Wednesday, November 16, 2016

How to get more job satisfaction

How about we take a short break from worrying about the new job Donald Trump has lined up for himself and think about our own jobs.

It surprises me that we spend so much time working – many of us in jobs we don't much enjoy – but are more inclined to seek escape from our work in fiction, or by following the adventures of celebrities such as Trump, than to think about how we could get more satisfaction from all that heads-down time.

It's not a subject of interest to our politicians nor, I fear, many of the bosses we do the work for.

Yet the fact is that psychologists – and even the odd economist – know a lot about what makes some jobs more satisfying than others.

Research published in 2014 by the British Cabinet Office examined the life satisfaction of people working in 274 occupations.

The 10 occupations seeming to yield the greatest satisfaction were, from the top: clergy, chief executives, farm managers, company secretaries, quality assurance regulators, health care practice managers, doctors, farmers, owners and managers of hotels and accommodation, and skilled metal, electrical and electronic trade supervisors.

The 10 occupations seeming to yield the least satisfaction were, from the bottom: plastics process operatives, bar staff, care escorts, sports assistants, telephone sales people, floor and wall tilers, industrial cleaners, debt and rent collectors, low-skilled construction workers and pub owners and managers.

From a quick squiz, it seems the most satisfying jobs tend to be better paid than the least satisfying. (With clergy as an obvious exception. If my dad's pay was any guide, revs aren't rolling in it.)

But if you conclude from this that finding a high-paying job is the best path to a satisfying job you've got the wrong end of the stick.

No, the clearer distinction between the two groups is that the most satisfied tend to be more highly skilled than the least satisfied.

As a rule, work skills tend to be scarce, with employers' demand for them stronger than workers' ability to supply.

So it's reasonable to infer that acquiring skills for which there's strong employer demand is a safe path to a high-paid job.

But there's another distinction between the two groups that does most to explain the satisfaction difference: the most satisfied are nearer the top of the heap, whereas the least satisfied are near the bottom.

It's nice to have status – people treat you with more respect. And it's nicer to do the bossing than to be bossed.

The psychologists will tell you, however, that the most important thing in job satisfaction is personal autonomy: having a degree of freedom in the way you do your job.

Feeling that, at least to some extent, you're controlling the system rather than the system controlling you.

These things take you a long way towards having a sense that you're achieving something. And that's another characteristic of satisfying work the psychologists have identified.

A third characteristic is a degree of complexity and variety. It's obvious enough that we like a bit of variety in our jobs rather than repeating the same tasks day in, day out.

Less obvious is that we like jobs that present us with a challenge – provided it's a challenge we can meet. Jobs that demand the impossible aren't satisfying, but nor is a job that's so easy it's a bore.

One of my favourite websites, PsyBlog, run by the British psychologist Dr Jeremy Dean, nominates a fourth "key to job satisfaction": fair pay.

Note, not high pay, but fair pay. How much is fair? This is the bit so many employers don't get in their fashionable preoccupation with performance pay and bonuses linked to KPIs (if you don't know what those letters stand for, think yourself lucky).

Fair pay is pay that's the same as received by people you consider your equal. We accept that people with more responsibility than us should get more, but we get twitchy when we know or suspect the boss is playing favourites among our peers.

It's clear bosses could do a lot to improve the satisfaction of their troops by avoiding favouritism, giving people at every level a little more freedom and flexibility, treating people lower down with more consideration and respect, and doing more to get individuals into the jobs their personal characteristics make them more suited to.

Dumb bosses live in fear that treating their staff well would allow them to slacken off. The KPI craze is intended to oblige people to work harder, but also to control more narrowly the way they do their jobs.

KPIs should come with a safety warning: careful what you wish for. They invite staff to turn off their brains – just as soon as they've figured out what aspects of their job they can neglect so as to ensure they always hit their targets.

Smart bosses know that treating their workers well, giving them discretion and encouraging them to keep their brains on pays off in greater effort and loyalty, as well as reducing staff turnover, recruitment and initiation costs.

If you don't have the good fortune to work for a smart boss you can use what wriggle room you can manage to make your job more challenging and psychologically rewarding. Failing that, find a better boss.
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Monday, November 14, 2016

Little right, much wrong with Trumponomics

For years I've wondered how America's business elite could grab almost all the proceeds of the country's growth, leaving real wages permanently stagnant, without having ordinary workers rioting in the streets.

Now I know. The anger kept building until a political huckster called Trump found the way to exploit it for personal advancement.

The bitter joke is that the populist promises he made to keep out Muslims, Mexicans and Chinese imports would do little to make the mug punters better off, whereas many of his more conventional economic policies will do much to further fatten the pockets of the 1 per cent the punters so resent.

While we wait to see which promises he acts on, the best guess is he'll implement those of his policies that fit with Republican orthodoxy.

After all, he'll be relying on the usual Republican suspects to make up his cabinet and relying on Republican majorities in Congress to put his policies into law.

This suggests he'll be quick to start phasing corporation tax down from 35 per cent to 15 per cent, and lowering all rates of personal income tax (though not necessarily in a way that favours low and middle earners).

He's likely to increase defence spending and maybe even keep his promise to fund a much-needed urban infrastructure renewal program.

But surely this would cause a huge expansion of the still-excessive federal budget deficit, wouldn't it?

Yes, but that's unlikely to stop it happening. It is, after all, similar to what Ronald Reagan did on coming to office in 1981.

We're about to see confirmation of an eternal truth of American politics: the Republicans care hugely about the evils of debt and deficit – it keeps them awake worrying about what we're leaving for our children and grandchildren – but only when there's a Democrat in the White House.

For the most part it will be a giant exercise in trickle-down economics – even though many of the people who fell for Trump's crude charms now rightly see it for the voodoo economics it mainly is.

Protectionism may be the new saviour – in Nick Xenophon's Oz as well as Trump's Rust Belt states – but it's still the delusion it always was. It seems "only common sense", but that doesn't mean it works.

In any case, were Trump to impose a huge tariff on Chinese imports, do you imagine that would re-open the ghostly steel mills in Gary, Indiana, or the rusting automobile plants down the road from Michael Moore's place in Flint, Michigan?

Turning back globalisation is no easier than turning back time. The main thing you'd do is rob working people (and the rest of us) of access to the one aspect of globalisation they've clearly benefited from: imported goods much cheaper than the locally made goods they replaced.

Don't kid yourself: some lost their jobs in factories, but all workers – most of whom never worked in manufacturing – benefited from lower prices.

That's why there's no free lunch in protection: it's a scheme where the fortunate few are subsidised by the less-favoured multitude. It's not foreigners who lose out, it's other locals.

And don't kid yourself on this: far from all the jobs lost from manufacturing were lost through import competition.

Far more than many oldies realise were lost through computerisation. That's a big part of the reason reimposing high tariffs would do surprisingly little to restore manufacturing employment.

It's a convenient delusion that globalisation is solely the product of "neo-liberal" deregulation. Its other, bigger driver is technological advance and the digital revolution. Think any pollie can stop that?

This isn't to say scuttling the Trans-Pacific Partnership free-trade agreement would be any loss. It offered trivial benefits to us, in return for giving foreign multinationals power to push our government around.

Just because preferential trade deals are called "free-trade agreements" doesn't make them a good thing. The US's primary goal in its many agreements is to advance the interests of its exporters of intellectual property, while continuing to protect its farmers.

Its trans-Pacific deal was intended as cover for the bilateral deal with Japan hidden within it, as well as strengthening America's trading links with all the main Asian economies that weren't China.

The Yanks may be paranoid about the rise of China, but the joke is there never were two big economies – the two biggest – more interdependent. The US is China's largest trading partner, while China is the US's second-biggest – and its biggest creditor.

The Yanks are really stoopid​ enough to take a crack at Chinese imports? Trump is a cunning con man, not an idiot.
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Saturday, November 12, 2016

Why Trump won't be as big and bad as many fear

Sorry, but I find the ascent of Donald Trump more fascinating than frightening. If it's all going to be so terrible, how exactly is he going to make it happen?

If you take literally all the things he's said he'll do, it will be a disaster. But anyone who believes all the things politicians say in the heat of election campaigns isn't too bright.

It wouldn't surprise me if many of the people whose votes got him elected don't know half of what he promised, don't much care what he promised and certainly don't expect him to deliver.

They voted for him because, in their anger with the business and political establishment, they wanted to give the system a kick up the bum. The less he sounded like a proper politician, the more they thought him the man for that job.

Because Trump isn't part of the standard two-party system and didn't win the election the orthodox way, it's more relevant than usual to ask what motivated him to run for president.

It wouldn't surprise me if he was more interested in proving he knew the right buttons to press to be president, or was popular enough to be president - that he could ensure he was the last contestant voted off the island - than he was in actually doing a list of things to "make America great again".

How keen will he be to take on four years of 18-hour days making unending judgment calls?

When you think of all the struggle needed to "drain the swamp", he strikes me as more Phony Tough than Crazy Brave.

Much of the commentary we've seen so far is very "great man theory of history". Trump is such a wild man, he'll single-handedly destroy the American alliance, end America's world supremacy, start a global trade war that reverses globalisation and resumes the Great Depression, and maybe provoke a shooting war with China.

Was that in his first term, or would it take two?

Sorry, I lean more to the view that history is a product of pre-existing trajectory, random developments and the interaction of powerful political and social institutions.

They say that in the race of life, you should always back Self-interest because at least you know it's trying. I'd also put a couple of bob on Inertia.

In the coming history of the Trump administration, I see big roles for self-interest and inertia, aka the status quo.

Start with the Republicans. The hated usurper Trump, rather than dumping them in it, has had a famous victory in their name, ensured Republican majorities in both houses of Congress, and acquired control over countless perks and preferments.

If you were in the Republican caravan, what would you be doing? Sucking up.

There's an army of worthies - academics, think-tankers, bureaucrats, retired generals, former lobbyists, business people and Wall Street bankers - who spend their careers moving in and out of taxpayer-funded jobs in Republican administrations.

Trump will be knocked over in the rush to be his special friend. The thousands seeking a gig will have two dominant motivations: a share of the spoils of office and a say in the shaping of policy.

There's probably only one Republican in the country who agrees with every item on Trump's supposed to-do list, and that's the man himself.

If so, every other Republican will be hoping to persuade Trump to drop this, tone down that, add this and put that one on the backburner.

Do you really think he's going to spend his 18-hour days ensuring every bright sales idea written on the back of an envelope during the campaign remains inviolate?

What about all the real, professional econocrats, diplomats and generals? "Alienate our closest allies? Start a trade war? Good idea, Mr President."

Remember, too, that presidents often have trouble getting their policies passed by Congress, even when it's of the same political colour.

There's far less party discipline in the American political system, with individual congress people requiring a small bribe (hopefully, only something for their constituency) before they toe the party line.

They're also anxious to keep sweet with the main interest groups that contributed to their campaign costs.

Which brings us to Washington's other big industry, the lobbyists. They're going to meekly bow before Trump's sacred list of bright ideas, are they?

No, they're going to go on doing what they're so handsomely paid to do: mould the actions of president and Congress to fit the perceived interests of their generous customers.

Who are these big-spending interest groups? Well, the ones with the most money to splash around are the ones representing the most successful and powerful industries. The gun industry, for instance.

But, right at the head of the list, Wall Street - the people whose greed caused the global financial crisis, who got bailed out by the taxpayer, avoided going to jail and left millions of ordinary people to pick up the pieces of their lives.

Many of those ordinary people are those who voted for the larrikin Trump, hoping he'd give Wall Street an almighty kick up the bracket - he being a regular plain-talkin' guy, just like them.

Get it? The business and political establishment is still running the place, still ensuring their interests are put ahead of those of the lesser mortals silly enough to vote for Trump.

Now Trump has no choice but to turn to them, seeking their help in running the joint and implementing his brave plan to put them and their paymasters back in their box.

They'll be falling over themselves to help - and mould the egotistical Trump to their masters' will.

It's a recipe for inertia and preservation of America's system much the way it's always been.

Trump's amazing defeat of the political establishment isn't so much the revolt of the put-upon punters, as just another political con job.
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Thursday, November 10, 2016

Don't jump to conclusions on big bad Trump

Keep your shirt on. The world as we know it may be ending, but if so it won't be for a while. And maybe things won't change as much as feared.

Yesterday the experts were confidently predicting Hillary Clinton would be president. Today they are predicting Donald Trump's presidency will be a disaster with equal confidence. How do they know?

I find it hard to imagine Trump's ascendancy won't end up being bad for our economy, for the rest of the world and the Americans themselves.

But that's a long way down the track and lots of unexpected things could happen between now and then. Maybe even a few good things.

The thing of which I'm most certain is that the election of a climate change-denying president will further delay a serious response to the challenge by America and, through its bad influence, the rest of us.

But, hey, we are probably too late already. So no (extra) harm done. And Donald, you and I will be dead long before it gets really bad.

Sorry, back to the present. Don't forget the guy doesn't even get the job until January. And even then he may not yet have assembled the full range of his thousands of appointees.

Not that there is likely to be any shortage of volunteers. They won't be America's finest, but there will be plenty of people keen to be the president's friend.

The delay will give Wall Street and the world's share markets plenty of time to change their mind about Trump - several times.

Remember, share markets took no time to decide Brexit was the end of the world and only a little more to decide it wasn't.

And every new presidency starts with a honeymoon, in which all the people who voted him in rejoice - a new start for America! - some of the people who didn't wish they had, and everyone is glad to be shot of the last lot and all their failings.

Nothing very bad will happen in the honeymoon.

If one of the first new policies to go forward is Trump's plan to end decades of neglect by renewing America's public infrastructure, that would be a good thing of itself, would boost the US economy and spread a little growth on to the rest of us.

At the other extreme, should Trump lose no time in starting a trade war with China, everyone would lose - the US, China and the rest, with Australia prominent among those last.

This is where we must trust that America's celebrated "separation of powers" comes to the rescue, allowing other, wiser heads to prevent Trump from being as foolhardy as he said he would be.

Of course, the one prediction every Aussie voter can make made with confidence is that Trump, being a politician, will fail to keep most of his promises. Good.
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Wednesday, November 9, 2016

Maybe the end of economic growth draws near

If you think the possible ascension of Donald Trump is our one big worry you haven't been paying attention. Some climate scientists are worried sick over the possibility that climate change may be passing the point of no return while we procrastinate over controlling it.

Meanwhile, the nation's – nay, the world's – economists worry that the wellsprings of economic growth are drying up in the developed countries. Think of it – an economy without growth!

On Monday the Productivity Commission issued a discussion paper exclaiming that there is "justified global anxiety" that improvements in productivity and the growth in national income they cause have "slowed or stopped".

In my job I'm not supposed to say it but, sorry, I'm a lot more worried about inaction on climate change than the feared end of economic growth – if for no other reason than that going backward must surely be worse than not going forward.

Why can't most economists see that? Because climate change is not their department. They're meant to be experts on how to make economies grow, and that's all they want to talk about.

Most economists I know never doubt that a growing economy is what keeps us happy and, should the economy stop growing, it would make us all inconsolable.

They can't prove that, of course, but they're as convinced of it as anyone else selling something.

I'm not so sure. I'm sure a lot of greedy business people would be unhappy if their profits and bonuses stopped growing, but I often wonder if the rest of us could adjust to a stationary economy a lot more easily than it suits economists and business people to believe.

And get this: there is a fair chance we may get to find out if I'm right.

The economy – the amount of economic activity, measured as annual production of goods and services – grows as the population and, more particularly, the amount of work being done, grows.

The economy also grows when we save some of our income from producing goods and services and invest it in additional productive equipment – machines, buildings, infrastructure – thus making our workers capable of producing more goods and services with each hour they spend.

But here's the bit many scientists and others don't get: the secret sauce of economic growth is our ability to produce more goods and services this year than we did last year even with the same quantity of labour and capital equipment.

This is the pure essence of economic growth: improved "productivity" – productiveness. How is it possible? Mainly by giving workers not just more machines, but better machines; machines that do better tricks. By technological advance.

And also, these days, by using further education and training to make our workers capable of doing fancier tricks – including working with more sophisticated machines – and organising work in better ways.

This essence of productivity – which economists call "multifactor" productivity – is what seems to be drying up. In Australia, according to the eponymous commission, it hasn't improved since 2004.

But it's much the same story in all the developed economies. Many economists are starting to accept Harvard professor Lawrence Summers' revival of the theory of "secular stagnation" – that we've entered a lasting period of little or no growth in national income (gross domestic product), especially income per person.

What's helping to persuade them is the argument of another American economist, professor Robert Gordon, perhaps the world's leading expert on productivity.

His contention – which no young person would believe – is that the slowdown in measured productivity improvement has occurred because there is now much less innovation than we became used to over the past century.

Despite the unending wonders of the digital age, and the digital disruption of industry after industry, they just don't compare with the life-changing and economy-transforming technological advances of the past: electricity, the internal combustion engine, even underground water and sewerage.

We spent all of last century fully exploring and exploiting the potential just of electricity – from light bulb to production line to dishwasher to the computer and all it has spawned.

But there's more to Summers' secular stagnation. He argues that population ageing is leading people in the West to save more, while digital innovation and weak population growth are reducing the need for much new physical investment by businesses and governments.

Higher saving and lower investment equal permanently lower interest rates and lower economic growth.

Well, possibly. A rival theory is that the digital revolution and the shift from more goods to more services is changing the economy in ways that the economists' conventional measuring system is incapable of picking up.

We're still getting better off, but in ways that aren't showing on the economists' dials. It's certainly true that much of the time-saving and convenience flowing from the internet is not measured by GDP.

That's been my big problem with economists' obsession with economic growth. It defines prosperity almost wholly in material terms. Any preference for greater leisure over greater production is assumed to be retrograde.

Weekends are there to be commercialised. Family ties are great, so long as they don't stop you being shifted to Perth.

But I'd like to see if, in a stagnant economy, we could throw the switch from quantity to quality. Not more, better.
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Monday, November 7, 2016

Turnbull and Morrison to fix the budget without really trying

There are a lot of -isms in economics – Keynesianism​, monetarism and many more – but it's now clear the Turnbull government is an adherent to Micawberism.

Mr Micawber, you recall, was the Dickens character who summarised his philosophy of life as: "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Micawber's life was miserable because he often found his finances in deficit. A bit like an Australian government post-global financial crisis.

His solution to the problem never changed. He was always waiting and hoping for "something to turn up".

We've now seen enough of the Turnbull government to realise it, too, is doing little more than hoping something eventually turns up to get the budget back to surplus.

To be fairer to the government than it deserves, the main reason repair of the budget's taking so much longer than expected is not because of any great laxness in the control of government spending, but because tax collections have grown so much more slowly than could have been expected, for reasons beyond its control.

Its revenue forecasts have repeatedly fallen short because export prices have fallen much further than expected and because the rates of price and, more particularly, wage inflation have slowed to rates unseen in decades.

Even so, successive treasurers have insisted the budget has a "spending problem, not a revenue problem". They say this; they haven't acted on it.

They've used this false claim to resist pressure to increase taxes (apart from allowing bracket creep, which the weak growth in wages has made far less potent than usual) but, after the public's resounding rejection of the Coalition's first budget, they've made no real attempt to repair the budget by making net cuts in government spending.

If that assertion surprises you it's because you've been bamboozled by the government's actual spending policy: to ensure all new spending programs are offset by cuts to existing programs.

So the unending stream of fights to get these and those spending cuts through the Senate are merely an attempt to hold the line on spending growth, not to slow it down.

That there are so many new spending programs needing to be offset is a demonstration of how utterly unrealistic is the government's professed goal of "smaller government".

The government's lack of enthusiasm for net spending cuts is shown by the increasingly piddling, penny-pinching nature of the cuts it wants to get through Parliament.

Raise the departure tax by $5; tax backpackers for the few months they're here; cut the dole by $4.40 a week; think of further ways to deny benefits to single parents and the disabled.

If you've been a budget-watcher for a few years, you can tell such measures come straight out of the bureaucrats' bottom drawer, where they've been kept for the day when the government was desperate enough to need then.

Their piddling nature is a sign that, in the search for spending cuts affecting only politically weak interest groups, the government is close to the bottom of the barrel.

Actually, what it shows is that even the policy of making departments come up with offsetting savings to cover new measures is running out of puff.

Now, be clear on this: in drawing all this to your attention, my purpose is not to criticise the government for failing to slash spending and the deficit, merely to highlight the yawning gap between what it says about budget repair and what it's actually doing.

So if its true strategy is merely to wait for something to turn up that gets us back to surplus, what could turn up?

This is where its prospects are brighter than Mr Micawber's. Coal and iron ore prices are a lot higher today than they were at the time of the budget in May. If this lasts it will do a lot to restore the growth in tax collections.

Nor is it wildly optimistic to expect that price and wage inflation will recover over the next year or two, putting some bite back into bracket creep.

But much help could come from the recalcitrant Senate. This year's budget included big tax increases – in tobacco excise, superannuation and multinational tax avoidance – intended to partially cover the ever-growing cost of cutting the rate of company tax by 5 percentage points.

If, as seems likely, the Senate accepts the tax increases but declines to pass the company tax cut on to big business, in time the budget should be well ahead on the deal.
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Saturday, November 5, 2016

This year changed the politics of tax reform

The disease known as "confirmation bias" is endemic among economists. They have a marked tendency to remember events that seem to confirm the correctness of long-held beliefs, but forget developments that challenge their prejudices.

So their pre-existing notions about how the world works become ever more firmly held.

In which case, let me remind them - and you - of the view-changing lessons about tax reform they probably haven't learnt from the results of recent elections.

Economists, politicians and business people have long-held views about which tax reforms are relatively easy to bring about politically, and which aren't.

But some of these assumptions have been turned on their head by the Turnbull government's poor showing at the election in July, and by the comfortable re-election of the ACT Labor government last month.

In this year's federal election, tax reform was perhaps the biggest single issue. It was, you recall, the one to which the Coalition government was expected to bring a package of comprehensive tax changes, following a green paper and white paper decision process.

The process didn't happen, nor were either Tony Abbott or Malcolm Turnbull willing to propose the much-mooted increase in the goods and services tax.

There was no package as such, just a collection of tax measures announced in the budget brought down just before the election campaign started.

The big one was a plan to reduce the rate of company tax from 30 per cent to 25 per cent, phased in over 10 years, with smaller companies going first and the cuts not reaching big business until 2024.

This was the centrepiece of the government's claim to have a "plan for jobs and growth". To this it added a tiny income tax cut of up to $6 a week for the top 20 per cent of taxpayers, earning more than $80,000 a year.

But the budget included various tax increases to help pay for these tax cuts. It pinched Labor's plan for a further big, phased increase in tobacco excise, and adopted its own versions of Labor's plans to cut back tax concessions on superannuation and extract more tax from multinational corporations.

Labor had been first to put its tax reform cards on the table. It proposed also to phase out negative gearing of property investments and cut the discount on capital gains tax.

The government considered its own measure to reduce negative gearing, but finally decided to do nothing, thus leaving itself free to claim Labor's plan would wreck the housing market. Product differentiation.

But here's our first lesson on the politics of reform: it's a lot easier for governments to propose possibly unpopular reforms when the opposition has already stuck its neck out, or when cabinet has reason to believe the opposition won't attack it for acting.

We can deduce from opinion polling, from the debate during the campaign and from the election outcome how these various reform measures went down with voters.

The tobacco excise increase, the crackdown on multinational tax avoiders and the tiny tax cut hardly rated a mention in the campaign.

Had the small but expensive tax cut not be made, it's doubtful if the Coalition would have lost many votes. Bracket creep is rarely a biting election issue.

The crackdown on multinationals was probably intended to answer the criticism that companies hardly need a tax cut when they were already paying very little, but it could just as easily have reminded voters of this argument.

The super changes attracted little discussion publicly, but did anger some well-lined Liberal supporters. After the election the measures were toned down accordingly.

But it's hard to believe the Libs lost many votes over it when Labor had similar proposals. Nor that many people loaded enough to have a problem with the super changes would have switched their vote to One Nation, as some claim.

It seems pretty clear the cut in company tax wouldn't have gained the Coalition many votes it didn't already have, but probably lost it quite a few.

The public has little sympathy for big business - can't think why - and the claim that the benefit of company tax cuts would trickle down to the rest of us wasn't believed.

Even the government's own modelling showed the belated effect on "jobs and growth" would be minor. For the punters, the link was impossible to see.

By contrast, the government's attack on Labor's negative gearing policy didn't stick and the policy may have gained more young voters than it lost from older property investors.

Economic theory tells us taxes on land are about the most economically efficient - doing least to distort the choices people make about working, saving and investing - of all taxes.

They're particularly attractive when the increasing ease with which financial capital can be moved between tax jurisdictions is used as a key argument for reform, including increasing the GST. Land is immovable.

Land tax is also much fairer - "progressive" - than "regressive" GST, which takes a higher proportion of lower incomes than higher ones.

The value of the land people own tends to be highly correlated with their overall wealth.

But many reform advocates say raising land tax would be even harder politically than raising the GST.

Well, they should note the case of the Labor government in the ACT, which got comfortably re-elected even though it has been implementing a reform long advocated by tax economists: slowly phasing out stamp duty on property conveyances while phasing in a universal land tax.

Of course, there are no controlled experiments in economics, and many factors - notably, perceptions of a government's general competence - play a part in election outcomes.

Even so, this year's elections cast doubt on some supposedly self-evident truths in the politics of tax reform: that company tax cuts won't be a problem, whereas negative gearing, superannuation and land tax are untouchable.
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Wednesday, November 2, 2016

Pick on the weak and friendless to pretend to fix the budget

Did you know our social security system is so open to rorting that it's possible for some people to get more from benefits than they'd earn if they took a job? And we wonder why we have problem with debt and deficit.

This scandalous state of affairs was leaked to an  Australian newspaper by sources close to the minister for Social Services, Christian Porter.

Specifically, single parents with four children can get welfare payments of more than $52,000 a year if they don't work, but less than $50,000 after tax if they work and receive the median full-time wage.

Small problem with this appalling news. It's a cock and bull story.

The welfare experts took no time to demolish it.

For a start, it's a contrived example. How many people do you know with four dependent children? There must be some single parents with four kids, but they'd a small fraction of all welfare-dependent single parents and an infinitesimal fraction of the 5.2 million recipients of federal "income support".

Worse, it's a false comparison. If the sole parent took the job they'd still be eligible for the $32,000-odd in family tax benefits per year. By supposedly preferring to accept the "parenting payment single" of less than $20,000, they'd be passing up the median full-time wage of almost $50,000 after tax.

What Porter doesn't seem to know is that family payments are specifically designed to be the same whether parents are working or not, precisely to ensure they don't discourage parents on benefits from taking a job.

So the Minister for Social Services has grossly misrepresented the workings of his own system.

Relative to people like Joe Hockey and Scott Morrison, Porter seems smart and well-spoken, eminently capable explaining a tricky concept in simple words. He's next most likely to be treasurer.

So why did he risk his reputation by putting out a line that was so quickly and easily debunked?

Perhaps because he thinks it's his job to convince us that the allegedly unsustainable growth in welfare spending is the main reason for our debt and deficit.

And because it's the job of he and his ministerial offsider, Alan Tudge, to counter the Senate's reluctance to agree to a range of cuts in the dole and other welfare benefits by creating the impression in voters' minds that welfare spending is rife with rorts and rip-offs by the undeserving poor.

Also because the Liberal heartland is desperate to believe they won't have to pay higher taxes if the welfare bill can be chopped back to size. Worse, I suspect Porter and Morrison actually believe it.

In a speech a few weeks' ago Porter worked hard to demonise his own portfolio, grossly exaggerating the size of the problem.

Today's "welfare spend" is about $160 billion a year. This makes it the largest category of (federal) government spending, representing 80 per of all individual income tax collections, he says. (Except that personal income tax represents only about half of all the federal tax we pay. Oops.)

He wants us to assume most of this $160 billion goes on people who could work, but won't: dole bludgers, sole parent bludgers and people on disability pensions pretending to have bad backs.

Except that half the money goes to bludgers who don't want to work because they're over 65. Another quarter goes to bludgers with children (the family tax benefit) or young mothers wanting subsidised childcare so they can do their bludging at work.

Most of the alleged projected "unrestrained growth" in the welfare spend will come from the continuing retirement of the baby-boomer bulge and the success of investment advisers in helping people get the age pension despite their big super payouts.

Have you noticed how many political fights in recent times arise from the government's efforts to get penny-pinching spending cuts and tax changes through the Parliament?

There's the tax on backpackers, the removal of the "energy supplement" worth $4.40 a week or so to pensioners and people on the dole, the cuts in family payments that would hit sole parents hardest, the cuts to make people wait four weeks before they get the dole and raise the eligibility age for the adult dole to 25, and even the move to stop evil maternal double-dippers using employer-provided paid parental leave to prolong the period they have at home with the baby.

Porter says we can't continue to borrow money to fund today's welfare system growth because this would burden young Australians.

He avoids admitting that apparently we can continue to borrow money to cover a tax cut for people earning more than $80,000 a year, hugely expensive cuts in company tax, a much-delayed crackdown on multinational tax avoidance and a massive increase in spending on defence.

Heard of priorities, Christian?

These penny-pinching cost cuts aimed mainly at the socially disadvantaged and politically defenceless – if roughing up asylum seekers and their kids goes down so well with voters, why not extend the attack to bottom-of-the-pile Aussies? – are far from sufficient to make much impact on the budget deficit.

They show the government is near the bottom of the barrel in the quality of budget savings it's prepared to make.

It wants us to believe the federal budget is close to bankruptcy but, in truth, it's this government that's nearer to being morally, politically and economically bankrupt.
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Tuesday, November 1, 2016

TALK TO NSW TREASURY, NSW

Parliament House, November 2016

I’ve always been a sympathiser and supporter of Treasuries - federal and state. I think it comes from my background as an accountant, before I began an economic journalist. But in recent years I’ve become more critical of Treasuries’ performances.

I accept and respect that Treasuries see balancing the budget as their ultimate responsibility, the issue they care about most. After all, if they don’t accept ultimate responsibility for the budget, who will? Certainly not the voters and not even the politicians.

But tho worrying about the budget is necessary to the community’s economic progress, it’s not sufficient. If remaining vigilant on budget responsibility is all Treasuries do, it’s not nearly enough.

If Treasuries don’t also accept responsibility for micro-economic policy - for the efficiency with which industries are functioning, who else will?

Actually, the two issues - budgets and economic efficiency - overlap. And it’s in this overlap that I’ve become more critical of Treasuries.

I fear that, in their preoccupation with the budget, Treasuries have been behaving more like accountants than economists. They haven’t resisted the temptation to let the end justify the means. If some spending cut helps reduce the deficit, why worry whether it’s what Paul Keating called a “quality cut”? 

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Monday, October 3, 2016

If the economy’s acting dumb, don’t blame the econocrats

Has it occurred to you that, with the Reserve Bank now run by Dr Philip Lowe and his deputy Dr Guy Debelle, Glenn Stevens may have been the last governor we'll see without a PhD?

All Stevens and his predecessor, Ian Macfarlane, could manage was a master's degree.

Of course, nothing is certain. After Dr Ken Henry was succeeded as Treasury secretary by Dr Martin Parkinson, I convinced myself the era of PhD-only secretaries had arrived at Treasury.

Wrong. It didn't occur to me that Tony Abbott would intervene, sacking Parkinson and replacing him with John Fraser (honours degree), a throwback to Treasury's (John) Stone Age.

My point is to remind you that the nation's top econocrats get ever-better educated. And take my word for it – they're not just highly qualified, they're whip smart.

When you spend as much time talking to them as I do – mainly before they make it to their top slots – you have to keep reminding yourself how exceptionally bright they are to stop you underrating your own brainpower.

They're the kind of people who – while you were at uni chasing the opposite sex, playing at politics or just goofing off – were swatting flat out, preparing for every lecture and starting early on every essay. You skimmed the texts; they read every word.

While chatting about other people's academic qualifications I suppose I should disclose my own: scraped through a bachelor of commerce, pass level.

Had to repeat several subjects, and the last pass I got, for international economics, was conceded. I couldn't see the point of economics until long after I left uni.

If by now I do know a bit about the topic, it's thanks mainly to long telephone tutorials from the aforementioned and their predecessors.

As citizens we should find it reassuring that our politicians are being advised by such smart people.

For the most part they're more intelligent (and better qualified) than their political masters – and than the politically ambitious young punks in the minister's office who stand between them and the boss.

We'd be better governed if more of the people in ministers' offices came from the department, if there was a less adversarial relationship between the office and the department, and if ministers and their private advisers were more conscious of their need for policy advice from the more expert.

After Scott Morrison's major speech about "the taxed and the taxed-not" I stopped myself saying it was clear Treasury hadn't written it because of all the bad grammar in it.

The broader point is that, although the nation may not be doing as well as we should be in increasing the human capital of the workforce, there's no doubt our workforce is getting better qualified.

Over just the 10 years to 2015, the proportion of our population aged 20 to 64 with a bachelor degree or above rose by 7.5 percentage points to 29.3 per cent.

This would include a lot of our brighter young people getting double degrees – the benefits of which I'm yet to be persuaded of. (Whether too many of our workers have actually become overqualified is a worry for another day.)

So rest assured, the economic bureaucracy is at least keeping up with the trend to better qualified workers, and probably exceeding it. Of course, people with doctorates are popping up throughout the workforce, not just the bureaucracy.

Most of the Reserve's PhDs are home grown. As you may remember from Peter Martin's fascinating biography of its new leadership, Lowe joined straight from school, meaning the Reserve funded his education all the way from undergrad university medal to doctorate from MIT in Cambridge, Massachusetts.

Since the Reserve earns a fortune each year by printing bank notes for less than 10¢ a pop and selling them to the banks at face value (only most of which it eventually passes on to the government), it's well able to afford to ensure its troops are well educated.

It's harder for Treasury, whose bright young things compete against the rest of the public service for a limited number of scholarships (one of which was endowed by the will of a former Treasury secretary).

You could be forgiven for wondering whether having our top econocrats so well-qualified academically is such a wonderful idea. Fortunately, there's a big difference between an econocrat with a PhD and a university lecturer with one.

Too many trainee academic economists are just learning to do mathematical tricks that will impress their peers. A post-grad from the bureaucracy knows they're learning how to prescribe better economic policy.
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