Let's not go back to politics as usual. It doesn't work.

With life cautiously returning to normal after the great lockdown, it’s time for Scott Morrison – who’s “had a good virus” – to think about where he goes from here. Does he want to be remembered as a single-minded warrior for his Liberal tribe, soon replaced by another scrapper, or as one of our great prime ministers, up there with Curtin and Menzies?

Does he want to cling to office by exploiting our divisions, or by uniting us in common cause? Does he want to deliver for the party base and its big business donors, or for everyone, even those without political clout?

After the shock of winning an election neither he nor anyone else expected him to, then being caught with no plans to do anything much, Morrison has been on a fast leadership learning curve. First his failure to take command of the bushfire crisis, then rising to the challenge of a pandemic for which we were quite unprepared.

Along with the premiers, his popularity has soared. At times of threat, people crave strong, confident leadership, and he has provided it. But as things start returning to normal, will it be back to squabbling politics as usual, as so many smarties are gleefully predicting?

Certainly, that’s where all our politicians’ instincts would lead them, and the media’s love of conflict would want them to be. But if Morrison allows that to happen, all the goodwill and community spirit will be lost – to Morrison’s detriment and ours.

Much has been made of our loss of trust in politicians and governments in recent years, but new polling by the Australian National University shows that, between January and April this year, confidence in the federal government increased from 27 per cent to 57 per cent, with state governments up from 40 per cent to 67 per cent.

This may be explained solely by our need for strong leadership, but I suspect another part of it is the cessation of politics as usual. Morrison has been too busy fighting the virus to waste time badmouthing his political opponents, saying things calculated to mislead, or making promises he can’t keep.

He’s been busy explaining how viruses work, what he plans to do about it and what he needs us to do. He’s been explaining, explaining, explaining. He’s stopped taking shots at the unions because he needs their co-operation. The opposition hasn’t been game to make any criticisms that weren’t constructive.

And we’ve loved it.

The news media are getting far more attention from their customers than usual. That may be because the virus is so new and frightening, but it also suggests the public finds a constant diet of the pollies’ squabbles and misbehaviour less engrossing than the press gallery does. Maybe people might be more interested in sensible discussion of the policies affecting their lives.

The handling of an epidemic and the way we cope with the huge economic cost of the medicos’ drastic remedies have obliged Morrison to rely heavily on his health and economic bureaucrats – the same people he was telling a few months earlier to keep their policy opinions to themselves and just do what they were told.

The ANU polling shows the public’s confidence in the public service has gone from 49 per cent to 65 per cent. Apart from serving the public, the bureaucrats’ job is to keep their political masters out of trouble. Who knew? Another of Morrison’s recent “learnings”.

Like most issues, responding to pandemics is a shared federal-state responsibility, requiring much co-operation and co-ordination – which, except for those holding neatness to be the highest virtue, has not required states with widely varying experiences of the virus to move in lockstep.

I suspect one reason the pollies are rating high is the blessed relief from federal-state bickering and buck-passing.

What all this says is that politics as usual wasn’t working well. The public was sick of it – as demonstrated by the two main parties’ ever-falling share of the vote and the rise of various populist parties.

Those who think there’s no alternative to politics as we’ve grown used to it show their ignorance. It wasn’t always this unedifying. And now Morrison has demonstrated how well he’s doing without it, there’s no reason we should return to it.

There’s no shortage of problems that need fixing, so governments need a big to-do list. They should focus on explaining and defending those programs, leaving no time for denigrating their opponents. They seem to have no inkling of how unpersuasive and off-putting voters find this.

If you don’t want voters to stop listening, stop refusing to give straight answers to questions. Pretend you’re a real person; throw away the talking points. Stop trying to get elected by telling us the other guy would be worse.

There’s always an important role for oppositions to keep governments on their toes. But less of the “they said white so we’d better say black to make us look different”. And, as Morrison has lately demonstrated, it does impress when you under-promise but over-deliver.

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Lack of trust may have made economic reform impossible

Life’s getting a lot tougher for optimists. I’m starting to wonder whether our politics has passed the point of peak economic reform and controversial policy changes are no longer possible.

We keep berating our politicians, urging them to show leadership and have the courage to make much-needed reforms, but they never do. Right now, it’s easy to look at the way Scott Morrison has fumbled the bushfire response, the need to get real about climate change, and even his reluctance to take a stand against blatant rorting of taxpayers’ money, and decide we have a Morrison problem.

But though we’re discovering the miracle election-winner’s various shortcomings, it’s a mistake to think one man is the cause of our reform problem. It’s possible to argue things have got steadily worse in the revolving-door period since the departure of John Howard, but the greater truth is that the problem’s systemic.

It’s hard to think of any major improvements made by five prime ministers over the past 12 years, with the possible exception of the National Disability Insurance Scheme (which we’re still busy stuffing up).

The carbon tax was a significant reform before Tony Abbott abolished it, but Labor had sabotaged its mining tax long before Abbott got to it. Malcolm Turnbull took one look at the great goal of increasing the goods and services tax and realised it was politically impossible without full compensation of low to middle income-earners, but net of compensation it would have raised peanuts.

All this is just the Australian version of similar stories that could be told in most of the other rich democracies. But, sticking with our story, why has it become next to impossible for our governments to make controversial policy changes?

The pollies would tell you it’s because the 24-hour news cycle – the media are constantly demanding to be fed, and will turn to you opponents if you don’t oblige – and the power of social media to set hares running that have to be chased. This now gets so much attention from ministers and their staff they have little time left to get on with policy development.

Maybe. A less convenient explanation is the way politics has turned into a lifelong career – from staffer to minister to a late-career job advising big business – leading pollies to worry more about their careers and less about the ideals they espoused in their first speech on entering Parliament.

But however you explain it, there’s little doubt that the life of ministers has become pretty much all day-to-day tactics and no long-term strategy. This both explains and reinforces the long-established trend – which Morrison now freely acknowledges – for ministers to prefer the advice of the ambitious young punks in their office to the advice of their department.

The staffers know about what matters – political tactics – whereas the bureaucrats want to keep banging on about policy and warning you about looming problems. Worse, they’re obsessed by the notion that whatever governments do must be strictly in accordance with the law.

Partly because fixing problems usually costs money, the era of Smaller Government and the politically motivated obsession with returning the budget to surplus has heightened the politicians’ normal temptation to pigeonhole government reports warning about problems that need to be fixed now before they get much worse.

A bunch of former fire chiefs want a meeting to warn about how much worse this year’s bushfire season will be and the need for much more equipment and action to limit climate change? Sorry, too busy with more pressing matters.

Even the idea that politicians should “never waste a crisis” – that you won’t get broad support for unpopular measures until everyone’s up in arms about the actual arrival of the problem – and its corollary – don’t act on the multitude of mere warnings of problems ahead, wait and see which of them actually transpire – seem themselves to have been pigeonholed.

Why are politicians no longer game even to seize the moment to do something real when everyone’s demanding that something be done? Because years of declining standards of political behaviour mean that trust in political leaders is now lower than ever. There’s strong survey evidence of this.

Neither side of politics is trusted to take tough measures that are genuinely in everyone’s interests. It’s got to be a trick. Mainstream politicians are trusted only when they run scare campaigns against the other side’s reform plans. But hope springs eternal that some populist rabblerouser may have the answers.

The more impotent mainstream politicians are seen to be, the more disillusioned voters will turn to populist saviours – and the more the main parties will themselves turn to populist diversions and trickery. Freeing ourselves from this vicious circle won’t be easy.

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How Morrison is putting politics ahead of policy

If you think Scott Morrison’s been busy doing not very much since the election in May, you are much mistaken. In truth he’s been very busy doing stuff of not much interest to you. But sometimes it pays to take an interest in things that don’t seem of interest.

For instance, I wouldn’t expect you to have taken much interest in the reshuffle of government departments he announced on Friday. But I’ve been reading up on it and been amazed – or appalled – by what I’ve learnt.

It’s said to be the most dramatic overhaul of the federal public service since 1987, cutting the number of departments from 18 to 14 while creating four new mega-departments and removing five department secretaries, three of them women.

Morrison said it was not a cost-saving measure, but had been done to “better align and bring together functions within the public service so they can all do their jobs more effectively and help more Australians”.

So be very clear on that: it’s been done to ensure you and I get better service from the public service. Specifically, the number of departments was shrunk so as to “ensure the services that Australians rely on are delivered more efficiently and effectively”.

I just have one problem: that’s what they all say. If Morrison had increased rather than decreased the number of departments, he would still have assured us it would make the public service more efficient and effective.

This is hardly the first time departmental arrangements have been changed. They’re changed after every election and often several times more. Changes are so common bureaucrats have a name for them: MoG – changes in the “machinery of government”.

According to calculations by Bob McMullan, former Labor minister turned academic, more than 200 changes have been made since 1993-94. “In 2015-16, machinery of government changes involved the movement of 8000 staff in 21 separate changes. Changes following the 2013 election, which involved the movement of 12,000 staff, cost an average of $14 million per agency.”

Governments everywhere do it, but research by academics at UNSW’s Canberra campus suggests Australian governments do it far more than others. “Even governments with an emphasis on ‘cutting red tape’ [such as this one] have undertaken extreme and costly MoG changes,” they say.

So why are the latest changes said to be the biggest since 1987? Because that’s when the Hawke government introduced the idea of merging departments into mega-departments. Paul Keating reversed some of those changes and John Howard undid much of the rest. Get it? It’s time to mega up again.

When the changes cause the name of some function to drop out of the ever-longer titles of departments, the interest group invariably sees red. A few years ago it was the scientists, this time it’s the arts. Actually, the arts have never had their own department, but have been shunted from one department to another.

Since Bob Hawke’s day they’ve gone from Environment to Communications, back to Environment, then Regional Development, Prime Minister and Cabinet, back to Regional Development, then Attorney-General’s, back to Communications and now to the new mega Department of Infrastructure, Transport, Regional Development and Communications.

So many MoG changes involve moving functions from one department to another that McMullan has christened them “merry-go-round decisions”. “Responsibility for childcare, aged care and Indigenous affairs (to name a few) have all been the subject of multiple shifts in the past decade. In some cases, the functions have moved out of one department only to return to their original home a few years later,” he says.

He adds that “disentangling financial structures, IT support structures, property responsibilities and HR systems from old organisations and reintegrating them into new ones takes considerable time and effort”.

Former boss of Prime Minister’s Terry Moran’s comment on the latest changes is blunter: “There’ll be turmoil in many departments for a significant period."

So why do the changes keep happening? Partly to create the appearance of progress – “reform”. Sometimes I think the pollies are trying to convince themselves as much as us. But mainly to indulge the preferences, prejudices and professed priorities of the prime minister and his or her ministers.

It’s notable that these extensive changes to the bureaucracy – including the sacking of five department heads – involve no changes to the ministry. The new mega Department of Agriculture, Water and the Environment will now contain three Cabinet ministers, co-equal in power and glory.

What particular preferences and prejudices of Morrison do the latest changes reveal? I think it reveals this government’s disdain for public servants. It’s the revenge of the ministerial staffers (which many ministers started their political careers as). Who needs public servants giving ministers advice when it’s the staffers who understand the politics of the matter?

This is Morrison surrounding himself with the top public servants he knows and likes, replacing the ones who want to keep talking about policy with can-do men and women who don’t argue.

Morrison has repeatedly expressed his belief that he doesn’t need policy advice from public servants. They should just be getting on with implementing the policies the government gives them.

I think this is Morrison perfecting the hermetic seal of his personal Canberra bubble. He already knows what’s on his to-do list and he doesn’t want news from the outside world delaying or deterring him from his purpose.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Insincere, misguided displays of concern make the drought worse

Sometimes I think our politics has got into a vicious circle: the worse our politicians behave, the more of us give up and tune out. But the less we monitor their behaviour, the worse and more lackadaisical the politicians become.

Take the drought. Good politicians would see it as a recurring problem and try to find substantive ways of helping farmers cope with droughts in general; weak politicians settle for giving the impression of being very busy caring and helping – especially when the TV cameras are rolling – while they kick the problem down a country track.

Scott Morrison and his ministers keep announcing (or re-announcing) new measures to help, but the experts – including the National Farmers' Federation - keep lamenting that we don’t have a National Drought Policy and haven’t had one for years. We just keep knee-jerking and ad hocking every time another drought comes along.

So what would a decent national drought policy look like? It would start by reverting to an understanding the Hawke-Keating government established years ago, but has since been blurred: droughts aren’t a “natural disaster” in the way floods, cyclones and bushfires are. For a start, those others are sudden and short-lived, whereas droughts develop gradually, spread over huge areas and can last for years.

As Dorothea Mackellar realised more than a century ago, if you want to be an Australian, regular droughts are part of the deal. Always have been but, thanks to the two C-words we’re not supposed to say, are now likely to become more severe and more frequent. The day may come when not being in drought is the exception.

According to former top econocrat Dr Mike Keating, “the possibility of recurring droughts must therefore be planned for and not just treated as bad luck, for which farmers themselves bear no responsibility”.

The national drought policy of 1992 required farmers to be more self-reliant and absorb the impact of droughts as something to be expected. Many, many farmers have long been doing just that. Some haven’t bothered and they’re the ones getting most care and concern from fly-by-night journalists and politicians.

Everyone wants to “help those poor farmers”, but how should governments do it? John Freebairn, an economics professor at the University of Melbourne, says you can divide government drought support into three categories: subsidies for farm businesses, income supplements for low-income farm families, and support for better decision-making.

His message is that the main thing we should be doing is supporting programs to help farmers better manage the risk of drought and make their farms sustainable. Such support needs to come mainly between droughts – precisely when media and political interest in the topic evaporates.

Although income supplements for drought-stricken farmers raise questions about why they should get help other small-business people don’t, they’re a much more effective way of alleviating poverty than subsidising farmers’ loans, freight and fodder – which is just what federal and state politicians (and volunteer organisations) have been heaping on this time as the ad hockery has mounted.

As Professor Bruce Chapman, of the Australian National University, said this week, “the politics of drought is not only about helping farmers, [it’s] about showing the world – including city dwellers – that the government cares. It does that by giving money away and having lots of announcements.”

But here’s the less-obvious truth recognised by a considered drought policy: the too-ready availability of drought assistance helps create droughts.

How? By reducing “the risks associated with a bad year, and thus encouraging over-cropping and over-grazing. If farmers know that their mistakes will be bailed out, then they have an additional incentive to maintain their herds even when the risk of not having enough feed is quite high. They anticipate that the taxpayer will bail them out if it doesn’t rain, and that they will be able to buy in the additional (subsidised) fodder when they might need it,” Keating says.

Now get this: according to Lin Crase, an economics professor at the University of South Australia, “there is mounting evidence that farm businesses can actually benefit from drought in the longer term. This seems to occur because businesses that go through a drought develop coping strategies that, when invoked in good years, produce much greater profits.”

This doesn’t mean droughts are a good thing, of course, but it does mean that shielding farm businesses from drought runs the risk that they won’t adapt, Crase says. Changing climate suggests that a lot more adaptation – including bigger, more mechanised farms and many more farmers leaving the land – lies ahead.

Sensible drought policy long ago recognised that more dams don’t help, which is why so few have been built in recent decades. That politicians are popping up with plans for new dams is another sign they’re making it up as they go.

John Kerin, a minister for primary industry in the Hawke government, says that while you can fill new dams when you’ve eventually built them, “you can’t keep them full waiting for a drought, or empty waiting for a flood”. Increased stored water will be used to increase irrigation. And increased irrigation in a time of climate change means greater shortages of water in the next drought.

The expertise to respond to drought more sensibly is there. It’s just that our politicians find it easier pretending to fix the problem.

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We’re relying on a government that spurns economic advice

I’m starting to wonder if the trouble with our politicians is that they’ve evolved to do politics but not economics, making them unfit to cope with the economic threats we now face.

On the one hand, they’ve been able to leave the management of the economy to the independent Reserve Bank, whose tinkering with interest rates – up a bit, down a bit – has successfully kept the economy growing for 28 years.

On the other hand, the pollies have been locked in a decade of unprecedented political instability where, since the demise of the Howard government in 2007, no prime minister has been safe from attack – from their own side.

In such an environment, with monetary policy (interest rates) so successfully managing the economy, the budget ceases to be “fiscal policy” and becomes just an instrument of politics.

Because you’re eternally looking over your shoulder trying to spot the next colleague holding a dagger behind his back, you use the budget primarily to shore up your support within the party, rewarding the base and punishing its designated enemies.

Be slavish in feeding the 24-hour news cycle. Keep up the pressure for ministers and their departments to provide a continuous flow of minor “announceables”. Remember, any vacuum you leave will be filled by your enemies (external or internal). If you run out announceables, just slag off your (official) opponents.

Of course, if the punters understood what you were up to, they wouldn’t be impressed. So when you’re trying to shore up the support of big business by cutting the rate of company tax, you keep claiming it’s a “plan for jobs and growth”.

When you’re using an income tax tax cut to buy some popularity at the election, you pretend that economic growth is driven by lower taxes.

The worst of it is, since the things your side really cares about – cutting taxes, preserving tax breaks favouring high income-earners, cracking down on the leaners and loafers on social welfare – are economic measures, you convince yourself you’re really into economics.

And running a budget surplus – that’s economic isn’t it? (No, not when your forecasts of a strong economy have proved way too optimistic and you’re counting on a freak improvement in iron ore prices to get you over the line. Then, it becomes an indulgent stretch for political kudos.)

You don’t actually know enough economics to realise economics is about rolling back rent-seeking and increasing the efficiency with which resources are allocated, at the micro level, and managing the economy through the ups and downs of the business cycle, at the macro level. All the rest is politics.

We’ve come to expect that if the person taking the treasurer’s job doesn’t know much about economics, Treasury will give them a crash course and get ’em up to speed. But former senior Treasury officer Paul Tilley’s new book, Changing Fortunes, leads me to think this no longer happens.

These days, treasurers are so preoccupied by the daily battle for political survival they have little time or interest in economics tutorials. Treasury has got out of the habit of giving the treasurer any advice his staff doubts he’d want to hear. Treasury’s job is largely to supply facts and figures when demanded by the treasurer’s staff.

In which case, you have to worry about how much professional rigour goes into producing the budget forecasts. How much they’re designed to avoid giving the treasurer news he doesn’t want to hear.

The Reserve Bank’s latest forecasts for wage growth are laughing at the optimistic forecasts of the budget in April. Where the budget has wages growing by 3.25 per cent a year by June 2021, the Reserve has the growth rate rising only a fraction to 2.4 per cent.

But here’s the surprising thing. Despite the central importance of wages in driving consumer spending and overall economic growth, the Reserve’s year-average forecasts for real GDP differ little from those in the budget.

I find this suspicious. And worrying. If the central bank feels constrained by the forecasts of a Treasury anxious to avoid displeasing its political masters, we’ve got a problem.

Last week, while worries about how much damage Trump’s trade war might do to the world economy were causing share markets to plunge, Treasurer Josh Frydenberg – who was 20 at the time of our last big recession – emerged from his bunker to assure us the government would “take the necessary actions to ensure our economy continues to grow”.

Great. But who’ll be advising him on which actions are necessary? The young punks in his office?

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Economic reform is stalled until politicians get back our trust

For those who care more about good policy than party politics, there are unpleasant conclusions to be drawn from the federal election. The obvious one is that it was a case of policy overreach leading to failure.

The less obvious one is that decades of misbehaviour by both sides have alienated so many people from the political process and turned election campaigns into such a cesspit of misrepresentation and dishonesty that, henceforth, neither side will be game to propose or implement controversial reforms.

The election was lost by the party proposing to remove a long list of sectional tax breaks and use the proceeds to increase spending on hospitals, schools and childcare, and won by the party that couldn’t agree on any major policies bar a humongous tax cut.

The risks to good economic policy are obvious. Labor concludes only a mug would try to get themselves elected on the back of good policy; the Coalition concludes you don’t need to be promising to do anything much to get re-elected.

Labor’s conclusion could be used to reinforce the political class’s widely held view that controversial reforms should only be pursued once in government, never from opposition.

Trouble is, the Coalition’s conclusion could be used to argue that, if you can get re-elected without any plans to fix things, why take the risk of proposing anything that could be unpopular?

But I think the threat to good policy runs even deeper. It comes from the electorate’s ever-growing disillusionment and alienation from politics and politicians, and from the two main parties in particular.

The vote for a changing array of third parties continued to rise, while the primary vote for both the majors was down – though more so for Labor than the Coalition. Until now, the rise of One Nation and other populist parties of the right has been a much bigger worry for the Coalition than the Greens have been for Labor.

This time, however, many former Labor voters in outer suburban and regional electorates used One Nation and Clive Palmer’s United Australia Party as a bridge to switch their vote to the Liberals.

In numerical terms, that’s why Labor lost. The point for good-policy advocates to note is that, when so many voters tune out of the political debate, but are still required to vote, they tend to make a last-minute choice based not on a well-informed assessment of how they would be affected by the rival parties’ policies, but on superficialities (“that nice Mr Rudd” or “Shorten looks shifty to me”), scare campaigns and negative advertising.

In other words, in a world where switched-off swinging voters aren’t even guided by informed self-interest, the scare campaign is king. To be blunt, the best liars win.

The Libs were convinced that former prime minister Malcolm Turnbull came so close to losing the 2016 election because of the success of Labor’s Mediscare campaign, conducted at the last minute using social media.

My theory is that, this time, the Libs resolved to turn the tables. This time they made much superior use of social media to run bigger scare campaigns about Labor’s “retirement tax” and “housing tax”. That was mere misrepresentation of Labor’s policies (most of which had strong support from economists and econocrats). The anonymous soul who dreamt up the “death tax” was an outright liar.

I think the biggest single reason so many outer-suburban and regional voters turned away from Labor was its opponents’ success (with much help from Palmer’s blanket advertising) in convincing those voters that Labor planned to increase their taxes.

My guess is that the next federal election will either see each side battling to out-scare the other – an orgy of lies - or, more likely, neither side being game to propose any reform of consequence, for fear of having it grossly misrepresented by the other side.

The more the bad behaviour of both sides – the broken promises, the hypocrisy, the spin, the abuse of statistics, the preference for bad-mouthing your opponents rather than explaining your policies – continues, the more both sides will turn from substance to empty populism.

And guess what? The more they do, the more voters will disengage and become more susceptible to lies and superficialities.

From the noises Anthony Albanese has been making, everything Labor did was wrong, and every triumphalist Liberal explanation of why Labor lost is right. The trouble with Labor selecting leaders from its Left faction is that they’re so anxious to prove they’re not left wing (which, these days, they aren't) they end up standing for nothing.

It would be nice if, having worked a miracle and established his authority over the Coalition’s warring tribes, Scott Morrison now turns his mind to fixing at least some of the many bits of the economy that need fixing. We can but hope.

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Without decent policies, Labor would get fewer votes, not more

The main reason so many voters have given up on politics and politicians is their belief that modern pollies care more about advancing their careers than advancing the wellbeing of the nation.

So, were Labor to decide that it lost the election – which dodgy polling encouraged it and everyone else to believe it was sure to win - because it made itself a "big target" by having lots of policies to fix things, rather than "small target" with few policies of any consequence, it would risk confirming voters’ suspicions that it cared more about getting back to power than improving voters’ lives.

Not a great way to garner votes. Particularly because, for reasons I’ll get to, the small-target strategy works better for the party of the business establishment and the status quo than for the party representing those who think the status quo needs reforming.

When you decide that having too many policies was the main reason you lost, it’s only human nature to flip to the opposite extreme of having none. Human, but not smart.

Economics teaches that success in life comes from seeking out the best “trade-off” between conflicting but equally desirable objectives. It involves using your brain to nut out the best answer, not turning it off.

As political scientist Rod Tiffen has reminded us, the no-brain response after elections is that “everything the winning party did is treated as a stroke of genius, and all the loser’s moves were foolish”.

If Labor wants to draw the right conclusions about the various reasons for its failure it will need to put a lot more mental effort into answering the eternal policy question: “what works and what doesn’t?”.

One obvious possibility is that Labor lost partly because it “did a Hillary Clinton,” focusing on the well-educated, socially progressive (and often public-sector employed) section of the party’s base and forgetting about the less educated, less progressive section in outer suburbs and the regions.

Labor’s had the tricky job of straddling these two, very different parts of its heartland for decades. When John Howard perfected the technique of “wedging” your political opponent, the original application involved driving a wedge between the well-educated and the blue-collar parts of Labor’s base. The classic case is the treatment of asylum seekers.

The no-brain response would be for Labor to “go back to” its blue-collar base. Labor can’t win without both ends. But it certainly needs to put a lot more effort into satisfying both ends. What can it do to help the regions than isn’t too blatantly wasteful? How can it look after victims of the inevitable shift from fossil fuels to renewable energy?

With every summer getting hotter, it’s not surprising the Greens had a good election. And the best explanation for the swing to Labor or independents in many well-heeled Liberal electorates is Liberal voters’ growing recognition that we need a government that’s genuine about combating global warming.

It’s quite possible this is of less concern to the blue-collar end of Labor’s heartland, particularly if it can be (falsely) convinced the immediate cost to household budgets would be high. But for Labor to tone-down its climate policy would risk it getting an even lower primary vote as more of its progressive base shifted to the Greens and, in the case of the Senate, didn’t flow back.

Labor needs reminding that life wasn’t meant to be easy for reformist parties. The party of the business establishment and the status quo always starts with a built-in advantage. They’re the people who surely must be better at running the economy and who stand for minimal change – the thing we all fear.

That’s why the Libs can get elected with no policy other than blocking the rise of all those Labor trouble-makers, and why Labor gets elected only by making the case for change. Why vote for a Labor status quo when you can vote for the original and best?

One of the Libs’ most effective lines was “Labor can’t manage money so they’ll come after yours.” Labor’s eternal vulnerability on the money question is why it would be folly for it to lay most of the blame for its failure at the feet of its one money man who does command the respect of econocrats, economists and business people, Chris Bowen. All the people who wanted to win votes by promising to spend big on education and health, scapegoating the poor blighter who had to find ways to pay for it all.

Similarly, when Labor relegates to a junior role a highly regarded former economics professor, Andrew Leigh, simply because he’s not a member of any faction, it reinforces voters’ suspicion that Labor members put their own careers ahead of the country’s good governance.

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Now the pilot's back, economy flying on a wing and a prayer

It’s always nice for the country to be led by someone who’s obviously got God on his side. When he prays for a miracle, he gets it. And the challenges facing the economy are such that Scott Morrison may need all the divine assistance he can summon.

The Coalition – and their dispirited opponents - should remember the fate of the last chap who won an unwinnable federal election: Paul Keating in 1993. By the time the next election arrived, voters were, in Queensland Labor premier Wayne Goss’s words, “sitting on their verandas with baseball bats”.

The Liberals shouldn’t forget the miraculous nature of their win. After their years of infighting and indiscipline they richly deserved to be thrown out, but were saved by Morrison’s superior campaigning skills and his success in convincing people with nothing to fear from restrictions on franking credits and negative gearing that they should be fearful (not sure what God thought about that).

This was not a historic vindication, just a reprieve. Carry on the way you have been, and your fate will only have been delayed.

And remember: Keating’s reprieve came as part of the 25 years Australians spent trembling at the thought of a tax on services as well as goods. “If you don’t understand it,” Keating told the punters, “don’t vote for it.”

We’ve now had such a tax for almost 20 years. And would you believe? Turned out the GST was no biggie. What brave souls we are.

Come July, we’ll have gone an amazing 28 years without a severe recession. Starting to sound ominous.

Look around the world – trade war between America and China, China’s faltering economic miracle, America’s boom that must bust, Japan and Europe with chronically weak economies and Brexit Britain about to shoot its economy in both feet – and it’s not hard to think you see our next recession in the offing.

Certainly, it has to come some time. But I don’t see one as imminent. What many don’t realise is we have enough troubles of our own, without help from abroad.

Ever since the global financial crisis in 2008-09, and more so since the busting of our mining construction boom in 2013, our economy has been acting strangely, behaving in ways it used not to.

If Morrison and his Treasurer, Josh Frydenberg, understand the way it hasn’t been back to business as usual, they’ve shown little sign of it.

If they haven’t yet got the message – perhaps because a politicised Treasury hasn’t been game to give them news they won’t like – enlightenment, in the form of being hit on the head by the bureau of statistics, may not be far off.

Ever since Treasury’s optimistic forecasts encouraged Labor’s Wayne Swan to claim to be delivering four budget surpluses in a row – a claim Frydenberg repeated in the April budget – the econocrats have just shifted forward another year their unwavering conviction that everything will soon be back to the old normal.

It hasn’t happened throughout the Coalition’s two terms. The economy’s just kept grinding along in second gear, failing to reach the cruising speed the econocrats profess to see coming.

It hasn’t happened because the economy’s productivity – output per unit of input - hasn’t improved as fast as it used to, and what little improvement we’ve had hasn’t flowed on to wages. It’s because wages haven’t grown faster than prices, as we’ve come to expect, that so many people are complaining about the cost of living.

What has concealed the truth from us is our rapid, immigration-fuelled population growth. The other rich countries’ populations haven’t been growing nearly as fast. This has given us a bigger economy, but not a richer one.

Of late we have had a partial – and probably temporary – rebound in the prices we get for our mineral exports. Combined with years of bracket creep, the boost to mining company profits (and their tax payments) has finally made Frydenberg’s budget look a lot healthier than the economy does.

Weak growth in real wages (plus continuing bracket creep) mean weak growth in the disposable income of Australia’s households. Which, in turn, means weak growth in the economy’s mainstay, consumer spending.

All this became unmissable when the economy slowed to a crawl in the second half of last year. Predictably, the April budget took this to be little more than a blip on the onward and upward trajectory.

But all the economic indicators we’ve seen since the budget – weak inflation, no improvement in wage growth – suggest the weakness is continuing.

Another respect in which the economy has been behaving strangely is that employment – particularly full-time jobs - has been growing much more strongly than the modest growth in the economy would lead us to expect.

It’s this that Morrison and Frydenberg trumpeted during the election campaign as proof positive of their superior management of the economy. Fine. But the rate of growth in employment is slowing and the rate of unemployment, having fallen slowly to 5 per cent, seems now to be going up, not down.

With the election out of the way, the Reserve Bank won’t wait long before it cuts interest rates to try to give the economy a boost. The $1080-a-pop tax refund cheques after June 30 will also help, provided Morrison can get them through Parliament in time. More earnest prayer required, I think.

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Morrison's miracle election may turn out to be the easy bit

The great risk from Scott Morrison’s miraculous victory is that it will lead politicians on both sides to draw conclusions that worsen our politics and our policies. Bill Shorten offered us a chance to change the government and change the nation, and was answered with a firm No Thanks.

It’s a great win for the Coalition, but a loss for economic policy. The voters’ "revealed preference" is for more personality, less debate of the tough choices we must make to secure our future in a threatening world.

The first lesson the pollies will learn is that disunity doesn’t have to be death. Almost six years of fighting like Kilkenny cats can be forgotten during the eternity of a five-week election campaign, provided you put all the focus on the latest guy, and his predecessors are kept hidden.

The second lesson the pollies will learn is that the only safe strategy for oppositions is to make themselves a "small target", with only a few, popular policies, so all the focus is on the failings of the government.

Whatever policy changes you may be thinking of making, keep your intentions to yourself and don’t, whatever you do, seek a mandate for change.

Almost 28 years of continuous growth have rendered Australians a timorous nation. No national emergency, no need for change. As Kevin Rudd was the last Labor leader to understand, what voters crave is change without change. Promise it. (Since such a thing is impossible, deliver something else. Expect a backlash.)

Politicians have understood all this since Dr John Hewson (his PhD said: "knows more about economics than politics") used Fightback – "the longest suicide note in history" – to lose the unlosable election in 1993.

Labor forgot this because it wanted to be seen as less negative and destructive than Tony Abbott, and because, knowing Shorten lacked charisma, it decided policy substance was the best substitute. As it turned out, wrong.

In this era of unreal reality game shows, and multitudes of disillusioned, disengaged voters, the most successful politicians are those best at show biz. Morrison may not be the lovable larrikin Bob Hawke was, but he comes a lot closer than Hawke’s union mate did.

Morrison spent five weeks performing for the cameras to the exclusion of all others, and the electorate warmed to what it saw. Perhaps what Labor needs is a casting director.

The third lesson the pollies will learn is that the eternal reality of conflict between the classes must always remain covert. Any overt attack on privilege does more to fire up the defences of the well-off than to whet the appetites of those missing out.

In this country, the only envy that works is the downward variety. Envy the jobless for being able to eat without working, or the Indigenous for the extra help they get? Sure.

This government has spent its time beating up on boat people, public servants and those on welfare and, in the process, has gained more votes than it’s lost.

The well-off may have benefited from a lot more good luck (as I have) than it suits them to admit, but they are adept at convincing the punters than an attack on my five dollars is an attack on your five cents.

Labor fashioned a policy to pay for more of the spending on health and education voters genuinely want by reducing the tax breaks of the top 10 per cent (including the top 10 per cent of retirees), but almost every oldie was convinced they’d be a victim.

Same with the way the nation’s real estate agents put the frighteners on their tenants over negative gearing.

Highlight the conflict between the generations and you’re smacked by the demographic reality that voters get older every year, and the over-65s far outnumber the young.

In this election it was the Morrison government that made itself a small target so all the focus would be on Labor’s perceived policy losers.

Believing he had nothing to lose, Morrison staked everything on offering the world’s most expensive tax cuts.

But did he lie awake in the early hours of Sunday morning wondering how on earth he’d pay for them without the budget heading back into deficit? About the hugely optimistic forecasts of the economy’s early return to strong growth used to bolster his economic record? About the requirement that there be zero real growth in government spending per person over the next four years?

Morrison has no policy to control electricity prices, no convincing policy on climate change, no policy to halt the rising cost of health insurance, no policy response to any downturn in the economy, no solution to “cost of living pressures” and no plan to increase wages except yet more waiting.

The day may come when he decides winning the election was the easy bit.

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Why Morrison has changed his tune on immigration

Wow. And you thought the punters had no political power. Scott Morrison’s change of tune on population growth – following on the heels of NSW Premier Gladys Berejiklian – will please a lot of ordinary voters and enrage big business.

Be clear on this: almost to a man or woman, the nation’s business people, economists, Coalition politicians and Labor politicians have long believed in high rates of immigration, going back to the days of “populate or perish”.

They still do. They’ll have one dismissive, contemptuous word for the Liberal Party’s seeming backflip – “populism”.

By contrast, the public has long had reservations about immigration, going back to Chinese joining the gold rush and, as the movie Ladies in Black reminds us, to post-war resentment of “reffos” (not to mention dagoes and wogs).

It’s quite possible Gladys had a word in the ear of Scott, but I have no doubt both are reacting to results from their party’s private polling and focus groups. (If so, Labor politicians would be getting a similar message.)

That would explain their changed thinking on the topic. Their sudden sensitivity to popular opinion may be explained also by the proximity of elections in Victoria, NSW and federally.

Morrison is nothing if not direct. He’s left no doubt that this is a Sydney and Melbourne special. In the reduction in the size of the annual national permanent migration program he says he expects to emerge from the review, NSW and Victoria may wish to have fewer migrants, while other states may wish to have more.

Whether such picking-and-choosing is practically possible will be a matter for the experts to debate. Sydney and Melbourne are natural entry points of migrants. They have more jobs going, and immigrants are more likely to have relatives, friends and communities already established there. The two big cities’ businesses are likely to want to sponsor more skilled workers.

Before we leave elections, a cautionary tale from the 2010 federal election. Early that year, Kevin Rudd brought forward the next Intergenerational Report, showing the population was projected to reach 36 million by 2050. Rudd proudly proclaimed himself a Big Australia man – which, among other benefits, would give Australia (and him) more clout at international forums.

Then came the backlash. By the time of the election in July, both Julia Gillard and Tony Abbott were loudly proclaiming their opposition to Big Australia.

But here’s the point: after Gillard’s election in 2010 and Abbott’s in 2013, nothing was heard again about the evils of Big Australia. Immigration continued on its merry way.

If the public has always had reservations about immigration, what’s brought matters to a head?

Again, Morrison is direct. Though population growth has played a key role in our economic success, he says, “I also know that Australians in our biggest cities are concerned about population. They are saying: enough, enough, enough.

“The roads are clogged, the buses and trains are full. The schools are taking no more enrolments. I hear what you are saying. I hear you loud and clear.”

So, in a word, resentment over congestion has brought simmering disapproval to a rolling boil.
But I suspect there’s a further factor.

Because the establishment’s enthusiasm for high immigration has always been at odds with the public’s instincts, there was for many years a tacit agreement between both sides of politics not to wake up the question of immigration.

Want to know why this nation of immigrants has never had a formally established population policy? That’s why. (I know because once, during the Fraser government’s time, I wrote in my naivety that we needed a great big debate about immigration and population. The immigration minister immediately slapped me down, almost accusing me of racism.)

That bipartisanship has broken down as politicians realised there were cheap votes to be had by echoing the public’s objection to “too many Asians”. When asylum seekers started arriving by boat, it was on for young and old between the parties.

John Howard allowed very high levels of immigration during his almost 12 years in office – the population was growing by 2 per cent a year at the end of his reign – but the public’s disapproval never boiled over.

Why not? Perhaps because traffic congestion wasn’t as bad as it is today. But my theory is that, while coping with the genuine problem of boat people, Howard also used them to draw the public’s attention away from high levels of conventional immigration. Sometimes you even hear political candidates claiming its boat people who are clogging the roads.

But now there are no boat people arriving – not, we belatedly discover, because none are setting out, but because of our navy’s success in turning them back – this diversionary tactic is no longer available. The voters’ ire turns back to ordinary immigrants.

But what of the much-touted economic benefits of immigration? Business people want a bigger population because having more people to sell to is the easiest way to increase their profits. But that doesn’t necessarily leave you and me better off.

The traditional fear that immigrants take our jobs is wrong – they add about as much to the demand for labour as to its supply.

Immigration does slow down the ageing of our population, but most of the other efforts to show how much benefit it brings the rest of us rest on economic modelling exercises using convenient assumptions. I hae ma doots.

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Sensible electricity rules await the next government

You can call it populism or you can call it desperation. In the case of Scott Morrison’s recent problem-solving efforts, desperation fits better. And wouldn’t you be?

Morrison is probably right in concluding it’s too late in the piece to be worried about carefully considered, long-lasting solutions to the many problems contributing to his government’s unpopularity.

We’ll know soon enough whether his flailing efforts to apply quick fixes will be sufficient to secure his government another term in office.

But only after whichever side wins is facing a clear run of years before the next election will we see how our political class responds to the bipartisan – and world-wide – loss of faith in neoliberalism and its use of deregulation and privatisation to pursue the nirvana of Smaller Government.

Only then will it be clear whether flawed ideology has been replaced by unthinking populism as advocated by the shock jocks, or by a more realistic, more nuanced approach to intervention in markets that aren’t serving consumers well.

Meanwhile, Morrison has an election to avoid losing. If Tony Abbott hadn’t greatly compounded the problem by abolishing the carbon tax, you could feel a bit sorry for Morrison. The monumental stuff-up of the move to a national electricity market, with its price blowouts at every level – generation, transmission and distribution, and retail – was decades in the making.

Only with the doubling of retail prices over the past decade has realisation dawned that the federal government can’t escape ultimate political responsibility for a “national” market run by a squabbling committee of state and territory energy ministers.

But Morrison’s announcement last week of a desperate collection of good, bad and indifferent measures to get retail prices down in a hurry – or at least appear to be getting them down – seems no better than a crude attempt to bludgeon some quick retail price cuts out of the three oligopolists that have come to dominate the market.

As was powerfully demonstrated by the events leading to the overthrow of Malcolm Turnbull, no government whose members can’t agree that the threat of climate change is real is capable of achieving a policy regime that restores a stable future for the energy industry.

Don’t be fooled, however, by the industry apologists claiming the only real problem is the uncertainty about future governments imposing a price on carbon emissions, and the rises in the wholesale price this is now causing as coal-fired power stations die of old age without adequate replacement.

That relatively new problem accounts for little of the retail price doubling over the past decade – which is the underlying reason for the public’s anger over the cost of electricity.

Putting the blame on the inability of the two federal political sides to agree on a response to global warming sweeps under the carpet the oligopolists’ gaming of the wholesale market, the distribution industry’s gaming of its price-setting formula, and the blowout in retail margins following the state governments’ deregulation of retail prices.

Companies at the distribution and retail levels are earning rates of profit far higher than they need to cover their cost of capital and risk-bearing.

The public has every right to be up in arms, and the federal government every right to step into the mess in search of ways to reduce profitability and prices at the retail level. Particularly because what the feds would be doing is correcting years of misregulation by dysfunctional state governments.

It’s not a question of deregulation versus regulation. Electricity has always been more highly regulated than other industries and always will be. The national electricity market is, after all, a creation of government, which from day one has been (not very well) regulated by public authorities.

Rather, it’s a question of how and why you intervene to correct the mess. Whether you act carefully and reasonably to get the industry moving towards a future that’s sustainable financially and environmentally.

Any changes need to be fair, although in this the balance should err in favour of fairness to consumers (and business users) who’ve been overcharged for years. The industry can’t be allowed to use the trade union argument that their present rates of profitability are “hard-won gains” that must remain sacrosanct.

When something shouldn’t have been allowed to happen in the first place, it’s no crime to belatedly reverse it. Talk of “sovereign risk” is self-interested bulldust. You can’t have a democracy in which governments are forbidden to change course.

But none of this seems to describe Morrison’s motivations. He want price cuts, he wants them now, and he doesn’t much care what stick he waves to get them.

A word of free advice, Scott: claiming to have achieved bigger price cuts than the punters see in their quarterly bills will only make them angrier.

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Political corruption: with so much smoke, there must be fire

How easy is it for the rich and powerful to buy favourable treatment from our politicians? Honest answer: we just don’t know. What we do know is that we’ve become increasing distrustful of our pollies and doubtful of their honesty.

Polling conducted this year by Griffith University and Transparency International Australia found that 85 per cent of respondents believe at least some federal Members of Parliament are corrupt. This is up 9 points just since 2016. It includes 18 per cent who believe most or all federal politicians are corrupt.

Fully 62 per cent of respondents believe officials or politicians use their positions to benefit themselves or their family, while 56 per cent believe officials or politicians favour businesses and individuals in return for political donations or support.

I can’t prove it, but I doubt it’s nearly that bad. Cases of money in paper bags changing hands would be few and far between. Such personal corruption as exists would usually be more subtle: hospitality in corporate boxes at sporting events and sponsored international travel.

Plus the risk that senior politicians and bureaucrats go easy on interest groups in the hope that, when they retire or leave the parliament, those groups will show their gratitude by giving them a cushy job.

But it’s institutional, not personal, corruption that’s the bigger problem. Businesses, unions and others give money to political parties in the hope of gaining access to decision makers and influence over their decisions.

Both sides of politics play this corrupting game because they’re locked in a kind of arms race to raise the most money for advertising at the next election campaign.

It’s so blatant that both sides hold fundraising dinners where they make no bones about people paying big bucks to sit at the same table as a cabinet minister.

It’s said half of all money spent on advertising is wasted, and I suspect it’s the same with political donations. They didn’t buy you what you were hoping for. It’s this half the pollies use to tell themselves they’re not doing anything dishonourable.

It’s the other half that’s the worry – the half that does buy access and influence. (This is what concerns me as an economic journalist. The prevalence of “rent-seeking”, as economists call it, has a pernicious effect on economic policy and thus the economic welfare of Australians.)

On Monday, the Grattan Institute released a painstaking and comprehensive examination by Danielle Wood and Kate Griffiths of what evidence is available on attempts to buy access and influence.

The report reminds us that federal politicians are much more reluctant than their state counterparts to be more active and open about their relations with donors and lobbyists.

They’ve long refused to follow the states in establishing an anti-corruption commission, wanting us to believe the states may suffer corruption, but the feds are pure as the driven snow. Clearly, we don’t.

The feds have resisted making ministers’ diaries public, so we can see who they’re meeting with, even though the NSW and Queensland governments now do so.

The federal register of lobbyists is a bad joke. It lists people working for lobbying firms, but not lobbyists working directly for businesses, unions or community groups, nor the lobbyists working for peak industry or union associations.

The report finds there are about 500 lobbyists on the register, whereas a further 1755 sponsored security passes have been issued. These allow the holders to move freely around Parliament House. May we know who these people are and who they represent? No.

The report finds that more than a quarter of federal ministers have gone on to work for a lobbying firm, industry body or special interest group since 1990. (Former Labor minsters rarely return to the labour movement because business pays much higher salaries.)

Federal ministers are supposed to wait until 18 months after they cease being ministers before lobbying on any issue they were involved in. For ministerial advisers and senior public servants the waiting time is 12 months.

But many fail to observe the rule – including Ian Macfarlane, Andrew Robb, Bruce Billson, Martin Ferguson – and there’s no penalty.

Rules about making political donations public are much improved in some states, but worst at the federal level. Parties spent $368 million over the two financial years spanning the 2016 federal election, with roughly a third of that coming from government grants rather than donations.

There’s a high threshold for donations to be reportable, and no requirement for parties to add up multiple below-threshold donations from the same source. And delays of a year or two before donations are made public.

The report finds that about 40 per cent of the money parties received had no identifiable source. Of the declared donations, just 5 per cent of donors contributed more than half.

By far the biggest share of declared federal donations comes from highly regulated industries – mining, property construction, gambling, finance, media and telcos – then unions.

This appalling record on federal disclosure, accountability and transparency tells us the public’s perception that our politicians are dishonest is of the politicians' own making.

They do tout for donations. They could agree to end the election advertising war by imposing limits on donations and no longer have to prostitute themselves.

When both sides finally decide there’s not much glory in being in a despised and distrusted occupation, nor much joy in basing policy decisions on rewarding the most generous vested interests, they know where to start in restoring their reputation.

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Why so much spending on infrastructure is misspent

It’s the great conundrum of government policy: we have a big shortage of infrastructure, but also waste billions on it.

This seeming contradiction is easily explained: particularly in recent years, and at both state and federal levels, much money is being spent on infrastructure projects.

Trouble is, a lot of the dough’s being spent on flashy or low-priority projects, at the expense of more important but less sexy projects, particularly in the overcrowded outer suburbs.

I suspect we spend more than we should building expressways and too little on public transport – and within the latter, some argue, too much on rail and not enough on busses.

Why? Well, I’m sure it wouldn’t be because the big heavy engineering companies are better at lobbying politicians than public transport providers.

There aren’t many aspects of government spending – many contributors to debt and deficit – more in need of reform than spending on public infrastructure, or with more scope for making a bigger contribution to national productivity and a smaller contribution to budget pressures.

But you’d never know that from the way our politicians, the business lobby and Treasury obsess about tax reform for decade after decade. We’ve had lots of tax reform over the years, but it’s never been enough to satisfy their appetite.

So why is infrastructure spending so rife with wastefulness? Mainly because it’s one of the few areas of policy left where the pollies themselves have much scope for playing Santa Claus in particular states and even particular electorates, at times of their own choosing. Byelections, for instance.

It’s often too tempting for pollies to pick projects according to the votes their announcement is intended to bring, rather than the extent to which the public benefits they bring exceed their costs.

Last week the boss of Infrastructure Australia, Philip Davies, who leaves the job next month, made his last contribution by unveiling a list of 11 principles governments should follow in making decisions about infrastructure, so as to lift the quality of those decisions.

“Businesses and households across the country rightly want to know that governments are investing limited public funds in infrastructure that will bring strong productivity benefits to the economy, support our quality of life, and help to deliver a collective vision of a strong, fair and prosperous Australia for many years to come,” the document states.

It nominates some respects in which governments’ decisions on infrastructure still leave “room for improvement” – to coin a bureaucratic euphemism.

One is that there should be more transparency – that is, information about the stages of the decision process and the public release of analysis – in making decisions about projects.

This includes reviews on the completion of projects, showing the lessons learnt and application to future investments. Everyone agrees they’re a good idea, but such reviews are rarely done and rarely made public.

Taxpayers pay a high price for the political and public service predilection for never admitting anything they’ve done was less than perfect, for fear of what the opposition and the media would say. Much better to always be up-front about failings, so critics stop getting overexcited but lessons are learnt.

Further room for improvement arises because “projects are often developed without fully considering all available options to solve an identified problem, including potential solutions that make better use of existing infrastructure through technology and data”.

Too true. This happens because pollies love announcing that they’re spending big bucks to build something new and wonderful – then come back five years later to cut the ribbon.

They don’t get as much media attention when they merely upgrade existing infrastructure – and none when they spend money every year ensuring existing assets are well maintained.

And they’d get adverse media attention if they did what the bureaucrats were hinting at with their reference to making better use of existing infrastructure “through technology and data” – charging motorists directly for their measured use of roads and the time of day they made that use.

Yet more “room for improvement” arises because “too often, we see projects being committed to before a business case has been prepared, a full set of options have been considered, and rigorous analysis of a potential project’s benefits and costs has been undertaken”.

Why such travesties of good management? Because spending on what we used to call “capital works” is so closely associated with politicians using the first announcement of projects to win votes at elections.

All this expediency and lack of courage is another reason we should be slow to believe politicians promising to fix budget deficits (or pay for tax cuts) by cutting government spending.

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Budget office fills vacuum left by politicised Treasury

I see the federal Auditor-General has been less than complimentary about the Turnbull government’s cashless welfare card. The cheek! I say the man should be removed and replaced by a Liberal Party staffer forthwith.

Always provided the staffer has done at least a year or two of accounting at uni, of course. Wouldn’t do for voters to gain the impression his chief qualifications were his years of loyal service as a ministerial flunky.

If this ironic scenario seems over the top, it’s not way over. If the present Auditor-General actually had incurred the government’s serious displeasure, it would be more likely to wait until his statutory term had expired before replacing him with someone less likely to provide it – and us – with critical advice.

You don’t have to be very long in the workforce to realise that one of the hallmarks of a bad manager is his (or occasionally her) penchant for surrounding themselves with yes-men. See that happening and you know you’re in the presence of a disaster waiting to happen.

But installing a tame auditor-general wouldn’t be a big step beyond the flouting of convention and good governance we’ve seen the government engaged in over the past two weeks.

Following Tony Abbott’s unprecedented dismissal of the secretary to the Treasury in 2013, and his replacement with hand-picked candidate John Fraser, Malcolm Turnbull and Scott Morrison have now completed the politicisation of Treasury.

What an accomplishment for Malcolm to include when he boasts in his memoirs about the glorious achievements of his reign.

With the sudden resignation of Fraser, he was replaced by Philip Gaetjens, whose service as chief-of-staff to Peter Costello and then Morrison himself was interspersed with his time as secretary of the NSW Treasury, appointed by the O’Farrell government after it sacked the apolitical secretary it inherited from the Keneally government, Michael Schur.

The timing of Fraser’s departure was portrayed as all his own inconvenient idea, which may well be true. But, with the federal election so close, it reminds me of a trick practised by the self-perpetuating boards of the mutual insurance companies of old.

Any director not wishing to serve another term would resign just a few months before his term expired. This would allow the board to select his successor, and that successor’s name to go onto the ballot paper with an asterisk beside it, certifying to the voting punters that he was a tried-and-true incumbent.

Morrison then topped off this innovation in Jobs for the Boys by installing Simon Atkinson, a former chief-of-staff to Finance Minister Mathias Cormann, as a deputy secretary in Treasury.

Worse, Atkinson got the job to replace Michael Brennan, who’s been moved up to be the new chairman of the Productivity Commission, which has had a long and proud tradition of independence, giving fearless advice to governments of both colours.

We’ll see how long that lasts. Morrison tacitly admitted Brennan’s appointment was questionable by using his press release to make Brennan sound like a career public servant, conspicuously failing to mention he’d been a staffer for two Howard government ministers and a Liberal Victorian treasurer, not to mention a candidate for Liberal state preselection.

My greatest fear is that the next Labor federal government will use this bad precedent to behave the same way, thus making the politicisation of government departments and supposedly independent agencies bipartisan policy. What a great step forward that would be.

Fortunately, as trust in the professional integrity of Treasury forecasts and assessments declines, the vacuum is being filled by the rise of the Parliamentary Budget Office, which has the same expertise as Treasury, Finance and the spending departments, but is independent of the elected government.

Just last week it produced a most revealing report on the sustainability of federal taxes, one Treasury would have had trouble getting published even in the good old days.

Its message is that there are structural vulnerabilities limiting the future revenue-raising potential of most federal taxes, with the main exception being income tax and that eternal standby of dissembling politicians on both sides, the supposed evil they only pretend to disapprove of: bracket creep.

This is the last thing either side would want us thinking about before the election.

After all, thanks to the budget’s chronically overoptimistic forecasts and what-could-possibly-go-wrong 10-year projections of endless budget surpluses and ever-falling public debt, they can afford to turn the coming election into a tax-cut bidding war.

Vote for me and I’ll cut taxes more than the other guy.

The budget office has punctured that happy fantasy. After the election, whomever we vote for will have to find a way to cover not just the cost of ever-growing but untouchable spending on health, education and all the rest, but also the tax system’s built-in inadequacies.

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Memo Canberra: it's not taxes, it's wages, stupid

With the season of peak political bulldust already upon us, and the media holding a microphone to all the self-serving and often stupid arguments the politicians are having with each other, here’s a tip: if you want sense about our economic problems and their solutions, turn down the pollies’ blathering and turn up the considered contributions from the econocrats.

Reserve Bank governor Dr Philip Lowe, in particular, has more pertinent things to say than Malcolm Turnbull, Bill Shorten, Scott Morrison and Chris Bowen put together.

The sad truth is the pollies main concern is to say the things they hope with get them elected, rather than to outline a convincing strategy to improve our economic wellbeing.

The media’s main concern is to sell us politics as entertainment – “Oh, the pollies had a terrible set-to this week; the side that’s ahead the polls had a bad week, while the losers had a good one, it’s getting sooo exciting” – not to hold politicians to account when they make wrong or dubious claims.

Predictably, the pollies have fallen to arguing about . . . tax cuts. Think of an election, think of bribing voters with tax cuts. The budget’s still in deficit, with the debt still high and rising, but blow that, let’s have a decade of tax cuts.

Both sides believe voters are as venal as pollies are self-serving. But, as always, the pretence that vote-buying tax cuts will do wonders for Jobs and Growth.  Yeah, right.

If Turnbull can con Labor into spending most of the time until the election arguing about tax, he’ll have pulled off a fabulous diversion from the most pressing source of voters’ present hip-pocket discomfort: weak wage growth.

It’s clear the parties’ focus groups are telling them the punters perceive the problem to be the “high cost of living”. With the consumer price index stuck at 2 per cent, that’s an obvious misconception.

It’s a misperception that favours the Coalition, the party that engineered the cuts in penalty rates, has a visceral class hatred of the unions and zero desire to shift the balance of industrial power back in favour of employees.

So who’s the one public figure pointing to the megafauna in the room? Lowe. He’s been talking about weak wage growth for months, seeing the problem as largely cyclical (temporary) and urging us to be patient.

Trouble is, as each quarter passes without any sign of the wage price index stirring from 2 per cent a year, that argument weakens. And in a recent speech he shifted ground, acknowledging that the “norm” for annual wage rises had shifted from 3 to 4 per cent to about 2 per cent, for reasons that are both cyclical and structural (lasting).

Cyclically, wages are weak because, at about 5.5 per cent, unemployment is still above the “conventional estimates” that full employment – the NAIRU, or “non-accelerating-inflation rate of unemployment” - is about 5 per cent.

What’s more, Lowe says, we may find that, like the US and other advanced economies, the NAIRU is now a fair bit lower than we’ve hitherto assumed.

True, Phil. But that’s a significant acknowledgement. What is it that causes the NAIRU to shift? Changes in the structure of the labour market.

In his search for structural explanations for our four-year absence of real wage growth, Lowe says part of the story is likely to be the way globalisation - greater trade between rich and poor countries - has changed the bargaining power of workers by effectively increasing the global supply labour.

But another important part of the story, he says, lies in the nature of recent technological progress. It’s no longer just a matter of firms installing the latest generation of better machines. It’s about software and information technology; intangible capital, not physical capital.

One thing this means is that some firms are much further advanced in applying and exploiting these advances than others. Lowe’s theory is that the lagging firms are trying to keep up by resorting to cost control, making them reluctant increase wages.

But though Lowe is the most thoughtful, pertinent and frankest of our public figures, even he is not yet prepared to voice the unthinkable: when globalisation and digitisation were changing the economy in ways that diminished the bargaining power of most of our workers, maybe this was just the wrong time for us to have been “reforming” wage fixing by shackling employees’ ability to bargain collectively.

Adequate real growth in wages is the key to adequate real growth in consumer spending and, by extension, business investment spending.

And, as Lowe reminds us, many households have taken on big mortgages under the implicit assumption that real wage growth will lessen the burden over time, as it always has. If that doesn’t happen, there’ll be trouble.

But not to worry. Tax cuts will fix everything.

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How we could revive faith in democracy

How much is our disillusionment with politicians, governments and even democracy the result of our pollies’ 30-year love affair with that newly recognised mega-evil “neoliberalism”?

To a considerable extent, according to Dr Richard Denniss, of the Australia Institute, in the latest Quarterly Essay, Dead Right.

I’m not sure I’m fully convinced by his argument, but it’s a thought-provoking thesis that’s worth exploring.

Like “globalisation” in the 1990s, neoliberalism has become the all-purpose political swearword of the 2010s. Anything economic that you don’t approve of can be condemned as neoliberalism.

But Denniss provides some more specific attributes. “The intellectual core of neoliberalism is the idea that the profit motive of companies, combined with consumers’ ability to choose the product that suits them best, will result in the best possible social and economic outcomes,” he says.

Implicit in this is the belief that government intervention in markets is always suspect and should be reduced to a minimum, just as taxation is an onerous “burden” which must be reduced if we are to prosper.

Dennis argues that neoliberalism hasn’t just involved much deregulation, privatisation, outsourcing of government services and cuts in government spending, it’s also changed our culture – the way we think about politics and political issues.

Its focus on the individual has sanctified selfishness, releasing people from the restraints of solidarity with the rest of the community and legitimating the lobbying mentality. We’re all free to press our own interests on the government, and if that means I extract more than you do, that just proves I worked harder than you.

But the greatest cultural change, according to Denniss, is the belief that economic issues outweigh all other considerations. “The trick of neoliberalism was to convince the public that it is the economic dimension of big issues that we must focus on,” he says.

“Past generations . . . did not see the need to delay all significant debates about the shape and direction of their society until tax and industrial relations policies were optimised according to specific principles understood by a tiny proportion of the population.”

Denniss says we no longer talk about the inherent value of educating our children, but of the increase in skills and productivity that their education will bring to the economy.

A big part of this is the obsession with maximising the growth of the economy – or, in Malcolm Turnbull’s more enticing packaging, Jobs and Growth.

“After 27 years of continuous economic growth, it is inconceivable that the thing Australia needs most is to ‘grow our economy’ some more.

“What we really need is to rebuild trust in our institutions and confidence in our country. We need to debate far more specific and important national goals, and then show ourselves that when we work together we can make things better. We have done it before and other countries are doing it right now.”

What if Australian parliaments stopped trying to fix the industrial relations system or the tax system for a few years, and focused instead on things that Australians really care about?

“For 30 years Australians have been told that what is good for gross domestic product is good for the economy, and hence for the country. But that is like saying that the more money a family earns, the happier the children will be.

“It is the shape of our economy that determines our wellbeing, not its size. Spending $1 billion subsidising the Adani coalmine will create economic activity [and jobs], but so will spending that money promoting Australian tourism or improving Sydney’s pubic transport.

“The important question isn’t whether a project will ‘create activity’, but whether a project will make Australia a better place or not.”

Like waiters in a restaurant, says Denniss, politicians and bureaucrats are not there to tell us what we must order, but to show us the menu and explain the specials.

So one of his proposals is to replace the Productivity Commission with a national interest commission, to provide both governments and the public with broad advice on the advantages (as opposed to benefits) and disadvantages (as opposed to costs) that, say, a major project or a universal basic income, might entail.

The opposite of the narrow economic agenda of neoliberalism isn’t a progressive economic reform agenda, Denniss says, it’s the re-establishment of a broad debate about the national interest.

“After 30 years of hearing that politicians, government and taxes are the things that ruin the economy, it is time for the public to hear and see that politicians, government and taxes are the foundations on which prosperous democratic nations are built.”

There are dozens of popular things that state and federal governments could get on with that would make Australians happy, make Australia a nicer place to live and, most importantly, show the Australian public that the decisions made by parliament do make a difference.

Such as? “Bans on political donations, the establishment of strong anti-corruption watchdogs, reform to parliamentary entitlements, higher taxes on annual incomes over $1 million, closing loopholes that allow companies to pay billions in dividends and nothing in tax, legalising marijuana, banning poker machines, and preserving all existing parks from property development.”

The world is full of alternatives and choices, Denniss concludes. “Neoliberalism’s real power came from convincing us that we had none. We do, and making them is the democratic role of citizens – not the technocratic role of economists, nor that of any self-serving elite."

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Why we're going slow on climate change

Every time I go to the Byron Bay Writers’ Festival I’m asked the same question: since there’s no policy issue more important than responding to global warming, and we’re doing so little about it, why do I ever write about anything else?

I give the obvious answer. Though I readily agree that climate change is the most pressing economic problem we face, if I banged on about nothing but global warming three times a week, our readers would soon lose interest.

But even as I make my excuses, my Salvo-trained conscience tells me they’re not good enough. Even if I can’t write about it every week, I should raise it more often than I do.

I’m still combing through the budget’s fine print, but I’ve yet to remark that its thousands of pages make almost no mention of climate change.

Even the federal government’s latest, 2015 “intergenerational report” peering out to 2055, devotes only a few paragraphs to “environment” and avoids using words starting with c.

I fear that history won’t be kind to the present generation – and particularly not to people with a pulpit like mine.

We’ve known of the scientific evidence for human-caused global warming since the late-1980s. Since then the evidence has only strengthened. And by now we have the evidence of our own senses of hotter summers and autumns and warmer winters, plus more frequent extreme weather events.

And yet as a nation we procrastinate. Our scientists get ever more alarmed by the limited time we have left to get on top of the problem, and yet psychologists tell us that the harder the scientists strive to stir us to action, the more we turn off.

Our grandchildren will find it hard to believe we could have been so short-sighted as to delay moving from having to dig our energy out of the ground to merely harnessing the infinite supply of solar and wind power being sent to our planet free of charge.

What were we thinking? Did an earlier generation delay moving from the horse and buggy to the motor car because of the disruption it would cause to the horse industry?

The biggest mistake we’ve made is to allow our politicians to turn concern about global warming into a party-political issue, and do so merely for their own short-term advantage.

The initial motives may have been short term, but the adverse effects have been lasting. These days, for a Liberal voter to worry about climate change is to be disloyal to their party and give comfort to the enemy.

Apparently, only socialists think their grandkids will have anything to worry about. The right-thinkers among us know the only bad thing our offspring will inherit is Labor’s debt.

Global warming used not to be, shouldn’t be and doesn’t have to stay a right-versus-left issue. In Europe it’s bipartisan. Margaret Thatcher was a vocal fighter for action on climate change, and the Conservative Party is anti-denial to this day.

If you remember, John Howard went to the 2007 election promising an emissions trading scheme. The big debate in that campaign was whether Labor’s rival plan was better because it started a year earlier.

The econocrat who designed Howard’s scheme, Dr Martin Parkinson, was the same person the Rudd government appointed to develop its scheme. The Department of Climate Change was a virtual outpost of Treasury. Indeed, I know of few economists who aren’t supporters of putting “a price on carbon”.

At the time, the Libs’ strongest supporter of action on climate change was a Malcolm someone. I wonder whatever happened to him?

As Liberal opposition leader, Turnbull was offering bipartisan support for Rudd’s emissions trading scheme when he was thrown out by Tony Abbott, who quickly changed his views to become leader of the party’s then-minority of climate change deniers.

I don’t doubt there are many, many Liberal voters who accept that global warming is real and would like to see the Coalition acting more decisively, but feel obliged to keep a low profile and let Dr John Hewson do the talking for them.

The fossil-fuel industry is no doubt generous in its support to any party willing to help it stave off the evil hour, but the attitude of business generally is different.

Initially, it accepted that the move to renewable energy was inevitable. In which case, the government should just get on with it, reducing uncertainty by making the rules for the transition as clear and firm as possible.

But when the Libs succumbed to the deniers, business savoured the temporary relief of doing nothing. Now, however, the electricity and gas industries are in such a mess that business is back to demanding certainty in the inevitable move to renewables.

The Coalition, unfortunately, is utterly incapable of agreeing to anything meeting that description.

Which brings us to the mystery of the seemingly denier-packed National Party. How any farmers or people from country towns can doubt the reality of climate change is beyond me. The National Farmers’ Federation certainly doesn’t.

But we can’t put all the blame on short-sighted politicians and crony capitalism. If enough of us did more to voice our disapproval, the pollies would change their tune PDQ.

And we’d have a more convincing story to tell our grandkids when they want to know what we did in the climate war.

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