What do career advice, public policy and Eddie McGuire have in common? The answer is that they were part of the vast array of fascinating topics covered by Saul Eslake, Chief Economist of Bank of America Merrill Lynch, in ESSA’s inaugural Neville Norman Lecture, held on the 16 April at The University of Melbourne.
In his conversation with Associate Professor Norman, Mr Eslake talked about how Economics has helped shape his career, dispensing pearls of wisdom throughout the presentation.
He talked about his time at treasury in Canberra, humorously referring to it as “capital punishment.” His advice to all the budding economists in attendance was that it is a good idea to begin a career at one of the nation’s key policy institutions as he did.
After working in public policy roles for some time Mr Eslake was appointed as an economist for various financial institutions including NAB, McIntosh Securities, National Mutual Funds Management, ANZ and most recently Bank of America Merrill Lynch. What struck me as most interesting and appealing about Mr Eslake and his career, however, was not his plethora of professional achievements but his continued commitment to policy debate and development.
Throughout his career Mr Eslake has contributed to various policy debates. In my opinion, this is what distinguishes him from many other professional economists. Nowadays, the only exposure to economists the broader public has is during a fleeting section of the evening news where they are presented with market updates and interest rate movements or forecasts. News segments on education reform, infrastructure plans and other public policy issues are more likely to contain sound bites from prominent politicians prepared for the purpose of political point scoring than economic analysis.
Whilst the lack of economic analysis in public debate is often disheartening, it is something Mr Eslake has always worked to change. He almost sees it as a duty on economists to improve the quality of debate and advocate sound policy. At the beginning of his lecture Mr Eslake lamented the fact that it is rare to find academic economists enlightening the public with their knowledge and analysis. This is perhaps due to an incentive system where the rewards for journal articles are greater than the rewards for more widely read op-eds.
It was in the concluding notes to The General Theory that John Maynard Keynes stated that “the world is ruled by little else” than “the ideas of economists and political philosophers, both when they are right and when they are wrong”. However, public choice theory would state competition in the political marketplace for votes has more influence on policy than the ideas of economists. Given the current absence of economic analysis from many public forums and the existence of poor policy (e.g. middle class welfare) it seems economists do not wield the power Keynes believed they do.
During the interview and question time with Associate Professor Neville Norman, Mr Eslake commented on the resources boom, housing affordability and negative gearing. He remarked that perhaps policy-makers have not seized the benefits of the resource boom as much as they could have. He also criticized the long-pursued policy of giving cash to first home-buyers. It is obvious why such a policy does not work. Cash handouts increase demand for housing without affecting the supply. This leads to a shortage and therefore an increase in prices due to a shortage of housing. Mr Eslake also criticised negative gearing in Australia as it encourages speculation and places further upwards pressure on housing prices. Furthermore, he suggested that perhaps there is a public choice reason for governments pursuing such irrational policies. Increased prices are good for those who already own houses and this may lead to an increase in votes from this large segment of the population.
The evening concluded with a question about Mr Eslake’s “brawl with Eddie McGuire” in 2001. Mr Eslake commented that Australia should be less grudging in acknowledging the achievements of artists, intellectuals and successful entrepreneurs and business leaders. This apparently offended champion of ordinary Australians Eddie McGuire who decided to respond to Mr Eslake’s point in a Herald Sun column entitled “Heartless economist has no idea”. Mr Eslake’s reflections on this quirky episode provided an entertaining conclusion to the evening. On reflection, perhaps this episode again highlights the need for more informed public discourse on economics.
As Mr Eslake observed economics does not save lives the way doctors do, enhance human rights the way lawyers can, or leave beautiful things for future generations the way artists do. However, by advocating sound policy and good decision-making economics has the power to make a large positive impact on net welfare. For this reason economics is far from “the dismal science” as advocate of slavery Thomas Carlyle saw it. Rather, economics is a study of how we can increase wellbeing given the problem of scarcity – the study of how we can increase happiness.