How we got to Macklin

Jenny Macklin is still dealing with the response to her terse answer “I could” to the question of whether she could live on unemployment benefit. But the policy shift that led her in front of the cameras is the product of a complicated history that might be worth explanation. I’m going to go from memory, and invite commenters to supply links or corrections for my recollecitons.

The story starts in the 1960s, at a time when unemployment was very low, and spells of unemployment very short. Whether in fact or reality, the archetypal single parent was a widow. The vast majority of income support took the form of age pensions, which were means-tested and set at a very low level. Around this time Ronald Henderson estimated a poverty line at 25 per cent of average weekly earnings (AWE), well above the basic pension.

Over the late 1960s and early 1970s, pensions were increased to approximately the Henderson poverty line. In combination with some additional concessions and the introduction of Medicare, these changes virtually eliminated poverty among the old.

The changes to the value of the old age pension, relative to weekly earnings have been sustained.[1] Initially, unemployment benefits and supporting parents benefits (which replaced the former widows pension, IIRC) rose in line with the old age pension. Both were indexed to the CPI, but ad hoc adjustments kept them broadly in line with AWE. But the Howard government replaced CPI adjustment with AWE adjustment for pensions, while retaining indexation to the CPI for unemployment benefits. The result has been that the value of UB (now Newstart or some similarly Orwellian name) has fallen relative to both pensions and incomes generally.

Around 2006, the Howard government turned its attention to supporting parents, introducing a rule that recipients would go on to UB when their youngest child turned 8. At the time, the measure was strongly attacked by Labor. Here’s Penny Wong. Existing recipients were exempted (the term “grandfathered” does not seem apposite here), with the implicit promise that they would remain under the old rules. In the search for a surplus, the Gillard government decided to abandon that promise and push existing recipients with children over 8 onto UB. The question that got Macklin into trouble was about that decision.

There is a defensible case for setting the old age pension higher than UB, particularly if the government pursues active labour market policies to help the long-term unemployed find jobs. The pension needs to be enough to live on for decades, over which time household goods have to be replaced, and other long-term expenses addressed. Most spells of unemployment last only a few months, so various kinds of expenditure can be deferred. But the gap that has emerged over the past 15 years is much larger than can be justified in this way, particularly in the case of supporting parents, who are more likely to spend long periods out of employment. Instead of completing the Howard agenda, the Gillard government ought to be looking at increasing the real value of benefits, allowing the unemployed to share in some of the growth in incomes for the community as a whole.

fn1. In other respect, showever, the generosity of the pension system peaked around 1980. Means tests, which were eliminated in the 1970s, were reintroduced in the 1980s, and the pension age has gradually increased.

Could Jenny Macklin live on the dole?

She says “I could”, but you watch the video, Jenny Macklin’s answer here is very odd. She ducks the question once, has it put again, and is asked “Could you live on the dole”. She says “I could”, without any elaboration then goes straight back to spin. Her office then tries to delete it from the transcript.

It’s such a spectacular screwup, I think she must have imagined she was saying something different. But, whether or not that’s right, she, and the government, deserve all the pain they get for this piece of nastiness.

The (failed) state of macroeconomics (crosspost from Crooked Timber)

When econbloggers aren’t arguing about cyborgs, they spend a fair bit of time arguing about the state of macroeconomics[1], that is, the analysis of aggregate employment and unemployment, inflation and economic growth. Noah Smith has a summary of what’s been said, which I won’t recapitulate. Instead, I’ll give my take on some of the issues that have been raised (what follows is inevitably monkish wonkish)

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Happy New Year

A quick post to wish my readers all the best for 2013. I’ll put up some substantive posts and open threads soon, but in the meantime, feel free to express your wishes for 2013. Just for this post, I’d like everyone to accentuate the positive and avoid conflict with other commenters. Normal service will resume soon.

TANSTAAFL

At about the same time as announcing that Queensland was an economic basket case, requiring large scale sackings of public employees to balance the books, the Newman government called for tenders for a project that, among other things, involves demolishing the 1970s office tower in which the Premier, Deputy Premier and Treasurer work, and replacing it with a spiffy new one. Some might see a contradiction here, but according to Treasurer Tim Nicholls, the new building “won’t cost taxpayers a cent“.

I’m tempted to say “if you believe that, I have a bridge for sale”, but of course Australian governments of both parties have become adept in bogus sales of bridges, roads and assets of all kinds. So, I’ll quote the famous aphorism, There Ain’t No Such Thing As A Free Lunch.

In the case of the “free lunch” apparently offered by US bars in the past, it’s clear enough that you are unlikely to get the lunch more than once if you don’t order a beer or two, and that the price of the lunch is included in that of the beer. In a complex transaction like the current one, it’s not immediately obvious how we are paying for Mr Nicholls’ new office. Some of it is in the 15-year lease payable to the owners of the new building, some of it in land being given away with the deal and some of it, probably, in valuable rights being handed over free of charge. What we do know is that, when you can’t see the price of what you are buying it’s almost certainly higher than if you paid upfront.

Of course, we have a Commission of Audit, headed by former Treasurer Peter Costello, that is supposed to expose dodgy transactions in the State’s books. The Committee prepared its draft report over the same period as this deal was going down. The government hasn’t released the report. An amusing, but unlikely, possibility is that the Commission actually did its job and criticised this boondoggle, leading the government to bury the report. More likely, Costello has done his job by helping to create the panic needed to justify 20 000 sackings, and is now just an embarrassment.

A belated victory for good sense

Wayne Swan has finally announced the abandonment of the promise to achieve a budget surplus this financial year. Some observations

* Everyone with any understanding of economics knows this was the right thing to do. The idea of trying to maintain a balanced annual budget regardless of economic conditions is recognised as nonsense even by anti-Keynesians. In the absence of active fiscal policy, the standard recommendation is to maintain settings consistent with medium-term balance.

* Both parties have made an awful hash of this in political terms. Labor was silly to make the promise of a return to surplus on a specific date, and sillier to reaffirm it in ever stronger terms until very recently. Abbott and Hockey made a mess of their response. They could have used Swan’s announcement to dump their own surplus fetishism saying something like “since the government refuses to reveal the true fiscal position, we can’t promise to fix it in one year”

* With any luck, some of the appalling fiddles of the last few months, most notably the recent reallocation of aid funding to domestic funding on refugees can be reversed

* We still need a long term discussion about revenue and expenditure in the light of the global failure of market liberalism. I plan to address this in another post

Update Hockey has indeed backed off the surplus, showing more good sense than Abbott. I’m nearly alone in this view, but I think he is under-rated. Not a towering intellect, but still among the stronger performers on the LNP front bench.

Poll blackout

The big political news yesterday was a national opinion poll showing, on its face anyway, that Labor would easily win an election held right now. you didn’t see it? I wouldn’t have either, except that it was in my Twitter feed for about five minutes and I happened to be looking at it. AFAICT, none of the major national news organizations even mentioned it. There seem to be a couple of possible reasons for this. One is that some people don’t like Morgan as a pollster (I don’t follow the polls closely enough to have a view on this).

The second is the idea that a result so far out of line with other polls (52.5-47.5 for Labor) must be a “rogue” or “outlier”. This reasoning reflects the fact that political journos still don’t understand stats. It would be sensible to ignore a poll finding if it was the result of a breakdown in sampling procedures, or a biased question. But this is the same poll Morgan has been running for many years, presumably with the same procedures. What is more likely is that, by chance, this particular sample population was more pro-Labor than the population as a whole. Every sampling procedure is subject to this kind of error. But the correct response is not to discard the data, but to collect more, or combine it with existing evidence.

Given four or five of recent polls with results around 53-47 for the coalition, simple averaging suggests that the best estimate would now be around 52-48. A better procedure would be to use a Bayesian model. This guy has done it, and Hey Presto, concludes that the best estimate is 51.9-48.1.

Coming back to the statistical illiteracy of journos, the problem may be put as follows. On the one hand, they know that it would be silly to run a “Labor ahead” story. On the other hand, they don’t have the technical chops to explain Bayesian updating, or even weighted averaging, and to do so would make it impossible to write future stories suggesting that small variations in poll numbers have any meaning.

Even so, I think Tony Abbott has had a lucky break here (as has, in a secondary way, Julia Gillard). The only thing keeping him in his job is the perception that, while he may be unpopular, the LNP are sure to win. Even a single poll challenging that could pave the way for a spill. And if the result were to return Malcolm Turnbull, the outlook for the Gillard government would suddenly get a lot worse.

Time to ban guns

The horrific shootings in the US may or may not produce some restrictions on the gun culture there, but they provide a renewed warning of the dangers here. Australia has experienced a substantial reduction in gun deaths since John Howard bravely introduced severe restrictions in the wake of the Port Arthur massacre. But the gun nuts, aided and abetted by people like Campbell Newman, have been chipping away at those restrictions ever since.

It’s time to take a clear stand on this. There’s no reason why anyone should be allowed to own a handgun. Their sole purpose is to kill people. Those who need handguns for their work (like police officers[1] and armored car guards) should have them checked out at the beginning of each shift, checked back in at the end, and kept securely locked away when not in use. Farmers and professional shooters need rifles and shotguns, but anyone else who wants to use deadly weapons like these should seek psychiatric treatment. Anyone outside these categories found with a weapon designed to kill people should be assumed to have that end in mind and locked away from the rest of us until they can show that it is safe to let them out. And, obviously, military weapons should be confined to the military.

Undoubtedly, criminals will ignore the law – that’s why they’re criminals. But in a situation where only outlaws (and police) have guns, the possession of a gun will permit an easy conviction in cases where crims might otherwise get off.

fn1. As UK experience shows, there’s no reason for the majority of police to carry guns. That should be limited to trained specialists.