What’s to stop Philip Lowe moving to Westpac... and other things I have been writing and reading
Including references to Barbie, Qantas, and holidays
Hi, I am thrilled to be writing to you again, and thrilled to be staying off the platform we used to call Twitter. John Quiggin has left it too, which makes me feel better.
What’s been occupying my mind?
Well, there’s Qantas. I am about to write about the appalling way it treats its customers, but Rico Merket has also written for me at The Conversation about how we got into the Qatar Airways mess in the first place, knocking back its request to double its flights into Sydney. Melbourne and Brisbane.
It’s because Australia (and the rest of the world) treats international landing rights negotiations in the way they used to treat – and occasionally still do – trade negotiations, which is to say: “I’ll let yours in if you let mine in”.
Even for trade negotiations this makes little sense. Australians are almost always better off if they are allowed to buy products made overseas. As I remember it, for a while we banned the import of “foreign” sugar, and cars – not only did we have ridiculously high tariffs, but we had quotas forbidding the import of more than a certain number of units per year from each foreign manufacturer.
If someone wanted a nifty Japanese car after the year’s quota had been used up, they would put their name on a list, and be early in the queus for next year.
I heard Whitlam talk in the 1990s. he reckoned this fear of goods coming to our north was linked to the fear of Asian immigration – “all these yellow machines”.
Merket makes a case against restricting landings into Sydney Brisbane and Melbourne that is even easier to see:
$1 billion per year in economic damage
By my conservative estimate, the decision will cost Australia’s economy about $1 billion per year in lost income from tourism, visiting friends and relatives, and business travel and freight.
Rico’s modelling suggests the decision will cost Australia $600m to $800m per year in unrealised tourist income alone (assuming $3,500ish is spent per tourist) plus lost income from business travellers and lost freight capacity plus less ability and options for Australians to travel cheaply overseas.
On The Drum I described the decision as inexplicable. At least now we will have a Senate inquiry. It will report on October 9.
Please Philip, no.
I wrote this to an audience of one.
Philip Lowe’s predecessor, the man to whom he was deputy, Glenn Stevens, finished up as Reserve Bank Governor in September 2016 and joined the board of the Macquarie Bank and Macquarie Group in December 2017. He has been chair of Macquarie Bank and Macquarie Group since 2022.
Stevens’ predecessor as governor, Ian Macfarlane, finished as head of the Reserve Bank in September 2006 and joined the board of the ANZ bank in February 2007.
The governor he replaced, Bernie Fraser, finished at the Reserve Bank in September 1996 and joined the board of the industry funds that became Australian Super in the same year, becoming chair of the super-fund-owned ME Bank in 2000.
Ken Henry stepped down as head of the Australian Treasury (and a member of the Reserve Bank board) in April 2011 and in November that year joined the board of the National Australia Bank. In 2015 he was made its chair.
The man Henry replaced at the Treasury, Ted Evans, stepped down in April 2001 and joined the board of Westpac that year, becoming its chair in 2007.
I’ve dealt with each of these people while they were governors or treasury secretaries and I’ve never seen anything that made me doubt their integrity.
And yet in my view, none of them should have gone on to work for the type of organisations they used to regulate.
What’s wrong about it, aside from potential misuse of government information or government contacts while working for the private bank, is what could happen beforehand.
It’s the possibility that while still in the public service, the employee will use their position to go soft on an organisation (or type of organisation) they see as a potential future employer.
I expect Philip to do the right thing, unlike those that have come before him.
For a long time, I’ve had questions about blockbuster movies like Barbie and Oppenheimer.
▪ Why aren’t the cinemas charging more for them, given they’re so popular?
▪ Why are they the same price, given Oppenheimer is an hour longer?
The answers… well they get you into the murky world of Australia’s cinema duopoly and what I described 20 years ago as a cartel.
The cartel means they don’t need to price rationally (unless they are near a competitor) but the particular way in which they price irrationally needs a further explanation.
It’s the sort of thing that puzzled Gary Becker, an economic detective of sorts who won the Nobel Prize for Economics in the early 1990s. A few years earlier, he turned his attention to restaurants and why one particular seafood restaurant in Palo Alto, California, had long queues every night but didn’t raise its prices.
Across the road was a restaurant that charged slightly more, sold food that was about as good, and was mostly empty.
His conclusion, which he used a lot of maths to illustrate, was there are some goods for which a consumer’s demand depends on the demand of other consumers.
Queues for restaurants (or in 2023, long queues and sold out sessions, as crowds were turned away from Barbie) are all signals other consumers want to get in.
This would make queues especially valuable to the providers of such goods, even if the queues meant they didn’t get as much as they could from the customers who got in. The “buzz” such queues create produces a supply of future customers persuaded that what was on offer must be worth trying.
Importantly, Becker’s maths showed that getting things right was fragile. It was much easier for a restaurant to go from being “in” to “out” than the other way around. Once a queue had created a buzz, it was wise not to mess with it.
Oh yea, public holidays. For. awhile it looked as if we would have one for a Matildas victory.
They are not as bad for the economy as some say, actually not bad at all.
Working out the net effect of an extra public holiday on gross domestic product requires ingenuity, because it’s hard to know what would have happened to GDP without it.
Late last year, two economists from Harvard University and the University of Chile, Rodrigo Wagner and Lucas Rosso, presented a solution.
They took advantage of the fact that, in many countries, certain holidays aren’t moved when they fall on weekends. This means in some years those countries have fewer days off work from holidays than others.
Examining data from more than 200 countries over the two decades leading up to COVID, they determined the net dent to GDP from an extra public holiday was only 20% of the GDP that would have been produced that day.
As they put it, this means “an 80% recovery with respect to the GDP that would have been lost if the effect were exactly proportional”.
An awful lot of us do a bit more work to catch up after a holiday, or are in jobs where that doesn’t matter, or get more business because it is a holiday.
As Wagner and Rosso expected, the effects varied by industry. In manufacturing, only about half of the expected losses were recovered. In agriculture, which continues regardless of holidays, all the expected losses were recovered.
And in any event, it is silly to talk about the cost of an extra public holiday without also talking about the benefit.
…what the Productivity Commission describes as the “genuine social benefit associated with widespread community engagement in events, especially on days of cultural or spiritual significance”.
These benefits are deeper and richer than those of ordinary annual leave, in which individuals or families are away from work – but not the entire city or country.
The commission – no fan of unlimited days off – points to evidence that “more shared days of leisure enrich the relationships of people with their friends and acquaintances, which then improves the quality of leisure on other days”.
And yes, this past month I also wrote about the government’s intergenerational report.
Far from finding an 'ageing time bomb', the report paints a picture of a society in which the ratio of working Australians to dependents is little changed, with climate change the only big concern.
Can we afford an aged population? What a silly (and disturbing) question.
We can, bigtime, by the way.
The projections in the report suggest we might have to pay an extra 3.9% of GDP in tax to fund the things we will need, but not all at once, and not the full amount until 2063. By that time (as mentioned) GDP per person will be [40-60%] higher.
Most of the extra projected government spending (60%) is unrelated to ageing. A lot of it is to fund the cost of new and better health treatments, of the kind we’re pretty certain to want given our higher living standards.
That’s it for now. Once again, thanks for reading, and I am thrilled to be back in touch.
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