Weekend reflections

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

95 thoughts on “Weekend reflections

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

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

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

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

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

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

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

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

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

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

    I think they deserve a lot lot better.

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

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

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

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

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

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

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

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

    Mike,

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

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

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

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

    Elisabeth Wynhausen also has something to say about the US:

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

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

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

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

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

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

    Terje wrote  Clearly we take a different view.

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

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

    Why the fixation only on welfare recipients?

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

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

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

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

  5. Terje,

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

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

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

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

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

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

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

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

  7. Mike and SWIO

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

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

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

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

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

  9. P.M.Lawrence,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  13. Terje,

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

  14. Ernestine,

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

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

    Regards,
    Terje.

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

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

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

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

    My sample size is probably is big as yours.

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

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

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

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

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

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

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