Of all the hundreds of blog posts I have written since 2003, the one that sparked the most interest was this one from ten years ago, about the closure of the milk bar at the corner of Barkly and Canning Streets in Carlton. The post made it into one of Andrew Leigh’s books, and for years afterwards I was contacted by locals wanting to know more. Milk bars were part of growing up in Australia for anyone now middle aged or older, and I think the post resonated because it tapped into childhood nostalgia.
In 2009, I put the milk bar’s demise down to the redevelopment opportunities of a prime piece of Carlton real estate. The same people who in the 1970s would indulge themselves spending 20 cents on a bag of sweets at the milk bar were now willing to pay over a million dollars to live in the inner city. But that turned out to be an optimistic thought.
Instead the old milk bar has, apart from the occasional squatter, now been vacant for a decade. Today, it is boarded up and covered in graffiti. I expect there is some story that explains ten years of inactivity, and why someone would forgo rent on the milk bar or the large amount a developer would pay for the land. But if we can’t have our milk bar back, a new house or apartments would be better than the current eyesore.
Barkly and Canning street corner ex-milk bar, 22 December 2019
Barkly and Canning street corner milk bar on its last day, 20 December 2009
(This review is cross-posted at Goodreads.)
Theorists of the left and the right argue that there are tensions if not contradictions between democracy and capitalism. Left-wing theorists argue that business has undemocratic power, buying influence through political donations and altering policy by threatening to invest elsewhere. Right-wing theorists argue that democratic majorities vote for taxes and regulations that weaken incentives and undermine the efficiency of capitalist enterprises.
Judged by the normative standards of these theorists, these critiques have something to them. But judged by some other standard, such as elected governments maintaining capitalist economic systems with widespread high living standards over long periods of time, the ‘advanced capitalist democracies’ discussed in Democracy and prosperity: reinventing capitalism through a turbulent century, look very successful compared to other political and economic combinations.
One contention of the book’s authors, Torben Iversen and David Soskice, is that a symbiotic relationship between democracy and capitalism contributes to the success of these countries. Although business and rich people may, at least initially, resist the increased taxes that democracies impose for social policy programs, often in the long run these programs contribute to economic success.
For example, education is electorally popular and provides business with the highly-skilled workforces they need. Government unemployment, health, and retirement programs reduce workers’ uncertainty about their future welfare, reducing short-termist behaviour and industrial conflict. Workers are less dependent on their employers.
In turn, key constituencies in advanced capitalist democracies depend on a successful economy for their own jobs and the tax revenues that support social programs. They support political parties that competently deliver economic growth, limiting the political potential of parties that would damage the capitalist economy. The rejection of Jeremy Corbyn’s Labour in Britain is an example. Continue reading “The symbiosis of capitalism and democracy”
(This is cross-posted at Goodreads.)
The Light that Failed’s first sentence says ‘the future was better yesterday’. And so it was. Thirty years ago there were high hopes for the future of liberal democracy, especially in Central Europe, which had just peacefully ended communist rule. But that is yesterday’s future, replaced now with Central European governments dismantling liberal democracy, authoritarian regimes in Russia and China causing trouble around the world, and many established liberal democracies suffering from serious political dysfunction.
In trying to explain what is going on, The Light that Failed: A Reckoning, reads to me more like a pre-20th century political classic than contemporary political analysis (one of its authors, Stephen Holmes, has previously written excellent books on the history of liberalism and its critics; I have ordered the English-language books of his Bulgarian co-author Ivan Krastev). The Light that Failed has evidence and examples, but not the relentless facts and data of recent journalistic or academic accounts. Instead, its contribution is the categories it uses to understand events and its psychological insight.
The book’s central concept is imitation. Individuals and societies are always copying each other, but this process can be experienced in very different ways. In Central Europe, the first post-communist political leaders and many of their people wanted to imitate the West: democracy, individual freedom, a market economy. And a triumphalist West wanted its model to be imitated; including in countries where the political elites and many of their people were not asking for advice. Continue reading “History gone wrong: liberal democracy’s failure to flourish in Central Europe and Russia”
The Australian this morning runs a left-field editorial opposing the cut to the discount for paying student contributions upfront.
Completely ignoring the only compelling rationale for the discount, reducing the cost of the HELP scheme, the editorial drifts off into various social policy objectives: encouraging students to use some of their part-time earnings to reduce their debts, and encouraging the ‘responsible behaviour’ of families who assist their students by reducing their debt.
But why is increasing public debt to decrease private debt a good thing?
And if increasing public debt to decrease private debt is a good thing, why restrict it to families with university students?
No wonder we are sinking in a sea of debt when even the most economically rational newspaper resists sensible plans to reduce government spending.
The editorial also incorrectly states that the change will reduce revenue flows to universities. Instead, universities will get slightly more revenue directly from students and slightly less directly from government. We’ll have to wait for the forward estimates next week to see what the government thinks, but after factoring in some behaviour change I’d estimate a $70-80 million shift.
Rajat asks about deferral trends over time. The figure below is the percent of total student liabilities deferred 1989-2009.
Source: Higher Education Report 2009.
As you can see, the trend is consistent with discount rate having an effect. When it increased in 1993 from 15% to 25%, more people paid up-front and the deferral rate dropped. When the discount decreased from 25% to 20% in 2005, the deferral rate increased, ie fewer people considered it worth paying upfront.
The data is also consistent with the effect building over time. Continue reading “The longer-term effects of upfront discount rates”
According to media reports this morning, the government is planning to cut the discount on student contributions paid up-front from 20% to 10%.
According to The Age’s version of things, ‘the government will justify the cut on the grounds that the benefit goes mostly to wealthy families.’
But contrary to common impressions, the discount was not intended as a benefit to anyone other than taxpayers. Because it is very expensive to lend money at zero real interest, students paying up-front can save the goverment money. In a couple of scenarios I did last year, for male arts and law graduates earning median incomes in professional or managerial jobs, it was slightly cheaper for the federal government to pay the discount than to pay the interest subsidy on the HELP debt.
However, the economics of the discount depend on how long students would otherwise take to repay. For quick repayers (or people who would pay upfront anyway), the government would be better off not giving the discount. If students are going to repay slowly, the discount looks like a better deal for taxpayers. Another factor is that up-front payment removes the risk of non-repayment.
Whether or not halving the discount makes financial sense for the government depends on the behavioural response. Continue reading “Should the upfront student contribution discount be halved?”
While conservative elements of the Australian Right are strongly opposed to unauthorised refugee boat arrivals, there has been a quirky argument from its more libertarian elements that we should prefer them to migrants plucked out of refugee camps. Chris Berg made a version of this argument in 2009:
Aren’t people who are willing to risk their lives on boats propelled by motorbike engines to get to a society with social and economic freedom exactly the sort of people we want in Australia?
In other words, making it to Australia by boat is a kind of screening process, demonstrating some economic success at home to pay people smugglers, organisational skills, and willingness to take risks, all of which could be helpful attributes once they arrive. The people sitting passively in refugee camps may have shown some survival skills, but not much else.
It’s an appealingly counter-intuitive argument. Unfortunately the data in a report on humanitarian migrant outcomes (for people who had been here one to five years) published late last week (large pdf) leads me to the conclusion that it probably isn’t right. Continue reading “Is arriving by boat a good proxy for refugee migrant quality?”
To great controversy, England is lifting the cap on university fees to £6,000, with charges up to £9,000 if access measures are put in place. To the government’s unpleasant political surprise, most are going to the full £9,000 from 2012. This is similar to the experience in Australia in 2005, when universities were permitted to charge up to 25% more than the previous HECS rates (except in education and nursing). Pretty soon all were charging the maximum fee.
While not all these fees are rip-off prices, given the cuts to tuition subsidies, I don’t think this is a very good outcome. Even on zero subsidy, in some courses £9,000 in income would translate into significantly more than cost, if Australian costs are any guide. So what’s going wrong?
Without being expert on English higher education, the mistake appears to me to be partially deregulating prices while regulating supply. In the UK as here in 2005, when the government restricts supply to well below demand it’s a licence to increase prices. If people want a degree, they will have to take what is offered even if it is over-priced (though we are yet to see if in practice demand will dip in the UK). Uncapping supply and letting new entrants into the system would create more pressure to keep fees down. Continue reading “Why are English uni students going to be charged so much?”
In the 1990s I was interested in the social capital literature, as a way of empirically addressing some of the ‘communitarian’ criticisms of liberalism that I was writing about in my eventually abandoned PhD. Social democrats – such as Eva Cox in her Boyer lectures A Truly Civil Society – thought that there was a positive relationship between big government and social capital. I thought the opposite was more likely.
Over Easter I read this article by Isabelle Stadelman-Steffen using OECD social spending data and the results of European and World Values Survey questions on volunteering.
Overall for ‘social’ volunteering – for social welfare, health or community action on poverty, employment, housing or racial equality purposes – there was clearly a negative statistical relationship with public welfare spending. This is consistent with the ‘crowding out’ hypothesis, that to some extent the state displaces voluntary activity. In further support of this hypothesis, a large welfare state had no statistically significant crowding out effect for other voluntary activities. Continue reading “Crowding out and in”
Some Vice-Chancellors will be relieved that tertiary education minister has issued a media release talking up the promised demand-driven funding system. It is an obvious savings measure for a cash-strapped government, with no parliamentary approval required for delay and few punters having any idea what it is.
Data released by Evans’ office (though not in the link above) can be compared to funding agreement data to see university ‘over-enrolment’ levels. Under a phase-in to the demand-driven system, universities can receive government tuition funding up to 10% more than their agreed amount for 2010 and 2011 (up from 5% under the previous government). For students enrolled above that, they get the student contribution amount but not any direct Commonwealth tuition subsidy.
Though we can’t directly extrapolate from student numbers to $ amounts, 23 universities have hit 10% undergraduate over-enrolment, and 7 have hit 20% undergraduate over-enrolment. Australian Catholic University is a staggering 41% over-enrolled. Across the whole system, over-enrolment is at 13%.* Continue reading “Our ‘over-enrolled’ universities”