Picking up on Reserve Bank governor Glenn Stevens’ remarks about “borrowing to invest” and not being afraid of a deficit if there are good policy outcomes to be had, eight prominent economists (including a couple of blogging ones) have written an open letter to Kevin Rudd making suggestions for a further fiscal stimulus under three headings of policy – Superannuation flexibility, Building the nation and Preparing for climate change. The text is here at Troppo (one of the authors is Nicholas Gruen).
There’s been a bit of press coverage this morning, and no doubt it’s a worthy thing to stimulate debate by proposing substantive policy measures rather than just advancing critique. It may be an even worthier thing to shift the terms of the debate, regardless of the merits of the proposed policy directions. We don’t see enough of this sort of initiative.
But I do wonder if the economists stop and think about the political feasibibility of their proposals.
The Rudd government does appear to have developed more backbone in holding or advancing a policy line in the face of attack. One good example was the risible attempt to talk a “Khevlani affair” out of nowhere, which probably got lost in the Julie Bishop noise (her one original contribution apparently being to think it very clever to argue that there’s a “whiff of Whitlam” about the Rudd government.) Trying to articulate together a bit of dog-whistling about the Middle East and memories of State Banks and the Whitlam era with the deficit/debt line was always a complex message and rather dumb politically at that, and I suspect that the Liberals are trying to persuade themselves of the Whitlam comparison in the hope that the Rudd government will be short lived (apparently forgetting Gough was re-elected to a second term.) What was really at issue was a technical (and rather neat) solution to a problem state governments have with bonds in accessing debt. Wayne Swan may have been reading the Fin Review last weekend and noticed unnamed bankers and execs bemoaning the fact that he worried about what Malcolm Turnbull said at all, as “no one else did”, but in any case, he made it clear that if he decided an infrastructure bank was a good idea, he wouldn’t be deterred by the opposition’s politicking.
Now, no doubt one could have all sorts of fun thinking up possible opposition attacks on the proposals of the eight economists, but that’s not the only political point here. They also have to pass muster through the gate of the government’s own political imperatives. While super is in the policy review mix, it would be a difficult sell to cut super – even temporarily and with the promise of more cash in hand from wages. Super, after all, is one of the pressure points – along with household wealth – where the global financial crisis really does have an immediate impact on voters’ psyches. And the temporary nature of the proposal is also problematic – I can hear employer associations screaming already that they’d have to maintain wages at the higher level employees had enjoyed and pay more in super when contributions rose. “Here, have some more money to spend for a while, but then we’ll force you back into saving it” – not the easiest of inducements, I’d have thought.
I’m refraining from comment on the merits of the proposals themselves – except to observe that I think some sort of independent fiscal policy is a fundamentally anti-democratic idea. And I’d also suggest that technocratic worthies have hardly distinguished themselves over the last little while – whether here, in America or elsewhere. But, again, this is just not the sort of thing any government is going to do.
It may well be that the economists in question think it’s better to advance such ideas in their policy purity before the game of sifting and compromise starts being played, but conversely, whether or not that game even begins is surely dependent on the initial political appeal and defensibility of such ideas.
Elsewhere: Joshua Gans and Catallaxy.
“I think some sort of independent fiscal policy is a fundamentally anti-democratic idea.”
Mmm, but note that the economists are not calling for that. They propose that “an independent expert panel should be established to provide regular public advice to the Government on its fiscal policy stance …” So it would only be advisory in nature.
One caveat I would suggest is that such a body should be fully transparent, with its advice made public.
“Technocratic worthies have hardly distinguished themselves over the last little while …” As distinct from the politicians?
I find it interesting that on some issues, such as climate change, people at LP would be more than happy to do exactly whatever the technocrats say (climate scientists in this case). But then why the different attitude to other species of technocrat?
Paulus, no, but it’s one of those tricks where if the government goes against the advice of the “independent panel” – then all hell is supposed to break loose. The logic of their argument is that the decisions should be removed from politicians.
As to technocrats, there’s a difference between them and scientists. There’s a difference, for instance, between accepting the science on global warming and agreeing with every suggested solution or policy – in fact those sort of technocratic ideas are very vigorously debated here with lots of disagreement.
To put it another way, Ben Bernanke is not primarily an objective scientist attempting to discern the nature of the current economic climate but a policy maker. As is Glenn Stevens.
I also wonder how liquid some super funds are, and what the effect might be on their ability to pay out redemptions if their flow of new contributions is cut by one third. I don’t really fancy the value of my super going down any more than it already has because the fund manager has to have a fire sale to get its hands on some cash.
And to put it yet another way, it’s not just politicians who are being disempowered – but citizens and for that matter, interest groups. The whole point of “independent economic decision making” is to remove decisions not just from pollies (superficially popular) but to insulate them from public pressure. Hence all the mystique of the “independence of the Reserve Bank” etc – it has a deliberately narrowing effect on policy debate. Call me old fashioned, but I think democracy implies that we should be able to articulate a view and that there should be some responsiveness to broad debate and public opinion, not walling off policy wonkery from as much pressure as possible.
Here’s that first base thing:
“PM shows no desire to lower super” -
http://news.ninemsn.com.au/article.aspx?id=683113&rss=yes
I didn’t get the super idea. At first glance, it struck me as so dumb that I figured I must be missing something. Reading it through in more detail, it still reads as dumb. It would be massively complex to administer, and sets a bad precedent.
Now, the argument against compulsory super on equity grounds would be interesting, but that’s not what’s been put on the table.
Temporary reduction in super is an interesting idea. An independent analog of the RBA could ratchet the super rate a percentage point up and down each quarter/year depending on the state of affairs.
I like it. Flexible responsive settings are required for any machine to work optimally. A single gear mightn’t be sufficient for a contraption as large as Australian Super has become.
wbb, if the argument is to get Australia consuming again, then lowering the GST would be more sensible. Put cash in my hands at the moment and it’ll just go straight to the mortgage. Make stuff cheaper to buy and I might consider spending money (if I could think of anything I needed, at least).
I don’t support adjusting the GST rate on a whim though. Again, complex to administer.
GST can be spent by government. So no gain to total current spending there. Unlocking super however is using money that would otherwise be unavailable for a very long time. The Libs want the government to get the super funds to invest in new construction but that is a much slower way to get at the money.
The beauty of the 8 economists’ super plan is that it sets a precedent for such tinkering. We could make super higher than normal in overheated times. Another weapon in the macroeconomic arsenal.
reductions in compulsory super by x%, and salary increases of x%, will put the most extra money in the hands of people on higher salaries – when isn’t it people on lower incomes who tend to spend all their income?
interest rate cuts are great at putting more disposable income back into the economy but only for homeowners right? what about the many people not in that boat. bit traditionalist perhaps but why not increase the jobseekers allowance, ausstudy, lone parents allowances etc — money in the hands of people who need it and who are most likely to consume it and not just retire mortgage debt.
I see a number of problems with the superannuation proposal from the economists.
The only way I imagine the Government could require businesses to pass on savings from a cut in compulsory superannuation is by legislation. The economists seem to ignore the reality of how such legislation would get through an obstructionist Senate.
The Coalition and Senator Fielding would almost certainly find, or invent reasons, to oppose it. One such reason could be that the proposal means all those planning to retire between 2009 and 2012 would see their superannuation contributions reduced without being consulted.
In this context, it’s not very helpful for the economists to suggest a super reduction would improve the Budget bottom line because super contributions are typically taxed at a lower rate than wages. Imagine the fun the Coalition could have with that!
Another problem is that the proposal does nothing to encourage employers to create jobs. The difference with the cited Singapore example was that it reduced employer contributions to the compulsory savings scheme.
Not only is there nothing for employers, but the proposal means that for a total of six years there would be changes each year in the way super contributions are calculated, which would also affect payroll tax systems.
In the economic crisis, it’s not a particularly bright idea to give employers an excuse not to hire.
The only part of the proposal on super that I would endorse is the immediate relaxation of preserved superannuation for those in financial distress or unemployment, enabling them to access a part of their accumulated savings to re-train or meet mortgage payments.
I also think it was a mistake for the economists to send their letter to the Prime Minister only. Sending it to the Leader of the Opposition, the Nationals Leader, and the two Independent Senators would have forced them into a response.
I’m also not sure the proposal to cut superannuation by three per cent in 2009 would be preferable to a temporary cut in the GST. The only reason the economists give for this is that their proposal would improve the Budget bottom line because of different taxes for wages and super.
However, a temporary cut to the GST would benefit the employed, the unemployed and pensioners.