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Weekend reflections

January 6th, 2006

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

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  1. Terje Petersen
    January 10th, 2006 at 16:14 | #1

    I think a good many welfare recipients, whom you appear to resent, would be more than happy to switch places with you and pay even double whatever tax you are now paying. Teddy Roosevelt once said (something to the effect of) that there is absolutely nothing more important in life than to have a fulfillng meaningful occupation, and he is so right.

    I don’t resent welfare receipients.

    How can you be so sure, that if your circumstances had been different – if your marriage had broken down, if you had been repeatedly ‘downsized’, and had other previously available career paths eliminated due to State and Commonwealth Government penny pinching, or if you had been betrayed by people in whom you had placed your trust – that you would not be in their shoes, and that they would not be in yours?

    I can’t be sure. I could be destitute next week for all I know. However it does not change my view on the need for root and branch reform to the tax and welfare system.

    Can I suggest that, instead of feeling sorry for yourself, you find out what it is truly like to live (even before this Government’s odious IR ‘reforms’ and ‘work to welfare’ legislation take effect) on social welfare or on low wages.

    I lived for 5 years on less than $10k per annum when I was a student. I have handed out food in a soup kitchen. I know people who have never had a job in their entire life. In my twenties I had a good friend who spend over a year on unemployment benefits. He now has a six figure income. I don’t spend my days wallowing in pity. However it does not change my view on the need for root and branch reform to the tax and welfare system. I would not be online pusing this barrow unless I thought it was important for my society. If it was just about me then I would be spending time with a sharp accountant and his friends.

    The real point of the current welfare ‘reforms’ is to make it so hard to obtain welfare, that people will have no choice but to accept employment at substandard pay rates with terrible working conditions for employers who refuse to treat their workers with any respect.

    So “employers who disrespect their workers” represent a large number of voters do they? Dream on.

    I find your entire tone to be condescending. You seem more interested in lecturing me on what you presume are some inadequacies of my life experience rather than discussing ideas and view points. Ironically Noel Pearson who has probably seen and dealt with more people in real hardship than either of us seems to have views not much different to my own.

  2. James Farrell
    January 11th, 2006 at 06:50 | #2

    Two comments on SWIO’s carbon tax:

    1. There’s no reason why it should be separate from Kyoto. As you mention yourself, the tax rate would have to be set with some target level of energy consumption in mind. If you don’t agree with the Kyoto targets, then you have to come with a different one and a rationale for it.

    2. It’s not clear what you’re saying about equity. Do you want to minimise the distributional effect of the carbon tax? If so, we should each get a cheque based on some estimate of our current fuel usage. Do you want to improve income distribution? If so, you need to compensate low income people who use a lot of petrol. Giving everyone an equal share of the revenue will redistribute income from low-income earners who drive a lot, to bankers who live in the inner city and take the train to work. If it’s equity you’re after, it would make more sense to use the money to raise the tax-free threshold or improve schools and hospitals. But it might be better to put equity in the too-hard basket, and use the money to promote efficiency instead, by lowering some disortionary taxes. Cutting payroll tax would be good for equity as well if more jobs are created.

  3. January 11th, 2006 at 08:25 | #3

    Terje,

    I find it extraordinary that, when, in recent years, so much wealth has already been transferred out of the hands of people on lower income levels to people like yourself, you still feel a victim of the ‘offensive system’ that you say has been ‘imposed’ upon you.

    Also, you have completely avoided the most important aspect of what the so-called welfare ‘reforms’ are about and focussed on the secondary aspect, for which it is all too easy to drum up resentment from ill-informed sectors of society . To quote myself from above :

    The real point of the current welfare ‘reforms’ is to make it so hard to obtain welfare, that people will have no choice but to accept employment at substandard pay rates with terrible working conditions for employers who refuse to treat their workers with any respect.

    Conditions, which a few months ago, nearly everyone had, rightly, taken for granted, are now under threat : the right not to work on weekends, or at anti-social hours, or to be adequately compensated if you do have to work these hours. The right not to have to work excessively long hours. The right to have predictable shifts of adequate length, etc.

    There may be almost no limit to how ruthless and creative employers can use these new laws to further reduce the pay and conditions of its workers. Those who are not inclined to be as ruthless, may, over time, find little choice but to do likewise.

    The ongoing ‘reforms’ to our social welfare system have made it ever harder for people to refuse to work for inferior conditions and rates of pay. On top of that people who were previously on disability support pensions and supporting mothers benefits will now be forced to compete for work with those on unemployment benefits and subject to the same petty harassment, which insiders acknowledge serve no useful purpose other than to dissuade unemployed people from seeking income support from Centrelink in the first place.

    Terje wrote : I don’t resent welfare recipients.

    You clearly resent paying taxes to support welfare recipients, so the distinction seems academic to me.

    Terje wrote : I could be destitute next week for all I know.

    Somehow this doesn’t quite ring true. You don’t strike me as someone who faces any realistic imminent prospect of long term unemployment and destitution.

    Terje wrote : However it does not change my view on the need for root and branch reform to the tax and welfare system.

    I somehow think it more than likely that if you suddenly lost your job and found your particular skills no longer marketable, your attitude would be quite different.

    Terje wrote : I lived for 5 years on less than $10k per annum when I was a student.

    Like many people who support this Government’s laws, which are designed to impoverish large sectors of the Australian population, you are able to claim that you have also endured times of material deprivation. Of course, this gives you more moral authority than if you had been materially privileged for the whole of your life, but it does not add any decisive weight to your case.

    I happen to agree that ‘less than $10k per annum’ is inadequate, but I just wish I had been given that sort of figure when I was a full time student. I got nothing for the last year and a half, so I had to find part time work, which did not help my academic performance as you might imagine. Most of the time I supported myself as a part time student.

    Also, it was probably my taxes which helped pay your income, inadequate as it was, when you were a student and helped get you through University.

    Terje wrote : I have handed out food in a soup kitchen.

    For how long? two months? a fortnight? a week? Did you ever discuss with people who were fed at soup kitchen how you believed that cutting back their welfare entitlements would be in their best interests?

    Terje wrote  In my twenties I had a good friend who spend over a year on unemployment benefits. He now has a six figure income.

    I wonder how your friend would have coped with today’s Centrelink system? Now that he is on a six figure income would he approve of all the extra bureaucratic hoops that today’s unemployed have to jump through?

    Terje wrote  So “employers who disrespect their workers” represent a large number of voters do they? Dream on.

    I don’t see what that has to do with anything, unless you are somehow trying to imply that the laws have the endorsement of the Australian electorate. Given that neither the IR ‘reforms’ or the ‘work to welfare’ legslation were put to electors in October 2004, this is nonsense.

    On Noel Pearson, a lot of what he has said, makes sense in regards to Aboriginal Australians. However just removing welfare without also providing other means for Aboriginals to obtain dignifed and purposeful livelihoods is not acceptable.

    As I have already written about here, the prosperity of Aboriginal community in Moree, NSW as a consequence of employment in the cotton industry shows that they, like everyone else, need not be dependent upon social welfare.

    However, I am concerned that Pearson’s ideas are being used so inappropriately by this Goverenment to justify its attacks on wider underprivileged sectors of the Australian community, and I was also disturbed to learn that Noel Pearson is now paid as a consultant on social welfare matters by this Government.

  4. Ian Gould
    January 11th, 2006 at 08:40 | #4

    Vee: anyone got a position on CIS latest paper – increasing self reliance? Lowering income tax and putting savings away yourself for health, retirement, etc instead of relying on the govt?

    I haven’t read it but the CIS has been publishing drek for decades so I doubt this is any different.

  5. January 11th, 2006 at 22:23 | #5

    Ian,

    Sadly, much of the past drek from the CIS has recently become enshrined as legislation. In particular, the recently enacted IR ‘reforms’ and the ‘welfare to work’ pieces of legislation seem to have been uncannily anticipated by much of the writings of the CIS’s own Peter Saunders (mentioned above, here and here).

    If it is possible to make things any worse than they already are, the Government will probably find much of its inspiration to do so from documents, referred to above, from the CIS.

  6. January 11th, 2006 at 23:17 | #6

    The CIS proposal is sound as regards long term objectives, but almost certainly makes a huge wealth transfer away from people coming up to retirement, providing inadequate compensation.

    I discussed the area in detail in an article I wrote for News Weekly, after I had gone into the ramifications quite thoroughly. If you don’t handle these things right with a proper transition a lot of people get the short end – and there isn’t any quick and correct transition.

    It’s essentially the same problem on a larger scale as “compensating” people for the introduction of GST by making offsetting income tax cuts – people who were retired or just about to retire found their indirect tax costs going up just when their scope to receive offsetting benefits from income tax cuts went down.

  7. Ernestine Gross
    January 12th, 2006 at 05:38 | #7

    Ian,

    I have only questions regarding the CIS papers by Saunders and Humphreys. I haven’t read the others as yet. To start off:

    1. What are the economic policy objectives?

    2. What are the theoretical conditions under which the policy objectives can be shown to be achievable?

    3. Where are the modelling results?

    4. The only conclusion I could draw from Humphreys’ paper is that he likes the number 3 (eg 30%, 30,000, .3(30000)). Why?

    5. Why does Saunders conclude that the budget surplus shows that taxes are too high at the exclusion of the alternatives, namely that expenditure is too low or a combination of both?

    6. Why do Humphreys and Saunders ignore the theoretical and empirical contemporary knowledge on financial markets, including risk diversification, asymmetric information, informtion acquisition costs, speculative bubbles, discontinuities due to bankruptcy, etc.

    7. Why do Humphreys and Saunders ignore the alleged benefits of electronic data storage and data processing technologies?

    8. Why do the authores ignore the contemporary knowledge on incomplete markets?

    9. Why did they write their papers?

    PM Lawrence’s point on transition (‘change management’) is valid in general. However, I don’t know how PM Lawrence reached his conclusion on the relevancy of ‘long term objectives’; ie point 1 above.

  8. Terje Petersen
    January 12th, 2006 at 06:03 | #8

    James,

    I happen to agree that ‘less than $10k per annum’ is inadequate, but I just wish I had been given that sort of figure when I was a full time student. I got nothing for the last year and a half, so I had to find part time work, which did not help my academic performance as you might imagine. Most of the time I supported myself as a part time student.

    Sorry but the benefactor of the $10k was only partly government. They supplied me with roughly $2000pa in the peak years. The primary benefactors were my parents. Their contribution was considerable given that both were on below average incomes and neither had ever been to university themselves. Mum only worked part time. Still that did not provide all of the $10k. The rest was made up from me working part time on weekends or in the evenings.

    With the $10k I had to pay rent, buy food, buy clothes, pay bloody student union fees, buy text books and entertain myself.

    Every night I had a full stomach, a warm bed and head full of ideas. I also had good friends and occasionaly got a free meal with their folks (mine lived 600km away).

    $10k was enough to be comfortable on. However the early 1990s in Sydney were a lot cheaper than now.

    Regards,
    Terje.

    P.S. I could respond to all your other points and maybe I will at some later date. However most of it just appears to be an attack on my life experience and worldview. Neither of us can discuss that objectively. I can’t be considered objective because it’s my life. And you can’t be objective because you don’t know the facts.

  9. Ernestine Gross
    January 12th, 2006 at 07:09 | #9

    Sorry, some corrections:
    modelling = modeling
    information = information
    authores = authors

  10. January 12th, 2006 at 09:04 | #10

    Terje, you have still avoided responding to my main points, but that’s fine by me.

    Terje wrote : … most of it just appears to be an attack on my life experience and worldview.

    I don’t think other readers will see any more attacks on your life experiences in what I have written than you have made on others.

    I think, instead, that they will see that what I have written is a necessary response to ideas which have demonstrably caused enormous harm to many decent hardworking Australians.

    As I said, I accepted that your circumstances as a student were quite trying for you (and, I now see, your parents as well).

    However, I don’t accept that your life experience gives you the right to try to make the situation even worse for today’s students as well as many other sections of society who are unable to study at University.

    We both know that that, at the moment, the cards are stacked in your favour, because the sort of views I hold are unlikely to get anywhere near the same airing in our newsmedia as yours, however, at least this is a good start.

  11. Terje
    January 12th, 2006 at 09:44 | #11

    You say that the main point is:-

    The real point of the current welfare ‘reforms’ is to make it so hard to obtain welfare, that people will have no choice but to accept employment at substandard pay rates with terrible working conditions for employers who refuse to treat their workers with any respect.

    So lets discuss that.

    What is substandard about a pay rate that is higher than welfare benefits?

    How do you regard the people who already do these jobs?

    Why do we continue to tax these people?

  12. Mike Pepperday
    January 12th, 2006 at 10:29 | #12

    The other night, after a couple of schooners had lubricated the cogs, I realised that the attractive thing about SWIO’s carbon tax distribution was its democratic potential.

    The Carbon Board should like their job (you know: $50K pa for a meeting a week) and they should be answerable to the people (elected, I guess) and the emissions target or the tax rate (same thing in effect) should be directly approved by the people.

    So now the people would decide the trade off between equity, income and the state of the planet they are leaving to their grandchildren. The board would make its recommendations and the people would choose.

    Ah, castles in the air: people actually taking charge of their own lives.

  13. Ernestine Gross
    January 12th, 2006 at 11:00 | #13

    1. ” What is substandard about a pay rate that is higher than welfare benefits?”

    Answer: Welfare benefits are defined with respect to a period of time, such as ‘per week’. A pay rate for the same period may be higher but it has the disadvantage that accepting the job may kill or cause harm(exhaustion due to hours of work or health and safety factors).

    2. “How do you regard the people who already do these jobs?”

    Answer: Which jobs?

    3. “Why do we continue to tax these people?”

    Answer: Which people? I don’t tax anybody.

    Question: Why doesn’t ‘private enterprise’ create jobs which suit the skills of people and do it in a sustainable and efficient manner? By sustainable I mean a ‘decent living wage’ (I can’t remember the exact name). By ‘efficient’ I mean actions that are at least logically consistent with the notion of a Pareto improvement. Incidentally, a point to this effect has been made by an MBA student with about 10 years experience in the Chemical Industry and with an honours degree in chemical engineering. I wonder whether his ‘politically incorrect’ but insightful comment helped him in his career or whether his scientific education and his logical mind is a hindrance to personal wealth.

    Question: Have you noticed that Tony Abbott has understood the incentive problems arising from corporatised medicine? This is an important event.

  14. Ernestine Gross
    January 12th, 2006 at 12:05 | #14

    Mike,

    Isn’t it the purpose of theoretical models of non-dictatorial resource allocation systems to provide a few clues as to how one can develop institutions that solve practical problems, which cannot be solved by the market – competitive or otherwise, without giving up the idea that people know best what is good for them?

  15. Mike Pepperday
    January 12th, 2006 at 13:01 | #15

    Sorry Ernestine, I have read and re-read your question but I do not understand it. Could you perhaps re-phrase it?

  16. Terje Petersen
    January 12th, 2006 at 14:18 | #16

    Ernestine,

    My question (that you seem to have responded to) was intended for James. I am sorry if you though that these questions were addressed specifically to you however I am happy that you have responded.

    1. Yes jobs may kill you or harm you. However jobs with an unacceptably high risk (eg mining) are subject to safety laws. Perhaps you could ellaborate with examples.

    2. Jobs comparible to the ones seen as substandard (whatever that benchmark means).

    3. I’ll rephrase the question. Why does the government continue to tax people who do jobs compariable to the ones seen as substandard (whatever that benchmark means).

    Regards,
    Terje.

  17. Ernestine Gross
    January 12th, 2006 at 14:25 | #17

    Mike,

    Apparently I have spoken in riddles. Apologies.

    I wrote my question in response to your post regarding the Carbon Board. In your post you talk about ‘castle in the air’, which surprised me.

    IMHO, theoretical models of non-dictatorial resource allocation systems (ie general equilibrium models which take as axiomatically given that individuals are ‘rational’ in the sense of acting in a manner which is consistent with their preferences) can provide insights into the design of new institutions to deal with market failure (incomplete markets) while aiming to adhere to the idea that people know what is best for them. Setting aside details, I would consider the idea of a Carbon Board as one example. So, from my perspective, the ‘castle’ is conceivable. How well it is designed and how well it can works is to be seen.

    I am relatively new to blogging. I find it interesting and challenging to write against no or minimal information on ‘common ground’. On this occasion I obviously misjudged.

  18. Ernestine Gross
    January 12th, 2006 at 18:29 | #18

    Terje, sorry I didn’t know you wanted to discuss your questions with James; your questions were addressed to nobody in particular. You skipped my questions.

  19. James Farrell
    January 12th, 2006 at 19:59 | #19

    Mike

    What function is this Carbon Board serving? You seem to be implying that ‘the people’ will make the crucial decsions, and that the Board simply offers some kind of menu of choices, in which case its role is essentially one of gathering informatiion.

    Given that the propose Board was initially compared to the RBA, it’s worth pointing central banks don’t in fact work like this. They are given only the broadest guidelines (e.g. achieve a stable currency), and then they determine both the specific targets they will pursue and the instruments they will use. There is nothing especially democratic about them, and indeed the trend has been toward independence from governments, who might pander to popular preferences (which will be biased toward the short term) and mess things up.

    Supossing, however, that the Board’s role was to ‘offer choices’, the real question is to what extent it would really be capable of defining the alternatives. You don’t give the impression you want the Board to be actually studying climate issues itself, and attempting to determine the effects of different targets. In the first place, these issues are, as we know, vast and controversial, and it would be impossible to define any trade-off that didn’t involve a huge margin for error. Secondly, changes in carbon emissions within a small country like ours have little effect on temperatures, so the trade-off between current domestic fuel consumption (on the horizontal axis) and future temperature will be very flat.

    Therefore, I gather that the Board would just let the public form their own beliefs about the effectiveness and utility of different targets. In that case, the Board’s only role would be to figure out what tax rate was necessary to achive each target – in other words, to determine the price elasticity of the demand for carbon based energy.

    But that’s an essentially technical task, not one inviolving a great deal of discretion, or requiring a huge investment of public trust (in contrast to the task of setting the interest rate). It would mostly be a matter of trial and error. Some forecasting would be necessary to assess long term adjustments in consumption and the development of alternative energy sources. But I don’t see why this couldn’t be done by a small team of researchers in the Treasury.

  20. Mike Pepperday
    January 12th, 2006 at 20:21 | #20

    Ernestine
    Oh, the castle in the air was just the idea that people should take charge of their own lives in the specific instance of setting the carbon tax.

    I see it as a castle in the air because generally we are not able to have such control. Our rulers don’t like it. They don’t think that people are rational. On the rare occasions when the people do have a say they nearly always get it wrong. The classic example is constitutional referendums (wrong 36 out of 44 times so far).
    Or consider another example of what happened when the people were allowed to control their own lives. They asked us whether we wanted daylight saving in WA. We said no. This was the wrong answer so they asked us again. Again we said no.
    Our rulers couldn’t accept we were really this irrational so they asked us a third time. Would you believe, the cretinous WA public messed it up again?
    Now to the pollies this is a clear lesson in the foolishness of allowing people to be in charge of their own lives.
    I am quite sure that anyone who (like me) ponders the mechanics and incentives of the people taking charge of carbon emissions is building castles in the air.

  21. Terje Petersen
    January 12th, 2006 at 20:36 | #21

    Ernestine,

    I answered all your questions except the last one, which I missed.

    Q1. Which jobs?

    A1. Jobs comparible to the ones seen as substandard (whatever that benchmark means).

    Q2. Which people?

    A2. I’ll rephrase the question. Why does the government continue to tax people who do jobs compariable to the ones seen as substandard (whatever that benchmark means).

    Q3. Have you noticed that Tony Abbott has understood the incentive problems arising from corporatised medicine? This is an important event.

    A3. No.

    Regards,
    Terje.

  22. Mike Pepperday
    January 12th, 2006 at 20:58 | #22

    James
    “the Board simply offers some kind of menu of choices, in which case its role is essentially one of gathering informatiion.”
    Yes – tax x% may be expected to yield y tonnes of carbon.

    “don’t give the impression you want the Board to be actually studying climate issues itself, and attempting to determine the effects of different targets.”
    No no – that is the wider debate. The board would suggest rates and consequences in tonnes of carbon; the govt would make its recommendations to the people and the people would take that into account along with the lines of other pushers of the debate, and make a decision.
    “these issues are, as we know, vast and controversial, and it would be impossible to define any trade-off that didn’t involve a huge margin for error.”
    They are complex. Who decides best – the people (after discussion) or the pollies whose mates tell them what the rate should be when they give their donation to the re-election kitty?

    “the Board’s only role would be to figure out what tax rate was necessary to achieve each target …an essentially technical task, not one inviolving a great deal of discretion..”
    Hmm. I am not sure that purely technical tasks are quite that objective. Whether Saddam had WMDs was purely technical.
    As you say – vast and controversial and so the board would be handling a hot potato and it would want to be seen to be impartial. I don’t think we can have it in treasury.

    The carbon board would be like the RBA. It and a few other agencies (electoral commission, auditor general and maybe one or two more) are independent of the executive govt – or pretty independent. I do think they are under-theorised.
    I know what you mean by saying not particularly democratic but it’s a matter of what you call democracy. If that is “the people ruling” then are the people ruling if the pollies are playing with interest rates prior to an election and a Jeff Kennett puppet AG is cooking the books? Or are they ruling when the pollies can’t get their clammies onto these things? We get into thinking that having elected reps rule is the same as having the people rule.
    Now SWIO’s putative carbon board was to distribute its spoils equally to all citizens so I thought: so let the citizens set the rate. That would be democratic.
    But it’s all castles in the air!

  23. Ernestine Gross
    January 12th, 2006 at 22:42 | #23

    Mike,

    Thanks for your kind reply. What you say is interesting for someone like myself who is essentially ignorant about politics. But I am much more optimistic about what you call ‘castle in the air’. It is conceivable. In my experience, institutional changes in financial markets followed theoretical work which belongs to the realm of the conceivable. There were difficulties and some persist. Some of these difficulties were ‘predictable’ in the sense of being conceivable possible outcomes (eg the impossibility of portfolio insurance by means of mechanised options trading). One could even argue that some of the difficulties were perhaps incidentally encouraged by throw-away comments by an influential politician at the time, such as ‘greed is good’.

    There is one point I’d like to raise. It concerns the notion of ‘rationality’. You have given two examples of ‘irrational behaviour’. On the basis of the information provided, I would not be able to conclude that the people’s decision was ‘irrational’. This issue comes up very frequently in the empirical literature in various social sciences (eg sociology, psychology). I am going to illustrate my point with the easier of the two examples, namely day light saving. To conclude that people have acted irrational in rejecting day light saving, one would have to have observations, one for each individuals, which allow a comparison between the decision and their actions. For example suppose the day light saving involves +1 hr during summer time, defined over a calander period. If one would observe that people who voted NO on day light saving but started their day one hour earlier during ‘summer time’ (approximately) then one would have a reasonable data set for rejecting the null hypothesis of ‘rational behaviour’. It wouldn’t be a water-tight conclusion because people may prefer to change the time of the ‘standard’ day at which they carry out activities of type X, Y, Z…., to changing the clock forward by 1 hour. If one really wants to be thorough, one could check this one out too. Sampling techniques could be used.

    I agree with you that the pricing of Carbon emissions (locally) would not be ‘technically simple’ – there are no existing prices which could be used to estimate demand (or income) elasticities. But there are methods in environmental economics that assist in eliciting information about people’s willingness to pay for a reduction in pollution. So, expert knowledge in economics and, of course, in the natural science, would still be required and government would be involved in several ways (enforcement, coordination, research – well in reverse order). Many people have experience in investing in financial securities (or horse races, etc). So, I am optimistic that their ability to deal with uncertainty is not the problem.

  24. January 12th, 2006 at 22:47 | #24

    Ernestine, my own MBA didn’t help me make a career change out of computers the way I wanted, mainly because I was after getting into something constructive (and I was still heavily typecast).

    As to where I got my own ideas about the desirability (rather than soundness) of an objective of winding back state involvement in pension provision, that is partly described in the article I linked to, partly comes from a full appreciation of the huge sovereign risk people face, partly from a distaste for being disabled by government squeezing out – and partly from looking at a graphical tool I worked out.

    I can only describe it here, and I doubt if it’s fully original. It has two time dimensions, age vertical and calendar date horizontal. An individual would be represented as a single 45 degree segment from birth to death.

    With this, it’s quite clear that even returns on past investments represent a vertical activity with interest or discount factors irrelevant. But on the other hand a mere transfer does nothing to build up transfer capacity further off to the right – corresponding to someone “getting back” what he “paid in”. I devised a wedge approach to make a smooth transition from one approach to the other, which would have an ultimate benefit of increasing capacity (I’d say “growth”, but that has a different technical meaning).

    Anyhow, I don’t like the heading for the skids inherent in today’s steady as she goes alternative any better than a cut the benefits and let the hogs root approach implied by a CIS style of not making offsetting resources available to individuals in a timely manner that they can actually do something with.

  25. January 12th, 2006 at 23:35 | #25

    Terje said : What is substandard about a pay rate that is higher than welfare benefits?

    Do I understand you correctly? Are you actually saying that any wage above the level of welfare benefits is not substandard?

    If you seriously think that anything just in excess of social welfare payments is not substandard, then you must be amongst a tiny and extremist minority in our community.

    In her Epilogue to “Dirt Cheap” (2005), Elisabeth Wynhausen wrote :

    … the ruthless restructuring that accounts for (Australia’s) new found efficiency has left almost one in five families jobless. Those who have work include 2.3 million casual workers who are largely denied ‘the perks of permanency – respect, security predictability, paid holidays and sick days.’ More than one in four Australian workers are casuals, pining for ‘perks’ like job security; one in three part-time workers want more work than they have; two thirds of young people have no choice but to enter the work force as casuals; and the most comprehensive Australian study of the changes in the workplace wrought by twenty years of the vaunted economic reforms suggests that one fifth of the workforce will be casually employed by the end of the current decade.

    Confronted with such figures, representatives of business organisations almost invariably demand more of the same, promoting the fiction that workplace reform benefits employees by giving them choice over conditions of their employment, a theme continued by the Howard Government. …

    Members of the overclass who promote such reforms have only profited from them, to judge from the widening wealth gap. Unabashed, they continue to scold low-wage workers about the need for wage restraint. Unceasing in their efforts to crank up the revolution they started (as if building a new country on the unloved bones of the old) columnists on six figure salaries rail against regular increases in the minimum wage, now $24,700 a year.

    In my experience as a low wage worker, the jobs all had one thing in common: I no sooner took them on than I, like my fellow employees, seemed to be rendered invisible. I was no longer consulted about my schedule, nor burdened with explanations about the nature of work I was hired to do. I found the lack of respect for employees most noticeable in the largest company I worked for, which doesn’t bode well for the other half-million or so casuals in retail, the fastest growing industry in Australia.

    I tried but failed to do what millions of Australians do every day, struggling to support themselves and their familes on $467.40 a week – less than twice the average rent for a two bedroom flat in Melbourne or Sydney. I managed to live on my income because I had no one else to support and no bills outstanding. I paid for my private health insurance, my home insurance and the cost of keeping the car on the road out of my savings. I put the $1868 for my car on my credit card and tried to forget it, but $1868 is hard to forget when it takes a month to earn.

    Terje said : How do you regard the people who already do these jobs?

    I think they deserve a lot lot better.

    Would you agree, or do you, instead, still think that they deserve to have their wages and conditions reduced even further as John Howard and his Government transparently intends to do to them?

    Terje said : Why do we continue to tax who do jobs comparable to the ones seen as substandard?

    I don’t know. Perhaps you should put that question to our boy genius Federal Treasurer.

    If they had simply automatically indexed the tax thresholds in line with the official inflation rate (or, better still, the true rate of inflation) all these years these problems would not have occurred to such an extent.

  26. Terje Petersen
    January 13th, 2006 at 00:11 | #26

    1. Clearly we take a different view. I would rather see people in paid employment rather than on welfare. And the low paid are not a permanent underclass so much as a group of people mostly in transition. Elisabeth Wynhausen (as quoted) implies a frugal existance without any hope for the future.

    2. There is no move to reduce the minimum wage. Over time it may decline in real terms. If it does it will reduce unemployment. However I am all in favour of a lift in the tax free threshold to reduce its burden on marginal workers. And if there is no lift in the tax free threshold I will continue to regard the tax burden as the source of hardship rather than IR laws. A full time employee on minimum wage should not be paying income tax.

    3. I would suggest that tax brackets should be indexed to wages growth rather than inflation. Or even better, tax brackets should be indexed so that income tax revenue remains static (in real per capita terms).

  27. still working it out
    January 13th, 2006 at 08:59 | #27

    Sorry I have been absent from the follow up to my original comments.

    Mike,

    I don’t think the Carbon Board should be elected. Their role really is limited to getting the Carbon Tax Rate at the right level to meet the Carbon Emission Targets. It really is a largely technical role, which is why I thought that an appointed board made more sense.

    The real democratic debate would be about the Carbon Emissions Target we wanted. This would have to be carried out within the existing democratic framework and ultimately would involve the politicians as they would be the ones setting the Carbon Emissions Target in legislation. However there is no reason that debate should involve just the politicians. The great advantage is that we can have a meaningful debate about the target we were after, and then have it set in stone. This would avoid giving politicians the chance to constantly re-jigg the system and allowing politicians to go about changing everything while our attention is elsewhere.

  28. January 13th, 2006 at 09:20 | #28

    Terje wrote : And the low paid are not a permanent underclass so much as a group of people mostly in transition.

    If we look at the example of the United States, as well as the experience up until now in Australia, we will find that there is every prospect of larger numbers of workers remaining a permanent underclass ‘living a frugal existence without any hope for the future’ as a consequence of these new laws. I recommend you read Barbara Ehrenreichs’ ‘Nickel and Dimed’ and ‘Bait and Switch’ and (which, as well as “Dirt Cheap”, seems to somehow have escaped the attention of the CIS‘s ‘social research director’ Peter Saunders, in spite of his case for ‘reform’ having been based on the supposedly positive experience of the US.)

    Elisabeth Wynhausen also has something to say about the US:

    They often point to the United States to bolster their argument that keeping wages low creates jobs, but the argument was less convincing by 2004. On 19 August, the New York Times reported: ‘The labour market only adds a trickle of new jobs each month despite nearly there years of uninterrupted economic growth … there are still about a million fewer million jobs in the United States than there were at the beginning of 2001.’(“Dirt Cheap“, p 233)

    In any case, even if we accept that low pay increases job opportunities, as appeared to be the case when Barbara Ehrenreich wrote “Nickel and Dimed” in 2001, just what sort of demeaning work should we force people to accept? She writes of workers who work flat out for hours on end, rushing in and of houses they are paid to clean. One, on one occasion, would not even stop to seek medical attention when they badly strained her ankle, so worried was she that she would lose her job. People who do these jobs are subject to all sorts of ritual humiliations including the requirement to supply urine samples to test for the use of recreational drugs.

    This is the future which Australia faces. Perhaps, you truly believe what you have written above that, somehow it will miraculously finally turn around and everyone will achieve the prosperity that was promised to all of us more than 20 years ago at the outset of the neo-liberal ‘reform’ process, but as Crispin has observed elsewhere, many employers fully understand just how these laws will completely screw large numbers of ordinary Australians and are relishing the prospect.

    Terje wrote  I would rather see people in paid employment rather than on welfare.

    So, would I, but only if it is stimulating, socially beneficial, decently paid and with decent career prospects. This is not the case with nearly all of the 2.3 million casual jobs referred to by Wynhausen.

    If the ‘free market’ can’t give this to ordinary Australians, (not to mention many of today’s unemployed IT graduates), isn’t it time that the Government did so, instead, as US President Roosevelt did in the 1930′s when his Government’s “New Deal” employment programs provided dignified work, which was of immense value to the US economy, to millions of previously unemployed Americans?

    Terje wrote  Clearly we take a different view.

    It’s not just you and I who ‘take a differnt view’.

    It’s you and all of those people whom you claim will be the beneficiaries of these ‘reforms’, as well as you and the majority of the Australian electorate, who take a ‘different view’ on these questions. Given that we have all just been subject to the most lavish taxpayer-funded propaganda campaign in our history, as well as the usual biased dishonest spin that emanates from our newsmedia, I would suggest to you that the public’s strong opposition to the IR ‘reforms’ is emphatic (although I am not able to comment on the ‘welfare to work’ legislation as I am not aware of any public opinion polls taken).

    Why the fixation only on welfare recipients?

    I find it noteworthy that the neo-liberals are so fixated on the relatively small amount of wealth which is transferred towards the more underprivileged in our society.

    Why not also pay some attention to the ongoing scam of property speculation, where those who failed to buy themselves shelter when it was relatively cheap are now paying through the nose for the unearned windfall profits of those who able to snap up the houses or apartments in which they now live?

    In 2001, when I was a reluctant spectator in negotiations for the sale of an investment rental property, the real estate agent shamelessly pointed out to my friend that for every three investment properties bought, the renters effectively pay for one.

    Why do you apparently find this transfer of wealth, away from the rest of us, towards a sector which makes no tangible worthwhile contribution to our society, to be any less ‘offensive’ than the requirement for both of us to pay taxes for social welfare?

  29. still working it out
    January 13th, 2006 at 09:26 | #29

    I share your frustration with our political system’s failure to fully represent the will of the people.

    Have you looked at the concept of “Demarchy” as a possible solution?

    http://en.wikipedia.org/wiki/Demarchy
    http://www.uow.edu.au/arts/sts/bmartin/pubs/92kio.html

  30. January 13th, 2006 at 09:27 | #30

    Terje,

    Also, of course I agree with your points about raising the tax-free threshold, but even if it were done it could not begin to fairly compensate for the effects of the new laws.

    I put it to you that the reason that the Government keeps these unfair tax thresholds in place is that they perfectly intend to gouge ever dollar they can out of the poor.

  31. Mike Pepperday
    January 13th, 2006 at 10:51 | #31

    Ernestine
    Thank you for your attempt at a non-tautologous definition of rational. My definition was simpler: whenever the people disagree with the pollies, the people are ipso facto irrational.

    That is why the people are not permitted to run their own lives (except for the occasional relatively inconsequential item such as daylight saving or a national anthem). At least, irrationality is their excuse. Another explanation would be lust for power.

    They will never allow the people to set the carbon tax. Never. On that basis (that alone), the concept is pure castles in the air.

    SWIO
    Okay, I am persuaded (from James Farrell’s post too): we don’t need to elect the board.

    My whole premise was that the people, and NOT the legislators, would set the tax rate.

    This “demarchy” is even more of a fantasy. At least what I was suggesting does function in numerous successful polities.

  32. James Farrell
    January 13th, 2006 at 21:03 | #32

    Mike and SWIO

    The reason we have an independent central bank is that monetary policy involves a large measure of discretion. This discretion is exercised (1) in reading the mechanics of the economy – how low can unemployment go before wage pressure emerges? how sensitive are investment and cnsumption to intetrest rates? and so on – and (2) in judging what’s the optimal balance between price stability and short term growth, to keep us on the highest sustainable longer term growth path. These judgements are beyond the competence of voters, and can’t be entrusted to politicians. In the context of monetary policy there’s the additional factor that the objectives of the policy are achieved in large part simply by influencing people’s expectations: that is, as long as people think the central bank has inflation under control, they are less likely to take actions that cause inflation.

    Few if any of these considerations apply to the setting of a carbon tax rate. Obviously, as we’re falling over ouselves to agree, the choice of an appropriate emission levels is complex and controversial – indeed more so than the management of interest rates. But, as you’ve now made clear, you don’t actually want your board to be concerned with that side of it. The task you have in mind – determining the tax X that will deliver emissions level Y – is much simpler and more transparent than setting the cash rate.

    I’m not dead against having an independent authority, though. It’s just that, if we can’t trust the Treasury to get a particular tax right, then we probably can’t trust them with fiscal policy either. You might be interested in Nicholas Gruen’s proposal for an independent fiscal authority. (I’ll ask him for a reference in case you don’t already have one.)

  33. January 15th, 2006 at 18:22 | #33

    Terje, one problem with the idea that the lowest paid are not in a permanent situation but only moving through is, that we aren’t in equilibrium. There is at the moment a new lot coming in at the bottom. What happens when the music stops? Will the moving through stop? Or, if it doesn’t stop for a while, will the bottom get even lower?

    Another problem, of course, is to know how accurate that idea that people are moving on and up actually is. If it were true, demographics and/or unsustainable immigartion would mean an entrenched demographic split too, which is really only a good thing in a static society (which is of course not intrinsically bad, but we’re certainly not used to it).

  34. James Farrell
    January 16th, 2006 at 05:53 | #34

    Here’s the case for an independent fiscal authority, as promised above. Forgive my cruelty in keeping you all on the edge of your seats.

  35. Ernestine Gross
    January 16th, 2006 at 10:57 | #35

    P.M.Lawrence,

    Thanks for your reply. I think I’ve worked out how you characterised and analysed the transition problem. For reasons given below, I don’t wish to spent time on the transition problem.

    I don’t wish to make a blanket statement on CIS publications, partly because I haven’t read all of them, partly because I’ve come across some papers in the past, which I would consider well researched and non-dogmatic, and partly because I’ve come across a few where the authors seem to say what they seem to think the audience wants to hear – empty would be one way of describing the content.

    The Humphreys 2005 paper on taxation contains a confusion of a 19th century economic theory result, known as the marginal productivity theory of income distribution, with reality. That is, Humphreys states, as a matter of fact, ” In the labour market, people’s wages will approximate their level of marginal productivity.” He does not provide any empirical evidence or references to empirical evidence. I cannot take seriously a paper which is fatally flawed in this manner. He also copies Milton Friedman’s 1962 idea of a negative income tax (acknowledged) without being apparently aware that since then many countries including Australia, have adopted a goods and services tax (GST). I don’t believe Milton Friedman can be held responsible for this flaw.

    Saunders’ seems to wish to substitute 20 million bureaucracies for one, while ignoring the possibility that the transactions costs involved might be larger than the total future funds which he wishes to ‘decentralise’. Why, I ask, would somebody who pays 16% interest on a credit card loan on an amount that is at least equal to the value of the ‘personalised future fund’ benefit from any of the calculations shown by Saunders on how the personalised future fund could replace, or partially replace social services? Saunders includes the proceeds of the completion of the Telstra sale in the hypothetical future fund to be ‘privatised’. If I may suggest, there is a much easier way of completing the privatisation. The government could distribute the remaining shares to the residents of Australia. Given the numbers involved, I don’t believe it would matter much if the shares would be distributed equally or according to some weighted average of past contributions (mixture of taxes and subscription) – I would be indifferent.

    So, what is one to do with two papers which present solutions to problems which do not exist, without addressing problems people talk about, namely deterioration in the provision of public services (health, infrastructure, education), the level of private debt, housing affordability in Sydney and other capital cities, the decline in the ability of individuals to look after their retirement by means of small scale (individualised) property speculation as a result of large corporations having entered the field, people being forced to choose from products offered by corporations which do not have the international trade account in their objective functions, and the increase in uncertainties created by the new Industrial Relations Laws?

    I would imagine there is some clever expression, attributed to a traveller to or from Dublin, which could be an appropriate answer.

  36. Ernestine Gross
    January 16th, 2006 at 10:59 | #36

    Mike,
    Thanks for your reply. I did not attempt to resolve a tautology; there was none to be resolved.

    There is a distinction between a definition of a concept (eg rationality, as defined in mathematical economics, game theory, and decision theory) and the derivation of a testable hypothesis, given the definition of a concept. The former belongs to the creation of theoretical knowledge, the latter belongs to the creation of empirical knowledge. I have given you an example of the latter, using a definition from the former.

    I can’t see how “the pollies” have anything to do with your conclusion.

  37. Terje Petersen
    January 16th, 2006 at 12:22 | #37

    Perhaps, you truly believe what you have written above that, somehow it will miraculously finally turn around and everyone will achieve the prosperity that was promised to all of us more than 20 years ago at the outset of the neo-liberal ‘reform’ process, but as Crispin has observed elsewhere, many employers fully understand just how these laws will completely screw large numbers of ordinary Australians and are relishing the prospect.

    1. I truely believe what I have written (baring typographical or errors in articulation). You seem slightly doubtful.

    2. We may have the rhetoric of “liberal” reform (ie privatisation and reduced tariffs) however we have taxation at record levels (ie high tariffs on domestic trade). For what it is worth I would happily have skipped the privatisations and reductions of import tariffs if we could have stuck with a low tax structure.

    3. I met another couple on the weekend who have faked their separation so that she can claim sole parent benefit and a study allowance as well as rent assistance.

    Our welfare system is sick to the core. We are shoving welfare at the middle class. We are shoving welfare at industry. We are locking the unskilled out of markets by rubbishing incentives on both sides of the fence (employer and employee).

    I don’t blame the current government any less than the ALP. Both sides have let simplistic appeals to short term majority sentiment get in the way of creating a meaningful system.

  38. Terje Petersen
    January 16th, 2006 at 12:30 | #38

    I should have said “a working system”. No doubt the current system is “meaningful” to some people.

  39. Ernestine Gross
    January 16th, 2006 at 13:22 | #39

    Terje,

    Do you mean to say ‘short term minority sentiment’ rather than majority sentiment?

  40. Terje Petersen
    January 16th, 2006 at 14:23 | #40

    Ernestine,

    No. I meant that in the short term the sentimentality of the majority (eg in the heat of election) can be swayed towards bad policy. Political parties exploit this all the time.

    In practice a lot of people are loyal party voters (ie party trumps policy). So in practice it is probably an appeal to the sentiment of the uncommitted voters that swing elections. I am not going to die defending my comment about it being the majority. It was not central to my point.

    Regards,
    Terje.

  41. Ernestine Gross
    January 16th, 2006 at 15:42 | #41

    Terje,
    ” For what it is worth I would happily have skipped the privatisations and reductions of import tariffs if we could have stuck with a low tax structure”.

    I don’t think you can justify your current wish list by means of wishing that the past had been different.

    You once asked me to make a guess on monetary systems and I refused. However, I am prepared to make a guess now. The uncertainties created by the latest ‘reform’ – the industrial relations laws – have introduced more uncertainties for people. My best guess is that the best policy on taxation at present is to do nothing and wait and see what Ian Harper makes out of the Commission he is heading and to wait for the results from that.

    Incidentally, I have also spoken with people over the week-end. I found that the people who currently have their children in private schools resent it. They would be prepared to pay a little more tax to have a well functioning public school system. They don’t think the problem is with the teachers but rather that the teachers’ authority has been taken away and the education department does not support teachers against legal actions brought on by parents who seem to vent their anger on teachers that their prodegees aren’t all ‘Einsteins’ and some parents can’t cope with the news that their children are not well behaved in school.

    My sample size is probably is big as yours.

  42. Terje Petersen
    January 16th, 2006 at 22:05 | #42

    They would be prepared to pay a little more tax to have a well functioning public school system. They don’t think the problem is with the teachers but rather that the teachers’ authority has been taken away and the education department does not support teachers against legal actions brought on by parents who seem to vent their anger on teachers that their prodegees aren’t all ‘Einsteins’ and some parents can’t cope with the news that their children are not well behaved in school.

    That seems entirely consistent with my own sampling. The only problem is we used to have a functional public education system and a much lower tax burden. Mission creep is cripling government agencies.

    I don’t think you can justify your current wish list by means of wishing that the past had been different.

    I agree. However I also don’t think James can dismiss my current wish list (lower taxes, less state) by simply complaining about “the prosperity that was promised to all of us more than 20 years ago at the outset of the neo-liberal ‘reform’ process”.

    The uncertainties created by the latest ‘reform’ – the industrial relations laws – have introduced more uncertainties for people. My best guess is that the best policy on taxation at present is to do nothing and wait and see what Ian Harper makes out of the Commission he is heading and to wait for the results from that.

    Nice to see you take a position on something. Perhaps it means that you have overcome your fixation with never being wrong.

  43. Ernestine Gross
    January 17th, 2006 at 07:27 | #43

    Idle speculation on your part, Terje.

  44. Terje Petersen
    January 17th, 2006 at 08:28 | #44

    No doubt.

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