“In a pattern now all too familiar, European politicians are still well behind the curve, having failed to take advantage of the months of relative calm,” Swan said in the text of a speech to be delivered at a Euromoney forum in Sydney today. “Put simply, what is required is some basic political courage.”
Sources confirmed yesterday that Trade Minister Craig Emerson won approval for the shift with the backing of Ms Gillard, but only after her deputy, Wayne Swan, attacked the policy as lacking a political constituency. The sources said that, although the Treasurer, who has a long record of advocacy for trade liberalisation, did not attack the principles of the policy, he questioned the political wisdom of proceeding with the change at a time when the government was already fighting for reform on a range of other fronts, including the carbon tax.
Doubling an MEP’s salary increases the probability of running for reelection by 23 percentage points and increases the logarithm of the number of parties that field a candidate by 29 percent of a standard deviation. A salary increase has no discernible impact on absenteeism or shirking from legislative sessions; in contrast, non-pecuniary motives, proxied by home-country corruption, substantially impact the intensive margin of labor supply. Finally, an increase in salary lowers the quality of elected MEPs, measured by the selectivity of their undergraduate institutions.
I have an op-ed in Online Opinion marking the 20th anniversary of Fightback:
Twenty years ago this November, the Liberal-National Party coalition released Fightback, the most comprehensive and market-oriented policy platform ever taken to a federal election. Conventional wisdom holds that Fightback was a political folly that saw the opposition lose an un-losable election. Yet in the last twenty years, much of Fightback has been implemented and even enjoys bipartisan political support. Fightback was a failure only when viewed through the lens of short-term electoral politics rather than public policy.
The1993 federal election is still considered Paul Keating’s greatest political triumph and John Hewson’s spectacular failure. But this is to elevate personal political fortunes above public policy outcomes. Fightback’s centerpiece, the goods and services tax, was supported by Paul Keating in 1985. It would be surprising if he now called for its repeal. Keating beat Hewson in 1993 but within seven years the GST prevailed and now serves to diminish Keating and his legacy.
Even with the advantages of incumbency, the Howard government’s 1998 tax reform package was as politically risky as Fightback. It nearly cost John Howard both the 1998 and 2001 elections. Yet it made Howard’s reputation as a reformer and few would argue with the economic legacy of the tax reforms introduced in 2000. As Paul Kelly has noted, if the Labor Party had implemented the 1998 tax reform package, the ABC would have been making documentaries about it for the next 50 years.
The government looks set to proceed with a media inquiry. Twenty years ago, Kerry Packer demonstrated the right amount of respect and deference to be afforded the parliament in relation to such inquiries. It is still the most colourful defence of the rule of law in relation to cross-border acquisitions ever mounted in Australian public life. I was working in Parliament House at the time and I think it is fair to say that most of the politicians on the print media inquiry felt ashamed of themselves at the end of that hearing.
An unnamed federal cabinet minister, quoted in The Monthly’s profile of Australian editor-in-chief Chris Mitchell:
“The Oz doesn’t report the policy issues. It just reports that big business is shitting on the government, and Abbott is shitting on the government, it reports politics in any way that shits on the government, day after day.” Whether it’s climate change, asylum seekers, industrial relations, the schools building program or the National Broadband Network: “It’s just ‘let’s shit on the government’, every single fucking day.”
Ricardian Ambivalence highlights the real cost of the CPRS Mark II in the presence of political capital constraints:
The fact is the government can’t open a new tax battle while the carbon tax is taking all the oxygen. This is the hidden cost of the carbon tax. Not only will it do nothing to change the climate it is also crowding out a discussion of controversial but important policy debates.
The government’s apparent determination to die in a ditch over the CPRS Mark II is puzzling from a public choice perspective. There is nothing wrong with dying in a ditch for something worthwhile, but this is not typical behavior for politicians and begs the question why they don’t do it for something more worthwhile if they really are putting principle ahead of political expediency. Implementing the entirety of the Henry review would surely come at lower political cost and could even gain bipartisan political support.
Rudd and Turnbull realised they had to form a policy cartel on the CPRS to avoid it consuming them both. Neither wanted to fight an election on the issue. It was a bipartisan political conspiracy that nearly paid-off. A policy cartel is consistent with the median voter model. The CPRS Mk I would be operating today were it not for the coalition revolt against Turnbull’s leadership. Turnbull’s judgment that this would be electorally fatal to the Coalition was spectacularly wrong. Breaking the Rudd-Turnbull CPRS policy cartel destroyed Rudd and nearly won the Coalition the 2010 election.
Are Australian Economists a Bevy of Camp-Following Whores?
I have an article at The Conversation on the results of a survey of the policy views of members of the Economic Society of Australia. Along with poorly worded questions, the survey suffers from a selection bias problem. The survey is arguably more representative of those ESA members interested in public policy than of economists more generally.
Judy Sloan beat me to the punch in commenting on the response to the minimum wage question. As Sloan quotes Jim Buchanan:
no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimum scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.
Except for the majority of ESA members, it seems.
UPDATE: John Tierney considers selection bias in the US academy.
I have a piece at the ABC’s Drum Unleashed on the proposed federal Parliamentary Budget Office. Here’s my conclusion:
Policy costings should be a low priority for the PBO or any other independent fiscal authority. Were we really any the wiser for the 128 policy costings released by Treasury and Finance for the 2010 federal election, the work of some 300 public servants? Hands-up if you can recall the conclusion of even one?
The new federal PBO’s focus should instead be on the analysis of overall fiscal strategy and long-term fiscal sustainability. The PBO will not end partisan disputes over competing policies. But it could serve a useful purpose if it injects some realism into debates over costings. To do this, it will need the independence to scrutinise and contradict, rather than just recycle, the work of Treasury and Finance. Whether the PBO is given the necessary freedom to do so remains to be seen.
Turnout Matters: Evidence from Compulsory Voting in Australia
A paper suggesting that compulsory voting in Australia has increased Labor’s vote share and spending on pensions (although the latter result is heavily qualified):
Despite extensive research on voting behavior, there is little evidence connecting turnout to tangible outcomes. Would election results and public policy be different if everyone voted? The adoption of compulsory voting in Australia provides a rare opportunity to address this question. The Commonwealth enacted compulsory voting for federal elections in 1924 and each state enacted similar policies at different times between 1914 and 1941. Within each state, the timing of compulsory voting was exogenous to other political events. Exploiting this variation, I estimate that compulsory voting increased voter turnout by 24% which in turn increased the vote shares and seat shares of the Labor Party by 7-9%. Then, employing synthetic control methods, I find that pension spending in Australia increased significantly after the adoption of compulsory voting. Results suggest that increased voter turnout can dramatically influence election outcomes and the resulting public policies.
Needless to say, we should not make a case for or against compulsory voting based simply on whether we like or dislike the political and distributional outcomes it supposedly produces, not least because these outcomes are unpredictable and could well change over time. The conservative politicians who originally backed the introduction of compulsory voting in Australia did so in part because they thought the labour movement was better at mobilising voters. Now the labour movement has the coercive power of the state to do it for them.
The government has adopted the same tag line in arguing for an increase in the rate of compulsory superannuation contributions, although these contributions necessarily come at the expense of the supposed beneficiaries through lower take-home wages, fewer hours worked and reduced employment. Compulsory super promotes dissaving through other saving vehicles and only succeeds in raising net household wealth to the extent that some households are liquidity constrained and cannot dissave through other mechanisms to offset the compulsory contributions.
Bill Shorten is suggesting there is some kind of trade-off between an increase in the compulsory super contribution rate and a sovereign wealth fund. While this is absurd, it does provide Shorten with an opportunity to highlight the philosophical weakness of the federal opposition:
Turnbull’s sovereign wealth fund advocacy is inconsistent with his free market philosophy. A sovereign wealth fund would see the state play a role that Labor now sees being performed by the private sector. The importance of our superannuation savings during the GFC was evidence of how it acts as a bulwark. Since the last election, however, we have seen the Liberals move further away from their free-market credentials. It was evident in Joe Hockey’s overly regulatory approach to mortgage lending rates. And it’s evident in Tony Abbott’s Soviet style centrally controlled $10bn direct action policy on climate change. The philosophical contractions colliding within the Liberals may seem soft now, but watch it grow in the months ahead. Meanwhile, I’d rather trust thousands of trustees across thousands of super funds to invest and manage billions of dollars rather than government insiders in Canberra picking winners.
In this context, it is worth noting that the Future Fund has divested itself of two of its three biggest defence holdings, Lockheed Martin Corp. (LMT) and General Dynamics Corp. (GD) because they are supposedly engaged in mines and cluster munitions, even though Australia has yet to ratify the relevant convention and the Fund is notionally free from political direction from Canberra. Clearly the Fund is looking over its shoulder at what politicians are doing in making investment decisions.
I have an op-ed in the Straits Times that discusses Australia’s regulation of foreign direct investment in light of the Treasurer’s rejection of the SGX-ASX merger:
the Treasurer’s sweeping powers and the open-ended nature of Australia’s ‘national interest’ test are a standing invitation for politicians to pre-empt and second-guess commercial outcomes. The Foreign Acquisitions and Takeovers Act is a lightning rod for political intervention in the market for ownership and control of Australian equity capital.
The Act adds nothing useful to the regulation of business investment in Australia. It allows government to infringe the property rights of the owners of Australian equity capital, who are denied the opportunity to sell to the highest bidder and thereby realise the full value of their equity. That in turns reduces the amount of capital available for re-investment in Australia by the sellers of these assets. The Treasurer’s opposition to this and other deals devalues Australia’s stock of equity capital.
In a previous post, I speculated about the likely media reaction to any comment by RBA Governor Stevens that might be seen to be critical of the NBN. Unsurprisingly, the need for a cost-benefit analysis of the NBN came up during the Governor’s appearance before the House Economics Committee. Michael Stutchbury says:
It’s a disgrace that the Reserve Bank governor has had to be dragged into political hot water to point this out.
As I argued in a previous op-ed, this is a misreading of the role of an independent central bank governor in public debate. The ability to speak out on important public policy issues is a mark of the Reserve Bank’s independence, not a threat to it. While the government may be in hot water as a result of the Governor’s comments, that is hardly a problem for Glenn Stevens.
I have an op-ed in today’s WSJ arguing that the government and opposition’s attacks on the banks are a pointless diversion. Saul Eslake makes similar arguments in today’s Age. After yesterday’s RBA Board minutes destroyed the politicians’ case against the banks, the best Joe Hockey can come up with is this:
Mr Hockey said the minutes had contemplated the banks going further than the official rise but didn’t contemplate the banks going as far as they did.
UPDATE: I have another op-ed in the Business section of The Australian.
As Michael Stutchbury notes, the minutes from the RBA’s November Board meeting destroy the politicians’ argument against the banks. The media are fond of quoting the RBA when it suits their narrative, but with the exception of Stutchbury, I suspect very few will hold politicians like Joe Hockey to account over this. The press gallery seem to think that Hockey is a political genius rather than just another Pauline Hanson with upper middle-class constituents.