[The following contribution is the unedited version of the comment that The Australian published today under a different title. The Australian is pay-walled, so I put the draft here, with a few links added for good measure. For the record, I prefer the headline that I proposed … ]

Two years ago, University of Queensland (UQ) researchers Paul Frijters and Redzo Mujcic published a couple of working papers that documented substantial, statistically significant discrimination on the part of Brisbane bus drivers, especially against people of colour. Interestingly, the authors also found that Asians were not discriminated again, a finding which I find hard to reconcile with the anecdotal evidence I have seen in Sydney, for example. There were many other important findings in the Mujcic-Frijters study which quantified various aspects of discrimination in an innovative manner that could be a template for further studies.

UQ initially issued a press release to announce these findings and outlets such as The Sydney Morning Herald picked up the study that curiously – given its important quantification of white privilege — was never published and did not get publicity afterwards. Last week, in the wake of two contributions in The New York Times and Forbes by Yale Law School professor Ian Ayres, we learned why. Not a pretty story it is.

According to numerous contributions in Core Economics Today, The Australian, The Brisbane Times, The Washington Post, and many others, it seems that a day after the press release, UQ administrators told Frijters – the supervisor of then-Ph.D. candidate Mujcic – that the research had to be pulled out of the media and was not to be published because it had not received appropriate ethics clearance. It also has emerged that this discovery seems to have been prompted by the Brisbane bus company (Translink) media adviser asking how a study that seemed to involve fare evasion could receive ethics clearance.

Fare evasion? No, not really for all I know. Frijters & Mujcic had 29 young adult testers – duly mixed by gender, ethnicity, and attire – board Translink buses and insert an insufficiently funded fare card into the scanner. The testers then told the bus-drivers, “I do not have any money, but need to go to [a station about 1.2 miles away]”. The bus-drivers were thus prompted to make a call whether to allow the testers to stay onboard.

In the flurry of contributions and discussions in various outlets over the last few days, facts and open questions have emerged. Was deception involved? (Having written extensively about the issue of deception in economics and other social sciences, I believe, no: The testers had insufficiently funded fare cards and as part of their research had to go to the destination that they gave the bus-drivers. Hence there were no deceptive statements. Of course, bets are off on this one if the testers had indeed money on them and / or valid fare cards.) Did Frijters, Australia’s Young Economist of the year in 2009 and by all measures one of Australia’s most productive economists, follow the ethics procedures then in place at UQ? (If indeed no deception was involved, apparently, yes.) Was it fare evasion? (No. The bus drivers could decline the request for a free ride.) Were bus drivers entitled to let people free ride that had insufficiently funded fare cards? (Apparently, as persuasively argued by Rabee Tourky in Core Economics Today, yes. According to him, in the wake of the Daniel Morcombe murder Brisbane bus drivers were instructed to use judgment when such requests were made.) Should the bus company have been informed about this research beforehand? Should bus-drivers have been debriefed that they just had participated in an experiment? Was it appropriate for the researchers to publish location and carrier?

Some of these questions do not have easy answers, as is becoming now clear. With the benefit of hindsight, ethics clearance on a higher level might have been a good idea, be it only to protect the researchers from over-the-top administrative responses including at some point a demotion for Frijters that UQ ultimately had the good sense to reverse and Mujcic’s inability to get his dissertation research published. Hindsight, of course, is 20/20. As matter of fact, likely Nobel Prize laureate John A. List has defended field experiments that involve lack of ex-ante informed consent, or ex-post debriefing in the 11 July 2008 issue of Science, a leading and highly influential general-interest magazine. Arguing that notifying experimental subjects is often neither possible nor necessary because of the minimal risk that is involved, he puts it thus: “[I]n a natural field experiment, the analyst manipulates experimental conditions in a natural manner, whereby the experimental subjects are unaware that they are participating in an experiment. This approach combines the most attractive elements of the laboratory and of naturally occurring data: randomization and realism.” When challenged on this proposition, he responded in the 31 OCTOBER 2008 issue thus:“Ethical issues surrounding human experimentation are of utmost importance. Yet, the benefits and costs of informed consent should be carefully considered in each situation. Those cases in which there are minimal benefits of informed consent but large costs are prime candidates for relaxation of informed consent.” This seems to describe the Frijters & Mujcic study well and is in any case, for better or worse, an increasingly accepted point of view among behavioural and experimental economists.

Ethics clearance requirements – implemented in response to scores of well-documented examples of Human Subject Research abuses (google them!) and universities’ concerns for liability and reputation — have become a considerable drain on researchers’ scarce resources in Australia, and – it has to be said — other places. I am sure every behavioral and experimental economist here in Australia will attest to that. Occasionally ethics clearance requirements are applied in questionable ways in that the gate-keepers feel entitled to make judgment calls on the quality of research. I consider this an unacceptable infringement of academic freedom. It is in any case clear that – in light of List’s position, for example, as well as the Frijters & Mujcic situation — it is time to have a conversation about these issues, so as to lift the administrative and regulatory fog.

That ethics clearance requirements have escalated, and unreasonably so in many a case by List’s standard, seems widely acknowledged in that a number of universities in Australia have fast-track procedures for low-risk research. It seems that UQ in 2012, when Frijters & Mujcic did their study, had such procedures in place although apparently there was some wiggle-room for interpretation. The Frijters-Mujcic study hence seemed to warrant at best an updating of procedures that were found wanting. I simply do not see a case for suppressing this research given its unquestionable importance, and given that no deception seems to have been involved.

Academic freedom is an important good and should be defended vigorously. It is deplorable that the ongoing UQ saga has come at a high cost to Frijters and his former Ph.D. student. Their time could have spent much more productively although I am confident that the saga has provided Frijters already with many examples for his ARC-funded research into socially undesirable behavior.

Given that UQ administrators continue to insist that the university has responded appropriately, and given the facts that have emerged over the last few days, it seems clear that UQ administrators at this point are an interested party and as such ought to excuse themselves from further attempts at assessments of what happened. The accusation of maladministration that is now in the open, is too important an accusation, and ought to be dealt with by truly independent investigators. UQ, and Frijters, should commit to implement whatever recommendations such investigators come up with. It is to be hoped that Frijters soon can do again what he does best: Research that addresses important real-world problems in innovative ways and that gets noticed, and recognized world-wide, for exactly that reason.

It’s pretty obvious what’s going to happen this coming Tuesday. Or maybe already in a couple of hours.

That is, if there is some rational decision making going on and the key people have thought through the whole game tree, endgames included. Abbott has done himself in irreversibly, starting with his ill-advised and unfair budget and the subsequent failure to implement key budget measures, his failure to honour high-profile no-cuts election promises, his non-credible environmental policy, repeatedly demonstrated nastiness (e.g., the attempts to shut down the Climate Council, or the ACNC, the instalment of Royal Commissions meant to target the political enemy, the attempt to discredit the backbenchers that moved the spill motion, and the transparent attempt to pre-empt necessary discussion in the party-room), all the way to his office’s attempt to micro-manage cabinet/party room. All of this seems to have been driven by what he considers his power base and also drive by his fifties view of how the world ought to work. Dames and knights and all.

Yes, Abbott has proven to be a remarkably incompetent communicator but that is not his, or his party’s, key problem. Reneging on many a promise, and doing so at least partially for ideological/worldview reasons, is the key issue. Including his captain’s picks. But that pathetic decision to award a Knighthood to Prince Philip was just the proverbial straw that broke the camel’s back. Abbott’s latest call – a transparent attempt to pre-empt party-room discussion – will inevitably fire back. Sooner or later. As it should because it reflects an out-dated understanding of how parties ought to work.

Trust is easy to lose but very hard to gain, nevermind regain. There is considerable experimental evidence on this (for time it takes to build reputations, see here; for how little it takes to destroy people’s trust, see here, or for that matter, here). But it does not even take laboratory evidence because most people have good intuitions about the consequences of certain actions. Think of cheating on your partner (and being found out).

Abbott has argued that he has learned his lesson but his utterances are not credible any longer, as Turnbull brilliantly made clear with his captain’s-pick characterization of the attempt to move the spill forward and to pre-empt necessary discussion in the party-room.

Plus, at this stage, Abbott has become a laughing stock to considerable parts of the population and abroad (e.g., Oliver roasting him; see also here or here or here). There is no way that Abbott will recover from having become the butt of jokes because these clips will be replayed and repackaged and replayed. As they should.

If the Coalition sticks with Abbott for now (whether it is Tuesday or Monday), they will just extend their pain indefinitely. It will be a daily media circus, indefinitely. Because. There is a) no way that Abbott will change — his latest captain’s call suggests that much — and b) no way, even under the best of circumstances (Abbott changing somewhat), that he will regain the confidence of enough voters to have a chance to contest the next election. The recent polls and election results in Victoria and Queensland speak volumes. NSW might be next if Abbott is going to stay on.

I bet there were many calls this weekend whose major purpose it was to convince Abbott of b). Plus appeals to be mindful of the fate of his party, and threats that he will be taken down if he does not resign.

If there is some decency, and rationality, left in Abbott he will resign rather than force a show-down. Of course he might be called the mad monk for a reason. In which case rational decision making should not be expected, at least for a couple of months. Which is a troublesome prospect for the country because Abbott clinging on to power will prolong the dysfunctionality that goes for policy-making in Canberra these days. and that has gridlocked Canberra arguably since 2010 or so.

It is, incidentally, not the voters who have gotten more fickle, as John Birmingham has argued. Correctly, in my view.

“The electorate isn’t volatile. Voters aren’t unpredictable. The rules have not changed. If you lie to people, if you promise one thing and deliver its opposite, if you treat public office as your due and the ordinary people who put you there with contempt, they will turn on you.”

It is indeed the political class that is messing up (Labor by having allowed a narcissistic megalomaniac to de-stabilize one of the more productive governments the country has ever seen and the Liberals by allowing Abbott, and his government, to make a mockery of the no-surprises contract those alleged grown-ups had with the voting public.) In the end, in the eye of most voters, it is about elementary things like this: Trust and trustworthiness. Promises and whether they get broken. That’s because assessing the efficiency and efficacy of government actions and initiatives taxes the cognitive limits of most voters, inducing them to rely on markers like trust and trustworthiness. And some sense of decorum.

P.S. The Nats? A side-show. Who are they going to team up with? Labor? Branches of the game tree you can safely ignore.

 

A couple of days before Christmas 2014, Environment Minister Greg Hunt – he who rather consults Wikipedia than rely on the considerable in-house expertise at his fingertips – published data that seemed to show that during the second year of its existence the carbon price (often falsely called a “tax”) was more successful than the first, notwithstanding the political uncertainty that existed ever since it was implemented July 1, 2012. Of course, the very scheme was discontinued (at least temporarily) July 1, 2014, as promised by Abbott in the run-up to the Federal 2013 elections.

The data now published (see here and here) deserves all the attention it can get: it shows that emissions declined across Australia by 1.4 per cent over the 12 months to June, up by about 75 percent over the previous 12 months’ reduction (a decline in emissions of 0.8 per cent). As one of my colleagues put it on his facebook page, “Demand curves slope downwards. Who knew?”  

Comparing data over different time periods is, of course, problematic – confounds such as the weakening economy could drive this result, as could a change in the “generation mix” — but the sum of the evidence, including estimates by knowledgeable sources that emissions have been on the rise again since 1 July 2014, suggest strongly that simple economics is playing out here.

Really, it is basic economics. Production that creates public bads such as pollution of air, land, or water is best addressed by putting the appropriate price tag on them when and where possible. That such price incentives work, can only surprise people who do not understand basic economics, or who are so ideologically blended that they do not want to accept basic economic insights.

Hunt’s spokesman – apparently arguing from the silly (and ideological) premise that bads should not be priced — is reported as having said, “In its first year, the carbon tax was a $7.6 billion hit on the economy but reduced emissions by less than 1 per cent.” He did not comment on the second year, probably because it did not fit his narrative. And, of course, it would have been too much to ask from him to remind the audience that, if these reductions were indeed the result of the carbon price, it was implemented under considerable uncertainty and hence whatever we see these days in the data for those two years was confounded by well-grounded hesitation and expectations of the temporary nature of the carbon price.

Hunt’s spokesman also suggested that the Coalition’s Emissions Reduction Fund (ERF) – now in the ramp-up phase – would be a more effective means of reducing emissions. Well, I take bets against that. As many, and as high, as you want (as long as we can agree on an independent arbiter; more on this below).

Providing subsidies to businesses that want to reduce their emissions, through reverse auctions (allegedly to be implemented soon), is a nice but not uncontroversial idea. It might function as such but it will take more money than the 2.5 billion now ear-marked for it and it will create a monstrum of bureaucracy and is certain to invite massive rent-seeking and, predictably, corruption. Mark my words. It is hardly surprising that there is a long list of applicants for those billions that have been ear-marked for the ERF scheme. Billions, I should add, that have to be financed out of the budget and hence through taxes, adding to the – arguably self-inflicted — budget malaise the government has already on its hands. The fact that there is a long list of interested parties demonstrates nothing (whatever claim to the contrary Hunt or his spokesman seem to make).

I am not the only one who has doubts about the efficacy of the ERF. My pessimism is shared by the Climate Change Authority (CCA) – an independent watch-dog of sorts financed by the government. The Abbott government wanted to dismantle it as soon as it came to power presumably because its marshalling of science facts inconvenienced it but was forced to keep it alive in the recent gift-exchange exercise with the PUP that allowed it to put away with the carbon price, at least temporarily: “The scheme might not only miss some real opportunities to reduce emissions but also (and perhaps more worryingly) result in large payments for reductions that would have occurred anyway,” the CCA stated.

While there are legitimate questions to ask about climate change facts (see here and here and here and here and here) and the optimal means to fight it, the answers to these and related questions (RET) ought to be decided – arms-length and unfettered by a political process that seems broken and highly dysfunctional – by the Climate Change Authority, or similar independent bodies. Yes, there will be some uncertainty left and everyone who thinks the facts can be ascertained beyond reasonable doubt does not understand the nature of the evidence that we are dealing with (essentially modelling of rather complex systems based on, and initialized with, all kinds of assumptions and trends from decades of data) but that makes it some much more important that people knowledgeable of the facts of science get to make the key calls.

I look forward how the Abbott government will respond to the CCA assessment of the ERF scheme, as it has promised. Anything more than yet another exercise in obfuscation would surprise me. (Yes, after all those broken promises, and after its opportunistic and unprincipled attempt to defund the CCA, etc., I am that cynical.)

Trust is the key ingredient in the relationship between government and those it governs. The Abbott government has given no assurance that it can be trusted to make forward-looking decisions that are based on science (and the majority of people seem to understand this, women being quicker at understanding than men.) The Abbott government has shown nothing but disdain for science (facts), both substantially and symbolically. The recent appointment of a minister for science (well, as one could expect from the Abbott government nothing but an opportunistic name change/title addition; see also here for the history, lest we forget …) instills about as much confidence that the government will mend its ways as Abbott appointing himself the minister for women, and not demoting himself in the recent cabinet reshuffle, as he arguably should have.

In light of the public’s current assessment of its policies and the ways it goes about implementing them, I wonder what the Abbott government knows that the public does not. Surely it does not think that Daily Telegraph and various shock jocks will help it paint a different picture. It’s easy to gamble away trust (see here and here and here) but it is very hard, and takes considerable time and good-faith effort, to (re) build it. These are simple, elementary facts and it is hard to understand what Abbott and his strategists think. That, of course, applies to other areas of policy making, too.

The most reasonable explanation I can come up with is that Abbott and his strategists thought they could hi-jack the political process for the big money it seems beholden to but it is hard to understand that they believed (and still seem to believe) they would get away with as radical an agenda as they tried to implement. You would think that they have learned their lessons in light of the vehement opposition they have faced in the Senate. Alas, it does not seem so. Certainly, the way Hunt went about the publication of the carbon price data, and for that matter, the Abbott government’s pursuit of an environmental agenda that seems widely discredited (and increasingly so) does not suggest much learning if any.

There is no doubt in my mind that carbon price and RET will make a triumphant return under a somewhat more enlightened and forward-looking government (i.e., a government that takes in this area on board the guidance from science, as it should according to a widely shared understanding among economists), as will ACNC and FoFA. The problem is that in the meantime valuable time has been lost and Australia’s position and reputation as one of the fore-runners in carbon pricing and renewable energies seems to have been severely damaged.

 

P.S. Disclosure: I was member of a team that assessed experimentally the feasibility of the Carbon Pollution Reduction scheme and I was consulted in the run-up to the ERF implementation and invited to bid for the experimental testing of the reverse auctions that are at the heart of the ERF. (We decided not to submit some such tender since the time frame was unrealistic. Besides, as mentioned, the real issue is not the design of the reverse auctions — which are reasonably well understood — but the mechanism that is required to implement them and the rent-seeking and bureaucracy it invites.)

P.P.S I am currently traveling and online only intermittently. I might respond to comments somewhat delayed but respond I will.

In a recent article published in The Journal of Economic Perspectives (Vol 28. Nr 3, summer 2014), Conley & Oender follow up on an earlier paper published the year before with others in Economic Inquiry.

In their earlier contribution, drawing on a panel dataset of 14,271 individuals that were awarded Ph.D.s between 1986 and 2000 in U.S. and Canadian economics departments, Conley & Oender investigated how increases in publication delays have affected the life cycle of publications of recent Ph.D. graduates in economics. They found evidence that productivity has significantly diminished in recent relative to earlier cohorts, with productivity being measured by the number of AER-equivalent publications. The result, while intuitive and in line with other evidence such as increasing publication lags , was not robust: when the number of AER-equivalent pages was used instead diminished productivity was less evident.

Another finding, and arguably the more interesting one, was that research publications were yet another extreme example of positive skew, i.e., a reverse J distribution: The top 1 percent of publishing research economists across their whole sample produced 13 percent of (quality-adjusted) research output, and the top 20 percent produced 80 percent of it.

In their new paper Conway & Oender, drill deeper in their data. Their key question is whether the skewness is due to stratification: Is it the top departments that produce those productive scholars, as one might intuit? Well, turns out, the story is rather more fascinating:

“Our evidence shows that only the top 10 – 20 percent of a typical graduating class of economics PhD students are likely to accumulate a research record that might lead to tenure at a medium-level research university. Perhaps the most striking finding from our data is that graduating from a top department is neither necessary nor sufficient for becoming a successful research economist. Top researchers come from across the ranks of PhD-granting institutions, and lower-ranked departments produce stars with some regularity, although with lower frequency than the higher-ranked departments. Most of the graduates of even the very highest-ranked departments produce little, if any, published research. Indeed we find that that PhD graduates of equal percentile rank from certain lower-ranked departments have stronger publication records than their counterparts at higher-ranked departments.” (p. 205 – 206) The authors identify those institutions in their article.

In other words, rankings or pedigree is only so important and can be seriously misleading. And, “if the objective of graduate training in top-ranked departments is to produce successful research economists, then these graduate programs are largely failing.” (p. 212) And, “For graduate students in economics (and also potential graduate students, AO), the message is that becoming a successful research economist is difficult. The good news is that one does not have to go to a top department in order to become a successful research economist.” (p. 212)

An interesting by-product of their research is that publishing a paper before graduation was uncorrelated with productivity up to the tenure decision. (p. 214) If true, and it certainly seems rather counter-intuitive, the signal extraction problem would be even harder.

It is important to repeat that Conley & Oender draw on a panel dataset of individuals that were awarded Ph.D.s between 1986 and 2000 in U.S. and Canadian economics departments. The changes in the economics profession have been considerable in the last couple of decades and, while it is likely that the key findings reported in their paper (reverse J distribution of research publications, coming from a top place being no quality guarantee) are likely to survive a re-analysis with seriously updated data, the finding of the correlation between publication before graduation and productivity up to the tenure decision might not. It’s not called “publish or perish” for nothing.

In sum, signal extraction in economics is hard. Very hard indeed.

In other disciplines, too.

 

In a recent working paper which has received considerable play on social and other media (and is allegedly forthcoming in The Journal of Economic Perspectives next year), a sociologist called Marion Fourcade and two French economists (Algan, Ollion, the former a research fellow at the CNRS of the University of Strasbourg, the latter a prof of economics at Sciences Po, Paris), report an investigation in the “dominant position of economics with the social sciences in the United States.” (abstract). Its title is meant to be a “double entendre” (p. 2) although not every one might get it.

The claims made are:

1. Vis-à-vis sociology and political science, economics is more insular in that it is more self-referential than its enumerated competitors.
2. Vis-à-vis sociology and political science, economics is more tightly managed top-down, making dissent more difficult.
3. Vis-à-vis sociology and political science, economists are materially better off because many of them work in business schools and engage in well-paid consulting activities.
4. Vis-à-vis sociology and political science, economists are more individualistic.
5. Vis-à-vis sociology and political science, economists are more convinced in their discipline’s “ability to fix the world’s problems.

Ad 1: Insularity

The authors try to establish this through analysis of citation data. Table 1 documents that the three “flagship journals” of the three disciplines (AER, APSR, and ASR) drew on citations from the top 25 journals in their respective disciplines about 40, 18, and 22 percent of the time. Researchers publishing in the AER referenced top 25 political science and sociology journals less than 0.8 % and 0.3 % of the time; those publishing in APSR and ASR referenced articles in the top 25 journals of other disciplines about 5 – 6 times more often. In absolute numbers that’s still little (about 1 out of 40 references). And of course, looking at flagship journals is only so telling. So the authors review some other references (p. 4) that suggest that about 80 of references in economics are within-field while the corresponding numbers for sociology and political science are about 50 and 60 percent, respectively. This seems to reflect a certain self-referentiality and it is in line with my observations although these numbers surely differ widely across areas.

The authors then argue, “As sociologists know well, this dynamic is characteristic of unequal situations: those in a central position within a field fail to notice peripheral actors, … [follows the obligatory Bourdieu reference]. Instead, they tend to rationalize power and inequality as a ‘just’ product of merit, … .” (p. 6) Well, maybe. But surely other explanations – such as economists sharing a stronger and more wide-spread belief in an integrated and unified framework of rational actors — are possible and the authors fail to rule them out.

Ad 2: Hierarchy

The authors then argue that the documented citation patterns reflect a top-down organization and management of the field. Quoting studies two decades old, they note that “scholars have long noted that top departments in economics exert a remarkably strong influence over the discipline’s internal labor market. … The flow of students [hires] between departments … show that universities hire only from institutions that are ranked at the same level or higher. … This correlation between prestige and placement … is strongest in economics.” (p. 8) Well, it is quite possible that the findings by Conley & Oender — more on them in another CET contribution — will change this to some extent. These authors have also demonstrated that the link between pedigree of graduating institution and publication record at the time the tenure decision arrives is rather tenuous.

While there is undoubtedly hierarchy in economics (in getting a job, getting published, and getting together), as arguably it should be to the extent that it is merit-based, some of the authors’ examples are problematic at best. Yes, the AEA (American Economic Association) is a unitary organization and it has no “sections” as sociologists and political scientists have but economics has, for example, a strong and strongly growing association of experimental economists worldwide called the Economic Science Association and I would argue that this has helped to defuse some of the centralizing trends that the AEA brought about for a while. As has the emergence of the European Economic Association, or EEA. A good case can be made that part of the momentum for behavioral and experimental economics has come from the self-organization that has happened outside of the strictures of the AEA over the last couple of decades. The authors seem ignorant about these, and many similar related developments (e.g., here and here and here). In general, it seems clear that hierarchy is flattening both in terms of hiring (again see Conley & Oender) and in terms of getting published (see here ). And there is plenty of dissent in economics these days. And that’s a good thing.

Ad 3: Economists are materially better off

The authors acknowledge that, notwithstanding what they perceive to be the insularity and hierarchical structure of economics, changes can happen and can happen relatively quickly. The authors’ case in point is finance which has seen a steady increase of extra-disciplinary citations in what the authors consider the five top economics journals (as percentage of citations roughly a doubling over the past two decades; see Figure 3 their paper). No surprise there since finance is in many respects just a spin-off of economics, albeit one which is recognizably closer connected to the business world. It is this fact that actually has improved the demand for economists from business schools; it also has created considerable opportunities for consulting (p. 17).

While this trend has been good for economists’ incomes, it has also made them to some extent dependent: Whose bread I eat, his song I sing, as the German proverb has it.

And, yes, when the stakes are high economic theory predicts that at least some economists will sell out quickly, as also suggested by the work of Zingales (2013) that the authors cite. Did I say when the stakes are high? “For a moderate fee,” jokes Deirdre McCloskey, “an economist will tell you with all the confidence of a witch doctor that interest rates will rise 56 basis points next month or that dropping agricultural subsidies will increase Swiss national income by 14.8%.” (From an Economist article reporting on the Fourcade et al. study.)

Ad 4: Economists are more individualistic (and less inclined to collaboration)

Well, for the most part that statement reflects a lack of understanding of modern economic theorizing. The authors mention some of the usual references (e.g., the Frank et al 1993 JEP study, the Frey & Meier EJLE 2005 study and one of the classic Marwell & Ames studies) but ignore conveniently some evidence that contradicts these findings including one that explicitly has taken as target the Frank et al study: Watch what we do not what we say!

Ad 5: Economists are more convinced in their discipline’s “ability to fix the world’s problems.” Or, in other words, “most economists feel quite sure about their ‘value added.’” (p. 22)

The implicit claim is that economists are over-confident. Because. Global Financial Crisis.

Well, yes, economists tend to be not particularly humble people but for starters they are quite a diverse bunch in their opinions, and, of course, there were people who did predict the GFC, or various precursor events. In fact, as the famous saying has it, whenever you have n economists in a room you are assured to have n+1 opinions because one of them will have two opinions all by himself, possibly at the same time.

The key problem of the present paper is that it does not appropriately factor in this diversity. Whether economists are too sure of themselves is hard to assess in the aggregate. A recent exploration suggest economists are “inhumanly impartial”. Who am I to argue?

Maybe, you should have them superiors serve you, even if it comes at a premium. You get, as the saying has it, what you pay for.

P.S.:

As mentioned, the working paper by Fourcade and her colleagues has attracted considerable commentary on social and other media.

Noah Smith has argued that the premium that economists can pocket is for the most part due to the fact that economists have teched up on statistics over the past few decades. Which is, no doubt, part of the story. But they have teched up in many areas and statistics is just one and IMHO not really the most important one; the game theory and behavioral revolutions strike me as of at least equal importance.

The Economist also had a write-up and it was as uninformative as I have come to expect from that rag. Under the title, “The power of self-belief”, the writer argues that economists’ sense of superiority is the driver of it all. He then, strictly scientifically, relies on a random sampling of that venerable and classy website called econjobrumors … :

“A glance at a popular blog for doctoral students in economics, econjobrumors.com, gives a taste of the contempt in which its users hold other disciplines. Sociologists ‘play around with big important ideas without too much effort or rigour,’ one econo-nerd asserts. “

World-class journalism that.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2014 has gone to Jean Tirole, the superstar of the game theory revolution in industrial organization and corporate finance, “for his analysis of market power and regulation”. Says the official one- line prize motivation.

Tirole, albeit young by historic standards – with age 61 he is apparently half a dozen years younger than your average Nobel Prize laureate –, has been on many people’s lists for years. It is not just because of excellent textbooks such as The Theory of Industrial Organization (which came out when I was a graduate student) and The Theory of Corporate Finance (out of which I taught for a number of years), or his undoubtable academic – according to scholar google more than 80,000 citations and an H-index of 115 (86 since 2009) — and regulatory influence.

Tirole has thought hard about problems such as formal and real authority in organizations, the role of collusion in organizations, incomplete contracts, the economics of open source, and even topics such as extrinsic/intrinsic motivation, self-confidence, and personal motivation. And when he has done so, he almost always has done it with bare-bones models. You will not find in a Tirole paper, or in his books for that matter, gratuitous math even though he was trained as an engineer. Instead you find elegance and economic insights. Heaps of both. I like to think of Tirole as the legitimate heir to Adam Smith, the Adam Smith in particular of Book V of The Wealth of Nations.

As I write this brief note, it is becoming clear quickly that the Nobel Prize Committee’s choice is widely applauded.

Justin Wolfers has an eminently readable piece in the NYTimes, arguing …

“The online chatter among my economist friends this morning has been entirely enthusiastic about Mr. Tirole’s prize. The consensus is that he represents the very best of economics. He tackles big problems, he develops new tools when they’re needed, and his research is always grounded in the real world.” All true.

Our very own Joshua Gans has a nice appreciation over at rival digitopoly ;-).

I predict a flood of similarly kind appreciations coming in later today.

This Nobel prize is a well-deserved award that goes to a very decent fellow indeed.

 

 

In a forthcoming article (downloadable here) in Research Policy (according to the 2013 ranking of the Australian Business Deans Council an A*journal), Sarah Necker of the University of Freiburg, Germany, reports the results of a study on fraudulent and questionable research practices in economics. The study is based on survey data, so it automatically comes with the usual caveats (sample selection biases, untruthful responses) that any such study faces.

Necker is aware of the various pitfalls of this kind of research (e.g., the systematic differences between own reports and reports of misbehaving colleagues) and makes for the most part the best of it, given the circumstances: the questionnaire was sent out to all registered members of the European Economics Association. Of 2,520 potential responders (including me), more than 600 started it (not me), and 426 continued until the last page for a participation rate of 17%, about in the ballpark. Looking at the few observable characteristics that she has information on, such as gender and national distribution of institutional affiliation, Necker argues that her sample is broadly representative. Also, the answers of those respondents in the first and last quintile are similar, adding allegedly to the trustworthiness of her results; as do several other robustness checks (see pp. 2 , first column).

Necker finds,

“The correction, fabrication, or partial exclusion of data, incorrect co-authorship, or copying of others’ work is admitted by 1- 3.5%. The use of ‘tricks to increase t-values, R², or other statistics’ is reported by 7%. Having accepted gifts exchange for (co-)authorship, access to data, or promotion is admitted by 3%. Acceptance of sex or money is reported by 1-2%. One percent admits to the simultaneous submission of manuscripts to journals.

About one fifth admits to having refrained from citing others’ work that contradicted the own analysis or to having maximized the number of publications by slicing their work into the smallest publishable unit. Having at least once copied from their own previous work without citing is reported by 24% (CI: 20 – 28%). Even more admit to questionable practices of data analysis (32 – 38%). e.g., the ‘selective presentation of findings so that they confirm one’s argument.’ Having complied with suggestions from referees despite having thought that they were wrong is reported by 39% (CI: 34-44%). Even 59% (CI: 55-64%) report that they have at least once cited strategically to increase the prospect of publishing their work.” (p. 3)

Needless to say that there is a tendency of respondents who admit to a questionable behavior to think of it as being somewhat more justifiable, a result that is not surprising in light of a well-established literature on self-serving biases. Needless to say also that the reported percentages of colleagues misbehaving are all higher, sometimes by almost an order of magnitude. The median response is “up to 10%” for fabrication of data, for example. And the median response for plagiarism (here defined as “the incorrect handling of others’ ideas” is up to 20% of published research. The median response is “up to 30%” for various forms of massaging/incorrectly reporting data.

These numbers – which Necker argues are similar for psychologists – seem at first sight quite distressing. It hence needs stressing that the numbers are quite misleading. The author asked her respondents whether they “ever” engaged in, or observed, the various questionable behaviors but does not control for actual incidence (see p. 10 – 11). Necker’s piece hence strikes me as exhibit A for questionable, and sensationalist, reporting practices. (Interestingly, the folks at retractionwatch did not pick that up.)

In the end it is not clear how widespread scientific misbehavior in economics is and I wonder whether Fanelli, who is quoted in the retractionwatch piece, actually read it. If so, he seems to have missed a major problem of Necker’s study.

Whatever the incidence numbers really are, it remains open what their trajectory is going forward. While it is clear that increasing performance management adds to the temptation to cut corners, the increasing likelihood of fraudulent and questionable behavior to be discovered (as illustrated by sites such as retractionwatch) acts as a countervailing force that makes it difficult to predict where we are headed.

As mentioned, Necker’s respondents are members of the European Economics Association. It is not clear to what extent we can make inferences about Aussie economists although the performance pressures inducing fraudulent and questionable behavior seem worldwide similar.

The 2014 soccer world cup opens in Brazil this coming Thursday with the bookies’ favorite (the home team) playing Croatia. Argentina is currently tipped to be the other finalist, with Germany and Spain (the defending champion) trailing these two by considerable margins.

In a paper just published in a German sociology journal, and (save the abstract) unfortunately in German, Gerhards, Mutz, & Wagner explore how marketization and globalization have changed professional soccer and the composition of teams. The authors conjecture that success of soccer teams in their national leagues is essentially determined by their market values. (Market value of teams was computed as average of the market values of all players on the roster at the beginning of a season.)

The authors control for inequality within the team, the cultural diversity of the team, and the degree of turnover among team members which have been proposed as important determinants in other studies (and for other sports). Curiously, the authors do not control for the market value of the coach(ing staff). Klopp will not be amused.

Drawing on the top twelve European soccer leagues (according to the UEFA- ranking 2012: England, Spain, Germany, Italy, Portugal, France, Russia, Netherlands, Ukraine, Greece, Turkey, and Belgium) and using data for the 2012/2013 season, the authors find that the key predictor of a team’s success is indeed the market value: In eight of the twelve leagues the team with the highest market value finished as national champion. In three leagues it was the team with the second-highest value and the remaining team started the season with the third highest market value.

This simple heuristic (which, however, required considerable data sleuthing by research assistants) also worked well for the European qualifiers to the 2014 world cup in Brazil. With the exception of Russia (whose market value was second to Portugal) all winning teams in the qualifiers (Belgium, Italy, Germany, Netherlands, Switzerland, Bosnia-Herzegovina, England, and Spain) were also the ones with the highest market value.

Inequality within the team, the cultural diversity of the team, and the degree of turnover among team members essentially don’t matter.

In short, money shoots the goals.

The findings entail a testable hypothesis for the upcoming soccer world championships. Given my background, I like the prediction for the configuration of the final (Spain vs. Germany) but not the prediction for the outcome.

Fortunately, I can think of many cases where the team with the higher market value has lost to the team with the lower market value ? So, there …

 

A couple of weeks ago (April 26) Seth Roberts died; he collapsed near his home in California. He was a Professor of Psychology at Tsinghua University in Beijing and Emeritus Professor of Psychology at the University of California at Berkeley. He was also the author of bestselling book The Shangri-La Diet. His diet seems to be something many Australians might benefit from. But I leave that for another blog entry.

I came across Seth’s work the first time when I read his Behavioural and Brain Sciences 2004 target article titled “Self-experimentation as a source for new ideas: Ten examples about sleep, mood, health, and weight”; admittedly, I was initially a bit amused and apparently I was not the only one with this reaction. While the BBS target article was about his own travails and the ways he had decided to address his demons (insomnia, weight problems, etc.), it was also an interesting methodological reflection about the ways we generate new ideas about issues that in economics we refer to as self-command problems. Said he, “it is noteworthy that 12 years of self-experimentation led to the discovery of several surprising cause-effect relationships and suggested a new theory of weight control, an unusually high rate of new ideas.” (Abstract) In his later reflection of the reception that his work received among his peers and elsewhere, he estimated that the rate was of order of magnitude 3.

As mentioned, when I chanced on his BBS target article I was at first amused but reading it (and the commentary that it provoked), it became clear that there was an interesting person at work, as also indicated by this Scientific American portrait. It’s fair to say, that reading the BBS piece did have some influence on my own attempts to navigate the treacherous waters of self-command and it still makes for a good read.

In the aftermath of his untimely death, it has been suggested that his experimentation with (and miscalculations about) Omega-3 fatty acids might have caused his collapse; a subsequent message by his mother on his blog and responses to it suggests several other explanations (amalgam fillings, heavily polluted fish in Shanghai). It will take a while for the competing explanations to be sorted out.

Seth’s final paper was just published in a special issue (dedicated to him) of The International Journal of Comparative Psychology (Vol 27, Issue2, 2014). The article is titled “How Little We Know: Big Gaps in Psychology and Economics” and it strikes me as an(other) important methodological reflection.

The key argument is that foraging and human learning experiments (including those in economics) are focused on the last step in the learning experience: “learning after rats have learned where to go and what to do, but after a while, perhaps after several thousand experiments, it would be more profitable to study learning before rats have learned where to go and what to do.” Similarly, for higher animals such as humans: “Likewise, almost all economic research is about the use of economically-valuable knowledge. Almost none of it is about how that knowledge originated or was transmitted.” The word “almost” is an important qualifier here. Economists have of course, like psychologists and neuroscientists of various persuasions (e.g., Goldberg in The Executive Brain and The Wisdom Paradox), dealt with issues of learning at the pattern-recognition level. While he gets wrong what Adam Smith had to say about these issues – that happens if the only thing you know is The Wealth of Nations — , Seth has a point when he deplores economists’ under-investment in the study of innovation from the pico(micro-micro)economic level to the macro-macro level (we are talking Acemoglu & Robinson 2012 here).

Seth’s final paper is as inspiring and thought-provoking a read as was his early BBS target article. I recommend it.

 

I previously commented on the batch of submissions (all 16 of them) that were available during the weekend following the May 2, 2014 deadline for submissions. In the following week, 132 submissions were added for a total of 148 (one being a duplicate entry it seems: 16, 146). I have read through about two thirds of them – the most relevant, imho — and share some reading notes (typos and shorthand and all) for those that are interested and might find some screening and commentary useful.

Comments and corrections welcome. Critique, too.

Overall impressions:

1. I had previously called eminently readable the six-page brief of The Queensland Law Society and apparently I was not the only one who was impressed. Several other contributors (e.g., 42, 52, 77) refer explicitly to this submission (no. 7 here).
2. The quality of the submissions varies widely, from the fluffy and gratuitous that runs for a page or two and is mostly self-advertisement (I won’t mention names but I’m sure they know who they are) to must-reads such as submissions 7 [Queensland Law Society], 16 [Creating Australia], 32 [John Butcher], 37 [Housing Industry Association], 43 [Ted Flack], 45 [Neumann & Turnour], 47 [philanthropy Australia], 50 [Third Sector Researchers], 52 [Robert Fitzgerald], 59 [Centre for Civil Society], 61 [Governance Institute of Australia], 70 [Elizabeth Cham], 77 [World Vision Australia], 79 [Performance Partners]; 95 [Susan Pascoe/ACNC], 99 [Martina Nehme], 102 [Financial Services Council], 103 [Universities Australia], 109 [Andrew Barr], 138 [Robert Wright], 146 [Myles McGregor-Lowndes]. My sample of 21 must-reads overweighs those in favor of the Repeal because the arguments in the submissions in favor of the ACNC regime are pretty much the same and because, if there is a case that government can make for the abolition, you might find it in those that I over-sample.
3. Support for the Repeal Bill clocks in at less than ten percent of the submissions (e.g., 37, 43, 59, 64, 102, 103, 115) overall. For what that’s worth: we don’t know how much selection bias there is and how many of the fluffier contributions are commissioned pieces; some clearly are. The repeated use of phrases such as “it would be a retrograde step to abolish the ACNC” suggest some gentle arm-twisting towards contribution.
4. Overall, it is hard to escape the impression that the title of my earlier CET contribution captures the prevailing sentiment well. There is wide-spread concern about shoddy workmanship (the factual mistakes in the Regulatory Impact Statement; the failure to address the costs of the transition to a new system; the failure to lay out how a new regulatory framework would address the well-documented concerns regarding the pre-ACNC configuration which prominently featured ATO and ASIC as the default regulators and enforcers)
5. Once again the widely favored regulatory model is anglo-centric and ignores the alternatives that exist elsewhere as well as the considerable problems that have been documented for charity commission models.
6. Once again there are frequent attempts to downplay the considerable susceptibility of the third sector to outright fraud, mismanagement, and mission drift. Everyone who denies this danger starts from the wrong premise. There are good reasons while we have the layers of regulation: they are a reaction to the lack of transparency and accountability of the sector (a lack of transparency and accountability that the self-anointed leaders of the sector have failed to address for a couple of decades now), spectacular cases of abuse (that I have documented in previous contributions to this blog, here and here and here and here and here), and the general understanding that human nature of the actors in the not-for-profit sector is not even close to what some people like to believe (for a particularly silly example, see submission 61: “Members of charities are not driven by the bottom-line but by a deep-rooted ethical mission.”).

Detailed impressions:

Below the following abbreviations are used.

AIS = Annual Information Statement

ASIC = Australian Securities and Investments Commission

ATO – Australian Tax office

Bill 1 = Currently know Repeal legislation

Bill 2 = Legislation detailing future regulatory architecture, yet to be provided

COAG = Council of Australian Governments

Dgr = Deductible gift recipient (status)

EM = Explanatory Memorandum

ICFO = International Committee on Fundraising Organizations

Nfps = not-for-profits

RIS = Regulatory Impact Statement

Repeal = Repeal legislation

 

Commentary on selected submissions.

Submission 1 (Westworth Kemp, consultants, 2 pages): Concerned that Repeal a step backward; stresses consultation process that led to current configuration; supports ACNC focus on education as well as regulation; stresses that Tax Office would be a regulator with conflict of interest (strict regulation of Dgr status to protect tax revenues); proposes that Commonwealth work through COAG to remove regulation at State level, “so that the ACNC can become the ‘one-stop shop’ it was intended to be.”

Submission 3 (Queensland Association of Independent Legal Services Inc., 1 page): Supports current regulatory framework and recommends that Repeal not be passed; forsees that reporting burden will be reduced; recommends that all levels of government commit to supporting the “one-stop shop” regulator concept.

Submission 4 (Fielding Foundation, 1 page): draws on own experience to argue that ACNC and AISs have significantly reduced its workload (costs of information acquisition); suggests that financially insignificant charitable entities such as community sporting groups need not be regulated.

Submission 5 (Incredable, 2 pages): based on own experience in favor of retaining ACNC as national regulator of nfps and charities; applauds “The ACNC for its softly-softly approach to the oversight of the charity sector, and for its active pursuit of those masquerading as Charities”; stresses that ACNC helps to resolve competing claims about size of nfp sector and its impact: “Clearly, the states have failed to do so to date, it is therefore incumbent on the commonwealth government to do so.” Stresses consultation process that led to the current configuration and stresses that Repeal was not based on consultations. “I must conclude this is an ideological thing with this [Abbott] government. … As a conservative voter I am pretty disillusioned with their ‘idillogical’ outlook.”

Submission 6 (Max Bourke, 1 page): Repeal “a most retrograde step and is to be deplored. There is no doubt it will increase the potential for fraud and I imagine fraudsters relishing the prospect. To introduce a Bill with a vague and totally unspecified means of replacing these functions is the act of a government covering up it intentions … “

Submission 7 (Queensland Law Society, 6 pages; see my earlier extended summary here): deplores two-stage process, stresses that it creates costly uncertainty for the sector, that “it makes good administration by the current ACNC extremely difficult”, and that “it makes informed debate on the No. 1Bill effectively impossible”; QLS particularly concerned with EM and RIS “being less than rigorous, and not meeting the usually high standards and disciplines of Commonwealth legislative processes.” Multiple examples of factual mistakes in both EM and RIS enumerated; failure to address consequences of a return to pre-ACNC regime critiqued, lack of appropriate public consultation critiqued. Also pointed out that ATO itself, in 2001, expressed support of an ACNC-like organization. Importantly, QLS quantifies early achievements of ACNC and its efficiency in processing applications for income tax and Dgr status, and more generally timely response to legal developments/dissemination to the sector. It also lauds data systems and handling: “it has become apparent to all professional advisors that the state of the data set handed by the ATO to the ACNC was poor and this was despite the the ATO in the months prior to handover attempting to cleanse their records.” Overall, a very favorable endorsement of the present regulatory framework and the ACNC, as it is.

Submission 8 (Melville Miranda, 2 pages): apparently in favor of present regulatory framework; suggest that Repeal will help “the rich and charities to corrupt the Australian system”; excessive salaries and unethical practices of CEOs of nfp mentioned but no examples given of such transgressions.

Submission 9 (The Shepherd Centre, 2 pages): In favor of retention of ACNC; repeal “would increase the current workload on charities and forego the opportunity for future savings in workload.”

Submission 10 (Women’s Health Network, 12 pages): In favor of retention of ACNC; “The ACNC, in a short space of time, has achieved much and engendered trust and goodwill in implementing its objects and functions in terms of the ACNCAct. … “ Own experiences used for case study. Discusses the need for extending reach of ACNC to fundraising. Discusses alternative arrangements and finds them wanting for the standard reasons.

Submission 11 (Associated Christian Schools, 2 pages): In favor of retention of ACNC; “a positive step forward in initiating the simplification of compliance and red tape, and a mechanism for removing the ATO from the determination of charitable status.” Suggestion that repeal would increase workload and red tape.

Submission 12 ( Add-Ministry Inc, 2 pages): Based on experience as “advisor to many charities in Western Australia” in favor of retention of ACNC: “If the ACNC were given the opportunity of pressing forward and completing its task it will achieve a far better reduction of red tape than any possible dismantling would achieve. … The abolition proposed seems to fly against significant Government inquiries and also requests of the Sector expressed over many years.”

Submission 13 (Riverview Church, 2 pages): In favor .. based on ACNC achievements pertaining to regulation, education, and as public register system.

Submission 14 (Aged & Community Services NSW & ACT, 1 page): In favor …

Submission 15 (ACRATH, 3 pages): In favor … A contribution worth a read because it shares experiences from the process of becoming incorporated and from seeking fundraising licences or the like in multiple jurisdictions (states). Concern voiced that Repeal will have the opposite effect to that being proposed by Abbott Government in terms of red-tape .

Submission 16 (Creating Australia, 3 pages; see also submission 146): Disappointed with Repeal, in favor of retention of ACNC. Stressed that building the present regulatory framework takes time, that much has been accomplished already (more than 500 complaints, of which 240 have been investigated, for example), and that in the absence of the ACNC numerous questions are in need of an answer. Excellent list of questions provided.

Submission 17 (Uniting Church in Australia National Assembly, 5 pages): Disappointed with Repeal, in favor of retention of ACNC. Desiderata formulated in case Abbott Government wishes to press ahead. Achievements of ACNC so far lauded, concern that abolition (and movement away from current system) “will impose considerable distress and probable further costs”. Concern about lack of a well-researched justification of the Repeal, or alternatives to it. Need for a more open and wider dialogue stressed.

Submission 18 (Institute of Chartered Accountants, 5 pages): In favor of retention of ACNC model/regulatory framework. COAG involvement urged to promote harmonization of state laws pertaining to charity regulation/fundraising rules that are at variance. Concerns about the two-step legislative process (Bill 1 now, Bill 2 later). Lack of appropriate consultation so far noted. I would dispute the statement on p. 3 that “This [charity-commission based] regulatory model is consistent with the majority of regulatory models across the world … “; this statement is based on a very limited, anglo-centric, view of range of models that are out there; see []

Suggestion that red-tape reduction can be achieved by reducing layers of inconsistent state/territory legislation.

Submission 19 (National Disability Services, 3 pages): In favor of retention of ACNC model/regulatory framework. History that led to present framework recounted. Strong support for the existent model and philosophy.

Submission 20 (CPA Australia, 2 pages): In favor or retention of ACNC model/regulatory framework. Concern about two-phased approach employed to remove ACNC and associated legislation. Stressed that before abolition of ACNC a number of open questions need answering. Key targets identified: inconsistent state/territory incorporation and fundraising legislation, as well as multiple compliance and reporting obligations, which are part of funding arrangements with govt agencies, including acquittal processes.

Submission 21 (Law Council of Australia, 1 page): In favor of retention of ACNC model/regulatory framework. Request for further consultation with stakeholders.

Submission 23 (All Together Now, 1 page): In favor of retention of ACNC model/regulatory framework based on own experience. Against Repeal.

Submission 24 (Australian Centre for Philanthropy and Nonprofit Studies, 4 pages): ): In favor of retention of ACNC model/regulatory framework. Stressed that abolition would leave stranded the National Standard Chart of Accounts (NSCOA), request (well, more a demand based on “moral rights”) to be involved given initial investment in the development of the NSCOA.

Submission 25 (Rowena Skinner, 2 pages, plus attached Open Letter to Government of March 18 2014, signed by almost 60 parties urging the retention of the ACNC): Strongly in favor of retention of ACNC. Recalls some of the arguments and statements in support of the present ACNC.

Submission 26 (The Synergy XChange Ltd., 2 pages): In favor of retention of ACNC.

Submission 27 (Conservation Council SA, 4 pages): In favor of retention of ACNC and calls on Senate to reject the Repeal. Points out that the South Australian government has moved to legislate away the duplication in reporting and that the proposed legislation is simple and would be effective and should be a template for other states to follow suit. Lauds the transparency available through the ACNC register: “it is something of a scandal that the ATO did not have such public records when it had responsibility for registration.”

Submission 28 (better boards, 2 pages): In favor or retention of ACNC and calls on Senate to reject appeal. Also lauds ACNC’s “two-pronged approach to encouraging excellent governance practices … implementing minimum standards of governance, the ‘Governance Standards’, … In combination with this, the ACNC promotes good governance beyond the Standards’ stipulations … “

Submission 32 (John Butcher, 6 pages): In favor of retention of ACNC and against Repeal. “Signficantly, no evidence has been offered either before the election or since in support of the decision to repeal these important policy measures.” Stresses that ACNC in process of being established, argues that impressive progress has been made, and that abolishment would represent an enormous waste of effort and loss of faith with Australia’s not-for-profit sector. Points out that ACNC is results of deliberations commenced under Howard Coalition and details some milestones along the road. Questions process and also points out factual errors in EM. A substantial contribution. Nice reference to Lyons (2003) as reminder of the pre-ACNC mess.

Submission 33 (mgi consultants, 3 pages): Against appeal; comments on positive impact that ACNC had on clients since inception. Expresses hope that govt along with state and territory governments work together to remove multiple layers of red tape. Lauds ACNC education efforts.

Submission 37 (Housing Industry Asociation Ltd, 3 pages): “HIA fully supports the Bill to repeal the ACNC Act.” They document their long history of arguing against the ACNC; they seem to miss the point that indeed the intention was/is to have ACNC regulation supercede State regulation. They also argue against what they call “oppressive ACNC powers” to gather information or request documents, search premises and inspect item on premises, and secure documents or electronic equipment found on premises. “The Commissioner also holds powers to take information (and presumably ask questions) under oath or affirmation. … ” Interestingly some of the claims being made here (“Not all NFPs are philanthropic in focus, community based, in receipt of public donations or public funding, and staffed by volunteers – only a very small minority fall into this category.”), so far are not easy to substantiate and / or quantify.

Submission 39 (Reach Foundation, 2 pages): Strongly in favor of ACNC and against Repeal. Stresses long process of consultation and engagement with the sector that led to it, and attests ACNC “remarkable progress in a short period of time” (including a seamless registration process across ACNC and AT).

Submission 40 (the difference [“independent charity analyst”], 1 page): “Not all charities are working hard to deal with the issues they were created to address. [generic examples follow] . … Visibility on charity effectiveness is important. … ” In favor, kinda. Worthless.

Submission 42 (John Church, 2 pages): In favor of ACNC and against Repeal. Critical of Repeal process so far; points out the limitations of the Charity Navigator model; mentions that own experience with ACNC has been much better than with ATO; refers explicitly to the Queensland Law Society submission (no 7) and its critique of the RIS.

Submission 43 (Ted Flack, 3 pages): Reviews pre-ACNC regulatory environment and far-reaching consensus of its dysfunctionality. Assesses the prospects for a real reduction in the regulatory burden if the ACNC were abolished and points out that it would not solve the problems that led to the ACNC in the first place. Claims that there are measures that “could achieve much of what the ACNC was designed to do much more cheaply”. It seems that some of these ideas (for charities that issue tax-deductable receipts in excess of $100,000 p.a.) take inspiration from ICFO templates. Urges , “Whatever the arrangements made, should the ACNC be abolished, this submission strongly urges the Commonwealth govt not to lose sight of the main game – red tape reduction. … at practitioner level the rationale for reform is the modernization and streamlining of regulation of charities and fundraising in Australia. It is argued that most of the unnecessary red-tape burden is generated by state and territory regulators.”

Submission 45 (Neumann & Turnour, lawyers, 6 pages): One of the more interesting and substantial briefs, as you would expect. Makes the interesting point about the disruption that a repeal would bring about. Arguing that “in general terms we have experienced significant difficulties in attempting to enliven the ACNC powers to prevent the misapplication of charitable funds in state-based entities” and that relatively few entities (probably about 7,000 of the > 600,000 NFPs) were directly subject to federal regulation, “little may be lost at this time by considerable reduction of the ACNC’s regulatory powers. … We recommend that the ACNC be approached for its views on its powers. … Such a step need not be permanent. … The sector needs stability. If the ACNC is abolished, only for it to be reinstated again when the govt changes, enormous damage will be done to the fabric of civil society.” Points out that the Repeal is likely to need the support of six of the eight incoming senators. Hence at this stage concessions from all relevant parties may be preferable over a winner-take-all strategy.

Submission 47 (philanthropy Australia, 12 pages): Encourages “the retention of the parts of the framework which are working effectively, even if the ACNC itself is not retained.” It proposes three principles to guide its policy recommendations for a possible post-ACNC world.

“These principles address the questions about the appropriate allocation of regulatory roles, the importance of ongoing work to reduce regulatory burden, and the value of information collection and provision about charities (including philanthropic organizations.”

It proposes hat Senate postpones consideration of the Repeal and undertakes a process of public consultation that deserves the name. “One option which PA believes should be considered … would involve replacing the ACNC with a ‘Charities Registrar’, which would be a smaller body responsible for determining the charitable status of entities and maintaining a publicly searchable register of charities.” One of the more interesting submissions.

Submission 49 (Wesa Chau, 1 page with attachment): In favor of ACNC, against Repeal. Stresses the uncertainty the current stalemate has brought about and the negative impact it has on the forward planning processes of many NFP organizations. Mostly opinion.

Submission 50 (ANZ Third Sector Researchers, 5 pages): Focusses on the role ACNC has and can continue to play in promoting research. In favor of maintaining the ACNC from that perspective and against the Repeal. Useful details from 2006/7 ABS data on the sector. Urges regulation of philanthropic foundations and (family) trusts (which are currently not required to report to ACNC). “This omission is a tragic loss of opportunity to remedy the current near-total ignorance about Australia’s philanthropic sector. … “

Submission 51 (hanrickcurran, 2 pages): “We expect that with time, the ACNC will be able to bring a focus to reducing duplication that is unlikely to be achieved if the regulatory functions are devolved to previous agencies such as ASIC and ATO.”

Very true: “We consider that … the previous regulatory environment (i.e., ASIC and ATO) is a response to instances of malpractice in the sector … “

“We consider it is likely too soon after the implementation of the ACNC for a proper conclusion to be drawn as to the efficiency of the current arrangements when compared to previous arrangements.”

Lauds work of ACNC so far, “we submit that the removal of the ACNC at this time would be unnecessarily disruptive to the sector … “

Submission 52 (Robert Fitzgerald, Chair, Advisory Board, ACNC, and head of the Productivity Commission that produced the 2010 report on the third sector, 12 pages): As you would expect: “I regard the proposed repeal of the ACNC as deleterious for the Australian community, government and charitable sector. It is not in the public interest. More significantly, I do not believe that the repeal of the ACNC meets the govt’s own stated objectives. … The repeal proposal is not founded on a robust evidentiary base … This matter should not be a party political issue. It certainly should not become an ideological issue. It is and should be simply about good policy …

The ACNC can achieve its objectives … It needs the opportunity to do so.”

No surprise here. According to Fitzgerald the ACNC legislation is soundly based on evidence … It works and it works well. Notably Fitzgerald contest the quality of the process and refers explicitly to the RIS analysis of the Queensland Law Society (submission 7 above).

Submission 59 (Centre for Civil Society, 3 pages): Highly critical of the ACNC and the present regulatory framework: “The fatal flaw of the Act and the ACNC was to equate all not-for-profits in Australia with the 5 % of not-for-profits that deliver service delivery contracts for governments. Of the 695,000 nfps in the country, 665,000 employ no paid staff and deliver no service delivery contracts for governments. These 95 % of nfps are culturally invisible to the ACNC. They … don’t exist culturally and politically because they have no voice, are absent from sector forums and conferences, and have no lobbyists in Canberra. … This has generated a deeply flawed understanding of the sector, which in turn produces a deeply flawed understanding of the regulatory requirements for the sector. … “ And so on. Pretty blunt assessment of the managerial class that runs ACNC (and the advisory board).

Urges the Repeal and the abolition of the ACNC. An interesting document that surely will get dismissed by the defenders of the ACNC. Because it attacks many of them.

Submission 60 (St Vincent de Paul Society, 3 pages): The Society opposes the move and “is wary of what appears to be an ideological opposition to the very existence of the ACNC. Rather than abolishing the ACNC, the Society believes that the government would be well-advised to listen to the voices of charitable and nfp sector.”

Submission 61 (Governance Institute of Australia, 15 pages): In favor of ACNC (partially because of its light-touch presence) and against Repeal. Recommendation that current reg reform process be allowed to complete, with COAG progressing harmonization of regulation.

Some contestable statements in the document: “Members of charities are not driven by the bottom line but by a deep-rooted ethical mission.” Evidence? (Weisbrod’s work surely not.)

But the document does contain a number of interesting facts (e.g., about COAG having already commissioned a Regulatory Impact Assessment of potential duplication of governance and reporting standards for charities and on how to best achieve national regulation.

Submission 63 (The Smith Family, 1 page): Specifies four principles of appropriate regulatory frameworks that it has consistently advocated over the years. Looks forward to a consultation process that is up to snuff.

Submission 64 (Colin Brennan, 2 pages): “Please remove this impost from us, and relieve us of this irrational exploitation of precious volunteer hours.”

Submission 66 (Corney & Lind lawyers, 1 page): In favor of ACNC, against Repeal. Anecdotal feedback that majority of clients (charities) support continuation of ACNC.

Submission 70 (Elizabeth Cham, 11 pages plus attached PBA article): An attempt at an academic paper on the rise and fall of Australia’s first regulator for the NFP Sector. Sketches the evolution of the ACNC and identifies “the missing segment” of the current regulatory framework: “The ACNC never included philanthropic bodies in its remit despite their status under Australian law of charities, i.e. legally part of the nfp sector. … As a consequence, for the overwhelming majority of foundations we do not know: who they are, what they fund, the capital base of each foundation, the amount distributed to the community, etc.” Argues the need of accountability of these entities.

Submission 77 (World Vision Australia, 6 pages): Broadly in support of ACNC and current regulatory framework. “We do not believe that 16 months is a realistic period on which to judge the ACNC’s’ progress on its objectives.” Interesting facts on compliance costs: See page 5. WVA estimates that “in FY 13 it spent in excess of 13,000 hours in fulfilling reporting obligations to other government departments and agencies (at both a Commonwealth and State level), most notably, grant acquittal and reporting obligations to the DFAT (formerly AusAID). “ Here reference to Queensland Law Society submission (no 7) which reports similar experiences.

Sharply critiques the two-stage Bill procedure.

Submission 79 (Performance Partners [Greg Smith], 7 pages): Pretty much in line with the arguments in Fitzgerald’s contribution (submission 52). Points out that “The process being followed to close the ACNC is a distinct and remarkable contrast to that which led to its creation.” Recalls that process in detail and in particular the 2010 Productivity report.

Points to an article (“Andrews leads fight to abolish charity commission”) by Michael Seccombe in the Saturday paper March 29, 2014, who argues that that there are two groups that want the charities regulator and its oversights scuppered: the financial services industry and the Catholic Church. Andrews is their pointman. See relatedly submission 70.

Submission 80 (pwc, 2 pages): Do not support Govt’s plan to repeal the ACNC. Pretty much in line with ACNC’s view of itself.

– The ACNC aims to reduce red tape …

– The ACNC’s role is broader than compliance. Its aim is to foster transparency, public trust and comparability of reporting

Submission 92 (Asia-Pacific Centre for Social Investment and Philanthropy, 4 pages):

Repeal bill considered ill-advised. “Abolishing the ACNC would potentially return the NFP sector in Australia to the state in which the Productivity Commission found it in 2010 – with an unnecessarily complex regulatory framework that lacks coherence and transparency and imposes excessive cost burdens on NFPs.”

Submission 93 (Amnesty International, 2 pages): In support of ACNC, against Repeal Bill which it considers disruptive.

Submission 94 (Australian Institute of Company Directors, 3 pages): “We believe until the Govt fully discloses all of the information regarding a proposed alternative framework for independent regulation, which is endorsed by the sector, the ACNC should remain in its current form and press ahead with achieving its objectives.”

Submission 95 (ACNC/Susan Pascoe, 45 pages); Useful document with the expected message. Stresses that “it is not the ACNC brand which should be the focus of debate, rather what constitutes good charity regulation.” (p. 1) As usual, international trends in charity regulation are considered through the anglo-centric glasses. “Australia is a relative late-comer, as most comparable jurisdictions either already have independent charity regulators or are setting them up.” (p. vii; see also p. 21 for an explicit reference to what the ACNC model is based on; see also p. 36: “The ACNC model was developed drawing from and improving upon the best practice regulatory models across the world. Jurisdictions reviewed included Singapore, NZ, Scotland, and NI, the US and Canada.” Interestingly, no mention throughout the document of ICFO or its members.)

Makes astonishing claims about media attention on ‘sham’ charities or other ‘scandals’ was not the catalyst for establishing the ACNC. (p. 8) Really? These are disingenuous statements. See my earlier CET contributions HERE AND HERE AND HERE

Provides an interesting example of how pre-ACNC regulatory framework exploitability See box on p. 8 and fn 44.

Warns (p. vii) that the abolition of the ACNC might fire back on the government in light of Australia’s obligations to the Financial Action Task Force. Once again

Lots of facts and counterfactuals (“What would happen if ACNC gets abandoned.)

Submission 99 (Martina Nehme, UNSW Law, 6 pages): Strongly objects to Repeal. In favor of current framework. Lots of useful references. Stresses that ACNC has chosen, for now, a cooperative approach but has the option to change its regulatory strategy. This is reminiscent of De Marzo et al. RES 2005. Argues that a Centre of Excellence is not incentive-compatible for “bad apples”.

Submission 100 (Institute of Public Accountants, 8 pages): In favor of maintaining the ACNC and the regulatory framework in which it is embedded. Among other things being discussed is the controversial issue (to some people’s minds) of the ACNC’s oversight of religious institutions and the complex institutional arrangements they often are (see pp. 4 – 5). “Grandfathering for religious institutions from financial reporting obligations may well permit them the opportunity to reconsider the merits of the ACNC Act and effectiveness of the operation of ACNC itself as part of our proposed 2015 review.” (p. 8)

Critiques how the process was handled so far.

Submission 102 (Financial Services Council, 8 pages [including attachment 1] plus 18 pages attachment 2: Advice by Herbert Smith Freehills): “The FSC and its members welcome the abolition of the ACNC Act and Regulations (ACNC regime) for three reasons … [new compliance costs; imposition of different governance standards on trustees of charitable will trusts on the one hand and licensed trustee companies in relation to their delivery of all other traditional trustee company services; excessive powers granted to Commissioner]“

Lots of legalese here, need to go back to appreciate the subtleties.

Submission 103 (Universities Australia, 2 pages): “No public interest is advanced by the ACNC … UA supports this Repeal Bill to abolish the ACNC as it will address UA’s concerns on the duplication of regulatory and reporting burdens currently imposed on univeresities.” See also submission 118 (NeuRA)

Submission 109 (Andrew Barr, Deputy Chief Minister for ACT Government, 4 pages): Continues to support ACNC regime. Disputes RIS and mentions, as template for other jurisdictions, ACT Govt agreement to cease the regulation of charities registered in the ACT, where these charities were also registered with the ACNC. Puts a price tag on this collaboration (p. 3)

Submission 114 (David Gilchrist, Director, Curtin NfP initiative, 2 pages): Calls ACNC regime “a well-balanced and thoughtful piece of legislation that neatly combines suitable regulatory responsibilities with critical trust-building, capacity building and red tape reduction responsibilities.” Consider Repeal, if enacted, a set-back.

Submission 115 (NeuRA, 1 page): Endorses all the issues raised in the submission from the AAMR (which submission?). “The ACNC Act has achieved no benefit and has, in fact, increased the administrative and regulatory burden for many Medical Reearch Institutes including NeuRA. Therefore, NeuRA supports the repeal of the ACNC Act.”

Submission 120 (Fundraising Institute Australia, 3 pages): Points out that fundraising activities are covered by State and Territory law and are not part of the ACNC regime. “FIA finds it difficulty in commenting further on the ACNC Repeal Bill in the absence of the foreshadowed second Bill … “

Submission 123 (Save the Children Australia, 2 pages): Strong support for ACNA regime. “In addition, SCA is a member of the CCA and endorses the matters raised in its submission.”

Submission 138 (Robert Wright, Solicitor, 4 pages +) : In support of ACNC regime. Good set of faq and good answers. Discusses problems with Charity Navigator model.

Brings up this excellent question:

“Having regard to the concern resulting from the various enquiries into child sex abuse, especially the difficulty in suing a church entity, is it appropriate that most assets of most churches are held in trusts with no public reporting obligations at all?Is it not significant that there has been comment in the press that the moving force behind the abolition of the ACNC has been the Catholic Church? … “

Also briefly discusses the situation in other parts of the world but seems unaware of ICFO.

Submission 145 (Paxton Hall, 3 pages): Firmly in favor of ACNC regime.

Submission 146 seems to be the same as submission 16.

Submission 146 (Myles McGregor-Lowndes, sending what looks like the galleys of a chapter due to be published in a CUP book titled Not-for-Profit Law: Theoretical and Comparative Perspectives) The chapter describes the law and events up to June 2013. The assessment of the ACNC regime and the progress of the ACNC up to date is what you would expect to hear from MML. Contains some interesting facts about the perception and reality of the costs of compliance.