of course we must try to improve. Yet the tensions in our current society are manifest.

My grandfather wrote that the phrase the child is the father of the man is one of the cruellest phrases in the English language because it condemned the child to suffer as an adult from youthful mistakes. How many children, he said, had committed suicide alone and in despair?

Modern Australian society stands condemned at two levels.

It is condemned because Prime Minister Rudd can apologise to the forgotten generation at the same time as a child is brought before the courts for receiving a Freddo frog. It is condemned because in its desire for law and order and for quick solutions. It brings in things such as three strikes and you are out. Then it wonders at exploding prison numbers.

Most important, and this is the second level, modern Australian society stands condemned because it is censorious and hypocritical, moralistic. It is prone to harsh and simplistic judgements without recognising the conflict between those judgements and its own stated fundamental values.

I am not negative about the future in the way some are. I still believe in progress and the possibility of change. I still see the history in part as a record of progress. Still, I do struggle sometimes.        

The case for reform in Australian public policy – introducing measurement

Think of this post as clearing a little ground.

So far in this series I have focused on unforeseen consequences flowing from policy changes. I now want to broaden the focus a little to bring in the current obsession with measurement.

Back in March 2007 in Changes in Public Administration and their Impact on the Development of Public Policy 2 - Notes on Major Trends I briefly discussed the rise of standards, the quality movement and the Importance of measurement. Then in another post, Changes in Public Administration and their Impact on Public Policy 3 - Publish or Perish Case Study, I looked at the rise of the citation index as an example of the rise of measurement.

Don't get me wrong. I am a great believer in the importance of measurement. Without it, you cannot assess progress. It's just that the whole thing has got out of kilter.

Over the next few posts I want to use a mixture of case studies and analysis to sketch out in a preliminary way the problems that we have created for ourselves though our obsession with measurement.

Note to readers:

This is one of a month long series on the need for reform in Australia's approach to public policy and administration.

Consider yourself the judge or jury as I present the evidence. Most posts will be short, introductions to other writing. My argument is that we now have a systemic pattern of failure. You have to decide whether or not I am right and, if so, what you think that we should do about it.

If you want to follow the whole series through, you can click reforming Australian public policy on the side bar. This will bring the whole series up.

Alternatively, if you want to follow the whole series through from the first post, click here and then click next at the end of each post.

Next

The case for reform in Australian public policy – a methodological note

Now that I have started this series, I have been thinking about the difficulties involved in demonstrating beyond doubt the need for change in approaches to public administration and public policy. We can see this if we look at my preliminary posts.

My focus to this point has been on unforeseen consequences, although other issues are already creeping in.

Consider the NSW child welfare case.

I have no doubt that the near collapse of the system as a consequence of mandatory reporting was unforeseen. No Government in its right mind would deliberately inflict such pain on itself. But could the result have been foreseen? After all, unforeseen results are common in public policy. I actually think that it could have been checked through the normal practical operational analysis that should be done in advance of such changes.

Whether this case was unforeseeable or simply unforeseen does not, of itself, support my case that there is a systemic problem that crosses Australian jurisdictions and requires major change to overcome. A few case studies does not make a case. They may be isolated examples of failure. Rather, I have to show that there is a pattern of behaviour and of results.

In doing so, I have to disentangle, categorise and simplify, a variety of interacting variables.

Staying with the unforeseen case, there is a difference between an unforeseen and an adverse effect. An unforeseen effect could in fact be positive. An adverse effect may not be really unforeseen. A Government may argue that you cannot make an omelet without breaking a few eggs, that the illegal detention of Australian citizens is a price worth paying to protect our borders. In this event, we have a new set of arguments. Did we in fact want an omelet? Did we have to break the eggs? Could we have achieved the same result in a different way?

I also have a problem in explaining how things work to a lay reader who does not understand the system and may indeed be part of the problem!

In demanding that the Tasmanian Government link drivers licenses to school attendance, the Tasmanian opposition obviously felt that it was playing to public opinion. The rise of issues politics, the increasing tendency to play too often short term public reactions, is one of the core reasons why we now have a systemic public policy problem.

I will be discussing this a little later in the series, again using case studies to illustrate my points. For the moment, I simply note that it adds to the difficulties in bringing about real change.

Postscript on drivers licenses

Just a personal postscript on the drivers license issue.

Youngest is working part time at the airport in Sydney, starting at 5.30am. This morning she drove.

Both daughters started to learn to drive under the fifty hour regime. When the NSW Government changed the rules from 50 to 120 hours, those who already had their learner's permits stayed on the old regime, but had to acquire their license within a certain time frame.

Eldest busy with university, sport and an active social life let her permit lapse. With parents, public transport and boyfriends with licenses, she did not need to drive herself. Now she is on the 120 hour regime, regrets not moving forward, but is kind of stuck for the present.

There is still a boy thing about cars in that boys are more likely to make the effort. In a very odd way, this has reinforced an old gender stereotype, boys who drive, girls who are driven.

On the way to the airport I asked youngest how many hours she now had up. She said twenty two. She has to get to fifty and her provisional license by 21 December or go onto the 120 hours. So there is now a fair bit of pressure.

At twenty two hours and expressed in skill terms, youngest is not ready yet to get her license. She can drive without turning my already grey hair greyer, but the skills aren't automatic.

Part of her problem is that her driving practice has been sporadic. As she said, you have to do it in solid blocks. A second problem is that she is learning on a manual.

On the way to the airport, I told her about the attempted car-jacking that failed because those doing it could not drive a manual - see A problem with gears. She laughed, and said that she must tell her friends, all of whom are learning on automatics.

Under the old regime, you got your license and then drove without restriction. There were a lot of crashes in my age group because people could drive, but actually pushed outside the envelope set by their skill sets and judgement. We now have quite restrictive provisional license requirements intended to address this problem.

In theory, the whole system was meant to be output (skills) focused. Once you got to a certain skills point, then you got you license. However, there were then restrictions on what you could do for a period to allow skills to build through practice.

In practice, the whole system has become quite rigidly time and input based. It is now actually easier and a lot quicker to get an unrestricted pilots license than a NSW drivers license.

Note to readers:

This is one of a month long series on the need for reform in Australia's approach to public policy and administration.

Consider yourself the judge or jury as I present the evidence. Most posts will be short, introductions to other writing. My argument is that we now have a systemic pattern of failure. You have to decide whether or not I am right and, if so, what you think that we should do about it.

If you want to follow the whole series through, you can click reforming Australian public policy on the side bar. This will bring the whole series up. Alternatively, if you want to follow the whole series through from the first post, click here and then click next at the end of each post.

Next