The perils of the last human: flaws in modern economics

Posted on December 2, 2014 by Warwick Smith

By Warwick Smith, University of Melbourne

The ConversationThis article was originally published on The Conversation.
Read the original article.

Are we really in charge of our own destiny? Flickr/Michael Shane, CC BY

Nietzsche’s much quoted line “God is dead” was not, as it is often presented, a statement of triumphant atheism but was a warning and a call to action. We had killed God with rationalism and science. With God had gone our moral compass and our sense of purpose and we had nothing to replace them with but science and logic.

This is an existential problem because, as David Hume famously proved, you can’t argue from “is” to “should”. We may be able to use science to help us get what we want but we cannot use science to tell us what to want nor to tell others what they should want.

This is where the field of economics has stepped in. Human well-being, according to mainstream neoclassical economics, is fundamentally about the expression of individual preferences. The more money we have the more preferences we can express and, therefore, the freer and happier we are. Boom, Nietzsche’s existential problem solved.

Jeremy Bentham, An Introduction to the Principles of Morals and Legislation said:

Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do.

The utilitarianism that underpins neoclassical economics simply equates money with choice and choice with the freedom to pursue pleasure and avoid pain. The freedom to buy.

Economists tell us that economic growth is, therefore, the key to progress. Growing the economic pie gives more people more options and that is the goal of society. It’s a technocratic system where we believe any problem can be solved by better application of theory.

This technocratic focus on economic growth has brought unprecedented material prosperity to the western world. As a result, major political parties around the world have ceded authority to the technocrats. The utilitarian calculus that sits beneath our economic system is never questioned. Instead, political debate centres on how to balance the trade-offs and whether to compensate the losers in the race to gain wealth and consume.

I’m very fond of boats myself. I like the way they’re contained. You don’t have to worry about which way to go, or whether to go at all – the question doesn’t arise, because you’re on a boat aren’t you?”

Tom Stoppard, from Rosencrantz and Guildenstern are dead.

Crusing, helmless

What’s missing, of course, is any basis on which to evaluate the direction that society, or indeed humanity as a whole, is taking. We’re on a giant cruise ship and we are completely free to explore and enjoy. However, there is nobody identifiable at the helm.

The issue of climate change is a perfect illustration. Our headlong rush for economic growth and consumer items is altering the very climate of the planet and we appear powerless to change course. Despite dire predictions from the world’s scientists very little action has been taken. The very notion of human induced climate change and the actions required to arrest it clash so fundamentally with the modern mantra of “gain wealth, forgetting all but self” that many simply refuse to believe it.

The economic constraints on freedom are extremely powerful. Risking economic security for the sake of the future climate borders on inconceivable in a society dominated by individualistic social hierarchies of wealth and the cult of celebrity.

Financial institutions lend ever more and more money to investors who pay more and more for real estate based on the assumption that others will pay more still. The result is that the average citizen has to spend their whole life in debt peonage to banks just to have a house to live in. They are no freer to challenge the financial system than feudal peasants were to challenge their lords.

Our farmers are similarly trapped by debt into fossil fuel based farming. Most can’t afford to take risks experimenting with more sustainable farming practices when they owe a million dollars to the banks for farm machinery.

Even those who do make climate action a priority in their lives find that there’s nowhere meaningful to take their petitions and nobody to read their letters. There’s nobody at the helm. Lines of accountability and power are so scrambled that even those in the highest political offices in the world appear powerless. The cruise ship sails relentlessly on.

Avoiding life, purposefully

In “Thus Spoke Zarathustra: a A Book for All and None”, the work that Nietzsche considered to be his most important, he warns us about the perils of the last human being, a possible future for humanity in which we are mindlessly naïve, happy and healthy but lack all spirit, vitality and creativity; that is, we lack life itself. Nietzsche would be horrified by the modern cult of happiness seekers, seeing the pursuit of happiness and the avoidance of pain and suffering as being equivalent to the avoidance of life itself. Embracing life necessarily means embracing the painful and the difficult elements of life as well as the enjoyable and easy parts.

Instead of avoiding life by weaving a path that avoids discomfort, Nietzsche says we should master ourselves by embracing our inherently conflicting natures. He reaches back to ancient Greece, to the opposing but complementary elements of humanity represented by Dionysus and Apollo. Our modern capitalist society has subordinated the disciplined, considered and directed Apollo into the service of the hedonistic goals of Dionysus. If we can heed Nietzsche’s advice and value personal balance and self-mastery we can orient our lives towards an intentional vision for the future. For Nietzsche this was not about having a goal for the future but instead having an orientation for right now. The difference is subtle but extremely significant.

Our economic system funnels our will into the pursuit of material prosperity and comfort. This is the very opposite of freedom. It stifles creativity and forces our life energy inwards instead of outwards, turning us into what Nietzsche describes as “the sick animal”. Despite our material prosperity we suffer from “affluenza” and write self-help books to each other in an attempt to diagnose and treat the panoply of mental and physical afflictions caused by our wealth.

The fact that our economic system is a social construct means that we have made a choice, even if an unconscious one, and that we can remake that choice.

Instead of being bound to self-centred and self-destructive consumption by an economic system embedded with values we had no choice in, let us take Nietzsche’s advice and orient ourselves towards an intentional vision of the future. If we each bring our vision to bear on our political engagement we could lift the political and economic discussion out of its Dionysian opium den and develop a system that reflects what we truly value.

An shorter version of this piece won the New Philosopher writer’s award III.

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

What will you lose when the carbon bubble bursts?

Posted on November 25, 2014 by Warwick Smith

By Warwick Smith

Last week I attended a panel discussion on whether or not the bursting of the carbon bubble would cause the next global financial crisis. The event was organised by the University of Melbourne’s Faculty of Business and Economics and the four high profile panellists were Ross Garnaut, John Hewson, Jemma Green and Tony Wood.

I’ve been to a lot of events like this but this was the first where the discussion was grounded on the assumption of meaningful action to avert climate disaster. Instead of the usual doom and gloom with respect to the future climate, the well-informed panellists were mostly discussing the financial implications of the beginning of the end of the fossil fuel era.

Ross Garnaut and Jemma Green told us that the great China driven resources boom of 2003 to 2011 is not coming back. Resource prices are higher than they were in 2003 but much lower than they were in 2011. The massive investment in new mines and mining infrastructure in recent years in Australia has missed the boat and many of those investments will not even return the capital invested in them, let alone make a profit. According to Jemma Green, Australian companies whose only interest is coal, have fallen in value by 60%, on average, since 2011.

There was supposed to be something of a debate but the most striking thing about the whole event was the level of agreement among the panellists. The first and perhaps biggest thing the panellists all agreed about was the great significance of the joint announcement made last week by the US and China with respect to their carbon emission targets. All of the panellists concluded that this was a game-changer and that it signalled a high likelihood of a significant international agreement being reached next year with respect to post 2020 global emissions targets.

The discussion really centred around the risk faced by fossil fuel investors with all of the panellists indicating that investments in carbon intensive sectors were high risk in the current political climate. Nobody seemed to really seriously entertain the idea that the write-down of fossil fuel assets would cause another global financial crisis though John Hewson did suggest there are risks to the financial systems of some economies that are overexposed to fossil fuels – like Australia’s.

John Hewson also prompted us to ask how honest our super funds are being about our carbon exposure risk. Will we lose a lot of our retirement funds when the inevitable write-downs of fossil fuel assets occur? Are the energy and mining companies themselves being honest with their shareholders about their risk exposure?

Tony Wood from the Grattan Institute made a great point with respect to the action taken by carbon exposed companies. Their natural reaction to the changing carbon policy landscape is to protect their company in the short term while they implement plans for long term adjustments to the new reality. Their short term actions are aimed at stalling policy change for long enough for their long term strategy to be implemented. On the face of it they may seem to be denialist and obstructionist but in the background they’re getting ready for a carbon constrained world. This is simply the rational actions of profit maximisation – something they are obliged to prioritise.

The panellists all agreed that there was an oversupply of coal and that coal demand would peak before supply, causing even lower prices than we see today. The enormous investment in coal mines and coal export infrastructure in Australia would largely be wasted. In particular, they warned against governments spending public money supporting the coal industry, as the Queensland government has just promised to do with the construction of the rail line to the Galilee Basin.

I sense a dramatic paradigm shift occurring. Investment in carbon intensive industries is no longer just a moral issue relating to climate change but has become a financial risk issue. Major investment managers are starting to pay attention to climate change action and policy and the impact they have on investment returns. Divestment campaigns combined with the threat of stranded carbon assets and overinvestment in supply have already seen many carbon exposed stock prices tumble. Many analysts believe this is the beginning of the slow but inevitable demise of the fossil fuel era. For those of us concerned about climate change these developments, along with last week’s China/US emissions announcement, are sorely needed reasons to be optimistic about the future.

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Hockey’s G20 plan says economic growth is more important than a civilized and humane world

Posted on November 20, 2014 by Warwick Smith

By Warwick Smith

Joe Hockey with other G20 finance ministers. Photo: Getty.

Punishing the unemployed in Australia for the lack of available jobs is not enough, Joe Hockey wants all of the G20 countries to adopt his cruel policies.

The Australian Government’s growth strategy prepared for this month’s G20 meeting in Brisbane insists that cutting benefits for the unemployed is an important tool for stimulating economic growth. The idea is that this will force more people off unemployment benefits and into work.

There are several unsupported assumptions that sit behind such measures. The biggest of these assumptions is that there are a lot of people out there who could find work but choose instead to live the high life on their $250 per week unemployment benefits. These are the worst of Hockey’s “leaners” who exist at the expense of the “lifters”.

The most obvious statistics that make a mockery of Hockey’s world view are the Australian unemployment and job statistics. There are currently around five unemployed people for every job vacancy. We know for a fact that there are many unemployed people who are desperate for work who cannot find work, particularly young and over 50s job seekers. So, even if we accept Hockey’s ridiculous assertion that there are a lot of bludgers out there who are intentionally unemployed, what good would it do if we motivated them to look for work when there aren’t enough jobs anyway? This is far from unique to Australia, we have relatively low unemployment compared to much of the G20.

I spent a while in the mid ‘90s supervising Jobskills teams. Jobskills was an early version of work for the dole targeted at the long-term unemployed. Most of the young people in these programs really wanted work. They weren’t disabled, didn’t have obvious mental illnesses nor obvious drug or alcohol problems but many of them would have really struggled to hold down a regular job. Some couldn’t keep a short series of instructions in their head long enough to complete the list. Some just didn’t seem to have a sense of time or struggled a bit with normal social interactions. They wanted to work and were capable of producing work but you wouldn’t employ them by choice if an efficient and independent worker was your priority.

People like this find employment through well targeted programs that support them, train then and match them with willing and understanding employers, not through being denied unemployment benefits. One certain consequence of Hockey’s proposal would be to dramatically increase the motivation to seek a disability pension. Those involved in making such assessments would likely feel more inclined to grant disability pensions for fear of what would otherwise befall such individuals.

There is another group of people on unemployment benefits who would qualify as bludgers in Hockey’s world. They rarely rate a mention. These are artists and other creative people of various types who are pursuing their passion and often giving generously to their community. Making a living from art is extremely difficult and few manage it to any reasonable standard of living but producing art and trying to make a living out of it is an artist’s version of job seeking. Comedian Will Anderson referred to his six month stint on the dole as an “unofficial arts grant” while he tried to make it as a stand-up.

I personally think that if an artist can survive on the meagre $250 a week unemployment benefits plus whatever they can make from their art then that’s a reasonable price for the community to pay for their contribution and for the potential to nurture the occasional great talent. A culture of art and music enriches all of our lives.

It is only through art that truly radical ideas can be expressed because the truly radical is often outside of our linguistic repertoire. Some of those who dwell on the edges of society, including many artists, musicians, writers, comedians and activists, serve as our jesters, oracles and social barometers. Somehow forcing them to get a “real job” would be a loss for us all, not least the other keen job seekers whose job they might get. In the absence of generous funding of the arts through other programs, unemployment benefits are more than a social safety net, they are also a creativity safety net.

Bear this in mind: by many measures Australia is the richest country in the world at the richest time in world history. In the 2012/13 financial year Australia spent only $8.5 billion on unemployment benefits (that’s Newstart plus Youth Allowance). It might seem like a lot but eight billion dollars is little more than pocket change for the federal government with total expenditure of around $400 billion. We’re giving nearly twice as much in tax breaks for the richest Australians’ superannuation this year as we spend in total on unemployment benefits. Don’t listen to Hockey when he says we can’t afford things, it’s just a matter of priorities.

One very important fact that you won’t hear Joe Hockey state is that inequality is bad for economic growth. He says he want’s growth but Hockey also wants to implement a whole raft of policies, including these harsh measures against the unemployed, which will increase inequality in Australia. Even the conservative International Monetary Fund is urging governments to reduce inequality because doing so will promote growth. Not only are Hockey’s policies inhumane and uncivilised but they are also counterproductive when it comes to his stated goals. It makes you wonder what his real goals are doesn’t it?

Posted in Australian politics, Inequality | Tagged , , , | 1 Comment

To attack rather than build is now the norm, but the Coalition’s negative campaigning is backfiring

Posted on November 7, 2014 by Warwick Smith

Attacking a policy simply because it is open to attack can result in painting yourself into an awkward policy corner

First published in The Guardian Friday 7 November 2014

By

Tony Abbott in Manly.

Tony Abbott in Manly. Photograph: Don Arnold/WireImage

The Abbott led federal opposition in Australia was an extremely effective one. More disciplined than anybody forecast. They focused like a laser beam on any action by the Labor government that could be effectively attacked. It was primarily a negative opposition, with the biggest promises being the undoing of Labor’s legislative and infrastructure agenda. Abbott opposed the NBN, the mining tax, the carbon price, poker machine reform and much more.

There’s obviously nothing compromising about attacking a policy with which your party has a historical philosophical opposition. However, attacking a policy simply because it is open to attack can result in painting yourself into an awkward policy corner.

It’s almost universally agreed by economists and policy experts that a carbon price, through a tax or trading scheme, is the most effective and efficient method for reducing emissions. Julia Gillard opened herself to attack over the carbon price because of her promise during the election campaign that there would be no carbon tax under her government. The Coalition leapt on this broken promise and attacked the Gillard government relentlessly.

Once in government, the Coalition’s opposition to the carbon tax/trading scheme left them in a very awkward position because the domestic and international political climate was such that they couldn’t do nothing but, because of their campaigning in opposition, their climate policy couldn’t be a trading scheme and it couldn’t be a tax. That left us with Direct Action. It’s a garbage policy that pays polluters not to pollute, with no price signal for the rest of the economy. Direct Action rewards the most profligate polluters because they are the ones who will most cheaply be able to reduce emissions and it offers no assurance that emissions across the rest of the economy will not rise.

The smarter members of the Coalition know full well that the carbon price they dismantled was more effective and efficient at reducing emissions than the Direct Action plan they have replaced it with but inefficiency and ineffectiveness of climate policy is a small price to pay for power.

A market based approach to dealing with environmental externalities such as pollution fits perfectly within the Liberal party’s political philosophy. Plans like direct action that involve selective rewards to individual companies are precisely the kind of piecemeal initiatives that the Coalition have traditionally opposed. This third rate policy that goes against traditional Coalition philosophy is just one of many prices they have had to pay for their election strategy based on negativity.

The Coalition opposition to the National Broadband Network is similar, though more complex. The initial Coalition position was simply to oppose the NBN and cancel the project if they won power. Upon unseating Malcolm Turnbull as opposition leader, Tony Abbott, in a move of tactical brilliance, made Turnbull shadow communications minister. This was clearly designed to politically destroy the publicly popular Turnbull as it made him the spokesperson for one of the Coalition’s most unpopular and indefensible policy positions, one that Turnbull himself, one would hope, probably didn’t agree with.

Among proponents of faster broadband infrastructure in Australia, Turnbull is alternately credited with saving the NBN and despised for being the harbinger of the Coalition’s much derided “NBN light”. Turnbull took the Coalition’s policy from no fast broadband to an investment in a “mixed technology” broadband infrastructure program that would deliver faster broadband to 98% of Australian homes and businesses – but still a fraction of the speed promised by Labor’s NBN.

Clearly the Coalition are not the only ones practicing negative campaigning. It’s become the norm. Small target politics is a result of relentless and effective negative campaigning from both sides of the narrow political divide and from vested interests outside of politics. It’s much easier to pick holes in somebody else’s work than it is to create defensible work yourself. The coalition’s negative campaigning during the 2013 federal election (well, actually during the entire six years of the Labor government) will also have a lasting impact on federal Labor who will likely be much more cautious next time they are in government.

The major parties are now likely to be more imbedded than ever in this negative mode of campaigning and it will take a concerted effort from the public and from the media to drag them out of it. We need to make it clear that critique of the other is only one small part of a valid campaign platform that should be founded on a positive vision for the country. The critique of other parties’ policies can then be related to how they fail to promote or create this vision.

The reality is that very few people voted the Abbott government into power. What they did was vote the Gillard/Rudd government out of power. This negative mandate resulted in a government that few were prepared for and who surprised so many with their first budget. Before the election we knew very well what the Coalition were opposed to but we knew very little about what they stood for. Will we be saying the same about Labor at the next federal election?

Posted in Australian politics, democracy, Political philosophy | Tagged , , , , | 1 Comment

His solutions are wrong, but it’s a good sign when even Rupert Murdoch is worried about inequality

Posted on October 29, 2014 by Warwick Smith

It would be a mistake to dismiss Murdoch’s concerns about inequality as nothing more than self-interest. It’s a victory for advocates of regulated markets.

By

First published at The Guardian, Tuesday 28 October 2014 16.00 AEST

Rupert Murdoch

‘I’m sure Murdoch truly believes that the suggestions he made to the G20 finance ministers would really create a better world.’ Photograph: Jason Reed/Reuters

Rupert Murdoch has highlighted growing inequality in a post-dinner speech to G20 finance ministers in Washington. Warning that developed countries’ responses to the financial crisis of 2008 have increased the gap between rich and poor, Murdoch says a global reckoning is approaching unless business investment and innovation are freed up.

He suggests that to solve growing inequality and stagnating economies governments need to “get out of the way”. We need labour market reform and lower corporate taxes, the media mogul suggested, perhaps unsurprisingly. He added that tax avoidance by companies like Google should be policed more heavily. Never mind that these companies happen to be giving him a headache by disrupting News Corporation’s business model.

That said, it would be a giant mistake to dismiss all that Murdoch has to say as nothing more than self-interest, wrapped in a fig leaf of concern for his fellow humans.

If you want to understand the Murdochs of this world then read Ayn Rand’s book Atlas Shrugged. She has a quiet cult following among those who run the world, who just want great people to be able to do great things. In Rand’s world, those with talent who are allowed to use it freely, unencumbered by regulation and bureaucracy, will benefit us all.

It’s a compelling, if naïve, picture; unregulated markets cannot discriminate between greatness and power. The heroes and heroines of Rand’s books are paragons of integrity – trusting them to use their wealth and power to do great things is a no-brainer. But as John Steinbeck wrote in Cannery Row, in our system as it really exists, “those traits we detest – sharpness, greed, acquisitiveness, meanness, egotism and self-interest – are the traits of success”.

Rand’s fictional champions would be stomped all over by ruthless power-seekers and empire-builders in a truly laissez-faire economy. Markets are social constructs. They only operate effectively when there are rules in place and institutions to enforce those rules – typically government institutions. The more government gets out of the way, the more power accrues to money because those with wealth and power have the means to gain greater wealth and power.

As Thomas Piketty demonstrated so beautifully, wealth is like a magnet attracting more wealth. Only government intervention, revolution and war interrupts this ratchet of wealth and power accumulating to wealth and power. So if Murdoch’s concern about inequality is genuine, he should examine the evidence regarding inequality and government policy.

In the developed world the standout performers, with high standards of living and low levels of inequality, are all in far northern Europe. These countries loosely share a social and economic system called the Nordic model and have very large government sectors. Sweden and Denmark take around 45% of GDP in taxes.

At the other end of the scale sits the US, with one of the highest levels of inequality in the OECD alongside very low equality of opportunity. The US has very low levels of tax as a proportion of GDP and consequently a relatively small government sector. While the US is far from a laissez-faire economy, it’s much closer than many others, particularly the Nordic countries.

If we appeal to the evidence, rather than to ideology, we find that Murdoch’s primary solution to inequality would very likely exacerbate the problem. It’s standard fare for the proponents of free markets and small governments to use the Eurozone to build a straw man argument about high taxing, high welfare states being a failure. What they never do is bring up the social democracies of northern Europe, because their success undermines the entire small government philosophy.

I have no doubt that Murdoch considers himself to be like one of Rand’s heroes. He’s a great businessman and a symbol of success in the system in which he operates. I’m also sure he truly believes that the suggestions he made to the G20 finance ministers would really create a better world. He must, because that belief has underpinned the growth of his business empire.

This is why his prescriptions for saving the world align so well with the interests of News Corporation. It’s not that he’s intentionally feathering his own nest, it’s just an illustration of how ideology, including ethics, aligns with action.

Nonetheless, that Murdoch feels the need to speak out about inequality does great credit to the work of people like Piketty and Richard Wilkinson and to the efforts of those involved in the Occupy movement, that was responsible for putting inequality and the 1% back in the spotlight.

The next step is to force the implementation of policies that will actually reduce inequality, rather than exacerbate it as Murdoch would have us do. This requires understanding how to pull the levers of power – a topic considered distasteful by many progressives, but built into the core of Murdoch’s politics. How else does he come to be lecturing a collection of finance ministers from the world’s richest countries?

Posted in Inequality, philosophy of economics, tax economics | Tagged , , , , , , | Leave a comment

Our houses can’t make us all rich

Posted on October 23, 2014 by Warwick Smith
By Warwick Smith

First published at ABC’s The Drum Thu 23 Oct 2014, 10:42am

Select few enjoy the spoils

Photo: Increases in house prices are only really beneficial to those who own more than one house. (Reuters: David Gray)

While a recent report might suggest Aussies are the richest people in the world because of high house prices, the reality is the true beneficiaries of this boom are banks and lenders, writes Warwick Smith.

The latest Global Wealth Report, released by Credit Suisse last week, indicates that Australians are the richest people in the world (based on median wealth). The biggest contributor to our wealth is house prices. This news has been enthusiastically embraced by economists and journalists alike.

Even the usually sensible Saul Eslake, of Bank of America Merrill Lynch, seems to indicate this is a good sign, saying “rising house prices tend to reduce inequality, as they make up a greater part of middle class wealth”.

This is a little bit like saying that because the market price of a human heart has gone up we’re all now rich. Increases in house prices are only really beneficial to those who own more than one house. If you only own one house, like you only own one heart, the circumstances in which you can really benefit from price increases are rare.

Owner occupiers might be wealthy on paper but it means virtually nothing to their wellbeing or even material prosperity. For those who don’t own a house but would like to, increases in prices are, at best, disheartening.

The very high median house prices in Australia are driven largely by capital city prices, particularly in Melbourne and Sydney. Many young people in these cities have given up the dream of owning their own home because the only way it’s vaguely possible is if they live in far outer suburbs with few services and hours of commuting. Young families who do manage to purchase a home (rarely can it be done on a single income) are often forced to work more than they would like, leaving kids in childcare and after school care when they would rather be spending time with them.

The true beneficiaries of ever increasing real estate prices are the banks and other lenders. Most Australians spend a very significant proportion of their incomes paying interest to the banks, either directly on their own mortgages or indirectly via their landlords. The higher house prices go, the more income is captured by the banks. Saddling our young people with a lifetime of debt is not a cause for celebration, it’s a problem to tackle

Current government policy actively props up real estate prices by making housing investment artificially attractive. Negative gearing and the concessional treatment of capital gains (individuals pay tax on only half of the money they make from capital gains) distorts the investment market and makes speculating on land prices a very attractive investment option. Public policy should be doing the opposite. We should be directing investment into productive economic activity, not into asset price speculation. Housing construction is productive activity, speculating on the price of existing housing stock is not.

From an economist’s point of view, there are plenty of options for tackling housing affordability that would also strengthen the Australian economy and reduce the likelihood of bubbles and recessions. These include abolishing negative gearing and the concessional treatment of capital gains and increased use of land taxes.

Accumulating wealth through increased house prices is not progress and it’s not prosperity. Wealth that is gained through rising land prices is what economists call economic rent; it’s unearned income. Landowners do nothing to cause land price increases, which are actually a result of community and government action. As a result, the income should belong to the community.

From a politician’s point of view things are not so simple. Any politician who even suggests meaningful measures to tackle housing affordability will be attacked by those with a vested interest in ongoing real estate speculation. The banks are at the top of that list as well as being at the top of the list of corporate donors to the Liberal party. However, the banks are far from being the only obstacle. There are also the million or so individuals in Australia with investment properties. Grandfathering of current provisions plus incremental shifts in tax arrangements spread over many years (as the ACT is doing) can overcome some of these problems but significant political will would still be required.

As a nation we can do a lot better than funnelling our wealth and aspirations into never-ending growth in house prices. Despite this, doing something meaningful about housing affordability is not on the political agenda of Labor or the Coalition because there is no bottom up pressure on them to act and plenty of top down pressure not to.

While most media outlets continue to unquestioningly report price increases in a positive light there is little chance of this changing.

Posted in Australian politics, Land tax | Tagged , , , , , , | Leave a comment

My tribute to Gough Whitlam

Posted on October 22, 2014 by Warwick Smith

We want Gough

By Warwick Smith

First published at Indepenent Australia. 22/10/2014

My earliest clear childhood memory is sitting on my dad’s shoulders in a huge crowd outside parliament house in Canberra chanting “we want Gough” over and over. I also remember sitting under the trees nearby sorting out my collection of badges – which I still have – one of which says “Export Fraser not uranium”, in the classic lefty protest tradition of mashing more than one cause into an event. This was late in 1975 in the immediate aftermath of the dismissal.

Fourteen years later I started university, the first year that it was no longer free. These events bookend my brief, youthful love affair with the Australian Labor Party.

Gough Whitlam was a visionary leader. I think it’s fair to say he was the last visionary political leader this country has had. He didn’t dip his big toe in the political waters to check the temperature, he just took a running leap and bombed everyone in the pool – including those of his own party.

The list of reforms of the Whitlam government is quite unbelievable for such a short time in office. Some of these reforms were small but significant in their symbolism, like selling the black Rolls Royce commonwealth cars and replacing them with more modest white cars like those we see today. Some of the Whitlam reforms were momentous and truly shaped the future of the country, universal health care, land rites, free tertiary education and abolishing conscription being obvious examples. It’s noteworthy that virtually none of Gough’s reforms were repealed by the Fraser government and continue as part of our political identity to this day.

After so many years in opposition the Labor party were brimming with pent up plans for the country and were in a hurry to implement them – too much of a hurry perhaps. Whitlam polarised the nation as perhaps nobody since has done.

He also cast doubt upon our relationships with our grand old allies, the US and UK. He gave us a new national anthem to replace God Save the Queen. He abolished royal titles in Australia (that Abbott has now reinstated). He opened the question of whether or not Australia should host secret US intelligence facilities like Pine Gap. He ended conscription for the Vietnam War and ordered an end to Australian involvement in the US orchestrated overthrow of the democratically elected government of Chile. Never before or since has Australia so substantially chartered its own course with respect to significant international events.

I recently wrote a series of articles at The Guardian on the sorry state of our democracies. Most of the points I discussed in those pieces didn’t relate to the Whitlam government. Love them or hate them, you have to admit that they didn’t sail close to the political wind and they weren’t afraid to lead. They stated their aims and they implemented reforms to achieve them. Gough Whitlam had a powerful vision for a different Australia and he tried to lead Australia towards that vision. Despite the high speed train wreck that ended the Whitlam government, to a very large extent they succeeded in radically reshaping the country to more resemble their vision.

I, for one, think our country is immeasurably better off for having had that brief period of genuine political leadership. I may have lost my love of the Australian Labor Party but I never lost my love of Gough – warts and all. Thank you Gough Whitlam, rest in peace.

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My latest at The Guardian questions the value of pursuing economic growth at all costs

Posted on October 13, 2014 by Warwick Smith

Do we dare to question economic growth?

By

First published at theguardian.com, Monday 13 October 2014 13.14 AEST

The planet has finite resources.
The planet has finite resources. Photograph: Reid Wiseman/NASA

The endless pursuit of economic growth is making us unhappy and risks destroying the Earth’s capacity to sustain us. The good news is that taking steps to make our lives more sustainable will also make us happier and healthier. Would you like a four day weekend – every week?

I’ve been to two conferences over the last year with similar basic premises. The first was at the Australian National University on ecological economics and the second, just last week, was on steady state economics at the University of New South Wales. The premise sitting behind both of these conferences is simple and undeniably true yet undermines so much that is fundamental to our current way of life:

We live on a finite planet.

That’s it. How, you might wonder, can such a simple statement of obvious fact undermine the tenets of modern society?

The earth is a giant rock, hurtling through inhospitable space surrounded by a very thin film of life sustaining atmosphere. Earth’s life support systems are self-sustaining and self-regulating. However, we humans are slowly and steadily pulling this life support system to pieces. Our planet is very large and can absorb a lot of tinkering with its systems, but there are now over 7 billion of us and the amount of energy and resources we are each using is growing fast. That’s a lot of tinkering.

There’s plenty of evidence that we are pushing up against and exceeding several critical boundaries of global sustainability: by which I don’t mean some tree hugging idea of sustainability, I mean we are taking actions that cannot be supported by the earth’s systems in the long term. We’re already exceeding the earth’s adaptive capacity with respect to greenhouse gas emissions, biodiversity loss and the nitrogen cycle and we’re approaching critical limits in both the phosphorous cycle and ocean acidification. Our use of fresh water is also approaching or exceeding sustainable limits in many parts of the world and we’re systematically destroying our arable land. These are critical life sustaining global processes that cannot be ignored without severe consequences.

living planet report
The Living Planet Report illustrates what we know about our impact on global processes. Photograph: living planet report

Economists, like the nobel prize winning Paul Krugman, will counter this line of thought by pointing out that, theoretically, we can have endless economic growth because of continuous efficiency increases. If you believe human creativity is endless then you can argue that economic growth can be endless. However, in this case, like in so many, reality clashes violently with economic theory. We are showing no signs of decoupling economic growth from physical resource use. Unless that decoupling starts now and happens in a hurry, continued economic growth will push the planet beyond its capacity to sustain us – on several fronts.

You may be surprised to hear that there’s really good news in all this. None of the stuff we’re doing that’s destroying the biosphere is making us happy. By contrast, changing to a more sustainable way of living will also bring us greater happiness and general wellbeing. Seem too good to be true? That’s because we’ve all been so effectively sold the line that endless growth is essential to maintain and improve our quality of life. This couldn’t be further from the truth. Material prosperity has diminishing returns when it comes to happiness and wellbeing. Once we have good access to food, shelter, healthcare and other basic material things, the nature of the community in which you live and the quality of your relationships is the best predictor of wellbeing. More stuff only makes a very marginal difference.

Money can’t buy happiness
Money can’t buy happiness. When rich countries get richer their subjective wellbeing (SWB) doesn’t necessarily rise. Photograph: Development, Freedom, and Rising Happiness: A Global Perspective (1981–2007).

So, the good news is that the public policy settings for saving the planet align very well with the policy settings for saving your marriage and your relationship with your children, friends and neighbours and therefore with serving your happiness and wellbeing.

First we have to do something about the price of housing. People cannot be freed from the earth destroying and soul destroying rat race when simply securing a place to live means a lifetime of debt peonage to the banks (or paying absurd rents to somebody else so that they can give it to the banks).

Once this is done, we need to understand and promote the value of leisure and the lack of benefit we get from material consumption. Retail therapy only ever works in the very short term. Real friendships work for life.

How about a three day work week with a four day weekend? It can be done. Productivity improvements can be directed into allowing people to work less for the same pay instead of into corporate profits and expansion. It’s not written in stone that you always have to work as hard as you can for as long as you can so that some senior executive can get his million dollar bonus. Instead, work for or set up a not-for-profit cooperative where the workers own the business and can spread the benefits any way they see fit. It’s true that if we work less and buy less the economy may shrink but we’ll all be happier and healthier. Here’s something you won’t hear from many politicians or economists: the economy should serve us, not the other way around.

Think about that three day work week. It is possible and the only reason we don’t do it is because it doesn’t suit the ambitions of the empire builders, the 1% who control so much of the wealth and the political power. Their system requires our consent and participation. They can be beaten if we simply stop believing their bullshit and prioritise our own wellbeing and that of the planet. It’s both that simple and that difficult.

Posted in climate change, Economic theory, Sustainability | Tagged , , , , , | 2 Comments

Part 3 of three part series on democracy in The Guardian

Posted on September 18, 2014 by Warwick Smith

If democracy is broken, why should we vote?

By Warwick Smith

Originally published at theguardian.com, Thursday 18 September 2014 14.28 AEST

Some argue that only by withdrawing our participation from the broken system can we hope to fix it or build something better. Are they right?

A demonstrator shouts in Times Square. Photograph: Mario Tama/Getty Images

Democracy theoretically puts the power of governance in the hands of the people. The origins of the word come from the ancient Greek words; dêmos, meaning people and kratos, meaning power.

However, many have argued that modern western political systems are closer to plutocracies than democracies. A plutocracy is ruled by money rather than by the people (ploutos means wealth). The costs of running a modern election campaign make it very difficult for candidates to win without substantial financial backing. Sourcing those finances is inherently corrupting because big corporate donors only give money in return for political favours. Combine this with the ice cream stall electioneering strategy of both major parties occupying very similar political territory, and you have a system ripe for voter disengagement.

The public’s faith in politics in Australia is at an all-time low with only 43% of voters in a recent poll believing that it makes a difference which of the major parties is in power compared to 68% as recently as 2007. Similarly dismal attitudes towards politics can be seen in the UK with only 33% believing the system of government works well.

In Australia, there is bipartisan support for many fundamentally antidemocratic policies such as pursuing so-called free trade agreements, which, at their core, are about ceding sovereignty to multinational corporations. There’s also bipartisan support for punishing asylum seekers who try to come here on boats seeking our protection, bipartisan support for following the US into any and all wars and bipartisan support for valuing economic growth above the wellbeing and sustainability of our society. The entire international trade and finance regime has substantially eroded government power, leaving immigration and national security as final frontiers where sovereignty remains pretty much untrammelled.

The degraded state of our democracies explains the popularity of figures like Russell Brand, whom I mentioned in my last column. He speaks directly to people who are politically aware but disillusioned, suggesting that if there are no candidates who represent our interests and our aspirations we should not vote. Only by withdrawing our participation from the broken system can we hope to fix it or build something better.

Russell Brand: “what’s the point of voting?”. Photograph: Karen Robinson/Observer

Devastating critiques of our current political and economic systems abound but almost always seem to become self-contradictory when they come to providing solutions. They claim that neoliberalism has fragmented the population and eroded sovereignty, making coherent political change more difficult. But at the same time, the solutions often rely on some nudge or tweak or restriction after which everyone will just be nice to each other. In other words, they rely on changing human nature.

This situation of disillusionment with the political economy combined with a lack of viable solutions has been around ever since the ancient Greeks experimented with different forms of democracy. The challenge has always been to develop a system that can’t be gamed or corrupted by power seekers or empire builders (ie people who have expansive ambition that trumps other concerns). Power seekers are a motley crew. Some are high functioning psychopaths, seeking power for power’s sake, some simply want to dominate a field of endeavour. Others have ideological reasons for wanting to change the world.

Power seekers can be a source of innovation and creativity. The challenge is to contain them, because, if not kept in check, they and their kin will corrupt or bring down just about any social or political structure that spreads power broadly through society.

Banners placed by demonstrators at Puerta del Sol square in Madrid. Protesters felt their demands were ignored by politicians. Photograph: Toni Garriga/EPA

I’m fundamentally anti-utopian in my political philosophy and believe it’s impossible to design social structures or political systems that are safe from capture by power seeking elites. The basis of social justice therefore has to be a state of permanent awareness, resistance and protest. The best you can do is to have an informed public engaged in a continuous struggle to maintain and improve on overall social welfare, human rights, human dignity and justice. In the absence of vigilance and protest, the rise of anti-democratic structures and barriers to social progress is inevitable.

A top priority in the permanent protest model has to be defending and strengthening protections for dissenters. The more weapons, physical, legal and ideological, the state has to quell dissent the more vulnerable society is to the power seekers. National security is the most common excuse for restricting political and social freedom and those who peddle such excuses should be treated with the utmost suspicion.

With permanent protest in mind, let’s turn back to the question that this column began with. Should we do as Brand advocates and withdraw our participation from the current political system with the aim of delegitimising it?

As I’ve argued elsewhere, each citizen needs to have a vision of what he or she wants our country and our world to be like. We should bring those visions to bear on our political engagement. If the major parties don’t sufficiently represent your vision, then vote for a minor party. If none of those represent your vision then sure, consider not voting as a part of a broader political strategy but don’t take the decision lightly. Simply taking your bat and ball and going home is unlikely to achieve anything on its own.

There is a huge range of options open for those who feel politically disenchanted or disenfranchised. What you choose to do might depend on your talents and passions but you could jump in the deep end and join a political party and work for change from the inside; join and become active in your union; create a political party; do postgraduate research on democracy and power; join a citizens advocacy group; write comment pieces for The Guardian or go all out and seek and advocate revolution. We need people doing all those things all the time because there are power seekers who are constantly pushing in the other direction and we mustn’t leave them unchallenged.

Much of what Russell Brand has to say is right on the mark. He is playing the permanent protest game and is doing his part to maintain political vigilance. For that I salute him – but I’m still going to vote.

 

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The state of democracy – Part 2 of 3 in The Guardian

Posted on September 11, 2014 by Warwick Smith

Political donations corrupt democracy in ways you might not realise

By Warwick Smith

Originally published at The Guardian, Thursday 11 September 2014 10.37 AEST

A consequence of a donation-driven approach to politics is that areas of political debate are in policy areas that the wealthy elite don’t care about, like same sex marriage or abortion

Part 1: Why politicians must lie – and how selling ice-creams is like an election campaign

Part 3: If democracy is broken, why should I vote?

Who would pay $10,000 for a table at a fundraiser? Photograph: Alamy

Corporations don’t give their money away for nothing. There is an understanding (rarely made explicit) that large campaign donations buy political access and favourable consideration in policy development and legislation. Why else would a corporation, which is bound by law to pursue profits, make these donations?

Interestingly, many businesses give money to both sides of the narrow political divide; sometimes different amounts, sometimes exactly the same amount. In the lead up to the 2013 federal election in Australia, for example, Inghams gave Labor and Liberal parties each $250,000, Westfield gave them each $150,000 and ANZ gave them each $80,000. By my count, over one third of donors (excluding individuals) gave to both the coalition and Labor during 2012/13. This is not unique to Australia but occurs in all democracies, just indirectly in those places where direct political donations from corporations are illegal.

Donating equally to both sides is clearly not about helping one side win. It’s an implied threat: “if you don’t treat us well we’ll give you less and they’ll be ahead.” When both major parties have the same policy on an issue, it effectively removes that issue from democratic scrutiny. This is the aim of many political donations from businesses who stand to lose from policy changes that would be popular with the electorate. Only areas of difference between contenders end up being discussion points during elections, the rest is passed over in silence.

Such a big deal is made out of the few policy differences between major parties that during campaigns they can appear to be poles apart. However, as I have discussed previously, the main contenders in developed democracies are actually very closely aligned with respect to political ideology and policy – particularly economic policy.

During their last term in office, the minority federal Labor government in Australia were more or less forced by independent MP Andrew Wilkie to attempt to implement restrictions on poker machine gambling. Prior to the discussion of reforms beginning, gaming industry lobby groups were giving similar amounts of money to both major parties but slightly favouring Labor. As soon as Labor started talking seriously about reform, the donations began to dramatically favour the opposition Liberals. The leader of the Liberal party, Tony Abbott, came out strongly against the reforms and they were eventually abandoned.

During the period in question, surveys showed that a large majority (70-75%) of Australian voters supported poker machine reform to limit the impact on problem gamblers and their families. The voters lost that one as they usually do when wealthy industries are lined up against them.

The gambling interests won the game and showed the Labor party that they weren’t bluffing. If I were a gambling man, I’d put money on poker machine reform not being raised by major parties in federal politics in the near future. The gaming industry has effectively paid to have the issue taken off the national political agenda. The view of the voting public is no longer relevant.

There are many more examples of this process where corporate and other wealthy entities punish reformists by shifting financial support. The best-documented examples in recent Australian political history are the mining and carbon taxes and the Future of Financial Advice (FoFA) reforms. There has been plenty of coverage of these issues so I won’t repeat the stories here.

Once a policy issue is effectively silenced, ongoing donations to both major parties help to entrench major party dominance. Large donations to both the Liberal and Labor parties further marginalise minor parties who may seek to break the silence on policy issues that the corporates or elites have purchased. In Australia, the Greens are strong advocates of poker machine reform so donations that advantage the major parties over the Greens are still worth making for corporates who want this issue out of the spotlight. When it’s a two horse race, the game is relatively easy to control.

A consequence of this donation-driven approach to politics is that many areas of open political debate between and within major parties are in policy areas that the wealthy elite don’t care much about, like same sex marriage or abortion, or represent divisions between corporate interests. Of course, some vestiges of ideological differences remain and show up in areas such as industrial relations and welfare.

It’s clear that policy formation and the legislative agenda of major political parties is not explained simply by following money trails. However, the money trails are our best portholes into the rest of the opaque process. Who attends fundraising dinners with senior politicians that cost $10,000 a plate? What do they talk about? It’s easier to spin a story to voters about why you watered down regulations than it is to tell the bankers whom you mix with socially and professionally why you couldn’t help them out. Personal relationships matter to politicians as much as to the rest of us.

Sitting in the middle of this process are the lobbyists and think tanks who invent public rationalisations for policy positions that serve their clients’ interests. My previous column here discussed why politicians lie. Lies are most effective when the liar believes them. The first step in effective lying is to convince ourselves of the lie. This is where the think tanks and lobbyists come in, telling politicians, for instance, that FoFA regulations have to go because compliance is onerous and damaging to the efficiency of business. Too much red tape chokes economic activity. I’m sure many in the Coalition government really believed this reason for watering down the FoFA reforms but I guarantee the idea originally came from the banks or their lobbyists who simply want to continue to rip off their customers.

This is a complex and dirty game dominated by political donations, vested interests, personal ambition, class and power. Voters are a part of the game but representing their interests may not be a politician’s top priority. Politicians will only act on behalf of voters if no wealthy or powerful group objects – or if the party in question is boxed into a corner by a hung parliament or a combination of marginal electorates and strong community action.

All of this begs the question of why we should bother voting. A video of actor Russell Brand being interviewed by the BBC’s Jeremy Paxman went viral last year precisely because of Brand’s compelling arguments that we should not vote and that voting only legitimises a fundamentally illegitimate system. So next week, I’ll follow this column up with another titled “why vote?”

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