Author: Chris Berg

Micromanagement In The Regulatory State

Another year, another 6,369 pages of law. Spread over 150 acts, that was the Commonwealth’s total new legislation in 2010.
Not a bad effort considering their usual legislative binge was interrupted by an election.
The received wisdom about Australia’s political and economic history over the last few decades is wrong.
Think we’ve been living in an era of deregulation? In an era of small, timid, “neo-liberal” government?
The data suggests otherwise.
The Australian Government has been massively, overwhelmingly, and comprehensively expanding its intervention into all aspects of the economy.
Compare 2010’s 6,369 pages to the 1980s, when the parliament only passed around 2,000 pages of law every year. Twenty years before that parliament would pass even less: just 500.
The first few Commonwealth parliaments were lucky to pass more than 100 pages a year. In 1907 the Governor-General ticked off on a paltry 17 pages of new law.
It took just a few hundred pages of legislation to set up the Commonwealth. But 110 years later it apparently takes more than 6,000 new pages to just keep it running.
Admittedly, these figures come with a lot of caveats. In 2010, Australians didn’t have to obey 150 more laws: some legislation is passed to alter or repeal existing legislation. Not all of it, by any means, but some.
And the figures don’t factor in the immense volumes of statutory legislation implemented by the Commonwealth last year, usually hovering around 2,500 to 3,000 pages. Or the pages of legislation passed by state governments, which varies between 1,000 and 4,000 depending where you live. The states implement statutory legislation too.
Yet with all its caveats, looking at the number of pages of law passed each year illustrates two things.
First: the more laws a government passes, the busier it is. We have increasingly busy governments. Australia’s legal and regulatory system is being continuously shuffled around. Continuous change has its consequences. To take one of the more prominent examples, in the last few years businesses have had to get up to speed with niceties of Workplace Agreements, then the complexities of WorkChoices, and now the nuances of Fair Work.
Second: the regulatory framework which governs the economy is increasingly complex. Longer laws are more complex laws. The WorkChoices act was 762 pages. The Fair Work act was 651. People (not just lawyers) have to read and understand those tomes.
Regulation spawns more regulation. Not all regulation works to achieve its goals, so regulators and politicians just pile more and more rules on top. And a great deal of regulation is imposed just for its symbolic benefit – the need to “do something” in response to public demand. The OECD calls all this “regulatory inflation”.
Condemning the “volume and complexity of federal laws”, the Chief Justice of the Federal Court of Australia Patrick Keane told the Australian Financial Review Friday that “opening the tax act is like entering the door to a parallel universe”.
This growth in government control over the economy is hard to reconcile with Kevin Rudd’s view that a “particular brand of free-market fundamentalism, extreme capitalism and excessive greed” has dominated the last decades.
Take the now-orthodox view the global financial crisis was caused by a lack of regulation. This view seems to ignore the abundance of regulation governing the banking and finance sector in the United States, and, indeed, globally.
Certainly, in the aftermath of the crisis, a batch of new international banking regulations have been implemented, most notably the Basel III accords. But rarely is it pointed out there was a Basel I and a Basel II. Each were substantial regulatory frameworks themselves.
Indeed, the perverse incentives created by Basel II’s capital requirements (which encouraged banks to hoard AAA-rated mortgage backed securities) were one of the major causes of the crisis in the first place.
Other regulations administered by the American Securities and Exchange Commission protected the private ratings agencies – which granted the AAA grades – from competition. It gets worse. Jeffrey Friedman convincingly argued in Cato Policy Journal last year that not even the SEC knew about this latter regulation, which it itself had imposed in 1975.
If there are too many regulations for even the regulators to keep track, then our problem isn’t too little regulation.
The expansion of regulation is a bipartisan project. The Howard government was just as enthusiastic about regulating as the Rudd and Gillard Government has been.
With 6,369 pages of legislation, 2010 was unfortunately an unexceptional year.
So it’s time we recognised our political system for what it is. It’s not neoliberal. Nor is it social democratic. Australia is a regulatory state – one in which three levels of government have wrapped society with a complex and confused mesh of rules and laws which micromanage everything we do.

Why Greedy Gerry And His Mates Will Win In The End

Gerry Harvey is not Australia’s most popular man right now. It would have taken a hell of a campaign to convince Australians that imposing GST on internet retail purchases under $1000 was not just good policy, but the only fair thing to do.

It’s hard to feel bad for the retailers’ coalition, which includes Myer, David Jones and Target as well as Harvey Norman, because it seems like they’re trying to divert attention from higher prices in their shops, which have nothing to do with the GST at all. Hence the popular backlash.

But despite their tone deafness, the retailers have identified an issue that will be huge in the future. For better or worse, the government will eventually be forced to close the GST-free loophole. The alternative is to admit an efficient consumption tax is impossible in a world of global commerce.

Sure, in 2010, only a tiny percentage of retail sales were online. But there is no reason to believe Australians’ engagement with online retail and services has peaked. After all, it took some time to get where we are today: people had to get comfortable with buying goods, sight-unseen, from a website or auction seller.

There’s a generation gap too: 82 per cent of Australians aged 25 to 34 reported purchasing goods online, compared to 38 per cent of those above 65.

And the cost of international shipping is becoming trivial.

The UK-based site, Book Depository, is somehow able to beat almost all Australian retailers on price and ship its products across the world for free. It’s a volume game: the more they ship, the cheaper the shipping for each individual item becomes. The courier discounts the site has negotiated mean many Australian books are cheaper to ship from the UK than to buy at a bricks-and-mortar store here.

Sites like Book Depository use air freight. The savings are even more substantial when you ship.

The rise of the shipping container since the 1960s has reshaped and propelled globalisation more than any other innovation. Where earlier goods would be stowed haphazardly on pallets in small cargo ships, they are now shoved into metal boxes of uniform size, which has changed international commerce to the extent that transport costs are becoming irrelevant.

That’s two disruptive changes working in concert. Driving one side of retail, the revolution of the internet has been proclaimed far and wide. But the revolution on the other side, in international transport, is just as significant yet largely unnoticed.

The waves of change in retail and industry are immense and, of course, welcome. Right now, Gerry Harvey may seem like a rent-seeking whinger. But it is a virtual certainty his campaign is just the first skirmish in a long war between government and consumers who are comfortable circumventing domestic taxes.

As long as the loophole remains, we can expect retailers to try to blur the distinction between overseas and domestic retail. As a pre-Christmas gambit, Myer announced it was considering building a Myer-branded website in Shenzhen, China, to exploit the GST-free loophole.

A transparently political announcement, but not a stupid idea. If there’s a competitive advantage to be gained from restructuring a business to avoid paying local tax, someone (not necessarily Myer, but someone) will try.

The retailers haven’t quite made their case. At the moment, the logistical hurdles to imposing the GST at the border are insurmountable. And there’s obviously no way to get every online retailer around the world to comply with Australian tax law.

Julia Gillard said last week that levying GST on international purchases under $1000 may cost more than it would raise. (Customs ain’t free.) That’s as good a reason as any to rebuff the retailers. Yet it’s at best a temporary reprieve. As online commerce inevitably grows, the arithmetic will change. No government will tolerate watching its revenue hollowed out by changing consumer preferences.

The reaction to the retailers’ campaign has been intense, a reminder Australians don’t like paying tax very much. Less tax is better than more tax; better again is no tax at all.

Yet whether now or in 20 years, the government will have to face the fact that globalisation makes it easier and easier for individuals to get cheap deals. This includes seeking the lowest tax liability.

Policy makers and bureaucrats designing tax systems have long struggled with the fact that globalisation makes it hard to impose heavy taxes. We’ve seen this in the mining tax debate, where miners have threatened to take investment money overseas.

So as we now avoid tax by shopping online, perhaps we might rethink our moralising about those miners or, indeed, the wealthy individuals who protect their earnings in tax havens.

With the internet, tax avoidance is no longer just for the rich.

I think that’s a welcome development. Politicians with big spending dreams will disagree. Gerry Harvey mightn’t be popular, but eventually a government will do his bidding.

National Curriculum Gets Our History Badly Wrong

Julia Gillard began the development and implementation of the national curriculum as minister for education in the somewhat happier days of the Rudd government. It hasn’t gone well. The curriculum’s implementation problems keep piling up. It’s not at all ready to be taught.

The plan was to have the curriculum rolled out in the 2011 school year, but only the ACT will meet that deadline.

New South Wales and Western Australia have decided to delay the curriculum to 2013. The Victorian government announced recently it would do the same. But there are problems with what’s in the curriculum too.

Take, for example, the history syllabus. After a full quota of compulsory schooling, Australian students will be none the wiser about the origins and central tenets of liberalism: the basics of individual rights, representative democracy and the market economy, and the importance of civil society.

Not to put too fine a point on it, but these are the absolute fundamentals of Western civilisation. And they are missing from the national curriculum.

One need look no further than how the curriculum purports to teach ”struggles for freedom and rights”, a ”depth study” for year 10 students.

The struggle for liberty against tyranny is one of the most important themes of the history of the past 500 years. From the English Civil War to the American and French revolutions, the proclamation of the rights of individuals has given us a rich inheritance of liberalism and civil liberties. That, at least, is how you’d think it would be taught.

But according to the national curriculum, the struggle for individual liberty started in 1945. Because that’s when the United Nations was founded.

To hinge the next generation’s understanding of individual rights on such a discredited institution is inexcusable. And it says a lot about the ideology of the curriculum’s compilers: as if individual rights were given to us by bureaucrats devising international treaties in committee.

Do we owe our liberties to centuries of effort by moral philosophers and revolutionaries opposed to repressive governments? Or do we owe our liberties to the UN International Covenant on Civil and Political Rights, devised by governments, and which only took force in 1976? The curriculum implies the latter.

Students go on to study the fight for freedom in the developing world and battles for rights of developed-world minorities. Worthy topics. But oppressed minorities were seeking the same rights held by the majority. Aboriginal Australians wanted full political rights. Black Americans wanted an end to discriminatory Jim Crow laws. To teach the struggle for minority rights without mentioning how the idea of universally applicable rights came into being is to distort history.

We could dismiss this distortion as an accident if not for the strong impression it would give students – that the history of Western civilisation is primarily characterised by the oppression of minorities, not the long, slow, spluttering development and expansion of political freedom, liberalism and prosperity.

Rights denied to racial minorities is a stain on our past, but it is not the sole attribute of our history. If the struggle for individual rights against the tyranny of government is one pillar of the history of Western civilisation, the other crucial pillar is the boom in wealth and well-being over the past two centuries.

Here too the national curriculum is distinctly lacking. The year 9 study of the Industrial Revolution includes weeks pondering ”the 19th-century concept of progress” – insinuating that a belief in progress is anachronistic. The syllabus keeps students’ attention on labour conditions, social problems and the slave trade. Again: worthy topics. But it is an accepted historical truth the Industrial Revolution was the bed on which our affluence was born. Hopefully that can be squeezed in between discussions on dark satanic mills, machine-breaking and limits to growth.

And the Industrial Revolution was the period in which slavery was ended. Slavery has been a constant throughout history. Its elimination is humanity’s greatest achievement. But introducing slavery in the Industrial Revolution unit suggests something else: that the invention of modern capitalism was somehow to blame for this ancient crime.

The entrepreneurial spirit of the Industrial Revolution is one we should encourage in students.

Yet the word ”entrepreneur” appears nowhere in the curriculum. And when the curriculum talks about ”wealth”, it only refers to the distribution of wealth, not the creation of wealth.

Sure, the ideological assumptions in the national curriculum are subtle. But they’re pernicious.

Students will not be taught the origins of their world. They’ll learn only of Western civilisation’s mistakes, while staying ignorant about its extraordinary achievements.

So Canberra’s inability to implement the national curriculum may be for the better.

Gillard’s Government Balancing Act

As 2011 opens, Labor is going to face that Julia Gillard’s biggest problem is a crisis of legitimacy.
 
Not the sort of legitimacy Tony Abbott was talking about in the weeks after the election: a government formed in a hung parliament is a valid government, and Gillard is as much a Prime Minister as any other prime minister.
 
But Julia Gillard commands neither influence over her colleagues, control over the processes of government, nor direction of the media cycle. In the months since taking the leadership, she has utterly failed to stamp the Government with her brand or even made clear her philosophy of government.
 
Everybody has noticed that the Gillard Government has no vision, but increasingly you have to wonder whether it has any purpose at all.
 
Kevin Rudd had an awful 2010, but his control over all these things in the first 18 months of his government shouldn’t be forgotten.
 
It was just the way Rudd achieved that control – the endless parade of announcements and policy revolutions that spectacularly blew up this year – that eventually did him in.
 
By contrast, Gillard’s leadership was precarious from its first moment. The leadership spill did more than install a new Prime Minister; it appears to have undermined the internal coherence of federal Labor’s parliamentary party.
 
The Greens have received the credit for the recent debate over gay marriage, but it wouldn’t have been possible if not for the erosion of Labor’s internal discipline in the wake of the spill. Gillard’s strong claim that she doesn’t support gay marriage did nothing to halt dissent from within her own government. She may have even stoked it.
 
It’s no longer fashionable to do so, but I still blame Rudd for Gillard’s problems.
 
Much was made of Gillard’s claim in an interview from Brussels that foreign policy was not her passion – education was. Yet education has been stubbornly out of the Prime Minister’s orbit since.
 
Rudd left so many balls in the air that Gillard’s first few months has been entirely focused on tackling them one by one.
 
Take the politics of asylum seekers. Rudd’s dithering between toughness and compassion throughout 2009 and his last months in 2010 left the Government with no coherent message to counter Abbott’s simple mantra.
 
Rudd then threw a bomb at Gillard in his penultimate press conference, incoherently and confusingly claiming that the leadership question was whether the Government should “lurch to the right” on asylum seekers.
 
Once she got the job, Gillard grasped a badly underdeveloped East Timor solution which didn’t seem to have left the whiteboard stage. (It’s only last week that East Timor received a document outlining the plan – five months after it was announced.)
 
And she struggled to demonstrate that her East Timor plan was at all different from the Pacific Solution her party had spent a decade condemning.
 
It’s not much better across the policy portfolios. The lavish Henry Tax Review has ended with the resignation of its author and a mining tax going into its third iteration. Gillard tried once to wrestle the mining tax down once before, but the drama looks to intrude well into the New Year.
 
Or a price on carbon. Gillard is committed to ambitious climate reform, we’re told. She’s just not entirely sure what that reform is yet. Perhaps it depends on Rob Oakeshott and Tony Windsor.
 
Gillard has struggled to balance these huge policy battles (you could also include health and water reform) with her avowed belief that Labor lost its way in July. She doesn’t want to abandon the appearance of reform zeal which Rudd cultivated, but knows those attempts at reform were the sources of the Government’s problems.
 
It leaves her government hesitant, cautious, and ever so slightly intimidated by its own policies.
 
The Government is deeply uncomfortable in its own skin, led by a Prime Minister whose principal qualification for leadership was being agreeable to union bosses and ALP heavies who felt neglected under Rudd.
 
That’s not to say Julia Gillard couldn’t have been a good Prime Minister – or even a great one – or that she couldn’t be one in the future. Right now there’s no reason to suspect this government won’t be able to survive a full term. She has time to grip the wheel of leadership.
 
But one thing is clear right now. Kevin Rudd’s problem was never just communication, although it must be comforting in Labor circles to imagine it was. Gillard’s struggle over the last few months surely has shown how much a fallacy that belief is: changing the messenger hasn’t helped at all.
 
It’s only become worse for the ALP. Tony Abbott is if anything much more electable than he was while Kevin Rudd was leader.
 
Hence Gillard’s legitimacy crisis. One by one, the justifications for July’s leadership spill have collapsed: the Government is less popular than it once was, it is no better managed, its suite of policies are no more coherent, accepted, or closer to implementation.
 
In 2010, Gillard was given the role of Prime Minister. In 2011, her goal must be to own it.

Taxpayers Are The True Victims Of The Global Financial Crisis

About two years on from the financial crisis the world looks very different to the way it seemed in the middle of the economic collapse.
The broad ideological realignment predicted by many never came. But, back in late 2008, it was hard to get away from the hyperbole. Neo-liberalism was dead. Consumerism was dead.
Even deader was the orthodox approach to economics. The entire academic economics profession was looking pretty unwell.
A cover of Newsweek claimed ”We are all socialists now.” French President Nicolas Sarkozy was photographed reading Karl Marx’s Das Kapital.
A clearly overstimulated Kevin Rudd wrote in The Monthly: ”from time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next”.
For Rudd, it was time for governments to grab back the power his prime ministerial predecessors had relinquished.
As the global economy imploded, the ideas of John Maynard Keynes, the economist who suggested government could step in to save it, were always going to be popular.
In retrospect, Australia survived splendidly. We never quite fell into recession. We should be proud. Or perhaps just relieved. Overseas, the outlook is terrible.
The formula that the government claims worked in Australia – pumping money into the economy with reckless haste – has failed elsewhere.
The United States embarked on an unprecedented fiscal stimulus, bailing out car companies and investment banks. But its economy is still moribund, unemployment projected to hover at about 9 per cent for years. Last month it began another round of printing money.
At least the US government is limping along. Across the Atlantic, the wash-up from the crisis has been even worse. Greece is broke. Ireland is broke. Spain looks like it’s about to go broke.
The crisis that was supposed to destroy neo-liberalism seems instead to have hurt big-spending governments.
Economic slumps are stress-testers. Not all businesses fail in a recession. Those that do are either so marginally profitable they were on the edge of failure anyway – think car companies – or had made such poor decisions that they caused the crisis in the first place – including banks that relied on sub-prime mortgages. So too with governments.
The financial crisis was an industrial-scale test of economic wellbeing. Countries that had bad policies before the crisis failed.
Ireland suffered because, having adopted the euro, its interest rates were set by a European central bank more attuned to French needs than Irish ones. Ireland’s economy – its tax cuts and public service bloat – came to rely on a housing boom caused by those theatrically low rates. The boom collapsed.
Greece’s corrupt public sector has engulfed and suffocated its economy over decades – the government was only just able to pay all its employees during the good times, let alone during a crisis. The US economy was weak after a decade of massive overspending under George W. Bush and the trillion-dollar price of military adventurism. Barack Obama’s spending decadence tipped it over the edge. The American economy is paying for years of government irresponsibility.
Yet countries that were robust and healthy – such as Australia with our flexible labour market, good balance sheet and risk-averse Reserve Bank – thrived.
Academic economists are still studying the causes of the financial crisis. One early finding: it wasn’t ”greed”. How important were the American interventions in the housing market, the US Federal Reserve’s artificially low interest rates, Wall Street’s too-clever-by-half mathematicians, or the global capital regulations that inexplicably favoured mortgage-backed securities?
But we know what’s happened since. The moment for Keynes has ended. Now it’s time for free-market economists such as Ludwig von Mises and Friedrich Hayek. The two Austrians said markets should be free to self-correct – better for governments, and better, in the long run, for economies. Governments should have restrained themselves.
Keynes once famously claimed that when the facts changed, he changed his mind. Having ended its flirtation with collectivism, Newsweek now publishes articles about ”The Triumphant Return of Hayek”. Bitter experience will do that.
The real casualties of the financial crisis haven’t been banks or businesses. They have been the rash governments that tried to save them and the taxpayers who provided the cash.

Time For A Rethink On Migrants – It’s No Crime To Seek A Better Life

The decisions of the Refugee Review Tribunal make disheartening reading.
It hears appeals from individuals who have had their application for a protection visa refused.
For instance: the Fijian man who applied for protection because “my educational outlook and possible employment opportunities may not allow me to reach my fullest potential”. Not really persecution, so he was refused a protection visa and refused entry into Australia to find work.
Or the Lebanese resident who claimed to be pursued by the terrorist group Fatah al-Islam, but applied for a protection visa because he lost his job and needed work. He was refused, too. Or the Indonesian woman seeking protection “due to economic hardship as it was impossible to make a living and support her young child”. Also refused.
The tribunal’s decisions are no doubt correct in law. Applicants often have inconsistent stories, leading the tribunal to question their truthfulness. Others simply do not fit the legal criteria for humanitarian entry. They do not have a “well-founded fear of being persecuted”.
But is Australia really better off having refused these individuals a visa?
Certainly the applicants are not. They would not have qualified for one of our numerous skilled migration programs. For many trying to get into Australia, claims of political or religious persecution are just pretexts: the real reason they want humanitarian visas is to seek employment and to participate in Australia’s high standard of living.
Advocates of strong border protection have dismissed these types of visa-seekers as “economic” refugees. And with asylum numbers booming, refugees fleeing poverty rather than persecution are clogging up the processing of humanitarian entrants.
Here is one way to fix that. The government could introduce a visa category for economic refugees.
After all, fleeing unemployment and destitution is just as justifiable as fleeing political persecution. Whatever moral obligation we have to accept political refugees applies just as easily to economic ones.
Few of the usual arguments against migration apply to economic refugees. For example, they need not be a drain on taxpayers.
Sure, humanitarian entrants immediately qualify for a wide range of government programs. They get caseworkers, language lessons and subsidised counselling. They receive settlement grants, crisis payments and Centrelink benefits and advances.
Yet a program for economic refugees needn’t be so generous. If migrants flee to Australia to seek employment, it is reasonable to insist they find employment. Or, at the very least, refuse to support them if they do not. Migrants who come to Australia looking for work seek to contribute more than they take.
Those three people rejected by the Refugee Review Tribunal were eager find employment. And, presumably, they were eager to spend. They could have contributed to our economy, society and culture.
There is an enormous need in agricultural industries for workers – an unskilled demand not being supplied by Australians – and significant demand in Australia’s north-west, where a lack of unskilled labour has inflated wages to an exaggerated degree. Low-skilled labour (with its low wages) could fill a substantial gap in the urban labour market for nannies, live-in carers and house cleaners.
Bosses such as Rio Tinto’s Sam Walsh and Leighton Holdings’ Wal King have made it clear heavy red tape for sponsored employment visas are restraining their ability to bring in migrant workers.
The Australian National University’s Professor Peter McDonald argued last week foreign contract employees are needed to build vital infrastructure. Economic refugees would be ideal candidates.
If that demand doesn’t exist, then economic refugees will not be interested in coming here in the first place.
Of course, migrant labour should not be used as an excuse to ignore policy problems in our higher education and training sectors. But we have a strong economy and businesses looking for labour.
We also must remember that migrants tend to be more entrepreneurial than everybody else – economic refugees make their own opportunities for work. So to be rejecting possible participants in our economy at the same time we are crying out for them is inexplicable.
And it should not need to be said, but allowing people to seek work and opportunity in Australia is a moral and humane imperative. The tragedy on Christmas Island should remind us of how desperate some are to find a better life here.
Allowing economic migrants into Australia also helps the developing world. The money migrants send back to their home countries is the unsung engine of globalisation.
According to one survey, 96 per cent of migrants from the Horn of Africa remitted part of their earnings back to family and friends at home. In 2006 (the last good estimate we have), migrants in Australia remitted $2.8 billion to the developing world.
It is more than we spent on foreign aid that year: $2.1 billion. Globally, the amount transferred in remittances is larger than that spent on aid. This money goes straight to families, rather than being filtered through aid agencies or corrupt governments.
So when three people are refused residency in Australia because they don’t have a well-founded fear of persecution, most people’s gut reaction might be that the legal system is working as it should.
But every economic refugee – every potential worker and consumer – we exclude makes Australia ever so slightly poorer.

Give Unto Others As You Would Have Them Give Unto You

It’s a key part of the human condition: Christmas and the end of the year always inspires a bit of soul-searching. And in the 21st century, that soul-searching is as political as it is personal.
 
So this year, as sure as Christmas pudding, the anti-consumerist Australia Institute has released a survey suggesting most Christmas presents are a waste of money, resources and time: “millions of unused foot spas require enormous amounts of resources”.
 
Better to reject what the Australia Institute’s executive director, Richard Denniss, calls the “growing culture of obligatory giving”.
 
This Christmas, scepticism does have a strand of scholarship on side. Economists have claimed that, at the very least, gift giving appears to be highly inefficient – rarely does a recipient value their gift as much as the giver paid.
 
Obviously, we know what we want better than others do. So we never manage to buy each other quite the right present.
 
In a famous paper, now nearly two decades old but trotted out every holiday season, the economist Joel Waldfogel argued Christmas constituted a major “deadweight loss” – we were all poorer for having indulged in the Christmas spirit. It’s now a book: Scroogenomics.
 
One could respond to Scrooge and the Australia Institute that gift vouchers or cash might be a solution to this apparent dilemma.
 
It’s hardly romantic, but if holiday makers were serious about cutting down the deadweight loss of Christmas, then bank transfers would probably be best. No need for environmentally unfriendly cards either, with an email notifying the recipient of an incoming money transfer.
 
But we don’t just email each other receipts at Christmas. The idea that Christmas is really just an enormous waste of money and resources would make sense if it was simply a transfer designed to increase aggregate financial wealth.
 
But gifts are in the giving. Tallying up the relative value of items exchanged misses the whole point of gifts. Gifts are a mechanism we use to convey private information about the closeness of our relationship with each other. The better the gift, the better the relationship.
 
Waldfogel found the closer the giver is to the recipient, the more efficient their gift buying. (He also confirmed that aunts and uncles are bad at giving high-value gifts.)
 
So maybe giving a loved one a foot spa, despite the cost, waste and how rarely it gets used, actually fulfils a real function – to signal you want that loved one to relax and look after themselves.
 
It may seem like those millions of foot spas are wasted – it’s not clear where the Australia Institute got the “millions” figure from – but the promotion of our interpersonal relationships may be well worth the money.
 
The Australia Institute recommended that instead of giving unwanted gifts, we could instead donate to charity on each other’s behalf. Oxfam offers gift cards that purport to donate goats or sheep or buffalo or seeds to someone in the developing world.
 
Read the fine print. Oxfam are careful to say that just because the card has a photo of a goat, no goats may be exchanged – “your donation might also be covering the cost of buying a goat or the cost of something else . . . tracking each individual item and the community it goes to would be expensive.”
 
In other words, the money may be used for something goat-related, or just for general development. Probably better that than a surfeit of unneeded goats dumped in sub-Saharan Africa.
 
But it’s Christmas. Think of what you’re signalling. Gifts should be about what the recipient wants, not about the giver’s compassion for development.
 
So if the recipient finds donations endearing, then great, and we can only hope your money is deployed effectively. But if not, then donate to charity in your own name later. Christmas gifts are not an ideal medium for broadcasting your conspicuous compassion for the third world.
 
Christmas gifts should be a statement about the strength of our relationships, not a statement about our personal politics.

Can’t Compare: Emissions Trading And Reforms From The Past

It’s now an accepted part of political folklore: the era of reform is over. Our boldness has gone. No longer are we able to push through major economic changes. We have no appetite for challenge.
Australian politicians are hesitant to take risks, intimidated by polls, and the Government is cripplingly scared of focus groups and opposition.
That’s the broad outline. Fill in the details yourself.
This story has a lot of truth in it. In his recent Quarterly Essay, George Megalogenis carefully and convincingly documents the way federal Labor reacted to falling opinion polls in ways which only made those opinion polls drop further.
But the end-of-reform tale pivots on one critical comparison which doesn’t hold up – that between the liberalisation of the Australian economy in the 1980s and early 1990s, and the failure to (so far at least) introduce an emissions trading scheme.
The parallels are admittedly seductive. The decade-long program of financial deregulation, reduction in tariffs and industry protection, privatisation and corporatisation of state enterprises, and labour market reform required unheard-of boldness. It caused pain. Industries which had relied on protection were no longer viable, workers were exposed to the stresses of competition and new private operators took knives to the bloated payrolls of formerly public sector businesses.
The emissions trading scheme will bring hurt too: making some forms of energy production unprofitable (with the attendant risk to jobs) and add substantially to everybody’s power bills. The government that introduces it will be a bold government.
But that’s where the similarities end.
The reform of the 1980s had one clear and unambiguous goal: to clear up a century of accumulated, unnecessary or entirely counterproductive regulatory burdens. These burdens were holding back Australia’s economic growth, limiting personal income, and entrenching private interests at the public expense.
The goal of an emissions trading scheme is very different: to impose burdens on the Australian economy.
Not a bug, a feature. Placing new costs on the cheapest energy will inspire people to reduce their energy use. It will also make technologies which were uncompetitive in a world of cheap coal suddenly competitive.
That’s the plan, anyhow.
In practice, the emissions trading scheme was rife with exemptions, subsidies, wealth transfers and policy distortions which favoured some industries above others. Emissions-intensive, trade-exposed industries were eligible for assistance, so the definition of what constituted “emissions-intensive” and “trade-exposed” was pretty important.
The lucky winners, according to a paper released by the Department of Climate Change in October: Alumina refining (of which there are four companies operating in Australia), aluminium smelting (also four companies), carbon black production, (one company), carbon steel from cold ferrous feed (one company), clinker, copper, ethylene, flat glass, fused alumina, and glass container production, among others, are now considered “highly emissions intensive” and “trade exposed”.
Other businesses, like tissue paper and white titanium dioxide pigment production, are considered to be trade exposed but only moderately emissions intensive. They get a different rate of assistance.
Then there were the free and subsidised emissions permits. And the household assistance payments to compensate poorer Australians for higher energy costs.
The end result of all this regulatory complexity, new subsidies, and tax-welfare churn shouldn’t remind us of the great reform movement of the 1980s. It should remind us of what that reform movement tried to clear away.
Treasury suggests emissions reduction will cost Australia’s economy 2 to 3 per cent of GDP over the next 50 years.
That too compares poorly with the great reforms of the 1980s, which were designed to boost, not restrain, economic growth.
The pain of deregulation was limited to companies which had profited at the expense of the rest of everybody else. Like the tariffs which kept inefficient clothing companies in business and inflated clothing prices. The pain of emissions reduction will be borne by all Australians who use energy.
In a speech last week, the Chairman of the Productivity Commission, Gary Banks, tackled just this question: what constitutes “reform”?
At the very least, reform has to be productivity-enhancing. Reform has to achieve its goal – if carbon pricing is to be considered a success, it has to go some way to mitigating global emissions and then climate change. And reform has to be long term – not so precariously controversial it will be eliminated at the next change of government, like, for instance, WorkChoices.
Banks also cited the Baby Bonus, light globe bans, FuelWatch, Grocery Choice, and Cash for Clunkers as “reforms” which failed to meet these modest but important criteria.
Emissions trading would fail too. No emissions trading proposal before Parliament could achieve its ambitious goal. And no proposal before Parliament would be “sustainable”; that is, would be able to survive into the long term without major revision.
Banks does not go so far as condemning emissions trading. But his argument for action on climate is half-hearted: “perhaps the strongest economic argument for carbon pricing is that it would displace more costly alternative measures targeted at particular products or technologies.”
In other words, it would be marginally better than the even-worse things we’re doing now. That’s hardly an inspirational argument for bold new reform.
How desirable you think carbon pricing is will depend on your view of the science of climate change and the likelihood of significant global action.
But to compare it to the great reforms of the 1980s and 1990s is a mistake. It does a disservice to the legacies of Bob Hawke and Paul Keating. And it gives emissions trading a sense of historical inevitably which this compromised, undercooked, and ineffective policy has not earned.

The Weight Of The Word

Are Julian Assange and WikiLeaks really doing anything that unusual? After all, leaks are one of the foundations of contemporary journalism. Leaks are one of the best techniques we have to peek behind the curtain of government. So the aggressive political reaction to WikiLeaks is very disturbing.

Governments, whether democratic or totalitarian, do not deserve a presumption of secrecy. Few people objected on a philosophical level to the leaks out of Labor’s cabinet during the federal election. Few people have principled objections when the press releases documents they’ve received from whatever legal or illegal source.

There’s no question Assange is a media publisher. He describes himself as a journalist, albeit of an unconventional type. So the only material difference between what WikiLeaks is doing and “normal” leaking is scale. The diplomatic cables have dominated global politics for two weeks, but we’ve only seen the contents of just over 1000 of them. There are 249,000 to go.

The slow (and for US diplomats, excruciating) drip-feed is far from the “data dump” critics have accused Assange of doing.

Few of the cables have been released without first having been given exclusively to the mainstream press. The Sunday Age has some today. These papers have been vetting the documents for sensitive or risky information.

WikiLeaks only publishes the edited cables. WikiLeaks even asked the US State Department for help editing unnecessarily risky documents, a practice common when the press deals with classified material. The State Department refused. The Pentagon has had to admit there is no evidence anybody has ever been harmed due to a WikiLeaks release. Yet the WikiLeaks cables depict more than just “gossip”. They reveal things we didn’t know and shed substantial light on things we thought we did.

For instance, it’s one thing to hear commentators and self-aggrandising leaders in the Labor Right say Kevin Rudd was a control freak. But it’s quite another to read it in a private internal memo of our closest ally. We now know that Rudd’s freakishness was affecting our relationship with the world.

Since the cables have been released, we’ve learnt that: Silvio Berlusconi and Vladimir Putin have a relationship bordering on corruption, US diplomats have been asked to spy on UN leaders, the same US diplomats believe a disturbing number of foreign leaders have mental health issues, and the US pressured Spain to shelve human rights cases against American officials. There will definitely be more.

To oppose WikiLeaks is to oppose freedom of the press and, more critically, free speech. Strip away Assange’s revolutionary libertarian rhetoric and inflated sense of self, and what we have is a media outlet that’s innovative but is not really doing much different from what the press has been doing for centuries. Which makes the events of the past week particularly significant.

Corporate support for WikiLeaks is being stripped away. Amazon.com, which was hosting WikiLeaks for a short time, dropped its account. The company had received calls from staff of the chairman of the Senate Committee on Homeland Security: asking “Are there plans to take the site down?”

Another company, Tableau, which was providing software for WikiLeaks to visualise the data, was also contacted by congressional staff. They severed their relationship with the site too.

Visa and MasterCard followed suit, banning donations to WikiLeaks. So too did the Swiss PostFinance, which held a WikiLeaks bank account. PayPal suspended payments to the site because it felt threatened by a letter implying WikiLeaks had broken an unspecified law.

There are too many volunteers and donors and copies of the site around the world to fully shut it down. But these political attempts to choke WikiLeaks’ funding and foundations are a clear breach of freedom of the press. They illustrate the use of political pressure to silence a media outlet that has done no more wrong than cause embarrassment to the United States government.

Sure, PayPal and Amazon.com could have refused to co-operate. It is not at all clear that WikiLeaks has broken any US laws. But put yourself in their shoes: would you defy Congress, the 535 members of which could destroy your business model with the stroke of a legislative pen?

After all, if we give governments power to make or break businesses through tax and regulation, we also give those governments power to threaten and cajole those businesses into co-operating with their political aims. This is a far more disturbing turn of events than highly publicised rantings of bloggers calling for Assange’s assassination.

Assange may be reckless. From the US government’s point of view, he is virtually stateless.

And the retaliatory attacks by the independent internet hacking group Anonymous on those corporations gives WikiLeaks an unjustified veneer of illegality.

Yet it is not the job of journalism to make the diplomacy easier, or to grease the wheels of communication between foreign leaders. Nor is it to protect diplomatic privacy.

The US government was unable to secure its internal communications. Whatever the long-term repercussions of the diplomatic leak – and they may be substantial – that colossal failure is to blame; not a journalist who, having received newsworthy information, publishes it.

The last thing we want is our media to be deferential or subservient to the interests of the state.

Of course, the battle between governments and the press is an old one. In a moment of well-timed irony, this week the US Department of State announced it would be hosting World Press Freedom Day in 2011.

No matter how new the medium, or how irresponsible its publisher, it is an absolute and fundamental infringement of free speech when a government tries to gag a media outlet it doesn’t like.

Overreaction To Terrorism The Big Threat

Governments take terrorist threats very seriously. But the seriousness of terrorism has to be balanced against how very ineffective – even incompetent – most terrorists actually are.
When printer cartridge bombs were found on a flight about to depart from East Midlands Airport in England to the US on October 29, the regulatory and security response was immediate and uncompromising.
The packages originated from Yemen, so all cargo from Yemen was banned. And Somalia, too. The German government even stopped all passenger flights from Yemen. Toner and ink cartridges above 450 grams were completely banned from passenger flights travelling to the US, not just coming from Yemen, but coming from anywhere at all. The pat-down security procedures on all passengers travelling anywhere within or into the US were boosted.
A substantial reaction, but not an unusual one. Security agencies always hastily crack down on all sorts of activity when terrorist plots are discovered.
Yet just a few weeks later, it is hard to be scared by the printer cartridge bombs at all.
The plot failed on multiple counts. The bombs were found, they were disarmed, and they posed a minimal threat to human life and property. Neither does it represent innovation in terrorism – mail bombs have been around for centuries.
The bombs travelled on passenger jets, certainly, but only by accident. As they were cargo, the bombs were carried on passenger aircraft early on the journey from Yemen through the Middle East. The plan was to explode the bombs in US airspace, but investigators suggest it could have exploded over Canada.
Had the bombs exploded, they would have destroyed a cargo jet and its tiny crew, not the synagogues to which they were addressed.
The bomb maker to whom this has been attributed – Ibrahim Hassan al-Asiri, al-Qaeda’s chief engineer in the Arabian Peninsula – is responsible for the failed Christmas Day 2009 bomber, and a failed assassination attempt on a Saudi intelligence chief. The only fatality of that latter incident was al-Asiri’s brother, who had hidden the explosives in his rectum.
The printer cartridge bomb plot was detected by traditional counterterrorism intelligence. Some reports suggest information about the plan came from undercover Saudi agents within al-Qaeda’s Yemen operation – the terrorist network is, apparently, a lot easier to infiltrate as it tries to stave off long-term decline by expanding its franchises into Yemen and the Maghreb.
So, like many other terrorist scares, in retrospect, there is a lot less to the printer cartridge bombs than first seemed. There seems little reason to be worried.
But nothing quite demonstrates the strangely pathetic nature of the terrorism threat more clearly than al-Qaeda’s new English language magazine.
The October issue of Inspire contains some bizarre suggestions for jihadists plotting in the West. For instance: one article recommends terrorists weld steel blades onto the hubs of a four-wheel-drive and drive up onto a crowded footpath. Doing so, we read, will “achieve maximum carnage”. But that seems more like a terrorist plot hatched by Mad magazine than professional, trained Islamic revolutionaries.
When they’re not utterly stupid, they are oddly banal. Another Inspire recommendation is to shoot up lunch spots that are popular with government workers. So in a decade, al-Qaeda has gone from targeting the World Trade Centre and the Pentagon – the two symbolic organs of American power – to threatening Starbucks outlets one at a time.
Then there is “Make a bomb in the kitchen of your mom”, which suggests repurposing a home pressure cooker to become an explosive device. Such a device is weak, apparently, so the magazine recommends it is placed “close to the intended targets”.
It is surprisingly hard to detonate explosives successfully. Despite the large number of detailed guides to bomb-making littering the internet – whether written for anarchists or jihadists or self-destructive teenagers – the history of terrorism suggests budding bomb-makers are undertrained and underprepared.
The shoe-bomber, Richard Reid, who tried to blow up a flight from Paris to Miami in late 2001, failed because his explosives were damp. The Christmas Day bomber, Umar Farouk Abdulmutallab, burnt his trousers off trying to ignite explosives in his underpants.
The May 2010 Times Square bomber, Faisal Shahzad, could not get his car bomb to detonate. He just set the car on fire. Shahzad was apprehended, in part, because he left his house keys in the ignition.
In late November, the “Portland car bomb plot”, in which a 19-year-old Somali-American tried to blow up a Christmas event, was foiled because his car bomb was a fake. The explosives had been provided by undercover FBI agents who – it appears – had goaded him into becoming an operational terrorist in the first place.
If so, it would not be the first time: a 2007 plot to attack a US army base in New Jersey was almost certainly a case of FBI entrapment. And it will no doubt occur again. There was a bizarre case reported in The Washington Post this week of a mosque in Los Angeles taking out a restraining order on a man spouting pro-terrorism views, and reporting him to the FBI. The man turned out to be an FBI informant trying to infiltrate the jihad.
Despite all this clownishness, the overreaction to every failed terrorist attack has serious consequences. Terrorism succeeds not because of what it does to its target, but what its target does to itself in response.
Measured in money, the cost of terrorism is dwarfed by the cost of the reaction to terrorism. Security responses threaten civil liberties and the rule of law. Nobody needs to be reminded how, since the September 11, 2001, attacks the legal, political and administrative security apparatus has been unalterably changed in the US, Australia and throughout the Western world. The economic cost of this alone is staggering. There are now 1271 separate American government bureaucracies dedicated to security.
Millions of Americans have security clearance and access to this sprawling bureaucracy – apparently allowing a disaffected, low-ranking soldier to gather a huge number of military and diplomatic records and send it to WikiLeaks.
Our government has embarked on its own national security empire-building. The size of the Australian Security Intelligence Organisation has tripled in the past decade.
Then there are the inconveniences caused by knee-jerk reactions to failed terrorism plots. The discovery of the printer cartridge bombs may mean in-flight wireless internet is scrapped, in case the internet is used to detonate explosives. After all, if it is possible to imagine, it is necessary to ban.
There’s also political pressure in Britain to install high-tech screening devices to scan every piece of cargo travelling on aircraft, with the cost borne by freight companies.
After November’s car bomb attempt, Portland is now beefing up security and getting rid of parking at public events.
And after the Christmas bomber, the US government dramatically increased the number of body scanners and intrusive pat-downs. The outcry over the privacy and health consequences of these extraordinarily invasive measures has been deafening. The phrase “security theatre” has become widely used, even among commentators predisposed to being tough on terrorism.
Two things to note: the invasive body scanners have been installed in response to a failed terrorism attempt, not a successful one. And independent security experts have discovered that the scanners are unable to detect the sort of explosives the Christmas Day bomber tried to use.
So, naturally, the Australian government plans to spend $200 million introducing body scanners here within the next few months.
And measured in lives, the reaction to terrorism is often far worse than the potential damage caused by terrorists.
Admittedly, this point does not apply if you believe drone strikes and other military actions kill terrorists exclusively. There are indications the US will respond to the printer cartridge bombs by escalating its covert war in Yemen to include drone attacks.
Next year will be the 10th anniversary of September 11. The devastation of those attacks now looks like a rare fluke. It is one which is unlikely to be repeated. If nothing else, aircraft passengers will no longer passively allow anyone to forcibly take over a plane. Passenger awareness is probably the most powerful airline security “innovation” in the past decade.
And it is becoming increasingly clear there are no great terrorist “masterminds”. The war on terror has no great Bond villain. There is no Einstein of al-Qaeda.
Incompetent terrorists are still dangerous; they can still kill.
But after the initial panic, the vast majority of terrorist incidents are less threatening than they first seem.
The director of the US National Counterterrorism Centre said last week “we help define the success of an attack by our reaction to that attack”. Let’s try not to make our reaction to terrorism worse than the threat of terrorism.