Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

R word is ‘reality’

Robert Carling

11 September 2015 | Ideas@TheCentre

recessionRecent economic data have put many economy-watchers on recession alert, primed to proclaim the ‘R’ word at the first sight of more weak data. They need to take a reality check.

There are good statistical reasons to doubt that weak June quarter GDP growth heralds a slide into recession. There is a lot of statistical ‘noise’ in the quarterly figures. Half-year data are less jerky, and in the latest half year there was a rise of 1.2% (2.5% annualised) on the previous half year – still below par, but hardly indicative of recession.

The next two quarters’ national accounts will be eagerly awaited by recession watchers in anticipation of the oft-parroted definition of recession being met – namely, two consecutive quarters’ decline in real GDP. However, this rule is arbitrary to the point of silliness. Recessions should only be declared on the basis of a balanced assessment of a range of data over several quarters including employment and unemployment.

Australia’s modern economic history suggests that a recession is unlikely given what is presently known. Recessions in the past have been associated with credit squeezes, wage explosions or recessions abroad, particularly in the United States. None of these conditions is present and the first two are not at all likely to appear in the foreseeable future. A recession or severe growth slow-down abroad has a greater probability, but is still not a likely scenario.

What is clear is that Australia has already entered a period of sub-par growth which is likely to continue for some time and that real living standards are declining largely because of the decline in the terms of trade. While these conditions are largely dictated by external events over which we have no control, this is not an excuse for doing nothing. We need economic policies that will strengthen the foundations for sustainable growth based on stronger investment and productivity growth.

Robert Carling is a Senior Fellow at the Centre for Independent Studies

Blowing smoke up the gateway

Helen Andrews

11 September 2015 | Ideas@TheCentre

e-cigarettesA new study purporting to show that e-cigarettes ‘put youth on the road to traditional smokes’ has Australian public health activists calling for more regulation.

But does the study really show what the headlines claim?

The facts of the study are this: 700-odd teenagers and 20-somethings were surveyed twice, first in 2012–13 and then again a year later. In the first survey, 16 individuals admitted to having tried e-cigarettes. In the follow-up, 11 of those 16 had also tried real cigarettes.

Eleven out of 16 is a higher percentage of smokers than was found among the 97.7 percent of respondents who hadn’t tried e-cigs at the time of the first survey.

That doesn’t mean that having tried e-cigarettes made those 11 individuals more likely to take up smoking, though

It’s more likely that those people have certain character traits, like adventurousness or risk-taking, that precede and explain their consumption of both products.

Talk of a ‘gateway drug’ is overblown—especially when grounded in the actions of fewer than a dozen individuals.

Regardless, regulation of smokeless tobacco products should be based on their health effects, if any, and not on their possible influence on consumption of a completely different product.

Helen Andrews is a Policy Analyst at the Centre for Independent Studies

Divestment divorce from reality

Michael Potter

11 September 2015 | Ideas@TheCentre

Last week, Ideas@theCentre argued that Newcastle Council has entered an alternative reality by withdrawing deposits from banks that fund coal and (potentially) companies involved with alcohol.

Given the Newcastle region’s dependence on coal industry and wineries, it is hard to imagine a more bizarre divestment decision. But this week, we have another organisation entering the Twilight Zone: Sydney University is reportedly cutting its investments in mining companies while increasing investment in alcohol, soft drinks and tobacco. Sydney University is effectively saying it is OK for me to unwillingly receive second hand smoke, but it is wrong to replace unhealthy wood fires with electricity from coal. Air pollution from indoor fires cause 4.3 million deaths around the world per year and the divestment movement opposes replacing these fires by coal-fired electricity. Yet again, a first world organisation (with reportedly $1.4 billion under investment) is dictating to developing countries that they shouldn’t use coal, when coal could save more lives than would ever be lost due to global warming. The University is being paternalistic towards the third world, while at the same time academics at the University criticise Western imperialism.

In addition, as Peter Kurti has previously pointed out in relation to the Anglican Church’s coal divestment strategy, coal’s cheap energy has been instrumental in raising the living standards of hundreds of millions in developing countries around the globe.

The University’s divorce from reality is compounded by the increased investment in tobacco, and it is hard to see how they could possibly justify that as better than investment in coal.

Michael Potter is a Research Fellow at the Centre for Independent Studies