History of unemployment in Australia: Uncommon Sense 3RRR

I was interviewed by Amy Mullinsamy20mullins for her terrific show Uncommon Sense. This show is rare in that it spends substantial time on subjects, really getting into some of the nuance and complexity behind the headlines and slogans. We spoke about the punitive treatement of unemployed workers in this country and how it wasn’t always this way.

https://www.rrr.org.au/explore/programs/uncommon-sense/episodes/8997-uncommon-sense-10-september-2019

My part starts at 2:16:50.

 

Posted in Media appearance, political economy, radio interview, unemployment | Tagged , , , | Leave a comment

How our economy is like an out of control AI

article-13080-hero

By Warwick Smith |

First published at Independent Australia

Humans, individually, can be incredibly brilliant but collectively we’re often puzzlingly stupid.

To take a simple, uncontroversial example, we know that forests are critical for our survival. They influence rainfall, climate and the very atmosphere that we breathe. Despite essentially universal agreement about this fact, we’re continuing to destroy them at an extraordinary rate. It seems, despite our intelligence and our astonishing global communication infrastructure, that we’re collectively incapable of aligning what we know needs to happen with what we do.

There is a thought experiment about artificial intelligence, first articulated by Nick Bostrom, known as the paperclip maximiser — bear with me a moment, this is related to human intelligence and sustainability. In this thought experiment, we imagine that there’s an AI system used by a company that makes paperclips.

This AI is tasked with increasing paperclip production and is fed all the necessary information regarding paperclip making, including materials, labour, human motivation, supply chains and so on. Critically, it’s also capable of learning how to learn and does this at an exponential rate.

To cut a long story short, the AI gets better and faster at making paperclips at a rate that far exceeds human capacity to keep up or to adapt. Eventually, it turns the entire universe into paperclips, with all humans and the biosphere being consumed quite early in the process. The thought experiment, not meant to be taken too literally, was designed to explain that AI doesn’t need to have general intelligence and self-awareness to be a threat but can be a threat simply by being single-minded and able to adapt faster than we can react.

I recently heard Daniel Schmachtenberger taking this thought experiment in a very interesting and thought-provoking direction by saying that human society is already the paperclip maximiser but instead of making paperclips we’re making dollars – which are primarily just zeros and ones in bank databases. Our collective intelligence system has one overriding purpose – to turn everything into money; trees, labour, water, human babies. Everything. It’s also very good at learning how to learn and is extremely good at eliminating threats.

The paperclip maximiser economy is not controlled or driven by anybody, it’s just a product of our global corporate capitalist economic model. The rules of the game are such that if you don’t strive to turn everything into dollars then you’ll likely be defeated (in whatever you’re trying to do) by somebody or some institution that is.

There are plenty of people, organisations and political parties who are desperately trying to assert that some things are more important than money. Most people agree with them, but the money-making paperclip maximiser continues on regardless, barely diverted at all by even the most strident, most well-supported initiatives, such as reducing tropical deforestation or reducing greenhouse gas emissions.

As Nietzsche prophetically warned, god is dead, and we have replaced him with the paperclip maximiser. Our collective intelligence system has no alternative, so even if we were to somehow collectively stop buying palm oil, for instance, Indonesians would still clear orangutan forest habitat to produce the next most profitable commodity.

Just as we know that destroying the forests of the world is destroying our future, we also know that consumerism doesn’t make us happy. Evidence abounds that the important things for human flourishing are connections to other humans, connection to nature and feeling needed and supported. The paperclip maximiser has us sacrifice those things in order to work hard and earn money.

In part, we need to make a lot of money so that we can afford housing that’s become ludicrously expensive because, instead of being primarily about shelter, housing has been captured by the paperclip maximiser and its primary purpose is wealth accumulation. Without irony, our newspapers can have articles side by side bemoaning the rise in homelessness and discussing the details of the “housing market”.

However grim this might seem, it is possible to beat the paperclip maximiser. We already know that the consumerist treadmill isn’t good for our mental or physical health. All we need to do is talk to people (real people, face to face) and work out what our core values are. Then we need to consciously and deliberately build a new story for humanity to move towards. The story of state-corporate capitalism has run out of puff. Most people aren’t buying it any more but there isn’t another well-championed narrative to orient ourselves by.

Social media platforms are the paperclip maximiser’s best friend. We’ve taken some of the brightest minds in the world and turned them to the task of designing addictive systems that keep us online for as long as possible in order to put advertising in front of us. These systems are personally tuned to the things that each of us will find addictive.

Keeping us online instead of in the real world keeps us lonely, sad and vulnerable to all the wiles of the paperclip maximiser. We shop and we strive for higher-paying work that will allow us greater status and more virtual praise from other sad, lonely, isolated people.

Have you noticed that when you’re having a great time with friends or family you don’t feel the need to check your social media feeds as much? The paperclip maximiser relies on us being plugged into the system of control, the system of polarisation, the system of artificial wants and needs.

Ancient Futures author, Helena Norberg-Hodge is fond of saying ‘our arms have grown so long that we can no longer see what our hands are doing’. It’s my personal belief that, as part of this change, we need to re-localise our shopping as much as we can so that we can see the faces of the people affected by our choices and the environmental impacts.

It’s time to unplug and work out what our real wants and needs are and to build a new collective intelligence system that will deliver those needs. There are efforts already underway to do just this in Australia with Australia remade being one great example.

Not only will doing this save the biosphere but it will make us more connected and more satisfied with our lives. Who wouldn’t want that?

This is an edited version of an essay that was runner up in New Philosopher magazine’s “being human” writer’s prize and was first published in issue #25 of the Magazine.

Warwick Smith is an economist and writer and is an honorary fellow at the School of Social and Political Sciences at the University of Melbourne. He tweets @RecoEco.

 

 

Posted in climate change, philosophy of economics, Political philosophy, Sustainability | Tagged , , , , | Leave a comment

A failure of collective intelligence

By Warwick Smith
An essay I wrote has won second prize in New Philosopher magazine’s latest writer’s prize and has been published in the magazine.

As I did with my last New Philosopher essay, I’ll probably publish this in another outlet after the next edition of New Philosopher comes out. If you want to read it in the meantime, pick up a copy of NP.

Posted in Economic theory, philosophy of economics, Sustainability | Tagged , , , | Leave a comment

Mineral wealth, Clive Palmer, and the corruption of Australian politics – The Conversation

Capture
Warwick Smith, University of Melbourne

Clive Palmer is reportedly spending A$70 million of his own money on his party’s campaign.

How is it possible for one individual to command so much wealth and where did it come from? The sad and strange reality is that Australian governments gave him most of it by letting him dig up and sell natural resources that, by rights, belong to us not him.

We’ve a history of handing vast wealth to resource and mining magnates and companies and then watching them use that wealth to undermine our democracy in order to continue to get access to that wealth. Palmer is small fry compared to Gina Rinehart and Andrew Forrest or the corporate power of BHP, Rio Tinto and others.

So, what do state and federal governments charge for our mineral wealth? You would hope that they use state-of-the-art methods to get the best possible prices.
You’d be wrong, of course.

We barely charge for resources

The federal government relies primarily on company tax and then on extra tax from employment and consumer spending and other things that are boosted as an indirect result of mining.

But many of the big mining and resource companies use the holes in our tax system to avoid paying company tax. In addition, mining is being increasingly automated, with self-driving trucks and trains becoming the norm, and ever-larger machinery meaning that fewer workers are needed for each tonne extracted and refined. These days billions can be spent with relatively few jobs created.

State and territory governments collect royalties from land-based mining companies, which are charged per unit of product. It means that when the prices of our mineral resources go up during a commodity boom the royalties do not rise with them – the mining companies benefit, but not the people who own the resources.

How much we collect in taxes is just the beginning of the story.

We also spend vast amounts of taxpayer cash on building the infrastructure needed for resource extraction; things such as roads, railways and ports. We also often end up footing the bill to clean up after mines close and the big companies sell depleted mines and their clean-up obligations to shell companies that then file for bankruptcy.

We could (and should) seek more

We could fix the system to get a fairer price.

We already have a more effective tax system for offshore oil and gas. It is, in effect, what the Rudd government tried to do in 2010 when it proposed a mining super profits tax. Foolishly, the tax was announced more than a year before it was to come into effect, giving the mining interests plenty of time to campaign against it.

They spent more than A$22 million just on advertising. Rudd abandoned the original proposal and was removed from office.

The Gillard government consulted the miners and adopted a watered-down version – the Mineral Resource Rent Tax – that was so toothless it collected almost nothing. Even though it was worthless, the mining industry still saw it as enough of a threat to pressure Tony Abbott to kill it off when he took government, which he did with Clive Palmer’s vote in parliament.

But miners have muscle

A more radical idea would be to put out tenders for the extraction and refinement of natural resources and then have the government or an independent authority owned by the government allocate them. Such a “single desk” would have considerable market power – it could demand good payments.

The truth is that all of this has been public knowledge for a long time and the solutions are well known. The problem is politics, not knowledge. The mining industry is so powerful that our leaders rarely attempt to take it on.

Given that Palmer set the record for most absent politician in two out of the three years he was in the parliament last time, why is he so keen to go back? There’s no evidence that he’s a conviction politician, trying to make the country better based on some strongly held principles; quite the opposite given how regularly he has changed his positions.




Read more:
Now for the $55 million question: what does Clive Palmer actually want?


Could it be that what he really wants is political power in order to defend and increase the extent to which him and his mates rake in the cash at our expense?

In 2016 the government used it’s position as a creditor to seek the appointment of a special liquidator to look at the collapse of Palmer’s Queensland Nickel company and the actions of Palmer’s actions personally. The government’s Michaelia Cash said at that time it would use every power as it’s disposal to hold company officers to account.

On Thursday at the National Press Club Prime Minister Scott Morrison was asked how he intended to manage the conflict between pursuing Palmer in the courts and courting his vote in the Senate.

He replied that he would be able to.

We will continue to pursue that measure through the courts with full vigor – we are very confident in our ability to pursue that as we absolutely should

It is obvious that we need political donation reform to keep the influence of money out of politics but we need to go one step further and reform how we, the Australian people, sell our mineral resource wealth so that we don’t create mining giants like Palmer in the first place. He is just the tip of the iceberg.The Conversation

Warwick Smith, Research economist, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Posted in Australian politics, democracy, tax economics | Tagged , , , , | Leave a comment

Labor wants to pay childcare wages itself. A perfect storm makes it not such a bad idea

This article was first published in The Conversation.

Warwick Smith, University of Melbourne

This article is part of an election series on wages, industrial relations, Labor and the union movement ahead of the 2019 federal election. You can read other pieces in the series here, here, here, here, and here.


Opposition Leader Bill Shorten has promised that a Labor government will work to increase the wages of Early Childhood Education and Care (ECEC) workers by 20% over eight years. That’s pretty conventional, but the method isn’t.

The government will directly fund the salary increases so that neither childcare providers nor parents bear the costs. These increases will be in addition to any changes to the award over these years.

Internationally, such interventions exist, but they’re rare. In Ontario, Canada, the government tops up the salaries of childcare workers by $2 per hour. For Australia, it’s a first.

Childcare workers are among the lowest-paid in the country, with more than 70% reliant on award rates that are not much higher than the minimum wage.

The perfect storm of market failures

There is also limited opportunity for career progression in childcare. These two facts combine to lead to an extraordinarily high turnover in staff.

As long as legal minimum wages and awards are being met, the fact that a job is poorly paid isn’t normally enough to justify government intervention.

But childcare is a special case in which multiple market failures coincide.

“Market failure” is a term used to describe a situation economists like to believe is rare – where the workings of the free market lead to bad outcomes. Classic examples include polluting industries where the costs of pollution aren’t borne by the polluter itself (an “externality” in economics speak), and street lighting, for which it is impossible to charge users (economists call that a public good).

In economic theory, a market failure will at least justify the consideration of government intervention.

Childcare’s benefits are direct, and indirect

The provision of childcare creates both private benefits and public goods.

Mothers who can earn more than the cost of childcare benefit from it because they can maintain and build their skills and careers. Society also benefits because it makes better use of the skills of women.

There is also clear evidence that quality early childhood education positively affects the prospects of children for the rest of their lives, particularly those from low socioeconomic backgrounds.

It’s good for them and their families, but it’s also good for the entire community as those children are more likely to make full use of their skills and talents in later life and contribute productively to society. They are also less likely to engage in antisocial or criminal behaviour.

Mothers can’t afford to pay good wages…

But if entirely left to the market, childcare would only be affordable to those who earn high wages (and whose children might be the least likely to benefit). The total costs of the staff, venue, and administration needed to provide childcare are beyond most parents’ means.

This is why we already have government intervention in the form of means-tested assistance, which subsidises the cost of childcare up to A$10,190 per year, per child.

However, despite the existence of this subsidy, most Certificate III qualified childcare workers still only earn about A$850 per week (A$44,000 per year), about half the average full-time wage.

Why aren’t they paid more, given that their work is so important?

…in part because they don’t get good wages

One answer could be that 96% of childcare workers are women, and about 95% of stay-at-home parents are women. The gender pay gap in Australia is currently about 14%. It’s the result of a combination of gender discrimination, gender role expectations in child-raising, and relatively low pay in typically “feminised” industries.

It means mothers cannot easily afford to pay for proper childcare from their wages, and that childcare workers come to accept low pay.

Subsidising quality childcare through both a rebate to parents and a direct increase in childcare workers’ wages addresses these dual aspects of the gender pay gap by helping more mothers maintain careers (that will enable them get paid more) and acknowledging and addressing the extent to which the market won’t pay childcare workers enough.

There’s a case for top ups, but they’re not ideal

While Labor’s commitment to increasing childcare worker pay is welcome and is addressing an agglomeration of genuine market failures, a specific government top-up for a specific profession leave its workers vulnerable to a change of government policy that cuts or abolishes it.

The long-term solution is to do something more systematic about the undervaluation of care work in Australia. It would be best dealt with by adjusting how the Fair Work Commission sets award wages in light of the public value generated by the industry and an understanding of the historic undervaluing of work performed by women.

Labor has announced policies that aim to do this, so presumably this wage top-up is a stopgap that provides much-needed pay rises in the short term while longer-term solutions are being put in place.




Read more:
Why Labor’s childcare policy is the biggest economic news of the election campaign


The Conversation


Warwick Smith, Research economist, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Posted in Australian politics, Economic theory, Gender | Tagged , , , , , , | Leave a comment

Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won

 

First published in The Conversation

File 20190415 147525 1tx2vbv.jpg?ixlib=rb 1.1
Arthur Caldwell almost defeated Robert Menzies in the poll in 1961, and won the debate about policy.
National Archives, National Library of Australia, Wikimedia

Warwick Smith, University of Melbourne

Lately, governments and oppositions have been obsessed with “returning to surplus” in order to balance the budget.

It hasn’t always been so. In the lead-up to the 1961 federal election, unemployment had climbed above 2% and was creeping towards 3%. (By today’s standards that doesn’t sound much, but for two decades since the onset of the second world war unemployment had been mostly well below 2%.)

The Labor opposition, led by Arthur Calwell, went to the 1961 election promising that:

Labor will restore full employment within 12 months, and will introduce a supplementary budget in February for a deficit of £100 million, if necessary, to achieve this.

From the end of World War II, there had been a bipartisan commitment to full employment in Australia. As laid out in the Curtin government’s 1945 White Paper, Full Employment in Australia, this was achieved by “stimulating spending on goods and services to the extent necessary to sustain full employment”.

The strongly held view, developed primarily by British economist John Maynard Keynes during the Great Depression, was that government could, and should, use its spending power to fill any gap left by private expenditure, ensuring there was always enough spending to keep operating near (but not above) capacity.

Spending stopped unemployment

The 25 years after World War II in which this happened are often referred to as the “postwar boom” because times were so good. This period had rapid economic growth, steadily improving material standards of living (for most), and falling inequality.

Involuntary unemployment was scarcely heard of. “Long-term unemployment” didn’t exist as a statistical category.

By focusing on keeping the Australian economy at or near full capacity and investing heavily in infrastructure, research and education to improve productivity, the postwar governments of both major parties were able to do what these days would be thought impossible: to run constant government deficits while overseeing a dramatic fall in the ratio of government debt to gross domestic product.


Source: Australian Federal Government deficits, debt and the stock market, Centric Wealth

What’s important to understand is that the postwar boom occurred, at least in part, because of the budget deficits, not in spite of them.

By always spending enough to maintain the economy at full employment, the government ensured a strong economy. Economic growth made the ratio of debt to gross domestic product shrink.

All of this was very much part of the public conversation back in the 1940s, 1950s and 1960s. Very little attention was given to the budget balance, with people instead focused on the level of unemployment. On the rare occasions the budget balance was mentioned, it was often in the context of pushing for greater deficits to reduce unemployment.

Calwell won the fight, if not the election

After the 1961 election Robert Menzies made Arthur Calwell’s policy his own.
National Library of Australia

Calwell’s Labor opposition didn’t win the 1961 election, but there was a massive swing towards it and the result was one of the closest in Australia’s history, decided by mere hundreds of votes.

The fact that unemployment had crept up towards 3% was a significant contributor to the Coalition losing 15 seats in the House of Representatives and control of the Senate.

Immediately after the election, to shore up his position, Menzies effectively adopted and extended Labor’s policy delivering a 1962-63 budget that focused squarely full employment and brought down a deficit £120 million, £20 million more than Labor had been proposing.

The debt burden shrank as GDP climbed

By the end of World War II, government debt was 120% of gross domestic product total. This means that total debt was 1.2 times the annual economic output of the country. By comparison, today’s federal government debt is about 18% of GDP, a mere one-fifth of annual economic output.

So, according to the modern political discourse on government debt, the postwar generations must have been terribly burdened by all of that debt, and governments must have had to show incredible fiscal discipline to pay it off, right?

The answer will surprise many who have fallen for the modern rhetoric. Although each loan was paid off as if came due, the total stock of debt didn’t shrink, but the economy grew strongly, allowing the debt-to-GDP ratio to wither to the point at which it approached zero.


Commonwealth Treasury

Australia’s budget history is one of modest deficits leavened with occasional larger deficits and occasional surpluses. It’s been entirely sustainable.

Our postwar governments lived by Keynes’s dictum:

Look after the unemployment and the budget will look after itself.

The economy has changed a lot since then and we can’t simply copy the policies that worked for Curtin, Chifley and Menzies.

But we can learn from them. The reality is that we don’t know how low unemployment could fall in modern Australia because we haven’t made any genuine attempt to push it below 5% for decades.




Read more:
Explainer: what is modern monetary theory?


A modern-day policy commitment to full employment, along lines inspired by what we did after the war, could lift wages, reduce inequality, drive increases in productivity and, most importantly, provide full employment for the more than two million Australians who are currently unemployed, underemployed or discouraged attempting to get work.

Treasurer Chifley summed up the goal this way in 1944:

Our objective is not primarily social security, but rather the much higher objective of full employment of manpower and resources in raising living standards.The Conversation

Warwick Smith, Research economist, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Posted in Australian politics, Economic theory, Inequality, Political philosophy | Tagged , , , | Leave a comment

The simple approach to carbon

By Warwick Smith

First published in The Canberra Times and other Fairfax newspapers.

What is fee and dividend carbon pricing?

Carbon fee and dividend is a model for pricing climate pollutants where a fee is charged on producers of emissions, then all money is given back to households as a dividend. The entire sum collected from the fee, minus administration costs, would be divided between all adult permanent residents, with an extra half share per child in the household. None of the money stays in government hands or is spent on government programs.

Most households would be better off under a fee and dividend model.
Most households would be better off under a fee and dividend model.Credit:Matt Davidson

This carbon pricing mechanism has recently been adopted by Canada and has just been modelled for Australia by academics at the University of New South Wales. It starts with a low carbon price, perhaps $10 per tonne, and goes up by $10 per tonne every year until reaching a sufficiently high price to drive decarbonisation. Perhaps $50 would be enough.

The key advantages over other schemes are simplicity, fairness, and the potential for broad political support.

Simplicity: With a high enough carbon price, there could be a rapid transition to a low-carbon economy with no need for complex regulation of industry or subsidies for renewable energy. A high carbon price is possible with minimal disruption or hardship because of the dividend. During the transition, businesses can pass on costs, but households are compensated for the higher prices. Both consumers and producers would have a financial incentive to switch to lower emissions products and services.

Fairness: In Canada and Australia, most households would be better off under fee and dividend than they are now. Many prices will go up, but dividend payments will be greater than price increases for lower-income households because they use less carbon-intensive goods and services than high-income households. UNSW research has found that, at a price of $50 per tonne, households in the bottom 20 per cent of income earners would be, on average, more than $1200 per year better off and average income households would be nearly $600 better off.

Potential for broad political support: Because the system is revenue neutral, there is no impact on government budgets. The capacity to do away with most regulation and subsidies also appeals to free market advocates who dislike government intervention, but acknowledge the problems caused by greenhouse gas pollution.

Response: Warwick Smith, Senior Economist at public policy think tank Per Capita and economics advisor to the Citizens’ Climate Lobby Australia. He tweets @RecoEco.

The Fuzzy Logic Science Show is on at 11am on Sundays on 2XX 98.3FM. Questions to AskFuzzy@Zoho.com Twitter: @FuzzyLogicSci

Posted in Australian politics, climate change, tax economics | Tagged , , , , , | Leave a comment