A Nudge In The Right Direction? How We Can Harness Behavioural Economics

The Turnbull Government last week announced the formation of a behavioural economics unit inside the Department of Prime Minister & Cabinet.

The unit has a real title (Behavioural Economics Team of the Australian Government) but everyone is calling it the “nudge” unit, after the book Nudge, by Cass Sunstein and Richard Thaler.

The nudge unit could backfire badly or be incredibly good. At its worst, it will provide new excuses for petty meddling and over-regulation. At its best, it will lead to a fundamental rethink of the authority of government-appointed experts and the dangers of political power.

The idea behind behavioural economics is to bring psychology back into economics. You’ve probably heard the caricature of economic thinking that it assumes all people are “rational”. At its simplest, behavioural economics tries to identify patterns and circumstances where our choices aren’t perfect – when they are irrational or inconsistent.

For instance, we tend to rationalise our opinions, looking for evidence to confirm pre-existing views rather than threaten them. We imagine we are more competent – better informed and more skilled – than we actually are. We are loss averse: we fear losing money or status more than we enjoy gaining them.

These quirks are, strictly speaking, cognitive errors. They mean we make worse decisions than we would if we were meticulously rational, profit-maximising algorithms.

Behavioural economists overstate the novelty of these findings. Pre-modern economists knew very well that people were motivated by more than money – what Adam Smith called the “passions”. But that sort of “humanomics” was lost when economics got all mathy. Economists are groping back to the earlier, richer picture of human motives and flaws. Behavioural economics is just one of the paths on the return.

All very interesting. But Sunstein and Thaler argue the lesson from behavioural economics is that policymakers should alter the environment in which we make decisions in order to help us make better choices. Not eliminate bad choices, as traditional nanny state paternalism suggests – just nudge us into making less bad ones. Nudging involves such actions like rearranging choice hierarchies and changing defaults so that better choices are more prominent.

In practice, however, these “nudges” are either trivial, or tend to be more like shoves. Policy inspired by behavioural economics is rarely able to find the sweet spot: passive, respectful interventions that also offer significant benefits.

Take, for instance, one of the most famous apparent nudges. In his Fairfax piece on Turnbull’s nudge unit, Peter Martin cites the case of officials at Amsterdam’s Schiphol airport who embossed images of little flies on the urinals. Now men have targets of what to hit. Spillage reportedly declined dramatically.

Yet, it is not clear how this is a manifestation of nudge theory or the application of behavioural economics to policy. What systemic cognitive error is being fixed here? As the economist Riccardo Rebonato points out, urinal flies are a “clever ruse”, not a “major breakthrough in social engineering”. Yet it is regularly trotted out as the classic nudge.

The Australian Tax Office has its own nudge program. Late taxpayers now receive a letter stating that, “When you pay this debt you will be joining the millions of Australians who pay their tax to support our country and Australia’s way of life.” Because humans are social animals who like to conform, payment rates have apparently increased.

Other ATO nudges are less impressive. Why, contra Peter Martin’s article, is sending text message reminders to late taxpayers a behavioural economics trick? Debt collection is one of the world’s oldest industries. Harassing debtors is not a new idea.

The reliance of nudge supporters on such trivial examples does not bode well for the usefulness of behavioural economics as a public policy project. The Schiphol toilets example comes straight from Sunstein and Thaler themselves. It’s the first real-world example of a nudge in their book.

But there is something very important the Turnbull Government could do with its nudge unit. The findings of behavioural economics should be applied to policymakers too. Politicians, advisors, policy consultants, bureaucrats, regulators and legislative drafters are all as susceptible to loss aversion, seeking evidence that confirms their prejudice, choosing irrationally, and assuming unwarranted competence as anybody else.

The nudge unit shouldn’t spend its time thinking of clever ways of government to regulate irrational citizens. It should consider the implications of the fact that the people in government are just as irrational as the citizenry.

This is, admittedly, new intellectual ground. The field of behavioural economics is a young one, and its significance for political behaviour has not yet been deeply considered. An early attempt from 2011 argues that viewing regulators as irrational as those they regulate would suggest a “humbler approach” to regulation is necessary.

Governments would do fewer things if they were less confident in their own abilities. But, then, overconfidence is one of the core cognitive errors.

Defending the nudge unit in parliament last week, Arthur Sinodinos said it would “test these concepts in a way that is consistent with our broader deregulationist philosophy”. But the nudge unit could be better than that. Used creatively, behavioural economics could underpin the entire deregulation program.

Why Politicians Ride The Wave Of Anti-Bank Populism

Australia’s banks are launching a new campaign to educate policymakers and regulators about the ins and outs of their business, the Australian Financial Review reported on Monday.

The banks feel defensive since the debate over the Future of Financial Advice (FOFA) reforms, in which they were depicted as semi-corrupt fraudsters preying on the elderly and uninformed, and the recent outrage over mortgage interest rate rises.

Good luck to them. This seems a more productive use of their public relations dollar than campaigns on climate change.

But if this campaign breaks the deep connection between Australian politics and anti-bank populism, it will be the first to do so in 12 decades.

The banking crisis of 1893 set in train more than a century of populist political demagoguery about banking.

Our modern Labor mythologists sometimes skip over the comically propagandistic “money power” doctrine that formed such a large part of Labor politics in the first half of the 20th century. According to money power ideologists, a cabal of bankers – British bankers, Jewish bankers – owned every major industry and asset and controlled Australian politics.

The money power doctrine was not an obscure theory held only at the margins of Australian politics.

Jack Lang, the former NSW premier and Paul Keating’s mentor, was a money power conspiracy theorist.

John Curtin’s mentor, the Scullin government minister Frank Anstey, was the author of an anti-banking, anti-Semitic book called the Kingdom of Shylock (have a look at the digitised version, if you want to be stunned at how overtly racist Australian labour thought it could be).

Driven by this sort of thinking, in 1945 Curtin government introduced burdensome and harmful regulatory controls on Australian banking that slowed economic development and pushed ordinary borrowers into the shadow banking sector for decades.

While it is true that some economists excited by the possibilities of the new Keynesian economic thinking had urged Labor to introduce banking restrictions, it was the crude money power populism that led to the most harmful of those controls: caps on interest rates and an outright ban on foreign banks in Australia.

Anti-bank hostility even played a role in the deregulation of banking four decades later. When Keating ended the ban on foreign banks in 1985, he did so because he believed it would undercut the “drones” of the Australian banking industry. The banks had been made lazy and powerful because of the protection his Labor predecessors had granted to them.

When the Reserve Bank decided to break the back of inflation in the early 1990s, exacerbating on one of the worst economic downturns in Australian history, Keating directed popular anger towards the banks.

A 1991 inquiry into banks – A Pocket Full of Change – encouraged people to send in their complaints with bank services, interest rates, customer relations. Anything they could think of. Nearly a 1000 submissions and complaints were sent in. This distracted attention from the government decisions that caused the crisis in the first place.

A Pocket Full of Change is largely forgotten now. But in retrospect it was very significant.

Our semi-regular freak-out about whether banks are adequately passing on Reserve Bank interest rate cuts can be traced back to Keating’s decision to recast old money power rhetoric in a new guise: to present banks and bankers as uniquely profit hungry and exploitative, and to do so as cover for government policy.

Hence the recent kerfuffle about the major banks’ decision to increase mortgage rates independent of the Reserve Bank.

The Reserve Bank’s cash rate has been held steady at 2 per cent since May 2015. But in October the big four banks decided to increase the interest rates they charged on variable mortgages. Westpac went first, and the rest followed. Bill Shorten thinks that this increase was “just corporate greed”.

But the rate increases are explicitly in response to a policy decision by the Australian Prudential Regulatory Authority that the banks should hold more capital against mortgages. Of course the banks were going to pass the cost of that regulatory requirement onto consumers.

Have the banks raised rates more than they need to, as Scott Morrison tried to argue? Given thelikelihood of even more stringent capital requirements in the near future, it’s hard to blame the banks for being cautious.

In the debate over the FOFA reforms much was made of the need to protect uninformed investors from predatory financial advisors. It’s true that many people don’t understand the world of finance and banking.

But this doesn’t just make them vulnerable to unscrupulous financiers. It also makes them vulnerable to unscrupulous politicians who want to obscure the consequences of their own policy decisions.

If the banks want to change that dynamic, they’re going to have to shift the weight of a century of Australian history.

Same-Sex Marriage: When Did Dissent Become Discrimination?

The politics of gay marriage have shifted radically in a very short space of time. Until 2011, the Labor Party was firmly opposed to gay marriage. The Coalition was firmly opposed just four months ago.

So it’s remarkable that a Catholic archbishop in Tasmania is being dragged to a government anti-discrimination authority for opposing same-sex marriage – the position that was until very recently, shared by both parties.

Last September, Martine Delaney, the Greens candidate for the federal seat of Franklin, took a complaint to the Tasmanian Anti-Discrimination Commissioner that the Catholic Church had produced and distributed a booklet which “does immeasurable harm to the wellbeing of same-sex couples and their families across Tasmania”.

This Tasmanian case has Australia-wide significance. We’ve just had a sustained national debate about free speech, and are about to go into a national debate about gay marriage.

Polls show that about 70 per cent of Australians support gay marriage, so you might think the plebiscite is an assured success. Indeed, Tasmania’s Liberal-led lower house last week became the third state to agree to a motion supporting legislation of same-sex marriage. But that success is not at all certain if gay marriage is perceived as the thin end of the wedge for a more general attack on the liberties of religious communities and freedom of conscience.

The booklet in question, Don’t Mess With Marriage, offers the basic Christian case against gay marriage: families are the founding blocks of society and children need a mother and father.

It’s hard to overstate how moderate this booklet is. It offers no fire or brimstone. It’s gentle and Christian, of the suburban pastoral variety. There’s much expression of sympathy for same-sex attracted people who also want to follow religious teachings that preclude their sexuality. It is a calm explanation of a major position on a prominent political policy issue.

To be offended by the booklet is to be offended by what was, until very recently, the mainstream view on gay marriage, and one still shared by a large minority of the population.

For this reason if nothing else, the complaint ought to have been dismissed as laughably frivolous. But this month the commission decided that the Catholic Church has a case to answer under Tasmania’s Anti-Discrimination Act.

The Tasmanian law almost exactly parallels the controversial section 18C of the Racial Discrimination Act that the conservative commentator Andrew Bolt was found to have breached in 2011, and which Tony Abbott (in opposition) promised to repeal.

There are, however, two revealing differences between the Tasmanian and the federal legislation.

The first is that the Tasmanian law prohibits offensive and insulting speech not only on race and ethnicity, but on 20 different areas from sexuality to religious belief to political affiliation.

In this sense the Tasmanian act resembles the Human Rights and Anti-Discrimination Bill which the Gillard government failed to push through parliament in 2012, which would have made it unlawful to offend someone on virtually everything (including their political opinion!) in the workplace.

It is symptomatic of the spread of no-go areas in Australian public discourse. Governments increasingly believe that protecting us from being offended – on whatever spurious grounds – is more important than allowing us to speak our mind.

The second difference is that there is no caveat in the Tasmanian act that even purports to protect free expression. Defenders of the federal Racial Discrimination Act often point out that section 18C is followed by section 18D which provides protection for speech made in good faith on matters of public interest. This protection is weak. The court decided in the Bolt case that something could not be considered in good faith if, in the view of a judge, it was too sarcastic and had errors.

However, the Tasmanian legislation doesn’t even offer that token concession to basic liberties. In a parliamentary debate in 2013, the Attorney-General dismissed concerns by insisting the bill “does not impinge on free speech; it provides protection from bullying”. All words are cheap. The words of politicians – even when they’re interpreting their own legislation – are junk.

Both supporters and opponents of gay marriage should be very unhappy with the Tasmanian case. Even if the Catholic Church successfully defends against the anti-discrimination complaint, damage has been done. Free-speech theorists talk about the “chilling effect” when the cost of defending oneself against baseless claims hampers the open expression of views.

And in the event that the plebiscite fails, it will be because voters feel that expanding marriage freedom to one group means limiting the freedom of another. The date of the vote hasn’t even been set, but the debate about gay marriage has already moved from the realm of public discourse to legal sanction.

The Tasmanian legislation also tells us something about the ongoing political contest over free speech in Australia.

All those human rights bodies – such as the government’s Australian Human Rights Commission – that flaunt the vital protections of section 18D did not lift a finger to protest the lack of such protections in the Tasmanian legislation. Just as they fully supported the Gillard government’s 2012 bill until its absurdities became politically controversial.

When the Abbott government broke its promise to repeal section 18C in August 2014, many commentators believed a line had been drawn under the arguments over free speech and offensive speech. Not at all. Watch Tasmania. This is the debate we are all about to have.

When ‘Safe Spaces’ Become An Attack On Ideas

There is something deeply reactionary brewing in American higher education.

The events at Yale and the University of Missouri over the last few weeks make plain that the movement for trigger warnings in university classrooms and safe spaces on campus has turned into a dogmatic moral illiberalism.

We should pay attention to what’s happening. With a few years lag, Australia tends to enthusiastically adopt American intellectual fashions.

At the University of Missouri, anti-racism activists announced that their protest encampment on public property was a “safe space”. A student journalist, Tim Tai, tried to report on the protest.You can watch what happened. In the first half of the video, you’ll see the activists surround and attempt to intimidate Tai. In the last 10 seconds you’ll see no less than an assistant professor of mass media shout for “muscle” to remove another journalist for simply filming a public protest.

The Yale incident appears more trivial, but is more telling.

Just before Halloween, Yale’s Intercultural Affairs Committee emailed students asking them to ensure their Halloween costumes did not involve offensive “cultural appropriation and/or misrepresentation”. In response, one Yale lecturer and associate master at Yale’s Silliman College, Erika Christakis, objected that the idea that cultural appropriation was inherently wrong could stifle free speech and open debate.

Christakis’ email was apparently beyond the pale. Outrage spread across Silliman College. An opinion piece in the Yale Herald responded that “I don’t want to debate. I want to talk about my pain.” (The piece was taken down but you can read an archived version.) The New Yorkercomplains Christakis was “privileging abstract free-speech rights over the immediate emotional experiences of those who are likely to experience discrimination at the university.”

In these two events, we’ve dramatically seen how the apparently benign movement for trigger warnings in university classes and safe spaces for students has metastasised into a more general assault on the contest of controversial ideas in higher education.

The original idea behind trigger warnings was to advise students who had experienced serious and severe trauma, such as sexual assault, that they were about to hear some disturbing content. You can understand the reasoning behind the warnings, as a reasonable concession to the fact that some material, particularly in humanities subjects, can be highly confronting. Likewise the safe space – say a women’s room – might be seen as a benevolent amenity.

But trigger warnings have become absurd. Some students are requesting classic literature come with warnings. And safe spaces are morphing into places where infantilised students hide from ideas.

Now this movement has turned into a generalised attack on open discussion. The entire higher education experience is being reconceptualised as a zone of post-trauma, in which students demand faculty protect them from the expression and thoughts of others.

Using the language of psychological harm, ideas are condemned, rather than rebutted. Students can receive “pain” from the decision of another person to write an email. It is wrong to “privilege” free speech, a mere “abstract right”, over personal emotional experience.

It’s hard to think of anything more contrary to the purpose of education – which is, in the broadest sense, the systematic exposure to ideas outside personal experience – than that.

One of the arguments in Christakis’s email is worth dwelling on. Not her main points about the benefits of provocation, or the challenge of defining what costumes are offensive, but her point that, from a childhood developmental perspective, students need to learn how to reject ideas that trouble them, rather than running immediately to ban and punish.

This accords with the most well-known argument for freedom of speech – that made by John Stuart Mill in his book On Liberty. Mill argues that by hearing contrary ideas, if only to consider and discard them, we grow intellectually.

In this way, free speech and education are tightly intertwined. Limit the former and you hinder the latter. An education system where the students are excessively cushioned from the provocation of others will stifle that development. One would hope you could graduate from Yale being able to articulate why some ideas are wrong.

But what about students who have experienced genuine trauma? Even then, it’s not clear that preventing “triggering” is the best response, as Jonathan Chait noted earlier last year. Students who are genuinely unable to cope with incidental references to that trauma might not be ready for the window into the breadth of human experience that education is supposed to provide. If you are triggered by the racist language in Huckleberry Finn, you are not ready to study 19th century literature.

For those who are ready, hiding from every reminder of trauma can be counterproductive. There’s a growing area of research into what’s known as “post-traumatic growth”, the idea that some people who experience trauma can become stronger for the experience, rather than made permanently fragile.

This isn’t for everyone, of course. Talk to your doctor. But education is supposed to foster intellectual development. It is not supposed to be a safe zone of comfort and emotional protection. Campus radicals used to brag about how transgressive and provocative they were. Now, it seems, they’re more interested in policing the transgressions and provocations of others.

Turnbull’s Weak Media Reform Plans Aren’t Fit For The Modern Age

One of the pleasant things about being prime minister, I suppose, would be pursuing your own little hobby horses. Especially when those hobby horses had been cruelly stymied by your predecessor.

And so the Turnbull Government looks to be pushing ahead with the reforms to media ownership and control that had been quashed – or at least shelved – by Tony Abbott when Malcolm Turnbull was communications minister.

Now the communications minister is Mitch Fifield and the Government is talking about a media reform package being announced this month. Perhaps even this week.

Yet it is striking how limited the reforms being publicly discussed actually are.

The Government has floated eliminating the reach rule (which prevents firms from owning commercial television licenses that cover more than 75 per cent of the population), eliminating the two-out-of-three rule (which prevents a firm from owning more than two of a commercial television licence, a radio licence and a newspaper in the same area) and abolishing television broadcast licence fees.

Each of these reforms could have been done by any government in the last 20 or 30 years.

In his recently published diaries, Peter Reith records a Howard cabinet debate about eliminating cross-media ownership rules all the way back in April 1997. (An unhappy Reith, who wanted more comprehensive liberalisation, complains “we are busily contemplating a highly interventionist approach”.)

The media landscape is completely different in 2015. Here’s what the ABC’s page looked like then. Just 13 per cent of Australian households had home internet access in 1998.

Anyway, we all know how much technology has changed over the last decade. But even in a much shorter time-span the media environment has changed dramatically.

The last time I wrote about the prospects for media ownership reform was in March 2014, when Turnbull first floated the idea of regulatory reform. Since then our viewing choices have expanded to the streaming services Stan, Netflix and Presto. We’ve seen the launch of Buzzfeed Australia, Daily Mail Online Australia, and Huffington Post Australia.

Even the way we conceptualise media has shifted. A larger and larger number of media consumers use Facebook as their primary news source. Wikipedia’s page on “binge watching” was only created in September 2013.

All those technological and social changes materially affect the old arguments for media regulation. Populist fearmongering about press barons and broadcast moguls might have been effective in the 20th century, but only fantasists claim the media is monopolised today.

Nothing prevents media consumers voting with their feet. Nothing prevents consumers migrating rapidly onto new services and shifting their allegiance to more interesting news organisations. Consumers do not lack for choice.

These transformative changes make the Turnbull Government’s proposed reforms look embarrassingly modest. Even the Greens support the elimination of the reach rule. The two-out-of-three rule is absurdly anachronistic. There’s something comic about a regulation in 2015 that conceives of the media as divided between print, radio and television.

As to the elimination of television licence fees, this is more fraught. The Government apparently believes broadcast licences are effectively worth zero, and that charging for the use of a valueless asset is unfair.

It’s certainly true that electromagnetic spectrum rights are worth less than they were. But they’re not worth nothing. It’s a big leap from “traditional broadcasting is no longer special” to “traditional broadcasting is worthless”.

Anyway, if the Government really believes that, then where’s the proposal for a fourth free-to-air commercial television network? Or a fifth? The incumbent broadcasters, no longer benefiting from the valuably scarce spectrum, would have no cause to complain.

One “high level spokesman” was quoted in The Australian yesterday saying that “if the Government believes one law needs to go, then they all need to go”. Indeed. The technological changes that make some media reform possible also allow for more dramatic media reform.

For instance, anti-siphoning laws, which regulate the broadcast of sporting events, should be eliminated. The spectrum should be privatised, not licensed at no charge. Local content requirements – those archaic remnants of cultural protectionism – should be removed.

Each of these existing regulatory constructs assume a media world where content is scarce, where production and distribution is expensive, and where consumers are locked into free-to-air broadcasting.

Not a world where we browse Twitter on our iPads while Netflix plays on that screen in our lounge room that we still call a television but is really a computer monitor.

Parliament always lags behind technological and social change. But the Turnbull Government wants to be all about innovation. Boldness, not timidity, in media reform would be a good place to start.

Malcolm Turnbull Should Avoid The Seductive Trap Of An Early Election

Early elections are not a good idea.

Yes, they look very democratic. Who could object to a government seeking the approval of the voters, even if not strictly necessary? But if there’s one lesson we’ve learned in the last few years, it’s that early elections are a seductive trap.

Julia Gillard held an early election in 2010. She wanted voter approval for Labor’s leadership change. But by doing so she squandered any hope of exploiting her status as the incumbent prime minister, and nearly lost her first term government.

Kevin Rudd called an election well before he had to in 2013, well before he had re-established himself as the rightful leader, and well before he had rebuilt any semblance of Labor’s economic credentials. Needless to say, Rudd lost.

So one wonders why on earth people are recommending the Turnbull Government go to an election sooner rather than later. In Monday’s Australian, Phillip Hudson had an extended piece saying that Turnbull was being urged to call a poll for Valentine’s Day 2016.

It’s true that with an early election Turnbull could take advantage of his current popularity. Just like Gillard and Rudd took advantage of theirs.

Over the weekend, News Limited papers revealed Treasury is actively considering a 15 per cent GST in return for significant income tax cuts.

It is widely believed that any major tax changes would have to be taken to an election first. It’s not clear to me why that is. It seems to assume that governments these days are incapable of explaining why what they want to do needs to be done.

In fact, the so-called reform ‘mandate’ provided by an election is ambiguous. We cannot know why elections are won or lost. Perhaps an election win means the public loves the policies of the winning party, or perhaps it just dislikes the leader of the losers.

Nevertheless, the idea that reform has to be taken to an election first is the received wisdom, and governments are governed by nothing but received wisdom.

This speculation of an early election illustrates one of the Turnbull Government’s biggest challenges. In the next 12 to 18 months, Malcolm Turnbull is going to have to navigate the politics of a budget, a general election, a plebiscite (same-sex marriage), and possibly a constitutional referendum (Indigenous recognition). In each, Turnbull will be fighting the shadows of decisions left to him by Tony Abbott.

Indeed, of all these, an election is probably the easiest to navigate, given Bill Shorten’s lacklustre poll performance. As things look now, a second term for the Coalition is almost certain.

Turnbull didn’t want a plebiscite on same-sex marriage. But he has some interesting options here. Turnbull could bring the plebiscite forward and hold it before the next election. Surely doing so would not be breaching faith with voters who voted the Coalition into government in 2013. After all, Turnbull would be asking for permission from those voters for the change in policy. That’s the beauty of a plebiscite. It’s hard to argue against on democratic grounds.

Tony Abbott thought he was being clever when he called for a gay marriage plebiscite. In fact, when he did so he threw away the conservatives’ strongest card: with the current make-up of the Parliament, a conscience vote might well have been unsuccessful. A lost parliamentary vote would have delayed the issue for at least a few more years.

Opinion polls show consistently high support for same-sex marriage. When the plebiscite date is announced, gay and lesbian couples might as well book their wedding venues.

The Indigenous recognition referendum is much more complicated. Turnbull is sending it off to yet another committee.

Phillip Hudson raised the possibility of a poll combining the gay marriage plebiscite, Indigenous recognition, and a half-Senate election, to be held perhaps in the second half of next year or early 2017.

But such an omnibus poll plan assumes this new committee will decide on a recognition question that is so uncontroversial it is guaranteed to be successful. Holding a controversial recognition question at the same time as the gay marriage plebiscite will risk both failing. Turnbull surely knows this. So far there is no sign of a consensus question. Don’t count on there ever being one.

The final electoral complexity is the May 2016 budget. It will be the first major test of Scott Morrison’s economic skills. It needs to symbolise a new approach to getting the budget back to surplus, while at the same time maintaining the Coalition’s mantra of “lower, simpler, fairer taxes”. It needs to bear the load of the Turnbull Government’s economic reform agenda. It can’t be the public relations disaster that was 2014.

With all this pressure, you can see why some in the Government would be eager to get an election out of the way before the budget was handed down. Budgets have winners and losers. But doing so would be a mistake. Governments are elected to govern. As the experiences of Kevin Rudd and Julia Gillard demonstrated, voters punish election timing cynicism.

Lego Can Avoid Ai Weiwei, But It Can’t Avoid Politics

On Friday the Chinese dissident artist Ai Weiwei revealed that Lego had refused a bulk order of bricks from his studio. The bricks were to be used for a piece that he was going to show at the National Gallery of Victoria.

Lego says it has a long-standing policy to not knowingly supply its bricks for political uses. Yet there might be something else going on here. In an Instagram post, Ai drew a connection between Lego’s action and the recent announcement of a new Legoland to be opened in Shanghai. He later described Lego’s actions as “an act of censorship and discrimination”.

On the one hand, this ban means nothing in practice. The company may not approve of using its product for political works but Ai does not need Lego’s approval. There’s nothing stopping him from buying new Lego kits from retailers, rather than from Lego directly, then doing whatever he likes. If that fails, there’s a thriving global second-hand market for individual Lego pieces. And the artist has apparently been “swamped” by offers of donations of Lego since Friday.

When Lego declined his order the firm was no more engaged in censorship than was the Brisbane bookstore that refused to stock Campbell Newman’s biography as retaliation for cancelling the Queensland Premier’s Literary Awards.

On the other hand, what we’re seeing here is a toy company struggling with the political implications of its own enormous cultural profile. Lego is a very particular toy company.

The global toy industry is dominated by a few big players. Mattel and Hasbro are two of the largest umbrella firms. Almost every toy brand and product you can think of – Fisher-Price, Barbie, Power Wheels, GI Joe, Mr. Potato Head, Transformers, Jenga, Monopoly, Battleship, Cluedo – falls under one of those two, giant publicly listed companies.

But last year the privately held Lego trumped Mattel and Hasbro to became the biggest toy company in the world.

Unlike its rivals, Lego is based around a single, iconic product: the Lego brick. And unlike its rivals, it professes a peculiarly utopian ethic about the nature of play and creativity that very much reflects the era and place in which it was founded: 1950s Denmark. The firm is still based in the small Danish town of Billund. It is still very much animated by its founding myths.

For instance, Lego avoids making realistic military kits or weapons because its founder, Ole Kirk Christiansen, didn’t want to make war seem like child’s play. Star Wars branded Lego has been central to the firm’s recent success. But as David C Robertson points out in Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry, Lego nearly passed on the Star Wars license because “the very name … was anathema to the Lego concept”.

Robertson’s book leaves you with the impression of a company struggling to come to terms with the way Lego has been repurposed and reimagined by its own consumers.

In 2010 the firm reported that about 5 per cent of its sales come from adult consumers buying for themselves. This is certainly an understatement, given Lego’s growth since, the Lego Movie, and the fact that some parents are choosing Lego for their children partly for self-interested reasons.

Large scale Lego sculptures are a minor pop culture genre. Lego profits from this: the Architecture line, marketed to adults, taps into the ways consumers have been using the pieces unintended by Lego’s marketing team. That Ai Weiwei wants to use Lego for art is a reflection of its cultural symbolism. Ai is not a pioneer here. There are artists who work exclusively in Lego. Hobbyists make elaborate creations. There’s a rather incredible Battle of Waterloo.

Yet Lego is not a company well-geared for political controversy. At first glance their policy on controversial uses of their product is sound and clear. No politics, no religion, no military. Chinese democracy activists won’t get Lego’s approval, but then nor will Klu Klux Klan members. Lego wants to remain above the grubby material concerns of politics.

Such anti-political neutrality is obviously impossible. Whether they like it or not, Lego is a player in the cultural life of the human species, and in a way that any of Mattel and Hasbro’s competing brands are not. Lego profits handsomely from that status. Perhaps a truer form of political neutrality would mean paying no attention to the ultimate use of bulk Lego sales.

I suspect the refusal to fill Ai’s order is more a case of mindless adherence to their no-politics policy rather than a sop to the Chinese state. But if it is the latter, with this controversy they’ve found themselves in the invidious position shared by firms around the world who want to service markets in unfree countries like China.

Such relationships throw up serious ethical questions. Refuse to abide by the state’s rules and deny their oppressed citizens a product you believe will better their lives? Or obey and hope the benefits outweigh the harm of cooperation? You can imagine the tense meetings going on right now in Billund, as news of the Ai decision snakes around the world. They’re just a toy company after all.

Milton Friedman was correct when he said that the social responsibility of business is simply to increase its profits. But ours is a fallen world. Businesses are also participants in our political systems as much as our economies.

Sometimes that means toy companies have to take a stand on democracy in China. They have to choose between the Chinese state and its dissidents. Implicitly, inadvertently, perhaps even with the best of intentions, they already have.

Don’t Blame Voters For A Lack Of Competition Reform

Malcolm Turnbull should count himself lucky. Tony Abbott has handed his successor a remarkably fleshed out agenda for economic reform.

Shortly after the 2013 election, Abbott and Joe Hockey commissioned a series of reviews and inquiries. There was one on the financial sector, which reported in December last year. A federation inquiry and a tax inquiry are both working their way through the system.

And then there was the inquiry into competition policy, headed by the economist Ian Harper, which released its final report in March 2015.

The last major competition policy inquiry was the Hilmer Report under the Keating government in 1993. That report laid the groundwork for half a decade of competition policy reform. Hockey to his credit knew what he was doing when he commissioned a sequel to Hilmer.

It’s easy to forget all these reviews. The Abbott government was so policy shy in its last 12 months. The Harper review sunk like a stone almost as soon as it was released.

Only one of the Harper recommendations was seriously considered by the Abbott government – the so-called “effects test”, which would have made it easier to penalise firms for “lessening” competition.

The effects test divided the Abbott cabinet. It is the only major recommendation from the Harper review that would constitute an increase in regulatory interventionism. The free market right hated it. Small business minister Bruce Billson was the effects test’s biggest advocate. He was dropped from the ministry when Turnbull took over. We can speculate that this was not a total coincidence.

So when Scott Morrison announced on Friday that the Turnbull Government was going to look again at the Harper review, he was wading into a deep pool.

Morrison did not commit to the effects test either way. He did, however, specifically note the much more ambitious proposals in the Harper review: reforms to urban planning and zoning to open up the housing market, and subjecting social services to competition.

All good stuff. But it will be a hell of a challenge to implement any of these proposals. It’s true that the Coalition now has a minister for cities. But all functional power in planning and urban policy lies with state governments, who created the disastrous land supply restrictions that caused the housing mess in the first place.

Likewise, the Commonwealth can cajole and bully all it likes but the ultimate responsibility for most service delivery is in the hands of the states. Very little marketisation of social services is going to go ahead unless state governments buy in.

Last week we had an even more glaring illustration of the institutional barriers to competition reform. The Harper Review put particular emphasis on taxi deregulation and removing barriers to the ride-sharing firm Uber. But on Monday the Commonwealth’s independent competition regulator the ACCC provisionally denied the taxi industry authorisation to launch a smartphone app, iHail.

The iHail app would have allowed users to book the closest taxi from participating taxi networks. The ACCC thought that this would reduce competition in the taxi sector because it was a joint venture between a number of taxi networks. You can read their draft determination.

The ACCC’s arguments don’t even pass the laugh test. There is virtually no competition between taxi providers right now. Indeed, we’ve had a century of regulation with the express purpose of eliminating competition between taxis. The only real competition that is exists is between taxis and ride-sharing services like Uber.

But the ACCC has decided that, because the legality of Uber is still unclear, for the purposes of competition law taxis do not compete with Uber. (You can see this rather astonishing claim on page 21 of the draft determination.)

Therefore the ACCC believes that taxi companies collaborating on an app endangers the taxi market – rather than being an example of how competition from Uber is encouraging taxis to offer a better service.

Malcolm Turnbull and Scott Morrison should be looking at this draft decision closely. Not because its specifics are particularly important. The ACCC might well change its mind on the scope of taxi competition before it releases a final determination. And as the Harper review noted, even a completely deregulated taxi market reform would do little to boost total Australian productivity.

But Harper thought taxi deregulation was important because failure to do so symbolised a lack of seriousness in competition policy. The ACCC draft determination is important. It’s a warning. We now have a legal framework where firms have to request permission from the government to innovate.

In an influential short book, the American technology scholar Adam Thierer argued for “permissionless innovation”. Thierer argues that if we want take advantage of technological progress, we must remove the approvals, authorisations and clearances that innovators and entrepreneurs need from government before they bring ideas to market.

For years commentators have complained that the era of economic reform is over. In the most common version of this story, any attempt to restructure the Australian economy will be scuttled by a hostile Australian public. This is really just blaming voters for the failures of the political class.

In fact, what is more likely to hold back economic reform is government itself: the network of interests and institutions that believe their job is to supervise the innovation economy.

Alcohol And The Nanny State Inquiry: This Isn’t Just About Money

It’s one of the most cited numbers in Australian politics: alcohol costs Australia $36 billion every year in preventable death, illness, inquiry and lost productivity.

Unsurprisingly it has become a centrepiece of the Senate inquiry into personal choice and community impacts – you might know it as the “nanny state” inquiry – which began its hearings last month.

In their submissions to the inquiry, the Australian Medical Association, the Alcohol Policy Coalition, the Foundation for Alcohol Research and Education, the Public Health Association of Australia, the Royal Australasian College of Physicians, and the Australasian College for Emergency Medicine all cite the $36 billion figure to variously justify higher taxes on alcohol, or more controls over alcohol supply, marketing and licensed venues.

The media loves this number, mainly because they love big numbers.

Public health activists and academics love this number too, because they hate being called nanny staters and wowsers. The $36 billion figure is useful because it purports to take the question of whether government should regulate people’s personal choices out of the domain of morality and philosophy and into the domain of economics and rationality.

But it is absolutely meaningless in any policy-relevant way.

And it ironically reveals how philosophical questions cannot be separated from the debate over paternalistic restrictions on alcohol.

The figure comes from a 2010 study conducted by the Alcohol Education and Rehabilitation Foundation.

The 13 authors of the paper came to $36 billion by piling on as many “costs” of alcohol as they could imagine. They took the full kitchen sink approach. They included everything from the lost productivity of workers affected by alcohol, to the cost of hospitalisation of children who have been abused by adults believed to be affected by alcohol.

Even where the connection to alcohol is tenuous – the fact that some crimes are committed by people who have alcohol in their system does not mean that alcohol causes those crimes – they derived costs and added them into the big headline number.

It is a credit to their creativity that the authors managed to add a further $20 billion to the $15 billion social cost of alcohol found by a study published by the Commonwealth government in 2008.

But the policy question is not whether alcohol consumption has costs. All choices have costs. The question is whether those costs outweigh the benefits from alcohol consumption. Costs are meaningless if they are not paired against benefits.

And as the economists Eric Crampton, Matt Burgess and Brad Taylor point out in an important paper, these sorts of social cost studies dismiss the benefits of alcohol by leaning heavily on an assumption that drinkers are uninformed or irrational, and therefore do not really “benefit” from drinking.

It’s a revealing move, because it shows how even this most rationalistic and economistic argument for alcohol regulation ultimately comes down to an assertion that people just don’t know what’s good for them – and that others do.

In fact, as the 2008 study found, the direct costs to the public healthcare system of alcohol consumption are much more modest: about $2 billion a year. This might still seem like a lot. But the government received more than twice that from the excise on alcohol sales: $5.2 billion.

You often hear in debates about paternalism that the government wouldn’t care about what we ate or drank if it weren’t for the fact that taxpayers pay for the consequences of those choices through the public health system. Hence we need to regulate alcohol and reduce alcohol consumption for the budget’s sake.

Even if the excise on alcohol didn’t more than recover the direct healthcare costs of alcohol, this would still be one of the most counterproductive arguments in politics.

First, the argument suggests that a public health system is incapable of handling the freely-made health choices of its customers. Second, it suggests that the corollary of public health provision is state control over our bodies and what we choose to put in our bodies. And third, it suggests that there is no “right” to public health care – rather that access to health care is contingent on making the correct health decisions.

Far from being a defence of the nanny state, this argument looks like a rather powerful attack on the notion of a publicly funded and universal health care system. I’m guessing this is not the intention.

Helping launch the nanny state inquiry last month Sam Dastyari told the ABC that “ideology has just been dead in Australia for too long. Let’s actually have some big debates, let’s have some different views”.

Like it or not, the debate about restricting what we drink, eat and otherwise consume cannot avoid ultimately considering deeper philosophical questions about the relationship between individual and government.

Tax Reform A False Start In Pursuit Of Economic Growth

The new Turnbull government should stop talking about tax reform.

Tax reform is a poor use of its political capital. It is a waste of the goodwill Malcolm Turnbull brings to the prime ministership. The challenge Turnbull faces is not to make our tax system slightly more efficient. The challenge he faces is how to make the economy grow.

When he became Treasurer, Scott Morrison stated that the Commonwealth has a spending problem, not a revenue problem. That is, the government wants to focus on spending cuts rather than tax increases.

This is excellent, as far as it goes. But in truth our real problem is growth.

The International Monetary Fund estimates that the Australian economy is going to grow just 2.5 per cent this year. Back in the Howard years, growth averaged 3.7 per cent a year. The Reserve Bank governor has publicly speculated that our lower growth might be the new normal.

If you want to blame the stubborn budget deficit on anything, blame it on this. John Howard, Kevin Rudd, Julia Gillard, Tony Abbott, Malcolm Turnbull: they’ve all been riding the waves of our growth figures.

Some governments have made the problem better and some have made it worse, but the simple fact is that policymakers can no longer rely on the same level of growth that once delivered windfalls to the Commonwealth budget.

The focus on tax is a distraction. Ever since Kevin Rudd commissioned his own Treasury Secretary to conduct a “root and branch” investigation of Australia’s tax system in 2008, tax reform has been an obsession of governments. Joe Hockey was only following Labor’s lead when he launched the Coalition’s tax reform process.

It is true that the tax system could be made more economically efficient. It would be more efficient for taxes on income to be further replaced by taxes on consumption. This is why many economists have said that the GST should be raised and personal and company tax reduced. Morrison has been talking about this possible trade-off already.

But it’s hard to see why this is a national priority. Efficiency isn’t the only thing we want from a tax system. Indeed, a theoretical insistence on efficiency was what gave us the Rudd government’s mining tax; a tax which was understood by a tiny fraction of the population but was the inexplicable and unhappy centrepiece of Labor’s economic agenda.

And while efficiency makes it easier for governments to extract more money out of us, is that really such a virtue? We ought to know when we are being taxed. Voters need to know what their government is doing. They need to know how taxes are raising the prices of the goods they buy and reducing the money they have to buy those goods.

A budget emergency is the worst time to conduct tax reform. There’s not a person in the country who believes the economy will escape this round of tax reform with a lower total tax burden.

Every incentive in the Treasury department is to edge taxes up. That’s why Joe Hockey cracked down on so-called corporate tax “avoidance”. That’s why the GST is now to be levied on online purchases. And anybody who thinks eliminating superannuation “concessions” will help the economy has rocks in their head.

It’s all incredibly counterproductive because the fixation on revenue and tax increases actually holds back the growth we need to encourage. Taxes take money out of the productive parts of the economy. Perhaps the government thinks it might be able to use its revenue to lay the foundations of growth – by investing in infrastructure and private education. In practice, too much of this investment goes to white elephants and degree mills.

Governments – directed as they are by professional politicians with their eyes on marginal seats and swinging voters – aren’t that good at spending our money wisely. Turnbull needs to be careful his interest in innovation doesn’t become a stream of taxpayer-funded boondoggles. Much better to revitalise the Coalition’s flagging deregulation agenda, refocus on industrial relations, and eliminate any regulatory burdens holding back employment and production.

Even the constant drumbeat of tax reform is likely to be harming growth. We’ve been talking about tax reform for nearly a decade. Uncertainty about Australia’s future tax regime makes companies less eager to invest. They know the tax system is probably going to change. They don’t know when, or how.

But there’s a deeper reason Turnbull should fixate on growth rather than taxes. Higher growth means increased living standards. Higher growth means a more prosperous Australia and more prosperous Australians. This – not spending, not revenue – should be what keeps Malcolm Turnbull and Scott Morrison awake at night.