Wednesday, December 4, 2019

Women are making themselves at home in the workforce

In the world of paid work, women still have a lot to complain about: unequal pay and promotion, still-inadequate childcare, and a tax and benefit system that discourages “secondary earners” from working more.

All true. But don’t let this conceal from your notice the success women are having at flooding into the long male-dominated workforce and slowly reshaping it to their needs.

In my never-humble opinion, for as long as girls continue making themselves better educated than boys, it’s only a matter of time before women are calling the shots.

Reserve Bank deputy governor Dr Guy Debelle highlighted women’s growing role in the labour market in a speech he gave last week.

You’ve no doubt heard the government boasting about how strongly the number of jobs has grown on its watch. It’s true. The rest of the economy hasn’t been doing well – wages, the standard of living, for instance – but employment has been growing at the disproportionately strong annual rate of about 2.5 per cent over much of the past three years. As a consequence, a near-record 62.6 per cent of all Australians aged 15 and over have a paid job.

But here’s what the pollies never mention, but Debelle noted: women accounted for two-thirds of the additional jobs in the past year.

This means the rate at which working-age females are participating in the labour force is now at its highest. So with female participation continuing to grow strongly over the decades, while male participation has fallen back, the gap between male and female participation is the narrowest it’s been.

Similarly, if you look just at the gender of those with jobs, women’s share is now above 47 per cent. Similar trends are occurring in all the advanced economies, of course.

Debelle says “changing societal norms and rising educational attainment have contributed to more women moving into ... employment outside the home. Female participation has also been influenced by the increasing flexibility of working-time arrangements, the availability and cost of childcare and policies such as parental leave.”

True. There was a time when most employers thought in terms of full-time workers and not much else – an attitude reinforced by the male-dominated unions. The increasing use of part-time employment has greatly added to the “flexibility” with which employers can deploy labour within their businesses, and no doubt helped to make them more profitable.

But the fact remains that the advent of part-time employment has been a boon, first, to women seeking a career as well as motherhood, then to full-time university students seeking income while they study, and now to many older workers seeking a mid-point between the extremes of full-time work and retirement. So the dread “flexibility” can benefit workers as well as bosses.

Debelle says that the participation rate of mothers with dependent children has kept increasing, rising by 10 percentage points since the early 2000s to 73 per cent. Over the past decade, the rise has been most pronounced for mothers with children aged up to 4.

Of those returning to work within two years after the birth of a child, an increasing majority are citing “financial reasons” as their main reason for doing so. Others returning to work cite “social interaction” or to “maintain career and skills” as their main reason.

Financial reasons could be capturing a number of considerations, according to Debelle, including low growth in wages, the rise in household debt or childcare costs.

Research suggests the cost and quality of childcare does have a significant effect on the willingness of women to do paid work, he says. According to the HILDA survey – of household income and labour dynamics in Australia – the share of households using (more expensive) formal childcare for young children has increased notably over the past decade.

Even so, access to childcare places and financial assistance with childcare costs remain “very important” issues for mothers not back at work.

Debelle says the rise in the level of mortgage debt owed by households in recent decades has “broadly coincided” with the increase in women’s rate of participation in the labour force. But which one’s causing what?

Are debt levels higher because more households have two incomes and so can afford to borrow more? (If so, that would suggest the increase in second incomes is helping to push up house prices.)

Or does the need to borrow more to afford the higher prices drive women’s decisions to go back to work? Maybe the low growth in wages in recent years has caused couples to have more debt than they anticipated and thus needing to work more to pay it down.

What little research evidence there is has usually found it’s the higher debt levels that lead to more women going back to work, but the evidence isn’t strong.

Looking beyond the continuing increase in participation by the mothers of young children and the ever-growing workplace role of prime-aged women – 25 to 54 years – of which it is part, women also account for a big part of the swing from early to later retirement.

Do you realise that 60 per cent of women aged 55 to 64 are taking part in the labour force? That compares with 20 per cent or so before the turn of the century. And the rising participation by women 65 and over isn’t all that much less than for men. Times change.
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Monday, December 2, 2019

Lowe should rescue a PM lost in the Canberra bubble

Dr Philip Lowe, governor of the Reserve Bank, is one of the smartest economists in the land. You don’t get a PhD from the Massachusetts Institute of Technology unless you’re super-sharp. But the question now is whether he has the courage to stand up to a wilful Prime Minister whose confidence far exceeds his comprehension.

Scott Morrison, as we know, is refusing to do what Lowe – with the support of the international agencies and most of our economists – has been begging him to do: use his budget to come to the rescue of monetary policy and its ever-feebler efforts to stop the economy slowing almost to stalling-speed.

Morrison is desperate to deliver a budget surplus. So desperate he’s convinced himself that failing to do so would cost him more political support than would allowing the economy to continue failing to lift voters’ living standards, and be so weak that a shock from abroad could push us into recession.

How any politician could come to such a self-harming conclusion is hard to fathom. Perhaps it’s that the 28 years since our last severe recession have robbed the latest generation of Liberal pollies of their economic nous.

Morrison’s so green he hasn’t learnt the first rule of politics: if you stuff up the economy, they throw you out. If that’s news to you, remember the 1961 credit squeeze, which brought Bob Menzies within a whisker of having his career cut short.

Remember how the 1975 recession dispatched with Gough Whitlam, the recession of the early 1980s finished Malcolm Fraser and the 1990 recession caught up with Paul Keating despite a one-term reprieve granted by Liberal fumbling of the 1993 election.

The question for Lowe is how he responds to the Prime Minister’s misreading of his own best interests (not to mention ours). Does Lowe stand back and watch an overconfident leader dice with political death by pretending that monetary policy hasn’t reached the end of its useful life and that blood can still be squeezed from the stone? Or does he announce he’s done all he sensibly can and turn the economy’s problem back to the one (elected) person who could fix it if he came to his senses?

Conventional monetary policy (interest-rate manipulation) has lost most of its power because household debt is at record levels, because the official interest rate is almost at zero, and because rates are already so low that another few cuts won’t make much difference.

Further, as Lowe explained in his speech last week, there’s little to be gained from deciding to progress to QE – "quantitative easing". It’s not capable of lowering rates much further and, in any case, comes at a cost.

As Lowe himself has acknowledged, it creates a moral hazard. For as long as Lowe pretends monetary policy is still effective, he’s running cover for the person who could do something effective, but chooses not to.

And it’s not just the absence of a positive, it’s also the continuation of a negative. Everything that causes the budget to take more out of the economy than it puts back in government spending causes private demand to be weaker.

Consider the way continuing bracket creep (only partly countered by the new middle income-earners’ tax offset) takes a bigger bite out of households’ wage income before they can spend it. Fiscal policy is actually counteracting monetary policy.

In his speech outlining the "limitations of monetary policy" and his lack of enthusiasm for unconventional measures, Lowe noted that their modest benefits needed to be balanced against their possible adverse side-effects.

Such as? First, they may change incentives in an unhelpful way. Providing the banks with ready liquidity during emergencies may encourage them not to bother holding their own adequate buffers, thus making further crises more likely.

Similarly, "the willingness of a central bank to use its full range of policy instruments might create an inaction bias by other policymakers [and] this could lead to an over-reliance on monetary policy," he said. But which policymakers could he possibly have in mind?

A second possible side effect is reducing the efficiency with which resources are allocated throughout the economy. Low interest rates and flattening the yield curve (pushing long-term interest rates down to the level of short-term rates) can damage banks’ profitability, leaving them with less capacity to lend.

There are also risks to the stability of the financial system when low interest rates cause the prices of property or shares (and borrowing) to boom at a time when the economy’s actually weak.

Finally, a third side-effect is a blurring of the lines between monetary policy and fiscal policy. "If the central bank is buying large amounts of government debt at zero interest rates, this could be seen as money-financed government spending," and so damage a country’s credibility internationally.
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Saturday, November 30, 2019

QE: not certain, not soon, no great help, no let-out for govt

The big economic development this week was Reserve Bank governor Dr Philip Lowe giving the financial markets’ expectations about QE – “quantitative easing” - and other unconventional monetary policy an almighty hosing down.

In his speech on Tuesday he disabused the financial markets of the notion that, as soon as the Reserve had cut the official interest rate to zero, it would be on with QE and business as unusual.

Equally, he disabused our surplus-fixated government of any notion that his resort to unconventional monetary policy (manipulation of interest rates) would relieve it of the need to use conventional fiscal policy (budget measures) to get the economy moving again.

Lowe’s first act was to pooh-pooh most of the unconventional policies the letters QE conjure up in the minds of excitable market players. He identified four possible tools and rejected two and a half of them.

Let’s start with “forward guidance” – the notion of the central bank seeking to improve the confidence of consumers and firms by making its intentions on interest rates unmistakably clear. Great idea, he said, which is why he’d be doing it for ages and would keep doing it. Interest rates, he said, “will remain low for an extended period”.

Second is “extended liquidity operations”. During the global financial crisis in 2008, many central banks made significant changes to their usual ways of dealing with banks.

This was when financial markets were so disrupted that banks were too worried about their own finances to want to keep lending to ordinary businesses, threatening to crunch the economy.

Central banks dramatically increased their lending to banks, lent against the security of assets other than government bonds, lent for longer periods and lent at discounted rates of interest.

That is, they did what anyone with any sense would do to calm a crisis. Most of these extraordinary arrangements were soon unwound after calm had been restored. The Reserve itself had done some of them.

Would it do the same again should another crisis occur? Of course. At present, however, everything was working normally and our banks were able borrow as much as they needed – here or from abroad - at reasonable interest rates. So forget that one.

The third unconventional measure Lowe listed was “negative interest rates”. We used to assume that interest rates couldn’t go below zero, but things have become so desperate in Japan and then Europe – but nowhere else – that central banks have started paying banks negative interest rates. Governments have issued bonds at negative yields. That is, the borrower doesn’t pay the lender, the lender pays the borrower.

“Unconventional” doesn’t do justice to such a topsy-turvy world. It was long assumed that if banks started charging people to deposit their money, most of them would keep their money in cash under the bed. Lowe says there’s been a bit of that, but not much.

Why not? Partly because the negative rates are tiny – minus 0.5 per cent in the euro area, minus 0.1 per cent in Japan. But mainly because the negative rates have been restricted to charging banks and bond holders. No one’s been mad enough to try it on ordinary businesses or households.

So what are the chances we’d see negative rates here? It’s “extraordinary unlikely”, according to Lowe.

Which brings us finally to “asset purchases”. This is the only one of the four unconventional tools that can be called QE – quantitative easing. The central bank buys financial assets – securities – from the banks, paying for them merely by crediting the banks’ deposit accounts with the central bank.

This adds to the central bank’s liabilities, and to its holdings of financial assets, thus expanding its balance sheet and increasing the supply of money. Many central banks have purchased huge amounts of securities since the financial crisis, the vast majority of them being government bonds.

So, what’s Lowe’s attitude to QE? Well, for openers, he has “no appetite” for buying private sector securities (that’s the half I mentioned). But “if – and it is important to emphasise the word if – the Reserve Bank were to undertake a program of quantitative easing, we would purchase government bonds, and we would do so in the secondary [second-hand] market”. That is, it wouldn’t buy bonds newly issued by the government.

It would do QE because government bonds are assumed to be risk-free, and adding to the demand for bonds would lower the risk-free interest rate – not just for bonds but for all borrowing, from short-term to long-term. This should encourage borrowing and spending, as well as making our industries more price-competitive internationally by further lowering our dollar.

Whoopee-do. The financial markets ride again and monetary policy rolls on, allowing the government to continue putting the state of the budget ahead of the state of the economy.

Not so fast. Lowe said he wouldn’t even start to wonder about QE until we reached the point where the official interest rate had been lowered to 0.25 per cent (which would be as low as it’s possible to go).

And get this: “the threshold for undertaking QE in Australia has not been reached, and I don’t expect it to be reached in the near future.”

But his “threshold” isn’t the official rate down to 0.25 per cent. It’s trickier. “There is not a smooth continuum running from interest rate reductions to quantitative easing. It is a bigger step to engage in money-financed asset purchases by the central bank than it is to cut interest rates.

“In considering the case for QE, we would need to balance [the] positive effects with possible [adverse] side-effects.” Oh, didn’t think of those. He implied that he wouldn’t move to QE unless he was convinced we’d begun moving away from the inflation target and full employment.

Finally, having said the official interest rate couldn’t be cut below 0.25 per cent, he then estimated the scope for using QE to lower interest rates was no more than 0.2 percentage points. Sound like a magic wand to you?
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Wednesday, November 27, 2019

High immigration is changing the Aussie way of life

The nation’s economic elite – politicians of all colours, businesspeople and economists – long ago decided we need to grow our population as fast as we can. To them, their reasons for believing this are so blindingly obvious they don’t need to be discussed.

Unfortunately, however, it’s doubtful most ordinary Australians agree. A survey last year by researchers at the Australian National University found that more than 69 per cent of respondents felt we didn’t need more people, well up on a similar poll in 2010.

This may explain why Scott Morrison announced before this year’s election a big cut in our permanent migrant intake – while failing to mention that our booming temporary migrant intake wouldn’t be constrained.

He also foreshadowed measures to encourage more migrants to settle in regional cities. What he didn’t say is what he’d be doing differently this time, given the many times such efforts had failed in the past.

In between scandalising over the invading hordes of boat people, John Howard greatly increased the immigration intake after the turn of the century, and this has been continued by the later Labor and Coalition governments. “Net overseas migration” accounts for about 60 per cent of our population growth.

In 2000, the Australian Bureau of Statistics projected that our population wouldn’t reach 25.4 million until 2051. We got there this year. Our population is growing much faster than other developed countries’ are.

The growth in our economy has been so weak over the past year that they’ve had to stop saying it, but for years our politicians boasted about how much faster our economy was growing than the other economies.

What they invariably failed to mention was that most of our faster growth was explained by our faster-growing population, not our increasing prosperity. Over the year to June, for instance, real gross domestic product grew by (a pathetic) 1.4 per cent, whereas GDP per person actually fell by 0.2 per cent.

That’s telling us that, despite the growth in the economy, on average our material standard of living is stagnant. All that immigration isn’t making the rest of us any better off in monetary terms.

Of course, that’s just a crude average. You can be sure some people are better off as a result of all the migration. Our business people have always demanded high migration because of their confidence that a bigger market allows them to make bigger profits.

Economists, on the other hand, are supposed to believe in economic growth because it makes all of us better off. They’re not supposed to believe in growth for its own sake.

This week one of the few interest groups devoted to opposing high migration, Sustainable Population Australia, issued a discussion paper that’s worth discussing. It reminds us that many of the problems we complain about are symptoms of migration.

The biggest issue is infrastructure. We need additional public infrastructure – and private business equipment and structures, and housing – to accommodate the needs of every extra person (locally born as well as immigrant) if average living standards aren’t to fall.

Taking just public infrastructure – covering roads, public transport, hospitals, schools, electricity, water and sewage, policing, law and justice, parks and open space and much more – the discussion paper estimates that every extra person requires well over $100,000 of infrastructure spending.

When governments fail to keep up with this need – as they have been, despite a surge in spending lately – congestion on roads and public transport is just the most obvious disruption we suffer.

The International Monetary Fund’s latest report on our economy says we have “a notable infrastructure gap compared to other advanced economies”. Spending is “not keeping up with population and economic growth”. We have a forecast annual gap averaging about 0.35 per cent of GDP for basic infrastructure (roads, rail, water, ports) plus a smaller gap for social infrastructure (schools, hospitals, prisons).

One factor increasing the cost of infrastructure is that about two-thirds of migrants settle in the already crowded cities of Sydney and Melbourne – each of whose populations is projected to reach 10 million in the next 50 years, with Melbourne overtaking Sydney.

According to a Productivity Commission report, “growing populations will place pressure on already strained transport systems. Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land”.

New developments such as Sydney’s WestConnex have required land reclamation, costly compensation arrangements, or otherwise more expensive alternatives such as tunnels. It’s reported to cost $515 million a kilometre, with Melbourne’s West Gate Tunnel costing $1.34 billion a kilometre.

Who pays for all this? We do – one way or another. “Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation,” the commission says.

Combine our growing population with lower rainfall and increased evaporation from climate change and water will become a perennial problem and an ever-rising expense to householders and farmers alike.

The housing industry’s frequent failure to keep up with the demand for new homes adds to the price of housing. And the only way we’ll double the populations of Melbourne and Sydney is by moving to a lot more high-rise living.

High immigration is changing the Aussie way of life. Before long, only the rich will be able to afford a detached house with a backyard.
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Monday, November 11, 2019

Confessions of a pet shop galah: much reform was stuffed up

As someone who, back in the day, did his share of being one of Paul Keating’s pet shop galahs – screeching "more micro reform!" every time they saw a pollie – I don’t cease to be embarrassed by the many supposed reforms that turned into stuff-ups.

My defence is that at least I’ve learnt from those mistakes. One thing I’ve learnt is that too many economists are heavily into confirmation bias – they memorise all the happenings that affirm the wisdom of their theory, but quickly cast from their minds the events that cast doubt on that wisdom.

Well, let me remind them of a few things they’d prefer to forget.

Of course, it’s not the case that everything done in the name of "micro-economic reform" was wrong-headed. The floating of the dollar was an unavoidable recognition that the era of fixed exchange rates was over. And the dollar’s ups and downs have almost always helped to stabilise the economy.

The old regulated banking system wasn’t working well and had to be junked. With the rise of China in a globalising world, persisting with a highly protected manufacturing sector would have been a recipe for getting poorer. Nor could we have persisted with a centralised wage-fixing system or a tax system that failed to tax capital gains, fringe benefits and services – to name just a few worthwhile reforms.

Many privatisations were justified – the government-owned banks, insurance companies and airlines – but the sale of geographic monopolies (ports and airports) and natural monopolies (electricity and telephone networks) was a step backwards, mainly because governments couldn’t resist the temptation to maximise the sale price by preserving the businesses’ pricing power at the expense of consumers.

The conversion of five state monopolies into the national electricity market proved a monumental stuff-up at all three levels: generation, transmission and retail. It quickly devolved into an oligopoly with three big vertically integrated firms happily overcharging consumers at every level, with collateral damage to the use of carbon pricing in reducing greenhouse gas emissions.

We’ve learnt that “markets” artificially created by governments and managed by bureaucrats are – you wouldn’t guess – hugely bureaucratic, with the managers susceptible to “capture” by market players. The gas market has also been an enormous stuff-up, threatening the survival of what remains of Australian manufacturing.

The ill-considered attempt to treat schools and TAFEs and universities as being in some kind of market, where fostering competition between them and paying teachers performance bonuses would spur them to lift their performance, proved an utter dud.

Had the harebrained plan to deregulate uni fees not been stopped, it would have made even worse the chronic disorientation of the nation’s vice chancellors on what universities are meant to do and why they’re doing it. Lesson: trying to turn non-market parts of society into markets, while blithely ignoring all the obvious reasons such "markets" would fail, is a fool’s errand.

Which brings us to the half-baked idea of trying improve the provision of taxpayer-funded services by making their delivery “contestable” by for-profit providers. It's been an expensive failure pretty much everywhere it’s been tried: childcare, employment services, vocational education and training, and aged care (see present royal commission), not to mention privately run prisons and offshore detention centres. How long will it be before we’re having a royal commission into the abuses of the largely outsourced national disability insurance scheme?

Why have so many reform programs ended so badly? Partly because of the naivety of econocrats and other proponents of "economic rationalism". They had no notion of how far the grossly oversimplified neo-classical model of markets they carry in their heads misrepresented the big bad real world.

And many of them, having spent their working lives solely in the public sector, had no idea of how wasteful or bureaucratic the supposedly rational private sector could be. Actually break the law if they thought they wouldn’t get caught because corporate law-breaking wasn’t being policed? Sure. Rip off the government because the bureaucrats wouldn’t notice? Love to.

But there’s another reason so many reforms blew up. Because naive econocrats failed to foresee the way reforms intended to leave consumers or taxpayers better off could be hijacked by Finance Department accountants looking to cut government spending and produce "smaller government" by whatever expediency possible (see uni fee deregulation) and politicians looking to win the approval of big business or to move money and influence from the public sector column (them) to the private sector column (us).

Lesson: if a venal politician can find a way to sabotage micro-economic reform to their own advantage, they will.
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Saturday, November 9, 2019

Weak wages the symptom of our stagnant economy, but why?

If you don’t like the term "secular stagnation" you can follow former Bank of England governor Mervyn King and say that, since the Great Recession of 2008-09, we’ve entered the Great Stagnation and are "stuck in a low-growth trap".

On Friday we saw the latest instalment of our politicians’ and econocrats’ reluctant admission that we’re in the same boat as the other becalmed advanced economies, with publication of the Reserve Bank’s latest downward revisions of its forecasts for economic growth.

This time last year, the Reserve was expecting real growth in gross domestic product of a ripping 3.25 per cent over the present financial year. Now it’s expecting 2.25 per cent. Even that may prove on the high side.

What their eternal optimism implies is our authorities’ belief that the economy’s weakness is largely "cyclical" – temporary. What the past eight years of downward revisions imply, however, is that the problem is mainly "structural" or, as they used to say a century ago, "secular" – long-lasting.

If the weakness is structural, waiting a bit longer won’t see the problem go away. The world’s economists will need to do a lot more researching and thinking to determine the main causes of the change in the structure of the economy and the way it works, and what we should be doing about it.

Apart from dividing problems between cyclical and structural, economists analyse them by viewing them from the perspective of demand and then the perspective of supply.

Obviously, what you’d like is demand and supply pretty much in balance, meaning low inflation and unemployment, with economies growing at a good pace and lifting our material standard of living. In practice, however, it’s not that simple and demand and supply don’t always align the way we’d like.

For about the first 30 years after World War II, the dominant view among economists was that the big problem was keeping demand strong enough to take up the economy’s ever-growing potential supply – its capacity to produce goods and services – and keep workers and factories in "full employment". Keynesian economics was developed to use the budget ("fiscal policy") to ensure demand was always up to the mark.

From about the mid-1970s, however, the advanced economies developed a big problem with inflation. After years of uncertainty and debate, the dominant view emerged that the main problem wasn’t "deficient" demand, it was excessive demand, always threatening to run ahead of the economy’s capacity to produce and thus cause inflation.

The answer was to get supply – potential production – growing faster. Most economists abandoned Keynesian economics and reverted to the former, "neo-classical" macro-economics, in which the central contention was that, over the medium-term, the rate at which an economy grew was determined on the supply side, by the three key determinants of production capacity, "the three Ps" – population, participation (by people in the labour force), and productivity – the rate at which investment in more and better machines and structures allowed workers to produce more per hour than they did before.

If so, the managers of the macro economy could do nothing to change the rate at which the economy grew over the medium term. Their role was simply to ensure that, in the short term, demand neither grew faster than the growth in the economy’s production potential (thus casing inflation) nor slower than potential (thus causing unemployment).

And the best instrument to use to achieve this balancing act was, as Treasury secretary Dr Steven Kennedy explained recently, monetary policy (moving interest rates up and down).

Everyone agrees that the problem with the advanced economies at present – including ours – is weak demand. The question is whether that weakness is mainly cyclical or mainly structural. If it's cyclical, all we have to do is be patient, and the old conventional wisdom - that, fundamentally, growth is supply-determined - doesn’t need changing.

But the conclusion that fits our circumstances better is that the demand problem has structural causes. Consider this: we’ve had plenty of episodes of weak demand in the past, but never has demand been so weak that inflation is negligible. Nominal interest rates are way down in consequence, but even real global interest rates have been falling since even before the financial crisis.

That’s why monetary policy has almost done its dash. It doesn’t do well at a time of negligible inflation, and fiscal policy is back to being the more effective instrument. But if the demand problem is mainly structural, then a burst of stimulus from the budget may help a bit, but won’t get to the heart of the problem.

As former top econocrat Dr Mike Keating has argued consistently, weak growth in real wages seems the main cause of weak growth in consumer spending and, hence, business investment, productivity improvement and overall growth – both in Australia and the other advanced economies.

Reserve Bank governor Dr Philip Lowe would agree. But he tends to see the wage problem as mainly cyclical: wait until we get more growth in employment, then the labour market will tighten, skill shortages will emerge and real wages will be pushed up.

Other economists stick to the supply-side, neo-classical approach: if real wages aren’t growing fast enough it can only be because the productivity of labour isn’t improving fast enough, so the answer is more micro-economic reform. Not a big help, guys.

The unions say the root cause is that deregulation has robbed organised labour of its bargaining power – and there may be something in that. But Keating’s argument has been that skill-biased technological change has hollowed out the semi-skilled middle of the workforce, with wage increases going disproportionately to the high-skilled, who save more of their income than lower-paid workers.

So Keating wants any budget stimulus to be directed towards the lower-paid, and a lot more spending on all levels of education and training, to help workers adopt and adapt to the digital workplace.
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Wednesday, November 6, 2019

Mental health: the smart way to increase happiness


You have to hand it to Scott Morrison. He is, without doubt, the most skillful politician we’ve seen since John Howard. He runs rings around his opponents. It’s just a pity he puts so much time into strengthening his own position by making his opponents look bad and so little into strengthening our position by working on some of our many problems.

Speaking of problems, on the very day the Royal Commission into Aged Care was revealing how appallingly we treat so many of our parents and grandparents, the Productivity Commission released a draft report on how much our treatment of the mentally ill leaves to be desired.

Sometimes I think that if hastening the economy’s growth is intended to increase our happiness, why don’t we do more to increase it directly by reducing the unhappiness of, for instance, those in old people’s homes and those suffering mental illness, not to mention their families?

Why do you and I somehow imagine it won’t be us being mistreated in some institution in a few years’ time? Why could mental ill-health never reach us or our family and friends?

The commission’s report found that almost half of Australian adults will meet the diagnosis for a mental illness at some point in their lives. In any given year, however, one person in five will meet the criteria. And, although it can affect people of any age, three-quarters of those who develop mental illness first experience problems before they’re 25.

And yet we’ve gone for years providing quite inadequate help to the mentally troubled. Why? Because physical problems are more visible and less debatable. But also because the stigma that continues to attach to mental problems makes sufferers reluctant to admit to them, and the rest of us reluctant to dwell on it.

Mental illness includes more common conditions such as anxiety, substance use and depression, plus less common conditions such as eating disorders, attention-deficit/hyperactivity disorder, bipolar disorder and schizophrenia. And suicide, of course.

The report says that many who seek treatment for mental problems aren’t receiving the level of care necessary. As a result, too many people suffer additional and preventable physical and mental distress, relationship breakdown, stigma, and loss of life satisfaction (the $10 words for happiness) and opportunities.

A big part of the problem is that the treatment of mental illness has been tacked on to a health system designed around the characteristics of physical illness, especially acute rather than chronic illnesses.

Five long-standing and much-reported-on problems causing the mental health system to deliver poor results are, the report says, first, the underinvestment in prevention and early intervention. This is what makes the fact that mental problems tend to start early and get worse good news, in a sense. It means that, if you get in early, you can stop people experiencing years of unhappiness (not to mention cost to the taxpayer).

Second, the focus on clinical services – things done by doctors and nurses – often means overlooking other things and other people contributing to mental health, including the important role played by carers and family, as well as the providers of social support services.

Third, the frequent difficulties finding suitable social supports, sometimes because they just don’t exist in regional areas. This is despite suicide rates, for example, being much higher outside the capital cities.

Fourth, the social support people do receive is often well below best-practice, isn’t sustained as their condition evolves or their circumstances change, and is often unconnected with the clinical services they get.

Fifth, the “lack of clarity” about roles, responsibility and funding between the federal and state governments. This means persistent wasteful overlaps existing side by side with yawning gaps in the services provided. And it means no level of government accepts responsibility for “the system’s” poor performance.

It’s clear we’re not spending enough on mental healthcare. But this is where we get into an old argument. Ask the people running the system and their answer is always “just give us a shedload more money and we’ll decide how best to spend it”. But ask the Smaller Government brigade and they’ll say “we’re already spending far more than we did and spending even more would improve nothing”.

As usual, the truth’s in the middle. It’s true we’re spending a lot more without much evidence of improved results, but equally true we need to spend more – particularly on social support, such as suitable housing. Fix people, throw them onto the street, and see how well they do.

Sorry, but the days of “trust me, I’m a doctor/teacher/public servant/whatever” are gone. Too many occupations have abused our trust. We need to spend what we’re already spending a lot more effectively – particularly on prevention and early detection, on the non-clinical aspects of the problem, and on better coordination of federal and state roles – as a condition of spending more.

And that will mean paying a bit more tax. After all, if we’re so willing to spend on a big-screen TV or overseas holiday or new car to make us happier, what’s the hang-up with spending via taxes to improve our treatment in old age or should we or a rello strike mental problems?
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Monday, November 4, 2019

Aged Care: the crappy end of the Smaller Government mentality

What do you get when politicians and econocrats go for decades trying to foist Smaller Government  on an unwilling public? Bad government. And the delivery of crappy services – often literally in the case of aged care.

The interim report of the royal commission into aged care is absolutely scathing about the appalling state the system has been allowed to fall into. Its summary is headed: 'A Shocking Tale of Neglect'.

Aged care services are “fragmented, unsupported and underfunded. With some admirable exceptions, they are poorly managed. All too often, they are unsafe and seemingly uncaring.”

“We have uncovered an aged care system that is characterised by an absence of innovation and by rigid conformity. The system lacks transparency in communication, reporting and accountability. It is not built around the people it is supposed to help and support, but around funding mechanisms, processes and procedures,” the report says.

“Many of the cases of deficiencies or outright failings in aged care were known to both the providers concerned and the regulators before coming to public attention. Why has so little been done to address these deficiencies?”

“We have heard evidence which suggests that the regulatory regime that is intended to ensure safety and quality of services . . . does not adequately deter poor practices. Indeed, it often fails to detect them. When it does so, remedial action is frequently ineffective. The regulatory regime appears to do little to encourage better practice beyond a minimum standard.”

Here’s where you see the fingerprints of the econocrats and accountants: “the aged care sector prides itself in being an ‘industry’ and it behaves like one. This masks the fact that 80 per cent of its funding comes directly from government coffers. Australian taxpayers have every right to expect that a sector so heavily funded by them should be open and fully accountable to the public and seen as a ‘service’ to them.”

Get it? Don’t ask us to publish performance indicators. They’re “commercial-in-confidence” – especially because many providers are for-profit providers. Why don’t the regulators insist? Because, like so many regulators, they’ve been “captured” by the providers, which have Canberra-based lobbyists, are generous wine-and-diners and employers of retired ministers and senior bureaucrats, and could make a lot more trouble for the government than a thousand mistreated mums aka silent Australians (whose vote for the Coalition is rusted-on).

The obvious reason the Smaller Government brigade has to shoulder the blame for the appalling treatment of so many (but not all) people in aged care – and many of the overworked and underpaid nurses working in it – is that, as part of the eternal crusade to keep government smaller, aged care is, as the commission finds, seriously underfunded.

But it’s worse than that. Part of the Smaller Government mentality is having aged care provided by someone other than the government – including for-profit providers which, as every Smaller Government crusader knows, are far more efficient than the public service.

Except that, as the commission’s report demonstrates yet again, they’re not. And when they can’t use greater efficiency to cover their profit margin, they extract it by cutting quality. The report doesn’t say so, but it’s a safe bet the for-profits are at the forefront of the “poor continence management,” “dreadful food, nutrition and hydration,” and “common use of physical restraint” and “overprescribing of drugs which sedate residents” to make them easier to manage, it uncovered.

Trouble is, so long as so much of the “industry” is profit-maximising, no amount of increased funding will be sufficient to stop residents being mistreated.

The more fundamental problem is that the Smaller Government zealots have never persuaded voters that less is more. Almost all of us think more is more. That’s what we want and what even conservative politicians promise us at every election.

So they have no mandate for Smaller Government and, since the disastrous 2014 budget, lack the political courage of their convictions. But they persist with their efforts to keep the lid on government spending, continually cutting away at the people they consider to be political weak and enemies of the Coalition: the ABC, people on welfare, and the deeply despised public service - particularly those bureaucrats offering policy advice (who needs it?) and those regulating and policing the public funding received by the party’s generous business donors.

In practice, Smaller Government means underspending on essentials such as aged care until the neglect is no longer tolerable politically, feigning shock and promising to spend big and crackdown on miscreants when voters react with horror to the revelations of the inevitable royal commission then, once the media circus has moved on, quietly welching on much of what you promised to do.
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Saturday, November 2, 2019

It may upset you to think about climate change and the economy

It’s coming to something when we get so little leadership from the bloke we pay to lead us that the unelected have to fill the vacuum. Now 10 business organisations have united to urge Scott Morrison either to set out the climate policy rules to drive action by the private sector, or end up spending a shedload of taxpayers’ money fixing the problem himself.

It’s not just business that’s dissatisfied. The Morrison government may be dominated by climate-change deniers, but almost all economists accept the science of global warming and believe we should be doing our bit to help limit it.

And though our elected government may be in denial, the Reserve Bank – like other central banks – isn’t. Nor are the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.

The Queensland Treasurer, Jackie Trad, asked federal Treasurer Josh Frydenberg if the Reserve’s deputy governor, Dr Guy Debelle, could be invited to talk about climate change and the economy at the recent meeting of treasurers, but Frydenberg declined.

So what was it Frydenberg didn’t want his fellow treasurers thinking about? Well, we can get a fair idea of what Debelle would have said from a speech he gave earlier this year.

But first, why do so many economists accept the science? Because they know very little about the science and so accept the advice of the experts, especially since there’s so much agreement between them.

And there’s another reason. Economists believe they can use their expertise to help the community make the changes we need to make with the least amount of cost and disruption to the economy.

As Debelle reminds us, “the economics profession has examined the effects of climate change at least since Nobel Prize winner William Nordhaus in 1977. Since then it has become an area of considerably more active research in the profession. There has been a large body of work around the appropriate design of policies to address climate change (such as the design of carbon pricing mechanisms), but not that much in terms of what it might imply for macro-economic policies” – that is, for efforts to stabilise the macro economy as it moves through the ups and downs of the business cycle.

Debelle says the economy is changing all the time in response to a large number of forces, but few of them have the scale, persistence and risk to the system that climate change has.

Macro economists like to classify the various “shocks” that hit the economy as either positive or negative and as hitting the demand side of the economy or the supply side. For instance, they know a positive demand shock increases production (gross domestic product) and prices. The monetary policy response to such a shock is obvious: you raise interest rates to ensure inflation doesn’t get out of hand.

Shocks involving the climate affect the supply (output) side and are common. An unusually good growing season would be a positive supply shock, whereas a drought or cyclone or flood would be a negative supply shock, reducing output but increasing prices.

This is a trickier shock for monetary policy to respond to because it’s both contractionary (suggesting a cut in interest rates) and inflationary (suggesting higher rates). The Reserve’s usual response is to “look through” (ignore) the price increase, assuming its effect on inflation will be temporary.

Historically, the Reserve has assumed all climate events are temporary, with things soon returning to where they were. That is, they’re cyclical. It’s clear from the reports of the Intergovernmental Panel on Climate Change, however, that climate change is a trend - a lasting change in the structure of the economy, which will build up over many years.

Of course, though climate change’s impact on agriculture continues to be great, it presents significant risks and opportunities for a much broader part of the economy than agriculture.

Debelle says we need to reassess the frequency of climate events and our assumptions about the severity of those events. For example, the insurance industry has recognised that the frequency and severity of tropical cyclones has changed. It has “repriced” how it insures against such events.

Most of us are focused on “mitigating” – reducing – future climate change. But Debelle says we also need to think about how the economy is adapting to the climate change that’s already happened and how we’ll adapt to the further warming that’s coming, even if we do manage to get to zero net emissions before too long.

“The transition path to a less carbon-intensive world is clearly quite different depending on whether it is managed as a gradual process or is abrupt,” he says euphemistically. “The trend changes aren’t likely to be smooth. There is likely to be volatility around the trend, with the potential for damaging outcomes from spikes above the trend.”

Both the physical impact of climate change and the adjustment to a warmer world are likely to have significant economic effects, he says.

Economists know from their experience with reducing import protection that the change from the old arrangements to the new involves adjustment costs to some people (workers who have to find jobs in other industries, for instance) even if most people (consumers of the now-cheaper imports, for instance) are left better off.

Economists press on with advocating such painful changes provided they believe the gains to the winners are sufficient to allow them to compensate the losers and still be ahead. But Debelle admits that, in practice, the compensation to the losers doesn’t always happen, leaving those losers very dissatisfied.

That’s bad enough. But Debelle fears that, with climate change and the move to renewables, the distribution of benefits and costs may be such that the gains to the winners in new renewables industries aren’t great enough to cover the losses to the losers even in principle, let alone in practice.

Nah, all too hard. Let’s just ignore it and hope it goes away.
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Wednesday, October 30, 2019

Health insurance: paying to boost specialists' incomes

I think I could probably get to the end of the year just writing once a week about the many problems Scott Morrison faces, but doesn’t seem to be making any progress on. And that’s before you get to climate change.

Take private health insurance. The public is terribly dissatisfied with it because it gets so much more expensive every year and because, when you make a claim, you’re often faced with huge out-of-pocket costs you weren't expecting.

The scheme has such internal contradictions it’s in terminal decline, getting weaker every year. Neither side of politics is game to put it out of its misery for fear of the powerful interests that would lose income – the health funds, the owners of private hospitals and myriad surgeons and other medical specialists – not to mention the anger of the better-off elderly who have convinced themselves they couldn’t live without it.

But neither is either side able to come up with any way of giving private health insurance a new lease on life. Anything governments could do – and probably will do – to keep the scheme going a bit longer involves slugging the taxpayer or forcing more people to pay the premiums.

I’ll be taking most of my information from the latest report on the subject by the nation’s leading health economist, Dr Stephen Duckett, of the Grattan Institute, but drawing my own conclusions.

Private health insurance is caught in a “death spiral” for two reasons. First, because the cost of the hospital stays and procedures it covers is rising much faster than wages are. Duckett calculates that, since 2011, average weekly wages have risen 8 per cent faster than general inflation, whereas health insurance premiums have rise 30 per cent faster.

Why? At bottom, because the health funds have done so little to prevent specialists raising their fees by a lot more than is reasonable. Federal governments have gone for years meekly approving excessive annual price increases.

Second, as with all insurance schemes, those policy holders who don’t claim cover the cost of those who do. The government’s long-standing policy of “community rating” means all singles pay the same premium, and all couples pay about twice that, regardless of their likelihood of making a claim.

This means the young and healthy subsidise the old and ill. Which would work if health insurance was compulsory, but to a large extent it’s voluntary. So the old and ill stay insured if they can possibly afford to, while the young and healthy are increasingly giving up their insurance.

The Howard government spent the whole of its 11 years trying to prop up health insurance with carrots and sticks. These measures stopped coverage from falling for a while but, with premiums continuing to soar, have lost their effectiveness.

Over the year to last December, the number of people under 65 with insurance fell by 125,000 (particularly those aged 25 to 34), while the number with insurance who were over 65 increased by 63,000.

So here’s the bind the funds are in: the more healthy young people drop out, the greater the increase in premiums for those remaining. But the more premiums increase, the more youngsters drop out.

The funds’ talk of being in a death spiral is intend to alarm the public into insisting the government bail them out by imposing more of the cost on taxpayers or, ideally, on young people. But before we panic, we should ask why we need the continued existence of private insurance.

After all, our real insurance is Medicare and being treated without direct charge in any public hospital. If the taxpayer-funded public system is less than ideal, it could be a lot better if the $9 billion a year the federal government tips into private insurance and private hospitals was redirected.

To some people, the big attraction of private insurance is “choice of doctor”. But this can be illusory. It’s usually your GP who does the choosing – to send you to one of their mates or their old professor. In any case, if people want choice, why shouldn’t they be asked to pay for it without a subsidy from the rest of us?

Ah, but the real reason I must have private insurance, many oldies say, is to avoid the public hospitals’ terrible waiting lists for elective surgery. That’s a reasonable argument for an individual, who can do nothing to change the system.

But it’s not a logical argument for politicians, who do have the power to change the system. And when the health funds claim that, without them, the waiting lists would be far longer, they’re trying to hoodwink us.

Most specialists work in both the public and private systems, but do all they can to direct their patients to private, where their piece rate is much higher. Were the health funds allowed to die, many fewer patients would be able to afford private operations and would join the public hospital waiting list.

But what would the specialists do to counter the huge drop in their incomes? They’d do far more of their operations in the public system, probably doing more operations in total than they did before. It’s even possible the queues would end up shorter than they are now.
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