Australia flying blind

Posted on June 24, 2014 by Warwick Smith

By Warwick Smith

Originally published at the Australian Independent Media Network

Image sourced from www.wikiprogress.org

In this article Warwick Smith reports why the decision by the Australian Bureau of Statistics to discontinue many programs including the Measures of Australia’s Progress due to budgetary demands, is an appalling development. Even though the ABS doesn’t have the public profile of the ABC and Medicare, its work is just as critical to the nation.

Measures of Australia’s Progress (MAP) is a ‘dashboard’ approach to measuring how well we are doing as a nation. Its development was an acknowledgement of the fact that the usual economic measures of progress are not enough on their own when it comes to understanding changes that affect well-being in Australia. MAP reports on a broad range of statistics from four categories; society, environment, economy and governance.

The Australian Bureau of Statistics (ABS) have just announced that they have been forced to discontinue MAP (along with a lot of other programs) due to insufficient funding (Budget cuts: how ASIC, the ABS and the ATO are turning off the lights, Peter Martin, The Sydney Morning Herald June 8 2014). It would be a huge loss if this program is not rescued from the dustbin.

The reason we tend to use economic growth (GDP growth) as a measure of progress is, at least in part, because it’s supposed to be a proxy for well-being. The more money people have the more choices they have and the better off they are – that’s the rhetoric. It’s true that increases in income make a big difference to the well-being of very poor people. However, as you go up the income scale, increases in income have a diminishing impact on well-being.

As I’ve written elsewhere, GDP growth is of extremely limited value if you want to know about national movements in many things that really matter to people’s lives such as relationships with family and friends, community, health, environment, trust in government, job security and effective services and infrastructure like transport and communication. MAP collects data and produces reports on most of the things in that list.

Things that increase GDP can have a negative impact on our well-being. Natural disasters can increase GDP due to the cleanup and reconstruction efforts. Shipping iron ore overseas adds to GDP despite the fact that it’s actually a public asset sale and depletes our stocks.

Sometimes, providing the things people want and need has a negative impact on economic growth (like preserving a forest that miners want to bulldoze). While this is acknowledged in various pieces of legislation, like environmental protection laws, workplace safety laws etc., we have no framework for making these judgment calls in any systematic way. We should be moving towards having meaningful calculators of well-being that can be assessed alongside economic benefit in order to better inform our decision making. Cost-benefit analyses of public policy should calculate the net impact on well-being with financial costs and benefits being just one set of inputs.

If we are using GDP as a measure of progress because it is a proxy for well-being and we know it’s a flawed proxy, then it would be better to measure things that have a more direct impact on well-being. This is what MAP is trying to do.

If meaningful calculations were done, wealthy countries would often find that sacrificing some economic growth for improvements in other areas that directly improve well-being is often worthwhile.

However, in order to make these calculations and to reach this level of policy enlightenment, we need to have the data.

This is why the cuts announced by the ABS are particularly devastating even though most people would never have heard of the programs being cut. The continued collection and reporting of these measures is vitally important if we are to find a notion of progress other than the endless mouse wheel of greater and greater consumption and greater and greater environmental destruction.

The alternative is to leave intact the status quo where money is our measure and where the things we really care about are steamrolled beneath the endless drive for economic growth.

Those of you who care about where this country is heading should be up in arms about this. The ABS might not have the public profile of Medicare, the ABC or Australia Post but it’s just as important – in some ways more important. Without reporting and commentary on how our nation is doing across a broad range of indicators, we truly are flying blind and are required to put a great deal of trust in our political leaders. Trust that I’m afraid they do not deserve.

Warwick Smith is a research economist at the University of Melbourne. He blogs at reconstructingeconomics.com and tweets @RecoEco.

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War crimes in Iraq

Posted on June 23, 2014 by Warwick Smith

By Warwick Smith

As the recent news from Iraq refocuses our attention on the basket case that we, the invaders, left behind, it’s an appropriate time to re-examine our decision to invade in 2003. In any kind of objective examination of the lead up to the invasion it’s difficult to avoid the conclusion that it was a war of aggression, the greatest of all crimes under international law. However, this remains an opinion because it has never been seriously investigated as a war crime. In fact, none of the leaders of the countries who invaded Iraq have faced any serious consequences for leading their countries to war using false justifications.

Here in Australia, the Prime Minister at the time, John Howard, has never had to front any serious inquiry nor been obliged to answer any probing questions about his decision to wage a war of aggression. It’s time that he did. If war crimes by the strong are never prosecuted then international law is not an instrument of justice but one of coercion and domination.

“To initiate a war of aggression, therefore, is not only an international crime, it is the supreme international crime differing only from other war crimes in that it contains within itself the accumulated evil of the whole.”

Nuremberg Tribunal – October 1, 1946

A quick recap to explain why I believe the invasion of Iraq was a war of aggression, the greatest crime possible under international law. In the lead up to the war our leaders claimed that the regime of Saddam Hussein possessed weapons of mass destruction (WMD) including chemical and biological weapons and that they were attempting to make nuclear weapons. For the most part, demands for evidence for these allegations were resisted. Instead the would-be invaders relied on Iraqi non-compliance with Security Council resolutions as a kind of negative proof. The narrative was along these lines: “Iraq will not fully cooperate with weapons inspectors therefore they must have WMD and must be about to give them to al Qaida to kill westerners. Therefore we have no choice but to invade in self-defence.”

This narrative used to justify invasion never, at any point, stood up to serious scrutiny. Not before the invasion and certainly not after. That’s why there were public protests of unprecedented scale against the invasion.

The doomed push for UN authorisation for the invasion culminated in the US finally agreeing to reveal their evidence of Iraqi WMD. The now infamous speech delivered by Colin Powell at the United Nations presented a series of blurry satellite photos and questionable testimonies from ex-pat Iraqi’s who had serious vested interests in a western intervention. Much of what Colin Powell said that day was immediately refuted by people who had been on the ground in Iraq with the international inspection teams and what was left was at best speculation and at worst lies and exaggerations. Colin Powell’s close advisor and aid, Lawrence Wilkerson, later stated that this speech at the UN speech was the lowest moment in his life, all but admitting he believed at the time that the intelligence was flawed. Powell himself calls it a “blot on his career”.

So, even before the war began we knew that the justification for the invasion was flawed and was a fig leaf for something else. After the invasion all of this was confirmed and more. There were no WMD in Iraq and there had been no threat to the invading nations.

The invaders quickly changed the justification of the invasion from WMD to spreading democracy, not a beat was missed. When the issue of WMD was brought up they were quick to blame the intelligence agencies. Then we discover that Donald Rumsfeld had been applying intense pressure to his intelligence agencies to come up with evidence that would justify and invasion. They tried and tried and tried and the best they could do was the deeply flawed presentation given by Powell at the UN.

The intelligence clearly wasn’t enough to justify war so, when it came to convincing their own population, the US administration relied on bald-faced lies. Along with the lies, another strategy was to constantly mention 9-11 and Iraq or Saddam Hussein in the same sentence. They never directly said that Saddam was involved in the terrorist attacks in 2001 but the constant association between the two meant that by the time of the invasion 45% of Americans thought that there were Iraqis on the flights on September 11 2001 (there were not) and 44% thought that Saddam Hussein was involved in the terrorist plot. Quite a propaganda accomplishment.

The story from Tony Blair, the UK Prime Minister at the time of the invasion, was even worse. He released “the dossier” which supposedly contained the evidence of Iraq’s WMD programs and it turned out to contain plagiarised sections from a 12 year old PhD thesis, unsubstantiated speculation and cherry picked information designed to justify an invasion.

All that is important context and demonstrates that the war of aggression was not waged for the reasons that we were given. However, the most damning argument comes from what results if we assume everything that was said before the war was true and assume that those saying it really believed it. The simple fact is that it would still have been a war of aggression and therefore a war crime. Even if Saddam had massive stockpiles of WMD, it would not be justification for the use of force without UN Security Council authorisation. Such force is only justified when it is used to prevent an imminent attack. Not only was there no evidence of such an attack, any kind of aggression by Saddam Hussein against the west would have been suicidal on his part given the scale and ferocity of the retaliation. Saddam may have been a megalomaniac monster but he was a survivor, not the type to commit ideologically driven suicide.

Some made the claim that Saddam would give his WMD to al Qaida to use to attack the US. Such a claim could only be believed by people who knew virtually nothing about Saddam Hussein and al Qaida. Saddam was listed among the infidel leaders in Arab lands who al Qaida had sworn to topple. Not exactly the brothers in arms that Donald Rumsfeld, Paul Wolfowitz and others tried make them out to be.

The validity of international law has been seriously compromised by the perpetration of war crimes by the US, UK and Australia. Russia can quite legitimately point to the invasion of Iraq as demonstration of hypocrisy when the US and UK try to rebuke them for their activities in Georgia. Why should any country, particularly those who have permanent membership on the UN Security Council, pay attention to international law if the US, UK and Australia do not?

There is a group here in Australia currently calling for an independent inquiry into Australia’s decision to go to war in Iraq. I fully support this cause. There are several critical principles at stake. The first is the integrity of international law, as mentioned above. The second is the role of democracy in state violence. There was massive public opposition to our involvement in the invasion of Iraq, as there was in the UK. Our politicians lied and exaggerated their way to war and have never been held accountable for it. What claims can we make about being a civilised nation that believes in the rule of law when things like this can happen with no consequences for the perpetrators?

Yes, there should be an independent inquiry into the decision to go to war. That inquiry should also forward its findings to The Hague for use in investigating possible war crimes committed by our political leaders. If laws are to be meaningful they must apply to the strong as well as the weak.

Warwick Smith is an economist, writer and commentator. He blogs at reconstructingeconomics.com and tweets @RecoEco

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Tony Abbot the conservationist

Posted on June 16, 2014 by Warwick Smith

By Warwick Smith

Despite once infamously stating that the science behind human induced climate change was “absolute crap”, Tony Abbott has since publicly accepted that climate change really is happening and that he wants to do something about it.

Last week, while in the United States, Tony Abbott declared himself a conservationist:

“I regard myself as a conservationist. Frankly, we should rest lightly on the planet and I’m determined to ensure that we do our duty by the future here.”

Tony Abbott – Interview with James Glenday on ABC Radio National

However, he has also said that he doesn’t believe in harming economic growth in order to protect the environment. Abbott’s claim to be a conservationist should be carefully examined in light of his stance on climate change and on other environmental issues and his prioritisation of the economy over all else. I have spent more than ten years as a conservation biologist and am now an economist. That puts me in a pretty good position to discuss Tony Abbott – the conservationist.

Just as there is virtually no meaningful dissent among climate scientists against the reality of human induced climate change, there is virtually no meaningful dissent among economists to the notion that putting a price on carbon is the most effective and efficient way to reduce carbon emissions.

Much of Abbott’s time as opposition leader was defined by his opposition to Australia’s current carbon price. He claimed the carbon tax would put a “wrecking ball” through the economy, costing jobs and destroying industries. As it turns out, the Australian carbon price is working very effectively to reduce our emissions and Australia is currently experiencing very strong economic growth with an economy that is the envy of the developed world. None of this has prompted even the slightest pause in the Abbott government’s plans to scrap the carbon price despite disproving virtually all of the arguments against it. When the stated reasons for a policy evaporate but the policy remains, we should start to look for the real reasons.

Tony Abbott wants us to believe that he accepts the science of climate change while also supporting the coal industry and its role for decades to come.

“It’s particularly important that we do not demonise the coal industry and if there was one fundamental problem, above all else, with the carbon tax was that it said to our people, it said to the wider world, that a commodity which in many years is our biggest single export, somehow should be left in the ground and not sold. Well really and truly, I can think of few things more damaging to our future.”

Tony Abbott – Address to the Minerals Week 2014 Annual Minerals Industry Parliamentary Dinner

Abbott would have us believe we can have our cake and eat it too. He thinks leaving our coal in the ground is the most damaging thing possible for our future while our climate scientists believe that not leaving it in the ground is the most damaging thing possible for our future. Surely when it comes to something with such monumental consequences as climate change we should stand with the scientists.

Given Abbott’s overall stance on climate change I think it’s very reasonable to conclude he still thinks that the science behind climate change is absolute crap but he believes he has to hide that to maintain credibility. As Barack Obama recently said, denying climate change is like saying the moon is made out of cheese. Claiming you want to act to prevent climate change but you also support the coal industry for decades to come is just as logically flawed as saying that you believe in human rights while you arbitrarily detain people for an indefinite period.

When you put Tony Abbott’s stance on climate change together with his other notable environmental statements and activities and you get a clear picture of Tony Abbott the conservationist.

“We have quite enough national parks. We have quite enough locked up forests already. In fact, in an important respect, we have too much locked up forest.”

Tony Abbott – Address to the 2014 ForestWorks Dinner, Canberra

The simple reality is that Abbott’s stance on the environment is entirely consistent with unquestioning support for mining and energy companies. This is also consistent with his government’s budget which asks normal wage earners and welfare recipients to do the heavy lifting to save us from the invented crises of a budget emergency and unsustainable welfare dependence. Abbott’s actions consistently favour his wealthy backers and other economic elites. He believes in sound economic management – except if it’s against the interests of big mining companies. He believes in ending the age of entitlement – except when it comes to handouts to the wealthy. He believes in conservation – except where it gets in the way of big business. Consistency counts for something I guess.

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‘Venditio’ by John Locke

Posted on June 6, 2014 by Warwick Smith

This hard to find short essay by John Locke is very surprising in its brief yet sophisticated thinking with respect to market prices and morality. I put it here mostly as a reference for others who may struggle to find it online.

Venditio (1695)

Upon demand what is the measure that ought to regulate the price for which anyone sells so as to keep it within the bounds of equity and justice, I suppose it in short to be this: the market price at the place where he sells. Whosoever keeps to that in whatever he sells I think is free from cheat, extortion and oppression, or any guilt in whatever he sells, supposing no fallacy in his wares.

To explain this a little: A man will not sell the same wheat this year under 10 S(hillings) per bushel which the last year he sold for 5S. This is no extortion by the above said rule, because it is this year the market price, and if he should sell under that rate he would not do a beneficial thing to the consumers, because others then would buy up his corn at this low rate and sell it again to others at the market rate, and so they make profit off his weakness and share a part of his money. If to prevent this he will sell his wheat only to the poor at this under rate, this indeed is charity, but not what strict justice requires. For that only requires that we should sell to all buyers at the same market rate, for if it be unjust to sell it to a poor man at 10S per bushel it is also unjust to sell it to the rich for 10S, for justice has but one measure for all men. If you think him bound to sell it to the rich too, who is the consumer, under the market rate, but not to a jobber or engrosser, to this I answer he cannot know whether the rich buyer will not sell it again and so gain the money which he loses. But if it be said ’tis unlawful to sell the same corn for 10S this week which I sold the last year for week for 5s because it is worth no more now than it was then, having no new qualities put into it to make it better, I answer it is worth no more, ’tis true, in its natural value, because it will not feed more men nor better feed them than it did last year, but yet it is worth more in its political or marchand value, as I may so call it which lies in the proportion of the quantity of wheat to the proportion of money in that place and the need of one and the other. This same market rate governs too in things sold in shops or private houses, and is known by this, that a man sells not dearer to one than he would to another. He that makes use of another’s ignorance, fancy, or necessity to sell ribbon or cloth, etc. dearer to him than to another man at the same time, cheats him. But in things that a man does not set to sale, this market price is not regulated by that of the next market, but by the value that the owner puts on it himself: v.g. α has an horse that pleases him and is for his turn; this β would buy of him; α tells him he has no mind to sell; β presses him to set him a price, and thereupon α demands and takes £4o for his horse, which in a market or fair would not yield above twenty. But supposing β refusing to give £40, γ comes the next day and desires to buy this horse, having such a necessity to have it that if he should fail of it, it would make him lose a business of much greater consequence, and thus necessity α knows. If in this case he make γ pay £50 for the horse which he would have sold to β for £40, he oppresses him and is guilty of extortion whereby he robs him of £10, because he does not sell the horse to him, as he would to another, at his own market rate, which was£40, but makes use of γ‘s necessity to extort £10 from him above what in his own account was the just value, the one man’s money being as good as the other’s. But yet he had done no injury to β in taking his £40 for an horse which at the next market would not have yielded above £20 because he sold it at the market rate of the place where the horse was sold, viz. his own house, where he would not have sold it to any other at a cheaper rate than he did to β. For if by any artifice he had raised β’s longing for that horse, or because of his great fancy sold it dearer to him than he would to another man, he had cheated him too. But what anyone has he may value at what rate he will, and transgresses not against justice if he sells it at any price, provided he makes no distinction of buyers, but parts with it as cheap to this as he would to any other buyer. I say he transgresses not against justice. What he may do against charity is another case.

To have a fuller view of this matter, let us suppose a merchant of Danzig sends two ships laden with corn, whereof the one puts into Dunkirk, where there is almost a famine for want of corn, and there he sells his wheat for 20S a bushel, whilst the other ship sells his at Ostend just by for 5s. Here it will be demanded whether it be not oppression and injustice to make such an advantage of their necessity at Dunkirk as to sell to them the same commodity at 20s per bushel which he sells for a quarter the price but twenty miles off? I answer no, because he sells at the market rate at the place where he is, but sells there no dearer to Thomas than he would to Richard. And if there he should sell for less than his corn would yield, he would only throw his profit into other men’s hands, who buying of him under the market rate would sell it again to others at the full rate it would yield. Besides, as there can be no other measure set to a merchant’s gain but the market price where he comes, so if there were any other measure, as 5 or 10 per cent as the utmost justifiable profit, there would be no commerce in the world, and mankind would be deprived of the supply of foreign mutual conveniences of life. For the buyer, not knowing what the commodity cost the merchant to purchase and bring thither, could be under no tie of giving him the profit of 5 or 10 per cent, and so can have no other rule but of buying as cheap as he can, which turning often to the merchant’s downright loss when he comes to a bad market, if he has not the liberty on his side to sell as dear as he can when he comes to a good market. This obligation to certain loss often, without any certainty of reparation, will quickly put an end to merchandising. The measure that is common to buyer and seller is just that if one should buy as cheap as he could in the market, the other should sell as dear as he could there, everyone running his venture and taking his chance, which by the mutual and perpetually changing wants of money and commodities in buyer and seller comes to a pretty equal and fair account.

But though he that sells his corn a town pressed with famine at the utmost rate he can get for it does no injustice against the common rule of traffic, yet if he carry it away unless they will give him more than they are able, or extorts so much from their present necessity as not to leave them the means of subsistence afterwards, he offends against the common rule of charity as a man, and if they perish any of them by reason of his extortion is no doubt guilty of murder. For though all the selling merchant’s gain arises only from the advantage he makes of the buyer’s want, whether it be a want of necessity or fancy that’s all one, yet he must not make use of his necessity to his destruction, and enrich himself so as to make another perish. He is so far from being permitted to gain to that degree, that he is bound to be at some loss, and impart of his own to save another from perishing.

Dunkirk is the market which the English merchant has carried his corn, and by reason of their necessity it proves a good one, and there he may sell his corn as it will yield at the market rate, for 20s per bushel. But if a Dunkirker should at the same time come to England to buy corn, not to sell to him at the market rate, but to make him, because of the necessity of his country, pay 10S per bushel when you sold to others for five, would be extortion.

A ship at sea that has an anchor to spare meets another which has lost all her anchors. What here shall be the just price that she shall sell her anchor to the distressed ship? To this I answer the same price that she would sell the same anchor to a ship that was not in that distress. For that still is the market rate for which one would part with anything to anybody who was not in distress and absolute want of it. And in this case the master of the vessel must make his estimate by the length of his voyage, the season and seas he sails in, and so what risk he shall run himself by parting with his anchor, which all put together perhaps he would not part with it at any rate, but if he would, he must then take no more for it from a ship in distress than he would from any other. And here we see, the price which the anchor cost him, which is the market price at another place, makes no part of the measure of the price which he fairly sells it for at sea. And therefore I put in ‘the place where the thing is sold’: i.e. the measure of rating anything in selling is the market price where the thing is sold. Whereby it is evident that a thing may be lawfully sold for 10, 20, nay cent per cent, and ten times more in one place than is the market price in another place perhaps not far off. These are my extemporary thouht[s] concerning this matter.

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My article in today’s Guardian – The United States of Australia?

Posted on May 26, 2014 by Warwick Smith

Are we witnessing the emergence of the United States of Australia?

Australia can have its cake and eat it too, because a healthy and materially secure population will repay enormous economic dividends. Instead, we’re going further down the US path

By

Originally published at theguardian.com, Monday 26 May 2014 14.40 AEST

australian dollar
‘Basically everything about the US system is worse for all but those at the top of the economic pyramid’. Photograph: Torsten Blackwood/AFP/Getty

In terms of social and economic policy Australia has, for the last 40 years or so, sat somewhere between the free market individualist policies of the Unites States and the social democracy approach of much of continental Europe. Australia has had effective social safety nets, free universal healthcare (as long as your teeth and gums don’t count as part of your body) and a relatively high standard of public education. However, our social safety nets and our healthcare system have never been as generous as those of Europe’s most successful social democracies.

Walking this line between the two apparent alternatives has been viewed by many as a good balance; humane but not too much of a burden to taxpayers. Political pressure has been maintained in both directions, balancing each other out and keeping us more or less static. Labor governments take us little baby steps closer to the European side and Coalition governments come in and take us a few baby steps back towards the US.

The 2014 coalition federal budget was aimed at dramatically upsetting this balance, taking several very large steps towards the US model.

Currently the majority of unemployed Americans get no unemployment benefits. Their public school outcomes are amongst the worst in the developed world and their public healthcare is extremely limited and particularly expensive for the mediocre outcomes achieved.

However, their system has resulted in relatively high levels of economic growth when compared to most of their European counterparts. The downside of this economic success story is that the overwhelming majority has gone to those who are already well off. The majority of US citizens have seen little or no growth in their real wages or material standard of living over the last 40 years. They work longer hours than Europeans, they have less paid leave, less penalty payments for working outside normal hours and less support should they lose their jobs. In other words, basically everything about the US system is worse for all but those at the top of the economic pyramid.

Perhaps even that would be OK if the US was the land of opportunity as it’s often claimed. Unfortunately even that’s not the case. In the US, the link between sons and fathers income is twice as strong as it is for Scandinavian countries. In other words, a child born to poor parents in the US is twice as likely to stay poor as one born to poor parents in northern Europe. The same goes for educational and health outcomes.

Which of these two directions we want to take is a critical question but it is not one that we are answering with our eyes open. The backlash against the Abbott and Hockey budget has been strong but, for the most part, it has not stemmed from an awareness of these bigger picture issues.

As I have written elsewhere, there is no shortage of money to pay for a high standard of education, healthcare and welfare, it’s just a matter of political priorities.

We are a relatively low taxing country with low public debt. We know that investment in a first rate public education and health system is critical if we value equality of opportunity and long term economic prosperity. These facts, together with a raft of options available to increase government revenue, provide us with a choice that the Abbott government doesn’t want us to know exists. We really can have our cake and eat it too because a healthy, well educated and materially secure population will repay enormous economic dividends in the medium to long term. There is no imperative to choose between deep spending cuts and economic ruin.

Hockey and Abbott have made their choice. They want us to follow further down the US path. They believe that if you want something, you should pay for it yourself. If you can’t afford it then you don’t deserve to have it because you haven’t worked hard enough or tried hard enough. Their ideology doesn’t recognise the reality; in the kind of society they want us to have if you can’t afford something you probably weren’t born to rich enough parents.

If we consider the wellbeing of all Australians to be important then the Scandinavian model is the clear winner. We can and should increase the proportion of GDP taken in tax and use it to provide the best opportunities to our young people and the best quality of life we can to society’s vulnerable, regardless of where or to whom they were born. This means first class universal education and healthcare and the guarantee of a decent standard of living. If these are not our aims then what is the point of economic progress?

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Budget vision

Posted on May 17, 2014 by Warwick Smith

By Warwick Smith

No other event equals the release of a federal budget for a clear statement of what the government really intends for the country. Almost everything else they do is smoke and mirrors.

The budget tells us who or what the government favours, what they consider indispensable or sacred and what they wish to destroy. From a bigger picture perspective it also gives us some insight into their real vision for the future of the country… if they have such a vision that is.

What we see in the detail of a budget is often in stark contrast to the public statements of governments. As the great U.S. journalist I.F. Stone told journalism students:

“Among all the things I’m going to tell you today about being a journalist, all you have to remember is two words: governments lie.”

The budget is one of the few opportunities to see these lies exposed in print.

So, what does the budget tell us about the Abbott government’s vision for Australia and how does that compare to their stated values?

The much discussed $7 GP co-payment will, according to epidemiologists and doctors, lead to significantly reduced health outcomes, particularly for the poorest Australians. Despite the way it’s often reported, the Medicare co-payment is not supposed to repair the budget through increased revenue but by reducing the demand for medical services. The revenue will go into the medical research fund so it has no impact on budget deficits. GP visits are the early warning system of healthcare and are critical for effective prevention and early diagnosis of disease. Prevention and early diagnosis reduce health costs in the long run.

The GP co-payments, therefore, will not only result in poorer health outcomes but are also very poorly targeted as a cost saving measure. It would be naïve in the extreme to think that the coalition government are not aware of these facts. If the GP co-payment is not about good health outcomes and is not about saving the government money, what is it about?

The simple reality is that the Liberal party have always hated Medicare. They would love to destroy it but they cannot because it is so popular and so effective. The GP co-payment is just one blow in the death by a thousand cuts the Coalition intends to inflict on our universal healthcare system. Reduced federal funding for hospitals is another. Just like their Republican counterparts in the US who have so stridently opposed the introduction of a basic medical safety net, the Liberals are, at heart, social Darwinians. If you want something, pay for it yourself. If you can’t afford it then you don’t deserve to have it because you haven’t worked hard enough or tried hard enough.

Hockey’s philosophy is “if you can’t afford it you don’t deserve to have it”.

This underlying philosophy can be seen scattered throughout the rest of the budget. Joe Hockey has told us that everyone needs to do the heavy lifting for this budget. The exclusion of any long term measures that increase the contribution made by wealthy Australians tells us that Hockey and Abbott believe the wealthy already do enough heavy lifting and should not be further burdened. The people who need to contribute more are those in the middle and below but particularly the unemployed, the poor and the sick.

Small details that together reveal the bigger picture are everywhere. Tradies will have to drag their weary bodies onto building sites until they are 70. If you’re under 30 and you lose your job you’ll have to wait six months before you can get the dole (what you’re supposed to live on during that time is anybody’s guess).

All these changes are justified by the great lie that sits behind the 2014 federal budget; that there is a fiscal crisis that must be urgently addressed by cutting government expenditure. There’s no shortage of detailed commentary showing that this crisis is nine tenths fabrication but that doesn’t stop the government saying it nor stop many news outlets repeating it with a straight face.

Abbott and Hockey are jealous of all the governments throughout the developed world who have a genuine economic crisis to use as an excuse to reduce the size of government. So what do they do? They create a fictional crisis here so that they can join in the fun.

As Grover Norquist famously said, the goal is to “get government down to the size where we can drown it in the bathtub.”

Are there long term structural problems with the budget that should be addressed? Yes. Is dramatic government cost cutting required to address these problems? No.

The rest is smoke and mirrors.

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Great article by Tim Thornton in today’s Age on the problems with economics education

Posted on May 14, 2014 by Warwick Smith

I couldn’t agree more with what Tim writes here. Having a background in science when I studied undergraduate economics at the University of Melbourne I was shocked by the uncritical adherence to flawed assumptions that was taught to undergraduates and the complete lack of critical analysis.

The problem with the way we educate economists

Originally published in The Age.
Date: May 13, 2014

By Tim Thornton

Neoclassical economists control the curriculum, but a global wave of protest might change that soon.

It is widely understood across society that all is not well in the house of economics. In particular, there has been much criticism of the discipline’s inability to anticipate the global financial crisis, with even the Queen feeling compelled to ask Britain’s leading economists why they did not see the crisis coming.

More recently, there have been growing protests about the narrow way in which economists have been educated. Last week, 48 associations of economics students from 21 countries (including Australia) formed the International Student Initiative for Pluralism in Economics and published an open letter calling for deep reforms in the way economics is taught. The students point out how the narrowing of the curriculum has meant that many of them only get a simplistic, uncritical coverage of just one area of economics: what is known as the neoclassical school. This is the school that has been increasingly criticised as inadequate.

Why do so many students care, and why should we care, about the narrow and uncritical economics education they are receiving? The students correctly point out that the way economics is taught has consequences far beyond the university walls: it shapes the minds of the next generation of policymakers, and therefore shapes how societies respond to the substantial challenges of the 21st century.

Because the big choices that face our society are increasingly framed in economic terms, it is critical that students obtain an education that allows them to properly assess the options in front of them.

The students are dissatisfied for three reasons. Firstly, there is generally no required study of economic history or the history of economic thought. This produces graduates with dangerous levels of historical amnesia in regard to the world and to the discipline they assume they understand.

Secondly, contemporary economics students will rarely encounter any of the schools that compete with the neoclassical school: institutional, post-Keynesian, behavioural, Marxian, Austrian, feminist or ecological. These economics schools, which come from all points of the intellectual and ideological compass, make crucial contributions to building up our understanding of a complex and ever-changing economic and social world.

Thirdly, the curriculum fails to incorporate crucial insights offered by other disciplines such as politics, philosophy, history, sociology and psychology.

Student protests over economics curriculum is nothing new. At Sydney University, demands for greater pluralism were sustained over four decades. Tellingly, the situation could only be resolved by creating a separate department in the social science faculty: The Department of Political Economy. This department has prospered. Its first-year elective subject “economics as a social science” typically has enrolments of 600 to 700 students.

Total enrolments in its subject offerings have sometimes been over 3000. More importantly, many of its past students have gone on to make big contributions to the world and have also acknowledged how important political economy has been to their personal and professional development.

Why is the contemporary economics curriculum generally so narrow, and why is it so difficult to remedy? Various factors are at play, but a central reason is that neoclassical economists still hold the institutional power within traditional centres of economics teaching. While there can be some impressive individual exceptions, all too often neoclassical economists are uncomprehending, indifferent or hostile to pluralism.

Intellectual suppression, by means fair and foul, is all too common.

What is likely to happen from here? Having worked inside university economics departments for more than 10 years, and having undertaken a doctorate on the economics curriculum, I very much hope the students adopt a two-track strategy: they should keep asking for something better from departments of economics, but put just as much effort into investigating whether a pluralist economics curriculum can be taught from elsewhere in the university.

Sydney University’s Department of Political Economy offers one template by which this might be done. Other potential bases for a pluralist curriculum include departments of politics and management. Political economy could clearly grow in such places: the demand and need for it is strong, the benefits to individuals, companies and societies are well established.

We cannot know how this global wave of protest will play out. Perhaps the students will achieve change from within the traditional centres of economics teaching. Failing this, they have an alternative strategy of looking outside the traditional economics department.

Under this strategy, the implacably opposed neoclassical economists can teach and research what they like and they can call that work economics. The rest of us can build a pluralist economics and call it political economy.

Might the neoclassicals complain? Given their unshakeable belief in the superiority of their product, their well-known condemnation of monopoly power, their belief in the benefits of competition and customer choice, then surely they, of all people, could not object to a bit of competition on a level playing field?

Dr Tim Thornton is a lecturer at the School of Politics and Education at Swinburne University.

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My Op-ed on productivity in today’s Canberra Times

Posted on May 10, 2014 by Warwick Smith

Longer hours means lower productivity for the public service

Originally published in The Canberra Times

Date: May 6, 2014

Warwick Smith

Job security in the public service is declining and conditions are under assault. Job security in the public service is declining and conditions are under assault.

Recently we’ve heard the federal government discussing the possibility of increasing the number of hours a week worked by public servants (“Public servants face longer working hours to boost productivity”, canberratimes.com.au, April 19).

So, will making public servants work longer hours improve productivity? In short, no.

Economic and business commentators regularly bemoan Australia’s low productivity growth and suggest that lifting productivity is the answer to many of our problems. These commentators never ask the most important question: productivity of what, for what? What is it that we want to use more efficiently? The unspoken answer in public discourse in Australia is labour.

Labour productivity is traditionally measured as output per hour worked. Making people work more hours does not increase labour productivity. In fact, it almost always reduces average labour productivity because the extra hours are less productive.

Perhaps then the aim is to increase capital productivity (getting more work done for each taxpayer dollar spent). It seems plausible, on the face of it, that you might be able to wring a bit more work out of each employee by insisting on longer working hours, even if those extra hours are less productive. However, in the Swedish city of Gothenburg, trials are under way to reduce public service working hours in the name of greater productivity. They believe that by reducing the working day to six hours they will increase productivity during those six hours, reduce sick leave and create an overall more healthy and productive workplace. The contrast with the attitude here couldn’t be greater.

In Australia there has historically been an explicitly acknowledged trade-off for white-collar workers between the higher pay, tougher working conditions of the private sector and lower pay, better working conditions of the public sector. Good working conditions and job security have been among the most powerful factors that attract quality candidates to many public sector jobs. Job security in the public service is declining and conditions are under assault. This means the public service will have to pay higher wages or they will attract lower quality candidates. In other words, increasing public service working hours in the name of productivity is a self-defeating initiative.

Additionally, this initiative fails to acknowledge that many public servants already work longer hours than mandated by their contracts, particularly those in higher-level positions. Many of these public servants will meet the longer working hour requirements without doing anything different, thus producing no extra output. The impact, therefore, of instituting longer working hours will largely fall on the lower-income earners and those working in government shop-fronts and the like.

This push to lengthen working hours also ignores the lessons of economic history. Productivity improvements do not largely come from industrial relations changes, but from technological and cultural innovation and increased human capital.

If the federal government is serious about increasing productivity, both within the public service and in the broader Australian economy, it must take a longer view than the next election and pour money into research and education. The evidence tells us that such investments will pay for themselves in the long term.

As part of this there should be an injection of new funding in the CSIRO, as it has a fantastic record of producing practical innovations that have increased productivity not just in Australia, but around the world. The Australian Research Council and the National Health and Medical Research Council should similarly be expanded with substantial increases in research grants. Such grants should be untied and, subject to appropriate ethics review, simply provide the best researchers with money to do what they want to do. This is a proven method for creating genuine innovation – as opposed to research priorities dictated by bureaucratic or political preferences.

The proposals we’ve seen to further privatise universities and release them from fee constraints and the like must be resisted. It’s true that such moves might create a few better elite universities that are largely attended by the sons and daughters of Australia’s wealthiest families, but this would come at the cost of all of the rest of the university sector and the overwhelming majority of students and researchers. Entrance to our top universities should be merit based, not wealth based. This is not just a social justice issue but is also an efficiency issue. We don’t want it to be our wealthiest students who get the best education; we want it to be our best-qualified students.

We’d do well to think very carefully about the Swedish example mentioned earlier. Despite what economists’ models say, people are not like other resources and they need to be treated differently. The purpose of society is not to get better bang for your buck; it’s to create an environment in which people thrive. We should aim for smart, happy and healthy workplaces where people produce a lot during the time they are at work, rather than increasing their hours in a short-sighted attempt to squeeze as much out of each individual as we can.

Warwick Smith is a research economist at the University of Melbourne

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Resource rent tax – radio interview

Posted on May 9, 2014 by Warwick Smith

I recently appeared on “On the money” on 2ser in Sydney (and other stations around the country through the community radio network).  I was explaining what a resource rent tax was and how it worked. As usual with this topic, a significant amount of the time available was spent explaining that the word “rent“, when used by economists, has nothing to do with the word “rent” as used by non-economists. It’s been suggested to me recently that we need to come up with a new term for economic rent to avoid all the confusion. Not sure how you’d go about doing that and garnering broad enough support that your extra term wouldn’t just add to the confusion.

On the Money is a great program which aims to demystify financial matters. The program I was on is not available for podcast but you can probably catch the show on your local community radion station.

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Op-ed in The Age: Treasurer’s agenda running out of truth

Posted on February 27, 2014 by Warwick Smith

This article originally appeared in The Age.

Treasurer’s agenda running out of truth

by Warwick Smith

Joe Hockey has been talking non-stop about how the country is running out of money for Medicare, for the ABC, for welfare and for education. He’s said that ”we will either have to have a massive increase in taxes – and that means fewer jobs at the end of the day – or we are going to have to look at ways that we can restructure the system to make it sustainable” (”Hockey waves big stick, points to shortage of cash”, The Saturday Age, February 22).

Tony Abbott has said similar things, including repeating lines such as ”no country has ever taxed or subsidised its way to prosperity”. Those of us who know anything about tax economics know Hockey and Abbott are talking rubbish. Fortunately for them, most people don’t know much about tax economics and don’t want to know.

Have countries subsidised their way to prosperity? Do higher taxes mean fewer jobs? If we look at the 20 countries with the highest GDP per capita we find quite a few have much higher rates of tax as a proportion of GDP. Sweden, for example, has similar GDP per capita to Australia and takes 54 per cent of GDP in tax (compared with 31 per cent in Australia).

Most of these high taxing, high GDP per capita countries have low unemployment, low inflation and score very well on various measures of life satisfaction and wellbeing. Their existence and their success prove Abbott and Hockey wrong and demonstrate that there is another path to prosperity, one that also leads to less inequality while maintaining very high living standards for the overwhelming majority.

The reality is that Hockey and Abbott are ideologically conditioned to believe in small government and that government is incapable of doing things as well as private enterprise. This is precisely why Medicare and the ABC are at the top of their hit list. These two government-funded organisations are very efficient and very popular. They therefore must be destroyed because they prove wrong one of the central tenets of small government ideology.

We can easily pay for all the things Joe Hockey claims we cannot afford if we are prepared to increase government revenue. In my opinion, the first place to start would be tax expenditures (tax deductions or exemptions).

Treasury forecasts that next financial year we will spend over $45 billion in total on superannuation tax concessions, around $17 billion of which will go to the top 10 per cent of income earners.

We also spend over $8 billion a year giving concessional treatment to capital gains earnings and allowing negative gearing. Again, this money mostly goes to the more wealthy Australians and it artificially drives up house prices. You could easily add tens of billions of dollars to government coffers just from those sources without having to compromise on healthcare, education or the quality of our national broadcaster. We haven’t even begun to discuss the outrageous subsidies and tax concessions given to our mining and energy sectors – there’s billions more to be found there (and no, it wouldn’t send them to wall, that’s just more unsubstantiated rhetoric).

I don’t want to trivialise the structural problems that exist in our tax and transfer system and I certainly believe genuine tax reform is required. The above simply illustrates that there is plenty of cash to pay for Medicare, education and the ABC if Joe Hockey is prepared to look around.

We know as surely as the sun will rise tomorrow that Joe Hockey and Tony Abbott will not for a second consider the above sources of revenue. Welfare for the rich who contribute to both major parties’ electoral campaigns has been effectively removed from democratic scrutiny (and certainly not included in any definition of the ”age of entitlement”).

Still, even though we know they won’t do it, it’s valuable to know there are real alternatives to Hockey’s slash and burn agenda.

Warwick Smith is a research economist at the University of Melbourne.

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