Reviving academic research on Australian economic policy

The COVID19 crisis with its distinct health and economic dimensions obviously warrants extensive future Australian university research as a high priority topic.

Some of the critical economic questions that the virus has prompted are: How should we value human life by age cohort? How should the trade-off between saving lives and maintaining employment be gauged? How can monetary and fiscal responses to health crises of this sort be improved? How serious is the attendant hike in Australia's public debt and what new taxation and public expenditure policies are needed to address that debt?

Unfortunately, you can expect very little Australia-focused economic research to emerge from our universities on these topics. This is because there are strong disincentives to exploring Australian economic issues, in contrast to other social science disciplines.

Economists will be the first to tell you that human behaviour is essentially driven by incentives. And strong disincentives now deter academics working in Australian universities from addressing important economic policy issues of relevance to Australia.

Following a campaign by The Australian, the Minister for Education, Dan Tehan, earlier this year announced that the federal government would encourage university research on Australia-focused historical and social themes via a new Australian Research Council (ARC) program.

This special ARC program for the first time explicitly acknowledges the importance of research into Australian society, history and culture, and this is to allocate up to some $12 million for up to forty approved peer reviewed research projects.

Although not large in the context of the ARC's annual budget of hundreds of millions, it does provide a welcome signal to university researchers that focusing on Australia-specific social issues is a worthy endeavour.

Provided the subsequent research output stemming from the new grants program does not degenerate into more intense ideological warfare, rekindling the history wars for instance, Australian taxpayers who pay academics' salaries and fund their research should also welcome the initiative.

What this new, or any other ARC program, omits however, is any mention of encouraging research on Australian economic themes. Yet how well the Australian economy fares especially in recovering from the COVID19 crisis will determine how much revenue is raised to publicly fund academic research on any topic, Australian or non-Australian focused.

It would seem obvious to ordinary taxpayers that Australian government funded economics research should be focused on Australian economic issues, and many undoubtedly presume this, but it's become more the exception than the rule.

This was not the case in the past when Australian academic economists were more engaged in the economic policy debates of the day, for instance about fiscal, monetary, competition, environmental, resources and trade policies.

There are two main reasons for this. First, academic research in economics worldwide has become increasingly technical and divorced from contemporary economic policy issues. It is defined more by the mathematical and statistical techniques deployed (usually the latest fashionable methods taught in US Ivy League graduate schools), than the novelty of the underlying economic ideas.