This post is a follow-on from my first post on this topic. In that post I pointed to a couple of alternative statistics which can be derived from ABS data, including “Net Overseas Movements”, and “Physically Present Population”. I suggested Australia’s migration rate might be substantially overstated by “Net Overseas Migration” (NOM), and the derived “Estimated Resident Population” (ERP) might also look bit frothy, or even a million people frothy according to ABS data. I’m glad that the piece had the intended effect, and provoked two published responses from Dr. Cameron Murray and Leith van Onselen. which I’ll address briefly later on. I’m particularly flattered that Leith responded by re-pasting all four of the graphs from Dr Murray’s so-called ‘rebuke’, five more of his own tired old favourites, but wasn’t game to re-paste his darling NOM chart I’d directed the thrust of my attack against. (Nor a single one of the fourteen original plots which I’d produced directly from ABS data to support my analysis.)

Why so frugal with figures?

But before posting the results of another deep dive in response, I thought keep the eyes on the horizon for a little to examine some broader context. And for that, the conclusion of the more substantive response is definitely the best place to start. After a thoughtful discussion of some of my key contentions, and examining another few tables from the ABS, Cameron Murray arrives here:

Overall, after a lot of thinking on this topic, I suspect that the ABS data, although imperfect, and although hiding a series break, is probably the ‘better’ metric to use in planning and economic analysis.

Since when did economists start to economise on metrics for planning and anlysis? It’s ridiculous to choose just one ‘better’ metric for such a massive swathe of data that impacts, well, essentially everything. Surely the cost of running another column in a spreadsheet isn’t so high that we should deny ourselves an alternative metric that reveals new insights?

People write books about GDP and its foibles, and debate furiously about what it means, and doesn’t. But most would accept (sometimes grudgingly) different versions of it are useful for limited purposes. For example, growth in real GDP per capita is better mark of living standards improving than nominal GDP growth, which you might use to forecast income tax revenue.

Why is that such a hard concept for people to grasp on population metrics? For allocating GST payments for health and education purposes, Estimated Resident Population, derived from NOM, might well be as good as it gets. People who are away, but likely to be back, might need just as much health and education here in Australia since they can choose where they consume it. But if you’re trying to figure out how much gross revenue the GST is going to earn, you’d be stupid not to try to get a figure on what’s happening to the Physically Present Population, who consume the majority of their taxable consumer goods exactly where they are. Being a million people out there is a substantial and preventable error, as it would be for a host of other factors.

The false idol of a ‘pure’ statistic

The entire world of economics revolves around critiquing and re-working hundreds of alternative metrics for all sorts of things, some tangible, some entirely abstract and continually changing. It’s the job of economists (and hobby of the amateur bloggers like me) to debate which is the better to use, in which circumstance, to answer each particular policy or investment question. No serious economist or onlooker takes the latest figures on any other topic without slinging in their share of accusations or probing questions, or at least breaking out a few component parts to figure out what other story might be hidden behind the headline. Debate is vigorous, rowdy, and rolls on, like the clamour in a crowded bar. And so it should be.

Except on migration. On this single metric, it’s as if the entire world converges into a deafeningly silent consensus. Population! At last a hard number. Something tangible, physical, consistent. The cacophony of economic debate subsides as everyone gather’s around to pay homage at the altar of the purest, simplest driver of demand, production, and everything else. The one undisputed back-stop to debate.

Bullshit. Perhaps once it was a hard and clean number, but today it isn’t. My first post was an opening volley on sanctity of these numbers, and I’ll write more to press home the attack soon enough. Migration and population today is about as arbitrary, inconsistent, ill-defined, confusing, volatile, politically sensitive, unpredictable, oscillatory, and hard-to-measure as any figure can be. Not treating it like that is doing tremendous damage to debate.

Instead of absorbing information through the clamour of economic contention (think federal deficit, house prices, wages etc.) the public at large consumes the migration statistics the same way they consume Justin Bieber or Beyoncé. It just permeates the airwaves. ‘Australia has high migration’ and back to the chorus. Fan or not, it’s there, and accepted, people let it roll over them, or bop along.

Until for whatever reason some over-enthusiastic fan-boy in the crowd tries to make everyone stand up and dance. Enter Dick Smith, Macrobusiness, Sustainable Australia, and many others. And here the debate around immigration enters the absurd. A group of otherwise well-meaning, capable, often very intelligent people are quite vigorously running around promoting the following theorem:

Proof of Population Ponzi:
Lemma 1: Present Migration > Past Migration
Lemma 2: Present Population < Future Population
Therefore bad.

They all know that linking rising population with actual bad outcomes is an ambitious and complicated task in the extreme. There are dozens of alternative more powerful contributors to high house prices, city congestion, poor school performance, environmental degradation etc and they all know it. Pushing population to the top of the pile of explanations for those phenomena is a mammoth task. Not even the Productivity Commission’s 700+ page report (which Leith selectively re-quotes a few sentences from) claimed to come close, or even attempts it. But the spruikers of the Ponzi narrative get such tremendous momentum pointing authoritatively to the evidence backing Lemma 1 and Lemma 2 (which no-one even pauses to examine) that they don’t have to even seriously make the case to arrive at their conclusion. Somehow the logical leap is simply taken in their stride. (Note, that doesn’t make the opposite leap any easier, which some also attempt.)

Even worse is the reaction of some on the other side of the debate. When confronted with seemingly irrefutable statistics being used to draw entirely unrelated conclusions, they just stammer for explanations, turn red, and start calling the other guys racist. Or if they’re in office just stammer some more, maybe try to say something politically correct and meaningless about the contribution of migrants, ageing, and hope the question goes away. Everyone’s stumped when trying to explain what appears to be a level-shift in the data. Without being able to explain what underlies or justifies the apparently dramatic change, the Ponzi charge seems to stick.

The range of reactions

So, I’m delighted to find that my initial attack on NOM has got the kind of response that it did. I should point out I’ve got no interest in landing a knock-out punch to Net Overseas Migration, and having someone raise my fist and declare Physically Present Population the champion migration number. I want to pick a fight to start a bar brawl, as economics seems to have quietly raging (as it properly should) over essentially every other important metric. Let many metrics bloom, and be battered.

Cameron Murray made a welcome foray, and dove further into additional data from 3401 to try to find a plausible explanation for the divergence I outlined in my first post. He suggests that the missing million could substantially comprise Australian boomers in or approaching retirement taking holidays in Bali. I’ll address this in more detail in a later post, but finding insights like this is a perfect example of the need to explore components of the data. If a million extra-bronzed baby-boomers finally drift back from Bali once they’ve spent all their Superannuation to get sick and die in the comfort of their 4-bedroom homes in Australian suburbia while on the pension, that will create all sorts of pressures worth planning for. Expelling a million of our young foreign students, backpackers, and skilled workers won’t relieve any of them.

And then there’s Leith Van Onselen, the consummate DJ for the camp that’s tapping toes to the Ponzi story (literally, check the comments), who quickly cranks out the defensive old MB beat: copy, paste, curse, post. He quote’s every sentence of Murray’s “rebuke” except the one where he calls my work brilliant, as well as all four graphs. Then shouts back something like “What??!! Am I meant to believe it’s not really this simple??!!” And cranks up the volume some more with yet another re-posting the surviving clutch of monotonous, rising-line graphs we’ve seen a thousand times before from him. Lemma 1, Lemma 2, thanks, I got it.

Yes Leith, that’s exactly what I’m asking you to believe. It’s not that simple. In economics it rarely is. You can keep re-posting the same old graphs without responding to the original new ones that you’re not game to show on your blog. We all know that econ-bloggers don’t stoop that low unless they’ve been hit where it hurts. Instead you could do what MB does so well on most other topics, and expose some complexity behind the superficial stats so people can get a clearer picture. Maybe there’s another important story that your readers are missing.

The simple story we’re missing

Trying to find a simple and defensible explanation of a complex issue isn’t easy. But for migration, I think there is one. I’ll describe it here in prose, and in a later post gather some of the graphs and data that support it.

There has been a level shift. But it hasn’t been in ‘migration’, as everyone actually intends and understands the word. The shift that we should be talking about has been in mobility.

International travel is roaring ahead at 6-7% growth per annum, and in its wake we’re left with a frothy migration figure, which might have got to, depending on how you measure it, to somewhere between 0.5% - 0.8%, which is actually still far lower than it has been at plenty of other points in our history.

The truely impressive change is in the total pace of movement of the world’s population. Anecdotally people sense some pressure, and they’re probably right to sense it, and what their sensing is probably quite real. But the true cause isn’t that our system has been pumped full with more people. The pressure actually comes from what one could quite accurately think of as heat, literally a higher temperature, as the average pace of movement of all the people within and around the system leads to more frequent, and more intense interactions.

It’s the increasing scale and velocity of movements that causes pressure in various places as the accelerating flows converge, convulse and collide. But to think of the main cause of this pressure as being an increasing accumulation of more people into the system is to miss the bigger and more important story.

And it’s this tremendous uptick in mobility that gets distorted by the lens of migration definitions, and the peculiarities of our geographic and political circumstances, which are bizarre and unique: We’re a reasonably sized, rich, English-speaking, Western country; the populated parts of which are still a full day’s flight further south from the under-belly of Asia. No-one else is like that.

This has important consequences for travel patterns. In particular, we’re a hard place to get to for a few days or a week or two, particularly for the rest of the Western World who might share our language, and have the incomes to do that. However, for a couple of years we’re definitely worth the journey, including for the booming Asian middle-class who are relatively close by. As it happens we have a lot on offer for couple-year type travellers: great space to back-pack around, excellent education opportunities, including in English which is the dominant language for commerce globally, or the chance to cut your teeth in a new professional setting for a couple of years.

And what’s in our neighbourhood? Asia, and the Pacific, the majority of which have recently gentrified and become wealthy just enough to want to take up some of those year-plus travel opportunities, especially in education.

But the consequence of their development also drives our outbound movements. Much of Asia has now developed sufficiently to have enough toilets, drinkable water, decent hotels and beer to make them attractive places to visit. But a great deal hasn’t developed quite enough as to allow local demand to make the hotels and beers anything like as expensive as they are at home. Great if you want to have an adventure for a few weeks/months, enjoy other beaches, cheaper food, visit temples etc. Even NZ’s skiing is both better and cheaper than ours, which might create a similar effect.

Asia’s state of development also means that there are loads of business opportunities there, which drives plenty of outbound business travel to these new ‘emerging markets’. But living in Asia long-term means contending with other languages, fewer English-speaking schools, and possibly less good medical facilities or other infrastructure.

In other words, Australia is a great place to come to for a couple of years, and a great place to leave from for a couple of weeks or months. And that’s what people do. Students and backpackers alike treat Australia as something of a ‘home-base’ while they’re here, but often visit other places in Asia, including for return visits home. New Zealanders do the same, with hundreds of thousands of Kiwis coming here to work or study, and going home for regular visits. Crucially, Australians are more mobile than ever, and treat ‘home’ more like ‘home-base’ as well, and increasingly spend an increasing fraction of time abroad. All the while visitors tend to arrive long-term occasionally, leave short-term frequently, but be counted as ‘resident’ all the while, despite not being here all the time.

So here’s the rub. Whilst we (and perhaps the rest of the world) have accepted the definition ‘resident’ as being ‘here more on average than elsewhere’ defined over a 16-month period, Australia is bound to measure artificially high rates of migration. The definition obscures the fact that the residents are ‘increasingly more elsewhere than ever before’. That’s because we count almost all of the inbound visitors as ‘resident’ in our country, but we count all of our outbound visitors a still ‘resident’ here as well, even while they’re away, which increasingly they are. In that regime, as ‘visiting’ rises, in all directions, for all the world, in flows that substantially net out (or net out more than some figures suggest) Australia will inevitably register a rapidly rising number of ‘residents’.

Likewise, a number of other countries might record artificially low ‘migration’, or negative migration, when their physically present populations remain buoyant. Those countries would no-doubt include plenty of Asian countries, who’s young middle-classes increasingly will spend a few years abroad to gain skills and experience in West (an increasing outflow of residents) but have their present populations buttressed by hordes of short-term visitors enjoying exotic pleasures and cheaper currency on holidays, or making quick visits to set up business in new booming economies. None of the inflows count as ‘migration’, but all the outflows do. The volume of both can rise, and substantially cancel, but ‘migration’ will shift markedly in one direction.

Maybe in a few decades the tables will have turned. Asian cities will have cleaned up their smog, and developed their economies to extent that they are a global centre of commerce. Perhaps one day all of Australia’s young adults will travel to China to attend the best universities, try to learn the language, or cut their teeth in a job for a while in a bigger market-place. And all the billion-strong middle-class Chinese will head to Australia or the West for a few weeks or a monthish-somthing to experience the outback, drink craft-beer, taste wine, Vegemite or whatever. Australia will register low or negative migration, and that of Asian countries will suddenly appear quite high, but that will actually be a frothy figure, just as ours is right now. Hopefully we won’t be as confused then about it as we are today.

A quaint analogy - the restaurant

I’ve battled trying to find an appropriate analogy to help visualise the concept, and all are inaccurate in various ways. But I’ve chosen this one about the changing dining styles in a restaurant, because the other that came to mind was about different energy levels of quantum shells for electron orbits around doping ions embedded in some kind of semi-conductor in the presence of cross-current. I think it’s definitely easier to think about a restaurant, like the one I have, which does both take-away coffees, beers at a bar, as well as dine-in table service food.

If you count the number of people present at any moment, you’ll have some ordering takeaway and waiting near the bar, or sipping a beer there, and some people sitting down with a menu getting table service. But hypothetically this restaurant only keeps count of ‘patrons’, which they define as being just those people that sit down for table service and order food.

Imagine the locality suddenly gentrifies, and a whole host of new hipster cafe/bars open up in the area, foot traffic increases massively, but so does competition. This particular restaurant finds they can’t compete with the hip baristas and bartenders down the street. But they hold their own in the full table-service dining, and the dinner menu takes off. Two things happen simultaneously. Suddenly the queue for coffee seems to disappear, as do plenty of drinkers that used to be perched at the bar, which is looking oddly empty. The dinner trade booms, and changes at the same time. More customers are coming for dinner, but they’re staying for shorter periods, often getting an aperatif down the street instead of starters, and skipping desert and coffee in favour of another cafe or ice-cream parlour down the street. Or some even slip-out between courses to get a cocktail or digestive elsewhere.

The business changes massively, and has to evolve and adapt to keep pace. The peaks and troughs become more intense and unpredictable. The movements in and out, changes in table arrangements for different groups and couples become hard to manage. It’s a touch more noisy, and there’s no doubt that in the dining area things feel more ‘busy’. The business is still profitable, maybe slightly more, but seemingly not in proportion to the increased pressure the wait-staff are feeling. But is it more ‘full’? Well, that’s complicated...

Just a few regular customers don’t like the change, one even posts a review online saying as much. Then a cranky chef barges out of the kitchen one night and starts hurling abuse at the hostess, accusing her of hopelessly over-booking the restaurant. He pulls out a bunch of statistics showing how sharply the growth in ‘patrons’ (dine-in) has increased, extrapolates fourty years into the future and says it can’t possibly be sustained, bellowing that there’ll be rowdy crowds and fist-fights before long. He then demonstrates that the spend-per-table has decreased, and enters a furious rant about how the company’s profits are imperilled by the reckless over-booking that the hostess is resposible for. Every possible mistake and error that the restaurant has encountered is laid at the feet of over-booking hostess. More broken glassware, mistakes made in the kitchen, every bad review, the paint peeling on the walls, last week’s weather, you name it. Over-booking caused it all.

The poor hostess is gobsmacked by the attack. She stammers and stutters, trying to explain how walk-in have increased and people don’t book any more, but still want to eat. But it all seems hopeless in the face of the hard-facts about rising patron numbers and diminished spend-per-head. How to re-arrange the restaurant, use all the spare space around the bar, the loss of all the coffee trade, the idle bartenders, it all just seems too technical. Moreover, she hasn’t looked at any hard numbers to prove the point, since the number of coffee and bar customers is recorded differently the ‘patron’ stats that the chef is brandishing and she’s not great at maths. She goes red in the face, calls the chef a bastard, and runs home to sulk, embarrassed that she swore at her colleague.

Such is the state of the migration debate in Australia. We need to do better than that.

Are Net Overseas Migration and Estimated Resident Population still useful, probably necessary numbers to keep track of? Of course.

But are they sufficient? Far from it, and further every year. Adding ‘Total Net Movements’ and ‘Physically Present Population’ would be an easy place to start.