Value or Marginal Cost and Price?

Carmela Chivers discusses Mariana Mazzucato's book The Value of Everything in Makers and takers.

If neoliberalism is dead, what should take its place?
In her new book, The Value of Everything, Mariana Mazzucato draws a roadmap to an alternative economic future — one that measures productive activity by the outcomes it generates rather than the money it makes.

In a brave and uncompromising take on the economic developments of the past forty years, Mazzucato calls out the shallow economics that allowed rent-seekers to proliferate and caused policy-makers to lose sight of the public interest. To change our economic system for the better, she says, economists need better tools to distinguish productive from unproductive activity. In other words, we need a new theory of “value.”

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The book is full of examples of how we’ve got this wrong. Three whole chapters are dedicated to the explosion since 1980 of the finance industry, which Mazzucato sees as more a value extractor than a value creator. And she shows how confusion about value has masked the real story of how value is created. Innovation is mistakenly seen as the result of a few smart inventors tinkering in their sheds, rather than a collaborative and iterative process, often supported by public funds.

The implications are large. Without a strong idea of what sort of activities are productive, policy-makers are at risk of being “captured” by stories of wealth creation. The policies that result (such as tight intellectual property laws) may favour incumbents, inhibit innovation and promote “unproductive” entrepreneurship.

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Mazzucato offers a glimpse of an alternative: a framework that puts value back at the heart of economics. Leaving behind the labour theory of the early economists, and moving beyond simply linking of value to prices, she suggests a new way of identifying productive activity: the notion that value comes from actions that promote the sort of economy and society we want.

The failure of asset recycling

In Asset recycling may look new and exciting. But it's the last gasp of a failed model John Quiggin explains why asset recycling is a dud.

Viewed from the other side of the planet, asset recycling may look new and exciting. In reality, however, it was the last gasp of a failed model. The government’s asset recycling fund, established in 2014, was shut down in 2016, with barely half of its budget allocation spent.

The core problem with the “recycling” idea is that income-generating assets were sold to finance new investments that did not generate income. Rather like selling your house to buy an expensive car, this is a trick that can only be done once, and leaves governments with increased net debt.

Kansas vs California: a tale of tax

In Donnie, We’re Not In Kansas Anymore David Cay Johnston compares the impact of tax cuts in Kansas and tax rises in California on their respective economies.

Since the tax changes, the California economy has grown 1.7 times faster than the Kansas economy. Perhaps even more significant, California grew its share of the national economy from 13.8 % of the U.S. Gross Domestic Product to 14.2%. Kansas stayed flat at 0.8% of national GDP.

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Further west, in tax-raising California, jobs increased much faster. While jobs grew in Kansas by 3.8%, in California the lift was 11.8%.

Globalisation vs Tribalism

In Lure of globalisation battles our instinctive tribalism Ross Gittins cites the book Choosing Openness by Dr Andrew Leigh in arguing that we tend to have a distrust of outsiders because for most of human history people have lived in small groups of up to 150 people.

Drawing on the work of British anthropologist Robin Dunbar, he argues that "for most of history, humans lived in groups of about 150 people" – a figure known as "Dunbar's number".

Such groups were big enough for some specialisation, but small enough for everyone to know and trust everyone else. People were born, mated, hunted and died within their small community.

However, many of us now live in much large communities.

But while hunkering down in the face of difference might have been a useful evolutionary strategy in the past, the growth of cities changed the equation, Leigh argues.

Cities are bound together by not by familial relationships, but by rules and norms of acceptable behaviour.

For hundreds of years, the most productive cities have been those that welcome visitors. In a primitive tribe, a dislike of difference can keep you alive. In a city, it's likely to just make you poorer.

"In this sense, a distrust of diversity is a bit like wisdom teeth – an evolutionary vestige that once helped us grind up plants, but now are more likely to take us on a trip to the dentist's chair."

Gittins and Leigh argue that the some populist politicians stoke our natural distrust of outsiders for political gain.

In a seminal study of the politics of hatred, the Harvard authority on urban economics Edward Glaeser noted that the key to building a powerful coalition around hate is to focus voters' anger on an "out group" that is sufficiently large to be taken seriously as a threat, but too small to be electorally decisive.

They argue that one of the four main drivers of the growth of populism is inequality.

First, slow growth in living standards when the proceeds of economic growth haven't been shared.

"In societies where prosperity is broadly shared, a cosmopolitan outlook steadily replaces traditional values of religion, deference to authority, and an exclusive focus on the security of our family and tribe," he says.

Wayne Swan on the blindness of affluence

Wayne Swan writes about The blindness of affluence and the need for a more inclusive form of prosperity.

John Quiggin on the non-problem of population ageing

In Time’s up for ageing alarmists John Quiggin argues that many of the articles on our ageing population ignore the fact that our health and quality of life for a given age are also improving. So we shouldn't think of our advancing years as an increased burden, but instead it'soffering us opportunities.

The increase in longevity produced by improved medical treatments, reductions in the risk of death, and healthier living is a huge boon for Australians, individually and collectively. Yet the framing of the issue around “population ageing” has presented it as a near-catastrophe, not only creating unnecessary negativity but also closing off discussion of the opportunities created by our longer lifespans. We need to stop talking about “population ageing” and start talking about people living longer and healthier lives.

An ageing population may not necessarily be lowering the dependency ratio

A few years back Ross Gittins wrote a column Australia's ageing population need not be a burden on taxpayers in which he argued that Australia needn't worry about the economic affects of our ageing population. This is because the actual dependency ratio is not changing. Children are also dependants, and as we age the proportion of children in the population is declining, offsetting the increase in older dependants.

He based his column on the paper ‘The ageing of the Australian population: triumph or disaster?’ by Katharine Betts, Adjunct Associate Professor of Sociology at Swinburne University of Technology.

Richard Denniss on grandfathering the Australian dream

There's a great essay in The Monthly by Richard Denniss: Grandfathering the Australian dream: House prices, insecure work and growing debts … Who can afford a stake in today’s society?

Claims Australia's unemployment data is dishonest are wrong

In To those who claim Australia's unemployment data is dishonest – please stop Greg Jericho explains why journalists need to be very careful about claims the government is lying about unemployment numbers - for that leads us down the path of "fake news".

In an era where fake news is like a virus, media organisations need to be very careful that they are not adding fuel to the bonfire of fantasies. Even with the best of intentions journalists should be wary of arguing that government data is dishonest – such as recent suggestions that the real unemployment rate is much higher than what the ABS would have us believe.

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But there is no one measure that tells the whole story.

We should ensure our coverage reflects that. There is nothing wrong with creating new labour force measures, but we should be very wary of dismissing the official rates as dishonest.

Doing so only serves to reduce people’s confidence in the impartiality of the ABS. And we should discourage anything that would give succour to politicians – such as Trump – who seek to undermine institutions by suggesting any data inconvenient to their policies is fake.

Free trade brings benefits, the TPP maybe not

In Turnbull and the TPP: desperately pressing ahead despite negligible benefits Greg Jericho finds there would likely be little economic benefit to Australia in the TPP. He has some interesting graphs on inflation and the price of motor vehicles  and textiles and footwear in Australia as protection has been removed.

Why Trump's Mexican tax is bad

Scott Phillips in Donald Trump's Mexico tax plan is bad for everyone, including Americans explains some of the problems with protectionism.

Who wrecked the budget

Forget the pundits, budget papers show Coalition – not Labor – wrecked the budget writes Western Sydney Wonk

Redistribute wealth for stability?

In It's time to focus on the redistribution of wealth to poorer workers Greg Jericho writes that "The former World Bank chief economist says that protectionism against globalisation is not the answer to the labour crisis – inclusive growth is".

Globalisation is not about to stop, and neither are the concerns of workers – especially as we are seeing in Australia a time of flat real wage growth and declining share of income going to workers.

This does not mean we need to cower and put up trade barriers which will only exacerbate the problems. But neither does this mean we can carry on still thinking only of GDP growth. To both improve our economy and also dampen the nationalistic xenophobia that quickly turns to racism, governments must adopt policy more targeted to inclusive growth. They must realise that with the greater flexibility of labour comes the need for greater emphasis on redistribution of income.

Failure to do so will only see inequality increase and the fires of nationalism – and all the dangerous sparks associated with it – burn hotter.

Investing in preschools

In More preschool is a sure-fire budget fix, in the long run. But politicians don't have the guts Jacqueline Maley writes about the economic and social benefits of investing in preschool education for all children.

The evidence is clear that this near-magic initiative works to prevent poverty, illiteracy, social delinquency, welfare dependency, ill health, and even cardiovascular disease and obesity.

Is a living wage affordable?

In Scrap welfare and pay everyone, even the jobless, a living wage Crispin Hull argues that a living wage would not cost that much.

Inequality and health - Dr Norman Swan interviews Sir Michael Marmot

In this video Dr Norman Swan interviews Sir Michael Marmot about the impact of inequality on health outcomes.

Has neoliberal capitalism had its day?

In Developed economies are not suffering from the consequences of a financial crash, but from a structural crisis of neoliberal capitalism, an extract from his book, David M. Kotz writes that the current global economic slowdown in developed economies is due to a structural crisis of the "neoliberal form of capitalism".

What explains the current malaise in developed economies across the world? In my book, The Rise and Fall of Neoliberal Capitalism, I analyse the roots of the economic crisis that began in 2008 and the free-market, or ‘neoliberal’, form of capitalism from which the crisis emerged. I argue that the stubborn stagnation afflicting many of the developed economies cannot be understood simply as the fallout of a severe financial crash or as an unusually severe ‘Great Recession’, but instead is a structural crisis of the neoliberal form of capitalism. This means that the continuing stagnation cannot be resolved by policy measures alone within the constraints of neoliberal capitalism. Rather, a resolution requires major institutional restructuring.

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I argue that both theoretical considerations and historical precedents indicate that the neoliberal form of capitalism can no longer give rise to sustained economic growth. The stagnation will put increasing pressure on all the affected groups in society to find an alternative route to resuming normal economic growth. I suggest that a return to a statist economy is the likely outcome, although that can take different forms, ranging from a right-wing nationalist version to a new round of social democracy or even a shift away from capitalism toward socialism. While the neoliberal form of capitalism is unlikely to survive, which statist form will replace it cannot be predicted in advance and will depend on the outcome of economic and political battles among various groups and classes in the coming years.

Growing concensus that we now need active government

In A shift in political thinking is giving Labor a sense of purpose Lenore Taylor argues that there's a new wave of thinking in economics and politics stating the old open model is now reducing growth because of rising inequality.

Australian thinkers, and political parties, have been grappling with a growing wave of thought that the economic challenges of the 2010s cannot be solved by the old 1980s political consensus – the consensus that said economic growth is best achieved by market deregulation and lower taxes and lower spending that generate growth, and allow “all boats to rise” by providing the revenue for governments to pay for social programs and do something or other about poverty.

The rethinking has been going on for quite a while internationally, from Thomas Piketty through to the major international economic institutions. And it turns the old consensus on its head – arguing that rising inequality harms growth, that smart social spending is not the kindly thing governments do after they raise the revenue, but rather a first order revenue-boosting exercise in itself, and asserting that governments need to intervene more to get their economies through this economic transition.

The IMF now says income distribution matters for growth. “Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth,” an IMF discussion paper said.

Countries scaled to their debt levels

InThe World Map of Debt Jeff Desjardins shows a map of the world with countries scaled to their debt to GDP ratio.

NIMBYism leading to increased inequality

In Inequality is growing in our own backyards Michael Pascoe looks at an article in The Economist by Matthew Rognlie who argues that a major cause of growing inequality is the growing cost of housing.

Pascoe posits that house owners, keen to "preserve its character", actively campaign against changes that would result in more efficient and higher density housing. This not only leads to a shortage of supply, but may also rob the owners of heritage listed buildings of dubious value the opportunity to reap the maximum returns from the value of their land.

In many of the trendier suburbs, you may well be a Green or Labor supporter who rails against inequality but also rabidly supports the imposition of heritage orders to freeze often dreary and inefficient architecture and, heaven forbid, limit or ban higher density housing for the masses.

But it's you who is creating the inequality gap.

He concludes:

But that's only part of the solution to the housing problem. If any government took that problem seriously and could ignore the rent seekers, medium density should be the default option for cities like Sydney. Anyone with a suitably sized block of land or any group of willing neighbours should be able to build a fashionable row of terraces instead of their isolated boxes, if they so wish.

Those who prefer their own quarter acre would, of course, be welcome to it, and the land tax that it would incur in a rational nation interested in sensible tax reform.

So put your hand up if you're genuinely interested in a fairer society, in preventing increasing inequality, in making housing more affordable for your children, in living in a more efficient, greener city with better infrastructure, and, effectively, freezing housing prices and restoring individual property rights?

I think I just lost the owner-occupier and NIMBY vote.

I think Pascoe has nailed one of the main reasons for the high cost of housing in Australia.