New Overland article published today

Posted on July 23, 2013 by Warwick Smith

Below is my latest article. Head to Overland to read the original.

Superannuation

Australia’s first compulsory Ponzi scheme

Compulsory superannuation was introduced by the Keating government in 1992 as a way of dealing with the ballooning age-pension costs resulting from an ageing population and the looming retirement of hordes of baby boomers. As it turns out, the superannuation scheme we now have is costing the government more money than it’s saving. How could this be and why aren’t we doing anything about it? An examination of the growing financial sector in Australia and its increasing resemblance to a giant Ponzi scheme provides some of the answers.

Ponzi schemes are named after Charles Ponzi who, in the United States in 1920, offered investors fantastic returns on money he said would be used to buy international reply coupons in Italy, where they were cheap, and cash them in for stamps in the US with profits of over 400 per cent. Instead, he took investors’ money and used it to pay previous investors (as well as taking a cut for himself, of course). Using money from current investors to pay previous investors’ returns is the core element of a Ponzi scheme.

Why do I think this is relevant to superannuation in Australia? Super is clearly not solving the problem that Keating claimed it would, and yet we are planning to pour more and more of Australia’s wages into it. The Australian government is currently spending about $32 billion per year on superannuation tax expenditures (taxation based incentives for superannuation contributions). It has been estimated, by the superannuation industry, that this $32 billion in tax expenditures is currently saving the government about $7 billion in pension costs. So, if we dumped all of the superannuation tax concessions, we could not only provide pensions to all of those who would become eligible but also increase payments to provide a more comfortable retirement. Similarly, a CPA Australia report concluded that the current superannuation arrangements are having a ‘minimal impact’ on retirement savings and that high levels of household debt mean that many retirees will still be reliant on the age pension despite contributing to super all their working lives.

If super is not protecting government coffers from blowouts associated with providing pensions to the baby boomers, who really benefits from the current superannuation arrangements? To find out, we should follow the money. Let’s consider Australian superannuation in its entirety, not just the compulsory part, as this gives us the full context of the compulsory component. About 38 per cent of the superannuation tax expenditure goes to the wealthiest 10 per cent, which means that by 2014–15 the top 10 per cent of income earners will receive over $17 billion in tax concessions. So why exactly are we planning to spend $17 billion per year helping the wealthiest Australians save for their retirement?

Even those staggering figures don’t really explain who benefits from the current super arrangements. Seventeen billions might seem like a lot but the total assets currently in superannuation funds approach $1.5 trillion. We know private fund managers reap massive rewards at the expense of their customers and we know firms that help the wealthy manage their Self-Managed Superannuation Funds (SMSFs) are laughing all the way to the bank, but they are still just skimming the surface of the massive super-pot.

In 2011–12, about a third of super was invested in Australian shares, about a third in overseas shares and about 10 per cent in real estate. Most of the rest is in interest bearing investments of various kinds. This means that about $500 billion has gone from wages into the Australian share market. More money is pouring into super funds every payday. A substantial proportion goes into shares, regardless of what’s happening in the broader economy, simply because there aren’t many options and because that’s what many default portfolios do. At this point, the Ponzi scheme comparison begins to emerge.

How much of this investment is based on the underlying value of the companies whose shares are being purchased? Individual decisions about investment may be directed by the relative value of one stock versus another but are often not based on absolute value. In an inflated share market just about everything is overvalued, yet that doesn’t matter if people are still buying, because returns will be generated by capital gains, not by dividends.

Because money is constantly flowing into the share market due to mandatory superannuation contributions, the likelihood of capital gains is artificially raised. This makes buying shares an even better prospect so more get on board, thus driving prices up further. This disconnect with the actual value of the underlying asset is the very essence of a Ponzi scheme in which your return is reliant on money flowing in from future investors.

Ponzi schemes usually unravel when the amount of money coming in from new investors isn’t enough to cover the payments to previous investors. Here come the retiring baby boomers, needing their super and pulling that money out of the share market. How will we prop up the Ponzi scheme? Simple: the Australian parliament has already passed legislation increasing the mandatory contributions from 9 per cent of wages to 12, as more and more baby boomers retire. This keeps the extra money coming in despite the fact that there are not enough people entering the workforce. The Henry Tax Review panel concluded that it was not necessary to increase super contributions above 9 per cent and gave clear reasons why. But we’re doing it anyway. Why is that? I’m pretty sure it’s got more to do with protecting the financial sector than protecting retirement incomes for wage earners or protecting government coffers.

I don’t mean to imply that that the entire equities market is one big Ponzi scheme; more that it has Ponzi elements that distort the system, and prevent it acting as initially intended. Instead of being a vehicle for companies to raise revenue and for small investors to have part ownership of large companies, share market investments are predominantly speculation on price increases, many of which are driven by factors which have no bearing on the underlying value or performance of the companies being bought and sold.

Compulsory super has dragged every Australian wage earner into this game of bubble blowing with the level of their retirement income being dependent on whether they retire while the beautiful bubble is still in the air. Do we really want our retirement incomes to depend on the activities of major speculators? The ironic thing here is that our super funds have become some of the biggest players in the speculation game.

If we go back to the central concern and focus on providing a reasonable income to retired Australians then there are definitely more appealing options than Ponzi schemes. One is obviously the public option of providing broad access to an age pension. While this has serious budgetary implications, as highlighted at the beginning of this article, these are not nearly as severe as they are made out to be once you acknowledge how much is being spent providing superannuation tax concessions.

Another option, as recently floated by super industry giant IFM, is to use the money in superannuation funds to pay for important infrastructure projects. The government could facilitate this at relatively low costs by providing guaranteed returns. Instead of governments borrowing the money to pay for infrastructure, super funds could provide the capital. Interest that governments would have paid on loans could instead be supporting the retirement incomes of its citizens. There are many models through which this could occur, from the issue of dedicated infrastructure bonds through to more direct investment in infrastructure projects – and the outcome would be roughly the same.

Superannuation is now a massive industry in Australia and has, as a result, become a powerful political lobbying force which resists any move that might decrease its importance in the Australian economy. The genie can still be put back in the bottle if we do that rarest of things in politics, which is to stick to the principles, but there’s no sign of that happening at the moment.

Posted in Inequality, superannuation | Tagged , , , | 1 Comment

Brown coal Victoria’s economic saviour. Really? Are they serious?

Posted on July 10, 2013 by Warwick Smith

The Victorian Minister for State Development, Peter Ryan, spoke in State Parliament:

Victoria has one of the world’s most extensive brown coal deposits and the government is committed to maximising the opportunities to develop this resource in support of economic development, investment and job creation.

Seriously? While every well meaning individual and organisation in the world is desperately trying to work out how we can stop using this stuff the Victorian government sees expanding its use as our economic saviour. In terms of government ideas for solving problems I’d say brown coal ranks right down the bottom, just above eugenics and war.

Posted in Sustainability | Tagged , , , , | 1 Comment

New article in The Conversation: More pie in the sky – economic progress no slice of life

Posted on June 25, 2013 by Warwick Smith

Originally published in The Conversation.

More pie in the sky – economic progress no slice of life

By Warwick Smith, University of Melbourne

In the verbal volley between Gillard and Abbott, Swan and Hockey, there is a conversation that we are not hearing. It bubbles below the consciousness of mainstream Australia, a conversation that is old news for many of us who delve beyond the broadsheets and broadcasts and, for some, a lifetime mission to see in the mainstream.

I believe this conversation can be summed up by the question: what is progress and how should we measure it? Catchphrases such as mateship and “family values” aside, we don’t talk much about our core values or our aspirations in any sense that is not economic.

While economic growth, interest rates and inflation are all good things to measure, they tell us very little about who we are, what we want and how well we’re achieving goals that really make a difference to our lives. Most importantly, how do they help us know if our government is focused on providing us with an environment in which we can achieve those goals?

For many people in the developed world, consumption has become integrated into our sense of identity and into our measure of progress. Who we are and who we associate with is in part defined by what we buy. Our goals are often material: a new car, a renovated kitchen or a 3D TV will make us happier. In this Sisphyean culture, we roll our boulders to the top of the hill and then look about for the next boulder and the next highest hill, glancing at our neighbour’s boulders and their hills as our measure of self-worth. How did we get here? And is it what we want?

A little insight into modern economic theory can help explain our predicament. In undergraduate courses, the core of modern economics is usually fleetingly mentioned in the first lecture with a one-liner like:

“Individuals and firms allocate their limited resources to make themselves as well off as possible.”

The crux of this assumption is that the more things we buy or sell that include an economic surplus, the better off we are. A surplus is simply how much more we would have paid for something than it costs (consumer surplus) or how much less we would have sold something for than somebody paid for it (producer surplus).

That’s it. That is how economists maximise human welfare. Leisure has a price too, which fits into the model, and with that included, working out how to make the world a better place becomes remarkably simple…deceptively simple.

Unfortunately, the relationship between income and direct measures of wellbeing is logarithmic, at best. This means that increasing somebody’s income from $200,000 to $400,000 per annum will provide the same increase in wellbeing as an increase from $2000 to $4000. These diminishing returns on GDP growth for wealthy countries cast the whole enterprise into doubt.

The problems only get worse when economists try to create a tally of society’s welfare by adding one person’s economic welfare to another’s.

Money may talk but another conversation is bubbling below the broadsheet headlines and politician volleys. Shutterstock/Nikola Bilic

Not all people like the same things to the same extent. This means every person gains a different amount of utility from the same product at the same price. You can’t add up all of the consumer surpluses from a fall in the price of chocolate because the benefit to an individual depends on how much they like chocolate. How do economists get around the fact that it’s simply not possible to measure every person’s tastes for every possible product? They cheat.

In order to aggregate social welfare, economists assume that there is only one consumer with one set of tastes who gains the same benefit from each extra unit of consumption (even if it’s the 40th apple for the day). Every single product is also assumed to maintain its share of an individual’s budget no matter what their income. Economic models then calculate the economic welfare of this individual and multiply the result by the number of people in the population.

If you follow the logic of these models it leads inexorably to the desirability of an ever-expanding economy. In terms of overall economic welfare it doesn’t matter who has the extra money. Give a loaf of bread to a homeless person or to Gina Rinehart and the overall social welfare increases by the same amount. This result flows, not from any data or evidence, but from these obviously flawed assumptions that are built into the model to make the mathematics work.

There is a saying about mathematical models: garbage in, garbage out. If we remove the garbage assumptions made about products improving welfare no matter how many are consumed and products taking up the same proportion of our income no matter how much we earn, then we get a very different picture. And it’s one that places a great deal of importance on economic equality. It really does matter if the bread goes to somebody who would otherwise be unable to afford it and the first apple somebody has in a day is much more valuable than the 40th.

Economists have hoodwinked us into thinking measures of economic progress are measures of real progress. This begs the obvious question, how do we measure non-economic progress?

Former French President Nicolas Sarkozy commissioned a report in an attempt to answer this very question. The report, published in 2009, is a great summary of the topic but makes few tangible recommendations. As it says, the report represents the beginning of a conversation.

This is a conversation we are not having in the Australian mainstream and it is almost entirely absent from federal politics. Labor and the Coalition are still focused on economic growth as the yardstick of success – tempered by fears of inflation and debt.

We need to start measuring and valuing things that actually make a difference to people’s lives and use these measures to gauge our progress as a nation. Once we do, we can measure policies and policy-makers against a yardstick that means something tangible to us. We may also find new meaning in our lives as we work for something more valuable than the latest gadget or the biggest house.

Until we have this conversation and establish national environmental and social-progress indicators to supplement raw economic indicators, we will be forever pushing boulders up hills and wondering why our lives feel a bit meaningless.

The Conversation

This article was originally published at The Conversation.
Read the original article.

Posted in Economic theory, Inequality, neo-classical economics | Tagged , , , , , , | Leave a comment

New Matilida article: Are Growth And Consumption Our Enemies?

Posted on June 24, 2013 by Warwick Smith

I’ve just had an article published in New Matilda. The article is reproduced below. Thanks to the folks at New Matilda.

Are Growth And Consumption Our Enemies?

Professor Ross Garnaut recently argued that those of us interested in sustainability must not make economic growth our enemy, but instead must focus on sustainable growth which reduces resource intensity:

“When we see economic growth in this light, we recognise that the important thing is to make sure that we put in place policies that encourage resource-conserving and discourage resource-using capital intensification and technological change”.

It’s an appealing argument. The theory is difficult to fault. If we recycle more raw materials, focus on services rather than goods and harness technological developments to improve resource productivity (producing the same or more with less raw materials) we can keep the economy growing while reducing our ecological footprint. However, if we move past the catchphrases and do some maths the enormity of the task becomes clear.

According to the Living Planet 2012 report, Australians use about 6.5 global hectares (gha) per person. A global hectare is one hectare of arable land with average productivity and is a way of combining many measures of resource use into a single figure. These measures include carbon dioxide emissions and a tally of the cropland, grazing land, forest, built up land and fishing grounds required to supply a population with their current consumption. While the world has a biocapacity of about 1.8 gha per person, Australia’s capacity is almost 15 gha per person.

Determining what a sustainable economy is rests on whether or not we look beyond our borders. Based on the above figures, we could say that we are already exceeding our footprint allocation by almost 400 per cent. Or we could conclude that we are at less than half our resource capacity. I use the Living Planet report only as an illustration here, others have used different measures to examine sustainable resource use and have come up with comparable results.

Of course, if we and all other countries with a global hectare surplus were to use it all for themselves it would leave substantially less than 1.8 gha per person for the rest of the globe. To me, the only ethically defensible position is to aim for the global average of available biocapacity and, through exports, share our excess with others. Making our economy sustainable by this measure, and maintaining economic growth as Professor Garnaut suggests, is a herculean task indeed.

If we assume a very successful long term GDP growth rate of 3 per cent, our GDP will quadruple over the next 50 years from about $1.4 trillion to just over $6 trillion. In order to play our part in creating a sustainable global economy we must cut our resource use down to 27 per cent of what it is now (1.8/6.5). So, taking account of economic growth, our resource intensity must be cut by about 94 per cent over the next 50 years in order to achieve sustainability. These back of the envelope calculations are rough (not least because the total number of available gha is decreasing over time and global population is rising) but good enough to illustrate the challenge.

On the other hand, if our economy didn’t grow, we would only have to cut resource intensity by about 73 per cent to be using up only our share of global resources Only 73 per cent!

Growth or no growth, if we take sustainability seriously – global sustainability that is, not parochial ideas about sustainability – then we have to quite radically change how we live and how we do business. There’s no indication that we’re even thinking about these issues, let alone ready to work on achieving sustainability.

In order to effectively curb greenhouse gas emissions and meet other sustainability goals, our governments need to be willing to make policy decisions which will not optimise economic growth and voters need to understand that this is desirable. Somehow the economists took over the halls of power and, being an economist myself, I know this is a serious problem.

Is anybody other than Ross Garnaut even talking about this stuff in the mainstream? Gillard or Swan? Abbott or Hockey? The Greens talk about these issues when they’re given the chance but even they have to temper the message to avoid being seen as too radical. A serious transition to a sustainable economy would take even more thought, planning and sacrifice than transforming to a low carbon economy.

I don’t believe economic growth per se is the problem; the problem comes from making growth the number one priority, above the environment and above social and individual wellbeing. Can we have a growing economy while we work towards sustainability? Yes. Can we have a sustainable economy which values the wellbeing of the citizens when growth is our primary goal? Almost certainly not.

While I agree with Professor Garnaut that we should not make economic growth our enemy, we should certainly re-evaluate the closeness of the relationship, not only for the sake of the environment but also for our overall happiness and wellbeing.

Posted in Economic theory, Sustainability | Tagged , , , , , | 1 Comment

Monopoly rents. An interesting piece by Paul Krugman

Posted on June 21, 2013 by Warwick Smith

I’m not really into uncritically re-posting work by others but I think this one deserves to be an exception (partly because I haven’t got time to really write about it). Krugman highlights something I’ve been thinking about a fair bit lately – monopoly rents. As relevant to Australia as the US.

Mining companies extract monopoly rents in Australia. A mining license is very much like a patent ; one rewards exploration, the other rewards innovation. Both can be exploited by economic rent seekers. We have rent-seeking behaviour everywhere we look in Australia, in banking, in the supermarket duopoly and in real estate. While I think rent seekers have always been around, Krugman is right to highlight the importance of monopoly rents as a difference between the current global financial crisis and previous crises. His comments about lack of business investment triggered by low interest rates are particularly interesting.

Profits Without Production, by Paul Krugman, Commentary, NY Times

One lesson from recent economic troubles has been the usefulness of history. Just as the crisis was unfolding, the Harvard economists Carmen Reinhart and Kenneth Rogoff — who unfortunately became famous for their worst work — published a brilliant book with the sarcastic title “This Time Is Different.” Their point, of course, was that there is a strong family resemblance among crises. Indeed, historical parallels — not just to the 1930s, but to Japan in the 1990s, Britain in the 1920s, and more — have been vital guides to the present.

Yet economies do change over time, and sometimes in fundamental ways. So what’s really different about America in the 21st century?

The most significant answer, I’d suggest, is the growing importance of monopoly rents: profits that don’t represent returns on investment, but instead reflect the value of market dominance. Sometimes that dominance seems deserved, sometimes not; but, either way, the growing importance of rents is producing a new disconnect between profits and production and may be a factor prolonging the slump.

To see what I’m talking about, consider the differences between the iconic companies of two different eras: General Motors in the 1950s and 1960s, and Apple today.

Obviously, G.M. in its heyday had a lot of market power. Nonetheless, the company’s value came largely from its productive capacity: it owned hundreds of factories and employed around 1 percent of the total nonfarm work force.

Apple, by contrast, seems barely tethered to the material world. Depending on the vagaries of its stock price, it’s either the highest-valued or the second-highest-valued company in America, but it employs less than 0.05 percent of our workers. To some extent, that’s because it has outsourced almost all its production overseas. But the truth is that the Chinese aren’t making that much money from Apple sales either. To a large extent, the price you pay for an iWhatever is disconnected from the cost of producing the gadget. Apple simply charges what the traffic will bear, and given the strength of its market position, the traffic will bear a lot.

Again, I’m not making a moral judgment here. You can argue that Apple earned its special position — although I’m not sure how many would make a similar claim for Microsoft, which made huge profits for many years, let alone for the financial industry, which is also marked by a lot of what look like monopoly rents, and these days accounts for roughly 30 percent of total corporate profits. Anyway, whether corporations deserve their privileged status or not, the economy is affected, and not in a good way, when profits increasingly reflect market power rather than production.

Here’s an example. As many economists have lately been pointing out, these days the old story about rising inequality, in which it was driven by a growing premium on skill, has lost whatever relevance it may have had. Since around 2000, the big story has, instead, been one of a sharp shift in the distribution of income away from wages in general, and toward profits. But here’s the puzzle: Since profits are high while borrowing costs are low, why aren’t we seeing a boom in business investment? And, no, investment isn’t depressed because President Obama has hurt the feelings of business leaders or because they’re terrified by the prospect of universal health insurance.

Well, there’s no puzzle here if rising profits reflect rents, not returns on investment. A monopolist can, after all, be highly profitable yet see no good reason to expand its productive capacity. And Apple again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.

Or to put it differently, rising monopoly rents can and arguably have had the effect of simultaneously depressing both wages and the perceived return on investment.

You might suspect that this can’t be good for the broader economy, and you’d be right. If household income and hence household spending is held down because labor gets an ever-smaller share of national income, while corporations, despite soaring profits, have little incentive to invest, you have a recipe for persistently depressed demand. I don’t think this is the only reason our recovery has been so weak — weak recoveries are normal after financial crises — but it’s probably a contributory factor.

Just to be clear, nothing I’ve said here makes the lessons of history irrelevant. In particular, the widening disconnect between profits and production does nothing to weaken the case for expansionary monetary and fiscal policy as long as the economy stays depressed. But the economy is changing, and in future columns I’ll try to say something about what that means for policy.

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Is there a baby in the neoclassical economics bath water?

Posted on May 15, 2013 by Warwick Smith

The World Economics Association is currently holding an online conference: The economics curriculum: towards a radical reformation. I think it’s a great subject that sorely needs some serious discussion. I’ve written in the comments section on one of the papers a reply which briefly sums up my thinking on the subject. I decided to copy it here as a reminder to myself to engage more with the topic. As I say below, it’s a bit of a rant but it’s something that’s been chewing away at my brain ever since I began first year undergraduate economics. Sean Pascoe wrote a comment titled “Don’t throw the baby out with the bath water” which suggested we should keep elements of the neoclassical theoretical framework but teach a more flexible approach to its application. My reply is below.

Hi Sean,
I completely agree with you about economists working with other disciplines and with respect to economists being flexible. However, I’m curious as to which parts of the neoclassical theoretical foundations you think we should be careful not to throw out.

You say that scrapping the neoclassical framework “would leave us in a vacuum where there is nothing solid to start from”. We have the world to start from and I think that’s a lot more solid than the assumptions that underpin neoclassical economics and would be a terrific place to start building a new theoretical framework.

Economic welfare is a deeply flawed concept that more or less underpins the entire neoclassical enterprise. The efficient market hypothesis is in tatters. Even the elegant theory of supply and demand is full of holes in any real world application. Neoclassically derived monetary theory is failing to comprehend, let alone fix, the current financial woes. Trade theories of absolute and comparative advantage are farcical in a rapidly changing world and, if seriously applied, would lead economies into disasterous dead ends – particularly for developing countries.

Don’t get me wrong, I realise that grains of truth lie in many of the above but I don’t think that’s enough to suggest we should keep them as the building blocks of a theoretical framework. I believe that economics needs to become more scientific. We need to openly acknowledge the values that underpin our goals and then use a scientific approach to find the best ways to achieve those goals.

The neoclassical system buries the ideologically driven goals deep inside the theory (as assumptions about economic welfare) and then pretends that what is built on top is scientific. When data from the real world clash with the theory, instead of modifying the theory, neoclassical economists say there is something wrong with the world (ie government interference, not enough competition, too many trade barriers etc etc).

Anyway, that was a bit of a rant framed at the beginning as a question but I am genuinely interested in which parts of the neoclassical framework you think we should keep and why.

If sean posts a reply, I’ll put it here too. As I said, this is a sorely needed conversation.

When I was studying second year microeconomics I wrote a long critique of the course during exam study time and sent it to the entire class email list. It created a brief storm but had the fantastic result of linking me up with other critically thinking students who were in the course and we formed a little rebel economists reading (and support) group. Up until then we’d all thought we were alone in the wilderness. Somebody sent my rant to Steve Keen at UWS who put it on the web and posted a link to it in his blog. To be honest I’m a little embarrassed by some of the naive content now but the curriculum simply didn’t allow time for theoretical questions and discussions so coming to clear informed opinions about the content of the courses relied entirely on work done outside the formal education – a case in point.

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Women’s superannuation

Posted on May 1, 2013 by Warwick Smith

Mark Bouris recently wrote a column for the Age and Sydney Morning Herald about women and superannuation. It’s a very important topic and credit to Mark for opening a public conversation about it. The column outlined the problem (which is that women tend to retire with much less super than men) and said we needed a superannuation system that addressed this inequality but said nothing about what such a system might look like. In response to comments and questions via twitter from myself and others, Mark wrote another column proposing some solutions. Thanks again to Mark for taking this on as it’s a very challenging problem to solve. Below are my thoughts on the proposed solutions in his article. I’m not writing this to bring down Mark’s ideas, just to take part in the conversation and see if we can hone in on some implementable solutions.

■ Contributions
The superannuation guarantee is about to start rising, to 12 per cent of wages by 2019. We could look at this being struck at 15 per cent of wages for women. The actuary firm Rice Warner now has an application before the Human Rights Commission to be allowed to pay 15 per cent super to female employees.

This would go a long way to bridging the gap but has two big problems. One is that women who do not pause their careers to have children could end up with more super than their male counterparts. The other problem is that employers may be more reluctant to hire women because of the extra costs. I can’t see this one flying politically because of these two problems. Perhaps if it was targetted to any individual who takes time out of work for child rearing and the duration of it was linked to the amount of time away from work it could have legs.

It’s critically important that measures like these apply to men who take time out from their careers because if they don’t then couples are under greater financial pressure to maintain current parent role stereotypes of men working and women staying at home. I’m not just saying this cos I’m a dad who stays home part-time…. honest.

■ Taxes
Superannuation is taxed at contribution and on earnings. We could drop one of these taxes to allow new mums’ contributions to grow faster.

Perhaps this would be useful as part of a suite of measures but unless it’s applied for the lifetime of the super or for some considerable time after return to work then the impact would be minimal as there usually isn’t all that much super in an account when women have children. Also, the concessional taxation of super is already pretty generous and you can imagine this being just another vehicle for the wealthy for tax minimisation.

■ Maternity cover
Employers may have generous maternity leave schemes, however, the employees’ super is not added to while they’re on leave. Some employers are paying the full super guarantee while the female employee is on maternity leave.

This is a really good one and is definitely worth pursuing I think. The obvious question is “who pays?” because we don’t want to create a disincentive for employing women of child bearing age. Again, needs to be for both men and women who take parenting leave.

This goes some way to fixing the problem but doesn’t address one of the big causes of the gender divide which is that having children often coincides with really critical years for career development. Not only are parents who take time out missing out on super while they’re out of the workforce but they’re setting themselves back in terms of promotions, skill development and all that. These have flow on effects through to the super contributions for the rest of their lives.

■ Government matching
To encourage women to stash money into super while they’re working, the government could look at matching female voluntary contributions dollar for dollar. Make them tax free.

Like the first suggestion, if this is universally offered to women then those who would get the most out of it are those who do not interrupt their careers to raise children as they are likely to have the most disposable income to make voluntary contributions to super. For the same reason it would disproportionately assist higher income earning women whether they have children or not. It would need to be targetted carefully and possibly be means tested or something to make it equitable.

■ Spouse concession
While a mum is out of the workforce raising a family, her spouse should be allowed to make contributions to her account tax free.

This is another one where by far the greatest benefit would be for the wealthy who would use this as yet another tax minimisation strategy. Poorer families trying to get by on one income will not have meaningful amounts of money to contribute.

■ Advice rebate
Along with women’s lower lifetime contribution levels, there is a widespread lack of understanding and comfort with the superannuation system. All financial services providers know this and don’t know what to do about it. We could look at fully tax-deductible financial advice for women, or allow fund managers and adviser groups to provide ”free” advice and claim the deductions themselves. Either way, women who are confident and informed will be more engaged with super and will be more likely to make good decisions.

This one’s a no-brainer. It should be done in one form or another.

■ Education
We have to start early, in our schools. Teaching the basics of investment and financial adequacy will empower young women with information.

I agree with this one too. Though just contemplating the bureaucratic hurdles required to implement it give me a headache.

I’m aware that all I’ve done here is critique the hard work of others without offering much myself so I will try to lend a little brain power to this issue over the next little while and write again with some more policy suggestions.

Thanks again Mark for raising this really important issue.

Mark Bouris’s article: http://www.smh.com.au/money/super-and-funds/strategies-to-fix-the-super-shortfall-20130427-2il2z.html#ixzz2RnelVQez

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State of the left

Posted on April 30, 2013 by Warwick Smith

Just read an article in Overland by Nina Power about the state of the left in modern politics. She claims that the left has lost it’s way and is losing the battle against the right with all manner of social welfare programs under attack and no great visions for the future.

Putting aside for now my serious doubts about the validity of the left/right dichotomy as a description of modern politics, I agree in a sense that the left has lost its’ way but I think the reason is totally opposite to what Nina Power asserts. I tend to agree with Clive Hamilton that the left has lost its’ way because it has achieved most of the old left wing aims. While poverty has not been eliminated and working people do still struggle, the working poor of the first half of the 20th century have all but disappeared. We have income support for all people not working (insufficient though it is) and we have universal health care (once dentistry is added this will be complete). Sure these things aren’t perfect and they are under constant attack but I think it’s a great exaggeration to suggest those attacks are succeeding.

So if I’m correct and the left has lost its way because most of the old labour left goals have been achieved, what’s next? I think the reorientation has to be about promoting actual wellbeing versus economic prosperity. There has been an assumption that the latter brings about the former – and to some extent that is true. However, there is no clear linear relationship. Increasing material wellbeing dramatically improves all kinds of measures of self-reported wellbeing for the very poor but the relationship is a lot more complex for wealthy countries.

Rather than focus on material prosperity under the assumption that it brings about genuine increases in wellbeing we should cut out the middle man and focus on promoting wellbeing itself. Now all we have to do is work out what wellbeing is and how to measure it. Stay tuned.

PS. Almost every sentence of this post is plagued by controversy. For example:

From a recent Brookings Institute report

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Free market economics and fake moon landings

Posted on April 15, 2013 by Warwick Smith

Yet another paper has emerged showing a strong correlation between belief in free market ideology and climate change denial (1). The article, NASA faked the moon landing—therefore, climate science is a hoax finds a very strong negative relationship between degree of faith in free markets and acceptance of climate science.

Interestingly, it shows that if people are inclined to fall for one kind of conspiracy theory – like the faking of the moon landing – then they were likely to fall for others – like climate scientists making up climate change to get research money (really, people actually believe this? I still can’t quite come to terms with that).

It amuses me greatly that free market economics is in the same category as faked moon landings. Indeed, as the recent financial crisis has shown us, the efficient market hypothesis is fatally flawed and it’s clear that the stronger the application of free market ideology, the greater the disparity becomes between rich and poor. Not only do the top 10% gain wealth at the cost of the bottom 90% but the top 1% gain wealth at the cost of the next 9%. So, free market ideology perhaps is a real conspiracy. The elite have constructed a system that is very effective in transferring wealth from the rest of us to them – and have managed to get the majority of policy makers to believe that it’s for the good of all. Quite a conspiracy indeed.

1. S. Lewandowsky, K. Oberauer, G. E. Gignac, NASA Faked the Moon Landing–Therefore, (Climate) Science Is a Hoax: An Anatomy of the Motivated Rejection of Science., Psychological science (2013), doi:10.1177/0956797612457686.

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Quote of the Day

Posted on January 23, 2013 by Warwick Smith

“ ‘It has always seemed to me,’ said Doc, ‘The things we admire in men – kindness and generosity, openness, honesty, understanding and feeling – are the concomitants of failure in our system. And those traits we detest – sharpness, greed, acquisitiveness, meanness, egotism and self-interest – are the traits of success. And while men admire the quality of the first they love the produce of the second.’ ”

            John Steinbeck – Cannery Row

I reckon Steinbeck hit the nail on the head here with respect to the current debate regarding our political economy.

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