| Do we need economists? |
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| by Stuart Corner | |
| Monday, 05 December 2005 | |
  
In the days before it was acquired by Charles River Associates, Australian economics consultancy, NECG, had a link on its website to another site dedicated to jokes about economics and economists. That link no longer exists. Such levity is presumably deemed inappropriate for a multinational corporation. No worry though, you can find the joke site here http://netec.mcc.ac.uk/JokEc.html. Here's two of my favourite: "Economics is the only field in which two people can get a Nobel Prize for saying exactly the opposite thing". And: A mathematician, an accountant and an economist apply for the same job. The interviewer asks each "What do two plus two equal?" The mathematician replies "Four." The accountant "On average, four - give or take ten percent, but on average, four." The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says "What do you want it to equal?" It seems only too true. Not that I'm suggesting economists are venal. I'm not, well no more or less than anyone else. Rather the truth is that no matter what viewpoint you seek support for, chances are you can find an economist, and an eminent one at that, to espouse it. The trouble with economics is that it's not a science like physics, rooted in the immutable laws that govern the workings of the Universe, it's a science of human behaviour. Come up with a theory in physics and, if it's any good, you'll be able to predict a behaviour of the Universe that is observable. No matter how outlandish your theory might seem slowly a mass of incontrovertible evidence will build up to vindicate it. Or conversely your theory will die for lack of observable verification. Thus the greatest scientist of the 20th century, Albert Einstein dismissed with his famous dictum "God does not pay dice with the Universe" the quantum-mechanical theory that, at the sub-atomic level the universe is inherently unpredictable. But the proponents of quantum mechanics were eventually able to prove that this uncertainty, God-given or otherwise, was real. However the ability of economics and economists to support one or more mutually exclusive views of the world does not seem to stop Australia's two largest carriers, Optus and Telstra from paying what I suspect are very large sums of money to very high profile and highly regarded economists for 'independent' opinion in support of their claims on various regulatory matters. It's been going on for years and seems to bring absolutely no clarity to the debate. Thus a year ago Optus deluged the ACCC with a submission and five appendices of expert economic advice backing up its claim for higher charges for terminating calls to its mobile customers that than the ACCC wanted. The appendices comprised two reports each from Charles Rivers Associates and n/e/r/a and a 44 page affidavit from Jerry Hausman, McDonald Professor of Economics at the Massachusetts Institute of Technology, in which he devoted several pages to setting out his very considerable credentials before proceeding to demolish many of the ACCC's findings in its mobile termination report. So did the ACCC cave in under this intellectual onslaught? Far from it. The ACCC marshalled its own army of economics expertise in response. Analysys Consulting was engaged to consider the model prepared by CRA and used to estimate the forward looking total long run incremental cost component that underpinned the price terms in the undertaking. WIK-Consult was engaged to consider conceptual issues associated with Ramsey- Boiteux pricing principles (don't ask me - I haven't a clue) and the network externality surcharge proposed by Optus, and the empirical estimation of these concepts in the CRA model. The ACCC concluded that the CRA model was "not well designed to accurately estimate the efficient cost of providing the mobile terminating access service, as Optus and CRA claim it does." That view took the ACCC about nine months to arrive at and cost goodness how many thousands of dollars. No wonder Optus' competitors branded the tactics a "cynical use of the undertakings process" designed to delay any regulator-imposed reduction the mobile termination access charge. Now it's Telstra's turn, although it hasn't got so far as using its latest economics big gun to bombard the ACCC with reams of formal submissions. Rather he is being used as part of a heavy duty lobbying campaign aimed largely at the government, directly and indirectly via the media and the 1.6 million 'mum and dad' Telstra shareholders with the goal of getting the government to rein in its regulatory watchdog - Graeme Samuel and the ACCC. This particular 'guru' name is Jeffery Eisenach, an American with a very impressive CV, and he was wheeled in via Cyberspace to address Telstra's briefing for analysts on regulatory matters last week. And it was an impressive and comprehensive presentation loaded with PowerPoint charts that drew on US regulatory experience to back Telstra's position on access regulation. Not surprisingly Eisenach was in favour of less regulatory imposts on Telstra. Not surprising because he's very clearly well and truly on the 'dry' side of economic policy. In 1993 he co-founded the Progress and Freedom foundation a body dedicated to "educating policymakers, opinion leaders and the public about issues associated with technological change, based on a philosophy of limited government, free markets and individual sovereignty." Telstra also managed to get a lengthy airing of his views in The Age newspaper - all good publicity. The Competitive Carriers Coalition (CCC) - which represents most of the largest carriers after Optus - submitted a response on the article to The Age, questioning many of the assertions Eisenach had presented as facts. But my search of the Fairfax web site suggests that nothing has been published. What next? The CCC probably doesn't have the resources to recruit someone of Eisenach's calibre for a counter barrage. Optus, on the other hand does. Optus CEO Paul O'Sullivan launched a sustained attack on Telstra in a lunchtime address last week. Optus has certainly shown it is prepared to invest heavily in economics intellectual firepower to back its position on regulation. So I would not be at all surprised if it is not gearing up for a counter attack. At the end of the day I really question whether this intellectual sparring moves the debate forward significantly. Never mind, it all makes work for the working economist to do. Who said economics was "the dismal science"? |
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