'Extract the digit': a vulgar expression?

This question has arisen as a result of use of the expression in a speech made at a public speaking club a couple of months ago. The speech was made by a relatively new member of the club who said something like: ‘The time had come for me to extract the digit and get on with it...’. The subsequent reaction of some members to use of this phrase has made it extremely difficult for him (and several other members including myself) to continue their membership of the club. Members have been told by one of the longest-serving and most distinguished club members that it is not appropriate to vote for people who use such expressions as ‘best speaker’ at club meetings.

If the issue had been raised for discussion in general business, I would have made the point that I cannot remember hearing the expression before Prince Philip, the Duke of Edinburgh, told British businessmen that it was time they pulled their fingers out about 50 years ago (when I was finishing secondary school). He was reported as saying:

‘Gentlemen, I think it is about time we “pulled our fingers out” … If we want to be more prosperous we're simply got to get down to it and work for it. The rest of the world does not owe us a living’: Speech in October, 1961.

I am not sure that mentioning Prince Philip would have been persuasive, however, since the role of members of the royal family in setting social standards is now less widely accepted than it was 50 years ago. Given Prince Philip’s reputation for making social gaffes, some members of our club would possibly consider him, also, to be too rough around the edges to be voted as best speaker.

How can we judge whether or not ‘extract the digit’ should now be viewed as a socially acceptable use of language? It might be relevant to consider whether use of this expression still ranks amongst Prince Philip’s biggest social gaffes. It doesn’t. It is not even included in this long list compiled by BBC news.

A Google search for the phrase ‘pull your finger out’ reveals widespread current usage in Australia. The contexts suggest that it is usually intended to be offensive, but I think most people who are told to pull their fingers out are more likely to be offended by the implication that they are wasting time or procrastinating than by the vulgarity of the expression.

The origins of the expression do not necessarily support a vulgar interpretation. One theory, noted here, is that the expression originated during the times of the Men'o'War. When a cannon was loaded, a small amount of powder was poured into the ignition hole near the base of the weapon. In order to keep the powder secure before firing, a crew member pushed one of their fingers into the hole. When the time came for ignition, the crewman was told to pull his finger out.

Perhaps the apparent vulgarity of the expression lies solely in the imagination of those who think that the metaphor must refer to removal of a finger from a bodily orifice.

Does big government result in more housework?

I found this to be the most interesting question explored in ‘Government Size and Implications for Economic Growth’, by Andreas Bergh and Magnus Henrekson. Before I explain, however, I want to provide some comments on the author’s conclusions about the effects of size of government on economic growth.

Bergh and Henrekson base their conclusions about the effects of size of government on economic growth on a review the recent econometric literature using panel data for high-income countries. They conclude: ‘In rich countries there is, indeed, a robust negative correlation between total government size and growth’ (p.30). They qualify this conclusion by noting that, as with many other econometric studies, the issue of causation has not been completely settled (p.33). They explain the ability of the Scandinavian welfare states to maintain modest economic growth despite big governments in terms of relatively strong performance of those countries with respect to other aspects of economic freedom. These conclusions are consistent with my own review of the relevant literature (background paper for the NZ 2025 Taskforce) and modest econometric efforts.

The reservation I have about the review of the literature by Bergh and Henrekson is somewhat technical – so some readers may prefer to skip this paragraph. My reservation concerns the authors’ enthusiasm for Bayesian Averaging of Classical Estimates (BACE), a technique used to deal with possible sensitivity of parameter estimates to the inclusion of different control variables in regression models. A recent paper by Antonio Ciccone and Marek Jarocinski suggests that margins of error in international income estimates are too large for such agnostic growth empirics to be reliable. In any case, in my view the economic reasoning that tells us that the economic costs of taxation rise approximately in proportion to the square of the tax rate provides a more powerful case against big government than the results of cross-country econometric studies. (The authors appear to attribute this insight to the Swedish economist, Jonas Agell (p.17), although it should more appropriately be attributed to much earlier work by Arnold Harberger, or possibly even to Alfred Marshall.)

It is well known that the economic cost of high tax rates arises in part from the substitution of leisure for income. Some would argue that this is beneficial because many people obtain more happiness from spending time with family and friends than from working. One reason why the argument is spurious is because it may be rational for individuals to sacrifice some current happiness to provide their children with a better education, fund early retirement or pursue any number of other objectives that are important to them.

Another reason why the argument is spurious is that what economists talk about as a choice between income and leisure is often actually a choice between time spent on paid work and time spent on unpaid household chores. It is doubtful whether people obtain much more pleasure from housework, weeding the garden and childcare than from working for pay. Bergh and Henrekson make the good point that high rates of labour taxation provide an incentive for consumers to produce such services themselves in the home rather than to work longer hours in order to purchase them in the market place. The authors suggest that this explains why hours of unpaid work are substantially greater in Sweden than in the US and hours of paid work are correspondingly lower in Sweden than the US.

The authors also provide a graph comparing average hours worked per person in Sweden and the US over the period 1956 to 2003. It shows that while average hours worked in Sweden were substantially higher than in the US during the 1950s, when Sweden’s tax rates were much lower, the situation has been reversed in recent decades.

Over the last couple of centuries the ancestors of the vast majority of people in high-income countries have managed to obtain the benefits of participation in a market economy – the benefits of exchange and specialization on the basis of comparative advantage, resulting in much higher living standards and providing greater opportunities for skill development and incentives for further innovation. High taxes associated with big government provide the opposite incentives - encouraging people to shun the market and to produce services for themselves. Self-sufficiency is not without its attractions, but I doubt whether many people would freely choose the poverty experienced by their ancestors, even if that was the only way they could ensure a supply of fresh, organically-grown vegetables.

Postscript:
1. An error in the second last paragraph has now been corrected. Thanks very much to BW for noticing that!

2.When I think again about the final paragraph, the ancestors of the vast majority of people in high-income countries were living in market economies even prior to the industrial revolution. A move to self-sufficency would entail a move much further back in history.

When does greater economic freedom promote distrust?

There are some fairly obvious reasons why societies characterized by low levels of inter-personal trust tend to be highly regulated. In a society where people tend not to trust each other there is likely to be less adherence to social conventions and there is likely to be more political pressure for the use of government regulation to deter anti-social behaviour. Causation can also be expected to work in the other direction. In a society where it is impossible to conduct market transactions without breaching some regulation it is only to be expected that many people will wonder whether those with whom they are dealing can be trusted not to dob them in to the authorities. Regulation promotes low trust.

So, what is likely to happen to levels of inter-personal trust following substantial deregulation in a highly regulated, low-trust society. As a general rule I think it would be reasonable to expect that greater reliance on market disciplines would generally promote more trustworthy behaviour. Individuals and firms would find that it pays to develop a reputation for trustworthiness and this would result in higher levels of inter-personal trust. Such attitudes could be expected to be associated with public support for deregulation policies.

However, evidence presented in a paper by Philippe Aghion et al, entitled ‘Regulation and Distrust’, suggests that an opposite tendency was more common in countries undergoing transitions away from socialism in the 1990s. Data from the World Values survey indicates that levels of inter-personal distrust increased in most of these countries during that period. There were also substantial increases in distrust of civil servants, justice systems and business. Most households perceived that corruption had increased. The surveys suggested that there was also an increase in tolerance of corruption (bribe taking) and a reduction in the proportion of the populations who considered tolerance and unselfishness to be important attributes to teach children. Not surprisingly, there was also an increase in the proportion of the populations who disliked competition and private ownership of firms.

The authors suggest that those findings are a consequence of low levels of social trust prior to transition. Their model predicts that in a low trust society entrepreneurs will tend to be less civic-minded (because they need to pay bribes in order to enter the business) so liberalization of entrepreneurial activity will tend to result in an increase in negative externalities (e.g. pollution) and an increase in corruption. They conclude: ‘Liberalization of entrepreneurial activity starting from a low level of social capital has increased corruption, invited a demand for greater state control of economic activity, and reduced trust’. At the end of their paper the authors suggest that public education might provide a way forward for transition economies by leading the way toward greater ‘civicness’, lower regulation and higher productivity.

One of the merits of the model put forward by Aghion et al is that it is capable of explaining why many people in countries with bad governments may want more government intervention. The benefits of liberalization of entrepreneurial activity are perceived to be outweighed by the costs.

I am not convinced, however, that the poor outcomes of reforms in transitional economies should be attributed to low levels of social trust prior to transition. An alternative explanation is that the reform process was poorly managed so that instead of a transition from socialism to competitive markets – permitting mutually beneficial exchange that had previously been prevented - these countries underwent a transition from socialism to crony capitalism following the collapse of communist governments. The evolution of attitudes to business may reflect the rent-seeking entrepreneurship to which people were exposed. Under the prevailing circumstance it may not have been possible for the reform process to have been better managed in the transitional economies, but this means that their experience may not be of much relevance to other low trust, high regulation countries.

Rather than focusing on the transitional economies as a group it might be interesting to consider whether different reform strategies adopted in different countries (including other countries such as China and India in the analysis) have had different effects on levels of social trust.

Would a fair-minded person say that devastation of the Australian apple crop is a price worth paying for cheaper apples?

‘I don’t think any fair-minded Australian would think that the devastation of the Australian apple crop is a price worth paying for cheaper apples.’ Please discuss.

That might be a reasonable examination question for an introductory economics course. The weaker students would probably be distracted by the allusion to fairness and the images that the word ‘devastation’ brings to mind and forget all the economics they had been taught.

There are several ways the stronger students could answer. One point they could make is that a fair-minded person would be open to weighing up the economic benefits and costs of the proposed policy action. They could raise the question of how large the value added by the Australian industry might be after making appropriate adjustments to remove price distortions, such as those resulting from import barriers. A further point they could mention is that market systems have evolved because fair-minded people have been persuaded in the past that the outcomes of market competition were generally preferable to outcomes that applied when governments attempted to protect local producers from external competition. In that context the relevant issue is whether individual consumers would voluntarily pay a higher price for the Australian product in order to prevent devastation of the Australian crop.

There are other relevant considerations, but they do not alter the general point that fair-minded people would accept that the price that needs to be paid for preservation of local industries is not always a price worth paying. If that were not so, our living standards would probably not have improved since the 18th century when regional communities within all countries were all largely self-sufficient.

How does it change the way we view this issue if we are told the quoted statement was made by Craig Emerson, Australia’s Minister for Trade, in commenting on the WTO’s recent ruling against Australian quarantine restrictions preventing apple imports from New Zealand? (The quoted statement was in an article by Geoff Kitney in the Australian Financial Review of Wednesday 1 December, p 49.) The Minister was talking about the possibility that the Australian apple industry might be devastated by a plant disease rather than by price competition from New Zealand apples. Does that make a difference?

One relevant consideration is that the part of the Australian industry that is most vulnerable to import competition from New Zealand will not need to be protected from imported diseases. It will no longer exist.

A paper entitled ‘Australia’s quarantine mess’, by ANU academics Malcolm Bosworth and Greg Cutbush, suggests that the annual cost to Australian consumers of the ban on apple imports was around $250 million per annum. This represents a very large proportion of the domestic industry’s gross value of production of around $300 million and perhaps 10 times more than local growers’ profit in a normal year.

These figures suggest that even if the introduction of apple diseases from New Zealand resulted in devastation of the Australian apple crop it is highly unlikely that any associated losses would exceed the $250 million per annum cost that the ban imposes on Australian consumers. As Bosworth and Cutbush point out, however, the probability of an incursion of any of the relevant diseases is very low under normal orchard hygiene practices, and even in the unlikely event of Australia-wide infection, annual costs of coping with the problem would be in the range of $3 to $10 million per annum. Bosworth and Cutbush also note that the apple diseases present in New Zealand have not prevented it from being one of the world’s top apple exporters.

I have previously thought of Craig Emerson as one of Australia’s most economically literate politicians. It is disappointing that he has seen fit to use his considerable rhetorical skills to imply that fair-minded Australians should always be in favour of protecting domestic industries, irrespective of cost.