Harry Clarke On economics, politics & other things

April 30, 2014

Levying a tax

Filed under: Australian politics — hc @ 2:14 pm

I liked the article (unfortunately paywalled) by Jacob Greber in the AFR today on the proposed income tax hike.  The motivation is to avoid a decade of widening fiscal deficits.  The government promised no new taxes but promised also not to spend less on pensions, education, health and defence while, at the same time, reducing the fiscal deficit. It almost must break a promise. The underlying (ignoring temporary factors) budget deficit is around $15b and this will grow if unaddressed.  The temporary income tax hikes would reduce that by one third but, if they are temporary, their effects will last only while the increases are in place, supposedly around 4 years.  Again either the government will then be forced to retain these temporary measures or get more serious about cutting spending.  2/3 of the current deficit already needs to be addressed by spending cuts.

My own preference would be to state now that the income tax increases would be retained permanently and that the governments foolish direct action plan to address climate change (that will cost it $4-5b) be replaced by the carbon pricing scheme that bLabor would introduce that would yield it $10b annually as revenues.

Tony Abbott achieved power by lying about Coalition policy intentions and by abandoning environmentally responsible and economically beneficial carbon pricing policies.  If he keeps lying he will end up in the same situation as the Labor Government and will be replaced.

April 26, 2014

Abandoning the US alliance

Filed under: Australian politics — hc @ 2:31 pm

Malcolm Fraser argues that Australia should pursue an independent foreign policy so that it does not get dragged into unwanted wars between, for example, China and Japan.  I found this discussion (with Robert Manne) fascinating.  US military installations at Pine Gap and in Darwin are portrayed as a chain around our neck.  ANZUS ineffective.  And finally a return to the “populate or perish” ideas of 1945. Now we would need a population of 45 million to be a viable independent country.  Fascinating discussion.

January 30, 2014

Muzzling the ABC

Filed under: Australian politics,media — hc @ 9:37 am

The Coalition-Newscorp campaign to muzzle the ABC seems to be gathering force with proposals to cut the ABC’s Asian news services.  As a means of promoting Australia in Asia I think this news service is very good and not expensive – far better than the BBC.  The premise that pursuing “soft diplomacy” by means of a news service is sound but that can be advanced by identifying poor reports and working with the ABC to correct them. I do not believe for a minute that the Australian military tortured “asylum seekers” (and apparently now neither does the ABC) but hammering the ABC’s foreign news services into oblivion is a short-sighted way of dealing with such problems.  People in Asia like the ABC because it has credibility. This means believing that the ABC will tell the truth about issues and not just provide propaganda.  The “torture” story did have serious adverse implications for Australia and seems to be both incorrect and based on sloppy journalism. It is this incorrectness that should be the target of policy not shortsighted actions that disadvantage Australia and promote the interests of the Newscorp propaganda machine.

November 14, 2013

Kevin Rudd

Filed under: Australian politics — hc @ 12:20 am

Goodbye Kevin you waste of space. You are a limited human being who never had any  grasp of his own personal limitations.  You were a disastrous PM and spent most of the rest of your stay in politics facilitating the election of a feeble conservative Coalition government in Australia.  Your existence disadvantaged Australia.

September 8, 2013

Triumph of politics

Filed under: Australian politics — hc @ 11:30 am

The Coalition win with a 1.2% swing to the Liberal primary vote and a 0.9% swing to the Nationals.  The main gainers were the “others” (Clive Palmer, perhaps a Libertarians etc…) – no mainstream groupings here.  The election was a vote against mainstream political parties in Australia although Tony Abbott ran a much better campaign than Kevin Rudd. It focused on the divisions in Labor (justifiable) and a phoney scare campaign that the Australian economy was heading down the tube. Part of Rudd’s failure was his inability to respond decisiovely to this campaign – he did better in the final weeks but it was too late.

No question it is time for Kevin Rudd to exit politics.  He is largely responsible for Labor’s demise  with an inept performance initially as PM, a period where he undermined his own party in order to regain his job and a failed final election campaign.  Most unimpressive.  I have opposed Rudd since he was first proposed as a candidate to lead Labor.  He does not have what it takes and there is plenty of talent in Labor that can take it forward from an election outcome that is poor for them but not a disaster.  Labor should not be lumbered with the Rudd baggage.

Abbott has many likeable blokey characteristics but will now face the task of providing leadership rather than sniping from the sidelines as a tribal leader. He has terrible policies on climate change and the environment but it remains possible that logic might prevail here particularly if those in the Senate stick to their principles.  Australia faces the prospect of a shift away from the resource sector as our mineral-export-driven terms-of-trade weaken.  Abbott’s economic response to this longer-term issue requires good judgment and not the hysterical overstatement. The latter dominated the Coalition election campaign but it might be mainly politics. If it isn’t then Australia faces real problems.

September 4, 2013

Vote Labor

Filed under: Australian politics — hc @ 9:54 am

Who am I to make such a claim?  Particularly when my long-term distain for anything associated with Kevin Rudd is one of the few consistencies in my politics. Rudd is a grub who was kicked out of the PM position because he couldn’t manage or lead, who then undermined his replacement and damaged his party and who now stands before you as a verbose, grinning phoney.

But my my view is that the Coalition lie campaign – that our economy is on a precipice and about to collapse under the strain of enormous debt and fiscal deficits – should be decisively rejected.  The Coalition claim is simply false. The Australian economy is in good shape with consistently rising incomes since 2008 and almost zero inflation.  The main difficulty with Australian these days is its people, the Australians with their their staggering level of pessimism and sense of credulity.  Tony Abbott has proved more adept at exaggerating and lying than the other side of politics and will almost certainly gain government.

The Coalition has lied. So What? My main concern is that the lies reflect their underlying thinking and are not only a campaigning strategy.  We are about to experience a secular decline in our terms of trade and the last thing we want at present is a precipitous fiscal cutback.  That, I fear, is what Tony Abbott will deliver as PM. The stock market has rallied on the prospects of a Coalition victory – watch it go bearish as the grim reality of immediate, heavy public service cuts beat up an economy facing increasingly difficult secular adjustments. This is quite apart from, Abbott’s empty promises in dealing with climate change – he has now virtually acknowledged that his ‘direct action ‘policies will fail and that this is irrelevant.

Here is John Quiggin on the same topic.  I agree with his major points but unlike him I am no fan of Rudd.  I’ll vote Labor because it is the best of two bad options.

August 12, 2013

Election forecast – Coalition to win comfortably

Filed under: Australian politics — hc @ 10:42 am

My very conventional view – backed by a synthesis of recent polls – is that the Coalition will win the forthcoming Federal election easily.  That isn’t surprising but it does raise the question of what Labor gained by replacing Julia Gillard with Kevin Rudd.  Fewer Labor seats will be lost but my guess is that having what I see as a decent person (Gillard) replaced by a garrulous, contentless failure (Rudd) will impose ongoing problems for Labor.  Labor does need a dose of Malcolm Turnbull-style intelligence. I cannot see what the electorate seem to have greater affection for Rudd beyond the fact that Labor will be less devastated electorally under Rudd – it is a puzzle because, with the exception of John Quiggin, no-one I knows cares much for Rudd.  I am not denying the opinion polls but saying that I don’t intersect much with the group who do like Rudd. Where are you? Who are you?

Labor needs a longer-term revival and presumably it knows that.  Switching leaders from Gillard to Rudd is a diversion from the core task of party reform. The power and patronage politics must end and the disgracefully high levels of corruption at the centre of the party need to end. Ex trade union hacks should not comprise the core of the Labor Party . Indeed a good start would be for the party to change the party name to remove any thought that it is directly linked to the union movement. Stupid workplace practices are stifling Australia and disadvantaging its workforce.  The Labor party simply needs to represent all those in the community who seek economic prosperity with social justice.  My hope is that that would be most Australians. The “prosperity with justice” slogan is almost a cliche but turning that into a political program with substance requires the sort of considered intelligence that Kevin Rudd lacks.  It also requires a social democratic vision that is a long way removed from the party of Kevin Rudd and Eddie Obeid.

I have to say that after watching the uninspiring debate between the leaders last night - I ranked it as a nil all draw – that we do need something in the way of a revolutionary change in Australian politics that goes beyond the well-deserved boot up the backside of Labor.  Cliche and waffle from both political leaders are not enough.  The Labor Party has a long way to go but the Coalition also look uninspired and tired.

Update: This article in The Guardian matches my views on the debate.  How dare this pair of clots offer themselves to intelligent Australians? The writer identifies a key new Ruddism that I also noticed – horizontal hand meets outstretched vertical hand to suggest there is some thought behind a vacuous, evasive remark. The writer also identifies one point that Abbott had in his favour during the debate – he knew when to shut-up.  Rudd keep droning on with cliche after cliche when it was painfully obvious that he was evading the answer and offering only verbiage.  Rudd really is a dope – I agree.

August 6, 2013

Australia’s economy

Filed under: Australian economy,Australian politics — hc @ 11:32 pm

Overseas economic experts are often amazed at the pessimism that Australians express towards their economy.  Part of the story is our national affection for some drama. Partly it  is just the lunacy of the far right in trying to  exaggerate the perils our economy faces to advance their political and Newscorp-style journalistic objectives.  I like the balance shown in Reserve Bank and official Treasury reports on our economy.  These reports have a Delphic caution to them. But they are also designed to dispel myths by focusing on core issues of popular concern that are not in fact of any concern.  The Treasury’s Economic Statement is an instance. The August issue has just been released – it is 74 pages but written in a straightforward way and an easy document to skim.  Highly recommended. It won’t get the adrenalin pumping but it does effectively counterbalance the myths being spread in rags like The Australian.

The Australian economy faces somewhat higher unemployment in the future  because of the end of the mining boom and the structural shift away from mining industries.   A negative terms-of-trade shock must reduce Australian incomes because we are now paid less for our exports.  But given the circumstances of this shock and given Australia’s escape, without major damage, from the GFC our macroeconomic record has been creditable.  I don’t know how much of our escape from the clutches of the GFC can be attributed to the Rudd fiscal expansions and to (unexpected) resilience of the Chinese economy. But the external resilience was unexpected.  As macroeconomic policy goes Australia’s stance was sensibly precautionary. China’s enduring economic strength was not, as right-wing commentators suggested earlier this week in The Australian, something that was obvious.  It wasn’t obvious at all except with the benefit of 20:20 vision of perfect hindsight!

Was the economy ruined by a massive fiscal expansion engineered by socialist money-wasters? Well, no, not at all. Our government debt levels as a percentage of GDP are around 10%. They might blow out to 12% by 2016-17.  Our net government debt is, by a mile, lower than in virtually any other developed country. The Euro debt is averaging 75% of GDP, Japan 150%, the US and UK around 90%. Interest payments on this debt in Australia are about 1/3 of a cent for each dollar of GDP.

Tax receipts (as well as non-taxation receipts to the government) as a fraction of GDP are lower than they have been for most of the last 20 years so we are not  collapsing under the yoke of an excessive tax burden either.  Government expenditures as a fraction of GDP are lower than they have been for the last 30 years.  Neither is public sector spending pushing Australia’s towards the poorhouse.  (Indeed as Australia has substantially grown its per capita incomes over the past 30 years one would hope for a higher allocation of our national incomes being spent on education, health and the environment. But this hasn’t happened – total public spending relative to the economy has been amazingly stable).

Overall the Australian economy looks about the strongest of any country in the developed world – low inflation, moderate unemployment and low public debt. Yes, there will be an easing in growth partly due to weaker than expected Chinese growth (not that low BTW, it will “struggle along” with 7 plus% growth through to 2015) so that tax receipts will fall but our deficit problems are entirely manageable.   The deficit in 2012/13 will be around 1.2% of GDP which is negligible compared to deficits in the Euro area, Japan, the US and UK. For that we will get a much better school system and a much fairer way of treating those with disabilities. The latter are  among the most disadvantaged in the community.  I can live with this.

I do recommend the Treasury Economic Outlook document not only to my blog readers but to the so-called journalists at The Australian.  Writing lies about the state of the Australian economy doesn’t facilitate sensible public voting decisions.  It also diverts the limited attention span of our politicians away from issues of governing well towards addressing the lies – dealing with nonsensically exaggerated claims about exploding debts and deficits and so on.  The lies also provide a free kick to opposition parties because they can escape their proper role of holding the government to account. And indeed there have been a myriad of real problems in the way Labor has governed. Finally, emphasising false issues of doom and gloom also unnecessarily “talks down” the economy and makes citizens feel less secure than they are. Adding to the national anxiety unnecessarily makes Australians worse off.

Telling lies is socially irresponsible.   So too is exaggerating the difficulties Australia faces simply to add drama to a story.

August 4, 2013

$250b cost of Kevin Rudd

Filed under: Australian economy,Australian politics — hc @ 8:58 pm

You don’t have to pay newspapers to have the views of your political opponents demolished.  You do however need the support of the newspaper proprietor. Paul Sheenan provides some specific motivations for Rupert Murdoch’s recent stance.

Kevin Rudd has cost Australia $250b according to Henry Ergas and Judith Sloan.

An amazing rant that takes the form “Any fool can see….”.    Pure politics – a series of unsubstantiated claims.

I wonder how this improves the standard of political discussion in Australia.

Update: Today’s Daily Telegraph takes the propagandist mission of the Murdoch media to extremes.  The front page of the current issue shows the blatant partisanship that has replaced serious journalism in the Murdoch empire.  In that sense it is a positive.  I think too the open partisanship of certain Australian economists leaves them revealing too much.  In that sense too their writings too are a positive.   The game is up.



July 14, 2013

Turnbull should challenge Abbott

Filed under: Australian politics — hc @ 11:31 pm

I am disappointed by the comments of Malcolm Turnbull suggesting that he would not challenge Tony Abbott for the Liberal Party leadership prior to the forthcoming election.  The Labor Party is a train wreck being led by a verbose simpleton who really should retire. The Labor Party should be replaced as the government if he is at the helm.  The possible current replacement however is unattractive. Tony Abbott, once a man of some Catholic convictions, is now a populist babbler who seeks only to wrest power. He will be an inappropriate uninspiring PM who most Australians dislike.  Australian politics is in a terrible mess since, as it stands, neither side of politics offers people a decent choice.

It doesn’t matter which major party wins the forthcoming poll Australia will definitely lose unless there is a change in the Liberal Party leadership.   The Liberal Party itself will also be disadvantaged.

Man-up Malcolm and get rid of Abbott.  The Liberal Party will romp in at the next election – your personal popularity in the electorate guarantees this – and a really bad outcome (Rudd or Abbott) will be avoided.  Yes, you are a bit domineering as a leader so reason with all your ministerial colleagues that you have changed.  Rudd did that and got away with it.  The Liberal shadow ministry has no great strengths – indeed that is part of the reason the Liberals do need to undergo a comprehensive reform.

It might be that Malcolm Turnbull will still receive a last minute push to be party leader just as Rudd did.  The best scenario is continuing improvement in Labor’s opinion poll rankings and the fear of conservatives that they will again be denied government.  It is a faint hope but like Labor, the Liberals need to address the issue of electoral unpopularity.

Update: Michael Short at The Age agrees but then, so do many.  It will be a possibility if the next few polls show Rudd likely to win.

Update: With Turnbull as Leader the Coalition will win in a landslide. With Abbott as leader it is line ball.

June 27, 2013

Return of a hyperactive, shallow leader

Filed under: Australian politics — hc @ 11:04 am

I am dismayed by the return of Kevin Rudd to a leadership position within the ALP.  Rudd destabilised the Gillard Government for nearly 3 years and has been rewarded for his treachery.  Rudd’s campaign in 2010 against Gillard cost Labor outright government and was a major factor behind Gillard’s ensuing problems. If Labor now loses by less in the forthcoming Federal election they will still be stuck with a major liability, Kevin Rudd.  This adds an extra layer of complications for a party that has failed to adapt its visions to a changed Australian society – Australia is not a society of downtrodden workers where unions have a key role – that finished decades ago. Neither Gillard nor Rudd have tackled this core issue.

Commentators have short-memories – Rudd lost his position as party leader because he could not successfully transform ideas into policy actions – he was a incompetent, disorganized leader.   Rudd has many ideas – indeed his mouth typically runs breathlessly ahead of his brain.  Rudd is a glib, unprincipled, grey-flanned suit full of pompous  verbosity (a more direct scatological description better characterises my view) with an exaggerated sense of his own importance.  Rudd is an embarrassment to Australia on the international stage.

The only positive side of this whole issue was the tenacious and principled stance of Julia Gillard – a woman of considerable abilities and steely resolve. Gillard’s main failing was her inability to argue the case in the electorate for the good policies (on climate, education and disabilities) that Labor has introduced.  Governments cannot just seek to get controversial, new policies introduced – it must justify them to the electorate through its advocacy role.

The atrocious sexism Julia Gillard has experienced in her recent public life signals the extent to which gender equality in Australia has not been achieved.   Her exit from politics will be a sad outcome.

Great choice coming up for us all!  A Coalition that looks increasingly like an offshoot of the US Tea Party ratbags and an ALP headed by Rudd.

March 22, 2013

Thanks Julia

Filed under: Australian politics — hc @ 7:51 am

What a disaster it would have been to have had Kevin Rudd back as PM. Fortunately enough Labor MPs saw this and Rudd did not have the numbers. His exaggerated claims about being honest reflect only the sickening shallowness of this foolish little man. We want a PM not a disorganised, hyperactive clown with an exaggerated idea of his own importance. (more…)

February 18, 2013

Mining tax & Abbott

Filed under: Australian politics — hc @ 8:17 pm

The relative failure of the mining tax reform was certainly due in part to its poor execution and particularly the inability of the then Rudd Government to explain the motivation for a decent tax reform that shifted the incidence of taxes away from output-destroying output-based royalties towards a tax that took most only when the industry was booming.  It isn’t booming now so that revenues are much less than expected. The Labor Party has not proven effective at explaining the rationale for many of its policies.

But part of the problem with the tax was the hysterical campaign of lies launched by the Australian right when it was first proposed.  All the IPA nonsense and the political opportunism of Tony Abbott played into the hands of the miners and left Australia with an inferior tax reform to the one first proposed by the Henry Review. Abbott and the right-wing won because of Labor’s precarious political position.  They won a victory on this issue and now are using the low tax receipts from the tax to further criticise Labor.   Will Henry Ergas, Sinclair Davidson and Judith Sloan  get well-paid adviser positions when the Liberals gain power? Take a gander at the pure nuttiness of the Ergas-Davidson position here.  Presumably these marginal economists would prefer output-based taxes that impact on miners whether they are in boom or recession.  An appalling denial (ignorance?) not of some esoteric point in tax theory but of undergraduate economics.

There are two difficulties here apart from the finances of the extreme right.  For one the Labor backdown has surely convinced every interest group in Australia that the soundest business investment is in politics and manipulation.  The second difficulty is that we now face the prospects of a poor Labor Government being replaced by an opportunistic and dishonest Abbott-led government.  Those who think that Abbott will change his outlook on the world once he becomes PM should look back at the way he has been prepared to deceive on such issues as carbon pricing and the mining tax.  We do need some ethics in Australian politics (agreed the Labor Party is rotten to the core on this one) but bible bashing bigot Abbott won’t deliver what we want.   He will behave as he has in the past and put political opportunism ahead of the nation and civic duty. Watch out ABC and watch out the environment – there are debts to be repaid and enemies to destroy.

November 5, 2012

Dump Abbott

Filed under: Australian politics — hc @ 1:39 pm

The pragmatic obvious strong case for dumping Tony Abbott from the leadership of the Liberal Party and replacing him with Malcolm Turnbull is the fact, that with 60% voter support, Turnbull enjoys twice the popular support of Abbott.  Moreover while it is true that much of Turnbull’s support is among Labor voters a majority of Liberal voters now support him as well. The prospects for a Coalition win at the next Federal election are much improved with Abbott gone.  The less pragmatic, but more important, case for replacing Abbott is that he displays none of the principled intelligence that Turnbull does.  Turnbull is an intelligent, articulate man with sensible views on climate change, the national broadband network and he displays a clear abhorrence for the disgusting shock-jock bigots of this world that Abbott is loathe to express.  Turnbull is an egoist who has no doubts about his abilities but he will cogently argue a case based on principles not on opportunistic populism.

The Labor Party does not deserve to be reelected with Turnbull at the helm of the Liberal Party – Labor’s performance has been too weak. This would remain true even if Kevin Rudd – the community’s preferred candidate on Labor’s side – were restored to the Labor Party helm.  But with Abbott at the helm Labor should be returned.  It is not only that Abbott’s “direct action” policies on climate will inevitably fail and that his anti-tax mantras will continue to cripple our tertiary education sector and our ability to provide the infrastructure necessary to get Australia on a more sustainable development time path.  Abbott’s election would mean a further cheapening of the Australian political dialogue in the direction of Tea Party stupidity.

Australians face an appalling lack of practical political alternatives at the next election.  Dumping Abbott in favour of Malcolm Turnbull would change this.  The position of the Liberal Party would be enhanced and so too would Australia’s future prospects.


October 1, 2012

Ridiculing Julia Gillard

Filed under: Australian politics — hc @ 8:25 pm

The repugnant remarks of Allan Jones on Julia Gillard’s alleged role in causing her father’s death reflect on Jones not on Julia Gillard.  Jones should not be in the position of manipulating public opinion. 2GB should sack him and if they cannot because of his shareholding then advertisers should desert 2GB. I can only urge as many people as possible to sign the petition calling for  an end to the commercial sponsorship of this man’s involvement with 2GB.   I hope this sort of support will come from all sides of politics – no-one should support this level of discourse. Already many advertisers have refused to advertise during Jones’ segment and rural radio stations are refusing to rebroadcast his show. (Update: It has gone further.)

Before the current controversy I read the following analysis of the role of sections of the lunatic right wing media in attacking Gillard by Anne Summers.  Its definitely worth a read. It was obviously ignored by Jones who plays a key role in the Summers critique.

July 18, 2012

Henry Ergas on Ken Henry on the RSPT

Filed under: Australian politics,economics — hc @ 7:32 pm

This piece in The Australian today is unfortunately behind a pay wall. If you insert the title of Henry Ergas’s piece in a Google search you will get the whole article.  Henry Ergas is a professional economist who has some very sensible things to say on other issues but who evidently he doesn’t understand the notion of a neutral tax – if you search through the comments thread at the base of Henry’s piece you will find that economist Judith Sloan doesn’t understand it either.  That a tax on profits does not distort incentives because, for a mining project that is a reasonable goer, given tax rate t maximising gross profits PROFITS gives the same production plans as maximising net profits (1-t)PROFITS.   Output-linked state royalty payments of course have strong disincentive effects and are vastly inferior. It is a proposition that has been taught to undergraduates for decades so one wonders what happened to Ergas-Sloan. The neutrality argument is the reason Nobel Laureate James Mirrlees – perhaps the world’s leading authority on tax and the co-developer of the “optimal tax” literature – supports  such taxes not only on mineral resources but also fixed assets such as land.  Ken Henry was exasperated by the fact that the original RSPT was modified so extensively to account for mining interest group concerns by the Gillard Government that it became a nondescript “dogs breakfast”.

Or is it just that the right of Australian politics oppose all taxes as a sign of the sinister encroachment by the “socialist state”.  Even congestion taxes and other externality internalising taxes are just “taxes” because they have excessive transaction costs etc etc etc…… I have heard this recently and was astonished at how out-of-touch those advancing such views were with the highly-developed literature.  But, yes, think of any tax or any tax reform and the libertarian right can manufacture  a concern about it that is so overwhelming that reform makes no sense.  The only desirable tax reform is one that cuts a tax because the community does not really want a public education or health system and those claiming unemployment benefits are all a bunch of dole bludgers.  Perhaps I am exaggerating but the libertarian lunacy in Australia is increasingly paralleling that of the US Tea Party Republicans.

I was chatting with a liberal-lefty the other evening and bemoaning this stupidity. His response provided a basis for optimism – the lunar right wing crazies from the IPA and their fellow travellers in Australia and the Tea Party crazies in the US are progressively isolating themselves with their foolish views.   As they do so a basis for thinking about serious microeconomic reform that involves replacing poor taxes with better ones should shine simply because it faces no economically literate competition.

June 2, 2012

Changing political views

Filed under: Australian politics — hc @ 4:33 pm

John Quiggin has a post on people who switch from one side of politics to the other – from “left” to “right” or visa versa.  There are profound semantic issues here that, if taken seriously, can trivialise the analysis of such shifts – most of us are, in fact, social democrats. However despite this broad homogeneity of mainstream political views (the Tweedledum/Tweedledee theory of consensus politics, median voter theorems etc.) there does seem to be a recognisably “left” and “right” view of the world.  I delayed commenting on JQ’s post because of the slightly pejorative tone it conveyed towards those who have changed their views.  JQ (apparently) has never done this – he sorted his political perspectives out initially and has seen no reason to change his broad stance. I congratulate him – temporal consistency is a virtue and suggests initial clear thinking.

I have been much less consistent myself. In my youth I was a left-wing member of the Labor Party who came from a working class background and who flirted with Marxism without ever taking it very seriously. Apart from the litany of Cold War Stalinist atrocities I had read Das Capital as an undergraduate and I could see the problems and the narrowness in Marx’s class-based analysis.  I supported an increased role for government in the economy during the Whitlam years but also greatly applauded the sensational 25% tariff cut that Whitlam introduced. This was one of the most profound economic changes ever to impact on the Australian economy and a change that initiated decades of on-going microeconomic reform.  My dissatisfaction with Labor reflected my view that Labor comprises incompetent managers and intellectually low-level people who have sentimentality but often not a lot of administrative intelligence.  In my original home state of NSW the Labor Party comprise third-raters who cloak their incompetence with hypocrisy and dishonesty. Generally I have maintained this negative view of Labor  for decades. I think that, whatever the transparent failings of the Coalition – there are many – they will be better economic managers and generally smarter when it comes to making policy judgements.  For this reason I have voted for the Liberal Party for more than 2 decades.

At the last election however I voted for the Greens and at the next election I will vote for Labor mainly because of the criticality I see in the climate change issue. I see it as a long-term priority issue potentially impacting on the survivability of the human species.   If Malcolm Turnbull had been leader of the Liberal Party I would have voted for and campaigned on behalf of the Liberals. But my views at this last election also changed because I think the costs of addressing social inequality through redistributive measures were being overstated by conservatives. Maybe my revived social consciousness is partly an age- and income-related change.

I was lucky enough in my youth to get a good university education partly because of a scholarship and partly because university fees were so low in those days.  My parents could not otherwise have been able to let me pursue my studies.  I was also faced with the prospect of being conscripted to fight in Vietnam, a war I did not support.  It was natural for me to be fairly left wing.  As I grew older the practical issues of raising a family, buying a house etc. made me less idealistic and more pragmatically right wing.  Now that I earn a reasonable income and live quite well I guess I can afford the luxury of being less narrowly focused on economic imperatives.  But I just find the more strident varieties of libertarianism illogical and narrow-minded. Those with a doctrinaire pathological hatred of the state are as irrational as those who see the state alone as embodying the common good. Overall my current political stance is a fairly dull endpoint – I think I have returned to the views expressed in Paul Samuelson’s Economics text that I first started reading in 1967.   Samuelson argued that markets are generally a good thing and to be preferred to bureaucrats but markets do sometimes fail and market outcomes are often not distributionally fair.  The world is uncertain and insurance markets are incomplete so the state has a role to protect those dealt a bad hand of cards by life.  Yes, I am a social democrat as, indeed, are almost all Australians.

Hopefully I have converged on a steady state political identity.  I cannot see myself ever supporting the Labor Party longer-term but have real problems with the Liberals under Tony Abbott. I guess that the difficulty of working within the Liberal Party to provide a better leadership is something I am just to lazy to do and reforming the trade union dominated Labor Party seems impossible.  Hence I will probably continue to snipe from the sidelines.


March 26, 2012

Electoral slaughter in Queensland

Filed under: Australian politics,climate change — hc @ 10:07 am

The devastating defeat of the Labor Government in Queensland means that Federal Labor cannot win its forthcoming election.  The Labor Party is in desperate straits having lost government in NSW, Victoria, Western Australia and now Queensland. But the scale of the Queensland massacre is unprecedented with nearly a 16% swing against Labor – about one traditional Labor voter in 3 abandoned support for Labor.  It seems almost certain now that Kevin Rudd will challenge again for the Federal leadership – standard, myopic Labor thinking is that desperate times require desperate solutions and selecting Rudd would provide a politician popular in Queensland.  The AFR this morning described his corpse as “warming”. This type of selection however would raise such serious questions of credibility that I cannot see it as having any chance of improving Labor’s prospects significantly. Labor is doomed.

BTW as I have made clear in the past I will vote Labor in the forthcoming Federal election because of their climate change policy. My main concern is that Labor’s carbon tax-cum-ETS will not be seen as sustainable given Labor’s nonexistent re-election prospects. This will mean that types of massive investment switches away from carbon-based fuels that make good environmental sense from the viewpoint of addressing climate change are unlikely to occur.  The forces of darkness and stupidity on the right – the conservative side of politics that should support Pigovian charges to rid the globe of a massive externality – have won. My Labor vote will be little more than a wasted protest.

Update 1: Alan Mitchell in today’s AFR (subscription required, p. 62) remains optimistic that Tony Abbott will renege on his opposition to pricing carbon using the excuse (recently mentioned by Barnaby Joyce) that he is prepared to price carbon if the world shifts in the direction of doing just that.  He argues the world – particularly the US – might shift given the need to fund mounting government deficits.  Although a US commitment to use such tax revenues to fund climate friendly investments would seem to bind this could be reconfigured so the interest on such transfers was used for such purposes but the principal used to reduce public indebtedness.  The argument is that the US is constrained to select some form of tax increase because of its budgetary position and this might be the most politically saleable way of doing so.

Update 2: The Victorian Government’s actions in abandoning the state-based 20% carbon-reduction targets on the grounds that the Commonwealth has set 5% reduction targets nationally seems dishonest given that the Liberal Party has stated it will abolish such Commonwealth targets.   The simple fact is that they do not wish to address the issue of climate change because they do not see it as a problem.  State Labor have bravely not committed to restore the 20% targets should they be reelected.

March 9, 2012

Defending the MRRT

Filed under: Australian politics — hc @ 7:58 pm

This fact sheet on the new Mineral Resources Rent Tax is worth reading if only because disinformation campaigns are currently being launched by right wing ideologues such as Alan Moran.

Moran dismisses the notion of a tax that does not have disincentive effects.  But most first-year economics students know of two such taxes – lump-sum taxes and pure profits taxes.  A lump-sum tax has no effect on incentives since there is no action you can take to avoid it.  A pure profits tax is neutral since if a firms profits π(q) as a function of output q are maximized when output level q=q* is selected then exactly the same output level q* will be is chosen when a pure profits tax t is levied and the firm instead maximizes (1-t)π(q).  All that happens is that a slab of the profits, namely tπ(q*),  that originally went to (the more than 80% foreign) shareholders of the business now accrues to government. The only requirement for these arguments to work is that the lump-sum tax and the pure profits tax do not take everything thereby forcing the firm out of business.

Of course it is the pure profits tax that is the relevant model for the MRRT.  Gross profits here can be written more fully as revenues less all costs including for miners, exploration and product development costs.  Under the MRRT proposal all investment costs can be written off immediately – not just depreciated – and the MRRT only operates once the firm has repaid its initial investment costs.  There is a full credit for all state duties paid – the inefficient output-linked duties that the MRRT should ideally replace.

Moran talks about the MRRT displacing alternative better procedures such as auctioning systems for recouping excess rents.  That might be true but the MRRT is not a bad first stab at this and efficient auctions require competitive bidding.   It won’t destroy the mining industry, as the numerical example in the fact sheet makes clear.

Taxes in all parts of the economy are not set immutably. They should change with circumstances. The huge profits being earned by, for example, BHP-Billiton and Rio Tinto on their coal and iron ore exports are unprecedented.  There is a case for increasing the community take from such producers.  I am a shareholder in these companies so my private wealth will suffer from these tax moves but overall I will be better off if the proceeds of the increased taxes are invested in productive infrastructure and a fairer Australia where all benefit from the greatest, and plausibly the longest-lived, commodity price boom in our history.

February 24, 2012

Labor self-destruction

Filed under: Australian politics — hc @ 7:16 am

Julia Gillard has now publicly and explicitly identified the reasons Kevin Rudd could not continue as PM. His administrative incompetence was a primary difficulty. These reasons have long been recognised but Gillard’s public expression of them, and attacks on Rudd by senior ministers in the government, make Rudd an impossible choice as alternative PM. Gillard’s already low electoral appeal has been further weakened by the bizarre recent events – the impression is of a government which is out of control.  Labor has destroyed its already feeble prospects of being returned at the next poll and fed the Liberal Party with ammunition it can direct at Labor for the next decade.

Update: Graham Richardson sees the choice as between a current and past failure. I am certain about Rudd being a past failure but less sure about his assessment of Gillard. His conclusion – that the Labor Party faces a disastrous future I agree with.

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