Is The Government Chasing Growth, Or Just Revenue?

How on earth did tax reform come to be seen as the great white whale of economic reform in the 21st century? The debate about whether to raise the GST to 15 per cent is a classic case study in out-of-control policy making.

A White Paper into taxation was part of the Coalition’s 2010 election policy platform, intended to set an incoming Abbott government with an agenda for a second term.

Having cautiously sympathised with the arguments for increasing the GST while in opposition, in 2013 Joe Hockey revealed the GST would be part of the White Paper process. This had a political message. The Rudd government hadn’t even allowed its “root-and-branch” Henry Review to consider changes to the rate or breadth of the GST.

Half a decade after it was announced, the White Paper process is as good as dead, and over the weekend Malcolm Turnbull was backpedalling furiously from a GST increase.

There’s been lots of sound and fury. Remember Rudd’s pantomime about Vegemite in the 2013 election? Now nothing.

There is of course a very sensible economic argument for a GST increase. The GST is a relatively efficient tax. It is also very transparent. We know who pays the GST – consumers. In this sense it is much better than some of the other mainstays of the Australian tax system, like the corporate tax, which is levied on corporations but the economic burden of which is actually shouldered by a combination of workers and investors.

Consumption taxes encourage saving and do not discourage earning, as personal income taxes do. Swap inefficient taxes for efficient ones and all else being equal there will be economic benefits. Stop me if you’ve heard this all before.

But in practice, as Turnbull became more interested in a GST change over the last few months it became clear those benefits were illusory.

First, much of the new revenue would be eaten immediately by compensation to lower income groups. Second, some of it would probably be given to the states to satiate their demands for revenue and pay fidelity to the original GST revenue bargain. Only what was left could be traded off for tax cuts.

In the Australian on Monday, Paul Kelly argued that dropping the GST showed that, for Turnbull, short term politics had trumped sound policy. Kelly asked: “Where does the growth dividend he badly needs come from once ambitious tax reform is rejected?”

Yet by the time all the stakeholders had been bought off, it is not at all clear that an ambitious GST increase would bring a growth dividend – and certainly no growth dividend large enough to justify the cost of political capital.

The lesson here is that politics and policy are not really opposed. We live in a democracy. Everything is compromise. Good policy that is politically impossible cannot be considered truly good policy.

Anyway, even in a perfect world an increased GST would be a hard sell. Probably much harder than the original GST, even though a five percentage point increase is smaller than the original 10 percentage point introduction.

The Howard government was justifiably able to pitch their new 10-per-cent-on-everything tax as “not a new tax, a new tax system”, because the GST was novel, coherent and substantive.

Anything an Abbott or Turnbull government might do – even the grandest trade of a consumption tax increase for income tax cuts – could only appear as marginal changes to the Howard tax settlement. And without the look of revolution it was going to be hard for GST changes to look like anything more than a tax increase, and one widely believed to burden poorer Australians.

Imagine if the Government actually proposed a GST boost in order to fund a tax cut for corporations. This would be at the same time economically sensible (that is, likely to bring a big boost to economic growth) yet it would also be politically suicidal – especially for a government struggling hard with the “unfair” legacy of the 2014 budget.

There is no question that marginal efficiencies could be found if the tax system was rewritten. But not of the sort of economy-boosting significance that the Turnbull Government hopes.

The GST has taken on an aura of bold reform that it does not deserve. And, having taken that aura, it has crowded out discussion and debate about alternative growth enhancing strategies that would leave the tax system as it is.

That aura means there is lots of support for tax reform in the press. But so what? There is no agreement as to whether tax reform is supposed to help the economy, or whether it is simply to raise more revenue. The Government has been stuck haplessly between these two forces ever since Hockey released his tax discussion paper last year.

Right now Turnbull and Scott Morrison are casting around for new approaches to tax in the lead up to the May budget. But they first need to answer a simple question: why are they interested in tax reform at all? For revenue, or for growth?

It has to be said, once again: persistent budget deficits are a terrible time to attempt tax reform.

Is Abetz right about the same-sex marriage plebiscite?

Senator Eric Abetz’s statement to the Guardian last week that he would not consider the results of a plebiscite on same-sex marriage binding – that is, he might vote against a same-sex marriage bill even if a majority of the population had voted for it – is revealing.

Yes, it has an obvious political explanation. There’s been a lot of “clever” politicking over same-sex marriage. The plebiscite was an attempt to kick the issue into the long grass – an expensive delaying tactic. Nominally conservative politicians have even called for pointless constitutional change to hold back a policy that has a clear majority of support.

But Abetz’s statement is more interesting in that it exposes deep confusion, uncertainty and ambiguity about the relationship between politicians and voters. Aren’t politicians supposed to be our representatives? And if so, what does that mean?

Abetz made two arguments. First, he reserved judgment as to whether the plebiscite would be a fair reflection of the public’s views. If he felt it was stacked against traditional marriage (say, through an unbalanced distribution of funding) he would not consider it binding.

But Abetz also left it open to reject the plebiscite’s results regardless. As he said: “People elect us so that we exercise our own best judgments on all the issues that come before us.” Politicians must “take into account the views of the electorate, the views of the nation and their own personal views.”

But why should the “personal views” of politicians have any weight in political decision making? What is so special about political consciences?

I can think of few professions that I would trust less to follow their consciences than politics – surely the only industry where megalomania, narcissism and confrontation is not just tolerated but is actually a positive. And the idea that political consciences need to be protected is precious beyond belief, given that the practice of politics involves trading off personal beliefs for electoral gain.

There are workarounds to Abetz’s objections. The enabling legislation for the plebiscite could be written so that same-sex marriage is legal automatically after a positive popular vote. Concerns about unfair funding balance should be resolved by not funding any side at all.

But the real question raised by both the plebiscite (which suggests same-sex marriage is too important to be resolved by Parliament) and Abetz’s insistence on a conscience vote (which suggests same-sex marriage is too important to force parliamentarians to go against their beliefs) is why we elect politicians in the first place.

Are they there to represent the views of the voters in Parliament – effectively employees whose job is to do the bidding of their electorate as faithfully as is practicable? Or are they there as sort of an elected aristocracy – placed into power as a popular endorsement of their inner selves?

It is in the interests of the political class to believe the latter, with all the quasi-mystical implications about power and political authority it brings. The most famous expression of this worldview was offered by thegreat conservative Edmund Burke in a speech immediately after he was elected for the first time as the member for Bristol in 1774. Burke argued he was first and foremost a member of parliament with a responsibility to deliberate on behalf of the whole nation, and was not there to reflect “local purposes” or “local prejudices”.

The speech to the electors of Bristol is one of the basic texts of Western democratic politics. But rarely are the views of the electors of Bristol reported. Burke was not a popular local member. When the next election came around – six years later – he had so clearly dissatisfied Bristol voters that he deliberately ran dead, ultimately coming fifth in a ballot of five candidates. Burke did not represent the electors of Bristol again.

The voters seem to have believed Burke had been elected to represent them, and had no hesitation dumping the great conservative thinker when they learned he did not share that view.

In this light, the decision to hold a plebiscite on same-sex marriage rather than a parliamentary vote was a rather devastating indictment of the Australian political class. First it suggests that our so-called representatives are unable to adequately represent our views – whether those views be for or against marriage reform. Second, for those who hold to a more Burkean vision of democracy, it makes politicians look less like confident, deliberative aristocrats and more like cowards, unable to come to decisions on policy questions they find uncomfortable.

Don’t get me wrong. If the goal of democratic choice is to discern what most people want, then direct democracy is much more effective than delegated representation. But then we should be subjecting more government policy to a plebiscite. Things like tax increases, spending programs, military engagements, regulatory interventions, law and order schemes – they could all go to a popular vote.

I know, I know. This is fantasy stuff. Imagine the political class admitting it was not competent to rule on the big issues.

There Is Much To Celebrate On Australia Day

Ninety-one per cent of Australians are proud to be Australian, and 85 per cent believe Australia Day is a day for celebration, according to a poll commissioned by the Institute of Public Affairs.

There is good empirical reason to be proud of what Australia has achieved. Sometimes it is worth taking stock.

First: Australia is one of the richest countries in the world. Australia’s GDP per capita was US$61,925 in 2014, the latest year collated for comparison by the World Bank. Only Norway, Switzerland and a few city-states are richer than us. (Financial market turbulence and the exchange rate will have played havoc with our rankings since, but, well, comparative economics is a tough gig.)

Being rich is not everything, of course. The United Nation’s Human Development Index, which takes into account things like life expectancy, inequality and environmental sustainability, puts us at number two, just below Norway.

Second: Australia is one of the most democratic countries in the world. FreedomHouse gives Australia its highest ranking: a “1” for both civil liberties and political rights, including perfect scores for electoral process, functioning of government, freedom of expression and belief, associational and organisational rights, and near perfect scores for personal autonomy and individual rights, the rule of law, and political pluralism and participation. The Economist gave Australia 9 out of 10 in its 2014 Democracy Index. Polity IV gives us full marks for democracy.

Third: Australia is one of the freest countries in the world. We are in equal third place for overall human rights respect in the CIRI’s Human Rights Data Project. We’re ranked number seven on the Cato Institute’s Human Freedom index, and number 12 on the Fraser Institute’s Economic Freedom of the World Index.

These are no trivial achievements. The majority of the world’s population lives in countries which are less free, less democratic, and less respecting of the rights of its citizens than Australia. What we have in this country is a constellation of institutions and cultural norms that are among the best on the planet.

Consider how hard it has been to export those institutions to poorer countries. The best minds have spent decades trying to make developing countries like Australia, and their record of success is, shall we say, mixed. Somehow we have a stable institutional order that combines both wealth and liberty. This is more than enough to celebrate on Australia Day. It is more than enough reason for pride of country.

Pride does not have to be a synonym for obliviousness. There are significant pockets of disadvantage and too many people are unable to enjoy our aggregate prosperity. Every news outlet and every columnist – myself included – pours out a litany of problems with Australia; its government, its society, its culture. These are very often justified.

Even among the aggregate measures of success, there are some worrying outliers. For instance, we are lower than we ought to be on Reporters without Borders’ World Press Freedom Index: number 25 in the world, well below many of the countries we consider our peers.

And it’s also true that January 26 is a peculiar day to celebrate Australia Day, given it is the day a floating prison colony found land as distant from home as eighteenth century policymakers could conceive. That landing was no more the birth of the country we live in than Queen’s Birthday is actually the Queen’s birthday. In The Age yesterday, Martin Flanagan argued that we should switch Australia Day to another day.

But what has made Australia so successful compared with other settler societies has nothing to do with the landing of the First Fleet or the intentions of the early military governors. Success from that moment was not guaranteed. Nor, indeed, did the landing force the settlers into an inevitable clash with the continent’s Aboriginal inhabitants. The pivotal choices were yet to be made.

In his How Australia Prospered, Ian Maclean looks at the paths Australia did not travel. For instance, we avoided becoming like Argentina, a country with which we share many similarities, when the aristocratic squatters failed to entrench a privileged place in nineteenth century Australian politics. There have been many junctures in our history where the Australian project could have fallen apart.

More fundamentally, stable and successful institutional orders do not have “birthdays”. If Australia Day was not January 26, then when should it be? Australia’s origins cannot be pinpointed to colonial self-government in the 1850s, the end of transportation in 1868, federation in 1901, voting rights for women from 1895, the adoption of the Statute of Westminster in 1942, full Commonwealth voting rights for Aboriginal people by the 1960s, or the Hawke government’s 1986 Australia Act, which severed the Australia from the British legal system. Each of these were milestones, yes, but milestones in what was really an evolutionary process. Australia was not created, it grew.

Pretending that January 26 is Australia’s day, even just symbolically, actually undervalues the achievement that is Australia’s institutional heritage. We could just as easily say the institutions that made Australia a success – representative democracy, the rule of law, a market economy – date back long before 1788, even before Britain existed as a discrete political entity.

Any celebration of a nation has to be coupled with an awareness of its past, for good or ill. But while we must not let the good whitewash the ill, neither should the ill be allowed to drown out the good. There is much to celebrate on Australia Day. At least, that’s what the data says.

Donald Trump Is Not A Conservative – Just Look At His Views On Trade

Donald Trump’s proposal to end all Muslim immigration to the United States has unleashed a justified torrent of commentary around the world. But it is his views on free trade that are more indicative of the source of his support, and the tensions he creates within the conservative movement.

Trump displays none of the conservative virtues. He is rash, inconsistent, disdainful of knowledge and policy detail, and nonchalant about making pledges which he could not, as president, possibly fulfil.

If conservatism is a temperament – a deference to tradition, or, as Edmund Burke said, to a “manly, moral, regulated liberty” – then Trump is not a conservative.

He appears to have no interest in statescraft or stability. Remember Tony Abbott’s 2013 promise to slow down the news cycle and end political dysfunction? Trump promises the opposite. And it is entirely possible that he will be voted as the nominee of the conservative Republican Party.

At the sixth Republican candidates debate last week, Trump tried to explain what he meant when he told the New York Times editorial board that he wanted to impose a 45 per cent tariff on all Chinese goods coming into the United States.

First he tried to say the New York Times reported him wrongly – which, if you listen to the audio of his meeting, is an outright lie.

Then he argued that he was, in fact, “totally open to a tariff”, because he believes China is manipulating its currency and imposing tariffs to penalise American manufacturers.

It is shameful that the Grand Old Party is so close to nominating such an empty demagogue.

It fell to Marco Rubio to explain during the debate what economists have been trying to explain for two centuries: tariffs harm consumers by raising the price of goods at home and do nothing for economic development.

The cost of any tariffs imposed by China on imports is borne by Chinese consumers. The cost of a Trump tariff would be borne by American consumers. The United States would do better to ensure that its businesses were free to grow at home rather than resent the self-harming policies of its trading partners.

That Rubio’s bog-standard defence of trade was a rare moment of rationality in the Republican debate is a sign of how the Trump phenomenon has unmoored all but the most moored candidates, chasing the resentment that this garish business mogul has tapped into. It is shameful that the Grand Old Party is so close to nominating such an empty demagogue.

Every political party is a coalition of groups, each with their own attitudes and appeal that have banded together to form government.

The Republican party has always had a populist wing that co-inhabits uneasily with the business conservatives who are more interested in free markets and small government. There is a lot of overlap in ideas between these two groups, but also much to distinguish them.

Trump is unusual as a presidential candidate because he has no interest in managing that coalition. His strategy is to appeal directly to the populist market, and ignore the business conservatives. Hence the repeated claims that his wealth means he is not beholden to party donors.

Trump represents one side of the Republican party in revolt against the other.

The numbers tell the story. A November 2015 survey found that where the rest of the field count around 35 per cent of their support from white working class voters, Trump enjoys 55 percent of this demographic. It is these voters who most believe they have lost out from industrial globalization, and feel they are suffering from competitive pressure from new migrants entering the workforce.

Regardless of whether Trump wins the nomination or flames out in the next fortnight, the significance of his candidacy for the Republican ideological coalition will be felt for decades.

So why is Trump’s position on free trade a more powerful indicator of his significance for the conservative movement than his much more radical immigration policies?

As well as the ban on Muslim immigration, Trump wants a fence on the US-Mexico border that he insists Mexico will pay for. And he wants the 11 million undocumented immigrants in the United States forcibly deported.

But as extreme as these positions are, the domain of Republican immigration policy had already been ceded to the demagogues before Trump came along.

If you watched the sixth debate, you would have seen Rubio back away from his role in the 2013 bipartisan immigration bill – a bill lauded at the time by business conservatives – that would have provided a way for the 11 million immigrants Trump wants to deport to become citizens.

By contrast, until Trump, the cause for free trade has at least received lip service support, despite globalisation’s role in changing the industrial landscape that many working class Republican voters have resented. No question that there are always some stark violations of the free trade principle. The Republican platform says the party “stand[s] ready to impose countervailing duties if China fails to amend its currency policies”.

But Trump goes much further, calling for “fair” trade at the same time as he describes himself a free trader – the classic protectionist pitch – and damning even the North American Free Trade Agreement as a “disaster”.

In a perceptive National Review piece, writer David French argues that Trump’s rise shows that Republican strategists have overestimated the conservatism of Republican voters. Regardless of whether Trump wins the nomination or flames out in the next fortnight, the significance of his candidacy for the Republican ideological coalition will be felt for decades.

Poorest Members Of Trans-Pacific Partnership To Benefit Most

Why is Australia a party to the Trans-Pacific Partnership agreement? This regional free trade agreement between 12 Pacific Rim nations, including the United States, Canada, Japan, Vietnam, Malaysia, and Australia, has been almost universally panned, left, right and centre. Yet it is likely to be signed in New Zealand in February.

A report by the World Bank released last week claimed the benefit to Australia from signing the agreement would be a near imperceptible fraction of a per cent of growth a year – just an added 0.7 per cent of GDP by 2030. The government’s own economic advisory agency, the Productivity Commission, says the Trans-Pacific Partnership will distort trade rather than free trade. And GetUp calls it the “dirtiest deal you’ve never heard of”, driven by “big business, big pharmaceuticals and big tobacco”.

They’re all wrong. Yes, the Trans-Pacific Partnership is not perfect. It has bad parts. It might require the government to further crack down on copyright piracy, even as the piracy problem is ebbing away in our world of Netflix and Apple Music. The Investor-State Dispute Resolution mechanism – which allows firms to sue the Australian government in special tribunals – is, in the words of the American libertarian think tank the Cato Institute, “unnecessary, unreasonable, and unwise”.

And the deal’s importance for the global economy has been wildly overstated. The Abbott government tried to desperately pump up the significance of the free trade deals it was signing as it saw its other economic growth strategies slip away.

But trade deals are policy bundles. The question isn’t whether the Trans-Pacific Partnership has bad parts. It’s whether the good parts outweigh the bad parts. Nor is the question of whether Australia “wins” from the deal. It’s whether it enhances global welfare.

The poorest signatories are likely to be the deal’s biggest beneficiaries. The World Bank believes that the Vietnamese economy will be 10 per cent larger by 2030 thanks to the Trans-Pacific Partnership.

Malaysia will be 8 per cent richer. Brunei 5 per cent richer.

These figures represent real people in real countries getting better lives thanks to an agreement we will sign. The benefits dwarf the $90 million a year Australia gives in overseas development assistance – foreign aid – to Vietnam.

Free trade deals exist to solve a political puzzle. The puzzle is this: countries that allow foreign imports are richer, all else being equal, than countries which discourage foreign imports. Protectionism is bad for consumers and bad for the economy. This is counter-intuitively true even if every other country in the world is protectionist. On the question of free trade the economics profession is almost unanimous. Yet in recent decades few countries have been happy to unilaterally reduce trade barriers.

This is where free trade agreements come in. They allow governments to sell domestic tariff reductions to their voters by pointing to the fact that other countries are reducing tariffs as well. A lot of people think that international trade has to be done on a “level playing field” to be good. This is bad economics.

But it is a political reality. Many voters will accept a reduction in protection only if they see other countries doing the same.

There’s another reason why we might want to sign a trade deal: insurance. Trade deals reduce the likelihood of a future trade war – that is, the deals prevent countries raising their trade barriers in retaliation for perceived slights. Taking this insurance effect into account, the economists Richard Harris and Peter Robertson have found the economic benefits from the free trade deal the Howard government signed with the United States have been up to four times larger than previously believed.

This particularly important for Australia as we are highly trade exposed.

I’m not suggesting that the politicians who sign free trade agreements have these sorts of sophisticated reasons for doing so. Politicians pander to voters. They talk a lot of nonsense about exports and imports, about how they’re forcing opening foreign markets to exporters, extracting concessions from other countries and so forth.

But by pursuing free trade deals they are building a more prosperous world. The Trans-Pacific Partnership tangles the economic interests of an entire region together. Call it mutually assured construction. Being part of this process isn’t pointless or “dirty”. If you think international development and international relationships are important, then trade deals are some of the best foreign policy we can do.

In Defence Of ‘Peak Sequel’ Capitalism

Is Hollywood running out of ideas?

In the wake of the unsurprising success of the seventh iteration of Star Wars, it can’t have escaped anyone’s attention that the American film industry is now pouring out sequels and reboots and exploiting established franchises.

This year we’re going to get Zoolander 2, My Big Fat Greek Wedding 2, Kung Fu Panda 3, Batman v Superman, Finding Dory, Captain America: Civil War, X-Men: Apocalypse, Now You See Me 2, aGhostbusters reboot, a fifth instalment of the Jason Bourne series, Bridget Jones’s Baby, another Jack Reacher movie, another Independence Day, a sequel to Bad Santa, and of course the next Star Wars film.

After 2016, there’s another Indiana Jones in the works, at least one more Alien, another American Pie, moreAvatars, another Blade Runner, a Die Hard prequel, another Frozen, and apparently a Star Wars every year until we die. Dominic Knight has dubbed this “peak sequel”. By one count there are 156 sequels in the works.

So it’s easy to be pessimistic about the imaginative vibrancy of Hollywood. One influential essay in GQ in 2011 forecast the “(potential) death” of American film as an art. There’s a helpful infographic floating around on “Hollywood’s waning creativity”.

But there is every reason to look at Hollywood’s sequel, franchise and reboot fashion with optimism, even admiration. They are a symbol of cultural health, not stagnation.

First, the situation is not exactly as it looks. While there are more sequels there are also a lot more movies, as trade sources in the US and UK complain. Don’t like the flashy pop juggernaut of Star Wars: The Force Awakens? Go see the bleak Revenant, which just won the best picture Golden Globe.

Anyway, adaptations and franchises have been Hollywood’s game since the very beginning. Cinema has always dug through and repurposed other cultural products. One of the earliest, greatest films, the 1902 silent A Trip to the Moon, is a mixed adaptation of stories by HG Wells and Jules Verne.

In the golden age of studios, filmmakers happily converted popular novels into film. By my count, at least 15 of the 20 best picture Oscar winners between 1950 and 1969 are adaptations of novels, plays and musicals. These were sometimes very well known, including Oliver! (a film adaptation of a musical adaptation of Charles Dickens’s novel); My Fair Lady (an adaptation of a musical adaptation of a film adaptation of the stage play Pygmalion); and Ben Hur (a reboot of a 1925 adaptation of an 1880 novel that had been made into a play in 1899 and a 1907 film). Possibly the best American film is a sequel of an adaptation: The Godfather Part II. Look at how derivative the Internet Movie Database’s top 250 movies are.

It’s not clear how adapting well-loved and established stories for film is substantively more creative than adapting well-loved and established film stories for more films. What standard of creativity does the all-female reworking of Ghostbusters violate that West Side Story (a film adaptation of a musical adaptation of Romeo and Juliet) did not? It would be weird to complain we’re getting too many Shakespeare reboots. For what it’s worth, The Revenant is an adaptation of a novel too.

I made the point before Christmas that all culture relies on appropriating from earlier culture. George Lucas’s 1977 Star Wars was boldly original, but was also a complex pastiche of narrative tropes and imagery.

But there are stronger arguments for a Hollywood full of franchises than everyone-does-it and if-you-don’t-like-it-go-see-something-else.

As TV shows become more film-like – with higher production values, and longer stories that stretch across an entire television season – franchising means films are becoming more TV-like. Imagine those endless Marvel films (Iron Man, The Hulk, The Avengers, Thor, Captain America and so forth) as episodes in a long running story, rather than standalone movies. Like any show there are better episodes and worse episodes, but in sum they add up to a stronger whole than each individual would be.

Star Wars is a great example of how franchises can enrich a culture rather than shrink it. Everybody but the most contrarian agrees that Lucas’s three Star Wars prequels, released between 1999 and 2005, mostly fail as individual pieces of dramatic entertainment. (Yes, OK, an arguable exception is 2005’s Revenge of the Sith, sure.) But as exercises in constructing a rich and deep fictional world, they are remarkable. Sequels and franchises allow filmmakers and audiences to mine further veins of potential stories. No character need briefly appear on the screen and disappear forever. There’s always the opportunity for a spin-off.

Audiences clearly want this. The fanfic subcultures which pop up around every major film reveal an audience eager to further immerse themselves in the fictional universe. Books, comics, and TV specials are released to add depth for those who want more. The Star Wars expanded universe offers audiences a map of the long-ago, far-away galaxy with its own traditions and tales. The Marvel Cinematic Universe has its own comics, short films, TV shows, and the enormous back catalogue of stories and characters dating to the Second World War.

Even all that tacky merchandising that consumers lap up is a sign of cultural engagement. They want to take the film experience home with them. Surely this is what we want from culture – a communal experience, shared stories, imaginative worlds.

Movies have always been the most explicitly commercial art form. If you view art and commerce as distinct, separate spheres then it must be tempting to view ‘peak sequel’ capitalism as displacing the original visions of genius auteurs with repetitive dreck. But art surely has to speak to people. These grand worlds being built by sequels and franchises are doing that. They should not be regretted; they should be embraced.

The Alternative To Uber’s Surge Pricing Isn’t Fair Either

On the morning of New Year’s Eve, the ridesharing company Uber sent its customers an email warning of increased prices particularly between 12:30am and 4am the next day, the time that revellers were likely to want to go home at the same time.

Nevertheless, on January 1, there was an inevitable spate of outraged press stories where customers complained about the extremely high prices charged by Uber during those peak hours. In some cities, Uber prices were nearly 10 times the normal price.One person paid $720 for a ride from Sydney to Blacktown.

This can’t have been a surprise. The price is set by an algorithm. As well as the email that morning, Uber notified riders of the surge prices and required them to manually accept the increase before they confirmed the ride request. The Uber smartphone application also allows riders to estimate fares in advance.

One suspects that more than a few of these unhappy riders were “tired and emotional”, in that charming media euphemism.

The case for what Uber calls “surge pricing” is simple. Uber drivers cannot be simply forced to work at the busiest or most inconvenient times. They have to be enticed to drive on New Year’s Eve – an evening where many drivers would probably rather be partying than ferrying passengers. Higher prices are enticing. This is basic supply and demand stuff. Surge prices also encourage drivers already on the road to go to where demand is highest. In the absence of surge pricing, there would almost certainly be shortages and queues.

Uber did not invent market incentives. The company just exploits them. Allowing for demand-driven pricing is one of Uber’s best features: it ensures the service is constantly available for those who need it. Surge pricing is one of the reasons Uber is walking all over the taxi market. Yes, it would be nice if our fellow citizens were happy to drive us around at the cheapest prices on demand at the busiest times, but as Adam Smith said, you can’t run an economy on benevolence alone.

And yet it is undeniable that many people see price surges like those engineered by the Uber algorithm as violating an unstated ethical code. When a smaller surge occurred during the Sydney siege, the outrage was worse, as it seemed like Uber was profiting from the city’s fragile state.

Supporters of markets have a habit of sometimes dismissing these concerns out of hand, but they shouldn’t. Market exchange, as one of the basic forms of human interaction, has a deep ethical dimension. It needs to be defended.

The earliest traces of what we now call economic reasoning was preoccupied with the search for principles that would explain why certain goods were more expensive than others. The debate was concerned with how the “just price” was determined – a price which was fair and ethical according to the ideas of Christian justice.

Some medieval theologians and philosophers believed the just price was the price it would take to cover the cost of production plus a small profit. Thomas Aquinas argued that the just price was what a just person would agree to. Others believed the just price was whatever the prevailing local market price was.

This final explanation might seem a cop-out but it packed an intellectual punch in the medieval period. According to these proto-free marketeers, the just price was that which could be freely and voluntarily agreed to by two independent agents. After all, one of the alternatives to the market setting a price is if a lord sets a price by diktat, and forces those they rule to sell for less than market value.

Social institutions are about trade-offs, not solutions. There is no perfect way to resolve the tension between supply and demand. Unless market participants are forced to provide a service, that service will either be rationed by price or it will be rationed by queuing.

Surge prices seem to offend our sense of egalitarianism, but as Jason Brennan and Peter M Jaworski point out in their recent book Markets Without Limits, queues are not very egalitarian either. Queues don’t treat everybody equally. Queues favour those who are willing to spend time in queues. Not everybody has that time. Some people really need an immediate Uber ride, to get home to babysitters or because they are unwell. Others merely want a ride.

Psychologists and behavioural economists have spent decades documenting all the irrationalities, systemic errors, and cognitive biases that lead humans to make bad decisions. The intuitive revulsion many of us have to market pricing in moments of extreme demand ought to be one of them.

The Dries Have It: The Past And Future Of Economic Reform

An unfortunate consequence of the ideological makeup of Australian historians is that one of the most important political and intellectual movements in 20th century Australia is still poorly understood and underappreciated.

Every factional nuance of the Labor Party and union movement has its own dedicated history.

By contrast, the Dries – the parliamentary and extra-parliamentary grouping that drove free market thinking in the Liberal Party; that laid the foundations for the deregulation of the 1980s and ’90s; that held the Liberals to their private enterprise beliefs during those reforms against the attraction of populism; that seemed to flame out with the failure of Fightback! at the

1993 election but whose program has been vindicated by decades of bipartisan economic change – has been largely ignored.

At best the Dries receive a perfunctory paragraph in political histories, dismissed either as Margaret Thatcher copycats or the ciphers of business interests.

Over Christmas one of the leaders of the Dries, Jim Carlton, passed away. You can read Malcolm Turnbull’s comments commemorating Carlton’s life.

Carlton should be seen as one of the pivotal figures in Australian political and economic history. This importance is not necessarily obvious from his CV.

Carlton entered parliament in 1977 as member for the Sydney seat of Mackellar. He was the minister for Health for a short time in the Fraser government before it lost power. He was shadow treasurer under John Howard during the 1980s, and left parliament in 1994.

Yet it was his role in building the Dry movement, and establishing a parliamentary group, the Society of Modest Members (along with the other core members of John Hyde and Peter Shack), that assures his long-term significance.

In the late 1970s and early 1980s the Dries were opposed to the Keynesian post-war consensus and advocated the monetarist approach to macroeconomic policy expounded by Milton Friedman. They opposed the high tariff barriers that Australia placed between itself and the world. They called for the industrial relations system – one of the most restrictive in the developed world – to be dismantled, and wages to be set by the market rather than judges.

The Dries had a love-hate relationship with the Fraser and Howard governments. They were disappointed in Malcolm Fraser’s failure to kickstart necessary reform; a failure made more politically bitter by the fact that the Labor Party under Bob Hawke filled the gap. It is a sign of the ideological success of the Dries that their view about the Fraser government – as a “missed opportunity” for reform – has become the dominant one in the modern Liberal Party, rather than more common idea of Fraser as a welcome return to the stable, middle-of-the-road government of the Menzies years.

It was thanks to Dry pressure that Fraser and his treasurer, John Howard, instigated the Campbell committee into the Australian financial system and gave it the philosophical direction that shaped the deregulatory movement for two decades later. Hawke and Keating would not have been able to do what they did to the financial sector without these foundations.

Howard was affiliated with the Dries under Fraser and then during the Hawke years. Yet Howard never fully signed up to the Dry program, in part by temperament, and in part due to a conscious effort at striving for the political mainstream.

Indeed, the Dries operated as a counterculture within the Liberal Party – albeit an extremely influential one. This idea that the political mainstream would be influenced by the political margins was part of the Dry identity. Carlton’s Society of Modest Members was named after Bert Kelly, the Liberal member for Wakefield between 1958 and 1977, whose quasi-serious, quasi-comic “Modest Member” columns were a fixture of the Australian press for decades. Kelly was a gadfly urging conservative governments to pursue tariff reduction and market liberalisation.

In 2011 the Society of Modest Members was revived within the federal Liberal Party, as an attempt to recapture the intellectual ferment of the era of Kelly, Hyde, Shack and Carlton. This reconstituted group was, like the original society, an implied critique of the prevailing orthodoxy within the Liberal Party. Free market Liberals believed that Tony Abbott needed some prodding if he was to bring about market-oriented economic reform, and needed an internal bulwark against big spending promises like paid parental leave.

Yet the new Society for Modest Members seems to have come to little, and Abbott’s term in office is likely to be seen as another missed opportunity. The original Dries were first and foremost an intellectual movement. Turnbull’s success depends on whether today’s Jim Carltons are preparing the ground for future reform.

Is Cultural Appropriation The Bogeyman It’s Made Out To Be?

A spectre is haunting the planet: the spectre of cultural appropriation.

To appropriate symbols from cultures that are not one’s own is apparently now disrespectful, insensitive and offensive.

A student body at the University of Ottawa has banned yoga classes as an example of “cultural genocide” and “Western supremacy”. Student unions at the University of East Anglia have targeted Mexican sombreros for “discriminatory or stereotypical imagery”.

At Oberlin College in Ohio, it is food that is problematic. The student dining hall is accused of modifying “traditional” Asian recipes “without respect”. The “undercooked rice and lack of fresh fish” offered in sushi “is disrespectful”. The Banh Mi sandwich, served on ciabatta rather than a baguette, is “uninformed”, a “gross manipulation” of this “traditional” Vietnamese dish. And the General Tso’s chicken dish is prepared with steamed chicken, rather than fried chicken – another disrespectful appropriation.

These complaints are apparently serious. They could just as well be satire. Because each of those named foods are themselves the result, not the victims, of cultural appropriation.

Sushi has an ancient history in Japan but what many people in Japan and the West now see as good sushi – with its rich slices of tuna and salmon – is the result of Japanese chefs adapting their traditional dish to the tastes of American GIs during post-war occupation.

The Banh Mi is a fusion dish of French baguette – brought to Vietnam through French colonialism in the nineteenth century – and Vietnamese flavours.

And General Tso’s chicken? It dates back, at the earliest, to the 1950s, has nothing to do with the nineteenth century general Tso Tsung-t’ang, and only became famous when it was first served in a New York Chinese restaurant.

Sure, it’s easy to mock a few uninformed university students. So let’s continue.

The sombrero comes not from Mexico, but was brought from Europe by the Spanish – Don Quixote is often depicted with a flat-topped Spanish sombrero. The sombrero was then culturally appropriated by early American cowboys and evolved into their distinctive cowboy hat. For their part, the Spaniards got the sombrero from the Mongolians.

Modern yoga is so far from the ancient Indian tradition that it is better seen as a totally separate endeavour. The typical modern yoga fitness class draws on gymnastics, calisthenics and Indian wrestling. Its relationship to the fourth century Yoga Sutras of Patanjali is like the relationship between the cowboy hat and the Spanish sombrero: related but far enough apart to be considered substantively different.

Why is this important? Because the history of culture is the history of cultural appropriation. What we see as traditional national or ethnic cultures today are the just the current manifestation of a long evolutionary process. Traditional foods, religions, dress and practices are constantly changing as they are exposed to other cultures, picking up and integrating the most appealing or adaptable parts.

In her important 2013 book, Cuisine and Empire: Cooking in World History, the food historian Rachel Laudan documents the many ways so-called “national cuisines” are almost always an amalgam of foreign influences, incorporating plants, animals, techniques, spices and styles that have been pushed around the globe by politics and economics. There are no “authentic” cuisines, no “traditional” foods. Everything is fusion.

The same story could be told for language, architecture, dress, religion, music, art, literary culture and on and on and on.

So the issue here is not just that the criticism of cultural appropriation is historically illiterate. It’s deeply ironic. The critics of cultural appropriation claim to be progressive. But they are in fact engaged in a deeply conservative project: one which first seeks to preserve in formaldehyde the content of an established culture and second tries prevent others from interacting with that culture.

Appropriating other cultural symbols is not empty, cynical role-playing, it is development. By appropriating we add meaning, creating complex new rituals and relationships.

Take, for instance, the most prominent example of cultural appropriation and evolution in the modern West: Christmas.

It is well understood that Christmas is an amalgam of Christian beliefs and Pagan rituals. The Christmas tree comes from Germany, Father Christmas from England, and Christmas carols from Roman-era Christian hymns. Most people would class candy canes as one of the secular icons of Christmas but they may have been meant to represent the shepherd’s staff.

To observe a nativity scene (a first century AD stable in Bethlehem) next to a Christmas tree (an evergreen winter climate plant) is to see that there is a lot going with this apparently simple holiday.

Why is gift-giving part of the way we celebrate of the birth of Jesus Christ? Not solely because of the Three Wise Men. We might as well ask why Jewish families in the United States enjoy a plate of General Tso’s chicken on December 25. Lots of reasons.

Cultural evolution is like that: a contradictory, rich, unstable mix of tradition and change. To attack cultural appropriation as offensive, or insensitive is to attack culture itself. And just as absurd.

How We’re Getting The Whole GST Debate So Wrong

The GST reform debate is a complete mess. If this was in doubt, the Council of Australian Governments meeting last week made it unambiguous: the Government is pushing ahead with a solution to a problem that it has not yet defined. The solution is a 15 per cent GST. Does anybody know what the problem is?

Most economists have a good, clean answer to that question. Basic tax theory tells us that consumption taxes are more efficient than most alternatives. Taxes that are easy to evade or substantially alter our behaviour are less efficient. Yet consumption taxes play only a small part of Australia’s overall tax mix. The ideal tax from an efficiency perspective is low, broad, simple and does not encourage people to avoid saving.

Hence the Henry Review’s position that “a broad-based consumption tax is one of the most efficient taxes available”, and why lots of serious people these days talk about raising the GST and expanding it to fresh food and financial services.

But theory and practice are very different things. At last week’s COAG meeting the state and commonwealth governments were discussing a complicated tax bargain, where two levels of government would trade off fiscal favours with each other. In the Australian Financial Review, Phillip Coorey has a good run down of the proposals.

Jay Weatherill’s plan is that the Commonwealth Government would keep the revenue from a GST increase, which could be used to finance income tax cuts and compensation to low income households, while the states would be allocated a fixed percentage of the commonwealth’s income tax take to spend at their discretion.

An alternative model is that proposed by Mike Baird, where the states would receive $5 billion between now and 2020 to recover some of the funding increases cut from the 2014 budget. After that, the states would be allocated the revenue from income tax bracket creep – the steady tax increase that occurs thanks to inflation every year.

Neither of these plans have much to recommend them. They would further entrench the fiscal imbalance in the federation – the distorted political incentives that arise from the fact that the states do not raise the money they spend. But Baird’s plan is particularly awful. Not only does it rely on maintaining bracket creep as a fixture of the Australian tax system, it would create a constituency – the states – that would lobby hard against any future income tax relief.

The states are obviously clamouring for money. Having lost any real revenue base of their own, they’ve been reduced to begging the commonwealth for scraps.

The real question is why the Commonwealth Government is indulging any of this. The efficiency gains from replacing income tax with a consumption tax are unlikely to be realised once the Government starts compensating low income holders and bargaining with the states. Those compromises will impose their own efficiency costs – costs that do not get captured in the blackboard modelling that informs the debate – but those costs might swamp the benefits from tax reform.

There is a vast gap between an ideal, perfectly implemented tax system and the necessarily compromised and complicated system that emerges from the process of democratic bargaining.

The Government is correct to say that our tax system comes from an older era, and correct to point out that many of our tax rates are punitively high – particularly the income and corporate tax rates. But piecemeal changes could tackle these problems. Every budget includes its own minor changes to the tax system. Why not work through the normal budget process? Why the need for big-bang reform?

When the GST was first introduced by the Howard government, it was designed to replace the wildly inefficient, complicated and obscure wholesale sales tax, as well as stamp duties, taxes on financial institutions, and bed taxes. The one fell swoop approach suited our tax reform needs then. It does not anymore.

The flaws of the existing system have been created by the same political dynamic that makes a revolutionary jump to a substantially better system unlikely. And if the trade-off for a higher GST is to lock in bracket creep forever, as the Baird plan would, tax reform will have been worse than pointless: it will have been genuinely harmful.

The Turnbull Government can’t even convince its own economic elders about the desirability of reform. Peter Costello (who brought in the GST in 2000) warns that a GST debate “will swamp everything”. Peter Reith (shadow treasurer when John Hewson presented his GST plan) urges the Government to “shut down this discussion before Christmas”. Neither of these two are the sole founts of wisdom on tax, of course, but something has obviously gone badly wrong.

On Tuesday the Government will release its Mid-year Economic and Fiscal Outlook, which will reportedly show that government expenditure is around 26.2 per cent of GDP.

This means the Australian government now spends more than it spent when the Rudd government was trying to pump-prime the economy during the Global Financial Crisis (“just” 26.0 per cent of GDP was spent in the 2009-10 financial year). We are at permanent emergency levels of spending. This – not marginal changes to the efficiency of the tax system – is what Malcolm Turnbull should be spending his political capital on.