Category Archives: Economics

A year of contradiction

It has been a good year for modern conservatives. With the Murdoch Press and in particular The Australian completing its slow transformation from a grumpy, cruel but fair conservative masthead to a ruthless ideological manipulator of truth,  it has been easy for neoliberal ideology to seep into daily discourse, and from there into government across the country. But the sheer ubiquity of neoliberalism has brought its internal contradictions into sharp focus: 

This year, conservatives have insisted that free speech is so overarching that it includes a right to racially vilify, yet sought to crucify whistleblowers like Assange and Snowden and academics like Jake Lynch and Larissa Behrendt whose speech offended them, and to neuter what little of the media they cannot control, like the ABC.

This year, conservatives have claimed to despise elites, yet sided with the powerful. They freed global money to circulate, yet fortified borders against human movement. They opposed democratic state action even to soften harsh markets, yet thumped their chests for imperial wars and Orwellian surveillance. They upheld rights to property, but not to drinking water.

This year, conservatives have mouthed Enlightenment values like reason and personal autonomy, yet have rejected science and decried secularism. They have denied equal rights because of religious dogma. Of the three pillars of democracy, they have commandeered liberty for the purpose of commerce and even claim to have invented it, but discarded equality and fraternity.

Modern conservatism is a Frankenstein’s monster: radical-authoritarian, theocrat-capitalist, anarcho-imperialist. Traditional conservatives were consistent at least in holding that things were better in the old days. As far as conservatism goes, I’m inclined to agree.

A word from one religion to another

As a man of religion, Archbishop Denis Hart is well-placed to understand the thought processes behind the free-market fundamentalism which has dominated economic policy in the Angloshere for decades (The Australian, “By making economy more personal, money will serve us and not rule”, 23/12).

With their mystical belief in the “Invisible Hand” – but not in the quite visible society of humans – neoliberals eschew modern mathematical knowledge which shows, not surprisingly, that just letting economies run on their own may result in academically satisfying equilibria, but is unlikely to produce optimal outcomes for humans.

Rather, these supply-side disciples prefer the folksy wisdom of their 18th century Messiah, Adam Smith – but only selected parts of it, for Smith himself advocated progressive taxation, public education and government infrasructure, all heresy to the modern young radical conservative. It seems that like most religious extremists, neoliberals have little regard for their own holy texts.

Yet Merv Bendle (Letters, 24/12) plays Scrooge to Hart’s Ghost of Christmases Past, giving a “Bah! Humbug!” to the latter’s plea to put people before markets. In the process, Bendle makes some extraordinary claims, denying the existence of any successful managed economies in terms of both production and distribution of wealth (ignoring the many affluent European social democracies), and equating non-market economies with poverty (overlooking the many laissez-faire disaster zones in the developing world).

Research shows that what wealthy nations have in common includes transparent democracy, high education levels, natural resources, and less edifying things like colonial history. Their choice of economic system has little if any relevance.

None the less, Bendle concludes that the Catholic Church should throw its weight behind free-market capitalism. There is a very good reason why this will never happen, and why in the poorest parts of the world the opposite has occurred: the market notoriously fails to justly distribute wealth and in many poor countries is the cause of shocking inequality. Particularly with a Latin American incumbent in Rome, the Church is unlikely to join the neo-liberal cheer squad.

Hoping the bubble bursts

The RBA’s low-interest strategy to stimulate the non-mining sectors has an unfortunate side-effect: worsening housing affordability (“RBA urges borrowers to be prudent amid record-low rate environment”, 25/9). The investments of one generation force up house prices, robbing the next of the chance to own one.

The PM shrugs off the affordability crisis by saying “sure that makes it harder to get into the market, but it also means that everyone who is in the market has a more valuable asset” (“Tony Abbott puts bubble trouble to bed”, The Australian, 28/9). He seems unconcerned that this leads inevitably backward in time to a two-tier society, divided into landlords who bought when the getting was good, and reluctant renters, effectively serfs, who will never have the opportunity to own a home.

Interest rate cuts are a blunt instrument which cannot distinguish between productive and unproductive investment. Their effect needs to be focussed by a purposeful tax regime.

House price inflation is fuelled in part by pointless tax concessions for unproductive speculation in existing dwellings, which contributes nothing to the economy but a pervasive form of inflation. Good policy demands the removal of these concessions, and a commensurate increase in breaks for productive investment in new stock.

But as long as the Coalition lacks the courage to take the necessary action, the millions forced to rent can only hope the bubble will burst, with all the pain that would cause to the landlord class.

Trickle-up effect

The 2.6% tweak received by Australia’s lowest paid workers on Monday is barely commensurate with inflation, but still too generous for Judith Sloane, who would prefer them to fall ever further behind (“Extended freeze would protect the poor”, The Australian, 4/6). She asserts that this is for their own good, citing cherry-picked research linking bottom-of-the-market wage rises with unemployment.

Economists are far from unanimous on that narrow topic, but it is unnecessary to decide whether Sloane’s view is correct. In the bigger picture, the real driver of employment is productivity, which has risen about 85% in the past three decades, while real wages have grown only around 50%. This “trickle-up” effect demonstrates that continuing unemployment, and downward pressure on wages, are due not to labour unaffordability but to employers’ unwillingness to share the increased wealth that their workers have created. Worse, dwindling union membership means fewer are in a position to insist on a fair share.

Ripped off

The Australian’s editorial (“Despite challenges, the spirit of progress endures”, 2/1) acknowledges that on most average long term economic measures, life is improving globally, including here in Australia, despite the groundless carping we endure from our insatiable “aspirational class”.

However, the suggestion that increased incomes have resulted from declining union membership is the opposite of what global data shows. In fact, the decline in collective bargaining has softened the link between productivity and pay, meaning that workers benefit less from improvements in the economy.

The editorial cites a real wage rise of about 50% since 1984, but given that real per-capita GDP rose by about 85% in the same period, it could just as well be argued that had more Australians remained in collective bargaining, we may have received more of our fair share of the increased wealth.

Champion of super

It is disappointing that even Peter Van Onselen’s otherwise balanced account of the history of superannuation under successive governments (“Labor losing edge as champion of superannuation”, The Australian, 6/10) fails to mention a crucial fact: the government’s recent proposal is not to cut into super but to remove a large and unfair tax shelter enjoyed only by the wealthiest 1%, saving the taxpayer tens of billions of dollars – an astute piece of policy which seem to be a taboo subject at The Australian.

Super shelter

The Australian’s editorial warns us to “expect tax increases on the long-term retirement savings of workers” (“Political interest rates are highest in the wrong areas”, 3/10). From what quarter should we expect this? It can’t be from this government, whose proposal is to reduce the anomalous tax concession for the wealthiest 1%, to the same level as the rest of us enjoy.

It’s time for some perspective to balance the “hands off our super!” hysteria. Australia’s richest 1% currently receive a 30% tax break on their contributions, almost twice what those on ordinary incomes get, and at an annual cost to the taxpayer of $30 billion and rising. The government’s proposal to reduce this concession to 15% will partially level the playing field. But the 30% perk will still apply to those earning from $180,000 to $300,000 a year, indicating that, if anything, the changes do not go far enough. Super was never intended to be a tax shelter for the super-rich.

How power companies undermine Australia’s climate strategy.

It seems that my electricity provider Origin (among others) intends to increase its green power prices by the same amount as black (carbon-producing) power when the carbon price kicks in.

Green energy customers are buying a product which does not produce carbon emissions, and the vendor is telling them that its price has increased because of the charge on carbon emissions. That is untrue and deceptive. Further, it means they are effectively subsidising their black energy customers by charging green customers a portion of the extra cost of producing the black energy they do not use. This is is counter to the purpose of the carbon price. Continue reading