Andrew Leigh

Today I launched a new book on economic growth, a collection of essays in honour of former chief statistician Ian Castles.

Launching Measuring and Promoting Wellbeing: How Important is Economic Growth? Essays in Honour of Ian Castles AO and a Selection of Castles’ Papers
Edited by Andrew Podger and Dennis Trewin, ANU Press, 2014

Andrew Leigh MP
Shadow Assistant Treasurer
Federal Member for Fraser

Australian Treasury
24 April 2014

One of the most famous music acceptance speeches was delivered at the 2003 Grammy awards by rapper Eminem, who simply stood up and reeled off the names of 15 musicians who had made him who he was.

The next time the Australian economy wins an international award, perhaps it should give a similar speech. That speech would doubtless acknowledge the post-war economists known as ‘the seven dwarfs’: Allen Brown, Nugget Coombs, John Crawford, Harry Bland, Dick Randall, Fred Wheeler and Roland Wilson, as well as other greats who have run Treasury – Bernie Fraser, Chris Higgins, Ken Henry and Martin Parkinson among them.

It would cover some of the key Reserve Bank Governors, and might even include a few Treasurers, such as the two who have been named Euromoney Finance Minister of the Year. It would include academic economists such as Trevor Swan, Fred Gruen and Noel Butlin. But crucially, it would also include our great statisticians, among whom we must surely include Timothy Coghlan, Colin Clark, George Knibbs and Ian Castles.

In economic policymaking, measurement defines our goals. The Millennium Development Goals and Closing the Gap targets shape policy because they have precise numerical objectives.

Measurement also marks our achievements. Without great economic historians, we would not know that Australia had the highest income per head in the world in the mid-nineteenth century. Statisticians tell us when the economy has slumped, and when it has narrowly avoided recession (statisticians can also revise away a recession, as Paul Keating discovered shortly after delivering his 'recession we had to have' speech). The slogan ‘we are the 99 percent’ has its origins in Thomas Piketty’s work estimating French top incomes, which inspired Tony Atkinson and me to develop similar estimates for Australia.

Indeed, it was while working on long-run inequality and social capital series for Australia, in the basement of the Widener Library at Harvard University, that I first met Ian Castles. Well, not literally him, but hundreds of dusty publications bearing his name. As I dug out the data that would eventually underpin Disconnected and Battlers and Billionaires, he popped up again and again. When I finally met him in person at a Canberra barbecue in December 2003, it was like people who meet the Reserve Bank Governor, and realise that his signature is on just about every note in their wallet. I couldn’t chat with him for long enough.

Perhaps not everyone has a rock-groupie reaction to meeting a former Australian statistician. But when I read this 800-page tribute to Ian Castles, I realised that at least 20 people shared my view of him. The authors are an impressive team, and I congratulate them – and particularly editors Andrew Podger and Dennis Trewin – on the breadth of scholarship contained in this book.

Since we all take data seriously, I note that 37 percent of Australian book-buyers judge books by their covers. So it’s worth mentioning that the book’s subtitle - How Important is Economic Growth? – somewhat undersells it. The answer to the question is of course ‘very’. As Betsey Stevenson and Justin Wolfers have shown us, GDP per capita closely tracks life satisfaction across and within countries. And without economic growth, it is hard to imagine how Australia could reduce carbon emissions, help people with disabilities or cut poverty. To see this, it helps to note that the physical weight of output hasn’t increased with its value – indeed, Alan Greenspan argued in a 1999 speech that the physical weight of US GDP hadn’t changed much over the twentieth century. (Since there are a bevy of boffins around, can I ask if anyone would like to do the same calculation for Australia?)

But the book does much more than to give two thumbs up to growth.  It includes a critique by Jonathan Pincus of Treasury’s wellbeing framework (and a counter-view from David Gruen and Duncan Spender). Pincus is right about the challenge of measuring capability, but my view on the framework is a bit like Churchill’s on democracy – that it’s the best we’ve yet found.

You will find in these pages a data-rich discussion of trends in inequality from Rob Bray, and a careful analysis of how redistribution affects inequality from Peter Whiteford. The latter concludes with the following rousing sentence: ‘However, despite the work of the Canberra Group and national and international statistical agencies in significantly improving the comprehensiveness of household income surveys, questions remain about the methodology of comparative analysis of welfare state outcomes.’ Now there’s a sentence to make a statistician shout ‘huzzah!’.

The collection also includes several of Ian Castles’ best papers, including his Colin Clark lecture, where he reminds us that Keynes described the twentysomething Australian as ‘a bit of a genius’. I greatly enjoyed his quirky approach to data. In one paper, he uses Big Mac prices to form an international league table of wellbeing. Using data from the 1980s, he shows us that a tenth of Sydneysiders were still at work at 6pm, compared with a quarter of adults in Tokyo. He quotes Stanley Jevons’ observation that Australians were so cricket obsessed in the 1850s that the city stopped for the game. And in ‘Economics and Anti-Economics’, he recounts how the poet Coleridge was so aggrieved by Malthus that he ‘referred offensively to Malthus in German and Greek’, which I’m sure you’ll agree is both empörend and κακός.

However, it would be remiss of me if I didn’t take issue with the biggest area where I disagree with Ian Castles: climate change. Michael Keating’s chapter says that Ian Castles wasn’t a climate change sceptic, but he does appear to have been agnostic. Yet as I read the evidence, the past decade has increased the certainty around anthropogenic climate change, to the point where the UN Intergovernmental Panel on Climate Change’s (IPCC) fifth assessment put it at 95 percent – about the same level of certainty as researchers attribute to the link between smoking and cancer.

Some argue that Australia – with only a couple of percent of global emissions – should free ride on global action. This argument strikes me as a bit like saying that it’s okay to litter because a single piece of garbage doesn’t make much difference to the environment. The problem is, small things eventually add up. Somewhat surprisingly, those who say that Australia shouldn’t contribute to climate change are curiously resistant to my counter-claim that Canberrans should not pay income tax. I’m always puzzled by this, because – as I remind them – we’re really only a small share of the whole.

The thing about climate change is that there are over a dozen countries with similar greenhouse gas emissions to Australia – nations such as Canada, Britain, Mexico, Korea, France, Spain, South Africa, Turkey and Saudi Arabia. Together, we account for a fifth of global emissions, which makes a significant impact on the total problem. Moreover, as economists have shown, a well-designed emissions trading scheme gives the lie to those on the extreme left who say that the only way to stop climate change is to end growth, and to those on the far right who say that the market is not ingenious enough to cope with pricing a negative externality. In fact, we can decouple pollution from economic growth at minimal cost.

What is missing? Indigenous Australians receive only a short reference (in Henry Ergas’s chapter), and there is little discussion of the wellbeing of migrants. And there is little serious analysis of issues of gender. This reflects not just the gender of the authorial team (90 percent male), but policy economists as a whole. Indeed, careful listeners will have noted that the list of economic giants that I began with was 100 percent male. Thankfully this is changing fast. In just three years, Treasury has increased the share of women at SES level from 23 to 30 percent, and at EL2 level from 38 to nearly 50 percent. A favourite Canberra dinner party game is now to guess who will be the first woman to head Treasury or Finance.

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As the saying goes, you can have your own theories, but not your own facts. In my careers as a research economist, a Treasury secondee, and a parliamentarian, I have relied on the data and analysis of Ian Castles, his contemporaries, and his successors. Australian policy is better for his contribution, and our intellectual life is richer for this terrific book. I commend it to you on the grounds that it will not only stop a door, but perhaps also a few bad arguments.

One fact I hadn't realised before giving the speech: when we lived in Banda Aceh for two years, our next door neighbour, Lance Castles, was Ian's brother. And that, folks, is why you should always show your draft speeches to your dad before giving them.