Articles – Page 10

Are The Panama Papers Really Such A Scandal?

What, exactly, is the scandal with the Panama Papers?

You might have read in Time that it “could lead to capitalism’s great crisis” and the Guardian that it depicts “the corruption of our democracy”.

It’s easy to draw political conclusions from the leak of 11.5 million files from the Panamanian law firm Mossack Fonseca – even take a guess how it will play out in Australian domestic politics, which we will come to shortly – but put aside the hyperbole for a moment.

Is the scandal that Vladimir Putin’s inner circle has extracted billions of dollars of the wealth of the Russian citizenry and state? Or is it that they are trying to avoid paying the Russian statutory income tax rate of 13 per cent?

Is the scandal that you can accumulate incredible wealth as a member of the Chinese government? Or, then again, is the scandal that some of that fortune isn’t being taxed domestically?

Twenty-nine per cent of all active companies represented by Mossack Fonseca were set up by its Chinese offices. But this doesn’t inherently suggest criminality. Wealth in China risks expropriation by the state. Investing offshore is good risk management.

Indeed, most of the foreign leaders named in or connected to the Panama Papers come from countries that are high on corruption and low on the rule of law.

Scan your eyes over the nationalities of the “power players” in the Panama Papers. Georgia, Iraq, Jordan, Qatar, Sudan, Saudi Arabia, the United Arab Emirates, Ukraine, Azerbaijan, Syria, Egypt, Pakistan, Ghana, Morocco, the Palestinian Authority, Cambodia, Kazakhstan. This is not a list of the world’s liberal democracies.

Some are, though. The prime minister of squeaky-clean Iceland, Sigmundur Davíð Gunnlaugsson, stood down last week after he was named in the Panama Papers. When his wife invested the proceeds of a sale of her father’s business offshore, Gunnlaugsson failed to declare his interest in the company. The company also held bonds in the very same Icelandic banks that the government was responsible for winding up after the Global Financial Crisis.

But Gunnlaugsson’s true crime is hypocrisy. Having professed an Iceland-first economic policy of capital controls, retaining businesses in Iceland and protecting the Icelandic króna, it understandably galls to see his own wife utilising global offshoring to – legally – maximise her wealth.

David Cameron is having similar trouble after his father was named in the papers. All evidence suggests that Ian and David Cameron paid all taxes on the dividends they received in Britainfrom this offshore investment. But the British government has spent the last few years trying to whip up a frenzy about complex tax arrangements. Not a great look.

Still, hypocrisy is a moral violation, not a legal one.

Tax havens perform an important function by putting downwards pressure on domestic tax rates. They are the global economy’s escape valve – preventing sclerotic Western welfare states from pushing taxes up and up.

As the Cato Institute’s Dan Mitchell wrote last week, the fact that law firms like Mossack Fonseca create corporate structures is no scandal. Even though what they do is completely legal, they are now being tagged with a vague sense of criminality. But Mossack Fonseca does not acquire the money, hold the money, or invest the money. And it is required to do due-diligence on its clients.

Most importantly, for all the impressive scale of the Panama Papers (11.5 million files comes to 2.6 terabytes of data) it tells us little about the extent to which offshoring erodes the tax base of non-haven countries. It is remarkably hard to identify any serious detriment to the revenue from offshoring, as even the OECD, the multinational body pushing the crackdown on tax avoidance, admits.

This is where the politics of the Panama Papers and their actual policy significance sharply diverge.

In Australia, Bill Shorten has made a crackdown on corporate tax avoidance the pillar of his economic policy. As Lenore Taylor writes in the Guardian, Shorten is relying on the revenue gained from closing tax loopholes to fund new social spending, and close the budget deficit.

Labor thinks it can squeeze another $2 billion in revenue from a crackdown on tax avoidance, but won’t release Parliamentary Budget Office estimates it says shows this. My Institute of Public Affairs colleague Sinclair Davidson has often pointed out that the Australian government is much better at writing press releases announcing how much extra revenue it will collect from a crackdown than actually collecting that revenue.

The Panama Papers helps Shorten keep the Turnbull Government on the back foot. Even though the Coalition has tried to beat up the tax avoidance issue itself, economic populism is not a game that nominally market-oriented parties can win. As the prime ministers of Britain and Iceland have learned, the politics of offshore investments is about impressions not policy.

To be mentioned in the Panama Papers looks bad. That the Panama Papers exist looks bad. It’s the vibe. It’s the optics of the thing.

Every article on the leak has a sentence saying something like, “There are legitimate uses for offshore companies”, but who reads the fine print? And in the middle of a frenzy about the super-rich and what they do in foreign, exotic countries, who would want to?

Federation Reform Is No Political Plaything

Every government dreams of reforming the federation, but dreams usually end in disappointment. Malcolm Turnbull should know this.

Consider his predecessor. Tony Abbott always had a love-hate relationship with federalism. His attitude to the states in Battlelines ranges from ambivalent to hostile. As Howard government health minister he helped orchestrate the “local” takeover of Devonport’s Mersey Hospital from the Tasmanian state government – a takeover underwritten by the Commonwealth government, of course.

But in his 2013 budget reply speech as opposition leader, Abbott suddenly declared that under a Coalition government the states would be “sovereign in their own sphere”.

It was an important moment. That phrase had been used by the Australian founders. During the 1897 federation conference Edmund Barton said the goal was “to create a system of government under which, as to over all the powers they retain, the States will be supreme and sovereign in their own sphere.”

The technical structure of our constitution says that everything not expressly given to the Commonwealth government is to be left to the states. But to say that the states are sovereign is to go further than legalities – it is to assert that the states have fields of control which cannot legitimately be usurped by the Commonwealth.

Of course, in the 21st century the states are anything but sovereign. There is no area of state constitutional responsibility that does not have the federal government slobbering all over it. These days health, education and infrastructure are all, in practice, joint Commonwealth-state endeavours. The Commonwealth dominates the collection of taxation and distributes funds for the states to spend. But funding tends to come with conditions, and the Commonwealth uses the leverage it gains from its revenue to pursue its own goals in the areas of health and education.

It is hard to imagine a system of governance worse for accountability, for transparency, even for democracy than to have one level of government raise funds and the other level spend it.

Abbott commissioned a taskforce in his own department to produce a white paper into federal reform. The taskforce produced a discussion paper and four issues papers but then quietly disappeared – the promised green paper (to be “released in the first half of 2015”) and white paper (“by the end of 2015”) never materialised.

One explanation for the quiet death of Abbott’s federation agenda was the general drift that characterised his last year in office. But part of it was almost certainly because the taskforce had thrown up some very radical solutions to the problems of Australian federalism – like removing the Commonwealth from schooling altogether, or the Commonwealth directly spending more of the money that it raises, or encouraging the states to raise more money themselves – that were a bit too bold for the Government’s taste.

There are fundamental structural problems with Australia’s federal system. Almost any solution is radical. Turnbull is not the first prime minister to propose returning income tax powers to the states, and he’s not the first to abandon it on political grounds.

Political strategists often point out that voters don’t care about which level of government is responsible for what policy area. If a road has a pothole, they just want it fixed. They don’t want to be told by a politician that it is a state or local responsibility. Newbies to federal politics quickly find themselves discussing local traffic lights with constituents rather than foreign policy.

Yes, vertical fiscal imbalance – the term which describes the disjuncture between the Commonwealth’s taxing and the state government’s spending – is an esoteric problem. But then again, the federation is an esoteric topic. Constitutional limitations on government are esoteric. Just because a problem is esoteric does not mean it is unimportant.

Unfortunately no government has successfully made these esoteric issues relevant – outlined the relationship between fixing the federation and practical policy consequences. “Stop the blame game” is a great catchphrase but it’s not quite great enough to justify major reform.

So Turnbull’s failure to win the state income tax argument against a group of self-interested premiers last week should not have been a surprise.

If, as some commentators have argued, Turnbull is playing a long game – by showing that the state governments would rather complain about being underfunded than to take financial responsibility for their own public services – then more power to him. The question is whether the goal of that long game is simply to justify reducing the amount the Commonwealth gives to the states for health and education in the 2016 budget, or to lay the foundation for a deeper reform of the federation itself.

Turnbull has a lawyer’s understanding of how Australia’s federation today looks nothing like the constitution originally prescribed, and he has a politician’s understanding of how to deal with the states. But the federation question is about more than just politics and law. It’s about how we conceive the Australian nation. It’s about whether power should be divided between states and the Commonwealth or whether we should accept the centralisation of power as inevitable. Are states sovereign? Or are they just subservient?

Cigars and the plain packaging effect

In the 176 page report into smoking produced by the Preventative Health Taskforce — which Labor used as a blueprint for plain packaging — cigars are mentioned just twice. Once, buried in a footnote to a graph showing declining smoking rates across blue and white collar groups; and once in a piece of draft legislation written not for Australia, but for the United Kingdom.

The public health activists who wrote that report were interested in people who, they believed, had so little free will that colours and logos were enough to swing their decision of whether to smoke cheap cigarettes.

Premium cigars — the sort that sell in Australia for upwards of $30-$50 for a single cigar — are a luxury product. The consumers of premium cigars are highly informed about what they are buying. The cigars have to be carefully stored in carefully calibrated humidors that replicate the humid conditions of the countries in which the tobacco is grown — a dried cigar tastes burned and worthless, and bringing a single cigar back to life can take days.

The stereotype of the addicted and helpless consumer that has driven so much anti-smoking policy does not apply to cigar smokers. They are a special consumption good — an indulgence. Cigar manufacturers like to say their products are part of the special moments in the lives of their customers. They’re for celebrations or contemplation. Few people do, even could, smoke a cigar daily. When we talk about cigar consumption, we are not talking about a major health crisis for which extraordinary regulatory measures might be justified.

Nevertheless, when the government first moved ahead with plain packaging — described in their 2011 consultation paper to ‘make cigarettes less appealing, particularly to young people’ — cigars were included in the definition of tobacco products. Labor’s health minister, Nicola Roxon declared that:

Whether you are talking about cigarettes, cigars or pipe tobacco, all are addictive and all are harmful.

Australia’s few cigar bars had closed thanks to state laws which banned indoor smoking. Now, with plain packaging, Australian cigar retailers are forced to strip the colourful bands on cigars and replace them with the drab, olive bands with the name of the cigar printed in a regulated font. On top of that, changes to the Tobacco Advertising Prohibition Act 1992 (implemented less than a year after plain packaging) prevent online retailers from showing almost any information about the cigars they are selling. The only legal information is a cigar’s name, price and country of origin. Online retailers are not allowed to show any details about a cigar’s flavour or characteristics — let alone images of the cigar.

The flipside of being a luxury good is that branding is all important. Cigar aficionados talk about the aesthetics of the product as much as the flavour. Different regions prefer different aesthetics — European markets tend to prefer lighter coloured cigars, even though there is no discernible difference in taste. Cigar manufacturers tend to be family run down the generations. They are supposed to ‘taste’ of the region they come from, like good wine.

The look and branding of the cigar is a big part of its pleasure. That isn’t something to be derided. The American writer Virginia Postel has argued compellingly that the ‘frivolous’ aesthetics of consumer goods are in fact extremely important and valued parts of the human experience.

When the Gillard government replaced the highly stylised cigar bands with olive paper, they made it clear that to ‘make smoking history’ (the declared position of the Preventative Health Taskforce) was to deliberately go after a centuries-old human pleasure.

While plain packaging of cigars may have been an afterthought, their eventual inclusion goes to the paternalistic heart of the policy itself. Plain packaging is not about helping people make better choices. It is about eliminating those choices.

Plain packaging and the developing world

To make smoking history would be to end the cultivation and production of tobacco. Tobacco grows best in tropical locations and the best cigars come from countries that are both hot and humid.

While Cuba has the international cultural cache for quality cigars, the real hub of premium cigar manufacturing is in the Dominican Republic. The Spanish speaking Dominican Republic is a case study in institutional stability — sharing half of the island of Hispaniola with the French speaking Haiti, it has relatively stable democratic institutions and an economy which grew at 7 per cent in 2015. Just an hour and a half flight from Miami, the Dominican economy is heavily reliant on the US economy and sustained by its two big export industries — mining, and tobacco, nearly 90 per cent of which is sold in the form of premium cigars.

In other words, the Dominican Republic is a tobacco economy. There are 135,000 Dominicans cultivating, commercialising, processing, manufacturing and supplying tobacco, and the tobacco industry represents 1.3 per cent of the country’s GDP. Cuba has the cultural cache for hard-to-obtain premium cigars, thanks to the American trade embargo, but the Dominican Republic has 44 per cent of the market.

So while it is rare that Australia and the Dominican Republic interact, Australia’s plain packaging legislation has brought the two countries into a fundamental conflict of interests. To eliminate brands from premium cigars is to threaten a substantial part of the Dominican Republic’s economy. Australia is — or was — only a small part of the Dominican tobacco market. But the introduction of this Australian pioneered paternalism in larger economies across the world (the United Kingdom, for example, is set to introduce plain packaging this year) has made the Australian introduction a key policy contest.

Market trades are mutually beneficial — benefi cial to the consumer of a good, and beneficial to the producer of a good. When governments ban or prevent those trades, both consumers and producers are harmed.

The Dominican Republic is one of four countries arguing in front of a World Trade Organisation dispute resolution panel that Australia has restrained trade by eliminating the ability of cigar manufacturers to differentiate themselves and convey the premium nature of their products.

The other countries are Honduras, our close neighbour Indonesia, and Cuba. (It ought to be embarrassing that we are contesting a restraint of trade case against a communist nation). More than forty other nations have joined the dispute as third parties. As many Australians would be aware, plain packaging has been upheld in the High Court — in its 2012 ruling, the court did not consider plain packaging to be a taking of intellectual property that would require compensation. In December 2015, the Australian government won a further dispute with Phillip Morris in a Hong Kong court pursuant to a 1993 trade agreement with Hong Kong by contesting that the court had jurisdiction.

But the WTO case is the most substantial and long running case. A ruling is expected some time in mid-2016. WTO cases are rarely unambiguous wins or unambiguous losses for the parties contesting them. However, a loss for Australia would be politically complicated.

WTO rulings are not binding, and the instinctive reaction of the Australian government might be to brush it aside. After all, Australians’ health must come first. But Australia benefits from the WTO framework — as an open, mid-sized economy highly integrated in world markets, we have a clear interest in ensuring other countries are open to trade, and comply with the agreed-to WTO rules.

And where the previous two cases pitted Australia against a multinational tobacco firm, the WTO case has Australia against a group of developing nations. Of the four parties, the Dominican Republic is the most prosperous, and even then Australia’s GDP per capita is 11 times that of the small nation.

Australia has argued that plain packaging is not discriminatory against trade — it applies to domestic and foreign tobacco products alike — and that it has been imposed to fulfil (in the words of the WTO’s Agreement on Technical Barriers to Trade) the ‘legitimate objective’ of the ‘protection of human health’. Fundamentally, the question at the WTO is the same one plain packaging faces domestically: does the elimination of branding advance human health? The developing nations argue it does not. The Australian government argues that it does.

Both parties are working with a highly contested, limited evidence base created in the four years since plain packaging was introduced. Complicating this, the keeper of that underlying data — which is, of course, the Australian government — has an interest in the outcome.

So has plain packaging worked?

Whether a public policy has achieved its goal depends on how that goal is initially defined. The Tobacco Plain Packaging Act stated that its intention was to improve public health by discouraging smoking through the reduction of the appeal of tobacco products. Over the last few years, a series of graphs and data points have been released by the government to show that the policy has achieved this goal.

Each time they are dutifully praised by public health activists as the definitive evidence of success. But as the IPA’s Sinclair Davidson writes:

Unfortunately, and despite assurances from the Australian government and the Australian public health lobby, that evidence is simply non-existent.

There is a fundamental problem with any claim of the success of the policy — the sharp increases in tobacco excises introduced almost at the same time as the plain packaging legislation. This makes it hard to disentangle the effect of plain packaging from the effect of other anti-smoking measures. And it is fairly well agreed that excise hikes are the most effective — that is, punitive — way to reduce smoking rates.

The latest effort to demonstrate that plain packaging has been a success was the February 2016 release of the government’s plain packaging Post-Implementation Review. The review featured an econometric regression that purported to show a sharp increase in the decline in smoking after the 2012 plain packaging changes. Smoking rates have been declining for decades. The policy question is whether any given intervention increases the rate that decline occurs.

The underlying data which informs the review’s econometrics is — unsurprisingly — unavailable. But, using tools that can roughly extract the data from a graph, Davidson notes that the decline was steady after plain packaging, and has only increased in response to the huge boost to the excise a year later.

The developing countries’ case against Australia rests on this question. And that means a big part of the economic growth of a Caribbean nation is hostage to how a panel of WTO technocrats assesses a highly contested, highly uncertain, politically tarnished and intellectually questionable econometric vignettes.

Governments don’t like their legislative interventions to be questioned after the fact. By increasing the excise dramatically after introducing plain packaging, the Gillard government ensured that any answer to the question of whether or not plain packaging works is unlikely to ever meet a consensus. But however the WTO rules this year, the application of plain packaging to premium cigars is a revealing instance of regulatory overreach and consequences.

A questionable health measure applied to a luxury product only enjoyed by informed consumers, that threatens the livelihood of thousands of workers in a developing country. Paternalism at home can mean job losses abroad.

The Economics of ZPG

With Jason Potts

In the dystopian 2013 film Elysium, written and directed by Neill Blomkamp, the earth is badly overpopulated. The society that results is deeply unequal. The haves flee to a luxurious space station orbiting the earth. The have-nots remain on an increasingly polluted and decaying planet, subject to the robotic oppression of the haves in space above them.

The dangers of runaway population growth, and the dangerous society that such growth would create, have been an enduring Hollywood obsession for half a century. Elysium nostalgically recalls a spate of films in the 1970s that predicted overpopulation—and increasingly totalitarian measures of controlling population—from the famous, Soylent Green and Logan’s Run, to the forgettable, ZPG and The Last Child.

Yet in the early twenty-first century it is increasingly clear that if humanity faces a population crisis, it is a crisis not of overpopulation, but underpopulation. Neill Blomkamp derived a sort of crude Marxist vision of capitalism from the overpopulation crisis, depicting workers toiling under oppression to feed the demands of the comfortable and distant rich.

While the economic analysis shown in Hollywood films might be questionable, the idea that dramatic changes in population will have significant economic consequences is not. Today, fertility rates are below replacement level in developed countries like Australia. They are heading in the same direction in the developing world. Nearly fifty years after the American biologist Paul Ehrlich published his book The Population Bomb, sparking off the modern overpopulation panic, it seems more urgent to consider the costs of population stagnation than population explosion.

A society’s demography is shaped by three factors: fertility, ageing and migration. Australian fertility rates were as high as 3.5 in 1961, giving us the baby boom generation. But they sharply declined from those heights, so that by 1980, the fertility rate was 1.9. It has remained there ever since, and the Commonwealth Treasury assumes the fertility rate will remain at 1.9 for some time to come. But this is below replacement rate: that is, the couples of Australia are not reproducing enough to replace themselves.

The second factor is ageing. The Commonwealth government’s Intergenerational Report suggests that life expectancy at birth will increase from its 2015 state of 91.5 years for men and 93.6 years for women, to 95.1 and 96.6 years respectively by 2055. When Joe Hockey said that it was possible that a child born today might live to 150 it was widely seen as a political gaffe but, with the rapid changes in molecular biology, living to 150 is not at all absurd. The sequencing of the human genome, completed in 2003, has been described as the biological equivalent of the development of the table of elements in the nineteenth century, a breakthrough which led to a revolution in chemistry. Placing genetics at the centre of medical practice is almost certain to dramatically change our expectations about longevity and health. Whether Hockey is right or not, the consequence of these trends skews the age distribution so that the Australian population is older.
The countervailing demographic pressure against increased longevity and fertility decline is migration. Simply put, what we no longer produce ourselves we can import. However, our migration intake selects against the highest-fertility population. Policy favours skilled migrants over unskilled migrants, and highly educated migrants over migrants with less education. These are the same populations that are going to be both older and less fertile. The obvious exception to that approach is our refugee intake, but refugee numbers are a tiny subset of the immigration total. Migration expands the population, because while Australia’s fertility is under the replacement rate, the global fertility rate is 2.4. Global fertility was around 5 in 1960. But where Australian fertility has plateaued, global fertility is still on its trajectory of long-term decline. And migrant populations quickly adopt the fertility rates of their new homes.

However, while the mathematics of population decline are fairly straightforward, history shows that untangling the economic consequences of population stagnation or decline is not. Between 1347 and 1351 the Black Death killed between a quarter and a half of Europe’s population, even more in some major centres. Three quarters of the population in Florence may have died in 1348. The plague sparked a century-long population decline across the continent. Where England had a population of 2.8 million people in the 1370s, it had only around 2.3 million in the 1520s.

The plague and the subsequent demographic decline cut short a relative economic boom in the high Middle Ages, which had seen the buds of capitalist exchange, expanding markets, technological development and population expansion. The first economic consequence of the Black Death that historians have long pointed to was its role in rewriting the structure of the labour market. The sudden scarcity of labour pushed the price of wages up dramatically, to the extent that the English parliament attempted to place a maximum ceiling on wages.

This smaller number of workers changed the economic and political leverage of the survivors. Contemporary elites complained about the newly demanding workers, who would refuse to work—or would work poorly—if they were not rewarded the market wage. “So the world goes from bad to worse,” wrote John Gower, a poet and friend of Geoffrey Chaucer, “when they who guard the sheep or the herdsmen in their places, demand to be rewarded more for their labour than the master-bailiff used to be.” Labour scarcity broke the traditional peasant–lord relationship, as workers went on the road looking for the best wages and short-term contracts. “Servants are now masters and masters are servants,” complained Gower. Economic power tends to become political power. A sense of the political consequences of this population shift is offered by the Peasants’ Revolt in 1381, when rural workers reacted to the introduction of a series of poll taxes by forming an army and ransacking government buildings in London. This was a proletarian parallel to the rebellion of the elites that had given England Magna Carta a century and a half earlier, but one which ended unhappily for the rebels.

The long-term consequences of the Black Death were more subtle. Demographic change allowed for rapid institutional innovation as the bonds that maintained the old order were weakened. It has been too common for popular historians to strip the medieval world of agency of its own and imply that only an outside shock—in the form of the bacillus Yersinia pestis—could alter fixed political and economic dynamics. The humans of the medieval world adapted to their new demographic environment in complex ways. The fact that the plague was less severe in some parts of Europe has allowed economic historians to show that even where the population continued to rise, as it did in Holland, wage rates increased in this period. The supply-and-demand relationship between population decline and labour costs does not necessarily mean that in all regions affected by the plague wages increased at a higher rate than in those which avoided the plague. And while Holland fared well in the long run from its relative avoidance of the Black Death, other places which also avoided the plague—such as Prague or Bohemia—did not experience the same sort of economic prosperity as the Low Countries.

This non-linear relationship between demographic change and economic change is not surprising. How societies responded to the consequences of the Black Death depended on their institutional environment: the legal and regulatory framework, the capacity of classes enfranchised and disenfranchised by change to prevent or exploit those changes through the political system, the capital structure of the economy, resource endowments, the depth of market exchange for goods and labour and so on. The Black Death wrought institutional changes that gave us the modern world—institutional changes that were unpredictable to those who lived through the crisis and which historians are still trying to trace. Higher wages moved economic activity towards capital-intensive agriculture and proto-industrialisation, sparking changes in urbanisation and the organisation of guilds and communities. Rather than the short-term effects on the supply and demand for labour, it will be in institutions that we see the long-run significance of modern population change.

This captures one of the essential errors in much of the popular debate about the consequences of population change. A strictly mathematical approach to population analysis—fertility plus migration equals population—transposed onto the current political order does not capture the institutional evolution that would result from the trends. In the January 1977 edition of Quadrant, the Liberal gadfly W.C. Wentworth derived the consequences of population change from such an accounting of fertility rates, concluding, “There may be serious doubts as to how many can really live well on the limited surface of the globe.” Decades on, in the wake of the digital and agricultural revolution, it is clear that such negativity was unjustified.

The direct economic consequences of a declining population could be a slow increase in the price of labour, as occurred suddenly in the years after the Black Death. As the scarcity will be concentrated in the younger population, these price increases will be particularly for work which has traditionally been performed by the young, including service jobs and unskilled manual labour. Technology allows for some substitution, and higher labour costs encourage development in further innovation. Existing tendencies towards automation of labour—encouraged by the demands of consumption and the prohibitive strictures of industrial relations laws—will be accelerated. Every Australian suburb now has a vision of the future in the McDonald’s automated ordering system, and it is easy to imagine further automation of service industries that were once believed to be immune.

More diffuse economic consequences of population stagnation will be delivered through the political system. All else being equal, an older population means that the interests of older citizens will be better reflected in public policy. We are already seeing some of the direct political economy consequences of an ageing population. Much current public policy tends to favour older rather than younger people. One of the most harmful is the restrictions on land use that benefit established home-owners over possible new entrants to the housing market. Both controls on urban development and limits on land release raise the price of housing by creating artificial scarcity. This works out very well for home-owners but terribly for those who want to enter the housing market for the first time. These sorts of policy-induced housing shortages ultimately divert capital away from more productive investments—Australians end up using more of their wealth for what could otherwise be much cheaper—with long-term consequences for living standards.

Other political economy consequences could be less harmful—even beneficial. High rates of population growth distort the political system towards the interest of its younger members. For instance, while the overwhelming benefit of education accrues to the person who is being educated, governments have long paid the bulk of education expenses out of taxpayer funds. This over-subsidisation of education may be reduced as the population skews older. Wasteful or unnecessary family payments are less likely to be tolerated by an older population that does not feel it receives direct benefits from these funds. On the flip side, that older population will be much more protective of generous pension schemes and health subsidies. A rebalancing between older and younger generations is likely to lead to more social spending rather than less. Pensions are a far larger drain on the Commonwealth budget than family payments, and the cause of market-oriented reform in healthcare provision is much less advanced than in education. While the shape of social spending will change, population stagnation is more likely to increase that spending rather than decrease it.

We have already hinted at some of the causes for optimism. One approach might be to use policy to reverse negative trends. In the overpopulation dystopias of the 1970s, Big Brother governments took it upon themselves to limit breeding or eliminate the elderly. Governments have long been aware of the declining fertility rate and, particularly under the Howard government, sought to align policy incentives to encourage people to have more children through baby bonuses and tax benefits. However, the downsides of using the political and legal system to influence the demographic profile of the population are substantial. Obviously those dystopias imposed huge costs of the rights of the citizenry, and the one-child policy in China has had enormous human costs. The modest family payments designed to boost fertility in Australia are subject to the same inefficiencies, churn, opportunities for rent-seeking and politically motivated subsidisation as any other part of the welfare system.

We see more reasons for optimism in the development of healthcare technologies that might both lower the cost of providing healthcare services to an ageing population, and also allow an ageing population to work more productively. The net effect is that an ageing population becomes less of an economic burden on the rest of society, requiring fewer resource transfers.

There are multiple sources of such technologies. At the biomedical level, enormous improvements in new biotechnologies such as personalised genomics may significantly improve the effectiveness of targeted medicines. The breakthrough gene-editing technology CRISPR may dramatically reduce the incidence of chronic genetic diseases and improve our ability to repair diseases of senescence. Very large falls in the cost of wearable personal monitoring technology and the internet-of-things may greatly improve access to healthcare and increase the incidence of low-cost early interventions. Personal robotics may facilitate greater ability for the ageing to continue to live independently, both as providing services that range from robot vacuum cleaners and quadcopter drones for delivery, which already affordably exist, to robotic assistants (imagine the Artificial Intelligence platform Siri on Apple’s iPhone coupled with industrial robots), to driverless cars (which already exist), to personal exoskeletons, which are in use in the US military. This list can go on and on, and while there are certainly high development costs, the economics of mass adoption and market competition will drive these costs down.

Such benefits do not depend on a special class of technologies for the ageing and elderly, but are adaptations of general-purpose technologies (for instance gene-editing techniques, big-data, industrial robotics, and so forth) that are subsequently applied to particular and growing market segments. We can rely on the market mechanism and profit-seeking entrepreneurs to figure out how to adapt new general-purpose technologies to create value by improving the lives of an ageing population. Many such benefits can be expected to maintain health, well-being and independent functionality to enable continuing participation in society and contribution to the economy.

Of course, a longer working life is not just a joy for the federal Treasurer; it is also a very good thing for each individual person because it means a higher level of income and freedom, which in turn means greater independence and ability to consume. Working longer is a good thing not because work is a good thing—although there are surely benefits from increased social and community engagement that come from gainful employment. Working longer is good because more production means more consumption. These higher levels of income and consumption may be spent on travel and experiences, higher quality of living, on family, or on greater levels of healthcare or even enhancement.

These causes for optimism are dependent on current trends in innovation holding true. It is equally obvious to observe that an ageing society will experience second-order effects that can reasonably be expected to dampen the rate of innovation and technological change. These are effects that go directly to the underlying incentives to develop the new general-purpose technologies mentioned above, rather than the specific adaptations of these innovations to the needs of the elderly.

The first is that an ageing population has a different overall risk-reward profile than a younger population, particularly among males. The young of all species (and not just humans) have a higher risk-taking propensity because they are engaged in mate competition. We’re wired this way. This increased risk-taking propensity can be destructive when it is channelled into fighting, raiding and warfare. But a great benefit of a free-market society, as economists from Adam Smith to Joseph Schumpeter to Deirdre McCloskey have pointed out, is that there are substantial pay-offs to society when this competitive instinct is harnessed towards entrepreneurial action to create and develop new ideas—whether great artworks, new technologies or new products.

Entrepreneurship and innovation are risky. But when they succeed they furnish substantial benefits for many, and possibly a great many. The US economist William Nordhaus estimated that entrepreneurs only capture (as Schumpeterian profits) about 2 per cent of the social value of their innovations. That means that 98 per cent spills over to society as consumer surplus. But other economists such as Edmond Phelps have pointed out that the net private return to innovation is actually pretty close to zero. This should not be surprising. Most entrepreneurial endeavours to develop new technologies, companies and innovations fail. The few that succeed in effect balance the many that fail, such that there is a Pareto distribution of returns. But because most of the value of an innovation spills over as consumer surplus, the social returns to innovation are everywhere substantially higher than the private returns. (Another way of saying this is that innovation has public good qualities, or can be subject to market failure.) One of the great benefits a society with a young population experiences is its high natural propensity toward risk-taking entrepreneurship, and the associated social benefits that brings. Equivalently, one of the great although often hidden costs of an ageing population is the loss of entrepreneurial dynamism. Along with this comes an increased tendency to seek political solutions rather than market solutions to social problems, which further drives an economy towards rent-seeking.

A second and related point that further constrains innovation in an ageing society is that the basic economics of investment returns to innovation are different. Specifically, in respect of the costs of adopting new technologies the discount rate for a younger population is lower than an ageing population. This is for the simple demographic expedient that an older population has less time to amortise the costs of developing and adopting a new technology and also less time to receive and accumulate the benefits. In short, because the costs to innovation are upfront while the benefits accrue through time, innovation is simply more expensive when you have less expected life in front of you. Now the elderly might actually care not just about themselves, but also about the future welfare of their children and grandchildren and so on, creating what economists call an infinite overlapping generation model. But without such an assumption, or some attempt to engineer it through the tax system, an ageing population will rationally invest less in innovation.

A third observation follows from these two and connects the types of economic institutions that a democratic society will choose when the population is relatively younger and growing or older and stable or shrinking. One of us has written recently about why the mass leisure society that John Maynard Keynes famously envisaged in his 1930 essay “Economic Possibilities for Our Grandchildren” has never come to pass, by emphasising that the sorts of economic institutions of a wealthy prosperous society are those that encourage entrepreneurship and innovation and not just consumption. But this same argument also runs the other way. As we have noted above, the sorts of economic institutions that a zero population growth society chooses are likely to be geared towards political redistribution of economic resources. These institutions require higher taxes, which penalise entrepreneurial action and therefore blunt the rewards to innovation.

An ageing society tending towards zero population growth also risks tending towards zero economic growth because of the harmful consequences on the supply of entrepreneurship and innovation, because of its effect on risk preferences and on investment, and also on the way such a demographic transition will likely distort economic institutions away from a liberal market ideal. In the long run, it is hard to say whether these headwinds on general-purpose entrepreneurship, innovation and new technology are likely to dominate the more optimistic tailwind scenarios on the specific application to the problems and opportunities of an ageing population.

An obvious class of solution is to recognise that an ageing zero-growth population will create increased pressure on political solutions to economic problems, and therefore to seek to constitutionally head that off by constraining and limiting the powers of politicians to offer political solutions. Privatising more of the healthcare system would be a start. Our institutions need to be capable of adapting to the consequences of ageing and population stagnation—consequences which are now unpredictable. Allowing for greater market control of social services will provide such adaptability. The fragility of medieval society to the Black Death and its demographic aftermath was not only technological and medical: medieval markets were shallow, meaning that resources could only slowly reallocate to new uses, if at all.

Another class of solution follows from the diagnosis of the intergenerational nature of the innovation problem. Innovation requires both an entrepreneurial risk appetite and liquid resources. A young population has much of the former, and an older population has more of the latter. If pension funds were able to function more effectively as venture capital funds, that would be a step in the right direction. For instance, financial regulations designed to protect investors by constraining pension fund investments to say ASX30 listed companies stand in the way of such reform.

But the most important factor is the importance of maintaining an open economy with free and easy movement of people, resources, capital and ideas. If risk preference and investment in creating new ideas and innovations will decline in a zero population growth economy, then it becomes critical to be able to import new ideas from elsewhere. This will also be true of gaining access not just to technologies but also to services offered in other countries. Perhaps certain types of regenerative therapies or surgeries will be developed in Singapore or the Philippines. It may not matter much if they are not invented, produced or delivered in Australia, provided Australians have access to them, through having produced things of value that we can exchange for them. This is where the importance of continued participation in the labour force matters.

A zero population growth economy will impose substantial challenges on Australia in the future. It is not the ecological utopia that some imagine, but nor is it likely to be a Marxist dystopia. It will make us all poorer. And it will do so in significant part because of its effect on entrepreneurship and innovation. But these consequences can be mitigated by sensible and far-sighted commitment not to allow the harms to happen. Maintaining an open economy, constraining government growth with commitment to free-market institutions, will go a long way towards allowing us to live well as population growth slows.

The Democratic Case For Splitting Queensland In Two

“Most persons think that a state in order to be happy ought to be large,” wrote Aristotle in his Politics, “but even if they are right, they have no idea what is a large and what is a small state.”

And 23 centuries later, not much has changed.

A group of Queensland MPs have renewed a longstanding call to split Queensland in two. They believe they can force a referendum on the issue. The Minister for Northern Australia, Matt Canavan, also supports the new state proposal.

But Annastacia Palaszczuk believes “Queensland should be bigger, not smaller”. She wants Queensland to take the Tweed Coast from New South Wales.

There are other proposals. Warren Entsch wants to split the top half of the country in two, creating a northern mega state.

Yes, redrawing the map of Australia is a classic holiday-season news story. It’s both fun and slightly frivolous.

But the question of the ideal size of a political jurisdiction pervades debates about everything from council amalgamations to whether Britain should leave the European Union – a political and economic alliance that has developed state-like characteristics.

The great Greek philosophers believed that the ideal size of a political jurisdiction was a small city. Aristotle put it this way. The city should be large enough to be self-sufficient. But a city with too many people is ungovernable. A city should be small enough so that the citizens know each other well enough to distribute offices according to merit. Plato decided that optimal city size had 5040 families.

Neither economic self-sufficiency nor knowing office-bearers personally are imagined to be important any more. But Aristotle did underline the basic tension in deciding whether to make states larger or smaller: between economic desires and democratic ones.

On the one hand, economic considerations suggest that larger states are better. Larger states can exploit economies of scale and deliver more services. It is as much work to write a school curriculum for two schools as 2000 schools. This is the intuition behind the steady centralisation of policy towards the federal government – the idea that it is more efficient to impose the same policy on everyone, rather than have regional governments develop their own approaches from scratch.

But on the other hand, economies of scale aren’t everything. Democracy – that is, genuine democratic engagement, not just attending a polling booth every few years – seems to thrive better in smaller jurisdictions. The idea that the people rule is more believable when it is possible to imagine ourselves as one of those rulers – something which is less likely in a giant unitary nation than a small community.

There is, simply put, a trade-off between the economic benefits of large size and the democratic benefits of small size.

That trade-off helps us understand why the Queensland government – any Queensland government – will fight a split. More economic power means more wealth that can be delivered to the government’s supporters, and the political class rarely welcomes any more democratic participation.

Nor is the federal government likely to welcome any new states. It is much easier to negotiate with one Queensland government rather than two. More states reduce the concentration of political power. Those who hold political power dislike that idea.

Back in 2009 Geoffrey Blainey argued that it was “absurd” not to establish a new state in northern Queensland because when Queensland was formed no one knew about the mineral resources in its north.

Yet as the Danish political scientists Martin Bækgaard, Søren Serritzlew, and Kim M. Sønderskov point out, the optimal jurisdiction size for any political community depends on what we want those communities to do. Aristotelian self-sufficiency is unnecessary in a world of international trade. But the high cost of modern militaries mean we need huge nations to pay for a single F-35 Joint Strike Fighter.

Bækgaard, Serritzlew and Sønderskov argue that for jurisdictions with minimal functions and responsibilities, smaller is better. For Australian local governments the optimal size might be as little as 5,000 people. Rather than amalgamating councils we should be splitting them up.

Blainey is right that it has been a long time since the map of Australia was first drawn. But the key change since is not the discovery of resources, but the long centralisation of power in the Commonwealth government. Policy areas that the constitution leaves to the states – like education – are increasingly being controlled by Canberra. This is as good a reason as any to rethink the number of states.

As state governments do less and less, there ought to be more and more of those governments. North Queensland should be just the start.

Turnbull’s Only Real Option Was Bluff And Bravado

If Malcolm Turnbull is bluffing about a double dissolution election, it’s a very committed bluff. A dramatic bluff. A bold bluff.

First, the Government had to pass the changes to the Senate. No point holding a double dissolution to clear out the Senate crossbench if that election would just throw up even more minor party crossbenchers. Lest the substance of this change be dismissed, consider that in order to hold a double dissolution which would result in the desired outcome, the Government had to change the voting system itself.

Second, Turnbull has asked the Governor-General to recall Parliament in April to consider the Australian Building and Construction Commission Bill – one of the pieces of legislation the Prime Minister would like to use as a trigger for the double dissolution. Constitutionally, the Governor-General can call sessions of Parliament. The Senate is less likely to seriously fight the Queen’s representative on a scheduling matter.

Third, the budget is being brought forward one week. As Antony Green explains, a double dissolution cannot be held within six months of the end of a term. This means a double dissolution must be called on May 11 at the latest. But the government needs to pass a budget each year for the machinery of government to keep ticking along – currently scheduled for May 10. One day isn’t a lot to pass budget bills, so the budget day is being moved to May 3.

One estimate has that small change of budget schedule costing one million dollars. I imagine we’re about to find out how much the April sitting of Parliament is going to cost.

Turnbull says if the crossbench passes the ABCC bill in April, then no double dissolution will be necessary. But that’s hardly the point. One column in The Age has described Monday’s double dissolution threat as “a colossal gamble the PM had to take”. “Had to”? Cleaning up union corruption is legitimate and necessary – even urgent – but not quite the emergency that calling a double dissolution implies. Rather the “had to” refers to a sense that the Government needs a narrative. It needs a reason for being. It needs to make a bold political move.

The media loves bold moves. Double dissolution gamesmanship fits the bill. It’s true that the outbreaks of high drama that have characterised Australian politics since Julia Gillard rolled Kevin Rudd have also been accompanied by hand-wringing about the decline of political stability and The End of ReformTM. But the very same press gallery has been damning Turnbull for weeks about the Government’s apparent purposelessness.

Tax reform has been on-again and off-again – characterised by half-hearted attempts at encouraging debate and subsequent backdowns. Part of this has been some of the transactions costs of the leadership change. The discussions about negative gearing, increasing the GST, and superannuation tax concessions were all started by the Abbott government. But the drift made a mockery of Turnbull’s claims to be a brilliant communicator. The new Prime Minister did not usher in the end of politics after all: just another stage of what the commentariat portray as our era of political crisis.

In this context a double dissolution looks like cut-through … great optics … agenda setting … finding a narrative. Double dissolution elections are rarely about the bills they’re purportedly called to pass. The Australia Card Bill – technically the subject of the 1987 double dissolution – didn’t even go to a vote when Bob Hawke failed to win a majority in the Senate.

Rather, if this election is like any other election, it will be at its core about the economy. Politicians like to talk about their superior “economic management”. But as I have argued on The Drum before, rather than being managers of the economy, they are in truth the economy’s hostages – riding waves of international capital flows and iron ore prices and financial market hiccups that small economies like ours can barely influence.

Take a step back and this is a defining feature of Australia’s political culture. We push against events we cannot control. We “take stands” on ground which will never be stable. Australian governments can only facilitate change. They cannot direct it or prevent it. So boldness – as brazen as possible – is the currency of Canberra. It unites Turnbull’s “ideas boom” with Tony Abbott’s promise to shirtfront Vladimir Putin. Confidence is a substitute for the control they will never have.

On Monday afternoon, Bill Shorten said “Mr Turnbull has a plan for his re-election, he just doesn’t have a plan for Australia.”

But in truth, an election is about the only thing he can plan for.

If You’re Worried About Privacy, You Should Worry About The 2016 Census

If you blinked, you missed it. On December 18 last year, the Australia Bureau of Statistics announced that at the 2016 census in August it would, for the first time, retain all the names and addresses it has collected “to enable a richer and dynamic statistical picture of Australia”.

Keeping names and addresses, we were quietly told, would enable government planners to do more rigorous studies of social trends.

It is only now that the significance of the ABS’s change is spilling out into the press.

For the past 45 years, it has been the ABS’s practice to destroy that identifying information as soon as all other information on the census forms is transcribed – first onto magnetic tape, and now into vast digital data banks that allow statisticians to slice and dice at their whim.

In the 2001 census, the government first offered Australians a choice as to whether they would like their name-identified information kept. This year that opt-in system will be a compulsory system. Your name will be kept whether you like it or not.

The risks to privacy are blindingly obvious. The safest way to protect data is to not collect it at all. The second safest way is destroy that data after collection. There is no such thing as 100 per cent safely secured information. We know this from bitter experience. The last decade has seen a constant stream of unauthorised releases of apparently secure private information: the 2015 Ashley Madison hack being just the most embarrassing of these.

After all, privacy risks don’t only come from hackers and other rogues. Government departments have a poor record of protecting information from their own staff. The Department of Human Services admitted there were 63 episodes of unauthorised access to private files by its staff between July 2012 and March 2013. The South Australian Police Force accuses up to 100 of its own members of unauthorised access to police files every single year. ABS staff are no more or less virtuous than any other public employee.

The ABS argues that identification information will be stored safely and separately from the rest of the census data, creating a firewall that protects against individual identification. A spokesperson told Radio National last week that the ABS “never has and never will release information that is personally identifiable”.

There are a lot of unanswered questions here. But no matter what firewalls the ABS places around access and matching, it is a truism that any data that can be used usefully can also be used illegitimately.

And of course, what are considered legitimate and illegitimate uses of data can change over time. Rules written in 2016 could be changed in 2026. The data collected now might be used in a very different way down the track.

Identification retention could have practical consequences as well. A population that is rightly worried about the security of their information is less likely to answer the census either accurately or at all. Indeed, this has historically been the ABS’s big concern with keeping identification. They told a parliamentary committee in 1998 that the reduction in data quality from a reluctance to answer questions truthfully was not worth the trade-off.

A lower quality census would lead to lower quality government statistics across the board. A lot of things hang off the census. Census data guides electoral redistributions, Commonwealth grants, education funding and so on. Risking the integrity of all that in the hope that future data might be marginally more interesting to genealogical researchers and government planners seems like a terrible deal.

Although they profess to have changed their mind on the risk of lower quality data, we can speculate these concerns might be why the ABS announced the new policy in the dead holiday season. The less publicity given to the change, the less likely Australians are going to hear enough about the new census rules to be worried about their privacy.

While the Coalition’s support for traditional rights and freedoms has taken a battering over the past few years, overriding the ABS decision would go some way to reclaiming its liberal heritage.

After all, it was a Liberal Treasurer, Billy Snedden, who first mandated the destruction of names and addresses in census forms in 1971 in response to privacy concerns. And Cabinet records show the Fraser government – at the behest of treasurer John Howard – unhesitatingly and immediately rejecting a 1979 proposal by the law reform commission to retain census names and addresses.

The digitisation of absolutely everything has made privacy one of the central problems of the 21st century. If anything, Australians are more aware of the dangers of identity theft and information insecurity than they have been at any time in history.

As the ABS change shows, the debate over warrantless mandatory data retention was just the tip of the iceberg.

It is true that modern governments are data hungry. Planners and regulators want more and more information about the populations they govern.

But to the extent we have an interest in protecting ourselves against government excesses, we have an interest in denying governments carte blanche to collect information. We are not just data points in a planner’s spreadsheet. They work for us.

There’s Little To Stop Trump Wreaking Havoc As President

The prospect of a Donald Trump presidency shouldn’t be as worrying as it is.

The United States constitution is specifically designed to prevent presidents from doing too much damage. But the carefully, intelligently designed checks and balances built into the American system of government have been so eroded over the last century that a president Trump could do the sort of harm the founding fathers wished to prevent.

The issue is not so much Trump’s policies. I complained in January that Trump was no conservative – particularly on trade – but then again, he wouldn’t be the first non-conservative president. In fact, policy-by-policy he looks like the most moderate candidate in the Republican field; the temporary ban on Muslim immigration to the United States notwithstanding.

Nor is being a “populist” a crime. Trump would hardly be the first president who got to power by telling voters only what they wanted to hear.

What’s worrying about Trump is his unpredictability, his disregard for any boundary between truth and self-serving fiction, his unbridled narcissism, his instability, and his apparent desire to pursue his enemies with the tools of high office.

He sees himself as a “strong man” – hence his apparent affinity with other strong men like Vladimir Putin. And at this stage it is easy to imagine a chain of events that puts him in the White House.

The American founding fathers were aware that a democratic political system could turn out a person like Trump. The Federalist Papers, the essays written in 1787 and 1788 to argue the case for the constitution, were motivated by a theory of human nature “that men are not to be trusted with power because they are selfish, passionate, full of whims, caprices, and prejudices,” in the words of one scholar.

Hence in the famous Federalist Paper 51, James Madison argued that power must be separated between different branches of government. Each branch – the executive, the legislature, and the judiciary – would vie for power against the others.

“Ambition must be made to counteract ambition,” Madison wrote. The institutional structures of the American republic would ensure that a strong man or narcissist, were they elected to the presidency, would be constrained by the other branches.

Yet those structures have been systematically degraded over the past century. The presidency has accumulated power at the expense of the legislature.

As the word implies, the executive’s intended function is to execute the laws passed by Congress. But the modern presidency has carved out an enormous field of action where it can operate virtually without the oversight of the other branches. The historian Arthur M Schlesinger Jr. called this the “imperial presidency”.

The most obvious example of the imperial presidency is foreign policy. Under the text of the constitution, only the Congress has the power to declare war. But the last war to be declared by Congress was World War II. Since then presidents have been asserting almost unlimited, unilateral power over military engagement and interventionism. The upshot is that, contrary to the founders’ intentions, the president can effectively send the country to war on nothing but their own counsel.

Trump says he now opposes the invasion of Iraq, but he also wants to take Islamic State’s oil. Whatever strategy he implements to do so, the combined forces of the United States military are in practice at his complete disposal.

Just as concerning is the power the president can wield over public policy. The original idea behind Western liberal democracy is that policy is made by the legislature as they negotiate and pass law. But the growth of regulation as a substitute for statute has vested more and more power in the executive government.

In 2014 federal departments, agencies and commissions passed 16 new regulations for every one law the Congress passed. As the economist Tyler Cowen wrote last month: “If there were a president who wished to pursue vendettas, the regulatory state would be the most direct and simplest way for him or her to do so.” Having the vindictive Trump responsible for all this is dangerous.

The shift from a constrained presidency to an imperial presidency has been cultural as well. In his book The Rhetorical Presidency, Jeffrey K Tulis argues that the presidency has assumed a symbolic role not envisioned by the founders.

Voters – and the press – describe one of the key requirements of the office as “leadership”. Yet as Tulis points out, this was not what the founders hoped. The Federalist Papers had only a dozen mentions of the word leader. All but one were disparaging.

During the 20th century, the presidency became about words as much as administration – presidents were rated on their personalities and ability to channel popular sentiment.

Trump is the apotheosis of this change: a demagoguing narcissist who is all surface and shine. But all democracies are vulnerable to such populist figures. The founders knew that. If only their great institutions had been maintained.

Furniture, Rent-Seeking And The Problem With Laws

Law often takes on a life of its own.

We see this all the time. First, parliament introduces a law to solve a public policy problem. Decades pass. Things change. Perhaps the problem might no longer be considered a problem. Technologies change. Opinions change. But it is easier to pass a bill than repeal an act. Special interests come to rely on the status quo. As a result, governments often reconceptualise why the law was first introduced in order to defend that status quo.

Nowhere is this pattern more obvious than in that cesspit of special interest rent-seeking that we call intellectual property law.

The United Kingdom has decided to increase the intellectual property protection for design – which covers manufactured artistic creations like furniture, jewellery, and architecture – from the life of the creator plus 25 years for registered design works, to the life of the creator plus 75 years. An extension of 50 years.

In practice this means design works will get the same length of protection enjoyed by other artistic creations. Furniture, architecture and jewellery designs will be treated much the same as songs and movies in copyright law. Once their protection expires, other manufacturers are free to reproduce the designs, as long as they describe their products as “replicas” or “reproductions” of original designs (lest they violate trademark law).

In Australia, furniture designers want the same changes. Here design protection lasts just 10 years. An Australian manufacturer told BRW in January that Australian design protection was inadequate. A spokesperson from the furniture manufacturer Herman Miller told Fairfax’s Domain last week that companies selling replica design furniture are “tricking the consumer and undervaluing the original design”.

There’s a lot of money at stake. The iconic Eames lounge chair will set you back about $8,000 if you buy an authentic one produced by Herman Miller. But the chair was first designed in 1956 and is long out of design protection. So you can get a replica of the Eames lounge chair for a tenth of that price from any number of retailers.

A licensed edition of the even more ubiquitous, and older, Eames plastic moulded side chair will cost the better part of $1000. Or you could pick up a replica for $80 or so.

Part of this price difference is due to quality. Another is the price of the brand – manufacturers are able to charge a premium for customers who want the real deal rather than an inauthentic product.

But none of that price difference is because the designers have to recoup the cost of the original design. It has been a long time since Herman Miller recouped the design cost on their lounge chair.

And that is all that matters. Justifying the UK change, the minister for intellectual property, Baroness Neville-Rolfe, argued it would right the “unfair” imbalance between manufactured designs and other artistic production.

But what does fairness have to do with it? Intellectual property law is not about being fair to furniture designers. Intellectual property has a purpose.

Standard economic theory says the market will under-provide creative products because creative products are easy to copy. To fix this, intellectual property offers creative producers a monopoly over their work. But that monopoly is only available for a time, because we, the consumers of creative work, have an interest in accessing and repurposing the back catalogue of human creativity.

All these caveats mean that intellectual property isn’t really property, as I’ve argued in the Drum before – it’s a regulatory workaround to an assumed market failure. It only has value insofar as it resolves that failure. It does not exist to funnel consumers into high-priced authenticity.

Furniture design is an example of a creative market that thrives despite lacking much of the intellectual property protection enjoyed by other creative works. Indeed, the fact that Herman Miller can still charge enormous sums for a design available at a tenth the price shows that both the cheap and expensive wings of the market can co-exist.

The availability of replica mid-century design means more people can enjoy better aesthetics at home. It is hard to see what public benefit restricting these designs to people who can spend $800 on a single side chair – as the UK government is doing – would provide.

Sure, on the scale of national politics, how long the design monopoly over Eames chairs should last is a pretty minor thing. But it is an informative one. If the government establishes privileges for one group others will want equivalent privileges.

The content of intellectual property law is almost never considered from first principles – that is, what do we fundamentally want our intellectual property regime to achieve. Rather, it is a scruffle of political power, long divorced from the theory of market failure and a textbook need for clever regulatory intervention.

The Coalition Government has spent the last few years trying to crack down on copyright infringement. If policymakers cared about the purpose of copyright protection they would only do so if it was clear that such a crackdown would lead to the creation of more new creative works. Of course there is no evidence that it will. But the holders of the rights to movies and music believe that pirates are depriving them of revenue. And governments listen because they’ve forgotten why copyright protection was introduced in the first place.

In other words, intellectual property has become its own justification. Put down your textbooks. This is how law works in the real world.

Negative gearing changes aren’t bold or courageous

Why are we talking about negative gearing?

The simple answer is Bill Shorten released Labor’s negative gearing policy. (For better or worse, this is how you control the media cycle. Release policies.)

The more complicated, more worrying answer is that the economic debate is so empty – that the range of acceptable discussion is so narrow, that big picture ideas are so thin on the ground – that changing negative gearing is the boldest economic reform the political class can reckon with.

Removing negative gearing has been done before. Where in 2016 negative gearing changes counts as a courageous barbecue stopper, the Hawke government’s abolition of negative gearing barely rates a mention among the great regulatory upheavals of the era. It’s a sad illustration of how our vision of the range of possibilities has shrunk in three decades.

An even more depressing thought is how disconnected the negative gearing discussion is from the big economic challenges we face. There are two reasons one might consider negative gearing changes. We might want to gather more revenue for the Commonwealth budget. And we might want to ease pressure on the housing market.

That Labor has a more-tax-revenue approach to budget repair and favours negative gearing as an explanation for high house prices is well-known.

But it’s a worry that the Treasurer, Scott Morrison, while defending negative gearing in general,believes that the “excesses” of negative gearing need to be tackled.

First, this goes against Morrison’s apparently rock-solid belief that spending needs to be reduced, rather than revenue increased.

Second, it implicitly concedes the view that the house price boom is caused by demand – too many investors – rather than supply – restrictions on land release and NIMBYism.

Third, and most importantly, changes to negative gearing have nothing to do with economic growth. Nothing.

It’s true that you could make a creative, complicated, multi-stage argument that lower house prices might eventually lead to growth benefits. But all else being equal, it is hard to see why removing money from the economy – as any proposal that increases government revenue would – might help the economy, rather than hinder it.

The unfortunate conclusion is that both the Government and the Opposition are talking about negative gearing because they have so few ideas of what to do next.

Just look at Morrison’s speech to the National Press Club last week. As a generic political speech it was perfectly adequate – an outline of the economic climate and reiteration of previously announced policy positions. But as an attempt to articulate the economic direction of the Turnbull Government it was empty.

On the question of budget balance Morrison only managed to demonstrate that very little had been done to reduce the deficit – as his 7.30 interview made perfectly clear, the Coalition has spent $70 billion of the $80 billion it has saved.

Perhaps the problem is that the bank of reform ideas is empty. Property commentators have been hyperventilating about negative gearing for ages. Maybe it’s only being talked about because the political class has run out of other things to talk about.

Yet the Australian policy community is rich with ideas: big bang ideas and small marginal ideas. The Abbott government commissioned the production of many of them. We’ve had the Harper review into competition policy, the Murray inquiry into the financial system, and the encyclopaedic audit commission report. These reports offer hundreds and hundreds of pages of policy discussion, recommending everything from intellectual property law changes to returning some income tax powers to the states. So where is the shadow of that formidable ideas production in our federal parliament?

Morrison has given a partial answer. From a growth point of view, cutting the company tax rate could get the biggest bang for our reform buck. This would be hard politics, especially if the revenue loss was compensated with a GST rise. As the Treasurer explained, “the proposition that you tax mums and dads more so companies can have a tax cut has an obvious problem.” Yet that problem has been surmounted before. Company taxes were cut in 2000, and again in 2001, at the same time as the GST was introduced.

It seems clear that politicians feel more hemmed in than they were in the past. That’s either because they lack courage – or because they lack the stable foundations on which to be courageous. Australian politics has now experienced half a decade of leadership instability, brought about by the fractious decision to roll Kevin Rudd in 2010.

Our policy debate is more shallow, limited and parochial than it has been for decades. Yet at the same time the need for major changes – changes that would spark economic growth – is as pressing as it has been since the 1970s. That changing negative gearing is the best that Labor and the Coalition can come up with is a condemnation of their failure to lead.