Job prospects not as gloomy as you may think

I can always tell when people are getting anxious about unemployment - including their own. It's when a journalist thinks they'll be increasing the sum of human knowledge by adding up the number of redundancies announced in recent weeks.

The latest list is Qantas 5000, Holden 2900 (by 2017), Toyota 2500 (by 2017), Forge Group 1470, Alcoa 980, Sensis 800, WA hospitals 250 and BHP Billiton Mitsubishi Alliance 230.

That's more than 14,000, we're told, and doesn't count the expected job loss among the makers of car parts, which "experts" put at between 25,000 and 50,000. To this you can add declining job opportunities among public servants - though no one seems to worry much about them.

There are two tricks in exercises such as this. The first is that although 14,000 or even 64,000 may seem huge numbers, they're not. Most people have no feel for just how big our economy is. Those figures have to be seen in the context of a total workforce of 11.5 million people, which grows by 170,000 in an average year, or more that 14,000 a month.

Most people have no idea how much turnover there is in the jobs market. Every month tens of thousands of people leave their jobs and a similar or bigger number take up new jobs. The economy is in a continuous state of flux.

The second trick is that the media only ever show us the tip of the iceberg. We're told about only a fraction of the things that happen. Only a fraction of them are announced to the media, so most of what happens goes unreported. And among all the things that are announced, the media select just a few of the juicier items to tell us about.

The items they select tend to be the bigger and badder ones. News that a new business has just hired 100 workers may get reported somewhere - probably in the local rag - but it won't get the trumpeting Qantas' announcement did.

So we're told about the big job losses but not the small losses and almost nothing about the job gains, big or small - even though we know from the official statistics that the gains usually outnumber the losses.

When people hear news reports about redundancies at this factory and that, many conclude we must be heading for recession. This time it ain't that simple. After a record 21 years since the severe recession of the early 1990s, we're overdue for another one and, with the economy quite weak at present, it wouldn't be impossible for us to slide into recession this year.

But the explanation for the planned job losses we're hearing so much about isn't a downturn in the economy, it's continuing change in the structure of the economy - the size of some industries relative to others.

Much of the pressure for structural change is coming from advances in technology, particularly the digital revolution. It's this that's turning the newspaper industry inside out - no one seems to shed many tears over us - and is in the early stages of cutting a swath through retailing.

In Qantas' case, it's still making the painful adjustment to the deregulation of airlines initiated by Jimmy Carter in the 1970s, combined with management incompetence and union intransigence.

But the biggest source of structural change is the resources boom and the likely permanent rise in the dollar it has brought about. People tell you it's all behind us, but when the mining industry's share of the economy doubles to 10 per cent in the space of a decade, the adjustment this imposes on the rest of the economy is profound and protracted.

Clearly, these forces for structural change are beyond the control of any federal government, Labor or Coalition. The truth so many people find so hard to accept is that there isn't a lot we can do about them except ride them out.

In its impotence, the Abbott government is claiming its plans to remove the mining and carbon taxes will be a great help. Only the one-eyed would believe that. Labor has sunk to the depths of attacking the government for its failure to protect Australian jobs and demands to see its "jobs plan". What's Labor's jobs plan? Maintain the handouts to crumbling industries.

It's seeking to exploit the fears of people who are uncertain about where it's all going to end. Well, last week Dr David Gruen, of Treasury, published projections of the various industries' shares of total employment in 16 years' time, 2030.

I must warn you these figures come with zero guarantee. Just because you're smart enough to turn the handle of an incomprehensible econometric model doesn't mean you know any more about what the future holds than the rest of us.

Surprisingly, the projections suggest manufacturing's share of total employment will decline by only a further 1 percentage point. Similar declines are projected in transport and warehousing, construction and (thankfully) financial services. The biggest relative employment decline would be in wholesale and retail trade.

Utilities, media and telecommunications, and, surprisingly, mining are projected to experience minor declines in their shares of total employment. Agriculture's share may rise by a percentage point, while that of education and health may rise by more than 1.5 points, and professional and administrative services by almost 3 percentage points.

We won't all be dead.

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Why voters seen the economy as in bad shape

Despite last week's excitement, Julia Gillard's early announcement of the election date is unlikely to change much. It's certainly unlikely to change many voters' perceptions on a key election issue: her ability as an economic manager.

It's long been clear from polling that the electorate doesn't regard the government as good at managing the economy.

Why this should be so is a puzzle. As Gillard rightly claimed last week: "As the global economy still splutters, unlike the rest of the world we have managed our economy so we have low inflation, low interest rates, low unemployment, solid growth, strong public finances and a triple-A rating with a stable outlook from all three of the major ratings agencies."

I've said elsewhere that part of the reason for this yawning gap between perception and reality is that many people's perception of how well the economy's being managed proceeds not from independent observation but from their political alignment. Once I know who I'm voting for I then know whether or not the economy's travelling well.

But there's another part of the explanation: the public's inability to distinguish between cyclical and structural factors. Most of the bad news we heard last year was structural in nature, meaning it changed the shape of the economy rather than its overall size, adversely affecting some parts but favourably affecting others and having little effect on most.

But such analysis is too subtle for most punters. To them, all news is cyclical: good news means the economy's on the up and up; bad news means it's going down and downer.

Add the media's inevitable predilection for trumpeting bad news, underplaying good news and totally ignoring anything that doesn't change, and structural change can't help but be perceived as an economy in trouble.

The resources boom is the classic case of structural change. It's in the process of giving us a bigger mining sector and bigger non-tradeable services sector, but a relatively smaller manufacturing sector and internationally tradeable services sector.

The mechanism that brings much of this about is the high dollar. It harms all export- and import-competing industries, but benefits everyone who buys imports (which is all of us). It marginally benefits three-quarters of our industries, which are non-tradeable (they neither export nor compete against imports) but do buy imported supplies and equipment.

Now consider the recent performance of unemployment. Over the year to December, the unemployment rate rose from 5.2 to 5.4 per cent.

Admittedly, the rate at which people of working age were participating in the labour force by holding a job or actively seeking one fell from 65.3 to 65.1 per cent. This decline in participation is probably explained mainly by some people becoming discouraged in their search for a job.

Even so, it's surprising people became a lot more worried about unemployment last year. Why did they? Because they get their impressions about the state of the labour market not from the official statistics but from stories on the TV news about people being laid off from factories.

If voters were more economically literate they'd respond to this news by thinking, "Gosh, isn't manufacturing being hit hard by the high dollar - but fortunately I don't work in manufacturing and only 8 per cent of workers do." What many actually thought was: "Gosh, maybe I could lose my job, too."

Thus was a structural problem affecting only a small part of the economy taken to be a cyclical, economy-wide problem.

It's a similar story with the much-publicised tribulations of the retailers, which arise from their need to adjust to various structural problems, such as the inevitable end to the period in which household spending grew faster than household income, and the rise of internet shopping.

With all the silly talk about "the cautious consumer" and with punters blissfully unaware that retailing accounts for only about a third of consumer spending, all the highly publicised complaints of the Gerry Harveys helped convince the public not that the retailers have their own troubles but that the economy must be going down the tube.

Then there's the contribution of the unending fuss about "debt and deficit", in which the government has been completely outfoxed by the Liberals.

Although every economically literate person knows Australia doesn't have a significant level of public debt, the opposition has had great success exploiting the public's ignorance of public finance and of just how big the economy is ($1.5 trillion a year) by quoting seemingly mind-boggling levels of gross public debt.

With much of this argy bargy being reported by political rather than economic journalists - how many times have you heard talk of "the economy's deficit"? - it's hardly surprising the public has acquired an exaggerated impression of the economic significance of the budget deficit.

Ironically, the budget deficit is a case where a cyclical (temporary) problem has been taken to be a structural (long-lasting) one.

But Labor has to accept much of the blame for this bum rap. Rather than standing up to the nonsense the Libs were talking, it took the path of least resistance, purporting to be just as manic as they were. Then came Gillard's foolhardy decision to take a mere Treasury projection of the budget outcome in three years' time and elevate it to the status of a solemn promise.

By now, the voters' majority perception that the economy's in bad shape and Labor isn't good at managing it is deeply ingrained.

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Don't let on, but property crime is down

Wow. Did you see the latest figures for the falling crime rate? Pretty good, eh? What's that, you didn't see the figures? No one told you, eh.

It's true. Despite the best efforts of the federal Minister for Justice, Jason Clare, on Sunday, the Australian Institute of Criminology's latest compilation of statistics got remarkably little attention.

Why? One reason could be that it's old news. Levels of property crime have been falling for a decade. You've long known that, right? If you have, congratulations: you're much better informed than most.

A survey conducted in NSW in 2007 found that more than 80 per cent of respondents believed property crime had been increasing or had remained stable over the past five years. Only 11 per cent said it had been falling.

So why were the media so uninterested? Because they didn't think you'd be interested. They presumed you'd prefer to have your existing beliefs reinforced rather than up-ended. But I prefer to write for the minority who want to be informed rather than humoured.

The figures show falls in all the main categories of recorded property crime - burglary, motor vehicle theft and "other theft" (pickpocketing, bag snatching and shoplifting) - across Australia in 2010.

They also show falls in all the main categories of recorded violent crime - homicide, assault, sexual assault and robbery - other than kidnapping/abduction in 2010. For the latter, the number of cases rose by 39 to 603.

But levels of crime can rise or fall from one year to the next without that proving much. What really matters is whether the longer-run trend is up or down.

The clearest evidence is of a long-run decline in recorded property crime. The number of burglaries reached a national peak of almost 440,000 in 2000, and has since halved to fewer than 220,000 a year.

The number of motor vehicle thefts reached a peak of 140,000 a year in 2001, and has now fallen by 61 per cent to below 55,000 a year. Other thefts peaked at 700,000 a year in 2001, but are now down by a third to almost 460,000 a year.

If you allow for our rising population - up by a per cent or so a year - the decline in the rate of property crime is even greater.

So, as I say, it's clear property crime has been declining for a decade. For violent crime the trend isn't as clear - except for robbery, the property crime with violence. Robberies reached a peak of almost 27,000 in 2001, but have since fallen by 44 per cent to below 15,000 a year.

It's hard to detect any trend in the level of kidnapping and abduction, though the rate is very low: 2.7 incidents per 100,000 population. You wouldn't expect to see a trend in homicide, the rate of which is also very low: 1.2 incidents per 100,000 population. But after being well above 300 a year until 2006, it's been below 300 a year since then.

No trend in the number of assaults is visible to the naked eye, but the rate of assault seemed to peak in 2007 at 840 victims per 100,000, and is now down to 770 per 100,000. If this trend is confirmed, it will be because police have begun targeting the worst-offending licensed premises.

It's estimated only about half of all sexual assaults are reported to police. The number of recorded sexual assaults rose markedly between 1996 and 2008 to 20,000 victims a year - perhaps because of growing willingness to report offences - but though the arithmetic says the rate of sexual assault has been falling modestly since 2006, I'm not sure I believe it.

So why has property crime been falling? When the decline was first observed in the early noughties, much of it was attributed to a shortage of heroin, which led to a decline in its use and, hence, a fall in thefts by heroin addicts.

That seems true enough, but though heroin prices and purity stabilised in about 2004, the fall in property crime continued. Obviously, there must be more to it.

Most criminologists believe the amount of property crime is linked to the state of the economy. Unemployment has fallen and average weekly earnings have risen in real terms since the start of the noughties, so this may well help explain why people have been less inclined to take stuff that doesn't belong to them.

Another part of the explanation for which there's solid evidence is an increase in the proportion of property offenders who are imprisoned. The story here is not so much that tougher sentences are a greater deterrent, but that the more time you spend behind bars, the less time you're able to practise your nefarious profession.

And there are other possible explanations which, though untested by researchers, seem plausible. One is increased police effectiveness. They've been pushing hard on repeat offenders and also shifting their resources to crime hot spots at "hot" times of the day or night. Their crackdown on pubs and clubs with the worst records of assaults is a case in point.

A further possibility is that success breeds success. The more the incidence of crime falls while the number of coppers remains stable or rises, the easier it ought to be to catch offenders. As for motor vehicle theft, it's likely improvements have made cars harder to pinch than they used to be.

I finish with an appeal: you may prefer to know the truth, but keep it to yourself. Please don't spoil the fun of those who like to imagine they could be swept away at any moment by the rising tide of crime.

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Talk to Fairfax employment group, Sydney, 6.2.12

I want to say a few words about the outlook for the economy in general and employment in particular, but before I do I have to issue a standard consumer warning: economists have a very bad record in forecasting what will happen in the economy, so you’d be wise not to take a blind bit of notice of anything I say.

But let me give you my prediction: the economy’s performance this year is likely to be just a fraction below average, but it will feel a lot worse than average - particularly when it comes to employment. Why? Because the media will be making it sound worse than it is.

Let’s start by talking briefly about the overseas situation. We’ve heard a lot about the troubles of the euro area - and those troubles are very real - but the forecast I’m about to give and all the forecasts we’ve been hearing lately are based on the assumption the Europeans muddle thru: they go through a period of significant weakness, where they’re a drag on the rest of the world economy, but they don’t implode and become a major restraint on world growth. In recent days the situation in Europe has been looking a bit better - a bit less like it’s about to implode - which is nice, and may it continue. Even so, the risk of things in Europe turning really bad is still uncomfortably high.

Around the middle of last year there was a lot of concern about the weakness of the US economy, but it’s been looking a bit better in recent times - not brilliant, but growing fast enough to slowly reduce unemployment. So that’s good.

In such a world - but, of course, with China and the rest of developing Asia still growing quite strongly - the outlook for us, which the Reserve Bank is likely to announce later this week, is for the economy - real gross domestic product - to grow by 3.25 per cent this year. This is the economy’s long-run rate of growth. Where will the growth come from? Particularly from the huge surge in business investment spending on the construction of new mines and, especially, natural gas facilities. But also - and contrary to anything you might have heard - from reasonably strong consumer spending. It used to be true that households were increasing their rate of saving, but it hasn’t been true for some time. The rate of household saving has been steady at 10 pc of disposable income for about a year, meaning consumer spending must being growing at the same rate as disposable income is growing. If you find that surprising, it may be because you’re confusing consumer spending with retail sales. Retail sales have been very weak, but they account for only about a third of consumer spending.

The labour force grows by a percent or so every year thanks to natural increase and immigration, so employment has to grow by that much just to hold unemployment steady. Normally growth at the average rate of 3.25 per cent a year would be sufficient to hold unemployment steady, but employment grew unusually strongly in 2010, and since then a lot of employers seem to have been holding off hiring more workers, allowing their existing workers to work more hours, but waiting to see what happens to the economy. If they keep thinking this way it seems likely the unemployment rate will slowly creep up, from its present 5.2 pc to about 5.5 pc in June and maybe 6 pc by December. That wouldn’t be good, but remember that an unemployment rate of between 5 and 6 pc is still a lot better than we experienced for most of the past 20 years. And 5 pc is getting towards the lowest point the Reserve Bank will allow unemployment to fall to because of its concern to keep inflation under control. As the unemployment rate falls close to 5 pc or lower, the Reserve starts to raise interest rates; if it starts rising towards 6 pc the Reserve starts cutting interest rates. It did that twice towards the end of last year, and if it doesn’t cut them again tomorrow, most economists are confident we’ll get more cuts this year.

Just because unemployment is likely to rise a bit doesn’t mean no new jobs will be created. For a start, and as we’ve just seen, total employment can still grow modestly even though unemployment is drifting up. Only if unemployment is shooting up is it likely that total employment is unchanged or falling. But, in any case, there’s a further point to understand - one that’s very important to the job you guys are doing. The figures the media quote each month for employment and unemployment are figures for the net change between this month and last month. If total employment around Australia is up by, say, 35,000, it’s easy to jump to the conclusion that only 35,000 positions were filled during the month; every existing worker stayed in their job, and they were joined by 35,000 more workers, presumably coming from being unemployed. Fortunately, it’s not like that. The truth is that, on average, every month about 370,000 people leave their employers and about the same number take up jobs with a new employer. So when the figures tell you employment rose by 35,000 last month, what this actually means is that the number of people taking up new jobs exceeded the number leaving jobs by 35,000. In other words, there’s huge turnover in the job market every month - even in the depths of a recession - even if the net change in total employment isn’t very big - in either direction. If you think that figure of 370,000 is so huge it’s hard to believe, you’re forgetting how big the workforce is. It’s almost 11.5 million, meaning about 3 per cent of workers leave their jobs every month - to get a better one, to have a baby, to retire, to go on an extended overseas trip, or whatever. My point is, don’t think just because employment is likely to be growing only slowly and unemployment to be creeping up, there won’t be many potential customers for you. There should be.

Finally, I said the economy wouldn’t be too bad this year, but the media will be making it sound worse than it is. Why do I say that? Because the media, knowing we regard bad news as a lot more interesting than good news, will be doing what it always does: emphasising the bad news about the economy and not saying much about things that are going OK. But I suspect there’ll be a special reason this year. The very high dollar is making life particularly tough for manufacturers, the tourist industry and overseas-student education. Some employers have been laying off workers, and it’s a safe there’ll be more. It’s an equally safe bet those lay-offs will be highly publicised by the media. This is likely to create the impression in people’s minds that the jobs market is a lot weaker than it actually is - for three reasons. First, people don’t realise how big our economy is, so they’re more impressed by relatively small numbers than they should be. Last week Toyota announced its intention to reduce its numbers by 350. That seems a lot, but beside the third of a million workers who leave their jobs every month it’s a fleabite. Second, you wouldn’t know it from the way the media talk, but the high dollar isn’t destroying Australian jobs so much as reducing them in some industries and increasing them in others. People may be losing jobs in manufacturing, but employment will be rising in other industries. Such as? Mining and construction, as the obvious ones, but also many parts of the services sector: health care, finance and insurance, public administration, various professions and arts and recreation. Finally, people tend to lose their jobs in bulk, whereas employment tends to increase in dribs and drabs. We get to hear about the big layoffs, but not the individuals being taken on.

All up, it should be too bad this year.

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A dose of reality for people who profit from doom

It's good news week - rumours of the impending death of the economy turn out to be greatly exaggerated. The national accounts for the June quarter provide a salutary lesson on how far popular perceptions can drift from reality.

Three months ago we were told real gross domestic product contracted by 1.2 per cent in the March quarter. This week we're told the contraction was a quarter less than that: 0.9 per cent.

That contraction was fully explained by the temporary effect of floods and cyclones. This week the temporary nature of that setback was confirmed - the economy rebounded to grow by 1.2 per cent in the June quarter.

Note that part of this rebound is purely arithmetic: had the economy not gone down in the March quarter it wouldn't have come back up as much in the following quarter. So it would be mistaken to imagine the economy was travelling at the annualised rate of 4.9 per cent (roughly, 1.2 x 4) in the quarter.

Despite the clearly temporary nature of the contraction, it fed into an increasingly negative mood about the state of the economy. The retailers were doing it tough because consumers were worried about so many things - the carbon tax, interest rates, uncertainty about the North Atlantic economies - and so were saving rather than spending.

You could see this from the way the indicators of consumer confidence kept falling. As part of this consumer caution, not many people were buying new homes.

Then there were the manufacturers doing it tough and laying off workers because of the very high dollar.

In short, the miners and the mining states might be coining it, but all the rest of us in the ''non-mining economy'' were just about stuffed. Turns out most of that was nonsense. Some of it was true - the retailers and manufacturers are doing it tough and housing activity is weak - but those three sectors account for less than 20 per cent of the economy, not the 90 per cent that is the so-called non-mining economy.

The rest we imagined. The media did its usual thing of trumpeting the bad news and playing down the good news but this fell on unusually fertile ground, to mix a few metaphors. The Gillard government's doing a terrible job, therefore the economy's stuffed. That's logical, isn't it?

This week we got a bulletin from the real world. Turns out that though real retail sales grew by just 0.3 per cent in the quarter and 0.6 per cent over the year to June, real consumer spending grew by a healthy 1 per cent in the quarter and a bang-on-trend 3.2 per cent over the year.

Huh? How did we get it so wrong? Well, we took too much notice of the retail sales figures simply because they come monthly, forgetting they account for only about 35 per cent of total consumer spending.

Retail sales cover mainly goods - what they don't cover is mainly services. In recent times our spending preferences have shifted away from goods and towards services. When that happens, the retail sales figures give you a bum steer.

Our other mistake was to take too much notice of the fall in consumer sentiment. It proved a dodgy guide to actual consumer spending. Both these things have tricked us many times before.

The punters know no better and, though it pains me to admit it, the media have a vested interest in not querying a bad-news story. But there's no excuse for the business economists - for them it's professional incompetence. Proof they're not as rational as their model assumes all of us are and not impervious to the popular perceptions around them, as their model also assumes.

This week's figures also reveal a tiny fall in the rate of household saving to 10.5 per cent of household disposable income. Though the ratio is notoriously volatile, this raises the possibility that households have got their rate of saving up to where they want it.

This, in turn, raises another point of arithmetic - it's not a high rate of saving that causes weak growth in consumer spending, it's an increasing rate of saving. Once the rate has stabilised, consumption must grow as fast as household disposable income is growing.

And despite all the phoney I-know-you're-doing-it-tough rhetoric coming as both sides of politics feed back the whinges they hear from their focus groups, the accounts confirm household income is growing particularly strongly - by a nominal 7.5 per cent over the year, way ahead of inflation.

That strong growth comes from a combination of healthy growth in employment (more household members with jobs) and somewhat excessive growth in real wages given our weak rate of productivity improvement.

Both factors are evidence most of us aren't doing it tough.

Part of the narrative of the resources boom is that growth will come more from business investment spending (as we build a lot more mines) than from consumer spending. That wasn't true this quarter. Why not? Not because business investment was weak - it wasn't - but because consumer spending was both strong and accounts for a much bigger share of GDP than investment does.

The other side of the non-mining-economy-is-stuffed proposition is that pretty much all the growth in the economy is coming from the mining sector. As a general proposition, there's no doubt the mining, mining-related and heavy construction industries are growing strongly. But, according to the accounts, that wasn't true in the June quarter. As Kieran Davies, of the Royal Bank of Scotland, has pointed out, with the output of mining proper going backwards during the quarter, the output of the so-called non-mining economy grew by 1.3 per cent, more than accounting for the growth of 1.2 per cent overall.

That's the bit people have convinced themselves is stuffed.

Why isn't mining growing? Because a lot of the flooded Queensland coalmines are still not back to production. But this, of course, is temporary. As they come back on line in the second half of this year they'll give GDP a one-off boost.

You have to be careful not to read too much into the quarterly national accounts, which are subject to frequent revision.

But you have to be even more careful not to be misled by those who cry loud and long about how tough things are. They're probably exaggerating (or being exaggerated by a bad-news obsessed media) while those who are doing fine say nothing.

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Trust makes the world go around, honestly

What does Britain's phone hacking scandal have in common with its earlier scandal over parliamentary expenses and with the failure of several of its banks during the global financial crisis? As Jonathan Tame, of Britain's Relationships Global, has observed, all three events shake the trust the Brits can have in key institutions of their democracy. The latest scandal raises questions about the trustworthiness of the press, the government and the police.

Sometimes you don't appreciate the importance of things until you're threatened with their loss. Of nothing is that truer than trust.

''Every society is built on trust, and every person needs to be trustworthy,'' Tame says. ''Yet greater integrity is expected from politicians, the police and the media, which is why their failure to meet the public's ethical standards is so distressing.''

Why is trust so important? It's what prevents us from having to do everything ourselves. Trust is believing someone else will act correctly. It enables us to hand our children over to teachers, give our vote to a politician, relax while the pilot flies the plane, put our money in a bank account and share the roads with other motorists.

''We do these things without anxiety because we believe that the others involved share our values, will act responsibly and look after our interests,'' Tame says.

''With any loss of trust, relational capital diminishes. Society becomes poorer as more time is taken drawing up detailed contracts and regulations, more funds are spent on security, surveillance and policing, and health declines because people grow more anxious.''

Mark Scholefield prepared a study on trust for the Relationships Foundation. He says trust allows us to share information and responsibilities for our mutual benefit, while giving us the freedom to get on with our own work and life without worrying too much about the part others play.

''We probably cannot live without some degree of trust,'' Scholefield says. ''Our lives and relationships are too complex to monitor and control completely.''

Trust involves reciprocity. If I trust you, you're more likely to trust me. If you trust me, I'm more likely to live up to that trust. Assume I'm untrustworthy and I'm more likely to conform to your expectations.

But to abuse another's trust is often to end your relationship with them. You can cheat someone with impunity if you're never expecting to see them again. If you're planning to stick around, however, the best strategy is to behave in a trustworthy manner. It's intolerable not to be trusted and equally intolerable not to be able to trust the people around you.

Trust is closely linked to reputation. Whether you're a business, an employee or just a friend, it pays to build a reputation for trustworthiness and reliability. In the modern world we deal with so many people and organisations we don't know that we're often forced to rely on their reputations.

Richard Bronk, of the London School of Economics, has written that trust is crucial to the success of economic relationships such as those between managers and workers or between companies and their suppliers. And honesty is the essential lubricant to a system of exchange.

''If trust and honesty mean anything it is that these individuals will be motivated by them to suspend the continual quest for personal advantage in certain key situations,'' Bronk says.

If ever there was a case where the quest for personal, commercial and party advantage is damaging our trust in politicians and the media it's the unending brawling over the carbon tax.

It seems the public's trust in Julia Gillard will forever be tainted by the manner in which she came to power. She's not the first or the last politician to break a promise - in this case her promise not to introduce a carbon tax during the present term - but her failure to apologise and adequately explain her reasons for doing so is undoubtedly compounding the loss of trust in her.

Nor will it be helped by her use of taxpayers' money to pay for an advertising campaign to sell the carbon tax before it has become law. In opposition, Labor bitterly attacked the Howard government's abuse of public funds for such purposes; now it's doing the same. In the heat of battle, the possibility of short-term benefit outweighs the risk to the reputation of politicians in general and Labor in particular.

Scare campaigns - where politicians prey on the fears of insecure and ill-informed voters by greatly exaggerating the likely consequences of the other side's policies - are accepted by both sides of politics and the media as a legitimate tactic.

It's always a lot harder to explain a complex policy than it is to put the frighteners on the punters but Tony Abbott's gross misrepresentation of the carbon tax's effect on prices, employment and whole industries exceeds all records in effectiveness and dishonesty.

I would never have believed one politician could, by all his reckless claims, stop retail sales in their tracks as frightened punters close their purses in fear for their futures. Why the retailers aren't tearing him apart I don't know.

Do his fellow Liberals and their supporters imagine there will be no backlash when voters eventually realise just how much they were wound up?

But is the media working to help their perplexed customers discern the truth of all the claims and counterclaims? Too many of them are playing the controversy for all it's worth, trumpeting the claims of interest groups that are undocumented and untested. Some are motivated by partisanship, almost all by commercial advantage.

Do they, too, imagine this abuse of the public's trust will go unpunished? What's happening in Britain says otherwise.

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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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Our media roasts old chestnuts

If a genie appeared from a bottle and offered me one wish, I'd choose to be a columnist on a major newspaper. So I guess you could say I love my job. But there are times when I feel compelled to warn people to be careful about what they read, hear and see in the media.

Many people assume the media give them a representative picture of what's going on in the world beyond their own experience. But this is a misunderstanding of the role of the news media and the nature of "news".

The media select from all the things happening in the world only those things they consider "newsworthy" and thus worth drawing to our attention. What is newsworthy? Anything the media believe their audience will find interesting and nothing they fear the audience will find boring.

What's interesting? Anything unusual. But also anything threatening. It's perfectly clear that people find bad news more interesting than good news, which is why the media give prominence to things that are going wrong and say little about things that are going well.

Most of what's happening in the world is highly predictable and terribly ordinary. This means much news is selected because it's unrepresentative. So there's a high risk it will leave people with a mistaken impression of what's happening in the world.

Journalists like to believe everything they report is new. In truth, it's often just a new example of a familiar story, one the journos know the audience loves to hear again. Sometimes a new, offbeat angle is ignored so the story can be forced to fit a tried-and-true formula.

A lot of news is selected because it will appeal to the audience's prejudices or stir people's emotions in the way they like to be stirred. Consider some recent examples from my field of economic news.

There has been much indignation over the Keneally government's decision to change the tax on poker machines in hotels, with suggestions of undue influence by the Australian Hotels Association. About 60 per cent of hotels with pokies - those that don't make much out of them - will now pay less tax or even no tax.

You have to read the reports carefully to discover the changes are actually "revenue neutral", meaning the savings to the 60 per cent of hotels will be exactly offset by the higher tax paid by the remaining 40 per cent, leaving the government's total revenue unaffected.

Rather deflating of the righteous indignation, don't you think?

The media make no pretence of being bound by the scientific method. Economists are always being reminded not to draw general conclusions from anecdotal evidence rather than economy-wide statistics.

But the media are tellers of stories. They're the industrialised equivalent of cavemen sitting around the fire at night swapping yarns. The telling of stories about other people meets one of our most primitive human needs.

What it doesn't do, however, is give us an accurate picture of what's happening in the world. Take all the stories we're hearing about waste in the Rudd government's program to stimulate the economy by constructing a new building at every primary school.

News gathering is selective. People with complaints of waste - justified or otherwise - have had no trouble getting publicity. People without complaints don't bother approaching the media. And where reporters have encountered people saying everything was fine, these facts would have been ignored as "not news".

There have been enough anecdotes to convince me waste has been a significant problem. The real question is: how significant? What proportion of schools has experienced wastefulness? What proportion of the government's spending has been wasted?

No number of examples of alleged waste can answer these questions. What they can do is cause people who don't understand the biases involved in news gathering to gain the impression "the waste has been huge" or even "all that money has been wasted".

The one thorough report we've seen so far came from the federal Auditor-General. It was critical, but far from damning. One of his findings was that 95 per cent of school principals agreed they were confident the funds "will provide an improvement to my school, which will be of ongoing value to my school and school community".

Every year since 1997 the Reserve Bank has published an annual survey of the fees banks charge to their business and household customers. And every year the media turn the survey results into the same much-loved story: huge increase in the fees banks rip from you and me.

This year, however, the story tended to be relegated to the business section, though the same formula was used: huge increase in the fees banks charge businesses.

You had to read the reports carefully to get the real story: last financial year the fees the banks charged households grew by 3 per cent (the lowest increase since the survey began and far less than the 8 per cent increases in the two previous years), whereas fees charged to business leapt by 13 per cent (far more than in the two previous years).

Most of the growth in fees collected from households came from charges paid by the greater number of people choosing to break their fixed-rate mortgage contracts, but this was largely offset by a fall in banks' income from transaction and account-keeping fees. Much of this was explained by the banks' offers to waive fees to people who made regular deposits, part of their greatly increased competition to attract deposits.

By contrast, most of the huge growth in fees collected from business came from higher fees to existing customers now considered to be more risky and higher fees on undrawn overdrafts.

The story no one thinks worth writing is that since the global financial crisis, the banks have gone easier on their household customers but harder on their business customers.

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