Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

Humorists have often had fun at the expense of economists, auditors and accountants. On rare occasions, they will also throw in an actuary as well. One of my favourite jokes is that an economist is someone who sees things working in real life but doesn't believe it until he can prove it in theory.

This year, the Nobel committee reversed that joke, awarding the prize to three economists who sought to see if theory worked in reality. David Card, Joshua Angrist and Guido Imbens have undertaken some incredibly important work that has impacts from wage-setting to immigration, media bias and prison sentences. Their breakthrough was to develop tools that isolate causal relationships. These are now the core of modern social sciences. They borrowed frameworks from science—specifically, randomised control trials. If it was good enough for testing heart medicine, surely it could be good enough for economists. So now economists talk of natural experiments, difference in differences, regression discontinuity designs and, of course, my favourite, instrumental variable techniques in order to create credible identified causal relationships. That is right: economists now have credibility—or, in the language of the Romantics, identification revolutions.

That is why we now know that a large influx of low-skilled migrants does not lower wages but does expand economic activity, lowering inequality in both general and specific terms. We also know that if you want to reduce the impact of household income on education outcomes then you need independent charter schools, which makes the last 30 years of Australian education policy disappointing. We can now prove that universal basic incomes have little positive impact on labour supply and that the cost of housing is directly related to supply and not social housing and government interventions or subsidies.

It is my sincere hope that, over the next couple of decades, these natural experiments can reduce the impact of partisan rent-seeking in policy-making and that this parliament, for one, will be the great beneficiary of their work, such that we can focus, in the words of Galbraith, on what works. It was Churchill who once said: 'The truth is incontrovertible. Panic may resent it, ignorance may deride it, malice may distort it, but there it is.' These three economists have ensured that the truth, now more than ever, is just there.