Models wrong again – so what's new?

Warwick McKibbin

Not climate models this time (for a change), but Treasury modelling of the effects of a carbon price on the Australian economy. And according to Wayne Swan, we won’t even notice it! Brilliant! It’s almost as if the model was tweaked to produce the desired result… where have we heard that before? Tiny little question, if the economy doesn’t notice it, how is it supposed to reduce emissions?

But Swan has been caught out:

A prominent economist who sits on the Reserve Bank board has criticised the Government’s assessment of the economic impact of the carbon tax.

Yesterday Treasurer Wayne Swan said that based on Treasury estimates, a $20 per tonne carbon tax would not have a long-term impact on jobs and the economy.

He said employment will increase by 1.6 million jobs by 2020 under a carbon price.

But economist Warwick McKibbin, from the Australian National University, says the Government’s modelling is flawed.

He told Lateline Business a carbon tax could affect the cost of living.

“That’s the adjustment process in these models; if you raise carbon taxes and people lose their jobs, real wages will fall and therefore you’ll go back to full employment,” he said.

“So the critical question in that sort of model is not what happens to jobs: it’s what happens to real standard of living.”

Professor McKibbin runs his own software company which develops modelling for policy analysis, including a carbon pricing model.

He says he has submitted different modelling to Treasury and says the Government should use his model in its estimates.

“It would be very unfortunate if the leaked announcement that came out yesterday about the employment effects of carbon taxes was used in a model that wasn’t mine, because mine is the only model that has unemployment,” he said.

“The other models that people have for carbon pricing actually assumes full employment, so by definition, no matter what you do to the economy, employment cannot change.

“What should happen if you put on a carbon tax in those models is real wages should fall. Now, from the selective leaking, I think that that question hasn’t fully been understood.” (source)

Indeed.

Comments

  1. Interesting to note that this economist will soon be no longer associated with the Govt.
    Freedom of speech only seems to be “free” if it doesnt hit your wallet.

  2. Baldrick says:

    So Swans modeling is based on a $20 per tonne carbon dioxide tax, but will the tax be set at that price? No it won’t. Best estimates so far is that the carbon dioxide tax will start at $26 per tonne and rise to nearly $40 per tonne. Remember, Professor of Economics Garnaut wants an independent, unelected, unaccountable committee to set the price and subsequent rises, so basing estimates on $20 a tonne is absolute rubbish and quoting any figures from that is misleading the Australian public. If the estimates were based on $40 a tonne then you would see the real impact on the economy, but they won’t release those figures …. more spin from the Labor/Green alliance.

  3. I said yesterday Swan is the worst Treasurer this country has ever seen and I am sure his “first flock of chickens have come home to roost”
    Any bets he says his model is right and caters for less than full employment, but sorry guys the “dog ate my homework” so I can’t show you …..but trust me!

  4. Today Swan has proved the politics of a Carbon Tax are the aim of the Gillard Government not chance of Australians to see all of the facts and those who have completed vital reviews questioned without editification.

    The Productivity Commission has been scheduled to appear at Senate today and SWAN in his arrogance has arranged for their report to be released just after they completed giving evidence.

    The transparency of this Gillard government does not exist!

  5. Professor McKibbin: “That’s the adjustment process in these models; if you raise carbon taxes and people lose their jobs, real wages will fall and therefore you’ll go back to full employment,” he said.

    “So the critical question in that sort of model is not what happens to jobs: it’s what happens to real standard of living.”

    This has happened before in other economy’s such as in Canada the economy was hammered by many inane government policy’s and overspending, the currency value drop like a stone. eventually we regained almost full employment with a dollar that was only worth 57%. Obviously prices of imported goods (80% of what we use and eat) went through the roof and the recovery took 15+ years, we are still suffering the lingering effects to this day. Imagine if we had a a carbon tax on top of every other stupid financial screw up that government’s get us into over and over again.

    True we were eventually fully employed, but at a huge hit and discount to our previous standard of living. this is what Professor McKibbin is saying will happen with the carbon tax = more foolish governmental decisions that erode the standard of living for all Australians rich and poor.

  6. I’m not in Aus at the moment, but have been keeping a bit of an eye on the media, and it seems to me that sooner or later, The Swan will announce that this Carbon Dioxide Tax will be a cure for cancer, homelessness, and possibly, the common cold. Is there nothing it can’t fix, except…climate change?

    i think we should take the lead from Egypt and Libya, have a revolution, and then pack them all off to Paraguay to have another go at a Utopian (carbon free!) society like that bunch of lefty loons that tried it back in the 1890s.

    Where will it stop, and I wonder if he truly believes what he is saying, part of me hopes that he does, and another part of me hopes that he doesn’t, either way, it’s the same result I guess.

  7. “Professor McKibbin runs his own software company which develops modelling for policy analysis, including a carbon pricing model”.

    You’re quoting someone who is trying to sell the government an alternative model. It’s hardly an unbiased opinion. I would take this criticism with a grain of salt.

    • Obviously you have not followed Warrick McKibbin’s career very closely as I have. It is not about him trying sell anything he knows more about economics than Treasury and Wayne Swan put together. Although I could have just said Treasury,.
      The modelling he has done has been right more than I can say for Treasury who did not get one forecast right during the GFC. Always predicing we were going into recession. Wayne Swan continually using the words “We aren’t out of the woods yet”
      Only two people predicted the GFC Peter Costello and Warrick McKibbin so it does not come down to selling any models?

  8. Confusious says:

    I wonder what’s next… Worst treasurer. Worst prime minister. Note small letters.
    Dont forget the other bevy of Worst Ever Failures this whole Gillard Brown Circus consists of. The only things they all are good at, and that also applies to the so called independents, is lying and blowing other people’s money.

  9. froggy uk says:

    I was forwarded this gem of an interview today, very informative indeed,,,,,,enjoy!

    http://www.2gb.com/index2.php?option=com_newsmanager&task=view&id=9116

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