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Archive for the ‘Economic policy’ Category

Drug Wars: Crosspost from Crooked Timber

May 25th, 2017 3 comments

I got a preview of Drug Wars by
Robin Feldman and Evan Frondorf
. It’s not about the War on Drugs, but about the devices used by Big Pharma to maintain the profits they earn from their intellectual property (ownership of drug patents, brand names and so on) and to stave off competition from generics. Feldman and Frondorf propose a number of reforms to the operation of the patenting system to enhance the role of generics. I’m more interested in a fundamental shift away from using intellectual property (patents and brand names) to finance pharmaceutical research.
Read more…

Categories: Economic policy Tags:

Simple, but not easy

May 24th, 2017 10 comments

I’ll be debating John Rivett at lunchtime today on the subject of Easytax. Rivett is a lawyer who works with John McRobert, the main proponent of the tax (three Johns have got a bit confusing at times). Details are here

I’d have preferred a free event, but I left it to the proponents to organise, so I can’t complain I guess. I’ve attached my presentation, which gives a fair idea of what I’m going to say, and I believe a video of the event will be made available.

Categories: Tax and public expenditure Tags:

There are better things to spend $1 billion on than the Adani coal mine

May 20th, 2017 10 comments

That’s the self-explanatory headline for my latest piece in the Brisbane Times (reproduced in the other Fairfax papers, I think). Text is over the fold.

And, on the same theme, Richard Denniss.

Read more…

Categories: Economic policy, Environment Tags:

Killing the zombies

May 10th, 2017 20 comments

Among the measures in last night’s budget was the decision to kill off, once and for all, more than $10 billion of “zombie measures”. These cuts proposed in Joe Hockey’s disastrous 2014 Budget, rejected by the Senate, but kept on the books as proposed savings until now.

More importantly, the Budget abandons the undead ideology of market liberalism (aka economic rationalism, neoliberalism and so on) that dominated policy thinking in Australia in the decades leading up to the Global Financial Crisis, and continued to be taken for granted by most of the political class long after that.
Read more…

Categories: Economic policy Tags:

Debt and taxes

May 4th, 2017 4 comments

To misquote Benjamin Franklin and others, the only certainties in economic life are debt and taxes. Among the themes of political struggle, fights over debt (demands from creditors to be paid in the terms they expect, and from debtors to be relieved from unfair burdens) and taxes (who should pay them and how should the resulting revenue be spent) have always been central.

I mentioned in a comment at Crooked Timber recently, that Pro-debtor politics is always in competition with social democracy, and a couple of people asked for more explanation.
Read more…

Categories: Tax and public expenditure Tags:

Time to kill the debt bogeyman once and for all

May 3rd, 2017 35 comments

Here’s a piece I wrote in the Guardian responding to Scott Morrison’s distinction between “good” and “bad” debt. Unfortunately, the comments included plenty of people who are under the impression that, thanks to Modern Monetary Theory, there’s no need for taxes and therefore no need to think about budget balance. That’s wrong, as I explain here, with an endorsement in comments from leading MMT economist, Warren Mosler.

Categories: Tax and public expenditure Tags:

Where did all the money go?

April 29th, 2017 10 comments

That’s the title of a podcast I did recently. University of Melbourne Vice-Chancellor Glyn Davis has a regular podcast called The Policy Shop, and he was talking to me and Judith Sloan. That might have been a recipe for a slanging match, given that we don’t agree on much, but it actually worked pretty well.

Categories: Economic policy Tags:

Alternatives to Adani

April 29th, 2017 14 comments

Westpac’s announcement of a new policy that appears to exclude funding for the development of mines in the Galilee Basin appears likely to sound the death knell for Adani’s proposed Carmichael Mine and rail line. Westpac was the last of the four big Australian banks to announce such a policy. It joins at least 17 global banks, notably including Standard Chartered, which had previously been a major source of finance for Adani

In these circumstances, the proposed $900 million loan from the government’s Northern Australia Infrastructure Facility would involve a high risk of loss, and would therefore be an improper use of public funds. The same is true, admittedly to a lesser extent, of the rival proposal for a rail line put forward by Aurizon (the privatised business formerly known as Queensland Rail).

But if the NAIF doesn’t fund coal railways, how should its resources be allocated? And, what about the jobs promised by the Adani project that will not now be created? Obviously, these two problems are inter-related.

On the evidence of Adani’s own experts, the Carmichael project would create around 1000 jobs (despite this, the discredited figure of 10 000 jobs continues to be touted). So, the proposed NAIF loan would involve an investment of nearly $1 million of public money for every new job created. It shouldn’t be too hard to match that.

But what’s really needed is an alternative to the outdated developmentalism that has characterized not only the Adani proposal but the whole idea of a Northern Australia policy. What are the real economic and social needs of the people of the region, including indigenous people, who are directly affected by the Adani proposal? I’m planning more work on this soon.

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Categories: Economic policy, Environment Tags:

Renationalise energy

April 27th, 2017 14 comments

Looking at the Turnbull government’s move to limit gas exports, I can’t do better than quote Bernard Keane in Crikey (paywalled, but here’s the bit that matters)

A while back I suggested Turnbull had been “mugged by reality” on energy policy. But he’s far from the only one. All of us who have advocated free markets and the primacy of the private sector in delivering essential services have copped the same mugging; now we need to accept that liberalisation has dramatically failed in energy. A mystifyingly complex market was designed for private sector operators with the intent of freeing up government capital and driving greater efficiency. And while the Coalition’s climate denialism created investor uncertainty that proved a key factor in the crisis, it’s the relentless opportunism of industry players to game the system and exploit every opportunity to jack up prices, and Santos’ truly spectacular bungling, that has led to this. As you sow, so shall you reap. Back to hardline regulation.

I was in the minority in a recent economists poll on this topic, supporting gas reservation, though not with any great enthusiasm. My statement

Energy policy in Australia is a mess. Prices don’t reflect economic or climatic costs. Availability of some low-cost gas would obviously improve the situation here, in particular allowing an adjustment away from coal. I don’t know whether the opportunity cost of forgoing overseas sales is accurately reflected by the export price.

The policy announced by the Turnbull government amounts to a partial nationalisation, since the government has taken control of our gas reserves back from the supposed private owners. But it’s a half-baked and half-hearted step. What we need is properly national, publicly owned energy grid, in which the role of private ownership is to fill gaps left by the public.

Categories: Economic policy Tags:

Gotcha!

April 5th, 2017 40 comments

Like most people, I don’t like being suckered. But I was well and truly suckered by Aaron Patrick of the Australian Financial Review today. Patrick wrote to me saying he was doing a feature article on penalty rates and I gave him a long interview setting out my position. In particular, I made the point that, if (say) a 10 per cent reduction in wages produced only a 1 per cent increase in hours of work demanded by employers, the average worker would end up doing more work for less money. This is a standard point in the analysis of minimum wages.

As it turned out, I was wasting my breath. All Patrick wanted was the concession that lower wages might produce some increase in employment, thereby justifying the Gotcha! headline ‘Even union economists accept cutting penalty rates creates jobs’.

Given my history with the Fin, I shouldn’t have been surprised, I guess. But my general experience, even since Michael Stutchbury became editor, has been that most AFR journalists are straightforward professionals.

Also, most journalists these days understand that the game has changed with the rise of blogs and social media. Twenty years ago, the only response to a shoddy smear like Patrick’s would be a letter to the editor, which might or might not get published long after the event. Now, I can respond here and on Twitter, Facebook and so on. My readership might not be as big as the measured circulation of the AFR, but, after you deduct all the people who only look at the business pages, it’s not that different.

In any case, Patrick and the Fin are on a hiding to nothing with this one. Most people work for a living, and most have worked out by now that when the bosses talk about flexibility and productivity, they mean “work more for less”.

Margins

April 4th, 2017 14 comments

We’re all used to the fuss that takes place when the Reserve Bank cuts interest rates and banks don’t follow suit. On the other hand, when rates go up, the increase is almost always passed on rapidly and in full. But does this matter in the long run, or does competition sort things out. In this context, my wife Nancy pointed me to this interesting graph from the Housing Industry Association.

It seems pretty clear here that bank margins have increased steadily over the past ten years. I haven’t checked the data, but at least for mortgage rates, the current numbers look right to me.

Faith-based energy policy: the case of nuclear power

March 16th, 2017 23 comments

If you want to explain the success of Trump and Trumpism, despite Trump’s blatant reliance on falsehood, it’s crucial to understand that the mainstream political right has been rendering itself more and more impervious to reality for at least two decades. A striking example is the belief that nuclear power is the answer to our needs, and that the only obstacle is Green Nimbyism. This claim has recently been restated by a number of LNP Parliamentarians, by no means all of whom are on the hardline right.

Rather than rehearse the arguments I’ve put many times, I’ll quote the conclusion of the SA Royal Commission into the Nuclear Fuel Cycle:

a. on the present estimate of costs and under current market arrangements, nuclear power would not be
commercially viable to supply baseload electricity to the South Australian subregion of the NEM from 2030 (being the earliest date for its possible introduction)

b. it would not be viable
i. on a range of predicted wholesale electricity prices incorporating a range of possible carbon prices
ii. for both large and potentially new small plant designs
iii. under current and potentially substantially expanded interconnection capacity to Victoria and NSW
iv. on a range of predictions of demand in 2030, including with significant uptake of electric vehicles

c. nuclear would be marginal in the event of a lower cost of capital that was typical for the financing of public projects and under strong climate action policies.

That closes off just about every loophole a pro-nuclear advocate might want to use. And the Royal Commission was anything but anti-nuclear. It pushed hard for the idea of a nuclear waste dump (not really credible, but not as obviously infeasible as nuclear electricity generation).

Read more…

Categories: Economic policy, Environment Tags:

Electricity renationalisation: a response from the 1980s

March 13th, 2017 14 comments

Today’s Oz has a piece from Paul Kerin, responding to my proposal for a nationalized transmission grid. It’s a striking reflection of the way ideas that were novel in the 1980s and 1990s retain their grip on Australian policy debate, despite their obvious failure at a global level.

Read more…

Categories: #Ozfail, Economic policy Tags:

Grid Renationalisation

March 3rd, 2017 56 comments

That’s the title of a discussion paper I’ve just released for the Australian Industrial Transformation Institute, headed by my friend and co-author John Spoehr. As the title suggests, the central argument is that we need to abandon the failed electricity reforms of the 1990s. What is needed is a unified, publicly owned, National Grid encompassing the ownership of physical transmission networks in each state and interconnectors between states, and responsibility for maintaining security of supply and planning the transition to a sustainable, zero emissions electricity supply industry.

The report is here

Categories: Economic policy Tags:

In praise of credentialism

March 1st, 2017 34 comments

That’s the title of my latest piece in Inside Story. The crucial para

The term “credentialism” is used in many different ways, some of them contradictory, but the implication is consistent: too many young people are getting too much formal education, at too high a level. This implication was spelt out recently by Dean Ashenden, who contends that “education has not just grown to meet the expanding needs of the post-industrial economy, but has exploded like an airbag.” The claim that young people are getting too much education, and the supporting critique of credentialism, is pernicious and false.

Categories: Economic policy Tags:

Speaking in Auckland- After Reform: What comes next

February 14th, 2017 12 comments

I’ll be speaking to the Aucklalnd Fabian Society on Thursday 16 Feb (I already spoke on Wellington but didn’t around to posting Details here.

Since the 1980s, economic policy has been dominated by a policy agenda referred to by its proponents as “microeconomic reform” or simply “reform”, based on the ideas of free trade, privatisation and reductions in the scale and scope of government activity. This agenda has exhausted its political support and run out of ideas. It offers no answers to the policy challenges of the 21st century, including growing inequality, financial fragility and the demands of the information economy. This presentation will address the question: What comes next?

Categories: Economic policy Tags:

Easytax redux redux

February 13th, 2017 29 comments

I got a brief run in the Murdoch press regarding Pauline Hanson’s revived proposal for a 2 per cent tax on all transactions (floated 20 years ago as “Easytax“). I was reported as follows: “University of Queensland school of economics professor John Quiggin said a 2 per cent tax would destroy small business and see a collapse in government ­revenue.” and the story was headlined “One Nation policy would ‘collapse the economy’” The headline is an exaggeration, but the quoted passage gets my opinion right.

Easytax is an example of a “cascade” tax, common in Europe a century or so ago. The point is that the tax rate is applied to the whole value of each transaction along the chain from primary producer to consumer. For a big firm, like Woolworths, the answer is simple: integrate backwards along the chain by taking over your suppliers. Then you pay the tax only once at 2 per cent. Small businesses, who can’t do this, end up paying the tax themselves, on goods that have already been taxed many times. So, they go out of business, and the total value of transactions falls far below the level used in the original calculation that a 2 per cent tax would be sufficient. Hence, government revenue collapses.

It was precisely because this process was happening that the French (the innovators in this field) dumped the cascade tax in favor of a value-added tax (VAT), the same model used in the GST. They were followed by the rest of the EU and then most of the world, except the US, which still relies on retail sales tax (levied only once, but still messy and narrowly-based).

The story also says “A spokesman for Senator Hanson said she had only advocated investigating the policy.” But the fact that such a nonsense idea is still part of One Nation thinking gives the lie to the suggestion of Hanson’s coalition partners in the LNP that this iteration of One Nation is different from the last. It’s just as racist and ignorant as ever. It’s not Hanson that has changed, but the LNP which is now indistinguishable from One Nation.

Why we should put ‘basic’ before ‘universal’ in the pursuit of income equality

February 8th, 2017 30 comments

That’s the title of my latest piece in The Guardian. There are two key points

First, in terms of effective tax rates and tax paid, any means-tested Guaranteed Minimum Income can be replicated by a non-tested Universal Basic Income, and vice versa

Second, for a number of reasons, it would be better to begin by expanding access to an adequate Basic income (in Australia, the Age Pension is an obvious benchmark) rather than starting with a small universal payment and then increasing it to a level sufficient to live on.

Culture wars and smelters

January 21st, 2017 15 comments

The Victorian and Commonwealth governments have just announced a bailout of the Alcoa aluminium smelter at Portland, achieved primarily by pressuring AGL to supply cheap electricity. It’s unsurprising that a state government wants to save jobs: that is par for the course. The Commonwealth intervention reflects total policy incoherence. It’s entirely comprehensible, however, in terms of the culture war approach that drives the Abbott-Turnbull government. I have a piece on this at Crikey, reprinted over the fold.

Read more…

Categories: Economic policy, Oz Politics Tags:

Privatisation and education re-re-re-post

December 21st, 2016 10 comments

I’m working on my long running book project Economics in Two Lessons, and I dug out this old post, originally written in 2008, which remains strikingly relevant today.
Read more…

Categories: Economic policy Tags:

If the Productivity Commission puts ideology ahead of evidence, do we still need it?

December 21st, 2016 23 comments

That’s the title of my latest piece in The Guardian. It’s a response to the Productivity Commission’s report on competition in human services. I wrote a submission in response to the draft report a while back, but it had no impact, and neither did any other evidence.. If anything, the final report is slightly worse than the draft.

My final para

Rather than close on a negative tone, I’ll make one suggestion for contestability. Private sector consulting firms have demonstrated a long-standing expertise in producing impressive looking reports to support the (predetermined) conclusion required by the client.

Given the predictability of the Productivity Commission’s conclusions on topics like this, private firms would have no difficulty in replicating them. Surely this is a service that could do with being opened up to the chill winds of competition.

Categories: Economic policy Tags:

Build it, and they probably won’t come

December 1st, 2016 12 comments

When the SA Royal Commission on the Nuclear Fuel Cycle brought down its report, I welcomed the conclusion that there was no serious prospect that nuclear power generation would be feasible in Australia. That was unsurprising, since my own submission to the Commission had shown this pretty clearly. As regards the Commission’s recommendation for a waste dump, I argued that there could be no objection in principle, given that SA was an exporter of uranium and the waste had already been generated.

That left open the question of whether the waste dump proposal made economic sense. I’ve now looked at the case in more detail and concluded that it doesn’t. Countries with existing nuclear power industries have made arrangements that may not be satisfactory, but are unlikely to change. There is little prospect of any significant growth in the future. So, building a nuclear waste dump in the hope of attracting demand makes about as much sense as the actions of the protagonist in the movie Field of Dreams, who ploughed up his cornfield to make a baseball diamond for the ghosts of disgraced players.

I make the argument in more detail in this piece in New Matilda. Right on cue, Vietnam, which was one of the hypothetical users of the dump, decided that it would be better to dump nuclear power as uneconomic. Expect more announcements along these lines as the economics of renewable energy improve.

Categories: Economic policy, Environment Tags:

Trade after Trump (crosspost from Crooked Timber)

November 20th, 2016 68 comments

The one policy issue that was an unambiguous loser for Clinton was trade[^1]. Her grudging move to oppose the Trans-Pacific Partnership, choice of Tim Kaine as running mate and some unhelpful remarks from Bill Clinton meant that Trump had all the running. How should we think about trade policy after Trump? My starting point will be the assumption that, in a world where Trump can be President of the US, there’s no point in being overly constrained by calculations of political realism.

A few points and some suggestions

* So-called “trade” deals like the TPP were actually devices to enhance corporate power (and, in the case of the TPP, to isolate China), and deserved to be defeated regardless of views on trade

* No matter what policy is adopted, manufacturing jobs aren’t coming back, any more than farm policy can restore an agrarian society. The manufacturing share of total employment has peaked nearly everywhere in the world, notably including Mexico. As is often the case, Chinese data is too opaque to get a clear picture, but there’s plenty of evidence of contraction about

* The idea of manufacturing jobs as “good” jobs is historically specific particularly to the US, and reflects the fact that the dominance of manufacturing coincided with the New Deal and the unionisation of the labour force. It’s unions, not manufacturing that we need to bring back.

* The big problem facing workers, in the US and elsewhere, isn’t competition from immigrants, or from imported goods. It’s the fact that capital is freely mobile and unfettered by any social obligation. So, a profitable plant can be closed down if its owners get a better off elsewhere. Alternatively, the threat of a move can be used to bargain down wages.

So, instead of thinking about tariffs and trade agreements, the big question is: what can be done to change trade and capital flows in ways that yield more good jobs?

Some suggestions over the page

Read more…

Categories: Economic policy, World Events Tags:

The National Electricity Market: A View from 2001

November 4th, 2016 12 comments

While doing a bit of work on electricity policy, I dug out this piece from 2001, which was published as ‘Market-Oriented Reform in the Australian Electricity Industry’ in The Economic and Labour Relations Review, June 2001; vol. 12, 1: pp. 126-150. The conclusion, written at a time when supporters of electricity reform were trumpeting it as a huge success, stands up pretty well 15 years later, I think.

Some problems, however, are likely to become more rather than less acute. The Australian National Electricity Market commenced operation in a period of oversupply so that problems of market power and excessive prices have not emerged until recently. It remains unclear whether an electricity auction market can produce adequate incentives for investment while generating appropriate prices for consumers.

Similar problems are emerging in relation to the regulated monopoly component of the industry, the transmission and distribution sector. Regulators must set prices that do not reward inefficiency or allow monopoly profits, but nevertheless provide appropriate incentives for new investment. This is a delicate balance.

In the longer term, the problem of the environmental impact of an industry relying predominantly on carbon-based fuels remains to be addressed. A market solution would involve the creation of emissions credits that could be traded along with electricity in national markets. Although limited steps have been taken in this direction, much remains to be done.

Categories: Economic policy Tags:

Competition and human services don’t mix

October 24th, 2016 34 comments

According to today’s news, the government has estimated that for-profit vocational trainers are three times as expensive as TAFE. That’s no surprise to me, but it’s a striking contrast with the barely qualified enthusiasm (until very recently) of the Productivity Commission.

I’ve put in a submission to the PC inquiry into Competition in Human Services arguing that
(i) there’s no reason to expect that competition will deliver improved “consumer” (that is, student) choice or better outcomes
(ii) the failure of the PC to foresee, or recognise until much too late, the disastrous failure of for-profit vocational education means that its judgements about areas that might be opened to competition in future should not be relied on.

My submission is here

Categories: Economic policy Tags:

Beyond Reform: An economic policy agenda for the 21st century

October 7th, 2016 25 comments

That’s the title of the FH Gruen lecture I gave on Tuesday. The slides and a podcast (unfortunately interrupted by hail) are here.

Categories: Economic policy Tags:

Wise in hindsight

September 23rd, 2016 50 comments

My article on the failure of for-profit competition in human services included a hook to the recently published Productivity Commission report recommending more of the same. I haven’t had time to go through the report in detail, but I was struck by reports that the PC mentioned the FEE-HELP fiasco in the VET sector as an example of the way not to go about things.

It’s good to see some recognition of this but what matters here is foresight, not hindsight. So, I thought I’d check back to see what the PC was saying a couple of years ago, when the disaster was obvious, but was still being denied by those in charge of it. Here’s a quote from their submission to the Harper Competition review

The Commission’s study into the vocational education and training (VET) workforce (2011f) found that there had been a rising trend to harness market forces in the allocation of VET services, with principles such as user pays and user choice increasingly underpinning VET policy. The Commission suggested that, as the VET sector becomes increasingly competitive, a move towards greater managerial independence for public providers would give them the autonomy and flexibility they need to respond.
The Commission (2011f) also noted that opening up of the VET sector had not been a complete success, with some stakeholders raising concerns about quality assurance, monitoring and enforcement (especially in the international student sector).

Going back to the 2011 report, there is indeed a box referring to problems with international students, which drew a lot of attention at the time. But there’s nothing to suggest any awareness of the broader problems, which were already apparent*, let alone any capacity to predict them using the PC’s analytical framework.

* I wrote a report for the National Council on Vocational Education Research in 2012, making many of these points, and drawing on several years of evidence from Victoria. I was roundly derided for my pains by the private provider lobby.

Categories: Economic policy Tags:

Worse than the Bourbons

September 23rd, 2016 35 comments

I have a couple of pieces in The Guardian. The first, which came out a few days ago, points out the consistent failure of market competition and for-profit firms to deliver human services effectively and equitably. The second gives the mainstream economic analysis of the problem, in terms of market failure and the mixed economy, developed 40 to 50 years ago, and ignored by the policy class of today, which takes the assumptions of market liberalism (aka neoliberalism) for granted. My summary:

The problem is that the political class, along with much of the economics profession, have done worse than the Bourbons, of whom Talleyrand observed “they have learned nothing, and forgotten nothing”. … Our leaders, and the economists who advise them, have not only shown themselves incapable of learning from experience, they have forgotten much that we once knew.

Categories: Economic policy Tags:

Edison in reverse

September 13th, 2016 53 comments

The takeaway from my latest piece in The Guardian on the failure of for-profit provision of services like health and Education

Blair, and like-minded reformers throughout the English-speaking world, have delivered an Edison in reverse. Edison experimented with many things that didn’t work, but ended up with a light bulb. Market-oriented reforms, particularly in the provision of human services like health, education and public safety, have begun with a working system and replaced it with a string of failed experiments.

Categories: Economic policy Tags:

Same old, same old on university places

August 24th, 2016 62 comments

Another day, another article complaining that we have too many young people going to university. I’ll pick this one by Nicholas Stuart, not because it’s particularly good or bad, but because it covers all the main points. Then I’ll ask, the following question:

If you substitute the word “Menzies” for “Dawkins”, is there anything in the article that wasn’t being said 50 years ago, when the proportion of young people going to university was about a quarter of what it is now (that’s a guess, which I’ll try to correct when I get time)?

I’m reaching back to my childhood here,so I can’t remember when I first heard these points being raised. But the way in which they were discussed made it clear they were cliches even them. Those points include massification, dropout rates (higher then than now, I think) the large numbers of graduates doing jobs that didn’t require a degree (Arts graduates driving taxis was the standard example back then), the merits of getting a trade instead of a degree, the role of the university as part of the capitalist system and the corrupting effects of Commonwealth money.

Categories: Economic policy Tags: