Home > Economics - General > Some good, but possibly temporary news in the national accounts

Some good, but possibly temporary news in the national accounts

March 7th, 2009
.!.

Most of the attention in discussion of the December quarter national accounts was focused on the negative sign of the aggregate GDP number, combined with the seemingly unkillable belief that there exists a “technical definition” of a recession, namely two consecutive negative quarters. An aggregate number anywhere zero is pretty good by comparison with the world economy as a whole, so the real interest is in the components. Ross Gittins The Brothers Grimm move has a nice piece going through the details, and concluding, unsurprisingly that we are in a recession. The aggregate number has some negative bits that should be temporary (inventory rundown and the statistical discrepancy) but against that, we are bound to get more bad news on exports over the coming year. Our terms of trade, which rose consistently during the term of the last government (one reason things turned out so well in terms of the macroeconomy) have started turning down, but there is a long way to go.

The (possibly temporary) good news is that household savings have risen greatly, to 8 per cent of income. It’s reasonable to assume that this reflects a combination of precautionary saving as the prospect of recession hits home, reactions to the huge capital losses of 2008 (reversing the process by which illusory capital gains prompted people to run down household savings), less home equity loans (can anyone find me some data on this?) and the fact that some part of the money handed out in the stimulus package was saved. Unfortunately, as the recession hits home we are likely to see lots of households with declining income, raising the question of whether the improvement in savings can be sustained.

There’s been a lot of confused discussion about the stimulus in this context. On the one hand, it’s obviously desirable that the stimulus should increase consumption. On the other hand, the resolution of a financial crisis requires, among other things that household balance sheets are made sustainable, that is, that household debt should be brought down to manageable levels relative to income (not relative to inflated asset values). This is a tricky problem, but its obvious that if households are going to increase savings, and aggregate demand is not to decline too much, someone else needs to increase their net demand. Since private investment and export demand are almost certain to shrink, that leaves government as the only candidate.

It seems pretty clear that, as well as providing cash to households governments are going to need to increase their own expenditure, and, given the fragility of the economy, these increases will need to be sustained for some time. That in turn requires a credible promise to service and repay the resulting debt, which means higher taxes. The obvious candidates for higher taxes are the upper income earners who did best out of the bubble. In this context, the government’s apparent determination to press ahead with the tax cuts, targeted at this group, promised in the radically different environment of late 2007 seems like a recipe for disaster.

(Nicholas Gruen has some more on this)

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  1. Bruce Littleboy
    March 7th, 2009 at 17:19 | #1

    “This is a tricky problem, but its obvious that if households are going to increase savings, and [if] aggregate demand is not to decline too much, someone else needs to increase their net demand. Since private investment and export demand are almost certain to shrink, that leaves government as the only candidate.”

    John, there was a bigger financial crisis in the 1930s, and I think that Keynes reached pretty much the same conclusion.

  2. Bruce Littleboy
    March 7th, 2009 at 17:57 | #2

    Could I float some ideas on fiscal stimulus when there is concern, right or wrong (I think the latter), over fiscal deficits?

    Upper middle-class welfare could cut to make room or other expenditure with more bangs for the buck (where recipients have a low propensity to save) or with equity in mind.

    1 More rental assistance for low-income households

    2 A means-tested first home-buyers payment
    (Shouldn’t the overheated house market be allowed to cool gently? Why try to prop up demand across the entire market?)
    Also “first-time” could be interpreted more humanely. I know a woman who was divorced with an adverse financial settlement and left homeless. Because she had received the payment long ago as half a married couple, she totally misses out now.

    3 There was the strange situation when the Feb. when the cash payments were first put to parliament. Low-income households were systematically excluded. [These are the people most likely to spend the payment (or if they are in debt distress, they'd benefit most from repaying debt). Being "liquidity constrained" (and credit constrained, I add) there would be pent-up demand, a high propensity to consume and a bigger fiscal multiplier.] If you are not in the paid workforce, you would be excluded from the dole if you had $2500 in the bank. So you wouldn’t be recorded as on the dole either. So you would not get the $950 (the amount initially proposed). This amount of $2500 would not cover the bond, up-front rent and removalists. The amount was cut under Howard from $5000 to $2500. Rudd has merely restored the $5000, if my recollection of the reportage is correct. Even on the dole, most people would need to run down their $5000 nest-egg. Couldn’t this limit be raised? Let’s go crazy and raise the limit to $7500 or more. We are in a recession; the unemployed are not quickly going to get a job, and this nest egg will be eroded.

  3. philip travers
    March 7th, 2009 at 20:15 | #3

    Bruce Littleboy is partially right,but why does savings have to be interfered with at all for those on the dole!?And the upper middle class may have sons and daughters in that predicament, who may love like the rest of us to get people off their backs.If there is no economic solution possible there is then a need for community to try to stop its whole dependence on being earners.Idleness isn’t a sin,if the idle are caring enough and remain uninterested in matters criminal. These same upper middle class they need to find something that necessitates the meaning of seeing every day come and go. The unemployed can lead whatever background they come from.If a man can spend decades going into the surf to measure its temperature then write it on the sand and be seen as providing a service in an article in a Pensioner newspaper, then there is more unusuality in voluntary work to be found.Unemployment therefore is a time for renewal,with plenty of difficulties for many,but, maybe a release as well from something.This opinion,however ,of mine does not address all the problems of being unemployed.

  4. johng
    March 7th, 2009 at 21:53 | #4

    There are some things in the national accounts which most people seem to have missed. For example there is a slight volume fall in overall government final consumption and public gross capital formation (-0.3% in Dec qter), but this is all in defence. On the non-defence side there was a 0.5% growth. In the next quarter, one would expect the incompetent Defence dept will have fixed their underspend. And they do get a 3% real increase every year in the budget.
    Second, domestic final demand was up 0.1% in the Dec qter, and 2.6% for the year. It was the stock fall of 1.6% of GDP which led to the gross national expenditure decline of 1.5% of GDP. Some of this stock decline may reverse in the March quarter which will improve GDP. Of course the income decline is starting to hit and that will drastically affect the June quarter, with some hit in March, but overall March could be a better quarter.

  5. Ikonoclast
    March 8th, 2009 at 08:03 | #5

    JQ says, “It seems pretty clear that, as well as providing cash to households governments are going to need to increase their own expenditure, and, given the fragility of the economy, these increases will need to be sustained for some time. That in turn requires a credible promise to service and repay the resulting debt, which means higher taxes.”

    I agree with every point there as an intelligent (I hope) layperson on economic matters.

    The government’s increase in expediture would, one hopes, include increased infrastructure spending, a genuine renewable energy program, support for R&D, enhanced social support through welfare, health, education, human services in general and cultural services.

    However, I think the program needs to go further. There needs to be a structured de-leveraging of debt including some debt moratoria. I still buy the Steve Keen line that stimulus alone will not save us. We need to excise the toxic debt.

    In addition, our society needs to revisit and radically rebuild our poorly regulated methods of debt creation and money creation to avoid these “hyper-bubbles” (my term) in future. Keen’s contention (according to research and modelling) that the empirical conclusion is “rather than fiat money being created first and credit money following with a lag, the sequence was reversed: credit money was created first, and fiat money was then created about a year later”. See,

    http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

    Keen is pointing out (if he is correct) something that undermines the standard assumption that the government has proper control of money creation.

  6. Ikonoclast
    March 8th, 2009 at 08:42 | #6

    I’d like to add a longish addenda to my last post if I may. Centrelink, as THE representative government human services organisation will provide a real litmus test of the Rudd government’s honesty and intelligence in dealing with the recession. I mean this not only in terms of how welfare recipients are treated but also in terms of how Centrelink workers are treated.

    The creation of Centrelink by the Howard government was the beginning of a strategy to make all welfare delivery “contestable” over time. The Howard government’s long term intent to was to outsource welfare delivery to a melange of church, charitable and private organisations. This attempt failed although the job market changes affecting the old CES succeeded (under Howard’s definition of success) and private job agencies took over those functions.

    The attempt to destroy DSS (The old Department of Social Security) by turning it into Centrelink and then breaking it up and outsourcing it, ultimately failed. However, it left a trail of problems and the damaged and semi-dysfunctional organisation called Centrelink in its wake.

    “Agency Bargaining” is a central part of this picture too. Agency bargaining has meant that Federal Public service workers have different pay scales in different agencies. For example, depending on the level, Tax Office workers approximately receive 5% to 10% higher pay than Centrelink workers at the same level. There is no proper justification for this difference.

    If one looks at public service pay scales one sees that revenue raising departments like Tax, as well as Finance and Treasury and other “pet” departments (Office of PM and Defence) recieve higher rates of pay than do human services departments. I mean this in relation to standard clerical work (all computer based these days) at same levels.

    This amounts to a devaluation of the work done by workers in human services. Why has this happened?

    Point one, the economic rationalist manadarins in Treasury and Finance (still there under Rudd) favour themselves and favour the fisc, treasury and defence over social welfare. They have a low opinion of the need to provide social assistance and indeed along with Howard they wanted to retrench the welfare state.

    Point two, taking Centrelink as an example. Centrelink is a large organisation so keeping pay rates low saves significant outlays.

    Point three, Centrelink’s workforce is approximately 75% women, probably the highest percentage of any govt dept. This illustrates their (the neoliberals and economic rationalists) low opinion of women’s rights to equal pay.

    Point four, Centrelink’s workforce is not militant so they are easy to push around and keep down. They have a tradition of genuine care for those in need, of keeping the welfare payments going and of keeping stike disruption to a minimum. Governments like Howard’s and Rudd’s to date take advantage of this dedication and compliancy.

    Now I come to the clincher. Centrelink management, under Howard and Rudd have a history of playing hardball, pushing Centrelink pay rates down relatively, forcing conitions to be sold for “rises” which scarcely match inflation and delaying implementation of new agreements beyond the expiry of old agreements. This later delays pay rises and there is no catch up allowance for the “dead” period.

    This is a clear illustration of the bad faith of Governments in dealing with Centrelink. If Rudd were serious, part of his long term stimulus package would remove the 3% “efficiency dividend cuts” (another Howard policy he has continued) and raise Centrelink’s pay rates to the Federal Public Service average.

  7. Alice
    March 8th, 2009 at 10:34 | #7

    Ikonoklast

    There are serious problems in both Centrelink and the private employment placement agencies that Howard proposed do the work of Centrelink, placing unemployed people in jobs. These problems ideally need attention now before unemployment rises further.

    Outsourcing welfare was the true objective and denial of the need for some government responsibility for the state of jobs, unemployment levels, underemployment levels and intervention if required. Dont forget the numbers of single parents and those on disability pensions not included in the unemployment figures also.

    Ill quote Mick (11/12/08) from a blog at http://www.abc.net.au/news/stories/2008/12/11/2443628.htm

    “who got rid of CES??? who gave out cash bonuses to employment agencies that screw the average joe trying to find work and keep them on their books to keep receiving payments??? J something Howard…

    i worked for 1 such agency, i lost my job through a motorbike accident and just after the accident i was told they didnt have any work for me but to keep in touch with them and they will find suitable work for me…. i resigned and found a job 2 weeks later, found out on my group certificate that i was still on their books after 6 months of not working for them, they kept me on their books to look good to John Howard and Co. so they could claim money from the federal govt… how much money are these so called job agencies getting fraudulantly by using this practice?? also they advertise jobs as if they are the place where you’ll be working to be sent to some little danky office to be pimped out to whoever they like… now when applying for jobs (hopefully i wont have to for a while) i always ask if they are an agency, if i get a yes i hang up the phone quick smart

  8. Ikonoclast
    March 8th, 2009 at 12:24 | #8

    Yes, in my opinion and the opinion of many others who know this area of public policy well, the politically motivated creation or expansion of the private job agency has been a disaster for employment policy and job seekers.

    Essentially, Howard gave the private job agencies lots of free kicks with government money and with fewer checks and balances on public monies than the public service had employed. The government had a political vested interest in seeing that the new policy could not fail. So they threw money at it and issued deceptive media releases about its performance.

    Thus public service “gold-plating” and “gold-bricking” (I never claim the PS is perfect) was replaced by even worse levels of pandering to “rent-seeking” private enterprise which loves to go on the government monies teat as much or more than the commonly reviled “dole bludgers”. (Witness the whole genesis, special treatment and then collapse of ABC Child care in this context.)

    Note: In my lexicon “gold-plating” means setting up a workplace with a surfiet of workers and resources (which incidentally is not true of Centrelink which is now consistently under-resourced.) “Gold-bricking” means bludging along, taking it easy, when you should be working hard.

  9. Monkey’s Uncle
    March 8th, 2009 at 14:36 | #9

    “The (possibly temporary) good news is that household savings have risen greatly, to 8 per cent of income.”

    The only problem is that an increase in savings is counterproductive if it comes when the economy is in a downturn. Generally, an increase in national savings is more beneficial when the economy is growing strongly as it helps provide for future needs and puts downward pressure on inflation.

    Whereas when the economy is in a downturn, increased savings and reduced consumption can exacerbate the decline.

    In addition, if the money handed out through the stimulus packages is saved it provides little benefit. All it means is that the government is drawing down its own bottom line in order to marginally improve the bottom line of households. But the net amount of national debt and savings remain the same. Handing out money to pay down private debt increases moral hazard, as it sends a message that those who borrow excessively will be bailed out by taxpayers. So it increases moral hazard without even offering much fiscal stimulus.

    Moreover, Australia’s private debt of around $1.8 trillion is too much for governments to make much difference.

  10. Kevin Cox
    March 8th, 2009 at 15:51 | #10

    Ikonclast,

    Thank you for the reference to Steve Keen saying create credit money first then fiat money. That is what I have been trying to say but I did not know the right words to use.

    I had come from the point of view of designing what I am calling “market places with purpose” . I realised about last September that one of the purposes of a special purpose market can be to build assets from credit money and then later turn it into fiat money. The fact that some markets will also do things like reduce ghg emissions is an added bonus – or is it the other way around:)

    That is, I know how to implement Keen’s idea and I now know how to describe it to economists although they may still have problems with credit money being at zero interest and being repaid from taxes on profits on investment:)

  11. Ikonoclast
    March 8th, 2009 at 17:07 | #11

    Steve Keen was not advocating the creation of credit money before fiat money. He was saying empirical evidence is that “credit money was created first, and fiat money was then created about a year later” in the current lax (my word) system.

    I think far from adocating this process he probably thinks this is part of the problem that leads to debt explosions. However, read his blog for his direct views.

  12. Alice
    March 8th, 2009 at 17:23 | #12

    Ikonoklast#8

    Re your comment ““rent-seeking” private enterprise which loves to go on the government monies teat as well as much or more than the commonly reviled “dole bludgers”. ”

    It gives a whole new dimension to who is really on the public teat doesnt it?.Welfare recipients or private sector firms who do very little to get their cash subsidy from the public purse? What a waste of resources that could be genuinely be used to help the unemployed. Id rather see it given to the unemployed themselves or to pay adequately and sufficiently the mostly female centrelink staff than fatten the coffers of the private sector job placement agencies whilst they busy themselves inventing fraudulent activities like the one above to get more.

    Ive heard of this numerous times; the private sector job placement agencies running courses which they charge the unemployed to attend “to improve their skills” and then insist they attend “more skills courses” all the while charging them without finding them a job and dropping them if they refuse to attend yet more “courses”. What sort of help is that? There are incentives not to place them in a job.

  13. stockingrate
    March 8th, 2009 at 18:05 | #13

    The capital gains were illusory and so was/is much of the econonomic well-being of Australians. I was pleased to see Gittins refer to per capita GDP, it removes some of the illusion. The fall in the AUD is also worth keeping in mind when considering the AUD GDP statistic, ie in Renminbi/Yen/USD the per capita GDP of Australians is shrinking sharply. Similarly, less and less of the economy is Australian owned and this also contributes to the illusion of well-being (sell the asset and spend, and reduced Australian claims on future income). The RBA’s various guarantees and acceptance of asset backed securities of possibly illusionary worth could prove very expensively underestimated stimuuli.

    The $42b stimulus will have the unfortunate short term effect of slowing the destruction of our illusions.

    I doubt very much if the pre-federal stimulus level and nature of government economic activity can be responsibly sustained, even should tax rate increases replace tax cuts. There was plenty of state government stimulus, ie growth in debt, in the pre stimulus economy. More importantly the tax base is evaporating at local, state, and federal level.

  14. denko
    March 9th, 2009 at 00:24 | #14

    jquiggan

    hi

    In the Oct 2008 through Jan 2009 Reserve Bank Accounts – Australia received a massive injection of foreign/overseas institutions a jump from about the usual $2 Bn odd – a peak of $41,98 Bn.

    That inflow went primarily to sustain Gold and Foreign Exchange which similarly peaked at $93,944 off a usual $45 odd Bn.

    What was this?

    Thanks.

  15. Kevin Cox
    March 9th, 2009 at 02:55 | #15

    Ikonclast you are right. I misinterpreted what Steve Keen was saying.

    Shann Turnbull has given me a better term to use for what is being advocated.

    To quote Shann

    “A useful word to use in your article would be “procreative” assets that Harold G. Moulton in his 1934 book on the formation of capital defined “as the means for making nature yield her resources more productively”. In other words all procreative assets increase productivity and so with fair markets would pay for themselves to become self-financing. Because they increase productivity they would also reverse inflation even if the money to finance them was created and not cancel led. Procreative assets can democratise the wealth of nations as any body can own them provided they can obtain credit during their self-financing period.”

    I am proposing a method of creating procreative assets using the increase in money supply to provide zero interest credit and taxes to repay the notional debt. I of course agree with Moulton that an emergent property of the approach can be to democratise the wealth of nations.

  16. Ikonoclast
    March 9th, 2009 at 11:34 | #16

    For those who are interested, here is the link to the Sep 2008 CPSU report, “Far From Equal”.

    http://www.cpsu.org.au/multiversions/9393/FileName/Pay%20Equity%20Hearing%20Glass%20Ceiling%20Report%20250908.pdf

    If I may quote a paragraph or two.

    “Centrelink has an annual budget of close to $3 billion. It administers more than 140 services for 25 government agencies and pays 10 million individual entitlements each year. Approximately one in three Australians is a customer
    of Centrelink.

    Centrelink employs 19 per cent of the APS workforce with just under 27,000 staff. Sixty nine per cent of Centrelink employees are women.

    Centrelink consistently pays salary rates that are below the APS average. For example, the top pay rate for an APS 5 employee at Centrelink is $58,501 which is 4 per cent below the average, ranking Centrelink 78th of the 88 agencies analysed.”

    The full report is of interest to anyone who might want to study the outcomes of agency by agency baragaining as implemented by John Howard. An unworkable and de-motivating mess is what I call it.

    After Rudd’s election I had hopes for action on it. However, things continued on the same downhill slide. This little black duck left the APS, no longer willing to accept insulting offers and being dealt with in bad faith.

    I refer to government, upper national management and the overall deals. Regional middle managers were decent enough. Canberra is still badly infected and plagued by the economic rationalists with their blind and idiotic ideologically driven policies. Until they are cleared out we will not get the economic and social policies required for these times.

    It’s not enough to change the government. The economic rationalist, generic managerialist and corporatist mandarins have to be swept out of Finance and Treasury (in particular).

  17. Michael of Summer Hill
    March 9th, 2009 at 17:41 | #17

    John, further to Gittins arguments if Australia enters a long recession and things do not pick up then the Rudd government should seriously consider lowering the retirement age to say 55 years and free up resources. I am of the opinion that in a tight labor market many mature workers are given the run around and wasting valuable resources. Time to stop the rot.

  18. Michael of Summer Hill
    March 9th, 2009 at 17:54 | #18

    John, I screwed up in the last blog, instead of ‘tight labour market’ should read ‘tight job market’.

  19. Alice
    March 10th, 2009 at 11:58 | #19

    Ikonoclast – I hear you and I agree fully re your last comment in particular. A relative is a NSW public servant and has been for many decades. How she has survived wave after wave of efficiency drives and outsourcing entire once effective departments, including her own to the detriment of superior controls they once implemented, is beyond me. In many cases private agencies now deliver lower quality service at a higher cost and it has brought inefficiency in, not out. As well the important role of the government as an employer when the private sector is shedding labour, as it is now, has become eroded.

  20. Socrates
    March 10th, 2009 at 12:42 | #20

    Ikonoclast

    Add a second supporter to your remarks at 16. I worked for some years in a public service modelling unit that had very good staff, training and skills. It was mostly closed down in the early 90s. Now most of us do the same work via consulting firms. The cost to government is at least double, and, thanks to cuts in data gathering as well, the quality has declined. How can that be efficient?

  21. Alice
    March 10th, 2009 at 14:04 | #21

    Socrates I bet the use of ex public sector employees (retired or acting as consultants for private agencies) to fill gaps and bring expertise (that used to be susbtantially inside the public sector department) using contract appointments or tenders etc must be horrendous. Universities are no better, Im afraid. Same ideological “flexible labour force” infiltration and casualisation on the rise. The “flexible contract” (short term cost saving to the employer) means the flexible worker leaves more often and takes their expertise with them. Nice for the employee, if you dont want the 5day week traffic grind or you are on a working holiday or want to choose your own hours, but I cant see that it really improves service or lowers costs within over the longer term. Use of casual nurses in hospitals another example.

  22. March 10th, 2009 at 14:36 | #22

    Ikonoklast,
    The scary thing to me is that one third of Australians are “customers” of Centrelink. One third. And you would argue we do not have enough government? How much, then, is enough?

  23. Alice
    March 10th, 2009 at 14:50 | #23

    Andrew,

    One third are “customers” of centrelink (do you have stats on that?) we obviously need government employment and government employment agencies because clearly there are insufficient private sector employment (adding underemployment to unemployment). The privatisation of Centrelink employment services was silly and has been abused by private agencies who exist only because of the public teat now.

  24. Alice
    March 10th, 2009 at 15:06 | #24

    Andrew,

    A lot of middle class and above are also centrelink customers thanks to middle class welfare and family payments made by JH. The one third wouldnt surprise me. Was welfare under JH directed where it was really needed or just being used as a defactor tax reduction?

  25. paul walter
    March 10th, 2009 at 15:38 | #25

    Andrew Reynolds,
    If you are looking for a cause for this situation, #22, why not consider the private sector.
    Trujillo walked away with $35 million for dreaming up ways to add to the queue and the wretches at Pac Brands helped themselves to massive pay increases just before sacking 1800 workers.
    Then there was the b—d in America who walked away with half a BILLION dollars, for running one of their major banks into the ground.
    A bit less “small government”, advocated vociferously earlier by precisely the sorts of people mentioned above and illustrated in the amount of political donations made earlier to make political parties prepared to embrace the “small government” mantra electable, would have meant that a regulatory system with enough people to make that enforcible, would have been in place to perhaps prevent the current global schmozzle and all the real suffering to innocent bystanders it’s going to bring.

  26. Alice
    March 10th, 2009 at 18:39 | #26

    25# Paul, as you mentioned before the genus orc is known for its predatory feeding habits on the healthy, the vulnerable, and the young (everyone else actually) and probably sees the unemployed as “good for nothings” except perhaps processing to feed to fellow orcs (at a price).

  27. March 11th, 2009 at 17:32 | #27

    Alice,
    I was using the quote further up the thread for the stats.
    We do not have 33% unemployment (yet – Julia seems to be working on it), nor do we have a combined pensioner / unemployed rate of 33% – I hope.
    .
    Paul,
    If you imagine the last 10, 20 or 30 years as an era of “small government” when somewhere around 50% of all spending is directed through the government then I am terrified as to what you may think “large government” may be. Add to that all of the spending done as directed by regulation, all of the business decisions taken not because they make sense but because they are told to take them by regulation (for example in that most regulated of all businesses, banking) and you really have no idea, do you?

  28. paul walter
    March 12th, 2009 at 09:34 | #28

    Andrew, you really are anal concerning these issues. Fields like occupational health and safety and environmental protection developed because business would not act voluntarily on said issues. Likewise taxation and accounting practices.
    Legislation in these fields is intended first and formost as a signal to business to operate within certain paramenters inthe firstplace, for the sake of a wider community. Gunns comes to mind as the most obvious example of why we have regulation and what the pigheaded and expensive response of business to even the most reasonable of compliance measures, usually entails.
    I know this will grate with your Nozickian rightist so-called libertarianist nonsenses; the bugger you jack American ideology/apology that think tankers are so enamoured of, but the point remains that business needs to get off its self obsession for long enough to stop wasting time on tax and compliance avoidance and redirect some of the money heading into executive salaries into healthy workplaces, also a little forethought as per community and environment.
    That’s apart from the sort of example Lindsay Tanner gave a the press club luncheon televised yesterday, with a Wall st firm seconding $billions of now bankrupt investors money to play, literally, “Casino” capitalism.
    Which incidentally brings me to the point of your inadequate response to my previous post, exemplified in further diversionary alibiing for big business here, (accidentally, of course) shifting attention away from consideration of capitalism and its own contribution to the current recessionary bail outs situation (talk about double-dipping!)

  29. March 12th, 2009 at 09:51 | #29

    So, Paul – what level of taxation do you believe is necessary, then? Should it all be taxed and redistributed (because, of course, we can trust politicians and regulators implicitly to follow the best course for us all) or do you see any level below that as being optimal?
    As for your examples of corporate greed, for every one example of that it would, I contend, be simple to find at least 10 where a government program has supplied similar perverse outcomes.

  30. Alice
    March 12th, 2009 at 10:34 | #30

    Andrew, in sheer dollar scale and immensity – I doubt you could find one government program as perverse as the obscenity that CEO salaries have become unless you want to to also talk about the scale of corporate sector rewards also solicited by private sector firms, from government guarantees or legislation, like the enrichment of Halliburton and the like during the Iraq war at the cost to the US taxpayer.

  31. March 12th, 2009 at 13:19 | #31

    Hmmm – one program. I don’t know – perhaps you may regard the Iraq war with all its deaths as a little more perverse. A lot of deaths and a lot of money wasted.
    That may be a little more perverse.
    Shall I go on?

  32. Alice
    March 12th, 2009 at 16:38 | #32

    Andrew, that was GW. Perhaps there is one Australian program more perverse. JH agreeing to go with him, but people voted them in didnt they? If you are suggesting no vote or no government thats a bit primitive. Who leads then? The king of the Zulus or Alan Moss?

  33. March 12th, 2009 at 19:20 | #33

    Alice,
    I am not suggesting no government, just a lot less and for the government we have to be much closer to the individual – more in local councils, less in state governments and very little in the Federal.
    .
    In any case, for people to suggest that the faults are because of one government or another and then to maintain that we need more government is to me to suggest that there is more than a little cognitive dissonance going on.
    All power tends to corrupt and absolute power corrupts absolutely. Corruption is inherent in power – the more we trust anyone with power the more corruption with which it will tend to be exercised. It really is that simple. You may get one or two amazing individuals that exercise any powers they are given purely altruisticly, with considerable foresight and with a good knowledge of the side effects, but for each one of those you will get hundreds who do not entirely measure up to the lofty ideal.
    Any system has to be designed around this simple fact. I do not think that centralising systems – such as modern Conservatism or any socialist system – have this simple concept in mind.

  34. nanks
    March 12th, 2009 at 19:33 | #34

    Andrew – an alternative to less government is greater participation in the exercise of power through a reduction in possible length of terms in office. The downside of that is a shifting of power outside of elected office. The (possible) solution to that is to restrict terms in power for both elected and (permanent)public servants. No doubt there are other problems, but power sharing is a mechanism that is insufficiently explored in my view

  35. Alice
    March 12th, 2009 at 19:54 | #35

    #33 The problem I have with your approach Andrew is that it fails to deliver the big ticket items like infrastructure and health or eeducation institutions. I just cant bear the thought of a mass of tangled toll roads for example, getting from one place to another. The state government has been privatising all this sort of thing and making a complete hash of it. They have grossly underestimated the ability of private sector firms to also be cheats, liars and spin merchants.
    I really dont think either the private sector or the public sector is relatively more or less burdened by cheats and liars, or is relatively more or less efficient, but it helps for at least one group to be working within a framework of the common good and to be able to deliver commonly useful low cost (not overly inflated by the profit motive) infrastructure. I think that is terribly important for a healthy economy. It assists everyone, private sector firms and individuals alike. It is only ongoing vigilence that prevents opportunism in either sector. The public service should have better controls and the private sector needs rules too. No one is immune from regulation / legislation in reality. We cant just go around doing unethical or immoral or dangerous things to other people or groups. Lcocal government cannot caste its net over groups from other areas and I would not like to live without a basic legal framework in place.

  36. Alice
    March 12th, 2009 at 20:36 | #36

    Andrew #33

    Although sometimes I will confess with organisations like the State Government who are hopelessly addicted to zombie privatisions sometimes I do feel really really cheated. First I get to pay taxes and then they invent raft upon raft of user pays government charges or new charges are created by private outsourced functions (higher than before). It is a bit like being fished once and then fished twice and then they come back fishing again. I feel fished out! They have put so many speed cameras up you could almost get caught walking down your own driveway. Im amazed the hells angels have not shot them out actually. We have become a nation of complete subservients to all these additional charges.

    State Labor pollies are happy to splurge it on advertising, annual trips, limousines, mates and perks – and cant be bothered to get up to Canberra and get something done about the vertical fiscal imbalance so they can afford to repair infrastructure and not come and hit us again.

    They dont want the responsibility of government and just want to live like spoilt brats on federal handouts that have diminished over time while the state’s population has grown and they are running us to collapse or gridlock (same thing).

    Canberra was impounding our income tax pre Rudd (mean old JH – its pretty beautiful in Canberra – roads, transport etc. There is plenty of money there obviously – ours!!) and everything “state” is deteriorating with the likes of Roozendal and Costa and the razor gang (hitting us with user pays charges) and cutting services here there and everywhere to shore up a budget that is “broke” – but they are too dense to see it cant be “fixed” their way since GST and loss of state taxes and the real estate boom fell over.. and it is never going to get “fixed” their way.

    There are times when I do think we could do without them or wish for a clean sweep and a total purge of ideology there. I would be lying if I said I didnt.

  37. March 12th, 2009 at 21:12 | #37

    “useful low cost (not overly inflated by the profit motive) infrastructure.”

    Deadweight loss is at least equivalent to (average) profit, if not greater.

  38. Alice
    March 12th, 2009 at 22:44 | #38

    37# Jarrah – deadweight loss is an economic term I dont find nearly as useful as an untolled uninterrupted main road or decent affordable (average not inflated profit) public transport to get to work. Relying on the private sector to deliver this could see me growing a beard and others going prematurely grey waiting and waiting.. (finally the “privately provided publicly subsidised” infrastructure arrives late and dysfunctional and expensive after enough lawsuits to pay for it ten times over).

  39. March 13th, 2009 at 08:01 | #39

    I’m not sure I understand your argument. I had thought you were saying that profit inflated the price of infrastructure (ie, more of a society’s resources than necessary were being used). If I misunderstood, my apologies.

    My comment about deadweight loss was meant to remind you that financing infrastructure by taxation involves its own kind of ‘wastefulness’ – conservatively, about 20 cents on the dollar.

    “Relying on the private sector to deliver this could see me growing a beard”

    You’d be the first Alice I’ve heard of with one :-)

    But seriously, if you are saying that the private sector was unwilling to provide roads or mass transit, you’re empirically and theoretically wrong.

    Theoretically, if the profit is too low for one activity, it means the profit for another is better – ceteris paribus, this is a signal that the other activity is more valuable to society, and that going ahead with the first is wasting society’s resources. This is one of the key problems with government spending decisions.

    Empirically, I can point to a large number of projects, starting with the early UK turnpikes and canals and railways, and ending with the Sydney light rail and new ferry provider.

  40. Alice
    March 13th, 2009 at 09:19 | #40

    Jarrah,
    One of the specious arguments for private sector provision of mass infrastructure provision is that it results in more competition and lower prices. If you read todays paper yet again we see Telstra upping the prices….toll roads the same, electricity and the list goes on of higher user pays charges. Well many users cant afford it and it worsens inequality. What some people pay now to cross the city now to get to work (and especially for those that live far from the city like lower income earners) is unjust and unethical and widens the gap between rich and poor which is occurring …as is misappropriating (diverting) once public roads to steer people to toll roads.

    your comment “My comment about deadweight loss was meant to remind you that financing infrastructure by taxation involves its own kind of ‘wastefulness’ – conservatively, about 20 cents on the dollar.”

    does not take into account associated market failures from unethical activities by private sector “partners” who of course can pay themselves handsomely for some years and then fall over “Tcard” ..etc (and in the UK the London underground disaster) which occur too often .

    Government failure to take responsibility, private sector spivs and spin merchants, gouging of public monies, remuneration to private partners in excess of their contribution, wasteful lawsuits with both “Ps” in the deal seeing the taxpayers and users as corralled sheep who are there to be shorn, all borne at greater social costs by the external party – the taxpayer.

  41. Alice
    March 13th, 2009 at 09:21 | #41

    I am growing a beard waiting for some common sense Jarrah!!!

  42. March 13th, 2009 at 10:03 | #42

    There’s no argument from me about the woeful implementation of PPPs in Sydney or elsewhere. The incompetence of our representatives to make good deals is depressing. But that’s an argument about bad methods and bad incentives, not about the merits of private participation in infrastructure provision. If anything, it’s an indictment of the capacities of government officials!

    “does not take into account…”

    Of course not. It’s simply the factual response to the claim that profits inflate costs. And that’s not even taking into account competition for contracts, which reduces profit.

  43. Alice
    March 13th, 2009 at 10:47 | #43

    I didnt say profits inflate costs. Perhaps I should have said “rent seeking behaviour” over profits, inflates prices. If market power (exclusive deals, mates rates, donations, being in the boys club, scratch our back and we will scratch yours, closed shop arrangements, secret info about tenders somehow leaking to tenderers, non market derived tender costings, and the list goes on of what can be done to a tender!!!) etc by the two “Ps”, permits it can also affect input costs and then prices.

    Either way the taxpayer gets bitten by both “Ps” and it happens, sickeningly, way too often

  44. March 13th, 2009 at 10:58 | #44

    “I didnt say profits inflate costs.”

    OK then. I did ask if that’s what you meant, and apologised in advance if I was attacking a position you didn’t hold.

    And I acknowledge the corruption opportunities inherent in PPPs. I just think that’s a good reason to reform government behaviour rather than to reduce private involvement. I’m guessing you feel differently ;-)

  45. Alice
    March 13th, 2009 at 11:25 | #45

    Well Jarrah -

    Yes, I could have expressed myself more clearly there. I do feel differently. I am of the opinion that the public sector should choose carefully those infrastructure services they would provide in the best interests of the majority. Public provision should be kept clearly away from the influence of any private sector income or initiatives. The infiltration of private sector monies and private sector ambitions, into the public sector erodes the public sector slowly from from within. Each year that passes brings a relaxation of public sector standards eg what is “acceptable”, or “in the public interest” “appropriate behaviour for a public servant” and a relaxation of controls over “entrepreneurial, risk taking behaviour” by public servants.

    Call me old fashioned, but I consider the whole notion of public institutions “seeking profits” through PPPs or the multitude of other semi governmental agencies, to be a contradiction in terms. In the same way, I dont think its seemly to see politicians or senior bureaucrats “doing deals” around town, with elegantly attired individuals from office towers in Pitt St or elsewhere.

    I come from a line of public servants and I can recall when this was “mixing up” of public purpose, with private purpose would have been frowned on for all the right reasons.

  46. Alice
    March 13th, 2009 at 11:32 | #46

    Unfortunately the public sector “erosion from within” does not, in many cases, reduce the costs of running the public sector. It dimishes the quality of the services provided and raises the costs to the taxpayer as the public sector turns into a leaky bucket pitted with holes that money falls through.

  47. Alice
    March 13th, 2009 at 11:37 | #47

    42# In short Jarrah, the mixing up of public purpose with private purpose turns the public purse into a pig trough from which both public servants and private entrepreneurs gorge.

  48. March 13th, 2009 at 17:09 | #48

    Alice,
    So (and to paraphase you, hopefully correctly) you think that the public sector should do only what it is good at and has a substantial majority benefit. Everything else should be left to the private sector.
    We are not so far apart as you may think.

  49. Alice
    March 14th, 2009 at 16:48 | #49

    48# No, perhaps we are not that far apart Andrew and we probably agree on a clear line drawn in the sand between public purpose and private purpose – would I be right on that?.

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