Home > Economic policy > Bait and switch

Bait and switch

March 2nd, 2013

In the course of raillery with the famously scabrous Thames watermen, Boswell reports that Dr Samuel Johnson triumphed with the line “Sir, your wife, under pretence of keeping a bawdy-house, is a receiver of stolen goods”‘

That insult is applicable, with minimal modification to the Institute of Public Affairs. The IPA advocacy of dams in Northern Australia, long notorious among economists as the worst kind of boondoggle is the kind of scandalous behavior analogous to running a house of pleasure. But, as various interactions on Twitter and elsewhere have made clear, the IPA isn’t really keen on dams – that’s just bait to bring in the nostalgic believers in what Bruce Davidson famously called “The Northern Myth”

The real agenda is the creation of a special economic zone in Northern Australia, with lower taxes and less regulation, but apparently still receiving the same flow of public funds from the national government as at present[1]

Proposals for dams are mostly harmless since so few of them are likely to stack up, even with subsidies. But the suggestion of special tax treatment for businesses located in one part of the country rather than another is the worst kind of distortion[2], the public policy equivalent of receiving stolen goods.

And we don’t have to look further than the front page of the IPA website to see the promoter and biggest single beneficiary of this proposed ripoff – none other than Gina Rinehart, Australia’s richest woman and one who has done nothing to earn her wealth except to be very successful in Family Court.[3]

It’s a tough call whether the IPA has reached its lowest possible point in proposing that ordinary Australians should pay more taxes and get less services, in order to provide a targeted tax handout to Rinehart. That’s low, but arguably not as bad as lying in the service of the tobacco industry.

fn1. The NT government is easily the biggest per capita mendicant in the country, as can be seen from its massively oversized Parliament, more suitable to a medium-sized country than a population of 200 000. http://en.wikipedia.org/wiki/File:Legislative_Assembly_at_Night.jpg

fn2. Individual taxpayers already get a concessional “zone allowance”, but it’s small enough not to constitute a serious distortion. By contrast, the corporate handouts being pushed by the IPA could be huge.

fn3 As pointed out in comments, it was actually in the Supreme Court which deals with inheritance disputes, such as those between Rinehart, her stepmother and her children. The Family Court is only for divorces.

Categories: Economic policy Tags:
  1. John Quiggin
    March 2nd, 2013 at 15:06 | #1

    I realise by the way, that I’m behind the play on this. Here’s Clive Hamilton, a year ago


  2. Geoff Robinson
    March 2nd, 2013 at 15:13 | #2

    IPA running a confidence trick here money is scammed of rich crackpots like Gina to produce joke reports & cross subsidise Chris Berg’s output, it’s the equivalent of Glenn Beck flogging gold.

  3. March 2nd, 2013 at 15:29 | #3

    Minor point: Gina’s actions (against Rose and now her children) were played out in Supreme Courts, not the Family Court. (Referring to the Family Court makes it sound like she got rich via a property settlement with an ex husband, rather than the inheritance.)

  4. John mccarthy
    March 2nd, 2013 at 15:31 | #4

    Good points John. I’ve wondered where northern Aust begins and ends and whtnwe should be subsidising mining companies or farmers who seem to get quite a bit already. As for the land itslef, the soil is trash in many places and could not sustain agriculture

  5. Brian
    March 2nd, 2013 at 15:38 | #5

    A stronger argument for massive inheritance tax would be hard to make.

  6. March 2nd, 2013 at 15:44 | #6

    John McCarthy, when I was working in Emerald in the 1990′s and partially responsible for some of these issues I recall a landholder day at our BHP mine where I gave a presentation on groundwater. I was subsequently approached by an employee (and loved friend) whose husband was a nearby farmer objecting that another presenter had called their land trash. It turned out that she had simply referred to the land classifications in the Capella area which were not too flash actually given that the topsoil tends to be skinny! Black soil may be fertile but not necessarily conducive to irrigation!?

  7. Jim Rose
    March 2nd, 2013 at 15:51 | #7

    1. let he whose favoured subsidies are without sin cast the first stone.

    2. the optimal rate of tax on income from capital and from capital gains is zero.

  8. Robert Merkel
    March 2nd, 2013 at 17:32 | #8

    I wish I could share your optimism that the Coalition won’t indulge relatively small-scale pork-barreling and environmental lunacy to secure agrarian socialist support for large scale transfers of wealth from the southern cities to Gina Rinehart.

  9. John Quiggin
    March 2nd, 2013 at 17:57 | #9

    @Robert Merkel

    It’s certainly possible, given the noises Abbott is making.

  10. Mel
    March 2nd, 2013 at 19:31 | #10

    I second Brian. A nice big fat tax on Gina Rhinehart’s unearned wealth be a wonderful thing.

  11. Katz
    March 2nd, 2013 at 20:34 | #11

    The IPA, even with the help of their munificent patroness, would run the least patronised bawdy house in the history of whoremongering.

  12. March 2nd, 2013 at 20:43 | #12

    I don’t know if northern irrigation schemes are completely without merit. According to my calculations, provided world food prices stay high it might now be possible for an irrigation dam on the Ord River to pay for itself.

  13. March 2nd, 2013 at 21:19 | #13

    I have spent a lot of time working in remote parts of Aus, most of them north of the tropic of Capricorn. There were some subsidies but I am sure all those places I worked were net contributors, not supplicants. It used to irritate me when we were told our town couldn’t have some service that was available in Perth “because it would cost too much.” This was because the service in Perth was being paid for by the taxes and royalties being paid by the sort of places where I lived.
    One of the reasons costs are high up North is that supplies come from down South instead of lower cost, closer sources. This might be construed as the North subsidizing the South?
    I am in favour of using zone allowances to offset high living costs but not tax concessions that are worth far more to the rich.
    Dam decisions should be made on the basis of economics, strategy and climate change predictions. How far North on its own should not be a consideration.

  14. TerjeP
    March 2nd, 2013 at 21:44 | #14

    The real agenda is the creation of a special economic zone in Northern Australia, with lower taxes and less regulation, but apparently still receiving the same flow of public funds from the national government as at present[1]

    I was half expecting footnote 1 to reference the claim that they still want the same flow of public funds. But alas the footnote was merely an aside not a source for the particular claim.

    In my view the optimal place to put a special economic zone is somewhere in which there is currently nobody resident. In practice there is usually always somebody present but the point is that it is a place of very little economic activity where you would like to create activity. Either for strategic reasons or as a relief valve for other places. Or as a proof of concept for libertarian ideals or some other model of alternate governance.

    I’m not overly familiar with the work the IPA has done on this topic but the general concept has pretty wide support amongst libertarians so the notion that they have sold out on libertarian ideals seems a little ludicrous.

    Here is one such similar proposal that has been discussed a lot amounts Australian libertarians:-


    And here is the most extreme form of the idea:-


    The idea of charter cities is embedded in the constitution of California and they have several such cities. San Francisco being the most notable.


    It’s not hard to imagine a scenario in which such an idea does create a windfall for Gina Reinhardt. But it’s also quite possible to create a special economic zone in northern Australia that is a genuine project for liberty. Interpreting the merit and intent depends greatly on the specifics.

    Finally here is a great Ted talk on the idea.


  15. rog
    March 3rd, 2013 at 04:39 | #15

    Sometime ago the CIS presented a study on the Ord, makes for interesting reading.


  16. TerjeP
    March 3rd, 2013 at 05:44 | #16

    I have a long comment stuck in moderation.

  17. John Quiggin
    March 3rd, 2013 at 06:57 | #17

    “I was half expecting footnote 1 to reference the claim that they still want the same flow of public funds. ”

    Easy to document that this region is a net beneficiary. If Rinehart the IPA wants to cut public expenditure on Northern Australia they should say so.

    As you say, it seems that the Australian libertarians generally support the IPA idea. Given the IPA/Catallaxy overlap there would be some pretty big ructions otherwise. And, if you’re prepated to accept the majority judgement of your fellow libertarians then I guess we can conclude that your support for special tax subsidies is consistent with libertarianism, at least in Australia.

  18. rog
    March 3rd, 2013 at 07:10 | #18

    “In my view the optimal place to put a special economic zone is somewhere in which there is currently nobody resident.”

    This sounds more like social engineering, paternalism, protectionism and ultimately racketeering and not conforming with free market/libertarian theory. Perhaps the “free market” is only “anything goes”.

  19. rog
    March 3rd, 2013 at 07:17 | #19

    In talking about libertarian free states/zones Patri Friedman writes “Democracy is the current industry standard political system, but unfortunately it is ill-suited for a libertarian state”.


  20. March 3rd, 2013 at 07:28 | #20

    This whole turning back the rivers, making the deserts bloom idea misses a couple of very important points.

    Firstly, water running to the sea is not wasted, it feeds our estuaries where the majority of our commercial fish species spend at least part of their lifecycle. Recreational and commercial fishing is worth around $4 billion a year to the Australian economy, this is twice the value of rice and cotton combined.

    Secondly, most of the soils are impoverished and infertile with the majority of nutrients leached out hundreds of millions of years ago, there are a couple of decent spots around, Roebuck Plain (WA), Barkley Tableland (NT) and of course the Ord but the rest of it is pretty crap (the Grevilleas are spectacular but they’ve evolved to live in crap soil), huge and expensive fertiliser inputs would be required to get decent crops out of it.

    Even the best soils in these areas are fairly average when compared globally, we really only have a few patches of world class soils, areas where there’s been volcanic activity over the past 50 or so million years, The Atherton Tablelands, Darling Downs, Liverpool Plains (and adjacent Merriwa Plateau), a patch or two in SA and a little in Tasmania and that’s about it.

  21. Jim Rose
    March 3rd, 2013 at 07:34 | #21

    There is another name for special economic zones: that is federalism. Different jurisdictions decide their own tax and other policies.

    In the USA, federal, state and local authorities compete on many margins for residents and mobile resources including income and sales taxes, and state corporate taxes.

    Special economics zones were central to china’s economic transition.

  22. TerjeP
    March 3rd, 2013 at 07:50 | #22

    Easy to document that this region is a net beneficiary. If Rinehart the IPA wants to cut public expenditure on Northern Australia they should say so.

    If you have not noticed the IPA calling for cuts to public expenditure then you really haven’t been paying attention. And if you have not seen them criticise the way federal grants are dolled out then what can I say. Maybe the following will wet your appetite for some more research.


  23. Katz
    March 3rd, 2013 at 08:07 | #23

    Special economics zones were central to china’s economic transition.

    Yep. Cronyism is the handmaiden of rapid economic development, regardless of the name on the label slapped on the governmental system.

  24. John Quiggin
    March 3rd, 2013 at 10:05 | #24


    To restate, I haven’t noticed any calls for reductions in expenditure on Northern Australia to offset the proposed preferential tax treatment. Obviously, the IPA would prefer that tax cuts for Gina Rinehart be financed by reduced expenditure, rather than higher taxes, for everyone else, but that is not the point. At least, not for an economist – libertarians apparently think their ideology justifies selective rent-seeking.

  25. TerjeP
    March 3rd, 2013 at 10:06 | #25

    Jim – I would support a roll back of federal government powers (to the point of even abolitioning the federal government). And I would support the creation of additional states. I think NSW should be split in three. And Northern Queensland should be a separate state. I’m not into the “one nation” philosophy popular amongst many. I’d be quite happy to see Australia split up. So long as we retained free movement (like we currently do with NZ) and appropriate mechanisms for defence, I’d see a break up as opening up creative possibility. And positive competitive forces.

  26. Ikonoclast
    March 3rd, 2013 at 10:09 | #26

    Well, TerjeP has just blown himself completely out of the water and lost all credibility. The only consistent position for a free market libertarian is to reject ALL subsidies and tax breaks. I could at least respect consistency if the Libertarians demonstrated it but they do not.

    Special concessions for any sub-group is socialism and welfarism. Now, consistent proponents of socialism and welfarism want it used to redistribute some wealth and opportunity where there is entrenched inequity, to deal with market failure and to secure the advantages of sovereign resources and natural monopolies to all the people equally. Libertarians expose their true morality and agenda when they support welfare for the rich and below-subsistence wages for the poor by supporting Gina Reinhart and her class of capitalist oligarchs.

  27. TerjeP
    March 3rd, 2013 at 10:15 | #27

    John – if you can substantiate your point that the IPA wants taxpayers across the rest of Australia to pay for infrastructure and services in a tax free zone, and that their support for such a zone relies on this assumption of external government funding rather than private investment and local taxes, then I’ll happily join you in criticising them. But I have not seen anything that substantiates your claim, other than what looks to me to be some clumsy misinterpretation of intent.

    If you personally don’t think taxpayers in one zone should prop up services in another zone then I presume you would agree that the federal government should not be doling out grants to the states on the basis of “need” and propping up states like Tasmania. That it should abolish the grants and cut the tax rates used to raise these funds. I’d be very happy to learn that you support this. However I suspect you quite like the federal government subsidising some zones in Australia. But feel free to surprise me.

  28. TerjeP
    March 3rd, 2013 at 10:18 | #28

    I’ll extend the challenge in my last paragraph to Ikonoclast and any other recent converts to the notion that the Federal government should not subsidise zones in Australia. I’ll be happy for them to join me in opposing such zone based subsidies.

  29. March 3rd, 2013 at 11:14 | #29

    Thanks for the link on the Ord, Rog.

  30. John Quiggin
    March 3rd, 2013 at 11:45 | #30


    Unlike the IPA, I don’t support zone-based subsidies. Where there are specific problems with cost of state service delivery, they can be addressed directly through special purpose payments.

    Since I don’t present myself as a free-market advocate, I don’t feel any particular passion on the issue, except when it involves targeted handouts to Gina Rinehart. Still, it seems that I’m a better free marketeer than the IPA or Australian “libertarians” generally.

  31. Ikonoclast
    March 3rd, 2013 at 12:15 | #31


    I am not the one being inconsistent. I have noted, even ranted, in the past that I am a democratic socialist. I have noted that I support socialism and welfarism where those programs are used to redistribute wealth and opportunity to deal with entrenched inequality, to deal with market failure and to secure the advantages of sovereign resources and natural monopolies to all the people equally.

    So, I have no problems with Federal grants to address horizontal fiscal imbalance and to address regional and social disadvantage. (I may or may not be quite in the same camp as J.Q. on the point of regional disadvantage.)

    I do have a problem with welfare for billionaire mining magnate capitalists disguised as regional assistance. It is very easy to tell the difference. It’s clearly a matter of targetting.

    I have consistently called for the abolition of distorting subsidies like fossil fuel subsidies, negative gearing, corporate welfare, first home owners grant and middle class welfare (including the churning of middle class taxes and middle class welfare). I have even called for a level playing field on energy with no subsdies and proper costing of negative externalities and risk.

    Like J.Q. I can correctly claim to be a better free market advocate than Libertarians. Where the market can be made effective it is the appropriate mechanism. Where it is not effective (always having basic equity and complete sustainability as our highest goals), democratic socialist and dirigist action is the appropriate mechanism.

    The question of capital ownership can be resolved eventually by worker ownership of the economy. There is no need for a separate owner class. What purpose does the separate owner class serve that could not be served by worker ownership?

  32. Katz
    March 3rd, 2013 at 12:39 | #32

    While I have an intellectual hankering for the drawing board elegance of libertarian nostrums, my historical knowledge tells me. That the only time they were tried was in Britain in the second half of the 19th century. They failed miserably in the face of determined and intelligent statism in Germany, and the US.

    Thus, present day libertarians are like old fashioned communists who claim that Leninism didn’t really fail because those principles weren’t given a fair test in the USSR.

    Blind faith has a tragicomic erosive effect on reason and experience.

  33. TerjeP
    March 3rd, 2013 at 12:51 | #33

    Sorry but you’re both deluded. Neither of you is even in the ballpark of being a worthy advocate for free markets.

    Special payments are subsidies. They are no different to general grants in this regard. If you oppose federal subsidies to regions as a matter of principle then you should oppose the grants to Tasmania that are greater per capita than federal grants to NSW. I would happily see these grants and special payments abolished.

    I don’t want special grants or special payments to northern Australia. I don’t see the IPA calling for this either. If you say they are then cough up the evidence and I’ll judge them accordingly.

  34. Ikonoclast
    March 3rd, 2013 at 13:04 | #34


    Sorry, TerjeP, but you are deluded. You don’t want special payments but you want a special tax zone. Is that correct? But since tax is negative welfare and welfare is negative tax, special tax concessions equal special grants. Only, genuine special grants are targetted to need if made properly, whereas tax concessions / holidays just favour the upper middle class and rich and white-ant state and social infrastructure through revenue constriction. End result? A Mexican style economy with a small coterie of crony capitalist billionaires and mass poverty everywhere else. Mexico is your economic ideal I guess?

    Also, the under-taxing USA (as in under-taxing the rich) is in great shape now is it? No? It’s a great big libertarian policy laboratory (no taxes for rich, little regulation) and it’s falling to pieces before our eyes.

    I’ll say no more. No point arguing with a delusionist.

  35. John Quiggin
    March 3rd, 2013 at 13:49 | #35

    Ikonoklast and I didn’t claim to be “worthy advocates for free markets”, just better than the IPA and, it seems, better than you.

    Let’s try one more time. The IPA is advocating a special benefit for Gina Rinehart and others who get their income from a particular part of the country, but not for the rest of us. If they are also advocating cuts in expenditure on Gina and others, as opposed to general cuts for all of us, it’s up to them to say so.

    But, since they aren’t talking I’ll ask you, Terje. You’ve supported the proposal for a fair while. Why don’t you give us a link to the cuts in expenditure, specific to Northern Australia, to finance the specific low tax rates you favor?

  36. TerjeP
    March 3rd, 2013 at 15:07 | #36

    As said earlier I would favour setting up a special economic zone where there are few existing residents or infrastructure. That way there are very few cuts to expenditure that need to be funded. So the merit of any given proposal depends on the specifics. If the intent is to make all of Northern Australia a special zone and that means QLD + NT + half of WA then that is quite different to zone of 1000 square km some place in the remote north of Australia.

    The reason I didn’t immediately respond to the specifics of the IPA idea when it was raised in your earlier post was that I consider the idea to be too vague to judge one way or another. However I felt the need to outline my position once you started accusing me of tribalism. It is possible that the IPA have abandoned their libertarian ideals for a fast buck as you suggest. But it seems more likely that they are simply promoting a debate on a concept that is quite libertarian in principle.

  37. TerjeP
    March 3rd, 2013 at 15:11 | #37

    p.s. And if you want me to nominate where I would place a special economic zone then I’d probably nominate Christmas Island. Although I’d just as readily give it back to Singapore.

  38. Jim Rose
    March 3rd, 2013 at 15:20 | #38

    There are many examples in the USA of overlapping jurisdictions such as county and city and town governments, schools boards and special-purpose districts. They can have revenue raising and regulatory powers including police powers. In 2007, the U.S. had over 39,000 special district governments and this excludes school districts.

    Special districts include airports, water ports, highways, mass transit, parking facilities, fire protection, hospitals, irrigation, conservation, sewerage, stadiums, water supply, power, and gas. Their boards are appointed privately or are popularly elected.

  39. TerjeP
    March 3rd, 2013 at 16:44 | #39

    Earlier I linked to the Ted talk by Paul Romer. I would like to hear any reactions to that talk if anybody took the time to watch it. Here is the link again.


  40. Ikonoclast
    March 3rd, 2013 at 17:04 | #40

    @Jim Rose

    Yep, and now the USA is one big patchwork, decaying, white-anted mess compared to what it still could be.

    Yes, the US has (still) a great economy by world standards. This is mainly a legacy economy. The legacy consisted of the good fortune to;

    (a) annex and possess the richest sub-continental area on earth (in terms of resources);
    (b) become a nation just at the beginnings of the industrial and capitalist revolutions;
    (c) gain mass immigrants from the Old World and other regions;
    (d) benefit like Britain from the technological head start of the industrial revolution; and
    (e) benefit as the natural inheritor of the British Empire’s advantages as Britain declined.

    All notions of Manifest Destiny, American Exceptionalism or inherent superiority of the American forms of government and capitalism are nonsense. The USA’s success is materially explicable in terms of the above five points. There is nothing mysterious or special about the process and outcomes. In addition, the USA pursued broadly Keynesian policies from the early 1930s to about 1970 which certainly was their Golden Age. We can also mention that other advantages from military superiority, to benefits of empire and eventual possession of reserve currency status assisted the USA.

    The benefit of possessing a rich sub-continent is declining in absolute terms but not in relative terms as the whole world depletes its resources. The USA’s real problem is its extreme right wing late-stage oligarchic capitalism which is destroying equity, allowing infrastructure to decay, permitting tens of millions to sink into unemployment and poverty, permitting urban and rural decay, destroying the public education system and facilitating the hollowing out of the real economy by the financial economy and the off-shoring of manufacturing capacity.

    In short, the US still has a great legacy economy because it is declining from a very high base. However, unless politics and the political economy change very radically in the USA then it is destined for collapse and disintegration. If the current corrupt and maladaptive system continues for too long (say another 10 to 15 years) the US will end up looking and performing like the FSU (Former Soviet Union).

  41. paul walter
    March 3rd, 2013 at 17:50 | #41

    Yep, a scab-naming exercise certainly wasn’t overdue.

  42. djr
    March 4th, 2013 at 04:23 | #42

    Terje, a special economic zone of a few thousand square km somewhere in the remote north sounds like you want to set up a tax haven. What else do you imagine that people would do up there with lower taxes that wouldn’t be economical to do now?

  43. John Smith
    March 4th, 2013 at 09:16 | #43

    I thought the IPA favoured the free enterprise economic system.

    The north has had about 150 years to be developed by the free enterprise economic system. If it hasn’t happened, surely that is nature’s way of telling us that there are some economic and geographic fundamentals against it?

  44. Chris O’Neill
    March 4th, 2013 at 09:28 | #44

    Gina Rinehart, Australia’s richest woman and one who has done nothing to earn her wealth except to be very successful in Family Court

    This provides a demonstration of the biggest flaw in our tax system, i.e. there is no taxation on a lot of the increase in wealth that came about with no or little effort. Our tax system taxes financial reward for effort (income tax on wages etc., GST) and so discourages productive effort. Yet at the same time it fails to tax windfall profits worth far in excess of the effort required. Our tax system is thus very economically inefficient.

  45. Troy Prideaux
    March 4th, 2013 at 10:12 | #45

    @Chris O’Neill
    At least they’re taxed which is more than can be said for the likes of Google or Ebay.

  46. Sancho
    March 4th, 2013 at 11:47 | #46

    This interesting infographic vid has been doing the rounds. It essentially describes Australia in twenty years if the IPA and “libertarians” get their way.

  47. Jim
    March 4th, 2013 at 13:43 | #47


    I’ve done a few studies of new/expanded irrigation schemes in norther Australia over the last few years. I still haven’t found one that actually stacks up without explicit or implicit subsidies.

    It is easy enough to grow the food. it is not easy (or commercially viable) to get it to consumers in an appropriate condition or at a price that is competitive. I can’t see this situation changing in the short to medium term.

    @Ronald Brak

  48. Jim Rose
    March 4th, 2013 at 15:47 | #48

    how does a special economic zone differ from a charter city?

  49. John Quiggin
    March 4th, 2013 at 16:42 | #49

    @Jim Rose
    Tax subsidies

  50. TerjeP
    March 4th, 2013 at 18:08 | #50

    Djr – tax havens are a good thing. We should have more of them.

  51. TerjeP
    March 4th, 2013 at 18:14 | #51

    For those who don’t know the history, Gina Reinhardt is pretty much just following in her fathers footsteps in wanting a divorce from Canberra. Lang Hancock put time and money into the cause for a long time.


    I quite like the idea of WA cession. Personally I think it is neater goal. Although constitutionally hamstrung and probably only achievable through armed revolt.

  52. John Quiggin
    March 4th, 2013 at 18:47 | #52


    Yep. “Libertarians” are lackeys for the rich. Smart enough to make logic-chopping arguments for pro-rich policies, but too silly to see they’ve followed them down a rabbit hole. The smart ones, like the IPA and the US pundits-for-sale, sell out to the highest bidder, which is at least consistent.

  53. Ikonoclast
    March 4th, 2013 at 18:52 | #53


    Tax havens are magnets for corruption, criminal money launderers and free riders. Obviously you think providing a safe haven for criminal gain and selfish free riding is a good thing.

  54. murph the surf.
    March 4th, 2013 at 19:21 | #54

    Sydney is a tax haven?

  55. TerjeP
    March 4th, 2013 at 20:20 | #55

    “Libertarians” are lackeys for the rich.

    Not exactly a very original accusation. Never mind, I don’t come here seeking originality.

  56. Katz
    March 4th, 2013 at 20:28 | #56

    Is it the truth you seek TerjeP?

  57. TerjeP
    March 4th, 2013 at 21:17 | #57

    Yes Katz I do. I seek it everywhere. When seeking gems you often have to climb into dirty grimy places and get covered in muck. Seeking the truth is little different.

  58. Jim Rose
    March 4th, 2013 at 21:56 | #58

    @John Quiggin You have a munificent view of consultants.

    The best consultants actually believe what they say.

    Those that are just pretending do not survive in competition with the true believers. Fakers will make too many wrong turns and lack conviction in their message.

    The market for consultants is like any other. The most skilled outdo the rest.

    The client hires the consultants that will tell them what they want to hear. The rest go out of business.

    In the Telco business, there are the pro-incumbent law and economics consultants and the pro-entrant law and economics consultants and never the twain shall meet.

    Consultants are different from the public intellectuals that Posner analysed so well. Public intellectuals do not have to survive in the market and win return business because they are tenured academics.

  59. djr
    March 5th, 2013 at 07:16 | #59

    TerjeP :Djr – tax havens are a good thing. We should have more of them.

    Really? I realise that there are libertarian arguments that tax rates overall should be lower, but why not apply these equally across the board? I’m not clear what goal (libertarian or otherwise) a tax haven achieves other than reducing the tax rate for rich people who can arrange their financial affairs in a particular way to take advantage of it.

  60. Katz
    March 5th, 2013 at 07:27 | #60

    Tax havens are the antithesis of the level playing field whose existence is the sine qua non of libertarian principles.

    Tax havens are the playground of rent seekers and crony capitalists.

  61. Sancho
    March 5th, 2013 at 12:14 | #61

    Consultants are different from the public intellectuals that Posner analysed so well. Public intellectuals do not have to survive in the market and win return business because they are tenured academics.

    That’s spurious, because those non-tenured consultants have a long track record of being terribly wrong and not paying any sort of penalty for it.

    These are the think tank intellectuals who predicted that the housing boom would last forever, that austerity would be a grand success in Europe, and that the Iraq war would be a roaring victory at little cost.

    And where are those people now? Right where they were: employed by the same organisations and writing for the same publications.

    So, you’re correct in saying that those people are successful in the market, but not because they’re actually good at their jobs, but because the people they mislead want to share in the false belief that the being wrong never happened.

  62. John Quiggin
    March 5th, 2013 at 12:34 | #62

    Consultants are different from the public intellectuals that Posner analysed so well. Public intellectuals do not have to survive in the market and win return business because they are tenured academics.

    Given that I’m a self-described public intellectual, and this comment is on my blog, I’m going to take it personally. So, I’ll point out that
    (i) I’m not a tenured academic, and except for a couple of very brief stints, never have been. The great bulk of my academic career has been on 5-year fellowships like the one I have now
    (2) I can get all the consulting work I want, and reject a lot more offers. That said, Sancho is right about the consulting biz. It’s mostly not about being right.

  63. Chris O’Neill
    March 5th, 2013 at 12:44 | #63

    Troy Prideaux :
    @Chris O’Neill
    At least they’re taxed which is more than can be said for the likes of Google or Ebay.

    Maybe, but the tax avoided by one is vastly greater than the other.

  64. March 5th, 2013 at 16:06 | #64

    @Jim Jim, it does seem that there is no realistic way large northern dams could currently pay for themselves. It is possible to make the argument that we should be taking steps to mitigate the possible effects of terrible harvests that could result from climate change that wouldn’t make economic sense to do if we hadn’t destabilized the climate to such an extent. But I really doubt that northern dams would be the best way to do that.

  65. Jim Rose
    March 5th, 2013 at 16:13 | #65

    sancho, On non-tenured consultants have a long track record of being terribly wrong and not paying any sort of penalty for it, if you mean forecasting, you are right.

    Posner’s book takes much of its space discussing the failed predictions of academic intellectuals and the lack of consequences for being a failed pundit.

    As for the reasons for hiring consultants, Deirdre McCloskey attributes it to the case law on director’s duties.

    To show you were acting in a responsible manner, and the failure of the company or the loss of the widow’s inheritance was not your fault, you show you took advice on a regular basis from the usual suspects.

    John, Posner donned his hanging judge mode for tenured academic intellectuals.

  66. John Quiggin
    March 5th, 2013 at 16:52 | #66

    I’m 11 years ahead of you Jim. My review of Posner made the point (already observed here by Sancho) that he never compares the predictive record of academic intellectuals with that of market professionals (equally bad, IMO).


  67. Jim Rose
    March 5th, 2013 at 17:33 | #67

    John, I saw an essay somewhere about Posner’s extraordinary productivity.

    When he was offered a judgeship, he estimated that it would take up as much time as he was spending in 1981 on faculty admin and running his consultancy. He therefore did not think a judgeship would encroach on his academic output.

    2,500 judicial opinions later his finds time to teach, publish, op-ed, book review, a blog, a book a year, and shows no outward signs of extraordinary work habits. he drafts two judicial opinions every Monday night.

    He as a serving federal judge even ended-up serving on a state criminal jury.

  68. rog
    March 5th, 2013 at 17:45 | #68

    @John Quiggin The failings of Australian PPPs could be due to lack of independent academic analysis and and an over reliance of “in house” consultants.

  69. March 5th, 2013 at 18:15 | #69

    I think PPPs generally fail (in one sense) because they’re actually a mechanism for spivs to extract public money for private profit. In fact, they’re usually successful.

  70. rog
    March 5th, 2013 at 19:10 | #70

    @David Irving (no relation) You would have to properly analyse a significant number of PPPs before forming any conclusions of substance.

    Opinion from some of the banking sector is that failure of PPPs is a failure of governance ie lack of. In that respect expert opinion from qualified and independent sources should be a pre requisite for PPPs.

  71. Sancho
    March 5th, 2013 at 20:51 | #71

    That’s not very consistent, Jim.

    First you said that only committed consultants survive in the open market, because they need to be accountable for their advice, then criticised tenured academics for not being subject to the same scrutiny.

    But as soon as the record of those consultants is criticised, you agree that they’re terrible.

    I’m not sure why you put an argument in the first place. It’s like saying “horses suck because unicorns are much better, and unicorns don’t exist, therefore horses suck.”

  72. rog
    March 5th, 2013 at 21:49 | #72

    One example of failed PPP is BrisConnections which, according to this had an obvious lack of transparency from the financial sector (not in the public interest). A retired academic had to run his own modeling which concluded BrisConnect was a FAIL.

  73. TerjeP
    March 5th, 2013 at 22:08 | #73

    I’m not clear what goal (libertarian or otherwise) a tax haven achieves other than reducing the tax rate for rich people who can arrange their financial affairs in a particular way to take advantage of it.

    Well to help you be clear try “tax competition”.

  74. Sam
    March 5th, 2013 at 23:37 | #74

    Tax competition is only a good thing if you think current taxes are too high. If like me, you believe they’re too low, it’s going in the wrong direction.

  75. Bring back Birdy at Catallaxy
    March 6th, 2013 at 06:41 | #75

    What Sam said.

  76. Ikonoclast
    March 6th, 2013 at 07:45 | #76

    @John Quiggin

    If I can be pedantic, the predictive record of some academic intellectuals is very, very good… that of physicists for instance! :)

  77. djr
    March 6th, 2013 at 07:45 | #77

    Terje, you started with

    In my view the optimal place to put a special economic zone is somewhere in which there is currently nobody resident. [...] a place of very little economic activity where you would like to create activity. Either for strategic reasons or as a relief valve for other places.

    I can see the argument that this might come out of tax competition. But surely you’re not claiming that this is relevant to Jersey, or Monaco, are you? If so, you seem to have little idea of how tax havens (rather than tax competition) work.

  78. Ikonoclast
    March 6th, 2013 at 08:09 | #78


    TerjeP, I will try to talk TO you this time and avoid the “appeal to the crowd” rhetoric that crept into my last reply.

    It seems to me that your opposition to taxation is visceral, emotional and absolute and for this reason ill considered. I say this because a well considered low tax policy, coupled with a minarchist position for example, would still posit minimum tax levels, taxation equity and a just compliance regime. It would still recognise the free rider problems and criminality risks of selectively permitting complete tax avoidance in some jurisdictions.

    So, you seem to me not to have any well-considered low tax policy based on a minarchist position or some other consistent position but merely a visceral hatred and rejection of all taxation per se. The only “socio-political” position consistent with this would be solipsistic anarchism.

    (The “socio-political” is in quotes because a solipsistic anarchist would not recognise “socio-political” as a valid category.)

  79. David Irving (no relation)
    March 6th, 2013 at 09:46 | #79

    rog, I suspect you missed my point. PPPs generally fail (from a quick survey) as far as the public is concerned, but someone makes a lot of money. I’m looking at you, MacBank.

  80. TerjeP
    March 6th, 2013 at 21:30 | #80

    Ikonoclast – I’m a minarchist. I think a minimal state financed by low level taxation is optimal. I think tax is an evil but probably a necessary evil. In spite of being necessary it should still be considered evil and minimised as far as possible. It belongs in a similar category as war. Something you accept as a legitimate option but not something you accept happily.

    The high tax social democrat model which is in vogue around here is riddled with free rider problems. I don’t think any system is free of the problem but the system you defend suffers more so than the one I prefer.

  81. rog
    March 6th, 2013 at 22:29 | #81

    @David Irving (no relation) I guess I was making several points, none being conclusive. However, for some of the banking sector to call for greater transparency and accountability in the process indicates that the banking sector have been hurt by their own actions eg BrisCon has hurt MacBank.

  82. Ikonoclast
    March 6th, 2013 at 23:23 | #82


    A minarchist recognises the necessity for a minimal state. The legitimate functions of the minarchist state are usually seen as protection of individuals from aggression, theft, breach of contract, and fraud. For this to be operationally effective, a certain minimum of government institutions are necessary; namely, the military, the police, and courts. Clearly an executive and a legislature must also exist or no effective government and no legislated law could exist. Some administrative apparatus must also exist or the government is a head without body or arms and could thus effect nothing. Even a minarchist state is already bigger than you would think.

    If the minarchist sees protection of individuals from aggression, theft, breach of contract, and fraud as a good, I cannot see how that which assists in providing and supplying that (taxation) by consensus in a democracy can be intrinsically bad (evil). Tax in itself is morally neutral. The purposes it is put to may be good or bad relative to our various moral frameworks.

    The resort to absolutist and quasi-religious language (“tax is evil”) really gives the game away. There is nothing logical, rational, reasonable or considered about your rejection of the principle and purpose of taxation in a democracy.

  83. Jordan
    March 7th, 2013 at 04:32 | #83

    So your concern is mostly with the free rider problem, not so much with whom you pay for the services, private or public sector, that are needed. Like free riders in education, road use, air controll, and so on.

    But don’t you know that societies used to have such systems without free riders long time ago, and such systems created inequalities and insecurities which self conscious societies decided to reduce by changing such systems.
    Why do you want to go back to such systems that produce inequalities and insecurities?

  84. TerjeP
    March 7th, 2013 at 05:22 | #84

    Jordan – I never said my concern was mostly with the free rider problem.

  85. TerjeP
    March 7th, 2013 at 05:26 | #85

    Ikonoclast – is torture evil or is such language devoid of logic, rational, reasoned or considered though?

  86. Jordan
    March 7th, 2013 at 18:50 | #86

    OK, you did not say mostly, but my last question still stand.
    Why do you want to go back to such systems that produce inequalities and insecurities?

  87. Jim Rose
    March 7th, 2013 at 19:04 | #87

    PPPs is a flash name for the project finance that now funds the majority of private mega-projects at a lower cost than before.

    as with private mega-projects, some PPPs fail. many mega-projects go bankrupt. do PPPs go broke?

  88. paul walter
    March 7th, 2013 at 20:53 | #88

    No Terje, torture can be a remarkable concept, as those who suffered your postings over the last decade will readily admit..

  89. Sancho
    March 8th, 2013 at 20:55 | #89

    Here’s a commemoration for the tenth anniversary of one of America’s foremost public analysts, who has been successful in the market without relying on university tenure to shield him from the repercussions of being woefully wrong about pretty much everything.

    David Brooks, meanwhile, has enjoyed 10 more long years of being fantastically, destructively wrong in print. All of the war pundits have. Mocking those who were right and praising those who were proved to have been wrong—or, indeed, liars—for at least having moral clarity in their wrongness was the stock in trade then, and remains it now, and not one of them has suffered repercussions for it. The deficits being complained about now were the ones demanded then, in order to not-pay for the not-quite-war that was not-quite-necessary in the first place. The same pillars of wisdom that brought America’s most expensive fiasco to date have now pivoted their attention to Iran, and their near-identical musings on the necessity for that conflict have not suffered in credibility one whit as a result of their discrediting on the last one. It still remains the case that being flat-out, unambiguously wrong is not a tenth of the crime that being right might be, and to this day there are still rubes that believe Iraq had something to do with 9/11, because some crook with a pen somewhere said so.

  90. March 9th, 2013 at 06:05 | #90

    @John Quiggin
    No need for ‘self-described’ John. Lots of others (including, emphatically, me) describe you in the same way. And mean it entirely as a compliment.

  91. Ikonoclast
    March 9th, 2013 at 07:30 | #91


    Toture is morally wrong. It is a very serious moral wrong. It is also relatively ineffective in achieving its usual goals of information and/or compliance. Repeated studies have shown this.

    The term “evil” is religiously loaded and that is why I avoid the term. It’s tenor is emotive, its definition imprecise and it is subject to dogmatic and fundamentalist interpretations.

    Too often, people using the term “evil” to proscribe something that is not an obvious fundamental moral wrong (as in taxation which is not an obvious fundamental moral wrong like torture) are dangerous fundamentalists who want to dictate how others may or may not think, behave and cooperate.

  92. Ikonoclast
    March 9th, 2013 at 07:33 | #92

    Sorry, bad punctuation (and grammar). I should have written, “Its tenor..”

    How does that apostrophe plink through my typing finger when my brain knows it is wrong?

  93. Katz
    March 9th, 2013 at 11:18 | #93

    TerjeP :
    Ikonoclast – I’m a minarchist.

    I believe that it is logical to say that you are also a maxichist.

    If you believe that there is an optimum level of taxation, then the level of taxation should be neither lower nor higher than the optimum level.

    The optimum level of taxation is an empirical, historical, cultural and contingent question. In short, there is no a priori answer. there will be different answers for different times, places, and circumstances.

  94. TerjeP
    March 11th, 2013 at 20:09 | #94

    Katz – essentially a distinction without a difference. In this time, place and culture I believe we are over taxed.

  95. Fran Barlow
    March 11th, 2013 at 20:37 | #95


    I agree that we should avoid the term ‘evil’ as religious hokum. All it really says is “I don’t like this (a lot!) and because I don’t neither should you or any ‘right-thinking’ person”.

    One should simply specify the scope, quality and nature of the alleged ethical breach entailed in the activity one abhors.

  96. Katz
    March 11th, 2013 at 21:22 | #96


    Presumably you have some criteria for determining the optimal level of taxation in the present time and place.

    Necessarily the question of taxation is subsidiary to the question of optimal public expenditure. Because no rational government taxes for its own sake.

  97. Jim Rose
    March 11th, 2013 at 21:59 | #97

    @Katz the optimal rate of taxation on income from capital is zero. the Nordic countries already have low rates of tax on capital incomes.

  98. David Irving (no relation)
    March 12th, 2013 at 10:14 | #98

    Katz, as I’m sure you already know, it’s impossible to have a sensible discussion about tax levels with Terje (or Jim Rose, for that matter). Glibertarians will always claim we’re over-taxed, whatever the actual levels of taxation and govt expenditure.

  99. Katz
    March 12th, 2013 at 10:27 | #99

    @David Irving (no relation)

    Thanks for the reminder.

    The mark of a blind ideologue is her unwillingness to define as accurately as intellectual honesty will allow the limits of the applicability of her particular nostrums.

    You may recall I invited JR to contemplate the limits of his climate “scepticism”.

    He isn’t the first “sceptic” who has refused my invitation. Indeed, no “sceptic” has ever accepted my invitation.

    Coincidence? You decide.

  100. TerjeP
    March 12th, 2013 at 20:52 | #100

    David – I think the optimal tax level is somewhere below 15% of GDP. In practical terms I don’t think it would be optimal to go there over night because the dismantling of the state at too fast a pace would leave a vacuum that civil society and market mechanisms takes struggle to fill over night.

    Given that nowhere today is down at that sort of tax level and given that we have not been at that sort of tax level any time in living memory then of course it seems like I would never be content with any tax rate irrespective of how low. Every tax rate in my life time has been substantially higher than what I see as optimal. It doesn’t mean however that it couldn’t be lower than what I was comfortable with. It’s just extremely unlikely to happen any time soon.

    For what it is worth the crowd around here seems to think taxes are never high enough. From my vantage point, on the issue of tax, you’re all ideological nuts. Or at least most of you are.

Comment pages
1 2 11369
Comments are closed.