Reader Jack Strocchi, pointed out this Newspoll report in today’s Australian, concerning voter preferences on taxing and spending. Written by George Megalogenis, who usually gets things straight, it bears the marks of intervention designed to adjust the finding’s to the anti-tax line that has been running hard in the Oz editorial column for some time.

The problems start with the headline Top rate too high, say half of voters. It might be inferred that the other half say that the top rate is not too high. But despite the fact that the excessively high top rate is the central theme of the article, we never find out the distribution of the remaining 50 per cent between “about right”, “too low” and “Don’t Know”. Looking at the partial numbers, I’d estimate that the “Don’t Know’s” at no more than 10 per cent of respondents, implying that about 40 per cent of respondent’s rejected the view that the top rate is too high.

The really interesting news comes in the second paragraph. By the overwhelming margin of 72 per cent to 9 per cent, voters would prefer more spending on health and education to a tax cut. Even among those paying the top rate, most of whom think it is too high, the margin is 69 to 13. If the Australian wasn’t determined to push its opinions into the news pages, this would be the headline.

The implication is that, as regards taxing and spending, the electorate is overwhelmingly more social-democratic than the current government, and arguably more so than the current opposition. It’s no wonder that even mediocre Labor state governments have routinely crushed their opponents since the Howard government was elected.

There are some interesting framing issues here. The “top tax rate” question appears to be framed in a “free good” way – that is, respondents are asked whether the rate is too high, but the fact that a cut would have to be financed somehow is not explicit. By contrast, the tax cut vs spending question makes the trade-off clear.

What really interests me, but isn’t clear in the report is the sequence of the questions (the Newspoll site hasn’t yet been updated). The preference for spending over tax cuts would be even stronger if, as the Oz report tends to imply, the “top rate too high?” question was asked first. Conversely, if the tax cuts vs spending question had been asked first, the framing bias in the top rate question would be reduced.

UpdateIn the comments thread, Don Arthur advises that the paper-based version of the Oz story gives the numbers as 50 per cent too high, 34 per cent about right, 8 per cent too low. Bearing in mind the absence of any mention that reducing rates might mean giving up services, I don’t find this too surprising.

Further update 24/2Andrew Norton at Catallaxy has a post on the same topic, with the same title. and with much the same conclusion. The only difference is that he regrets the outcome and I don’t. A fine illustration of the positive-normative distinction.

An interesting Four Corners last night. Here’s the transcript. I worked on gambling issues back in the 90s, and put in a submission to the Productivity Commission inquiry in 1999. Having worked in the field, there are a number of things that everybody knows (including the casinos). Among them:
The bulk of the money comes from a small number of heavy gamblers
A problem gambler is a heavy gambler who’s run out of money
There’s nothing casinos will resist more vigorously than an interruption to play
All of this came out in the program.

On the analysis that I did and also that of the Productivity Commission, it’s pretty clear that some forms of gambling cause more social harm than good, if you apply standard consumer theory to moderate gamblers but assume that heavy/problem gamblers are not getting any benefits from gambling. Pokies and racetrack betting are the worst, lotteries are the best.

One last feature, showing that this blog is still in touch with the zeitgeist was the use of the MRD response “They would say that, wouldn’t they”, in an entirely appropriate context.

Although I’ve written for the Fin for nearly ten years, it’s always been in the role of a dissenting voice on the Op-Ed page. Even when, as at present, the regular opinion commentators are fairly evenly balanced between left and right, the editorial column has stuck closely to economic rationalist/neoliberal orthodoxy.

Today’s editorial on unemployment (subscription required) though is positively Quigginesque*, making the points that 6 per cent unemployment is too much and the Job Network is a mess (for my views on the same topic, go here. There’s even a warning against excessive reliance on market ideology, to balance the inevitable call for further liberalisation of labour markets.

Obviously it’s great to see the Fin taking a hard look at an issue like unemployment and coming up with an answer I can agree with in large measure. I also take a less worthy pleasure in thinking how much this will annoy my friends at the Institute of Public Affairs. They’ve always been bitter at the Fin for having me as a columnist, and they’ll be spitting chips if they think that my heresies could start to infect the editorial column.

While we’re on the opinion pages, check out this neat application of prospect theory by Ross Gittins.

*This delightful term was coined, I think, by Henry Ergas

I’m just back from appearing before yet another Senate inquiry into the sale of Telstra. I’ve been doing this for so many years, I’ve outlasted all the original members of the Committee, and most of the government’s policy position (in 1996, for example, they were arguing strenuously that partial privatisation was a good idea). I’ll post my submission soon, but this Evatt piece gives you a summary of my position.

I’ve also outlasted Communications Minister Richard Alston, described in this political obituary by Tex as “One of the worst ministers of his generation”. What was even more striking than Alston’s incompetence was the arrogance that went with it. I think Alston would be aptly memorialised by a scale measuring the ratio of arrogance to the amount one has to be arrogant about. Richard himself would set the upper bound of 10.

Assuming a log scale, I’d give Costello a 6 on the Alston scale, Keating a 5 and Whitlam a 4. They’re about equally arrogant, but Keating has 10 times as much to be arrogant about than Costello, and similarly for Whitlam v Keating (common sense is another matter).

I’ll be on ABC Radio National Australia Talks Back tonight, starting about 6:10, debating time limits for unemployment benefits with Peter Saunders (the CIS one).

First, it was Fox News claiming to own fair and balanced. Now US clothing store Abercrombie and Fitch claims to own the number 22.

They can have it for the moment. I plan to file an innovation patent on prime numbers. On past precedent, there should be no problem with that. Once that’s established, I’ll license derivative products like composites and A&F can look out.

In an article on privatisation in the Fin a couple of weeks ago, I observed that

it was hoped that private ownership would impose capital market discipline on investment decisions … The public sector has been far from perfect in the planning and implementation of infrastructure investment decisions. But public sector failings pale into insignificance compared with the disastrous bubble and bust when investment decisions in the Internet and telecommunications sectors were entrusted to the wisdom of private capital markets. The energy sector has been little better. Enron was just one example of investment decisions being driven by market manipulation and rent-seeking.

In the case of monopolies the most important single regulatory decisions relate to prices charged to consumers or for third-party access. With privately owned monopolies, there is an inherent conflict here. If the price is set too high, consumers will suffer. If they are too low, investment will be inadequate. As regulator, the government has a conflict of interes. On the one hand, regulation is supposed to set efficient prices. On the other hand, as representatives of consumers, governments have an incentive to fix prices at inefficiently low levels.

Public ownership Îinternalises the externalityâ and balances the incentives facing governments. If prices are set below the socially efficient level, the benefit to consumers is offset by a loss in revenue. The converse is true if prices are set too high.

I’m just wishing I had run this last Thursday, just before the big US blackout, which appears to be due primarily to inadequate/poorly co-ordinated investment in transmission.

Thanks to everyone who made suggestions, I’ve managed to put together a reasonably good set of further reading for my chapter on the Howard government’s economic policy. Further suggestions are still welcome of course.

Read More »

A few days ago former Liberal hatchetman Michael Baume had an opinion piece (subscription required ?) in the Fin, denouncing ‘scaremongers’ who suggested that the US wanted to scrap the Pharmaceuticals Benefit Scheme as part of the proposed Free Trade Agreement, and quoting a string of official denials.

In today’s Fin, I read that the US is demanding ‘reform’ of the PBS. Anyone who has experienced reform in the last decade will be able to fill in the details.

This kind of dishonesty is par for the course in the pro-FTA camp. Alan Oxley of AUSTA has adopted precisely the same rhetorical slide. As I pointed out in my debate with Wolfgang Kasper onthis topic a few months ago

The Austra submission to the Senate Inquiry into the FTA denies any intention to ‘dismantle’ the scheme, but notes, ominously, that ‘there are features of the scheme that discourage investment by drug companies in Australia. Austa supports measures in the FTA which encourage more investment and job growth in Australia’. It is safe to conclude that the ‘features’ seen as discouraging investment and job growth are the same ones that provide Australians with access to affordable drugs.

What surprises me is not the dishonesty, but the belief that this kind of thing will take people in, when the facts are so easily available.

Regular commentator Jack Strocchi has sent me several pieces criticising the Howard government for being fiscally lax. The one that comes closest to my assessment, though not on every point, is from John Edwards of HSBC. Key points:

Costello’s biggest reform, by contrast, has been the goods and services tax. It was a substantial political achievement, but as an economic reform it makes very little difference. The same is true of the sale of half of Telstra. He dramatically reduced Commonwealth debt, but since he did so mostly on the proceeds of Telstra the Commonwealth’s net liabilities are not much changed.

Costello deserves credit for formalising the independence of the central bank to pursue an inflation objective … and above all for not making mistakes which threatened growth.

As several readers have commented, my draft section on macro policy didn’t give the government due credit for simply not making big mistakes, and I’ll try to fix this.

Costello is not the evangelical conservative committed to small government and low taxes he purported to be in opposition. He is just another Victorian Liberal, carrying on the tradition of ample spending from ample taxes while pretending to do the opposite.

As I’ve said previously, I’m all for more taxing and spending, provided the priorities are sensible. My problems with the Howard government’s fiscal policies relate to budget balance (we really should have a surplus at this point in the cycle) and poor priorities. The draft section of my chapter follows.

Read More »