Ross Gittins is the Economics Editor of The Sydney Morning Herald and an economic columnist for The Age. He is a winner of the Citibank Pan Asia award for excellence in financial journalism and has been a Nuffield Press fellow at Wolfson College, Cambridge, and a journalist-in-residence at the Department of Economics at the University of Melbourne. Ross is frequently called upon to comment on the economic issues of the day and has written and contributed to many books and periodicals. His most recent books are Gittinomics (Allen + Unwin, 2007) and The Happy Economist (Allen + Unwin, 2011).

Gittins’ Gospel

The Economics of Just About Everything

By Ross Gittins

Allen & Unwin

Copyright © 2012 Ross Gittins
All rights reserved.
ISBN: 978-1-74331-355-8

Contents

Chapter 1 Introduction: The gospel according to Gittins,
Chapter 2 Vintage Gittins,
Chapter 3 We’re only human,
Chapter 4 A better way of working,
Chapter 5 We’re slipping on the fairness front,
Chapter 6 Lies, damned lies and independent modelling,
Chapter 7 The media: love ’em and hate ’em,
Chapter 8 We’ve only got one planet,
Chapter 9 An economic espresso: strong but short,
Chapter 10 Biggest boom since the gold rush,
Chapter 11 Change is accelerating,
Chapter 12 The never-ending GFC,
Chapter 13 Budgets, deficits and debt,
Chapter 14 Our productivity puzzle,
Afterword,

CHAPTER 1

INTRODUCTION: THE GOSPEL ACCORDING TO GITTINS

You need to know my father was a preacher, and I take after him. For 45 years my father, a corps officer of the Salvation Army, preached sermons almost every Sunday morning and evening to the tiny congregations of a long succession of churches across Queensland and New South Wales. He wasn’t a fire-and-brimstone man, more a Bible teacher.

So it doesn’t really surprise me that I’ve ended up spending more than 30 years writing three columns a week for the Sydney Morning Herald and, more recently, The Age. I, too, am more teacher than preacher. But journalists aren’t supposed to teach, so I say I’m an exponent of ‘explanatory journalism’.

Economics — the study of the everyday business of life — is an obviously important subject, but many find its jargon and figures offputting, even incomprehensible. So I’ve spent my career trying to explain economics and the workings of the economy to my readers. As you’ll see in many of the columns in this collection, often I act as a translator, taking an article or speech by some economic authority and turning it into something I hope the educated reader finds accessible and interesting.

I’ve been explaining economics to myself, too. Although I have three years of economics in my commerce degree, I’d forgotten most of it before I left chartered accounting, became a cadet journalist and had the editor suggest I specialise in economic reporting. So I’ve been learning as I’ve gone along. Even today I continue exploring conventional — and, increasingly, unconventional — economics, so my views have evolved over the years.

In the early part of my career I acted as self-appointed missionary for the economics profession, not just explaining what it was on about — something I still do — but seeking to convert my readers to the economists’ way of thinking. These days — being older and, I hope, wiser — I take a more agnostic line, not necessarily endorsing all the propositions I explain.

It took me far too long to realise that all my loyalty was owed to my readers. These days I offer them not just an explanation of official economic policy but also — much like the paper’s theatre critic — a critique of economics, economists and economic arguments. Try to mislead my readers with a bit of pseudo-economic bulldust and it’s my duty to call you out.

But if I were going to criticise politicians and lobby groups my approach isn’t to keep shifting to the opposite position just for the sake of fault-finding. I prefer to assess their arguments and performance from a fixed position, one determined not by partisanship but by my (evolving) view of how the world works and my values concerning the way it should work. If you can detect signs of my upbringing in those values — particularly the columns in Chapter 2 — it’s not something I’m ashamed of.

Despite my role as readers’ servant, I am expected to take a position — readers hate wishy-washy, two-handed economists — and over the years I have acquired some pretty firm views about how the world works and could work better. So this collection of my columns — covering just the past three years — has been chosen to include those I thought you wouldn’t mind reading again, but also to highlight the main messages I’ve been trying to get over.

That’s what I mean by Gittins’ Gospel. The continuing themes in my work. The essence of what I believe about economics, politics and life. But without any claim to divine inspiration (!) nor any implication that my best version of the truth could remotely be regarded as gospel truth.

What you’ll find in this book can be regarded as ‘good news’, however, in the sense that I’m no pessimist nor alarmist and stand against the media’s excessive preoccupation with bad news and their predilection for finding the worst in everything.

One tenet of my gospel is that conventional economics incorporates a quite inadequate and misleading model of human behaviour. Psychologists, sociologists, neuroscientists and evolutionary biologists have a much richer understanding of how we tick. Chapter 3, ‘We’re only human’, brings together many of the interesting things I’ve found as I’ve explored this wider scholarship.

Another tenet is that there’s more to life than the single-minded pursuit of an ever-higher material standard of living that many business people, economists and politicians seem to think is our raison d’être. Work can be seen as a necessary evil in pursuit of money, or as a source of enjoyment in its own right, given the right attitudes and arrangements. Chapter 4, ‘A better way of working’, explores the ways our working lives could be made more satisfying. This would not bring capitalism crashing to its knees, and could quite conceivably make workplaces more productive as well as more enjoyable.

I believe the fruits of our remarkably successful economy should be distributed reasonably fairly between us. In recent years, however, the distribution has become more unequal, as I explain in Chapter 5, ‘We’re slipping on the fairness front’.

It’s become fashionable for governments and interest groups to advance their case by quoting the results of economic modelling. But, paradoxically, modelling is both surprisingly primitive and hugely complicated. And most modelling exercises rest on carefully selected assumptions, meaning they don’t actually prove what their sponsors say they do. Chapter 6, ‘Lies, damned lies and independent modelling’, exposes four cases where modelling has been used to bamboozle non-economists. My conscience tells me I should do more of this.

I love being a journalist and the pulpit it gives me to shout my views to the world. Our lives — and our governance — would be much poorer without the media. But many people misunderstand what the news media do and the way they do it. The media need to come with a consumer warning, which is what I try to provide in Chapter 7, ‘The media: love ’em and hate ’em’.

The older I get the more convinced I become of the need to protect our natural environment. This should certainly be a core activity for economists. The ‘economic way of thinking’ puts the economy in one box and the environment in another. But the global economy is built on the global ecosystem, so they need to be in the same conceptual box. Economic activity adversely affects the ecosystem and, when that damage reaches a critical point, it can rebound on the economy, causing great loss and disruption. I explore this interrelationship in Chapter 8, ‘We’ve only got one planet’.

My critique of the inadequacies of conventional economics shouldn’t be taken to imply that I regard it as of little value. Quite the contrary. So in Chapter 9, ‘An economic espresso: strong but short’, I offer a primer on the key insights of the discipline.

In recent years — and in many years to come — no development has had more profound effects on the economy, favourable and unfavourable, than the resources boom. It’s a subject that fascinates me, but in Chapter 10, ‘Biggest boom since the gold rush’, I’ve selected just three articles from all those I’ve written. A point I’ve stressed is that, unlike earlier commodity booms, this one is more ‘structural’ (lasting) than ‘cyclical’ (temporary).

The resources boom will change the structure of our economy, but it is by no means the only structural change affecting us at present. As I argue in Chapter 11, ‘Change is accelerating’, our belated return to a more normal rate of household saving has implications for our retailers, as does consumers’ hastening shift from goods to services. Longer term, however, the rise of the internet will have much bigger implications, as it already is having for newspapers, books, movies and recorded music.

If the biggest shock to hit Australia in decades is the resources boom, the biggest to hit the world is the global financial crisis. Chapter 12, ‘The never-ending GFC’, limits to six the number of articles in which I attempt to assess its causes and consequences. But it’s far too soon to make a final assessment.

Sometimes even someone with his own gospel to preach can’t avoid being waylaid by the wrong-headed excitements of the moment. Chapter 13, ‘Budgets, deficits and debt’, tries to keep it short and sensible.

By contrast, the less-sensationalised debate about our weak rate of improvement in productivity — output per hour worked — and what should be done about it is far more worthy of attention. Ever-improving productivity lies at the very heart of the developed world’s ever-improving material standard of living. For those so committed to continuing that apparent progress, nothing could be more important. Surprisingly, however, most contributors to the debate have devoted little time to ascertaining the causes of our seemingly weak performance in their rush to use the presumed problem as a justification for their pet proposals. In Chapter 14, ‘Our productivity puzzle’, I collect together my own, far more sceptical and idiosyncratic contributions.

For my convenience, this book uses the versions of my columns I submitted to the Herald‘s sub-editors, rather than the versions published. A few are a little longer than those published. I’ve also written my own, more descriptive, headlines. The figures quoted in the columns were accurate at the time when I wrote them, but may have changed (or been revised) since then.

My thanks to Patrick Gallagher of Allen & Unwin for seeing the potential of such a collection long before I did. And thanks to my succession of long-suffering editors at the Herald: Alan Oakley, Peter Fray and Amanda Wilson.

CHAPTER 2

VINTAGE GITTINS

Wednesday, 27 May 2009

Living longer, retiring later

Work till you drop. John Howard talked about it, now Kevin Rudd’s done it. If you’re appalled by the decision to raise the age pension to 67 years, my advice is to get used to it. There’s more of it to come because a lot of factors are pushing in that direction.

Governments throughout the developed world are edging up the pension age. The United States, Germany, Iceland, Norway and Denmark are moving their retirement age to 67, if they’re not there already. Britain is moving its pension age to 68.

Are they all doing it to save the taxpayer money? Of course. But that doesn’t stop it being a sensible move. If we — and, more particularly, our children and grandchildren — were prepared to pay a lot more in taxation it wouldn’t be necessary but, since they will be no keener on that idea than we are, it is.

We had the first inkling that things were moving in this direction as long ago as 1993, when Paul Keating decided to slowly raise the pension age for women from 60 to 65.

The pension age for men hasn’t changed from 65 since the age pension was introduced 100 years ago. Then, only about half of all men reached the pension age. Those who did could have expected to spend 11 years in retirement. These days, more that 85 per cent of males make it to 65, and those who do can expect to spend more than 19 years in retirement.

Those comparisons give you some idea of how much more expensive to taxpayers the age pension has become. But they also demonstrate how much longer we’re living.

Increased longevity is the first reason the average age of the population is rising. The long-term decline in the fertility rate is the other reason. So we have the proportion of the population in retirement growing while the proportion of working age declines. (And then you have the imminent retirement of the bulge of baby-boomers to make the problem of population ageing acute as well as chronic.)

When you think about it, it doesn’t make much sense for all of our increasing longevity to be spent in retirement. Especially not when, along with our longer lives, we’re also healthier.

When my father was the age I am now, I was 19. And, like all teenage sons, I was casting a keen and critical eye over my dad. I’ve realised only lately that by then my father was long past his prime, on the downhill run to retirement.

It was only when my older sisters told me of the lengths to which he had gone to help the itinerant unemployed who flocked to the back door of his Salvation Army quarters in country Queensland during the Depression that I realised how much I had underestimated him.

By contrast, I like to think that, at 61, I’m still in my prime, neither old nor tired (but, in truth, not as physically fit as he was, nor as saintly).

If these days we’re in better shape than our parents were at the same age, it makes sense for us to retire later — especially since increased education means we’re joining the workforce ever later.

Our growing affluence could allow us to work less and enjoy more leisure, it’s true. But it makes more sense for us to do that by working fewer hours each week than by devoting fewer years of our life to paid work. (The fact that in recent decades we haven’t chosen to take our increased productivity in the form of leisure rather than income is a sign of our greater materialism.)

I’m a great believer in the virtue of work. Humans are a working animal; we derive much satisfaction, meaning and self-identity from our work. It’s a common delusion to imagine our lives will suddenly be a lot happier once we’re able to stop working. Happiness and healthiness in retirement seem to turn heavily on our ability to keep active — both physically and mentally. It wouldn’t surprise me if it could be shown that those who retire later end up living longer. Humans are a working animal.

The fact that we’re in better shape for work than our parents were at the same age — and that our kids will be in better shape than we are — is partly a product of higher levels of general health, but also a product of the less arduous work we do, thanks to technological advances. Even those of us who continue to do physical labour would these days do it with the aid of a lot more labour-saving equipment.

But what then of the bitter objections from some unions that their members, having been doing heavy work since they left school at 15, just couldn’t keep it up for another two years without many accidents and much expense? I suspect that, as always when interest groups are seeking public sympathy in their efforts to lobby government, the unions are laying it on a bit thick.

More fundamentally, we simply can’t design an economy-wide pension system for the 21st century around the peculiar needs of an ever-diminishing minority of manual labourers.

What you do in such cases is make special arrangements to deal with the minority’s problem. In this case, those arrangements have long existed. When physical workers’ bodies are so broken they can no longer be gainfully employed, they go onto the disability support pension (which is little different to the age pension) until they reach the age pension age.

I don’t doubt that, assuming life expectancy continues to increase over the 21st century, the pension age will be raised further. In the meantime, the government has before it a far more controversial recommendation that the age at which people may gain access to their superannuation savings be raised from the present 55 (or, on a tax-free basis, 60) to the new 67.

Raising the retirement age gives both taxpayers and the individual a double benefit: more years to save in preparation for fewer years without income from a wage.

And remember that lifting the pension age only partly covers the huge long-term cost of Rudd’s related decision to raise the base rate of the age pension.

Wednesday, 9 September 2009

Markets are good — but need regulating

One of the things you’re supposed to learn in economics is to avoid extremes. It’s never all or nothing. Everything has advantages and disadvantages. And any way you jump has an opportunity cost, because there are lots of things you’d like to do with your limited means. So life is about trade-offs between rival objectives, and you should optimise rather than maximise.

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