Who pays for Google and Facebook's free lunch?

There may be banks that are too big to be allowed to fail, but don’t fear that the behemoths of the digital revolution are too big to be regulated. It won’t be long before Google and Facebook cease to be laws unto themselves.

It’s the old story: the lawmakers always take a while to catch up with the innovators. But there are growing signs that governments around the developed world – particularly in Europe and Britain - are closing in on the digital giants.

And here in Australia, the Australian Competition and Consumer Commission is busy with the world’s most wide-ranging inquiry so far, which will report to the newly elected federal government in June. The commission’s boss, Rod Sims, gave a speech about it a few weeks ago, and another this week.

Sims says the commission’s purpose is “making markets work” by promoting competition and achieving well-informed consumers, so as to deliver good outcomes for consumers and the economy.

With this inquiry into the operations of “digital platforms”, he acknowledges that they have brought huge benefits to both our lives as individuals and our society more broadly.

“They are rightly regarded as impressive and successful, and very focused, commercial businesses. Google and Facebook are rapidly transforming the way consumers communicate, access news, and view advertising,” Sims says.

Each month, he says, about 19 million Australians use Google to search the internet, 17 million access Facebook, 17 million watch content on YouTube (owned by Google), and 11 million double tap on Instagram (owned by Facebook, along with WhatsApp).

The inquiry has satisfied itself that this huge size gives the two companies considerable “market power” – ability to influence the prices charged in certain markets.

“However,” Sims says, “being big is not a sin. Australian competition law does not prohibit a business from possessing substantial market power or using its efficiencies or skills to outperform its rivals.”

But the dominance of Google and Facebook does mean their behaviour should be scrutinised to see if it is harming competition or consumers.

To this end, the inquiry is focused on three potential areas of harm. First, the well-publicised issues of privacy and the collection and sale of users’ data.

Second, the digital platforms’ role in the advertising market, which is moving increasingly on line, where it’s estimated that 68¢ in every digital advertising dollar is going to Google (47¢) and Facebook (21¢).

And that’s not including classified advertising, the loss of which has been the biggest single blow to this august organ.

Sims says Google sells "search advertising", aimed at making an immediate sale, whereas Facebook sells "display advertising", aimed a making consumers aware of the product.

The pair sell ad space in their own right while also facilitating the advertising space sold by others, particularly the media companies. But the opacity of their algorithms and arrangements make it hard to know whether they favour their own ads over other people’s.

Advertisers say they don’t know what they’re paying for, where their ads are being displayed or to whom. This makes it harder for media companies to capture their share of advertising moving online.

Of course, higher costs for advertisers translate to higher prices for consumers.

Third is the digital platforms’ effect on the supply of news and journalism, the primary issue given to the inquiry.

Sims says newspapers and free-to-air radio and television are a classic example of a “two-sided market”. They serve consumers but, rather than charging them directly for the service as other businesses do, they cover their costs and profits by charging advertisers for access to their audience. (Newspaper subscriptions and cover prices accounted for only a fraction of their costs.)

Digital platforms aren’t just two-sided, they’re multi-sided. They, too, provide their services free, and charge advertisers, but also collect and sell to advertisers information about their users’ habits.

Google and Facebook select, curate, evaluate, rank, arrange and disseminate news stories. But they use stories created by others; they don’t create any news stories of their own. If they did, we could see this as no more than tough luck for the existing news media.

But as well as using the existing media’s stories to attract consumers and advertisers, about half the traffic on the Australian news media’s websites comes via Google and Facebook. So they have “a significant influence over what news and journalism Australians do and don’t see,” Sims says.

With the existing media having lost so much of its advertising revenue to the platforms, it’s not surprising they’ve had to get rid of at least a quarter of their journalists. There are a few new digital-only news outlets, but even they are having trouble making it pay.

Trouble is, news and journalism aren’t like most commercial products. They not only benefit the individual consumer, they benefit society as a whole. “Society clearly benefits from having citizens who are able to make well-informed economic, social and political decisions,” Sim says.

So news and journalism is a “public good” – if left to the profit-making private sector, not as much news and journalism will be supplied as is in the interests of society.

Public goods are usually paid for or subsidised by governments using taxpayers’ funds. If we want the benefits of Google and Facebook without losing the benefits of active, independent and challenging news media, taxpayers will have to help out.

Sims is canvassing several proposals before completing his final report. Since the former newspaper companies have realised they’ll never get much of a share of digital advertising, they’re now putting more hope in persuading their regular users to pay directly by buying subscriptions.

With the long-established attitude that everything on the internet should be free (or, at least, seem free), they’re finding it hard going.

That’s why I think Sims’ best suggestion is making personal subscriptions to the news media tax deductible, provided the outlet is bound by an acceptable code of conduct.

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How to keep the news coming

If you thought the Australian Competition and Consumer Commission’s latest report on “digital platforms” was about the debatable ways Google and Facebook treat their users, you’re a victim of the news media’s reluctance to bother their audience with the worrying state of their own finances.

The report was really about the effect of digital disruption on what it calls “news and journalistic content”. So great has the disruption been that the day may come when most newspapers cease to exist.

That wouldn’t be quite so terrible if their companies continued to publish news on the internet. But unless they can find a way to make their digital products adequately profitable, it’s possible even this could cease.

At present we get news from two sources almost wholly funded directly by the federal government, the ABC and SBS. But most of the rest of our news comes from commercial businesses: free-to-air radio and television, plus two or three big former newspaper chains, now producers of what the report calls “print/online news”.

We’re so used to this we don’t see how anomalous it is. At one level, the commercial news media are just selling news to make a profit for their shareholders (who, these days, turn out to be mainly everyone with superannuation).

At another level, however, the news they sell us isn’t an ordinary product like soap or cornflakes. We consume news because we find it interesting – even entertaining – but we also need it to keep us informed about what’s going on in the world: what’s happening overseas, what’s happening in the economy, what’s happening about schools, universities, hospitals, law and order, roads, transport and 100 other areas of government responsibility, and what’s happening in the community.

Knowing about all this is of private benefit to you and me, but the fact that we know it is also of social or public benefit to the community as a whole. Each of us would suffer if we were surrounded by people who knew nothing about what was going on.

And imagine how well governments would perform, and elections would work, if we didn’t have the media telling us what the politicians were up to and holding them to account.

I like to say the commercial media also have a “higher purpose”. Journalism academics speak of “public interest journalism”. Fortunately, such anomalies are well understood by economists, including those at the ACCC. They see that news and journalism have the characteristics of a “public good”.

Another strange thing about commercial journalism is that, historically, its customers paid for it mainly indirectly, via the advertising costs built into the prices of the things they buy. That’s obviously true of free-to-air radio and TV, but it’s been almost as true of newspapers, with subscriptions and the cover price covering only a fraction of production costs.

This, however, is what’s disrupted the production of news. First classified advertising moved online, then display advertising and many former newspaper readers. Now about half of all Australian advertising spending has moved online, with Google and Facebook capturing more than half of it and the news media getting just some.

The legacy media used to sell their news in packages, called newspapers or bulletins. But the internet has “atomised” news, with most people searching for news story by story. About half the people coming to news sites do so via Google and Facebook.

The report says news has the two characteristics of a public good: it’s “non-excludable” (you can’t stop people who don’t pay from getting it) and “non-rivalrous” (me knowing about the budget doesn’t stop you knowing about it, in the way me eating an apple stops you eating it).

Public goods are an instance of “market failure”, in that they’re susceptible to “freeriders” (people who leave it to others to pay) and – significantly, in the commission’s mind – because private providers can’t capture enough profit, there’s a high risk they won’t produce as much of the product as would be in the public’s interest.

Sometimes this means governments take over the production of public goods (as they do with public schools and hospitals) or they subsidise the cost of privately produced public goods (as they do with visits to doctors).

The report explores the possible ways the federal government could subsidise news and journalism to ensure its supply is optimal. One way would be a tax incentive scheme, as is done to support local content for film and television.

Or the government could make grants for journalism projects it wished to encourage. But newspaper companies have long rejected any offer of government assistance that could threaten their independence by being withdrawn should they publish news that offended a government.

A better idea would be for private subscriptions to news services to be made tax deductible, just as are donations to charities and even to politically aligned think tanks.

Canada has already taken up the idea. Since deductibility would go to all news outlets that had signed up to industry codes of journalistic standards, and would go directly to customers rather than businesses, it would be hard for politicians to punish individual news organisations.

It’s an idea that could help secure the future of news and journalism.

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Things I've learnt in 40 years as an economics editor

Fortunately, I made the greatest misjudgment of my working life while I was still at university in Newcastle. I concluded that economics was hopelessly unrealistic and boring, whereas accounting was practical and fascinating.

The most disillusioning moment of my working life came soon after I heard that I’d passed the last exam to become a chartered accountant. For years I’d told myself that, once I was qualified, I’d be confident, capable and contented as an auditor.

Nothing changed. I had to admit to myself I neither enjoyed being an accountant nor was much good at it. A year or so later I washed up at The Sydney Morning Herald to offer my services as an over-aged graduate cadet, at a much lower wage.

The news editor who hired me said he didn’t imagine I’d last, but it was worth a try. It was only at the man’s wake a year or two ago that his widow explained what he meant. Knowing I was an accountant, he’d tried to persuade Fairfax to pay me more than a cadet’s wage, but failed.

The editor soon suggested I try my hand at economic journalism. “Accountant, economist – pretty much the same thing, surely?” I bit my tongue and took his advice. Smartest move in my working life.

This month is the 40th anniversary of my appointment as the Herald’s economics editor – surely some kind of record. I’ve been writing for The Age for much of that time.

My survival is owed to a great extent to the trouble I had recovering all the economics I was supposed to have learnt at uni – and to the many hours people who ultimately became professors, Treasury secretaries and Reserve Bank governors spent on the phone with me, explaining the facts of economic life.

Whatever I learnt I immediately explained to the readers. For all those years I’ve seen my role as explaining how the economy works, why economists take the attitudes they do and what the government is seeking to achieve with its policies.

Four decades as an opinion writer leave you with a lot of strongly held opinions. In the early years I preached the prevailing gospel of economic reform; lately I’ve been more like a theatre critic, helping readers decide whether they agree with particular policies.

And, like many old journos, these days I don’t have much faith in either side of politics.

Economic life – and that’s what economics is, the study of “the ordinary business of life” – has changed hugely while I’ve been in this job. All the deregulation and privatisation of the Hawke-Keating years have greatly increased the degree of competitive pressure facing our businesses – from imports and other businesses – much of which they have passed through to their employees.

It’s a long time since anyone thought of Australia as The Land of the Long Weekend.

The world changes more frequently than it used to. The value of our dollar now changes by the minute; the Reserve Bank reviews the level of interest rates once a month. Jobs – even full-time, permanent jobs – have become less permanent.

Much of this change stems not from governments but from the rapid pace of technological change and globalisation (itself to a large extent the product of advances in telecommunications and information processing).

Our standard of living has risen greatly over the years, and we’re surrounded by gadgets that do amazing tricks, though it’s no longer certain that children will end up richer than their parents. Youngsters stay much longer in education, but will have to work until they’re 70.

Home loans have become much easier to get, but infinitely harder to afford.

Pay rises have to be bargained for – often less via unions than directly with the boss - and, over the past four years, have become tiny to non-existent. Rises used to be doled out several times a year by a bench of judges in Melbourne.

My enthusiasm for my topic – for my 43rd federal budget, for instance – is undiminished. Why? Because I keep learning more economics and because the economy, and economic fashions, keep changing.

One “learning” I've acquired is that, while economics - the business of producing and consuming, earning and spending – is and always will be vitally important, it needs to be kept in its place. An economics-obsessed nation isn’t likely to be a happy, fulfilled nation.

Malcolm Turnbull now portrays himself as the great champion of “aspiration”. He’s right. All of us should aspire to something better. But there are plenty of goals more worthy and likely to be more satisfying than gaining a higher income.

What would be wrong with aspiring to make life better for others rather than ourselves?

It’s the same with that great god, economic growth. It’s a good thing to grow. But why must the economy grow bigger rather than better?

I aspire to an economy where bosses are less obsessed with earning more and less convinced that being tough on their employees and customers is the way to get there. Why are they so sure making more money under those conditions will make them happy?

I aspire to an economy where bosses (and politicians) calm down and realise that working with an engaged and satisfied staff to give customers value for money is a more genuinely rewarding way to work and live. I can’t believe such an economy would do badly.

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Why I'm a pathological optimist, in spite of my job

Last week in front of 1400 people at a Fairfax Media subscriber event I was outed as a "pathological optimist" by an anonymous reader, who wanted to know how I got that way.

It reminded me of Dylan Thomas, who went into a pub in America and got beaten up by some big bruiser – a future Trump voter, no doubt – for calling him heterosexual.

But, since you ask, I'll tell you – much as I hate talking about myself.

I think it's partly heredity, and partly by choice. When you grow up in the Salvos, professing to be "saved", it's natural to be happy with life and confident Someone Upstairs will look after you.

My mother was an incessant worrier and I grew up seeing her worrying about a lot problems that never eventuated. My father wasn't a worrier. I decided to take after my dad.

In truth, as optimists go I'm out and proud.

I can only guess at what the future holds, but people are always asking for my prediction.

If you want a forecast that errs on the optimistic side, I'm your man. If you want death and destruction, feel free to take your business elsewhere.

Many people switch between economic optimism and pessimism depending on whether they approve of the present government. Not me.

Of course, if I thought we were staring recession in the face I'd say so. Even if I thought the possibility was a lot higher than normal I'd say so – though I'd keep the announcement sober rather than sensational.

Most of the time, however, the safest and most likely prediction is that next year will be much the same as this year. When it's a half full/half empty choice, you know which way I'll jump. (You know, too, that an economist is someone who thinks the glass is twice as big as it needs to be.)

What I said at that event last week was that I'm an optimist because "it's easier to get through life that way".

It's true. I commend it to you. And I have scientific proof. Professor Martin Seligman, of the University of Pennsylvania, a founder of the positive psychology school and author of Learned Optimism, has written that optimism and hope are quite well-understood, having been the object of thousands of empirical studies.

They "cause better resistance to depression when bad events strike, better performance at work, particularly in challenging jobs, and better physical health".

Other research has shown that individuals who profess pessimistic explanations for life events have poorer physical health, are prone to depression, have a less adequately functioning immune system and are more frequent users of medical and mental healthcare.

A study by Toshihiko Maruta and others at the Mayo Clinic, which followed almost 450 patients over 30 years, found that optimists lived longer than pessimists and reported better physical and mental health. Wellness is attitudinal, not just physical.

My conclusion is that optimists live happier lives than pessimists. But are optimists happier people or are happy people more optimistic? Bit of both, is my guess.

Which is not to say optimism is rational or realistic. It isn't. Seligman defines optimism as a style of explaining life events.

Pessimists think the bad things that happen to them are permanent ("the boss is a bastard") whereas optimists think they're temporary ("the boss is in a bad mood").

Pessimists think the good things that happen to them are temporary ("my lucky day") whereas optimists think they're permanent ("I'm always lucky").

Pessimists have universal explanations for their failures ("I'm repulsive") whereas optimists have specific explanations ("I'm repulsive to him").

But don't knock self-deluding optimism. It's a motivating force for innovation and entrepreneurial endeavour and it keeps the capitalist system turning.

Business people invent new gismos and launch new products because they're convinced the new thing will be hugely successful, making their name and fortune.

Few succeed. Most do their dough. But the ones who do succeed make us more prosperous than we were. Then they try again.

But I confess my optimism is part professional calculation. As a commentator I have a contrarian streak. When all my competitors are saying black, I look for a way to say white.

This isn't hard or contrived because the media have an inbuilt tendency to predict the worse, believing this will please the audience and make them more popular.

Journalists believe our audience finds bad news more interesting than good news. For sound evolutionary reasons I've discussed before, this is right.

But ever intensifying competition has prompted the media to go over the top in their search for the big and bad.

Trouble is, most readers are optimists like me. They want to sustain their belief that, despite the bad things happening, the world is still fundamentally good, Australians are basically decent people despite some recent lapses, and life will get better, not worse.

I fear the bad-worse-worst news formula may be too depressing for some people, prompting them to switch to Facebook and photos of their friends' latest holiday.

If that's how you feel, dear reader, I'm here to help.

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Herald's move to explanatory journalism is its future

How has the Herald changed in 185 years? How should I know – I've been working for it for less than a quarter of that time. But I dare to claim that, of all the change since 1831, most of it has occurred since I started in 1974.

A few years back, at a staff function to celebrate those of us who'd hung around longer than could reasonably be expected, someone had the idea of presenting us not with a pen or a watch – I'd already had one of each – but with a framed copy of the front page of the paper on the day we started.

Sorry, but it was an uninspiring present that showed how far we've had to travel. It was grey in every sense. That was long before the Herald moved to colour printing, but not before our subeditors had abandoned their sacred duty to drain the colour out of every story before allowing it to be seen by the public.

The Herald stuck to "objective" reporting of the facts – "just the facts, ma'am" – and anything that remotely resembled an opinion – it was a beautiful sunny day, the prime minister seemed distracted, the accident was horrific – was verboten.

It was years before journalists attended university journalism courses, to be reminded that at its core the journalistic task involves subjective judgments: which events get reported and which don't; which facts get used and which don't; which stories get run and which "hit the spike"; which are reported at length and which in brief; which lead the front page and which go up the back somewhere.

It was because journalism was mere description of facts that readers didn't need to know the journalist's byline. They needed to be told only that a story had been written "by a Staff Correspondent" – that is, he (and occasionally she) had been trained by the Herald, and so could be trusted to get everything right.

Nothing of any great interest had happened the day before my first day on the job. The front page was nonetheless terribly busy, as editors crammed in as many stories as they could fit. To modern eyes the page was messy and uninviting.

That was only a few years before the Herald abandoned the unachievable struggle to be a "paper of record". Much better to focus on a smaller number of more interesting or important events – preferably ones other media didn't have – and do justice to them, illustrating them and laying them out on the page in a visually attractive way.

One thing that issue of the paper did have going for it, however: its price was 8 cents. Of course, in those days it didn't have lift-out sections on TV programs, food and restaurants, travel, health and fitness, and gig guides.

Apart from Column 8, still signed by Granny, there were few opinion columns in the paper of the mid-1970s. Comments or analysis sitting beside news reports were rare to non-existent. There were a few bylined feature articles, but for the most part opinion was restricted to unsigned editorials – or "leaders" – written on behalf of the editor.

It was only a little over two years before I was moved from economic reporting to opinion writing. At first my job was to write a leader a day, but by 1980 I was writing three columns a week. I'm still writing those columns, on the same days and the same parts of the paper.

Having checked with the Herald's historian, Gavin Souter, I think I'm safe in claiming to be the longest-serving columnist in the paper's 185 years.

This may tell you something about me, but mainly it says something about how the paper and the world in which it exists have changed. In relatively recent years the Herald – on paper and online –has become chock full of all manner of columns, comments and analyses.

Why? Partly because our marketplace has become ever more competitive. Journalists tend to focus hardest on competition from rival newspapers, but more intense competition has come from the electronic media, radio and television.

This competition started from the moment in the 1930s that radio networks began reporting their own news stories rather than reading out stories from the papers. Eventually radio began delivering news bulletins on the hour, but not before television channels made their nightly news bulletins the chief means by which Australians caught up with the news.

With so many of our readers already having heard the bare bones of so many of our news stories, is it any wonder newspapers had to change their news offering? We tried harder to find our own exclusive stories, provided greater detail and more background information, asked "the next question" – what happens now? how will the authorities react? – as well as adding more commentary and analysis, including the pure opinions of columnists and in-house experts.

For much of the past 185 years there were two things you could do after you got home from work, had dinner and wanted to relax: sing songs round the piano or read the paper. Then came radio and its serials and then the all engrossing idiot box.

On a wider level, therefore, newspapers have long faced greater competition from an ever-expanding array of ways to spend your leisure time. More reason to change our product.

The advent of the internet has added greatly to that array, as well as multiplying rival digital sources of news – not just from other cities and states, but from English-speaking news providers around the world.

By contrast, it's allowed the Herald and other papers to use their websites to get back into "breaking news" – news within minutes of it happening – for the first time since the 1930s.

These days, however, digital sources of breaking news are so plentiful and so freely available –literally – as to greatly diminish the commercial value of ordinary news. How are we to pay the wages of our journalists?

Online advertising is far cheaper than it is in newspapers and free-to-air television. What's more, online advertising is dominated by Google and Facebook, not the traditional news sources.

We need something more than ordinary news, some way of adding value to a product we can ask readers to pay for, preferably by subscription.

The material standard of living of people in the developed economies has risen many times since the Industrial Revolution. This remarkable achievement has been the result of two main factors: technological advance and ever-growing specialisation within occupations.

The inescapable consequence, however, has been to make the workings of our economy and many other aspects of our lives infinitely more complex than they were. There was a time when car owners did much of their own routine maintenance; today, many hardly dare lift the bonnet.

When I joined the Herald it still subscribed to the notion of the "universal journalist" – any Herald-trained journalist was capable of accurately reporting any story on any subject. I doubt if this was true then; it's become less true with every passing year.

Since I became economics editor in 1978, I've worked to ensure that all economic reporting is done by journalists with economic qualifications. Ideally, legal reporters have law degrees, science reporters have science degrees and so forth.

With the growing complexity of daily life has gone an ever-rising level of educational attainment in the workforce. The Herald has always had a better-paid and better-educated readership, but it's never been better educated than it is today.

This means a readership far keener to know how and why, not just who, what, where and when.

But not all "advances" have been for the better. Governments have become bigger, ministers' staffs have become bigger, politicians are far more adept at marketing, more focused on perceptions and appearances, and unceasing in their attempts to "manage" the media.

At the same time, the lobbying of government by business and myriad interest groups has proliferated. A small industry of "economic consultants" has grown up in Canberra just to produce modelling that purports to prove the rightness of lobbyists' claims.

If keeping governments and power-holders honest is one of the primary responsibilities of the quality press, never have its services been more sorely needed.

A more complex world requires more explanatory journalism from more specialised and qualified journalists. The blizzard of information assailing us requires more trusted guides to what's worth worrying about and what isn't.

A world of more active lobbying by powerful interest groups and more manipulative and secretive governments requires more investigative journalism, not just by dedicated investigation teams but also by more specialised journalists who do more than meekly report the claims of politicians and lobbyists.

This is what I've tried to contribute with my "comment and analysis" in my time at the Herald. It's needed far more today than when I started. I confidently predict the need will only grow.

It's why I hope to see the Herald meet the challenge of digital disruption, making whatever adaptations are needed to ensure it continues to serve readers and contribute to the nation's good governance.

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The real reasons GST won’t be changed

After the months we've spent debating changes to the goods and services tax, a lot of people were surprised to learn last week that the idea's been abandoned.

But not me. I've been expecting it since November 24. Why? Because everything has unfolded just as my colleague Peter Martin revealed in the column he wrote 12 weeks ago.

"The big GST decision, on whether to lift it to 15 per cent, is already as good as made. The Treasurer and Prime Minister won't do it. Nor will they extend the goods and services tax to food, to health or to education, although they might yet extend it to financial services," Martin wrote.

What was arguably the biggest political scoop of the year was ignored. Maybe the denizens of the House with the Flag on Top didn't believe it. What's an economics editor doing getting scoops? Why would you bury a scoop in a column? Why was he told when we weren't?

Or maybe it suited no one in the building to kill off the GST story so soon. Politics is like a drama, where each player sticks to his part. Labor didn't want to know there'd​ be no change to the GST because it wanted to keep running its scare campaign.

Similarly, the press gallery wanted to keep milking the story for scary headlines. As for the government, it would have wanted to manage expectations, gradually conditioning its backbenchers and business urgers to the idea that tax reform wouldn't be as radical as first thought.

When the time was ripe, ministers' offices would start leaking bits of the story to key journos – the proper way to get a scoop – preparing the way for the boss to drop a big hint on some TV program, before formally acknowledging the decision.

The trouble with Martin's scoop was it was out of sequence; it didn't fit the standard choreography; it was the media playing something other than their allotted role. When the play was only half-way through, a rogue journo stood up and read out the last page.

Better to pretend it hadn't happened.

But this means we've been given the sanitised, media-managed version of how the decision was reached. For a start, careful leaking has removed the demand for the government to explain why it rejected the options for broadening the GST base.

Fortunately, Martin gave us the unsanitised explanation. Extending the tax to fresh food "was never going to happen". It would hit low earners hardest, and these days it's almost impossible to compensate them, we were told.

Extending it to health and education was considered to be unfair. People who use public schools and hospitals would pay no extra, while those already paying for access to private schools and hospitals would pay extra, Martin told us.

Last week's official version of the government's reason for deciding not to increase the rate of GST was its Damascus-road experience on January 25 when Treasury surprised it with modelling showing that using an increase in the GST to cut rates of personal income tax would do nothing to foster "growth and jobs".

Two small problems. First, this should have come as no surprise to anyone who'd read the tax reform discussion paper issued last March, which advised that personal income tax and the GST were little different in terms of economic efficiency.

Second, it portrays the decision not to change the GST as a simple economic calculation, untouched by base political considerations. Yeah, sure.

For a start, Treasury's modelling also shows that big efficiency gains could be had by using an increase in the GST to cut the rate of company tax. The government's unwillingness to contemplate such a switch was obviously political.

But the really significant consideration glossed over by the media's sanitised version of events is Martin's revelation that, since the GST was introduced, it's become much harder and more expensive to compensate low and middle income-earners for the regressive effect of indirect tax increases.

These days, many low income-earners neither pay income tax nor receive government benefits. Labor excluded many part-time workers from income tax by trebling the tax-free threshold to $18,000 a year, while the Liberals made superannuation payouts tax-free.

When people neither pay income tax nor receive a benefit, how do you compensate them? How do you even know how much to give them?

This explains why Treasury now estimates that at least half the gross proceeds from a GST increase would be needed for compensation, leaving much less room for tax cuts – personal or company – and making the politics of tax reform much more daunting.

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White paper shows way to Asian century

When governments make grand policy unveilings, as Julia Gillard has with her white paper on the Asian century, it’s terribly tempting for people in jobs like mine to sit back and criticise. After all, unlike you and me governments tend to be less than perfect.

If you’re disposed to criticise, there’s never a shortage of material - particularly if you’re prepared to offer mutually inconsistent criticisms, or shift your angle of attack from one week to the next.

Sometimes the media are so eager to fan controversy they hardly pause to summarise the content of a 300-page document before launching into their own and other people’s criticisms. And no matter how weighty the subject matter, you can bet it’ll be done and dusted within a week.

I prefer to be a little more considered, even more co-operative with our elected leaders (and nor do I regard a diet of unrelieved negativity as a smart way to sell news). So, though I have some major criticisms of my own, I’ll leave them for another day.

Throughout the life of the Rudd-Gillard government people have criticised its failure to articulate an ‘overarching narrative’ - an encompassing story of what Labor stands for and what it’s on about. A vision of the future; something that gives meaning and direction to our national life.

Well, it may have taken five years, but here’s Gillard’s best shot. It’s not, as some have imagined, the report of another committee headed by Dr Ken Henry; it’s a white paper, a firm statement of government policy intention.

So what do the critics say? It’s just more talk. Where are the new decisions? When will we be getting them? What about my pet project?

You may say this is a narrative with an arch that stretches from the economic to the commercial via the financial (and I may agree), but that makes it an accurate depiction of the breadth of this government’s priorities.

Some say suspiciously that the white paper includes a mention of just about every project Labor is working on: the carbon price, the national broadband network, education reform etc. Sure. That’s what overarching narratives do.

It’s a vision of increasing our material prosperity by ensuring we fully exploit the opportunities presented by our proximity to Asia, which is transforming itself from poor to rich within the short space of our lifetimes.

Within that limited purview, it’s on the right track. It’s hard to imagine our equally materialist opposition disagreeing - though you can be sure it will find plenty to criticise.

The white paper says that, to succeed in this objective, Australians need to act in five key areas. First, we need to build on our own economic strengths. In particular, we’ll need ‘ongoing reform and investment’ across ‘the five pillars of productivity - skills and education, innovation, infrastructure, tax reform and regulatory reform’.

Second, we must do more to develop the necessary capabilities. ‘Our greatest responsibility is to invest in our people through skills and education to drive Australia’s productivity performance and ensure that all Australians can participate and contribute.’

Third, we need businesses that are highly innovative and competitive. ‘Australian firms need new business models and new mindsets to operate and connect with Asian markets.’

Fourth, we need stable defence security within the region. And finally, we need to strengthen our relationships across the region at every level. ‘These links are social and cultural as much as they are political and economic.’

It’s easy to say there’s nothing new in the white paper. We already knew about the rise of Asia. And prime ministers have been banging on about our need to get closer to Asia since Malcolm Fraser.

It’s all true. But it misses the point. The experts may be full bottle, but public doesn’t know as much about Asia as it should; this is an attempt to lift our ‘Asia literacy’ as well as getting more study of Asia and its languages into curriculums.

And governments bang on about a lot of things; this is a decision to give our relations with Asia top priority. This is a long-term project and it didn’t start yesterday. It doesn’t hurt to have a grand renewal of our commitment. It maybe old to us oldies, but to our kids it’s new and sparkling.

The white paper seeks to dispel a lot of misperceptions among Australians. For one thing, it’s not just about China. It’s also about India, South Korea and developing Asia in general - and hugely populous Indonesia in particular.

For another, it’s not just about mining. Though the mining boom has further to run, it’s also about selling a lot more food and fibre to Asia at much higher prices, and supplying Asia’s burgeoning middle class with education, tourism, sophisticated niche manufactures and many services.

But deepening our economic (and, inevitably, social and cultural) relations with Asia is two-way street. Exporting more to Asia will mean importing more from it (giving the lie to criticism this is about exploiting the poor people to our north)
And increasing our business investment in Asia will mean accepting more Asian investment in our businesses.

And, as we’ve already seen with the mining boom, maximising our benefit from the rise of Asia will inevitably mean accepting change and upheaval in our economy. The more we try to preserve the world as it was, the more we pass up the opportunities Asia presents.

The other bad news is that full benefit from Asia isn’t something this government or any other can deliver us on a plate. It needs to be a national effort, with most of the heavy lifting done by business, schools, universities, unions and individuals.

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WRITING A COLUMN

Speech to trainees

Neroli has asked me to talk to you about writing a column, but also to say something about my career path and how I got into journalism, so I’ll start with that.

Thirty-five years ago I decided to take a break from my career as a chartered accountant, spend a year doing something interesting and then resume my accounting career. I spent the time doing the first year of what’s now the BA (Communications) at what’s now UTS. During that year I became the inaugural co-editor of the student newspaper at UTS, then called Newswit. As the year came to an end my journalism lecturer, Terry Mohan, asked me if I’d thought about making a career in journalism rather than accounting. I hadn’t, but on his prompting, I did. I applied to the ABC and the Fin Review and got nowhere, but Terry said he knew the cadet counsellor at the Herald and would get me an interview. It’s obvious to me now that he also put in a good word for me. I got the job and, at what was then considered to be the terribly mature age of 26, as a qualified chartered accountant, I started as a graduate cadet on a fraction of my former salary.

That was in 1974, the year following the first OPEC oil shock which ended the post-war Golden Age, the year our economy fell apart under the Whitlam government and the year newspapers discovered that politics was mainly about economics and decided they’d better start finding people who could write about economics. I was an accountant, not an economist, but the Herald decided that was near enough. I had a fair bit of economics in my commerce degree, of course. I soon realised the Herald was making quite extensive use of my professional qualifications, so I suggested it start paying me more appropriately and after about four months my cadetship was cut short and I was made a graded journalist on the equivalent of what I guess today would be a J4. After less than a year I was sent to Canberra as the Herald’s economics correspondent. After a bit over a year I was brought back to Sydney as economics writer, replacing my mentor, Alan Wood, who had resigned as economics editor. About two years later - that is, about four years after I’d joined the Herald - I was promoted to economics editor. That was 30 years ago this year and I’ve been economics editor ever since. In those days the main thing the economics editor did was write leaders - unsigned editorials - but within two years or so Alan Mitchell - who’s now economics editor of the Fin - took over the economics leaders so I could concentrate on writing columns. Since 1980 I’ve written three columns a week (plus a few odds and ends) - the same columns on the same days and in the same parts of the paper.

I should warn you that journalistic careers today aren’t as meteoric as mine was then. I just had the immense good fortune to be in the right place at the right time. But think of it another way: I’ve been doing almost exactly the same job for the best part of 30 years. I haven’t gone anywhere, haven’t had a promotion in 30 years. My one ambition in journalism was to be the Herald’s economics editor; I achieved that ambition in four years - far sooner than I ever imagined I would - and in all the time since I haven’t been able to think of any job I wanted to do more or any paper I wanted to work for more than what I had. The one big advance I’ve had in that time was when, a long time ago, The Age started running my columns. In terms of combined circulation and quality, newspapers can’t offer any bigger or better platform that the Herald plus The Age.

Now let’s talk about writing a column. It’ll probably be a long time before any of you get invited to write a column - it’s a job reserved for senior journalists - but there’s no reason you can’t aspire to that goal and take an interest in what it involves. I should warn you, however, that only good writers get invited to write columns (or be feature writers).

One question is the subject matter of the column - politics, economics, business, sport, whatever - but another is the style of column. There’s a range of partly overlapping styles to pick from. You could write a controversialist or contrarian column, where you’re always aiming to provoke the reader and say the opposite of what most people think. Paul Sheehan’s column in the Herald would be an example. You could write a populist column, where you sought to reflect back to the reader what most people could be expected to think about any issue. This is the stance taken by radio shock jocks. You could write a partisan column, aimed at gratifying just one side of the ideological divide and annoying the other side. For the Herald, Miranda Devine and Gerard Henderson write such columns on the Right and Adele Horan on the Left. The nature of such columns is such that you soon alienate readers on the other side, who stop reading you. Young journos often wonder why the editor persists with columnists they - the young journos - disapprove of. He does so because he’s trying to cater to the range of political views among his readers. Sensible editors of soft-left papers such as the Herald and The Age will want to run a few right-wing columnists to run cover for all the lefties and avoid alienating too many conservative readers. Another style of column that’s sprung up lately is the Gen Y or Young Things column, of which Lisa Prior’s column is a good example. Newspapers worry that they’re not attracting a new generation of readers, that the paper’s dominated by ageing baby boomers like me, and want to run a few columns that stop the paper looking so old and that express the attitudes of the younger generation. There’s scope for more Young Things columns in papers, which may provide an opening for some of you. But perhaps the best way you could talk someone into giving you a column would be to think up some style or subject matter than had never been tried before. There’s a lot of emphasis on encouraging young journalists to learn the way things are always done; there ought to be more emphasis on encouraging them to think up new ways to do things and things to do we’ve never done. I think that, in a modest way, I did a bit of innovating in my youth - and I don’t think it did my career any harm.

That brings me to my style as a columnist, which is to write informative, explanatory columns. Many readers are interested in the economy, but don’t know much economics and find a lot of what they see on the topic hard to understand or boring. My life’s mission is to explain to readers how the economy, economics and economic management work. From the very beginning I’ve put an enormous amount of effort into trying to offer clear and seemingly simple explanations. I’ve also put a lot of effort into trying to do that in a readable, reasonably entertaining way. I commend the notion of ‘explanation journalism’ to you. It’s not fashionable or widely practiced, but it should be - and, I suspect, will be. The world becomes ever more specialised and complex and the people in it become ever more specialised in their own narrow areas of expertise. So the need for popularisers who can explain important aspects of life to people who’ve specialised in something else keeps growing. As the blizzard of news engulfing us grows ever worse, many people’s approach to information overload will be to find the one commentator they trust and can understand, and ignore the rest. As the internet feeds the public’s craving for ‘breaking news’ - news that’s indiscriminate, undigested and often wrong or misleading - the off-line Herald that lobs up to 24 hours later has to have something quite different to justify its existence, and it strikes me that explanation - explaining how and why whatever happened happened - is the obvious way to go.

That covers the basic question of the style of column you choose. The next big question is who you’re writing the column for. People who paint pictures often claim that they do it only to please themselves, but mere journos don’t enjoy that luxury. They write to impress or please someone else. You can write to impress other journos (including your boss), to impress your contacts if you’re in a specialised round, or to please the readers. I think it’s always an indulgence to write to impress your contacts, but it’s just as bad to write to impress other journalists. That’s wrong, it’s bad journalism - but I suspect a lot of people do it. They write for their mates or to impress their competitors.

I want to suggest to you that, right at the start of your journalistic careers, you adopt as your ethic or credo or raison d’etre the simple motto: Serve the Reader (or listener or viewer). Everyone needs an ideal that’s greater than themselves to give meaning and purpose and even a touch of nobility to what they do, and I can’t think of any better one for a journalist. Stay focused on the reader and it will help you resolve a lot of ethical issues as you go about your work. Sometimes serving the reader involves giving them the light-weight froth and bubble you know they’ll lap up, but often it involves giving them what they should want - and busting a gut to convince them it’s both important and interesting. Let the readers dictate the question - but not the answer to it.

There’s loads more I could say about writing columns, but I want to finish with something that’s much more general to your career as a journalist. In journalism, as in all aspects of life, we often face choices between equally desirable, but conflicting, objectives. We can write about stuff that’s important, or about stuff that’s interesting. We can focus on being commercially successful, or we can focus on maintaining high journalistic standards. We can beat stories up, or we can stick strictly to the facts and be boring. The point I want to make is simple: don’t let yourself think, and don’t let anyone convince you, that you face such either/or, black or white, good or bad choices. When you face a choice between equally desirable but conflicting objectives, you don’t opt for one or the other, you pick some combination of both. In the jargon of economics, you find the best trade-off between the two. And it’s getting to the best available trade-off - where you’re getting a fair bit of both - that’s the hard part and usually requires a lot more effort on your part. You want to write about things that are important - and bust a gut to make them interesting. You want to be commercially successful - to get promotions; to do you bit to help sell papers - and be true to journalistic ideals. You want to avoid beating stories up and avoid being boring. All these combinations are possible - but not without extra effort and ingenuity.

Other points

I don’t just assert my opinion, I try to argue a case, quoting lots of facts and acknowledging both sides of the argument (eg It’s true that X, but Y). Sometimes your role is to remind the reader of why they disagree with you. That’s fine by me. But no matter how judicious you are, you must, as a matter of artistry, come to a conclusion and state an opinion. Only during an election campaign would I limit myself to on the one hand, but on the other.

You have to combine information with entertainment. Well written and an easy, enjoyable read eg Ian Verrender. An informal, chatty style goes down well.

Should inject some of your own personality.

Predictability is the great enemy of all columnists. Try to avoid having obvious, run-of-the-mill opinions on a particular subject. That doesn’t mean always having a contrarian view, tho if you view happens to be opposite to everyone else, that’s a plus. No, you have to have a more thoughtful, better-informed and thus novel view, which you achieve by giving the subject more thought and research than the reader has.

But you also need to avoid being too predictable over time. ‘I stopped reading Paddy because I always knew what he was going to say about any subject’ is the kiss of death for a columnist. Good to have views that are complex - that acknowledge differing shades of grey - and that evolve over time as you learn more from your experience but also your reading.

Criticise from a fixed viewpoint - a fixed model or view of the way the world works or should work - don’t keep changing your vantage point until you’ve got something to criticise. That’s the mark of an amateur.

I sometimes write what you might call primativist columns (like primitive art) - columns intended to connect with the unsophisticated view ordinary readers might adopt towards some development and move them forward, not columns that simply contribute to a debate being conducted at the sophisticated level by my expert contacts. That is, I act as a populariser and a bridge between punter and expert.

My ambitions are horizontal, not vertical. Pyramid or star system.

Readers are more interested in stories about people than about ideas. And they like stories to be stories.

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THE DUMBING DOWN OF THE PUBLIC POLICY DEBATE

Gruen Lecture series, Australian National University
September 8, 2011

I’m delighted to be taking part in this lecture series to honour my old friend Fred Gruen. I still regret his passing, even though his two sons just about fill the vacuum he left.

Oldies have always lamented that things aren’t as good as they used to be, but I don’t think there’s any reason to doubt the widespread perception that the debate - or ‘discourse’ as the fashionable academics say - about politics and public policy has become a lot less intellectually satisfying. If Fred were to come back and take up today’s newspapers, I don’t doubt he’d notice the difference. It’s got worse since the arrival of the Rudd-Gillard government, and worse again since Tony Abbott became opposition leader. But I suspect it would be a mistake to attribute too much of the deterioration to the actions of particular individuals. And, in any case, I’m sure the rot set in a lot earlier than 2007 or 2009. We’re dealing with a deteriorating trend that has been running for many years.

I could regale you with the worst examples of the way the debate has dumbed down - the preoccupation with Julia Gillard’s appearance, Kristina Kenneally’s decision to let her hair grow out, Tony Abbott’s decision hardly to mention the budget in his budget reply speech - but I’m more interested in trying to explain why the dumbing down has come about. Suffice to say that evidence of the phenomenon can be found in the increased emphasis on ‘race-calling’ in political reporting (who’s winning, who’s losing; who’s up, who’s down), on personalities, trivialities, scandals and accusations, slogans and name-calling rather than reasoned debate.

Lindsay Tanner offered his explanation in his book Sideshow: Dumbing Down Democracy. He argues it’s pretty much all the fault of the media, which is under siege from commercial pressures and technological change. Since the politicians must use the media to communicate with the electorate, they’ve had little choice but to dumb down their message to meet the media’s demands. The Canberra press gallery’s response to this thesis was predictably defensive, passing a lot of the blame back to the pollies. So, which side is to blame? Well, here a bit if economic training comes in handy: to be convincing, any explanation of some development has to provide reasons from both the demand side and the supply side. In other words, I think we can share the blame roughly evenly between the media on the demand side and the pollies on the supply side.

Let’s start with the media. And let me start by observing that much of the media has always been pretty dumb. The tabloids have always been tabloid and the commercial electronic media - radio and television - have never been terribly earnest in their coverage of politics. I think it’s true, however, that the tabloids have become dumber over the years: more hyped up, more inclined to emotional outbursts than factual reporting. Even so, when people complain about the debate dumbing down, I suspect most of their complaints relate to what they read in the quality press - or on the quality press’s websites.

In my 37 years in journalism I’ve been particularly conscious of the way old professional standards - being a paper of record, strict separation of news and opinion, the avoidance of subjects considered sordid - have given way to more overt commercial considerations. Part of this I attribute to microeconomic reform, especially deregulation of the capital market, which has intensified competition in general and, in particular, the sharemarket’s scrutiny of the adequacy of the newspaper companies’ profit performance.

For many years newspapers have faced steadily intensifying competition from other media. For as long as I’ve been in this business newspapers have worried about their circulation figures, which have been falling heavily relative to population growth and, more recently, have been falling in absolute terms. This I take to be explained by the increased competition they face from the ever-growing list of other ways for people to spend their leisure time. Television long ago became the main way people get their news, and the rise of talk radio and radio talkback was pinching our customers long before the arrival of the internet, with its multitude of alterative news sources, including the newspapers’ own websites.

Evening television news bulletins and breakfast radio programs were stealing the thunder of morning newspapers long before the internet began delivering ‘breaking news’ to people in their offices throughout the day. Because the electronic media and the new media are so much better at breaking news, the media have been feeding the public’s natural impatience to know the very latest. But breaking news gives primacy to immediacy over meaning. It’s undigested news - often unable to give an adequate account of what happened, let alone how it happened and why. Breaking news is dumbed-down news.

A related phenomenon is the long-emerging 24-hour news cycle, which has been reinforced by the arrival of 24-hour news radio and television channels. This increased output of news greatly increases the demand for news items and for new news items as the day progresses. It has the effect of shortening attention spans and it may well be that increased quantity comes at the expense of quality reporting and commentary. Speaking of attention spans, television and radio news stories are getting briefer, with the grabs of ‘actuality’ from politicians getting ever shorter. Politicians are able to repeat slick slogans without having to elaborate or defend them.

The arrival of the internet poses a considerable threat to the survival of newspapers - particularly the quality press - as they lose the formerly highly lucrative classified advertising and some display advertising, but also lose readers -particularly younger readers who prefer to read our offerings on the net, on tablets or on smartphones.

With all these pressures, is it surprising newspapers are trying to attract more readers by making their news more entertaining and, in the process, dumbing it down? Journalists have long understood that people prefer stories - narrative - to analysis, and stories about people rather than concepts. News has always been a combination of the important and the interesting, so the news media have responded to increased competitive pressures by increasing the interest component at the expense of the importance component. They have personalised politics by focusing on individuals, particularly leaders, making it more presidential. They have increasingly covered politics as though it was a spectator sport rather than policy debate. They have made the news more exciting by focusing on conflict and controversy rather than reasoned debate. They have made the news more entertaining by focusing more on gaffes and gimmicks. They have always understood that their audience finds bad news more exciting than good news, but they have stepped up the search for bad news, allowing it to crowd out the reporting of straight news about the facts of policy proposals. They spend most of each parliamentary term demanding the opposition produce its policies, but then devote little attention to those policies when finally they are produced.

Newspaper websites are often much dumber than the papers themselves, with a lot of perfunctory news stories, sexy photos, gimmicky stories and stories about celebrities. This is partly because the internet audience is much younger and also because the online editors get real-time feedback on what people are clicking on, and what they click on is sexy photos and stories about celebrities. The better informed editors are about the customers’ ‘revealed preference’, the harder it is to feed them material they feel would be better for them.

I believe the advent of talkback radio has had a big influence on politics and political reporting. It is very much news as entertainment, particularly the engendering of indignation about the claimed failures of officialdom. Shock jocks have broken down earlier conventions about subjects considered off-limits, particularly those with xenophobic or racist overtones. This has affected the behaviour of other mediums - particularly the tabloids - and the politicians. The electronic media and the tabloids do much to cater to - and amplify - the public’s worries about crime. Once, the quality press avoided dwelling on the gruesome details of particular crimes, but in its efforts to attract and retain readers it now devotes a lot more space to crime reporting. Television thrives on colour and movement. If it bleeds, it leads. Television is well suited to covering natural disasters, and the print media have met this competition despite their disadvantage, leaving less room for politics and policy. The extended coverage of natural disasters is a form of voyeuristic entertainment. For completeness I should record that, over the years, the broadsheet papers have come to include a lot of overt entertainment, in the form of ‘lifestyle’ sections on television, food, fashion and weekend gig guides.

So the media have certainly played a major part in the dumbing down of the policy debate. But the politicians have also played a big part. Just as the media’s commercial imperative has become more dominant, so I believe the politicians have, in their own way, become more commercial. They’ve always sought to balance the conflicting goals of using power to make the world a better place and staying in office because it’s nice to be in charge. I think politicians on both sides now put a lot more emphasis on attaining and retaining office than on ensuring they use their time in office to achieve improvements. On the Labor side, but increasingly also on the Liberal side, politics is becoming a professional career structure, where you start out from university as a union or ministerial factotum, eventually working your way to the top of elected office. You become steeped in the backroom, cynical side of the game of politics - learning the tricks of attaining and retaining office - without gaining much experience of the outside world or, it seems, acquiring many deeply felt convictions about how the world needs to be changed.

Politics has also become more commercial - more professional, more scientific - with its increasing resort to the techniques of marketing and market research. In the old days politicians could only guess from personal contacts and experience how the policies they were pursuing would be received by the electorate of polling day. It was easier to convince yourself that something you really wanted to do would go down well. These days, opinion polls and focus groups leave both sides in little doubt about exactly what voters are thinking and feeling about particular policies. Note, however, that these things give the public’s opinions a constancy and stability they don’t possess. In earlier times, qualitative research was use to help politicians shape arguments to sell the policies they wished to introduce; these days, the lifetime professional-career approach to politics makes it a lot more tempting to use qualitative research to decide what your policies should be.

It also makes it tempting to confirm to the media’s whims if that’s what’s needed to connect with the electorate. Politicians now spend a lot more time inspecting disaster sites, getting in on the story, demonstrating their authority and their concern - and otherwise wasting time. Politicians and their bureaucrats devote a lot of time to coming up with minor ‘announceables’ to feed to the ever-demanding 24-hour news machine and fixing the problems of particular individuals whose case attracts the media’s attention.

Even so, it’s misguided to see politicians as innocent victims of the demanding media machine. To a great extent the media are open to being used as a tool by governments and interest groups. All governments and oppositions see ‘media management’ (read, manipulation) as a major part of the successful performance of their jobs. I don’t believe it was merely to oblige the media that politicians moved to a presidential style of politics; it suited the politicians’ marketing objectives just as it suited the media’s needs for personalisation. Similarly, it’s the politicians who choose to humanise themselves by being accompanied by their spouse and children on the campaign trail or being interviewed at home by a women’s magazine. Politicians and interest groups happily exploit the media’s disinclination to critically examine claims that are bad news before shouting them from the rooftops, such as that some proposed government measure will destroy 10,000 jobs. In moments of weakness some politicians have explained that keeping the media regularly fed with minor announceables keeps them too occupied to have time to go digging for their own, possibly less favourable stories.

Politicians have long understood that, in politics, the perception can be just as important as the reality. Their new-found access to knowledge of exactly how the public perceives policy questions can tempt them to concentrate on manipulating perceptions while neglecting to attend to the reality of government performance - which, if allowed to deteriorate too greatly, won’t fail to register on the public’s perceptions about a government’s competence.

I suspect the growing careerism in politics has caused the fight for office to become more intensely competitive, prompting politicians to seek short-term advantage at the expense of their profession’s long-term credibility with the electorate: to be more willing to make and break election promises, find deceptive ways of expressing things and take the fight into areas formerly held by tacit agreement to be off-limits, such as immigration and asylum seekers. The politicians themselves must accept most of the blame for this aspect of the dumbing down of the policy debate.

But let me finish by saying that, in some ways, the media discussion of politics and policies is richer than ever before. As part of its effort to compete with the greater immediacy of the electronics - and perhaps also in response to a much better educated and more economically literate audience - the quality press devotes a lot more space to commentary and analysis than it used to, and only a portion of this is the mere assertion of intemperate opinions. Much of it is analysis of policy issues by specialist journalists or academics. Then we have the media’s opinion websites, plus the universities’ The Conversation website, and any number of blogsites - both local and international - where academics and other erudite souls debate policy issues at a level of sophistication much higher than in any newspaper. The politicians themselves may not be conducting a very edifying policy debate, but if that’s what you want you can find it without too much effort.

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How influential are (economic) journalists?

Australian Conference of Economists, Canberra
Wednesday, July 13, 2011

I take my title, How influential are journalists?, to be a reference to economic journalists, particularly economic commentators. My answer has changed little since a paper I wrote on the topic was published in the Australian Economic Review in 1995: not nearly as influential as you might imagine. But in preparation for defending that view, let me make a few clarifying points.
First, economic journalists distinguish themselves sharply from business (formerly known as financial) journalists. We write about macro and micro issues, they write about the adventures of listed companies.

Second, economic journalists - those who specialise in writing about macro and micro issues, and usually bring some university-level economic training to bear - are relatively rare. There are a few at the ABC (eg Stephen Long), but most work for the quality press.

Third, the economic content in the press can be divided into reporting of news and commentary on that news. News covers such things as ABS statistics, RBA announcements and speeches, speeches by the treasurer and treasury heavies, government reports, the budget and mid-year reviews, and developments in financial markets. Most of that economic reporting is done from the Canberra press gallery. This means that, in practice (and unlike in the US and elsewhere) economic journalism tends to be a specialty within political journalism, making it more focused on political economy issues. Except for the quality press, much economic reporting is done by political reporters - which means, for instance, that if the opposition seems to be making political headway in criticising deficits and debt, the political journalists will take it a lot more seriously and uncritically than economic journalists would. Issues are judged on their political potency, not their economic merits.

Fourth, the role of the news media is much misunderstood by many people. They assume the media’s role is to give their audience a balanced picture of what’s happening in the world beyond people’s personal experience. In fact, because the media is directly or indirectly selling its news, we limit our reporting of what’s happening in the world to those things we believe our audience will find particularly interesting. This imparts considerable biases to what we report: we pay a lot more attention to bad news than good, to problems rather than solutions, and to conflict and controversy (so that, for instance, dissenters from the dominant view on climate change among scientists get a lot more space than their numbers warrant). The media are more interested in people than concepts, and more interested in concrete case studies than abstract principles. In political and economic reporting there is much resort to ‘race-calling’: which side’s doing well in the polls and which isn’t, which leaders are secure and which under threat; which economic indicators are up this month and which are down (or, for the share market and the exchange rate, which are a bit up or a bit down today). The media tend to pander to what they assume to be their audience’s prejudices: so rises in interest rates and the dollar are always good, falls are always bad. Deficits are always bad, surpluses are always good.

So, how influential are economic commentators? Well, not sufficiently influential to discourage their editors from the eternal race-call. They try to discuss indicators in a longer and broader context, but fight an uphill battle. Similarly, they stand against the political journalists’ misconceptions (eg references to the budget deficit as ‘Australia’s deficit’; the notion that the carbon tax package’s funding shortfall of ‘$4 billion over four years’ is a huge discrepancy, or belief that a budget surplus of $1 billion is significantly different from a deficit of $1 billion), but in this they don’t seem to have any impact on the political journalists’ judgements. They don’t have much success in resisting pressure for unending idle speculation about the timing and direction of the next move in the official interest rate.

Economic commentators, in sharp distinction to political commentators, don’t hesitate to take a position in the policy debate and to campaign for particular policies. It’s intended to be a constant and logically consistent position - not one that keeps adjusting so that whatever a government does can be criticised - based on their school of economic thought and personal values, not on partisan loyalties. The bane of an economic commentator’s life is people always trying to consign him or her to a party-political box. In the past most of them have tended to be pretty orthodox in their views - pretty rationalist - but some of us have been trying to offer a wider range of views. The commentators’ paper’s emphasis on race-calling means macroeconomic issues tend to crowd out microeconomic issues, which are often more important. The journalistic profession’s obsession with timeliness - with never being ‘off the pace’ - limits their ability to continue pursuing issues once the political caravan has moved on.

Economic commentators are not great original thinkers. They don’t keep up with the literature. As with most economists, most of the arguments they mount and policy solutions they espouse are pretty derivative. I’ve never deluded myself I’ve been giving the pollies policy advice that was significantly different to and superior to the official advice they were getting. Economic commentators spend a lot of time talking to senior econocrats, and much of what they write echoes the views of the particular econocrats they talk to. They don’t talk to academic economists as much as they probably should, mainly because so few academics keep up with the policy debate. My emphasis has been more on explaining economic policies to my readers than on telling pollies or central bankers how to run the country. And these days I’m trying to offer my readers a critique of economists and economics.

One factor that hugely limits the influence of economic commentators is that all of us read more for reinforcement of our existing views than for enlightenment. We generally avoid reading the opinions of people we know we’ll disagree with, though psychological studies find that, where we do persevere with an article that doesn’t fit with our views, it serves only to confirm the rightness of those views.

I guess that where the economic commentators all sing the same song, a song that’s being sung also by the econocrats and many academics, and we go on doing that for long enough, it is possible to make certain views the conventional wisdom among elite opinion. Of course, my opinion on the extent of our influence is hardly objective, but from my perspective it’s pretty limited.

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Far too much economic news for our own good

Ian Macfarlane, the former governor of the Reserve Bank, thinks Australians get too much news about the economy, and this surfeit actually worsens the decisions we make about investments.

At the risk of being drummed out of the economic journalists' union, I suspect he's right. But I'll let him do the talking (he was delivering the Mosman Address at Mosman Art Gallery on Friday night).

Over the past couple of decades the public has been inundated with economic statistics, he says. "The newspapers and magazines are full of economic news, television reporting is saturated with it, there are special radio and television programs devoted to it."

It's true this is a worldwide phenomenon, but it's more pronounced in newspaper coverage in Australia. Foreign visitors often express surprise at how much economic coverage there is in Australian papers, particularly on the front page.

A few years ago the Reserve compared the coverage of central bank monetary policy decisions in three countries: the US, Britain and Australia. It looked at three comparable papers in each country, including The Australian Financial Review, The Australian and The Sydney Morning Herald.

Adding up the number of articles in the three days surrounding two successive monthly monetary policy meetings, it found 35 in the US, 46 in Britain and (wait for it) 131 in Australia. Looking just at articles on the front page, there was one each in the US and Britain, but 14 in Australia.

Why is there so much more economic coverage in Australia than elsewhere? Maybe because there's not much other news to report.

"We are not an international power or trouble spot, we are not engaged in major wars, we do not have racial riots, civil insurrections or sectarian violence. And the private lives of our politicians are not as lurid as British ones (or a recent American president). So instead our newspapers are taken up with recent figures on employment, interest rates, the consumer price index or the budget," Macfarlane says.

[There's an alternative explanation, however. In the US and Britain the link between changes in the official interest rate and changes in mortgage interest rates is quite loose, whereas here it's direct and immediate.]

"With the media competing so strongly against each other, there is inevitably a bias towards sensationalism. While Australia has a few experienced and thoughtful economic commentators who are world class, it also has a multitude of eager beavers who are mainly concerned with tomorrow's headlines," Macfarlane says.

"They try to extract the maximum amount of coverage out of each ephemeral piece of news - monthly or even daily figures are invested with a significance well beyond their actual information content."

Interest rates don't merely rise, they "soar", the exchange rate "dives" or "plunges" and budgets "blow out". The reader is left with the impression of constant action and turmoil. The recurring television image is of people in dealing rooms or on the floors of futures exchanges shouting at each other.

Another feature, he says, is the tendency to concentrate on pessimistic news. It's the nature of all journalism - not just economic - that its practitioners seek to expose a disaster or a conspiracy.

No one ever wins a prize in journalism by pointing out that things are proceeding relatively smoothly and uneventfully, hence the tendency to find bad news and mistakes in policy, and to label every minor glitch as a crisis (the most overworked word in journalism).

"At the margin I believe all this news tends to make us less confident, less secure and less happy than if we had less of it," he says.

But does all this information make us better at doing our jobs or investing our savings? Macfarlane says a broad range of information is better than a narrower one, but more frequent information about a particular thing may stop us seeing the wood for the trees.

More frequent information also exposes us to the "narrative fallacy" - our need to tell a story about why a movement in an economic variable occurred, even if it's just a small daily movement in the exchange rate or the sharemarket. Often the movement is just random noise, but we can't say that.

Macfarlane says several financial advisers have told him that, among their clients, those who spend the most time tracking daily movements in their portfolio do worse on average than those who review their portfolios less frequently.

Research has shown that most people exhibit "loss aversion" - they experience more unhappiness from losing $100 than they gain in happiness from acquiring $100.

So the more often they're made aware of a loss the more unhappy they become.

If the sharemarket rises by 6 per cent a year that, plus dividends, is a reasonable return. But on average the market would fall on about 47 per cent of days and rise on 53 per cent. This suggests a net fall in happiness despite the satisfactory return. Reviewing the market monthly rather than daily would produce a smaller proportion of losses, making us happier.

Behavioural finance research shows that, because we suffer from myopia as well as loss aversion, investors who get the most frequent feedback take the least risk and thus earn the least money.

In listing the false signals given by the rule that two successive quarters of falling real gross domestic product constitute a "technical" recession last Monday, I missed one. No one knew it at the time, but the Bureau of Statistics' latest estimates show the economy contracting by 0.02 per cent in the September quarter of 2000 and then by 0.4 per cent in the December quarter. So, a recession on John Howard and Peter Costello's watch? No, just a stupid rule.

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Claims of stimulus waste were greatly exaggerated

Media reporting and opposition politicking have left many people with the impression much, if not most, and maybe even all of the billions spent on school buildings under the Rudd government's stimulus package has been wasted.

It's an impression based on the piling up of unproved anecdotes about waste or rorting of particular school building projects. Which means it's an impression that's not genuinely "evidence-based".

Enough anecdotes have been produced to demonstrate that some degree of waste has occurred. But that's hardly surprising: there's a degree of waste involved in most spending, public or private.

The real question is how significant that waste has been. And no amount of piling up of unproved allegations can satisfactorily answer that question. Only a thorough investigation of the complaints can determine the extent of the waste and the reasons for it.

It's important to understand - as most people don't - that news reporting practices aren't intended to give us a representative picture of what's happening. Indeed, what's "newsworthy" is often quite unrepresentative.

News focuses on the unusual not the usual, the bad news not the good, the contentious not the widely accepted. (That's why climate change-denying scientists get a degree of media publicity out of proportion to the relevance of their qualifications or how representative they are of scientific opinion.)

This is why you wouldn't expect the media to do justice to the reassuring conclusions of the independent taskforce established to investigate complaints about the Building the Education Revolution spending.

For one thing, reassurance isn't very newsworthy. For another, any critical comments will be given more prominence than generally approving comments.

But there's more to the school building issue than just the limitations of news reporting. The complaints have been seized upon and played up by elements of the media and others with either partisan or ideological motives for seeking to discredit the use of budgetary stimulus in response to the downturn in our economy prompted by the global financial crisis and the world recession.

These people want us to conclude there was never any threat to the economy, thus making the stimulus spending unnecessary and, as it turned out, quite wasteful. Those with an ideological opposition to fiscal stimulus want us to conclude it NEVER works.

That's why I've read for myself the interim report of the taskforce, chaired by Brad Orgill, and want to give you a balanced account of its findings.

The taskforce was established to receive and investigate complaints about the school building program and to determine whether schools are achieving value for money. So far it has received complaints affecting 254 schools, representing only 2.7 per cent of all schools involved in the program.

Almost all the complaints relate to the part of the program that promised to build and upgrade infrastructure in all the nation's primary schools. The $14 billion cost of this element accounts for almost 90 per cent of the total cost of the program.

It will have delivered more than 10,500 construction projects to more than 7900 primary schools by late next year. About a third of the money is going on multi-purpose halls, almost 30 per cent on classrooms and a quarter on libraries, with the remainder going on covered outdoor learning areas and other things.

Spending of the money is being administered by 22 state government, Catholic and independent school authorities. Although the NSW government accounts for 22 per cent of the projects, it attracted 56 per cent of the complaints. The Victorian government, with a 12 per cent share of projects, attracted 20 per cent of the complaints.

More than half the complaints relate to value for money. "From our investigations to date, the majority of complaints raise very valid concerns, particularly about value for money and the approach to school-level involvement in decision making," the report says.

The report acknowledges - as many of the critics don't - that the primary reason for spending the money was to help counter the downturn in the economy by providing employment for building and construction workers throughout the country. It was also hoped the new buildings would improve the quality of our kids' education.

The report finds the stimulus "prevented many construction organisations from reducing staff or the size of their operations to match an otherwise decreasing workload resulting from the global financial crisis".

But the stimulus motive meant it was important to get the money spent quickly and this involved a trade-off. It meant less time for consultation with individual schools and less choice and customising of projects. That meant a degree of waste and, certainly, dissatisfaction on the part of some schools.

Cost per square metre was very much higher in NSW government projects, mainly because of big project management fees, which were 5 percentage points higher than normal. But these fees are partly explained by the high priority the NSW government gave to getting its projects completed quickly. Those states in less of a hurry incurred lower costs per metre.

The report says that, overall, delivering the projects within the short time-frame to achieve the economic-stimulus objective may have added a premium to normal costs of 5 to 6 per cent.

"Notwithstanding the validity of issues raised in the complaints, our overall observation is that this Australia-wide program is delivering much-needed infrastructure to school communities while achieving the primary goal of economic activity across the nation," the report concludes.

So the impression of widespread waste the media and people with axes to grind have left us with is greatly exaggerated.

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HISTORY, MEMORY AND TRUTH

Talk to Independent Scholars Association, Sydney
July 24, 2010

I’m not a historian, philosopher or even an independent scholar, so I confess I find today’s topic rather daunting. So I’ll make a few general observations and then comment on the topic very much from a journalist’s perspective, which I imagine is the most useful contribution I can make.

I’m old enough to believe there is such a thing as objective truth, if only we could find it. But the truth is elusive. It’s known to God, but we mere mortals merely seek it, never knowing for certain how close we’ve come to it. Of course, in the search for truth some people try harder than others. Plenty of people are happy to give us ‘the truth as I see it’ without making any great attempt to offer a balanced account. It’s often a safe bet that such accounts are far from even-handed. And some of us are happy to repeat that version - sometimes unadorned, sometimes as part of a more conscientious attempt to discern the truth of the matter.

As for memory, it’s highly fallible. Last year I was invited to speak to the annual dinner of the old boys’ association of my school, Newcastle Boys’ High. I did a lot of thinking back to my time at school in the early 1960s, and mentioned to a friend that one of the things I planned to mention was my memory of being in the school playground when the news came through that President Kennedy had been shot. My friend said I’d better check it because he was sure the news came through on a Saturday. I checked and he was right. So what it is that I have such a clear memory of I now have no idea.

The illustrious psychologist Daniel Kahneman, who won the Nobel Prize in economics for discovering behavioural economics, has more recently turned his mind to the study of happiness, particularly the definition and measurement of it. His recent research - too recent to be included in my new book, The Happy Economist - draws a distinction between experienced happiness and remembered happiness. He found that when you ask people how happy they are during an event - a holiday, for instance - you get a different answer to the one you get if you ask them after the event how happy it was. People are generally happier about things in retrospect than they were at the time. Which of the two perspectives represents the truth?

Earlier, Kahneman did a famous experiment that asked people how they felt about their colonoscopy examination, which in those days seems to have been a lot more painful than it is today. What emerged from this was the psychologists’ ‘peak-end rule’. How people felt about their experience was determined by two factors: how it felt at its worst, and how it felt at the end. This meant that doctors could influence how painful people remembered the procedure as being simply by leaving the scope in for an extra minute or so without moving it and making it painful. I think this tells us something about the fallibility and susceptibility of memory.

It’s often said that newspapers provide ‘the first draft of history’. I guess that’s true, but since I imagine many of you refer to newspapers in your research, I want to stress what a rough and ready first draft it is. Newspapers - and the media more generally - offer only the roughest and potentially quite misleading first draft for many reasons. One is the haste with which the first draft is prepared. Media outlets are increasingly understaffed these days and, in any case, journalists are required to produce their reports in only a few hours. Economic and political journalists, for instance, have to summarise the purport of lengthy government reports or budget documents before they could possibly have had time to read them properly.

The more the media turn to ‘breaking news’ - as even the morning newspapers are now doing on their websites - the more they’ll be telling us things that are undigested, ill-considered, incomplete and probably wrong in some respects. That’s true almost by definition. With breaking news, the highest priority goes to getting the news out within minutes of it occurring. In the case of a set-piece event (such as the announcement of a change in interest rates) it has be on the site within seconds. It’s all about racing your competitors, and accuracy runs a very poor second. An editor once said to me that the only way you could produce breaking news was to use the principle: ‘Never wrong for long’. Trouble is, the media are reluctant to admit and correct their mistakes. More generally, they pass judgment too quickly and are reluctant to return to stories they regard as old hat. They’re weak on follow up, often not following stories to their conclusion.

People are always claiming to have been misquoted or misrepresented by the media. The media’s attitude is generally ‘they would say that, wouldn’t they’. And it is true that people say things then, when they see them in the paper for all the world to see (including their boss), have second thoughts and claim to have been misreported. But I’ve been interviewed and reported on by print journalists a few times in my life, and I’ve been quite unimpressed by the results. They’ve not understood what I was on about, they’ve misquoted me or taken me out of context, or they’ve filled in facts without asking me and not got them right.

There may have been a time when newspapers took a pride in being ‘journals of record’, but those days are long gone, even for the broadsheets. Much that transpires - even government decisions - is these days regarded as too boring to waste space on. Newspapers face a lot more competition from the electronic media - radio, television and now the internet - which means they’re often bring their readers news the readers have already heard. They compensate for this by search for new ‘angles’, reporting reaction and by ‘taking the story forward’ - which means they assume their readers already know the basic facts of the story and don’t bother repeating them, or allude to them only well down in the fine print of the story.

But the main thing I want to say to you is that the media simply aren’t in the truth business. You may be seeking the truth, but we aren’t. You’re entitled to expect us to be truthful - that is, to get our facts right and resist the temptation to distort - but not to imagine we’re seeking the truth. We’re not in the truth business, we’re in the news business. We’re literally in the business of selling news. That is, our primary motivation is commercial - to make a profit - not ideological or scholarly. What’s more, humans’ evolutionary drive to compete means that, despite its lack of commercial motivation, the ABC behaves much the same way as its profit-motivated rivals do.

Why aren’t we seeking the truth? Because much of the time the truth is dull. Media owners are dedicated to profit maximisation, and their minions seek to do this by selling a product called ‘news’. What is news? Whatever sells. What sells - what’s ‘newsworthy’ as journos say? Anything happening out there that our audience will find interesting or important, although the interesting will always trump the important. Paris Hilton is interesting but of no importance; the latest change in the superannuation rules is important but deadly dull - guess which one gets more media coverage?


Maybe 99 per cent of what happens in the world is of little interest: it’s the old, not the new; the good, not the bad; the usual, not the unusual. It’s dog bites man, not man bites dog. Much of the criticism of the media rests on the unspoken assumption that the media’s role is to give us an accurate picture of the world around us. We don’t have first-hand experience of much of what’s happening around us and we need the media to inform us.

Sorry, but that’s just not what we do - because we don’t think there’s much of a market for it. Let me tell you a story or two to demonstrate how we select news - how what we do bears no relation to the scientific method that guides so much of what scholars do. Once when I was answering a question at a Treasury seminar in Canberra it occurred to me to say this: when social scientists take a random sample they may examine the sample and discard any outliers that could distort their survey, throwing them on the floor. A journalist is someone who comes along, finds them on the floor and says, ‘these would make a great story’.

Final story: I happened to be in the Herald’s daily news conference in February 2009 on the day Kevin Rudd’s $42 billion stimulus package was announced, with all its (then) $950 cash handouts. We discussed searching for a farmer who’d get $950 because he was in exceptional circumstances, $950 because he paid tax last year, $950 because his wife also works, $4750 because he has five school-age kids, and maybe another $950 because one of the kids is doing a training course. And, of course, he’d have a big mortgage, meaning he’d also save $250 a month because of the 1 per cent cut in interest rates announced the same day. Had we found such a person and taken a good photo of him he’d have been all over our front page. The point is that we were search for the most unrepresentative person we could find. Why? Because our readers would have been fascinated to read about him. It’s reasonable to expect the media to be accurate in the facts they report but, even if they are, it’s idle to expect them to give us a representative picture of the world. They’re not in that business.

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