What about the iceberg ?

The Trade Unions Royal Commission report, released in the dead news time between Christmas and New Year has had an extraordinarily soft reception from the media. After spending tens of millions of dollars of public money (not to mention the amount witnesses would have had to spend on legal representation) Dyson Heydon has come up with about a dozen allegations of criminal corruption. By far the largest is one involving his own former star witness, Kathy Jackson. Most of the others are for small amounts, some as minor as using the union credit card to get a tattoo.

Of course, it’s deplorable that the funds of union members should be misused for private purposes, and if the allegations turn out to be true, those involved should face the appropriate penalties. But compare these allegations to the routine behavior of members of Parliament. Under the “Minchin rule”, they can charge almost anything they like, with no penalty greater than being required to repay expenditures found to be unjustified. Even while Heydon’s inquiry was running, we saw revelations of misuse of public funds on both sides of politics, notably including senior figures in the government that launched this inquiry. And the situation in the business sector is no different.

Heydon’s other allegations are directed against union officials for the way they do their job. In this respect, the unions can’t win: the AWU gets hit for sweetheart deals, and the CFMEU for going too far in the opposite direction, with allegations of intimidation and blackmail. It’s important to remember these are only allegations. On past experience, most will fall over in court, if they make it that far.

Heydon claims that his findings represent “the tip of the iceberg”, but surely, after all this expenditure and long running hearings, we are entitled to expect the whole iceberg. The Auditor-General should be called upon to investigate this appalling waste of public money.

Do we need a global tax to stop rising inequality (crosspost from Crooked Timber seminar on Piketty)

One of the more depressing features of Capital in the 21st Century is the air of inevitability attached to the much-discussed r > g inequality. This is exacerbated, on the whole, by the fact that Piketty’s proposed policy response, a progressive global tax on wealth, seems obviously utopian.

What about a much simpler alternative: increasing the rate of income tax applied to the very rich, and removing preferential treatment of capital income? Piketty’s own work with Saez yields the conclusion that the socially optimal top marginal rate of taxation, after taking account of incentive effects, would be 70 per cent or more. Such rates prevailed, at least nominally, in the mid-20th century, without obvious ill effects. Again, Piketty provides the relevant evidence.

So, is there something about a globalised world economy that renders a return to high marginal rates of taxation impossible?

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Christmas repost

Here’s a Christmas post from my blog in 2004. The theme is that nothing about Christmas ever changes, so it’s a repost of the same post from 2003. Looking back from 2015, the only change I can see is that the complaints about inclusive language to which I referred as “old stuff by now” have now become codified, as the “War on Christmas”.

I’ll add one new thought that the use of “War on Christmas” rhetoric reflects a larger problem for Christianists: should they be asserting their privileges as a majority (as in the demand that their particular holiday be recognised as primary) or demanding their rights as a minority (as in their unwillingness to accept equal marriage). The two strategies undermine each other.

In anticipation of at least a short break, let me wish a merry Christmas to all who celebrate it, and a happy New Year to everyone (at least everyone who uses the Gregorian calendar).

Read on for my unchanged Christmas message

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What do you do with a problem like Adani ?

Having jumped a number of legal hurdles, Adani is now seeking approvals from the Queensland state government, necessary for the Carmichael coalmine/rail/port project to proceed. This presents the government with a nasty dilemma.

On the one hand, refusing approval would be a PR disaster. Adani, and the government’s opponents, would blame obstructive regulation for the failure of the massive bonanza that has been promised. Adani continues to claim that project will give Queensland $22 billion in royalties and taxes, and up to 10 000 jobs, even though its own expert refuted these claims in court.

On the other hand, everyone (even the International Energy Agency, notably until recently for its stubborn faith in the coal of the future) knows that this project is uneconomic, and unlikely to proceed before 2020, if ever. And while the government has said it won’t subsidise the mine, it appears that it may be forced to spend some money on the Abbot Point upgrade.

So, |irony alert on| I have a simple suggestion to resolve the government’s problem. Just ask for a downpayment of, say, 5 per cent of the promised benefits ($1.1 billion). In the unlikely event that Adani pays up, this will be money for jam. If, as is virtually certain, the money isn’t forthcoming, the government can rightly claim to have protected the interests of the Queensland public.|irony alert off|

Taking the question more seriously, the government should seek evidence from Adani that the project has sufficient finance to proceed before issuing any approval. That will be enough to ensure an indefinite delay.

Bracket creep: How to get the answer you want

NATSEM recently released modelling showing that discretionary tax cuts have more than offset bracket creep since 2005 (that is, taxes are lower than if the income tax scales had been indexed to the CPI or a wage index). The Centre for Independent Studies replied with a study pointing out that you get the opposite conclusion by looking at the period since 2013. Why 2013?

We chose 2013 as the starting year because this is when the last change to tax thresholds occurred

Well, yes. If you pick a period in which there have been no discretionary tax cuts, you will certainly find that discretionary tax cuts have not outweighed bracket creep. As author Michael Potter observes

This shows the importance of the starting year.

There’s no need to check the CIS numbers: given the setup, only one answer is possible.

Correction Michael Potter advises that the CIS study includes the impact of the tax changes in 2012-13, making it possible in principle that these could have offset bracket creep. But the 2012-13 changes weren’t a general tax cut aimed at offsetting bracket creep. They offered small tax cuts for low income earners to offset the very modest impact of the carbon price/tax. These were clawed back by higher marginal rates so that upper income earners (appropriately) bore the full cost of the carbon price. The key point, stated below, is that the Howard-Rudd tax cuts introduced after the 2007 election were so large that they have more than cancelled out all the subsequent bracket creep.

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Public funding for phlogiston ?

According to the Oz, Queensland LNP Senator Matt Canavan has called for public funding for research promoting his belief that scientists since Arrhenius have been wrong about climate change. He makes this claim on the basis that the overwhelming body of evidence amassed by mainstream science means that “only one side of the debate is heard” (there’s also something about witches). Oddly enough, Canavan goes on to cite some (presumably publicly funded) research on aerosols from the Max Planck Institute which he thinks supports his arguments. The fact that such research gets undertaken and published suggests that there is no problem with the scientific process as regards climate change.

Still, there’s an interesting question here. To what extent should research funding seek to promote research approaches that are regarded by most experts in the relevant field as wrong or discredited?

In fields like economics, the ebb and flow of opinion is such that any temporary appearance of consensus is illusory. When I started studying economics, the dominant Keynesian/market failure school regarded classical economics as a collection of exploded fallacies. Within a decade or so, the position had reversed. Free market microeconomics and New Classical microeconomics became dominant and remained so until the Global Financial Crisis. The position now is best described as confused. Something similar could be said of fields like psychology (another example where plenty of non-specialists have strongly held views)

In the natural sciences, there are a lot more firmly established conclusions, which nonetheless run against the prejudices of many (obviously including Senator Canavan). I don’t see any merit in funding the pet theories and tribal prejudices of politicians. But at the frontiers, there are lots of instances where some particular approach (such as string theory in particle physics) seem to be dominant, at least in part, for sociological reasons. Here it would be desirable to ensure that alternative approaches get a hearing.

Any thoughts?

A quiet word

Apparently, the Director-General of ASIO has been getting in touch, quietly, with a number of government MPs, warning them that their anti-Islamic comments are potentially damaging to national security. They have been complaining about this as an infringement of free speech. Their comments have been made to News Corporation publications (which have published similar comments and could be subject to the same criticism). Julie Bishop has defended ASIO’s actions, but she is in the wrong.

It’s highly unlikely that the MPs in question would have been upset if ASIO had warned off MPs who were seen as being too soft on terrorism. But their hypocrisy doesn’t justify ASIO’s intervention in politics. Both MPs and newspapers are entitled to freedom of speech, and shouldn’t have security officials telling them what to say or not to say.

On the other hand, freedom of speech doesn’t mean freedom from consequences. Having accepted the judgement that government MPs are acting in a manner prejudicial to national security, Turnbull and Bishop can’t sit on their hands. They should be telling the MPs in question to choose between keeping quiet and moving to the cross-benches, where they can say whatever they like without implicating the government.