Interview with John Nevile

© John Nevile and Figure/Ground
Emeritus and Visiting Professor John Nevile was interviewed by Judie Cross.
July, 2017.

John Nevile was born in Perth during the Depression. His first degree was a B.A. with First Class Honours in Economics. He then went on to study overseas at the University of California in Berkeley where he completed the requirements for a PhD in 1958. In 1965 he was appointed Professor of Economics and Head of the School of Economics at UNSW where he stayed until he retired from a full-time position in 1992. He was a reluctant Dean between 1980 and 1987, having already acted in this position on a number of occasions when the full-time dean was overseas. He was elected a Fellow of the Academy of Social Sciences in 1972. Later he became President of the Economics Society of Australia (1980 to 1984). He is currently both Emeritus and Visiting Professor at UNSW.Professor Nevile has been a member of government advisory bodies and a consultant for major Australian Government enquiries as well as for the IMF. In 2000 he received the Distinguished Fellow Medal from the Economic Society of Australia. In 2016 he received the AM Award for significant service to tertiary education, particularly economics, as well as to professional organisations, as a scholar and an author. He is known in Australia as the father of modern macro-econometric modelling and fiscal policy, while he would like to be known as someone who really tries to make the world a better place.

Over the years you have repeatedly stressed that since economic actions, institutions and policies affect people, they necessarily have an underlying ethical dimension. Can you elaborate on some of the key values you believe characterise this foundation?

As I have elaborated in an edited version of my public lecture delivered at the University of New England in 1994, I argue that positive economics, (which is the study of what is, as opposed to normative economics, which is concerned with what ought to be) is not value free as conventional wisdom holds it to be. For example, policy prescriptions of economic rationalists, as Australians call those known overseas as market liberals, largely rest on the values held by these individuals. Hence, when discussing the effects of deregulating labour markets, economic rationalists highlighted the small rise in unemployment in the United States in the eighties, while ignoring the huge rise in unemployment when Mrs Thatcher deregulated the labour market in the United Kingdom. For reasons brought out in my responses to the next couple of questions, this is not necessarily reprehensible. Claiming that it doesn’t happen is.

However, my own response to your question is more or less the opposite to that of economic rationalists and is, no doubt, what you are more interested in. It emphasises the need to give complete priority to maintaining full employment and to use incomes policies to control inflation. The reasons for this are brought out to some extent in my response to your next question and much more so to that of the following (third) question. Nevertheless, the following paragraph gives a preliminary partial response which will suffice at this stage.

What happens in an economy depends on important variables such as how much income is saved or consumed by firms and individuals. The size or strength of these relations are crucial. Trying to estimate how strong they were led me to carry out the first macro-econometric modelling in Australia. Learning from my friend Wilf Salter, I came to the conclusion that economic growth is good for production because the faster an economy is growing, the more quickly technology and equipment is being updated. Furthermore, when a country’s economy is growing and people are investing, it is easier to ensure full employment, which is also the best way to address the needs of the most disadvantaged in our society. It may be called a “win-win” result.

The right to full employment, or the right to a decent job, feature prominently in your writings, but many governments today use an employment argument to justify their creation of new mines or other unsustainable means of generating energy. How might you suggest economists should argue for both a sustainable and an ethical economic future that ensures full employment?

Ethical concerns, such as human rights, directly relate back to a concern for the most disadvantaged in society. Talking about Australia today, the most disadvantaged are part of the long-term unemployed. Although married women are a subset of the long-term unemployed, they may not be disadvantaged at all, though many are. The most impoverished group also includes the underemployed.

Penalty rates are important in this context in many ways, but not necessarily quantitatively. The big factor is the debilitating effect of the loss of hope amongst the long-term unemployed, who fear they will never get a secure full-time job again, with a similar effect on the underemployed. To give an extreme but too common example, lack of hope can produce domestic violence. Hence, welfare work that goes beyond conventional education is required for many disadvantaged people. It’s not enough to obtain full employment. For the health of our society as a whole, we need to ensure there are virtually none that have given up hope. This can also be a “win-win” for society.

Apart from some corporate executives still living in the first half of the 20th century, few would argue against the desirable outcome of full employment today. Small businesses, however, by and large, may not focus on full employment. This is largely because they think there will be enough specialists who will be available for all businesses in an industry whether there is full employment or not. Nonetheless, this does not mean small businesses may be concerned about unemployment for other, more socially responsible, reasons.

In Australia we have, for a very long time, imported much of our capital for manufacturing production. Generally speaking, most manufacturing here has been done by firms that are partially or wholly owned by overseas firms. Typically, investment has proceeded via importing physical and human capital that have had a positive impact on Australia’s labour productivity. This has made possible an increase in wage rates that is sustainable in the longer run.

In fact, as in many Western economies, the big challenge to maintaining full employment in Australia came in the second half of the 1970s when stagflation became rife. Stagflation is an ugly word used to denote the situation when significant unemployment is accompanied by significant inflation. Again, as in many countries, the policy solution adopted in Australia was to ignore the effects on the unemployed until inflation was brought back to an appropriate level. When Fraser came to power as Prime Minister, his first Treasurer affirmed his commitment to “fighting inflation first”. This proved to be counterproductive. The best way to reduce inflation is through incomes policies. At the same time, fiscal policy should be used to restore full employment.

If economics is a science, it’s an applied science and so it is necessarily affected by our values. When weighing up whether the risks associated with the consequences of accepting a false hypothesis are better or worse than accepting the consequences of a true hypothesis, you have to consider whether the consequences of accepting the former are more damaging than rejecting it would be. In the case of climate change any sensible approach has to consider the possibility that if it is true, then ignoring its warning can have a completely disastrous effect, even the end of the world as we know it. This means giving climate change the highest priority. Hence, any half-way sensible risk strategy must rule out completely any consideration of other approaches.

How important has your Christian faith been in relation to your scholarly work?

Very much so but not completely so. By far the most important way in which my Christian faith has influenced scholarly work is insistence that incomes policies are the appropriate policy tool to deal with inflation, and if the economy is also in a slump, fiscal policy should be used simultaneously to restore full employment. The contrast between the failure of “Fighting Inflation First” and Hawkes’ establishment of the Accord with its social dividend puts this beyond doubt and did help the most disadvantaged in the Australian community. Moreover, Prime Minister Hawkes’ occasional grand pronouncements, notably the one about child poverty, did give hope to at least some disadvantaged parents and their children.

Another topical issue if tax reform. What are the implications of Christian values for this? First let me say that what follows is not meant as a direct criticism of particular politicians. Individual politicians have to make their own decisions about how much loyalty they show to party policies. Nevertheless, giving tax cuts to the richest members of society at the expense of some of the least well off members of our society, obviously does not square with Christian values. God is particularly concerned about the most disadvantaged in our society. As a Christian economist I try never to forget this.

One final point to end this section. I do not believe that the eternal nature of God changes. But it is very clear to me that men and women’s understanding of God has been changing almost always for the betters as far as Christian, and before Christ Jewish, scriptures are concerned. All through the Old Testament the Israelites were learning more about their God and I believe this has continued din the Common Era for both Christians and Jews. Moreover, the institutions of society have been changing as well. Most of my life was spent in the 20th century and my scholarly work was done in the light of 20th century institutions. Now myself, and even more younger Christian economists, must take 21st century institutions into account.

Whose work has had the biggest influence on your own research and thinking over the years?

My time at Berkeley was very important to me. I was in my early twenties and quite impressionable. My mentor was a distinguished economist, Robert Aaron Gordon, with whom I later became close friends. In 1975 he served a term as President of the American Economic Association. His presidential address was entitled, “Rigour and Relevance in a Changing Institutional Setting”. I recognised the emphasis that both rigour and are both necessary as a development of ideas that I had learned from him 25 years earlier. Placing them in a changing institutional setting was not, but it was an addition that I welcomed. However, after “scolding economists” for a number of faults, he returned to his theme that both rigour and relevance are necessary to justify the claim that economics is to be a science. He then concluded his lecture with the words: “let us all continue to worship at the altar of science. I ask only that our credo be ‘relevance with as much rigour as possible,’ and not ‘rigour regardless of relevance’. And let us not be afraid – and try to answer – the really big questions. I can only say a fervent amen to both these requests.”

In addition to Aaron Gordon, I have learned a lot from two of Australia’s most distinguished public servants, H.C. (aka Nugget) Coombs and J.G. Crawford. I am too young to have met Keynes, but I have read avidly many of his publications and especially his 1936 triumph, The General Theory of Employment Interest and Money.

What are you currently working on?

I’m working on a couple of things. One project is with Peter Kriesler, an Assistant Professor here at UNSW with whom I’ve been collaborating on various papers for over twenty years. Peter and I have also been working together with, Geoff Harcourt, who in his retirement from Cambridge UK has a Professorial Fellowship at UNSW. Our various projects overlap and I will give a general overview.

We’re writing about Keynesian economics in Australia – how it was received by economists and how it influenced macroeconomic policy. Keynes wrote his masterpiece, The General Theory of Employment Interest and Money during the depression to save capitalism from itself. It was intended to provide an alternative approach to existing theory in order to provide a framework for policy to greatly reduce the massive unemployment in England at the time. As it happened this problem was solved by the onset of the Second World War. However, it was widely expected to emerge again after the end of the war. Both the UK and Australia produced White Papers which were generally Keynesian in spirit. They were begun in 1943 though the Australian one had a long gestation period and was tabled in the Commonwealth Parliament in 1945. A major emphasis in it is on what economists refer to as “animal spirits”. This term refers to how optimistic or pessimistic entrepreneurs and consumers are. “Animal spirits” are not based on rational arguments. Moreover, when people are optimistic and really believe the government can do what it promises, such as maintain full employment, this acts as a self-fulfilling prophecy. It is a virtuous circle or a “win-win” situation.

Probably the dominant school of thought among policy makers in Australia today is New Keynesian economics. New Keynesian economists argue that Keynesian policies should be used when the economy is in a slump but once employment is at a satisfactory level, wages cannot exceed labour productivity. Perhaps a majority of New Keynesians argue that this will involve a fall in real wage rates. However, the more intelligent among them realise that continuing investment of physical and intellectual capital throughout the business cycle will increase labour productivity enough to overcome any pressure to reduce wage rates.

One project that I am undertaking on my own, at least at this stage, is an examination of the optimal division of direct and indirect taxes between Commonwealth and State jurisdictions.

In response to your final, informal question regarding what I would like on my tombstone, the answer is: “he was an optimist”.

© Excerpts and links may be used, provided that full and clear credit is given to John Nevile, Judie Cross and Figure/Ground with appropriate and specific direction to the original content.

Suggested citation:

Cross, Judie (2017). “Interview with John Nevile” Figure/Ground, July, 2017.
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