Friday, February 6, 2009

Taxpayers Always Pick Up The Tab

For most of us, working out whether Malcolm Turnbull or Kevin Rudd is right about the government’s economic stimulus plan is all too hard. Most of us don’t have economics degrees or careers in merchant banking to provide us with the tools to make sense of the arguments for and against. Most of us can only rely on a combination of our own experiences and common sense. But who are we to believe? Kevin Rudd and what appears to be his ideological crusade against what he calls neoliberals? Or Malcolm Turnbull and his determination to stand for what he says is fiscal discipline?

It seems that everybody agrees that things are bad. It seems that almost everybody agrees that the government should provide some sort of stimulus. And it seems that most agree that going into deficit is OK in the short term if it is only until the crisis is over. From that perspective, it only seems that there are two main areas of dissent; how much to spend, and what to spend it on. But is that really all there is to it?

The great concern expressed by Mr. Turnbull is that mortgaging the future to pay for the present will leave a legacy of public debt for future generations, leading to higher taxes and higher interest rates for years or even decades to come. Other conservative leaders around the world have expressed similar fears. But I’m not sure that is the complete picture.

The recent years of prosperity have been built upon a mountain of debt, only it has been private and corporate debt rather than public debt. Much of the effect of governments using taxpayers money to prop up the world’s financial markets will be to simply transfer debt from the private to the public sector. Yes there is a price to pay, but the debt is diluted as it is spread across the shoulders of the taxpayer. The result is that the system is saved from collapse and the economy continues to function. The benefit is that upheaval is reduced, money continues to flow, and more jobs are retained than would otherwise be the case. The point is that the debt is not new. It already exists. All that happens is that it is transferred, as I said, from the private sector to the public.

If we accept that the fundamental problem has been caused by reckless debt in the first place, it follows that reducing debt is a good thing. But that’s misleading, because substantially reducing debt also shrinks the overall economy. So the idea that debt can be transferred from one sector to the other, and diluted across the broad base of taxpayers does provide away of keeping the wagon rolling while we slow it down gently. The alternative is to let it crash, creating casualties in the form of increased business failures and job losses.

Yes there will be a legacy of debt for the future. But that is because there is no such thing as a free lunch. Sooner or later somebody has to pay the tab for the gravy train. What has effectively occurred then is that the Wall Street stewards of the gravy train have raided the world economy through their management fees and performance bonuses, feathered their nests, and left the rest of the world to pick up the pieces.

That’s why President Obama’s cap on salaries for Wall Street firms receiving government assistance is not only sensible, it is justice. Such a cap is not necessarily needed here in Australia as the circumstances are not as extreme, although the idea is attractive to many. But what is necessary, both here and around the world, is a realization that the corporate buccaneer practices which unleashed this disaster are not only unsavoury, but are in fact bad business.

To have corporate executives rewarded with multi-million dollar remuneration packages that are out of all proportion to actual performance is ridiculous. Shareholders have been powerless to stop the privateers boarding the boat and ransacking the hold, only to leap overboard as the ship is sinking. That has to stop, and it shouldn’t take government intervention to do it. Company boards now have to recognize that paying silly bonuses is nothing more than bad business. Managers are just employees themselves after all, it’s not as if they are the ones who created the business or financed it with their own capital. When it’s their own enterprise, then they can pay themselves what they like, otherwise they must be held accountable to the board and the shareholders, and not allowed to pillage the company unchecked.

And that’s the real drawback to the idea of government intervention to prop up the economy. Yes, Malcolm Turnbull is right when he suggests that there will a debt to the taxpayer for years to come. But that’s not anything new, and that’s not the real problem. The basic flaw in Mr. Turnbull’s argument is the idea that not spending government money will somehow save the taxpayers. If the government does nothing and the economy contracts, the poor taxpayer will lose his job, probably lose his house, and maybe lose all hope for the future. One way or the other, it’s the taxpayer who will suffer.

No, the real downside of the taxpayers footing the bill for the economic bailout is the risk that the same corporate buccaneers who created the debt disaster in the first place, and the business practices which allowed it to happen, will actually survive this crisis and nothing will change. Once the dust has settled, and the economy begins to grow again, it will be business as usual with a new generation of corporate raptors ready to consume the carcass of capitalism.

But why should it change? It’s all a cycle and this downturn will eventually pass, and at some stage in the future there will be another boom, followed by another bust, and so on until somebody works out a better way to manage our economy.

Thursday, February 5, 2009

Freedom Begins With Freedom of Information

The New South Wales Ombudsman has delivered his report into the operation of the state’s Freedom Of Information laws, and recommended scrapping the lot and starting over. It has been almost twenty years since the original act was passed and since then it has become “overly complex and unwieldy to use.” It must be remembered that in 1992 the internet was a novelty, and even mobile phones had not become common. Information technology has changed almost beyond recognition in that time, and the law has been left behind.

While the old Act has certainly meant people have enjoyed the right to access information that would once have remained buried in bureaucracy, it hardly reflects the way in which information is handled in a modern world. Even moribund government departments have embraced the digital age with many records no longer being held on paper. Meanwhile, the rest of society has evolved into something resembling a hive mentality with information of every variety flying around cyberspace at an astonishing rate.

These days, any member of Facebook can instantly check up on what their friends are doing. Any user of Twitter is constantly feed updates of any number of micro-blogs. Anyone with a Blackberry can check the headlines in any newspaper around the world at any time that suits them. Listen to the words! Facebook, Twitter, Blog, Blackberry. Even the language has completely changed. That’s why the old law just doesn’t reflect reality.

Now that modern information technology has transformed accessibility, it is timely that not only the law should reflect that, but also the government processes themselves. That’s why the Ombudsman has recommended that the new law should specifically presume that all information should be released unless an exclusion clearly applies. Information should be routinely published on websites of government agencies, circumventing the need for individuals to make an application for an item of interest to be released. There’s no reason why it shouldn’t already be freely available.

The Ombudsman also calls for the Act to be written in plain English, and for the position of Information Commissioner to be created. Such a Commissioner would be required to be a “champion” of the public in the application of the law, and act as the arbiter of what should and should not be released.

The concept of Freedom Of Information should be considered central to the ideal of a free and democratic society, and while most governments would be reluctant to expose themselves to anything which might reveal their inadequacies, there really is no alternative but to embrace the modern age. Any government which refused to do so would immediately be seen as having something to hide. The principles of democracy work best when public opinion is informed opinion, and for that to happen Freedom of Information is the key.

Wednesday, February 4, 2009

Malcolm Misses The Point

Malcolm Turnbull is a very smart man. He is intelligent, educated, erudite and successful. It should be safe to assume that he knows something about the operations of world financial markets as part of his fortune was amassed by running a merchant bank. So here’s the question: should we have any faith in his warning today that the Federal Government’s Nation Building and Jobs Plan is too expensive and too poorly targeted? Does he make a valid point, or is he merely playing politics?

It’s a vitally important question because the Opposition has declared that it will vote against the Plan for those reasons. Without their support in the Senate, the package could well be stopped before it has even started. The Prime Minister has accused Mr. Turnbull of simply pursuing an ideological agenda “to let the market rip,” while the whole point of the Plan is not simply to bail out the market, but to protect ordinary Australians from the worst of the economic downturn while preparing the economy for recovery in the years ahead.

One way of making a judgment is to consider the observations of the responsible economists and commentators who have almost universally endorsed the Plan. Even those who have criticized the Plan for omitting some sectors, for example health and hospitals, have not claimed that it is wrong to invest in schools, housing and roads. When it comes to opposing the Plan, the Opposition is standing almost alone.

On that basis, it would have to be said that if Mr. Turnbull is playing politics then he’s not doing it very well. The majority of opinion would seem to be against him, meaning that by definition his position is not merely a matter of populism. So the natural conclusion is that he genuinely holds the opinion that the Plan has not been well thought out. Could he be right?

The suggestion that the total bill is too high is a matter of opinion, but if the purpose of the Plan is to deliver a shock treatment to the economy, it’s hard to see why more isn’t better. As far as driving the budget into deficit is concerned, it has to be remembered that the bulk of this expenditure is not ongoing or recurrent spending. Most of it is capital spending or one off items that will not be repeated. Far from setting the budget up for ongoing deficits, the tap can be turned off again just as quickly as it has been turned on. Additionally, if the plan is successful at propping up economic activity it will flow through to stronger tax revenue. It’s not the size of the spending that is the problem. The real question is the effectiveness.

Malcolm Turnbull claims that spending any more money on cash bonuses is a complete waste, and that the previous round of bonuses in December were a failure. Unfortunately for Mr. Turnbull, the December retail figures have also been released today and they tell a different story. Retail spending jumped 3.8% over the previous month, and 5.7% over the previous December. After soft figures all the way through 2008 that is a good result. Of course, it is only a short term benefit, but the cash bonuses are only one component of the overall plan.

From a political point of view it would seem to be even more injudicious when it is the ordinary everyday battlers who will benefit most from the cash, while people in Mr. Turnbull’s position are easily seen as silver tailed fat cats who are out of touch the challenges confronting their constituents. Trying to deny the people the bonuses they have been promised is politically stupid, especially when it was the Howard government who virtually invented the practice of handing out one off payments in the first place.

It could be argued, and Mr. Turnbull does, that measures such as the insulation of housing should be means tested. But that misses the point of the exercise, which is to boost jobs and keep the economy growing while at the same time providing a lasting community benefit. It could be argued that other sectors such as health and hospitals are more in need of a boost. But on balance, only Malcolm Turnbull and a small band of hardcore market fundamentalists are saying that the Plan is wrong, and that in itself should tell us something. After all it was hardcore market fanatics who caused the problem in the first place.

To simply block the Plan is an act of destruction and risks doing a lot more damage, both economically and politically, than running a deficit does.

Tuesday, February 3, 2009

Prosperity Is Just Around The Corner… But where Is The Corner?

Some idea of just how long the Global Financial Crisis can be expected to be having an impact on our economy and on our lives is given by the announcement today of what the Federal Government has decided to call the Nation Building and Jobs Plan. Costing $42 billion, this new round of economic stimulus is intended to be much more far-reaching than the $10 billion Economic Security Plan implemented last year. It delivers a combination of cash bonuses, business incentives, and infrastructure investment which will leave the budget in the red for at least the next four years.

It doesn’t take too much imagination to see that this means tough times for the economy for much the same period of time. It should be a wake up call for those who have been holding out hope for a turning point to be reached sometime soon, followed by a quick recovery. Even when the corner is turned, and there’s no guarantee that it will be anytime soon, it will be a long haul getting back up to the sort of levels of prosperity that many were taking for granted. Indeed, the government has said that there will be a deficit for “at least” four years, obviously leaving the possibility open for it to last even longer.

Now just because the Federal Budget is in deficit doesn’t mean it’s all bad news. Obviously, the whole reason for taking the budget into deficit is to reduce the severity of the impact on the economy at the same time as building the needed productive capacity for when the recovery does begin. In providing support for low income earners the risk of real hardship is reduced, and as a recovery begins, whether it is next year or the year after, opportunities will once again begin to open up. The whole process will take time, and nobody should expect any kind of quick fix.

Ironically, for many people in middle Australia, the downturn is bringing benefits. Interest rates are down, easing the cost of home ownership. Prices are down, easing the cost of living. The Government is handing out money to people who would not have otherwise expected it. In many ways, if you have a secure job, you may even have a bizarre sense of being better off. At the same time, those who are not in secure employment are certainly at risk of being worse off, which is why government support is so crucial.

The Nation Building and Jobs Plan provides for a series of five cash bonus payments of $950 for working Australians earning less than $100 000, single income families, farmers and farm dependent businesses, a back to school bonus and a training and learning bonus. Those bonuses account for $12.7 billion that will be delivered directly into the hands of Australians and thence into the economy. This is the sort of shock treatment that can help to keep the economy ticking over in the short term, but the real meat is in the infrastructure expenditure on schools, housing and roads providing both jobs now and a lasting legacy of improved infrastructure.

Whether we are close to a turning point or we still have a long way to go to find the bottom, the plan announced today is only one more step along the way to recovery. It has been described as a “mini budget”, and paves the way for further measures to be introduced as needed. The real budget in May will include the already scheduled tax cuts which will provide a sustained ongoing boost to consumer spending power.

We may not be out of the woods yet, but at least we can see the way forward.

Monday, February 2, 2009

Gordon F***ing Ramsay Is All Talk

Sometime after the age of about 14 the use of swear words ceases to be a novelty. Everybody has heard them, most people use them at some time or other, whether in anger, frustration, pain, or amusement. We have accepted the use of bad language in drama as a reflection of the behavior of real people in the real world, despite the obvious flaw in that argument. But it is still not considered polite in public, or even in mixed company, so why is it considered to be entertainment to have a so-called reality TV show where an egotistical chef is seen bullying and abusing his subordinates in the kitchen.

Apparently, Gordon Effing Ramsay has broken his own record for the number of times he uses the “F” word in a television show. In a two hour program he reportedly clocked up 132 “F” words, along with 50 more uttered by the recipients of his tirades. It really doesn’t matter whether or not he can actually cook, or if his recipes are any good. All that matters is the drama of the confrontations played out for the amusement of the audience.

Is this really entertainment? Well, as long as people find it entertaining, I suppose by definition it is, and if nobody watched the show, no TV network would put it on. But people also stop and stare at a car accident, or at a punch-up at the pub, or at a disfigured person in the street. It’s human nature. But that doesn’t make it right or good, or even desirable. People who behave like Gordon Ramsay are talking tough to hide their own inadequacies. People who resort to constant bad language lack the capacity to say anything intelligent. People who bully their subordinates are grossly insecure themselves.

If there were no television cameras, and no world wide audience, and Gordon Ramsay was abusing his employees in this way he would be guilty of harassment in the workplace. If I carried on like that with my work colleagues I would be sacked and possibly sued. Even if it is all theatre, it remains gratuitous, demeaning and offensive. There are shows on television with even stronger language, but they can be clever, well written and outrageously funny. Ramsay is just outrageous.

Of course, I don’t have to watch, and so I don’t. It’s a free country, and I’m free to switch off and do something better with my time. But it baffles me why so many people are so impressed by a bloke behaving like an insufferably spoilt child. Surely people would like to see something on television which is more entertaining. Surely we can do better than glorifying arrogance.

Here’s an idea. If Gordon Ramsay acting tough is so thrilling, why don’t we go all the way? Why don’t we turn the heat up a notch and really put him to the test? Wouldn’t you love to see a camera crew following Gordon Ramsay around as he tried his tough guy act out on some characters who really are tough. Let’s see him try to push around some wharfies, or some truckies, or some bikies. Let’s see him yell obscenities at fully armed tactical response police officers, or some S.A.S. commandos and get that on video tape. Then we’d see some entertainment!