The mining and resources boys' club.

Not as bad as it seems, not as good as it should be.

In a previous blog, I wrote of how WA’s mining and resources boom drove multiculturalism in the State. But this wasn’t the only impact.

The men came to WA

The boom also had an impact on gender balances in WA. For 2006-2011, the upswing of activity, WA gained another 150,000 men but only 130,000 women, tipping the population from 49.8% male in 2006 to 50.3% male in 2011, compared to Australia where it only increased from 49.3-49.4%. And in 2016, WA's male share declined again but was still 50.0% compared to 49.3% in Australia.

Share of Males in the Population, WA vs. Australia, 2006-16

This suggests a distinct male-bias in the mining and resources sector.

And the Census noticed

But it wasn’t just the population that changed – income levels changed too. Specifically, the personal income gap between men and women in WA worsened relative to Australia generally. In 2006, women in WA were earning 51% of what men were earning (54% for Australia). And to 2011, during the upswing, it remained at 51% in WA, while improving to 61% for Australia[1]. But after the boom to 2016, the gap improved for both WA (58%) and Australia (69%).

Personal Income, Male vs. Female, WA vs. Australia, 2006-16

Further study required

The exact degree to which this was the result of active or worsening discrimination in WA, or simply the rapidly increasing salaries in a naturally male-dominated sector, is a subject for other papers. As is further statistical analysis that takes into account differing skill levels, qualifications, experience, rank, job description, industry, company, etc. of male and female workers. When all these factors are taken into account, the wage gap tends to shrink (though still not to zero).

For example, at the height of the boom (2011 Census) and when looking at data by place of work (rather than place of usual residence), WA women earn 61% of men – higher than the 51% mentioned earlier. This is likely because men have higher labour force participation rates than women. So if more men are in the labour force, naturally they will earn more.

Furthermore, when we look solely at the Mining sector, that figure increases further to 73%, suggesting the mining industry is actually better than the general economy at reducing the wage gap – though still not eliminating it. And when we look even deeper at occupations within mining, female managers for example, earn 91% of male managers, machinery operators and drivers earn 89%, and professionals earn 84%. And when more relevant factors are included (as mentioned above), these gaps may shrink even further.

So why, if the mining sector has ‘relatively’ equal pay, did the wage gap worsen during the boom? Because in 2011, over 55,000 WA men were working in the mining industry, but less than 15,000 women. So the high wages of the mining sector skewed the average male wage across the state more so than the average female wage.

But still a clear insight

The above discussion isolates the impact that the mining and resources boom had on gender gaps in WA, and its subsequent reversal. And while this data does offer hope that wage gaps are not as large as first impressions, there is plenty of evidence to say they still exist. This and other data therefore, allows us to conclude that it is not just a matter of increasing female representation in traditionally male industries – efforts must still continue to ensure equal pay for equal work.

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[1] This was calculated using a simple weighted median of various income brackets, so the numbers aren’t precise, but the trends should still be valid.

The mining and resources boom preserved religion in WA

The overriding trend in Australia is away from religion, especially among the more highly educated. But those drawn to WA of highly religious South-East Asian and Sub-Saharan African ancestries diluted the traditionally non-religious ancestries of North-West Europe, Oceania and interestingly, North-East Asia.

Building on a previous post about WA’s increasing multiculturalism in the wake of the mining and resources boom, the Census gives us the chance to see how the boom may have affected other factors – in this case, religiosity.

The boom slowed the march towards non-religiosity

In 2006, before the mining and resources boom, WA was a notably less religious state than Australia as a whole – 26% no religion vs. 21% for Australia. The majority of WA residents still identified as Christians (69%), but this was lower than Australia as a whole at 73%.

But even though both WA and Australia became less religious over the decade, Australia’s trend towards non-religiosity was faster. The gap between WA and Australia’s non-religious shares declined from 5.3% to 3.5%. Now, 36% of WA residents are non-religious, compared to 33% for Australia.

Share of No Religion vs. Christianity and Other Religions, WA and Australia, 2006-2016

Multiculturalism dilutes extremes

Consequently, the faster pace of increased multiculturalism in WA over the mining and resources boom seems to have slowed down the trend towards non-religiosity locally, allowing the rest of Australia to catch up slightly. And this pace of convergence was fastest between 2006 and 2011, during the mining and resources upswing.

And it also reveals what may be obvious. When a place (like Australia) starts relatively more religious (vs WA), multiculturalism tends to reduce that religiosity. This makes sense – extremes get diluted by diversity.

But by the same token, when a place starts relatively less religious (like WA), multiculturalism can increase that religiosity (or at least slow down the trend towards non-religiosity).

North-East Asians are the least religious

In the case of Australia, our bias towards those of North West European and Oceanic ancestry may also be relevant. As illustrated in my previous blog, WA is more biased towards these ‘traditional’ ancestries than Australia. And even though both WA and Australia increased their shares of ‘non-traditional’ ancestries over the decade, and Australia remained more multicultural than WA, WA still seemed to catch up to Australia in terms of non-traditional ancestries.

This is consistent with the above findings of WA remaining less religious than Australia, but by a smaller margin, and suggests that those of North-Western and Oceanic ancestry are less susceptible to religious belief than other ancestries.

The graph below illustrates this. But what is interesting is that Australians of North-East Asian ancestry by far are the least religious, followed by Oceanian, North-West European and Peoples of the Americas (especially excluding strongly-Catholic South America[1]). So Australia’s strong growth in North-East Asian ancestry could also be driving the downward trend in our religiosity. And WA, with its stronger growth in highly-religious South-East Asian and Sub-Saharan African ancestry associated with the mining and resources boom, slowed down its trend towards non-religiosity.

Non-Religiosity, by Ancestry, Australia, 2016

Everyone is becoming less religious

It is worth noting though, as illustrated below, that all ancestries in Australia have become less religious over time. For example, of those with North East Asian ancestry, the share of the non-religious increased from 39% in 2006 to 56% in 2016. Even the highly-religious North African and Middle Eastern ancestry increased from 5.3% to 11.5%.

Non-Religiosity, by Ancestry, Australia, 2006-2016

Australia has become less religious across all educational attainment levels too. The trend seems to be that non-religiosity rises with educational attainment, with 38% of those with postgraduate educations being non-religious in 2016, compared to 22% for those with a 9^th grade education or less. But the most significant jump in non-religiosity occurs early, as people progress beyond 9^th grade, potentially suggesting that the longer a belief system is held, the harder it is to undo with further education.

Non-Religiosity, by Highest Level of Educational Attainment, Australia, 2016

It’s interesting to see just how much individual religions are products of geography, history and education, as well as religiosity in general. But even one’s history can be discarded over time as we evolve and learn new perspectives on the world. And with data like this, we can see it happening.

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[1] 55% of all Australians of South American ancestry are Catholic.                                                                                                    

Did Republicans ever care about fiscal responsibility?

The US needed fiscal stimulus almost a decade ago when it was on the brink of Depression 2.0 - not now!

The mental gymnastics involved in reconciling Republican opposition to fiscal stimulus after the GFC, and their willingness to accept it now, is actually amazing.

"We're worried about the debt!"

After the GFC, when unemployment in the US peaked at 10%, Republicans threatened to not increase the debt ceiling if spending cuts weren't enacted. Cuts. During a depressed economy. There were plenty of excuses - fiscal responsibility, the risk of crowding out the private sector and driving up interest rates, they even attacked the Fed's monetary stimulus as risking hyperinflation and "debasing the currency".

Just to be clear - none of these things happened. It was a depressed economy. There was no private sector activity to crowd out. Nor does monetary stimulus create inflation or debase the currency during a depressed economy - something they would know if they understood economics. And as for fiscal responsibility, their unwillingness to allow fiscal stimulus during a depressed economy - when fiscal multipliers make fiscal policy extra effective - actually prolonged the slump, delaying the recovery in government tax revenues, thereby actually worsening the long term debt situation. This was evidenced even better by the natural experiment of European austerity during their debt crisis. As John Maynard Keynes once said, "the boom, not the slump, is the time for austerity at the Treasury". No matter what your priority is - debt, unemployment, growth - austerity during a depressed economy is precisely the opposite of fiscally responsible. 

So between the GFC and last year, Republicans were apparently completely economically inept. But at least they were consistent about it.

"What, me worry?"

But ever since President Trump, Republicans have jumped on the fiscal stimulus bandwagon. They are more than willing to accept massive new fiscal deficits (over $1 trillion - that's per year, not total debt) bigger than anything that happened under Obama's budgets when deficits were largely cyclical, not structural.

Firstly, it's not even a good kind of stimulus. The Trump tax cuts massively favour the rich, and any cuts enjoyed by the poor and middle classes expire within 10 years and actually become tax increases. Trickle down economics doesn't work. Tax cuts that favour the rich will worsen inequality which can actually be contractionary, not stimulatory. And inequality in the US is already at levels not seen since pre-revolutionary France - remember what the disenfranchised masses did to the likes of Marie Antoinette? And as for the Trump infrastructure plan, a lot of it seems to be private sector tax concessions and privatisation of public assets, not a lot of actual new investment or infrastructure (except perhaps the border wall, the problems with which I won't even begin to discuss here).

So for minimal stimulus (if not actual contraction), the US will endure massive new debt, which Republicans have already started to use to justify massive cuts in social expenditures. And this will worsen inequality and general economic growth even further.

But even if we assumed these measures were stimulatory, why are Republicans suddenly okay with them now? The economy is approaching or at full employment. Unemployment is down to 4.1%. Wage rates are increasing (ironically the trigger of the recent stock market plunge). People are voluntary quitting their jobs at pre-GFC rates (something that people generally don't do if they're not confident about finding a new job). And the Fed is in the process of increasing interest rates to combat imminent inflation. While the Fed couldn't easily lower interest rates to offset the contractionary effects of fiscal austerity after the GFC (interest rates were already at zero), they can and will increase interest rates now, actually reducing any stimulatory effects of the current tax and infrastructure plans.

"They are providing more stimulus to an economy with 4 percent unemployment than they were willing to allow an economy with 8 percent unemployment" (Paul Krugman). Any stimulus now actually will accelerate the pace that the Fed has to increase interest rates, drive down fiscal multipliers and crowd out the private sector. And this is in combination with both the Fed's and the European Central Bank's plans to normalise their balance sheets (sell their assets). This sudden influx of central bank assets and new government debt onto the market will force government borrowing costs to rise even faster to encourage people to keep buying these assets and lending to the government.

Expectations of accelerated future inflation and interest rates from these plans may have even driven the recent stock market plunge and a potential upcoming crash. Moreover, this spending spree will reduce the government's fiscal space to borrow during the next crisis when stimulus really will be needed again. Accepting greater debt for the purpose of economic stimulus is precisely what the US needed almost 10 years ago - but not now.

So are Republicans hypocrites or just obstructionist liars?

Central banking needs to be improved, not re-written.

https://www.economist.com/news/briefing/21721354-contemporary-criticisms-central-banks-echo-debates-times-past-history-central

This is a fascinating article about the history of central banking, and the growth of their power over time.

You may not be able to access it behind the paywall, but it essentially chronicles how the power of central banks has risen and fallen based on the politics of the time, but risen over the long term (skip ahead of these dot points if you have read the article):

• The first central banks were established to directly support government. The Bank of England for example, established in 1694, offered assurance to creditors that the government wouldn't default on its debts, thereby making it easier and cheaper for government to borrow.
• Given the authority and credibility of a government-banked central bank with tax-raising ability versus a private bank, central banks were also able to start issuing paper money as a more convenient medium of exchange than gold or silver. This drove economic activity and also provided governments with additional revenue (called seigniorage - the difference between the cost of creating new currency, and its value).
• Alexander Hamilton believed a central bank could control the money supply and end the hyperinflation plaguing the US after independence. But many resented the power of such an institution, so they never seemed to exist in the US before the 20th century for long before being dismantled.
• In the 19th century, central banks were also given authority to manage financial crises. When a bank run ensued and everyone was rushing to not be the last to get their money, the central bank quelled the panic by guaranteeing to provide solvent banks with the liquidity they needed (thereby taking away the reason for the panic). In Britain, this role as 'lender of last resort' was established after the panic of 1825 - a development not without its critics.
• Central banks often fixed their currencies against the value of gold (the Gold Standard), regardless of the often devastating effects this had on internal inflation and unemployment. It also favoured creditors and employers over debtors and workers by preventing any long term inflation and often requiring painful internal wage deflation and unemployment.
• But the difficulty of maintaining such a system in wartime, and the role it played in driving the world into the Great Depression in the 1930s caused a rethink of their duties (for the better, I would say). They abandoned the Gold Standard (the very thing that ironically made it impossible for them to undertake their above crisis-management role) and focused on internal stability.
• Politicians continued to pressure central banks to enact policy that was politically convenient rather than economically necessary. This included US Presidents Truman, Johnson and Nixon bullying the Fed into keeping interest rates low during the Korean and Vietnam Wars (despite the inflationary consequences) so the government could continue to borrow. Finance departments, rather than central banks, often maintained the power over interest rates.
• The inflationary bubbles of the 1960s and 70s drove central banks to focus more on controlling inflation, abandoning the Bretton Woods system for the same reason as the Gold Standard - it hindered the achievement of internal stability in favour of external stability.
• By the late 1980s, central banks seemed to have tamed the inflation beast. This encouraged more central banks to be given greater power and independence to control inflation, starting with the Reserve Bank of New Zealand's independence in 1989, and the European Central Bank in the 1990s.
• The asset bubbles of the early 2000s and indeed the GFC have reinforced the need for central banks to focus not just on inflation, but also asset markets. Many now have enhanced powers to oversee and regulate the financial sector to this very end.
• Now, central banks are arguably the most powerful entities in the world. They largely have independence from government to achieve their mandate - generally low and stable inflation, a stable currency and full employment. And they can do this not just by manipulating short term interest rates and overseeing and regulating the behaviour of the financial sector but, as we've seen over the last decade, amassing tremendous balance sheets of assets to prop up not just the financial sector, but the broader economy in the face of impotent government fiscal policy.
• And it is these unconventional actions that are driving recent discussions that central banks may have overstepped their mandate, that they focus more on bailing out Wall Street and government than Main Street, and that they risk triggering hyperinflation again. Moreover, despite all their power, they were still unable to predict and prevent the GFC or the European debt crisis. Therefore, maybe their power should be reigned in.

Like I said, fascinating. But also worrying.

I think central banks have the formula broadly correct now. They have the ability to effectively ensure financial stability and economic strength (sometimes seen as contradictory goals when stock/property markets are booming but the real economy/inflation is sluggish, like before the GFC in the US, and recently in Australia).

And if an unforeseen crisis occurs (which it inevitably will - central banks can't foresee everything always), central banks have the tools to manage it (though proper recovery also requires government fiscal support).

Of course there are areas for improvement. Better understanding the exact nature of asset price booms and their 'wealth effects' on the real economy is one area. Better international coordination of central bank crisis responses is another. But these improvements will affect the timing and magnitude of central bank responses - they shouldn't completely re-write the responses themselves.

I don't want to see central banks abandon inflation-targeting, macro-prudential regulation and oversight, and appropriate liquidity/lender of last resort responses during crises. These policy responses were needed during the Great Depression, they worked 80 years later during the GFC, and unless something drastic changes the very structure of the economy, they should be effective in the next crisis.

My biggest fear is that governments will reign in central bank power and they won't be fast enough to deal with the next crisis. Or worse, governments will completely change central bank mandates by, for example, re-establishing a Gold Standard and forcing the central bank to focus primarily on the exchange rate, thereby paving the way for massive fluctuations in inflation and unemployment.

This must not happen. Especially if imposed by populist politicians with an inadequate grasp of economics.

Environmental sustainability

Why private players choose to go it alone

The free-rider problem inhibits greater action on environmental sustainability.

Altruism has not demonstrated enough power to change this and societal shaming can backfire.

But there are other ways self-interest can be harnessed to catalyse collective action, through positive, negative and altruistic incentives.

ECONOMIC, SOCIAL AND ENVIRONMENTAL IMPACT ASSESSMENTS

I’ve completed numerous economic, social and environmental impact assessments for clients. Most recently, this included calculating and assessing the impact of a major Melbourne event (I won't reveal the client by name, for obvious reasons) on the local economy, society and environment.

Most of the focus of this type of work is on the economic, rather than social or environmental impact. It involves real numbers, as well as some more slightly abstract assumptions and multipliers, and estimates the impact of specific expenditures and investments on the broader economy.

Social impact assessments are far more qualitative, usually based on stakeholder consultation to compile ‘impressions’ and ‘feelings’ about the benefits certain activities have on them and the local community.

Environmental impact assessments are often a mix of both – quantitative assessment of the financial implications of investment in environmental sustainability, and qualitative commentary on how this might help change cultural norms relating to sustainability. 

THE FREE RIDER PROBLEM

Environmental sustainability is notoriously difficult to achieve because, as the economists among us will understand all too well, it represents a public good with an inherent free-rider problem. Take Australia for example. We contribute just 1% to global CO2 emissions. Between 2000 and 2011, China alone was adding a new ‘Australia’ to world CO2 emissions every 7.5 months, and in 2011, it did so in just 4.5 months! So any efforts by Australia to tackle global CO2 emissions alone would be negligible[1].

This is the free-rider problem of public goods – no individual can privately capture the benefits of their own actions, nor exclude others from enjoying the benefits of a cleaner general environment if they didn’t also contribute. So every player has an incentive to ‘cheat’, letting others solve the problem without contributing their own efforts for the greater good (because their individual contribution matters so little). And when everyone acts on this incentive, nothing is achieved.

ALTRUISM, SOCIAL LICENSE OR SELF-INTEREST?

So why do some private players, such as the organisers of the above Melbourne event, choose to take environmental action, knowing their contribution is negligible? Is it:

·        Pure self-interest to save costs over the longer term?

·        Guilt and a desire to maintain a ‘social license’?

·        Genuine altruistic concern for the environment and future generations?

Self-interest can be powerful. This client for example, on one of its energy-saving investments, was able to recover its entire expenditure on solar panels for one of its buildings in just over a single year. And herein, future energy savings can be reinvested in the client's events, facilities and services, and in showcasing Melbourne, Victoria and Australia to the world. And all this generates benefits not just for the broader society, but benefits the client is able to individually capture.

A desire to maintain a ‘social license’ can also be effective. Given the power of contemporary social media, if an entity misbehaves, a targeted campaign of online shaming by just a small group of ‘social justice warriors’ can draw widespread attention and compel the entity to toe the line. The online response to Martin Shkreli’s decision to hike the price of an important AIDS drug from $13.50 to $750 per pill is one good example of this.

Then of course, there are the altruists who genuinely gain value from seeing a world that is preserved for the use of others and for future generations. Any form of community volunteerism could fall into this category, where individuals gain nothing tangible for themselves, and wouldn’t likely be shamed for anonymously not participating, but still choose to participate in something for the greater good. Quite often, this is what motivates individuals within an organisation to action. Working with the blessing, although not always the resources of the organisation, it is a way to make a difference in the public realm for people who are truly committed to a more environmentally sustainable future. 

SHORTCOMINGS AND THE PATH AHEAD

In terms of ‘social license’, many are starting to resent the kind of ‘mob justice’ where an online minority have the power to destroy not just a company’s reputation and consequent financial sustainability, but an individual’s entire livelihood. And in an arena where facts are irrelevant and feelings reign supreme, the punishment can easily outweigh the crime.

As for altruism, if the previous centuries of global industrialisation have taught us anything, it’s that altruism is not yet common or powerful enough to limit environmental degradation in the face of rapidly advancing human living standards.

So if culture changes too slowly and societal shaming can backfire, incentives must be changed another way. Which leaves us with the poster child of economics and the bane of social advocates – self-interest. It must be in a person’s own self-interest to contribute.

In a way, self-interest contains scope for a combination of all three ‘incentives’ in driving environmental sustainability – not just at the individual level, but the national level. While positive incentives, such as subsidised solar panels, have their role to play, psychology confirms negative incentives to be just as (if not more) effective (the risk of ‘loss’ is a greater motivator than the chance of ‘winning’). Emissions trading schemes for example, impose a cost on polluters – a punishment for polluting and a cost-mitigation for complying, not a reward for not polluting and no punishment for polluting.

Furthermore, the ability to shame someone or something into compliance also represents a form of self-interest in terms of the entity’s own desire to maintain its social license.

And finally, when people do good, they feel good. So self-interested environmental sustainability can arguably foster altruistic-appearing behaviour too.

In my experience, despite how crucial it is for long term economic development that the world operates sustainably, the environmental component of these impact assessments can often be something of an afterthought. But with the right incentives – be they positive, negative or altruistic – they can become a focus of projects in their own right.

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[1] Calm down, this is not an argument against Australia participating in climate change action, it is merely an illustration of the free rider problem of public goods.