Housing shortage chimera rises

By Philip Soos and Paul D. Egan Over recent weeks, commentators have repeatedly claimed Australia’s high housing prices are due to a supply shortage. Former Treasurer Peter Costello blamed surging housing prices on a shortage, as did Alan Kohler. Treasurer Joe Hockey has a similar perspective, claiming: It is just an infinite mantra for international


Reconciling the economics of debt

Currently there is worldwide concern about debt. It is widely claimed that the mainstream economic community could not see the financial crisis coming because it ‘looked through’ money and debt to the real economy. And since debt, or in fact the dynamics of debt, seem to be important factors in the crisis, this was a failure of


Unraveling pension-system confusion

I’m constantly surprised at how fundamental concepts in economics are so easily confused as soon as they are applied to real life policy. Take the issue of fully-funded versus pay-go pension systems. In a pay-go system, pensions are paid to qualifying individuals each year by the government out of general revenues. In the fully-funded system


Can a nation save?

I want to offer here a brief analysis of how I think about saving and investment, and why it is important to be very clear about these concepts in policy discussions. Usually economists equate saving and investment when they shouldn’t. I find it easier to think of savings as not consuming today in order to


Unique economics of health care

I was prompted to write this follow-up on health economics after seeing a recent post by blogger Noah Smith, who weighs in with some reasonable views after some intense criticism of the ‘freakonomic’ Chicago-boy Steven Levitt. In a meeting with UK PM David Cameron, Levitt and his co-author apparently made some rather absurd remarks about


Piketty’s wealth tax is real, and it works

As the Piketty-train rolls on it leaves behind it a trail of confusion in economic circles about the proposition to reduce inequality via a global wealth tax. Economic thinking, it seems, floats on the political tide. The authors of this paper in 2006 noted that:r …at present there appears to be little interest in the


Poverty is not “complex”

Poverty is a social issue that usually attracts the label ‘tough problem’. Sometimes, when a bit of flair is in order, it is labelled ‘complex’ or ‘multi-dimensional’. This strikes me as a major cop out. Reducing or eliminating poverty is not ‘tough’ in any technical sense. The ‘tough’ part is our moral baggage – the


The basic flaw in all economic modelling

The Lucas Critique is summarised by Mark Buchanan as follows: Any prior regularity that might have existed in a set of data had been present only in the context of the policies prevailing in the past. Change the policies and those changes, by influencing the way people act and anticipate the future, may well strongly


The civil war within economics

Manchester University’s Post-Crash Economics Society (PCES) released a report recently into the way economics is currently taught at Manchester, which is relevant to economics teaching at universities worldwide. Their well articulated advocacy for pluralism in economics teaching, where neoclassical approaches are just one of many analytic techniques in the curriculum, has tapped into the current


RBA economics competition

From the RBA today: The Reserve Bank of Australia has launched this year’s RBA/ESA Economics Competition, in conjunction with the Economic Society of Australia (ESA) and the UNSW Economics Society. The competition invites students to write an essay on a topical economic issue affecting Australia. This year, the competition topic is Australian Productivity Growth. Judges will


Corrupting Piketty in the 21st century

The media attention surrounding French economist Thomas Piketty’s new book Capital in the 21st Century is growing ever more fervent. Here are my two cents. To me three things are clear to be about this book. First, it is a timely reminder that distribution of resources within society matters. This is especially important for an


Robinson: An introduction to economic doctrine

Imagine a modern economics textbook comprising of three parts, with the last two being Analysis and Modern Problems. What do you think would the first part would be called? I doubt your answer was Economic Doctrines. But that’s exactly how Joan Robinson began her textbook An Introduction to Modern Economics back in 1973. For Robinson,


Understanding the confidence fairy

One strange claim in the economic debate that followed the financial crisis was the impact of uncertainty on the path of investment and subsequently the recovery in economic activity. Taking just one example, it was claimed here that “fiscal policy uncertainty has directly harmed the American economy by increasing the unemployment rate by 0.6%, or


Was Marx right…about America?

Cross-posted from Yves Smith at Naked Capitalism. We participated in a Room for Debate forum at the New York Times, on the topic of “Was Marx Right?” Readers are likely to say, “But of course!” Yet Marx had such a large opus and his forecasts were so bold that any fair reading has to come


Spartan morality and utilitarian fantasy

I want to show how the morality on display in the movie 300, in which babies are cast into a chasm for minor deformities or other weaknesses and illnesses, is easily compatible with utilitarian logic. In doing so I hope to show that utilitarianism provides completely insufficient scaffolding around moral reasoning to eliminate almost any


Wrong lesson from Adam Smith’s pin factory

We commonly use stories to teach new ideas, but all too often end up taking the wrong lessons from them. My favourite example is the Coase theorem. Economics textbooks describe theorem as saying that it doesn’t matter where you place the liability for pollution, because in a world of zero transaction costs the right to pollute


All taxes come out of rents

Mason Gaffney has for years been describing the nature of economic rents and its relation to taxation. His key idea, which would have been uncontroversial prior to the rise of the neoclassical school, is that all taxes come out of rents (ATCOR). This means that a single tax on the rents earned from ownership of natural


Inequality is about capital vs labour

I was in a seminar recently where the presenter explored some trends in income inequality in Australia, Canada and the US over the past century.  While there was much to like about economists trying to unravel this issue, including the repeated reminders that representative agent models cannot deal with this problem, I had some niggling


The 140 year cycle in macroeconomic thought

I am reading Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy by Henry George (free ebook available here). I’ve been fascinated so far that the economic debates about the long recession of the 1870s are almost identical to those still occurring


Open borders: A morality play by the 1%

Alex Tabarrok, who I rarely agree with, has recently argued his moral position on open borders here. There is no doubt that most moral frameworks also support his position. As do I in the mere theoretical sense. As Tabarrok argues How can it be moral that through the mere accident of birth some people are imprisoned


Economics is applied morality

The ignorance of many highly experienced economists to the moral foundations of their work is quite alarming. As a group, economists typically internalise the utilitarian morality embedded in their methodology to such a degree that they are happy to promote economic theory and practice as an objective scientific approach. To set a more honest course


Poverty is always relative

This post was sparked by a piece over at The Drum (ABC) by the CIS’s Matthew Taylor. Taylor’s argument, which is repeated by many others of similar political disposition (such as Adam Creighton) is that relative poverty doesn’t matter, only ‘absolute’ poverty. If the poor are getting richer in real terms, then it doesn’t matter


Organ markets and the problem of real options

The fanfare surrounding organ markets within the economics community is often extreme. For many it is the last frontier of market fundamentalism, with some even promoting a futures market in organs. For others however, organ markets are so obviously ethically and morally questionable that these ‘non-economic’ concerns override their otherwise vigorous support for market solutions.


Why is return-seeking optimal?

In my rather long introductory post on the new theory of the firm I developed with Brendan Markey-Towler, I listed many important characteristics of our model. I now want to invest some time expanding on these points in a series of posts. The first characteristic of our model is the way we relaxed assumptions about


Time for a new theory of the firm

I don’t know how best to say it, so here it goes – the current mainstream theory of the firm is dodgy. Real dodgy. Put simply, the theory of the firm that we all know and love tolerate, is a neat mathematical construction contrived to support an already established, but flawed, theory of markets. If


What equality-efficiency trade-off?

As my online debates with ‘well-trained’ economists continue with full force I will again use this blog as an outlet to expand on arguments that can’t be made in 140 characters or less, or those that simply attract religiously-held views via comment pages. On Facebook an otherwise innocuous comment, that it is “undeniable there is


Policy and the worship of prediction markets

The idea of the market as ‘information aggregator’ is, like many ideas, probably as old as humanity itself, but Friedrich Hayek is usually credited with popularising the idea in his 1945 article “The Use of Knowledge in Society”. He writes The peculiar character of the problem of a rational economic order is determined precisely by


You can’t borrow from the future!

“We are borrowing from the future” is a common phrase you might hear from economists musing about the state of the economy; about the behaviour of individuals, businesses and especially of government. These statements arise in discussions about ageing, stimulus, social security, public investment, public debts, health, education and almost every other public policy topics


Economics makes you selfish

I was motivated to write this post by fellow Australian young economist Gabriela D’Souza “After Taking Economics, Students Become More Selfish and Expect Worse of Others” Well that’s just common sense. — Gabriela D’Souza (@gabster0191) October 24, 2013 I disagree. Selfishness is not common sense. It all seems to have started with this article, part