The digital revolution may be returning us to hi-tech serfdom

On the longest of our long weekends, it’s good to have something different to think about. Try this. Could it be that the information revolution – big tech, big data, the internet and social media – is changing how the economy works in ways we’ve yet to understand and won’t like?

The world abounds with economists repeating their conventional wisdom about how the economy works and will keep on working. But one economist politician thinks that digitisation is changing the economy in ways that could lead us back to a new kind of feudalism.

He is Yanis Varoufakis, who lectured at Sydney University for some years before returning to Greece and briefly becoming its finance minister. He visited Australia earlier this month as a guest of the Australia Institute.

In the Middle Ages, feudalism was a system of reciprocal military and economic obligations running from the king to his land-owning lords, whose vassals managed their land worked by serfs.

In Varoufakis’s dystopian vision, the digital revolution, led by a few big technology companies – Meta (Facebook), Alphabet (Google), Apple, Amazon and Microsoft – is turning capitalism into “technofeudalism”. Hence the title of his book, Technofeudalism: What Killed Capitalism.

In the internet’s initial phase, it was characterised by open protocols and decentralised networking, focused on information sharing and communication.

Now, however, it has evolved towards more commercialised, centralised services, including social media, e-commerce and cloud computing. His metaphor for the changed parts of the economy is the “cloud”.

The capitalists – owners of physical capital - are being replaced by “cloudalists”: individuals or businesses that control the major digital platforms (such as the Facebook, Google and Twitter sites) and related infrastructure, which allows them to extract “cloud rent” from the consumers and businesses using their platforms.

“Fief” is the feudal word for land. But “cloud fiefs” are Varoufakis’s term for the digital domains and platforms controlled by the cloudalists. These can be specific services, apps or platforms where the cloudalists have significant control, allowing them to extract “cloud rent”.

This process is similar to the way feudal lords controlled land and extracted ordinary rent from those using it.

Economists use the word “rent” – economic rent – to mean prices people are required to pay in excess of the price a business (or a skilled worker) would require to keep them providing the good or service.

Why are sellers able to charge these higher prices? Because you can’t get that same thing anywhere else. Why do fans pay a fortune for tickets to a Taylor Swift concert? Because they don’t want to settle for some other singer.

So cloud rent is payments made by “cloud serfs” to cloudalists for the use of digital platforms and services. This rent is a form of income for cloudalists, derived from their control over these digital assets, rather than from the production or sale of conventional goods and services.

Thus, whereas capitalists seek to make a profit by selling goods and services, cloudalists seek extract rents from cloud serfs – the users and businesses that depend on the digital platforms and apps the cloudalists control.

Cloud serfs are akin to the serfs in feudal times, bound to the platforms and subject to their terms, often contributing their personal data or content while having limited autonomy and receiving fewer benefits.

Get that? The rent many serfs pay isn’t money, it’s their personal data about their purchasing habits and preferences, and their geographical movements, which can be of great value to businesses trying to sell them things.

Of course, cloud serfs aren’t to be confused with “cloud proles”. Huh? In Varoufakis’s vision, these are the people who work directly for the cloudalists such as Amazon. They’re often highly supervised, with little autonomy, and can even be managed by algorithms.

The modern equivalent of the lord of the manor’s “vassal” managers are the businesses that operate on the cloudalists’ digital platforms. They are subject to the cloudalists’ terms and conditions. While they may own their businesses, they must pay a portion of their earnings as rent to the platform owners and must adhere to their rules.

Getting past all these new names for things, a key point Varoufakis makes is the way the digital revolution has moved us from one-way advertising to two-way algorithms.

Although advertising could instil in us the desire to buy stuff we hadn’t formerly known we wanted, this is just a one-way street. With cloud-based, Alexa-like devices, the cloudalists can not only induce us to buy things, they can also modify our behaviour.

Knowing so much about our weaknesses, they can make us addicted to doing things that benefit them more than us – even just capturing our attention for protracted periods.

Varoufakis says algorithms have already replaced bosses in the transport, delivery and warehousing industries. Workers find themselves in a modernist nightmare: some entity that is incapable of human empathy allocates them work at a rate of its choosing before monitoring their response times.

This is no longer a market in any meaningful sense. Everything and everyone is intermediated (brought together) not by the disinterested invisible hand of the market, but by an algorithm that works for the cloudalist’s bottom line and dances exclusively to their tune.

Finally, Varoufakis argues that, thanks to all money created out of thin air by the rich world’s central banks during their resort to “quantitative easing” in the global financial crisis and then the pandemic, big tech was able to greatly expand its cloud capital without needing to borrow at great expense, sell large parts of its businesses to others, or generate large profits to pay for new capital stock.

Between 2010 and 2021, he says, the paper wealth of two men – Jeff Bezos and Elon Musk – that is, the market price of their shares – rose from less than $US10 billion to about $US200 billion each.

Even without the fancy jargon, this stuff is hard to get your head around. In 10 years’ time, we’ll know if it was fanciful or prophetic.

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What a way to start Easter - a plan to smash the nest-egg

Most of us are too young to see it, but a big way the federal government affects our lives is through its system of compulsory superannuation. As you get older and retirement becomes a lot less distant, you begin to realise that the rules of super – and successive governments’ tinkering with those rules – will have a significant impact on the up to 30 years of your life after you stop working.

When the age pension was introduced more than a century ago, many men didn’t live long enough to reach the age of eligibility, 65. But our greater prosperity, improvements in public health and advances in medical science have changed all that.

Although the age of pension eligibility – for women as well as men – has been raised to 67, and no doubt will reach 70 one day, our longevity has increased by more, making it possible, particularly for women, to live up to 30 years in retirement.

But the introduction of compulsory super in the early 1990s now means that people retiring after about 2030 will do so with so much super that their eligibility for the age pension will be between limited and non-existent.

Since the introduction of that new system, almost every government has changed it. Why? Because the new compulsory system was bolted onto an old voluntary system of tax concessions that proved to be far too generous to high-income earners and too mean to lower-income earners.

Everyone knows the age pension costs the government a lot of money. What many don’t realise is that the tax concessions attached to super contributions and to the subsequent earnings on those contributions also cost the government a lot in the form of income tax collections forgone.

So, all the super changes since those made by the Howard government in 2007 (which gave well-off Baby Boomers like me a huge free kick) have aimed to reduce super’s cost to the budget by reducing the tax breaks going to high earners.

Take my word, there’ll be many similarly motivated changes to come. Those made last year by Treasurer Jim Chalmers won’t be the last.

One way to limit the budgetary cost of super is to stress that its sole purpose is to provide people with enough money to live comfortably in retirement. What it’s not meant to be used for is letting people maximise their children’s inheritance (thus widening the gap between rich and poor).

Trouble is, the compulsory super system is designed to deliver people a lump sum of money upon their retirement for them to use as they choose. It’s easy to see this lump sum as your nest-egg, the amount you’ve saved over a lifetime of working.

If so, surely it’s up to me and my spouse to decide how much of that sum we choose to spend on living expenses and how much we choose to leave for our kids? I’m sure many people think the right thing to do is to live as much as possible on the interest and other earnings from the lump sum so the principal can be passed on largely intact.

This is where a proposal of two economists from the Australian National University, professors Andrew Podger and Robert Breunig, comes in.

But first, one insight of “behavioural” economics, borrowed from psychology, is that people can react very differently to the same circumstances, depending on how they’re packaged or, as the psychologists say, “framed”. It’s been shown that surgeons much prefer a 90 per cent success rate to a 10 per cent failure rate.

This, of course, is spin doctoring 101. Reminds me of the story about the bloke who invented death insurance. Didn’t sell many policies until he changed the name to life insurance.

Podger and Breunig remembered that, in the days before compulsory super, it was limited mainly to public servants who ended up with a lifetime pension, most of which could be passed on to a surviving spouse. It never occurred to them that super had anything to do with inheritance.

So, if you want to stop people with super payouts using them (and all the tax concessions that contribute so much to their size) as a vehicle for enriching their kids, why not move to a system where people are encouraged to use their lump sum to buy a lifetime pension.

The amount of the pension would be determined by the size of the lump sum. Some people scrimp and save in retirement because they can’t know when they’ll die, and they’re not sure their money will last the distance.

One great attraction of a lifetime pension is that it shifts this “longevity risk” onto the provider of the pension.

In the jargon of high finance, such a pension is called an “annuity”. You can buy annuities today, but most are for fixed periods, and they’re not popular. To make them more attractive, they’d have to be for life, and this would require them to be backed by the government.

Don’t shake your head. It could happen.

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The budget is rent-seekers central

Last week we got a reminder that, among its many functions, the federal budget is the repository of all the successful rent-seeking by the nation’s many business and other special interest groups. Unfortunately, it added to the evidence that the Albanese government knows what it should do to manage the economy better, but lacks the courage to do more than a little.

Rent-seeking involves industries and others lobbying the government for special treatment in the form of grants, tax breaks or regulatory arrangements that make it hard for new businesses to enter their market or protect them from competition in other ways.

Whenever that rent-seeking involves grants or tax concessions it weighs on the budget. Decades of continuous rent-seeking weigh hugely on every year’s budget, limiting the government’s ability to ensure every dollar of taxpayers’ money is spent to great effect in benefiting all Australians.

For example, a big lump of the feds’ spending on education is devoted to achieving the Howard government’s goal of enhancing parents’ choice of which school to send their kids to. When the callithumpians decide to build their own schools, so their children can be educated without contamination by people of other religions, the federal taxpayer coughs up.

That all this spending on choice leaves the great majority of kids attending public schools that aren’t adequately funded is just an unfortunate occurrence, which we may get around to fixing if we ever have any spare dollars looking for a home.

What you certainly couldn’t do is cut back the money you’re giving the callithumpians. They’d kick up the devil of a fuss and start telling their followers not to vote for you.

When rent-seeking leads governments to make grants to special interest groups, the details of this spending are there to be found in the bowels of the budget papers. Where it leads to some activities getting special tax breaks, Treasury attempts to keep track of these “tax expenditures” in an annual statement.

When it comes to extracting rents from governments, few industries or occupations are better at it than the medical specialists. (That’s not true of the GPs, however. Their Medicare rebates were frozen for years, as part of the former Coalition government’s pretence that it could cut taxes while in no way harming the provision of essential public services.)

Some years ago, a Labor government decided to cut back the Medicare rebate for cataract surgery because advances in technology now meant a surgeon could perform far more operations in a day.

The rest of the medical profession knew what a rort it had become but, under the ethical principle of dog doesn’t eat dog – or maybe, honour among thieves – they stood silent while their eye-surgeon brethren fought dirty to protect their swollen incomes.

They pretended the sky was falling, telling their elderly patients the wicked government had left them no alternative to charging them thousands more in out-of-pocket payments. If their elderly patient didn’t think this was fair, perhaps they might like to have a word with their local federal member, saying how terrible it was to have their lovely doctor treated so badly.

Predictably, the government backed off and the rorting continued.

Last week it was the turn of the chemists. Few industries are so heavily regulated by state and federal governments, all with a view to protecting pharmacists’ incomes. There are limits on how many chemists may set up within an area and, in particular, prohibitions on supermarkets having pharmaceutical sections.

Anthony Albanese and his government have made much of the way their introduction of 60-day medicine prescriptions – as recommended by an expert committee – has saved patients money and helped ease the cost-of-living crisis.

But hang on. Surely, that means chemists receiving fewer dispensing fees from the government? This evil must be opposed. Enter a union more powerful than any workers’ union, the Pharmacy Guild. This iniquity will see shortages of medicine and hundreds of chemists closing down across the land, it assured us.

The government fought back, refuting the talk of shortages and revealing figures showing a surge in applications for new pharmacies in the months following the announcement of the prescription change.

It had already promised to plough back into pharmacies the $1.2 billion it expected to save on dispensing fees. But the guild claimed pharmacies’ losses would be $4.5 billion, and last week the guild negotiated a new deal, which would see the government pouring a further $3 billion into pharmacies over five years.

Also last week, we saw the government releasing the report of the aged care taskforce, chaired by Aged Care Minister Anika Wells, calling for the well-off elderly to contribute more to the cost of their own care.

What was the problem? Wells spelled it out in a speech last June: “We must act now. The Baby Boomers are coming … We are going to need a fair and equitable system to meet the needs of Baby Boomers who, with their numbers and determination to solve problems, have shaken every single system they’ve come across.”

The report argued for the present mechanism used to get more from the better-off, the refundable accommodation deposit, to be replaced by a rental-only system.

But it called for the deposit system to be phased out over five years, and postponed the proposed start of the phase-out to 2030. With all its talk of “grandfathering” – applying the changes only to new entrants to the system – it remains to be seen how keen Albo & co are to take on the entitled Baby Boomers.

Finally last week, the Commonwealth Grants Commission’s carve-up of the proceeds from the goods and services tax for the next financial year was announced, bringing a bad shock for NSW and Queensland, and good news for Victoria and the other states and territories.

It was an unwelcome reminder of the separate, but related, special deal then-treasurer Scott Morrison awarded the West Australians in 2018. So great was the uproar from the other states that they were promised more money to ensure the sandgropers’ special deal left the others “no worse off”.

Meaning? That the West Australians’ successful rent-seeking is costing federal taxpayers from other states a bundle in forgone federal spending.

As the independent economist (and proud Tasmanian) Saul Eslake never tires of demonstrating, the Westies had less than zero grounds for arguing that they were getting a bad deal from the carve-up formula.

The grants commission was set up in the 1930s in response to their congenital paranoia that the rest of Australia was having a lend of them. For as long as they were classed as a “mendicant” state cross-subsidised by Victoria and NSW, they were happy.

But from the moment the growth of their mining industry was so great that they were required to join Victoria and NSW in helping maintain the quality of government services in the other states, it suddenly became yet another plot by those “over east” to do them down.

So, here’s the moral of the story for our weak-kneed federal politicians on both sides. Once you give in to rent-seekers, you’re gone. They won’t give up their ill-gotten gains without a massive, vote-losing fight.

Meanwhile, everyone else wonders why, despite the huge sums you’re raising in taxes, the quantity and quality of the services you’re providing is so poor.

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How the digital world is getting better at measuring us up

These days we hear incessantly about “data”. The media is full of reports of new data about this or that, and there’s a new and growing occupation of data analysts and even data scientists. So, what is data, where does it come from, what are people doing with it, and why should I care?

Google “data” and you find it’s “facts and statistics collected together for reference or analysis”. The advent of computers has allowed businesses and governments to record, calculate, play with and store huge amounts of data.

Businesses have data about what goods and services they’re making, buying and selling, importing or exporting, and paying their workers, going back for 30 or 40 years.

Our banks have data about what we earn and what we spend it on, especially when we use a credit or debit card – or our phone – to pay for something.

Much of this data is required to be supplied to government agencies. If you ever go onto the Australia Taxation Office’s website to do your annual tax return, it will offer to “pre-fill” your return with stuff it already knows about your income from wages, bank interest and dividends.

Try it sometime. You’ll be amazed by how much the taxman knows and how accurate his data are.

Another dimension of the “information revolution” is how advances in international telecommunications – including via satellites – have allowed us to be in touch with people and institutions around the world in real-time via email and the web – news, entertainment, social media, whatever.

Last month, the Australian Statistician – aka the boss of the Australian Bureau of Statistics – Dr David Gruen, gave a speech outlining some of the ways these huge banks of “big data” about the economic activities of the nation’s businesses, workers, consumers and governments can be used to improve the way we measure the economy in all its aspects: employment, inflation, gross domestic product and the rest.

We’re getting more information and more accurate information, and we’re getting it much sooner than we used to. But we’re still in the early days of exploiting this opportunity to be better informed about what’s happening in the economy and to have better information to guide the government’s decisions about its policies to improve the economy’s performance.

Gruen starts by describing the Tax Office’s “single-touch” payroll system, software that automatically receives information about employees’ payments every time an employer runs its payroll program.

Not all employers have the software, but those who do account for more than 10 million of our 14 million employees.

Gruen says the arrival of the pandemic in early 2020 made access to this “rich vein of near real-time information” an urgent priority. The taxman pulled out the stops, and the stats bureau began receiving these data in early April 2020.

With a virus spreading through the land and governments ordering lockdowns and border closures, they couldn’t afford to wait a month or more to find out what was happening in the economy. Thus, the whole project of using big data to help measure the economy received an enormous kick along – here and in all the other rich economies.

So, in addition to the longstanding monthly sample survey of the labour force, we now have a new publication: Weekly Payroll Jobs and Wages Australia. These data allowed the econocrats—and the rest of us—to chart the dramatic collapse in jobs across the economy over the three weeks from mid-March 2020.

They show employment in the accommodation and food services industry falling by more than a quarter in just three weeks. Employment in the arts and recreation services industry fell by almost 20 per cent. By contrast, falls in utilities and education and training were minor.

The monthly labour force survey has a sample size of about 50,000 people, compared with the payroll program’s 10 million-plus people, meaning it provides information on far more dimensions of the workforce than the old way does.

So, the bureau’s access to payroll data taught it new ways of doing things. And the pandemic increased econocrats’ appetite for more info about the economy that was available in real-time.

With household consumption – consumer spending – accounting for about half of gross domestic product, improving the timeliness and detail of the data was a great idea.

So, in February 2022, the bureau released the first monthly household spending indicator using (note this) aggregated and de-identified data on credit and debit card transactions supplied by the major banks. This indicator provides two-thirds coverage of household consumption, compared with the less than one-third coverage provided by the usual survey of retail trade.

The bureau has also begun publishing a monthly consumer price index in addition to the usual quarterly index. This is possible because big data – in the form of data from scanners at checkout counters and data scraped from the websites of supermarket chains – is much cheaper to gather than the old way.

The bureau has also started integrating different but related sets of big data from several sources, so analysts can study the behaviour of individual consumers or businesses. It has developed two large integrated data assets.

The one for individuals links families and households with data sets on income and taxation, social support, education, health, migrants and disability.

The one for businesses links them with a host of surveys of aspects of business activity, income and taxation, overseas trade, intellectual property and insolvency.

The purpose is to allow analysts from government departments, universities or think tanks to shed light on policy problems from multiple dimensions.

For instance, one study showed that people over 65 who’d had their third COVID vaccination within the previous three months were 93 per cent less likely to die from the virus than an unvaccinated person.

But that’s just the tiniest example of what we’ll be able to find out.

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Well-off baby boomers should pay more for their aged care

The report of the aged care taskforce, released on Tuesday, makes eminently sensible proposals for changes to cover the ever-growing cost of aged care. But since its solution is to require the well-off elderly to bear more of the cost, I doubt if Aged Care Minister Anika Wells will be able to implement the changes without much pushback from those well-off elderly – otherwise known as the “wealthy Boomers”.

The cost of aged care – both residential care and, increasingly, at-home care – is expected to grow hugely in the coming decade for three reasons. First, because federal governments have been underspending on care, as repeated Four Corners exposes have kept reminding us.

There’s been a lot of catch-up spending since the shocking report of the Royal Commission into Aged Care Quality and Safety in 2021, but there’s more catching up to do.

Second, there’s the continuing retirement of the Baby Boomer bulge, plus the increased care that later, longer-living generations will require.

Third, as living standards rise, so do the expectations of the aged for something a lot better than their parents settled for.

The federal government’s spending on aged care last financial year totalled $27 billion. It’s expected to have reached $42 billion by 2026-27. And there’s a lot more to go after that.

The royal commission suggested that the increased spending could be covered by a Medicare-like levy of 1 per cent of everyone’s taxable income. But the taskforce rightly rejected that idea as too unfair to younger taxpayers.

Don’t forget that few of the elderly pay much income tax, even those earning so much that, were they younger, they’d be paying a lot.

So the taskforce has come up with a solution that previous governments have, for decades, not been game to propose: ask the well-off elderly to pay a higher proportion of the daily living expenses – meals, laundry and cleaning – and accommodation costs.

At present, those in residential care who can afford it are required to pay a “refundable accommodation deposit” of many thousands, which is refunded when they leave or die. Effectively, it’s an interest-free loan to the provider of the residential care facility. On the strength of this, those who provide a deposit aren’t asked to pay much of their accommodation costs.

It’s never been a popular arrangement, so the taskforce proposes to phase it out between 2030 and 2035. Those on the old arrangement would be “grandfathered” – allowed to stay on the old deal.

But newcomers would go onto the new, rental-only scheme and be asked to pay a lot more for the accommodation cost than people of lower means.

Unlike me, many Baby Boomers vociferously object to being held responsible for the unfair way the younger generations are treated by the tax system, the superannuation system, the university fees system and the gig-economy system.

But though it’s wrong for youngsters to assume all Baby Boomers are rolling in it – some are still renting and others are locked in long-term unemployment – the truth is that, as a generation, most Baby Boomers have had a rails-run.

Those who went to university got scholarships rather than debt. Most males had little trouble finding a good, permanent, full-time job. They were able to buy a first home without much trouble, have stayed in the property market and today own a house worth an unbelievable sum – through no great effort of their own.

Baby Boomers are the first generation to gain much from the introduction of compulsory superannuation in 1992. These days, almost everyone retires with some significant superannuation sum, and those of us who’ve taken advantage of the various concessions have reached retirement age with super sums in the millions.

The super system is wildly biased in favour of the well-off. And the people who try to tell you that having super and other savings sufficient to eliminate (or even just reduce) their eligibility for the age pension makes them a “self-funded retiree” are deluded.

They have no idea what a high proportion of their payout has come from accumulated tax concessions rather than contributions.

So how would the well-off elderly afford to pay for a much greater share of their aged care costs? By dipping into their super.

The justification for superannuation and all the money it costs the taxpayer is to allow the retired to live comfortably in their final years when they’re too old to work. So the notion of many that they must live only on the annual earnings and never dip in to the principal is wrong-headed.

No, you were granted such generous tax breaks only to support you in retirement. For the well-off elderly to want to pass what’s left of their super on to their offspring is to make the world even more unfair than it already is.

Let’s hope Minister Wells and her boss have the conviction to stick to their guns when the Boomers start crying poor in defence of their privileged existence.

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Speech in the Great Hall of Sydney University

I’m too old to suffer from impostor syndrome, but the thought has occurred to me that, had the University of Sydney’s officials taken a look at my academic transcript at Newcastle University, and seen how much trouble I had persuading that uni to give me a pass degree, we’d be holding this gathering down at Ralph’s cafe in the women’s gym.

The truth is that I had a lot of trouble passing a subject called economics, which I couldn’t make any sense of – perhaps because it didn’t interest me greatly. I failed a subject called international economics but, since it was the last subject I had to go, my lecturer was prevailed upon to give me a conceded pass.

So I have to tell you I’m a bit bemused by a university, of all institutions, making such a fuss about me and my job. I’ve spent much of my time urging the people I’ve helped to hire and train as economic journalists not to write like an academic. Keep it simple, I’d say. Don’t try to impress people with big words. Try to be understood, not to mystify. Now, obviously, that’s not the right advice to be giving an academic.

In my job, I’m paid to have an opinion on everything. And I’m paid to give free advice to everyone, from the prime minister down. And I’m now so much older than my boss I’m allowed to give him – and sometimes her – free advice. She or he, of course, is paid to pretend she greatly values that advice.

So while I’m here in this hallowed hall of learning, let me give the academics two bits of free advice. Some years ago, the federal government’s chief scientist paid good money to get one of those now-infamous four firms of accountants-turned-consultants to fudge up a dollar figure for the value of science to the economy. 

One of my proteges, filling in for me while I was on holidays, Gareth Hutchens, these days a columnist at the ABC, wrote a piece saying the chief scientist had to be kidding. Anyone who wasn’t smart enough to know that our material prosperity was built on technological advance, and that technological advance rested on a bed of pure science, wasn’t someone who’d be impressed by any magic number. Gareth was right, of course.

The point is, academics should never yield to intimidation by those who can see no further than immediate income. Academics must never be ashamed to proclaim their belief in the value of knowledge for its own sake. Knowledge doesn’t have to have a monetary value to be of value. Humans are an inquisitive species. We’d like to know whether the universe is expanding for no better reason than that we’d like to know. And thanks to the material prosperity science has brought us, we can afford to pay some scientist to find out for us.

My second bit of free advice is that universities should never be ashamed of their preoccupation with theory rather than practice. Every profession needs its theory. We develop theories to help us make some order, some meaning, out of the seeming chaos we see around us.

If you look at what I write about the economy, I think you’ll find I write about economic theory a lot more than other economic commentators do. Why? Because I think theory is important. Academic economists will complain that I’m often very critical of economic theory. Why? Because I think theory is important. The great sin in academic economics is to stop seeking the truth because you think you’ve already found it.

I want to talk now about the little-discussed paradox of the commercial news media. On one hand, most news outlets are in the business of selling their news to make a profit, just like all businesses. On the other, the commercial news media play a vital role in our democracy, informing citizens about the actions of governments and holding governments to account. We rarely think about this paradox, but the truth is, it was ever thus. We had newspapers before we had democracy.

Today we talk about public-interest journalism, but I like to think of it as the commercial media’s “higher purpose”. Making enough profit to keep our shareholders happy is the obvious part, but we must keep our eyes focused on the more important part, our self-appointed duty to ensure our readers are kept fully informed about all the things our governments are doing – and not doing

There’s an old saying in journalism: news is anything somebody somewhere doesn’t want you to know about. Governments have a lot of things they do want the public to know about what they’re doing. And their spin doctors are always trying to induce the news media to help them get the good news out to the voters

Governments have a near monopoly on news about their own doings. When they want something known, they can just put out a press release. Or, maybe a better idea would be for me to leak it to you exclusively – provided you give it a lot of prominence, and provided you run it uncritically. Why would the media agree to such a restriction on their freedom to fully inform their readers? Because if I play along today, you might give me another leak tomorrow. And that will make me look a lot more successful than my competitors.

Small problem: what about the reader? Is this the way to keep them fully informed and ensure they’re never misinformed? What if I’m so busy trying to be the best at extracting from the government news the government wants our readers to know about that I neglect my duty to dig out all the news the government doesn’t want our readers to know about?

Now, let me be clear. In saying this critical stuff, I don’t want you thinking I’m having a go at my own masthead. I’m giving my free advice to all mastheads. The mastheads formerly known as Fairfax aren’t perfect. No one knows that better than I do. But there are other outlets that have strayed a lot further from perfection than we have. Naturally, I won’t name those other Australian news outlets.

The digital revolution has hugely changed the news media. Once I’m retired, I’ll give in to the thought that it was all much better in my day. But while my day is still the present day, I can see the things that are better than they were.

These days, the mastheads our envious competitors like to dismiss as “the Nine newspapers” devote more resources to investigative journalism than we ever have. Maybe because of the digital world we now inhabit, generating your own news makes more commercial sense. What I’d add is that we need to make all our ordinary news more investigative. More questioning of all the messages some interest group or another wants us to pass on to our readers.

Another thing that’s better than it used to be – one close to my heart – is much greater emphasis on explanatory journalism. The internet has hugely increased the blizzard of news that we must fight our way through each day. Our readers don’t need more news, they need more help figuring out what on earth it all means. This, of course, is a big part of what I’ve always seen as my role.

With the advent of the internet, social media, the greater scope for the spread of misinformation and disinformation, and now AI, it’s easy see all this as a huge threat to what’s now called the MSM – the mainstream media, of which the SMH is a prime example. We live in a media world where people are finding it harder and harder to know whose news to believe. Who to trust.

What I want to say is that, for the mainstream media, and the quality end of the MSM, all the extra doubt and uncertainty about who to believe is playing into our hands. We are still more trusted by our customers than other, less reputable sources of information. Provided we retain our readers’ trust, work to regain what trust we have lost, and make retaining the trust of our readers our highest priority, I think we’ll survive – maybe even prosper – in a world teeming with misinformation.

We must never knowingly mislead our readers. We must see quickly correcting any errors we’ve made inadvertently, not as an admission of failure, but as badge of honour. Proof that we can be trusted. It means no more “I’m not sure it’s true, but it’s a great yarn and the punters will love it” stories. No more dubious stories published to oblige a powerful source – usually a government – and keep it supplying us with exclusives. It means telling our readers what they need to know, not what they want to hear. It means being a good read the hard way, not the easy way.

I’m confident that, if we get the trust right, enough money will follow. I’m hoping to stay around doing my bit for a few years yet.

This is an edited version of the speech Ross Gittins gave at the event honouring his 50th anniversary at The Sydney Morning Herald. Held in the Great Hall of the University of Sydney and staged in partnership with the Faculty of Arts and Social Sciences.

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RBA will decide how long the economy's slump lasts

The media are always setting “tests” that the government – or the opposition – must pass to stay on top of its game. But this year, it’s the Reserve Bank facing a big test: will it crash the economy in its efforts to get inflation down?

There’s a trick, however: when the Reserve stuffs up, it doesn’t pay the price, the elected government does. This asymmetry is the downside of the modern fashion of allowing central banks to be independent of the elected government. Everything’s fine until the econocrats get it badly wrong.

It’s clear from last week’s national accounts that the economy has slowed to stalling speed. It could easily slip into recession – especially as defined by the lightweight two-successive-quarters-of-negative-growth brigade – or, more likely, just go for a period in which the population keeps growing but the economy, the real gross domestic product, doesn’t, and causes unemployment to keep rising.

Because interest rates affect the economy with a lag, the trick to successful central banking is to get your timing right. If you don’t take your foot off the brake until you see a sign saying “inflation: 2.5 per cent”, you’re bound to run off the road.

So now’s the time to think hard about lifting your foot and, to mix the metaphor, ensuring the landing is soft rather than hard.

Here’s a tip for Reserve Bank governor Michele Bullock. If you get it wrong and cause the Albanese government to be tossed out in a year or so’s time, two adverse consequences for the Reserve would follow.

First, it would be decades before the Labor Party ever trusted the Reserve again. Second, the incoming Dutton government wouldn’t feel a shred of secret gratitude to the Reserve for helping it to an undeserved win. Rather, it would think: we must make sure those bastards in Martin Place aren’t able to trip us up like they did Labor.

Last week’s national accounts told us just what we should have expected. They showed that real GDP – the nation’s total production of goods and services – grew by a negligible 0.2 per cent over the three months to the end of December.

This meant the economy grew by 1.5 per cent over the course of 2023. If that looks sort of OK, it isn’t. Get this: over the past five quarters, the percentage rate of growth has been 0.8, 0.6, 0.5, 0.3 and 0.2. How’s that for a predictable result?

Now you know why, just before the figures were released, Treasurer Jim Chalmers warned that we could see a small negative. It’s a warning we can expect to hear again this year.

If you ignore the short-lived, lockdown-caused recession of 2020, 1.5 per cent is the weakest growth in 23 years.

But it’s actually worse than it looks. What measly growth we did get was more than accounted for by the rapid, post-COVID growth in our population. GDP per person fell in all four quarters of last year.

So whereas real GDP grew by 1.5 per cent, GDP per person fell by 1 per cent. We’ve been in a “per-person recession” for a year.

It’s not hard to see where the weaker growth in overall GDP is coming from. Consumer spending makes up more than half of GDP, and it grew by a mere 0.1 per cent in both the December quarter and the year.

At a time when immigration is surging, and it’s almost impossible to find rental accommodation, spending on the building of new homes fell by more than 3 per cent over the year.

Of course, this slowdown is happening not by accident, but by design. Demand for goods and services had been growing faster than the economy’s ability to supply them, permitting businesses of all kinds to whack up their prices and leaving us with a high rate of inflation.

Economists – super-smart though they consider themselves to be – have been able to think of no better way to stop businesses exploiting this opportunity to profit at the expense of their customers than to knock Australia’s households on the head, so they can no longer spend as much.

For the past several decades, we’ve done this mainly by putting up interest rates, so people with mortgages were so tightly pressed they had no choice but to cut their spending. The Reserve began doing this during the election campaign in May 2022, and did it again 12 more times, with the last increase as recently as last November.

It would be wrong, however, to give the Reserve all the credit – or the blame – for the 12 months of slowdown we’ve seen. It’s had help from many quarters. First is the remarkable rise in rents, the chief cause of which is an acute shortage of rental accommodation, affecting roughly a third of households.

Next are the nation’s businesses which, in their zeal to limit inflation, have raised their wages by about 4.5 percentage points less than they’ve raised their prices. Talk about sacrifice.

And finally, there’s the federal government, which has done its bit by restraining its spending and allowing bracket creep to claw back a fair bit of the inflation-caused growth in wage rates. As a consequence, the budget has swung from deficit to surplus, thereby helping to restrain aggregate demand.

It’s the help the Reserve has had from so many sources that risks causing it to underestimate the vigour with which spending is now being restrained. It’s far from the only boy standing on the burning deck.

Last week some were criticising the Reserve for popping up in November, after doing nothing for five months, and giving the interest-rate screws another turn while, as we now know, the economy was still roaring along at the rate of 0.2 per cent a quarter.

The critics are forgetting the politics of economics. That isolated tightening was probably the new governor signalling to the world that she was no pushover when it came to the Reserve’s sacred duty to protect us from inflation.

In any case, a rate rise of a mere 0.25 per cent isn’t much in the scheme of things. It’s possible that quite a few hard-pressed home buyers felt the extra pain. But when did anyone ever worry about them and their pain? It was the central bankers’ duty to sacrifice them to the economy’s greater good – namely, preventing the nation’s profit-happy chief executives from doing what comes naturally to all good oligopolists.

The looming stage 3 tax cuts should give a great boost to the economy, of course, provided seriously rattled families don’t choose to save rather than spend them.

What matters most, however, is by how much unemployment and underemployment rise before the economy resumes firing on all cylinders. So far, the rate of unemployment has risen to 4.1 per cent from its low of 3.5 per cent in February last year.

By recent standards, that’s still an exceptionally low level, and a modest increase in the rate. But for a more definitive assessment, come back this time next year.

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Climate change is taking over the news - in case you hadn't noticed

I keep reading psychologists warning that talking about how terrible climate change will be is counterproductive. Rather than causing the deniers to see the error of their ways, it just makes them close their minds to further argument.

So this column isn’t for them. Rather, it’s to speak to the rest of us – those who don’t try to tell the scientists they’ve got it all wrong – to review the latest evidence that climate change is already upon us (what sane person could not have realised it?) and getting worse as each year flashes by our eyes.

I fear for my five grandkids’ future (as I may have mentioned before) but, to tell the truth, I’m glad I’ll be dead and gone before it reaches its worst. What we must do, like all those who voted teal at the last election, is to press both major parties to speed up our efforts and make Australia a leader rather than a laggard in the global push to limit how bad it gets.

Professor Albert Van Dijk of the Australian National University, an expert on precipitation, is part of an international team of researchers who’ve issued a report, the Global Water Monitor, using data from thousands of ground stations and satellites to document the effect of last year’s record heat on the world’s water cycle.

“We found global warming is profoundly changing the water cycle,” he says. “As a result, we are seeing more rapid and severe droughts, as well as more severe storms and flood events.”

Van Dijk says the most obvious sign of the climate crisis is the unprecedented heatwaves that swept the globe in 2023. Some 77 countries experienced their highest average annual temperature in at least 45 years. This “gave us a glimpse of what a typical year with 1.5 degrees Celsius of warming may look like,” he says. Warming consistently more than 1.5 degrees above pre-industrial levels is expected to have extreme and irreversible impacts on the Earth’s system.

“The high temperatures were often accompanied by very low air humidity. The relative air humidity of the global land surface was the second-driest on record in 2023. Rapid drying of farms and forests caused crops to fail and forests to burn.

“Lack of rain and soaring temperatures intensified multi-year droughts in vulnerable regions such as South America, the Horn of Africa and the Mediterranean ... This continuing trend towards drier conditions is threatening agriculture, biodiversity and overall water security.”

Get this: “The world’s forests have been soaking up a lot of our fossil fuel emissions. That’s because plant photosynthesis absorbs carbon dioxide from the atmosphere. Large disturbances like fire and drought reduce or even reverse that function.”

Rising sea surface and air temperatures have been intensifying the strength and rainfall intensity of monsoons, cyclones and other storm systems, Van Dijk adds.

We saw this when Cyclone Jasper battered northern Queensland and severe storms formed in south-east Queensland, leaving a trail of destruction. The cyclone moved much slower than expected, causing torrential rains and widespread flooding.

Enough of that. Australia’s Climate Council, a community funded organisation created by former members of the Climate Commission after it was abolished by the Abbott government in 2013, has created a “heat map” using thousands of data points from the CSIRO and help from the Bureau of Meteorology.

If we assume, perhaps optimistically, that all countries meet their present UN commitments to reduce emissions, the heat map predicts that western Sydney will swelter through twice as many days above 35 degrees and three weeks above 35 degrees every summer.

Temperatures will be worsened by the “urban heat-island effect”, as materials such as asphalt and concrete amplify heat by as much as 10 degrees during extreme heat.

Melbourne, too, faces double the number of days above 35 degrees by 2050. Will it take that long for the Australian Open to be moved?

Which brings us to last month, when six transmission line towers in Victoria were destroyed by extreme wind gusts from thunderstorms, leading to about 500,000 people losing power. The intense winds knocked trees onto local power lines or toppled the poles. Some people went without electricity for more than a week.

A month earlier, severe thunderstorms and wind took out five transmission towers in Western Australia and caused widespread outages. In January 2020, storms caused the collapse of six transmission towers in Victoria.

And, of course, in 2016 all of South Australia lost power for several hours after extreme winds damaged many transmission towers.

Recent research by Dr Andrew Dowdy and Andrew Brown, of the University of Melbourne, suggests that climate change is likely to cause more favourable conditions for thunderstorms with damaging winds, particularly in inland regions. But more research is needed to confirm this.

Van Dijk gets the last word: “Overall, 2023 provided a stark reminder of the consequences of our continued reliance on fossil fuels and the urgent need but apparent inability of humanity to act decisively to cut greenhouse gas emissions.”

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Contrary to appearances, the stage 3 tax cuts will leave us worse off

It’s time we stopped kidding ourselves about the looming tax cuts. They’re what you get when neither of the two big parties is game to make real tax reforms, and the best they can do is lumber us with yet another failed attempt to wedge the other side.

If you want real reform, vote for the minor parties, which may be able to use their bargaining power in the Senate to get something sensible put through.

The stage 3 tax cuts always were irresponsible, and still are. They’ve caused interest rates to be raised by more than they needed to be, and they’ll leave us with substandard government services, as well as plunging us back into deficit and debt.

Only an irresponsible (Coalition) government would commit themselves to making a huge tax cut of a specified shape more than six years ahead of an unknowable future, hoping they could trick Labor into making itself an easy political target by opposing them.

Back then, the Libs thought the budget was returning to continuing surpluses. Wrong. They didn’t think there’d be a pandemic. Wrong. They had no idea it would be followed by an inflation surge and a cost-of-living crisis.

Only an irresponsible (Labor) opposition would go along with legislating the tax cuts five years ahead of time, then promise not to change them should it win the 2022 election.

Let’s be clear. Just because Prime Minister Anthony Albanese’s changes made the tax cuts less unfair, that doesn’t make them good policy. And just because many families, hard-pressed by the cost-of-living crisis, will be pleased to have the relief the tax cuts bring, that doesn’t mean the tax cuts are now good policy.

Don’t be misled by the Reserve Bank’s acceptance of Albanese’s claim that his changes would not add to inflation. Any $20 billion-a-year tax cut is a huge stimulus to demand, imparting further upward pressure on prices.

All the Reserve was saying was that diverting a lump of the tax cut from high-income earners to middle and low earners wouldn’t make much difference to the degree of stimulus. Why wasn’t it worried about a $20 billion inflationary stimulus? Because it had known it was coming for years, and had already taken account of it, increasing interest rates sufficiently to counter its future inflationary effect.

Get it? Had there been no huge tax cut in the offing, interest rates would now be lower than they are, and causing less cost-of-living pain.

As the Grattan Institute’s Brendan Coates and Kate Griffiths have reminded us, the big loser from the stage 3 tax cuts – whether the original or the revised version – is the budget.

The budget has done surprisingly well from the return to full employment, the effect of continuing high commodity prices on miners’ payments of company tax and from wage inflation’s effect on bracket creep. So much so that it returned to a healthy surplus last financial year. It may well stay in surplus this financial year.

Great. But next year it’s likely to return to deficit and stay there for the foreseeable future. Why? Because we can’t afford to give ourselves a $20 billion annual tax cut at this time. As if we didn’t have enough debt already, we’ll be borrowing to pay for our tax cut.

In theory, of course, we could pay for it with a $20 billion-a-year cut in government spending. But, as the Coalition was supposed to have learnt in 2014 – when voters reacted badly to its plans for big spending cuts, and it had to drop them post-haste – this is a pipe dream.

No, in truth, what voters are demanding is more spending, not less. The previous government went for years using fair means or foul – robo-debt, finding excuses to suspend people’s dole payments, neglecting aged care, allowing waiting lists to build up – to hold back government spending as part of its delusional claim to be able to reduce taxes.

As Dr Mike Keating, a former top econocrat, has said, we keep forgetting that the purpose of taxation is to pay for the services that our society demands, and which are best financed collectively.

So when we award ourselves a tax cut we can’t afford, the first thing we do is condemn ourselves to continuing unsatisfactory existing services, and few of the additional services we need.

Those additional services include education – from early education to university – healthcare, childcare, aged care, disability care and defence. (Another thing the Libs didn’t foresee in 2018: our desperate need to acquire nuclear subs.)

But don’t hold your breath waiting for any politician from either major party to explain that home truth to the punters. No, much better to keep playing the crazy game where the Libs unceasingly claim to be the party of “lower, simpler and fairer taxes” and Labor says “I’ll see you and raise you”.

Anyone who knows the first thing about tax reform knows that achieving that trifecta is impossible. But if the Liberal lightweights realise how stupid repeating that nonsense makes them seem to the economically literate, they don’t care.

All they know is that the punters lap up that kind of self-delusion. Which, of course, is why Labor never calls them out on their nonsense.

The other thing we do by pressing on with tax cuts we can’t afford is sign up for more deficits and debt. Coates and Griffiths remind us that the high commodity prices the budget is benefitting from surely can’t last forever.

If you exclude this temporary benefit, Grattan estimates that we’re running a “structural” budget deficit of close to 2 per cent of gross domestic product, or about $50 billion a year in today’s dollars.

We’re ignoring it now, but one day we’ll have to at least start covering the extra interest we’ll be paying. How? By increasing taxes. How else? Ideally, we’d introduce new taxes that improved our economic efficiency or the system’s fairness. Far more likely, we’ll just be given back less bracket creep.

It’s the pollies’ bipartite policy of not stopping bracket creep by indexing the income tax scales each year that makes their unceasing talk of lower tax so dishonest and hypocritical. They’ve demonised all new taxes or overt increases in existing taxes, while keeping bracket creep hidden in their back pocket.

Which is not to argue we must eradicate it. Most of the tax reform we’ve had – notably, the introduction of the goods and services tax – has come with the political sweetener of a big, bracket-creep-funded cut in income tax. (Would-be reformers, please note.)

Another name for bracket creep is “automatic stabiliser”. When spending is growing strongly and inflation pressure is building, bracket creep is one of the budget’s main instruments working automatically to help restrain demand by causing people’s after-tax income to rise by a lower percentage than their pre-tax income.

The pollies can’t just let bracket creep roll on for forever. You have to use the occasional tax cut to return some of the proceeds. But July 2024 turned out to be quite the wrong time to do it.

So even if the Reserve starts to cut interest rates towards the end of this year, the tax cuts mean rates will stay higher for longer than they needed to.

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Good news: our falling productivity is too bad to be true

There are few aspects of the economy on which more bulldust is spoken than our productivity. The world abounds with people trying to tell us that our productivity performance is a real worry and the way to fix it is to cut their taxes or give them a government handout. Yeah, sure.

These snake oil salesmen (and they’re almost always men) have been having a field day lately. Did you know that last financial year, 2022-23, the productivity of our labour actually fell by 3.7 per cent?

Fortunately, some sense arrived this week. The Productivity Commission issued its annual productivity bulletin, providing “the most complete picture to date of the drivers of Australia’s productivity decline over 2022-23,” it said. We now have a clearer understanding of what’s behind the slump, we’re told.

But first, let’s be sure you know what productivity is. It’s a comparison of the economy’s output of goods and services – measured by real gross domestic product – relative to our inputs of raw materials, labour and physical capital (machines, buildings, roads, bridges and so forth).

Our productivity improves when we use the same quantity of inputs to produce a greater quantity of outputs. In other words, it’s a measure of our efficiency.

We can improve our technical efficiency by inventing better machines for workers to work with, thinking of better ways to organise our mines, farms, factories and offices, increasing the skills of our workers, and having the government provide us with better roads and public transport to go about our business.

Usually, we focus on the productivity of our labour, measured by dividing real GDP during a period by the total number of hours employees and bosses worked during the period.

Over the past 28 years, the productivity of our workers increased at the average rate of 1.3 per cent a year. This improvement, when passed on to workers as higher “real” wages – wages growing faster than prices – is the main reason our material standard of living is much higher than our grandparents enjoyed.

The productivity of our labour generally improves a bit almost every year. It can fall a little during recessions, but it’s never fallen by anything like as much as 3.7 per cent. Which may mean the world’s coming to an end, but it’s more likely to mean there’s something funny going on with the figures.

The commission’s first revelation is that the number of hours worked during the financial year grew by an unprecedented 6.9 per cent, whereas the economy’s output of goods and services grew by 3 per cent. So, as a matter of simple arithmetic, our productivity worsened.

Now, before you jump to terrible conclusions, there are a few points to make. The first – which the commission didn’t make, but should have – is that one of the most basic things we expect the economy to do for us is to provide paid employment for all those of us who want to work.

And what happened last financial year is that a lot more people got jobs, and a lot of people working part-time got the extra hours of work they’d been seeking. It’s a safe bet that all those people being paid to work more hours were pleased to oblige.

So, before we beat ourselves up, we need to be clear that the unprecedented rise in hours worked was a good thing, not a bad thing. It was, in fact, part of the economy’s return to full employment for the first time in 50 years. That’s bad?

No, rather than cursing our bad luck or bad management, we should be asking questions: how on earth did that happen? It doesn’t make sense. Employers employ people to produce goods and services, not because they feel sorry for people who need a job.

So, if they increased their labour inputs by 6.9 per cent, how come their output of products increased by only 3 per cent?

When you hire more workers, you usually need to buy more tools and equipment for them to work with. If you don’t bother, then the extra workers won’t be as productive as your existing workers, and your average productiveness will fall.

The commission points out that businesses’ decisions to hire more workers didn’t lead them to acquire an equivalent amount of extra machines and other physical capital. The nation’s ratio of physical capital to labour fell by 4.9 per cent in the year – the biggest recorded decline in our history. “This meant on average, each worker had access to a shrinking amount of capital, which weighed down labour productivity,” it told us.

The point is, if you want productivity to improve, you need an increasing ratio of capital to labour. So, if businesses aren’t increasing their investment in capital equipment and structures sufficiently, don’t be surprised if productivity is getting worse rather than better.

But while I think it’s true that weak business investment is an important part of the explanation for our weak performance on labour productivity over the past decade, I don’t think it’s the reason productivity fell by 3.7 per cent last financial year.

No. One possibility is that while business has hired a lot more workers, it’s taking a bit longer for the increased investment and greatly increased output to come through. This is a common problem with the interpretation of changes in the economy over short periods. Wait a bit longer and the puzzle disappears.

But I think the true explanation is bigger than that – and so does the commission. It points out that, during the pandemic, measured productivity rose rapidly – mostly because high-productivity industries kept working, while low-productivity industries were locked down – but last financial year that measured gain disappeared.

Get it? COVID and our response to it, with lockdowns and economic stimulus, did strange things to the economy and to our measurements of it.

But by about June last year, the level of labour productivity was about the same as it was before the pandemic. We didn’t get much productivity improvement, but nor did we go backwards.

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