Club Troppo

In an earlier post, and one of a series by me and subsequently Ken as well, I suggested that an important part of any professional education should be a kind of counter-narrative in which those who learn a profession are also made familiar with that profession’s cognitive biases, with a view to lessening them in practice.

Nice to see this kind of thing is beginning to be taken seriously in management books. Actually it might have been taken seriously before now, I wouldn’t know because I don’t read management books. But I occasionally browse them and it hasn’t seemed to prominent in my browsing. In any event Daniel Kahneman et al have a long article in the HBR on the behavioural economics of business decision making.

And a useful check-list for when an organisation is making big decisions. Viz: (Continued)

Cross posted from  Australian Policy Online http://inside.org.au/how-fair-is-australia%e2%80%99s-welfare-state/

IN ITS 28 May edition the Economist carried a long feature about Australia, praising our resilient economy, criticising the quality of our political discourse, and highlighting our social egalitarianism. “The Evolving Platypus: A Distinct Society, Perhaps Becoming Less So,” was the magazine’s summary of how we do things here.

The feature referred to an article in Policy, the journal of the Centre for Independent Studies, by David Alexander, a former senior adviser to Peter Costello. Under the title “Free and Fair: How Australia’s Low-Tax Egalitarianism Confounds the World,” Alexander argues that Australia offers a genuine alternative to both the low-spending but high-inequality United States and the high-taxing but egalitarian countries of Northern Europe. This “unique form of low-taxing egalitarianism,” he concludes, “is both more successful and more sustainable than other models.”

Is this characterisation of Australia’s social protection system accurate? Alexander presents a wide range of evidence to support these arguments, and it is not surprising that I agree with much of it, since one of his sources is a paper I wrote for a conference during the Henry Review of Australia’s tax system.

The most recent data on social spending in OECD countries shows that in 2007, the year before the global financial crisis, Australia spent 16 per cent of GDP on cash benefits (including pensions and unemployment payments, healthcare and community services) compared to an OECD average of just over 19 per cent. We actually spent a little less than the United States and Japan, and the only countries that spent substantially less than we did were lower-income countries like Mexico, Chile, Turkey and Korea.

In most rich countries, the welfare state is the largest single component of public spending and therefore the main determinant of how much tax income needs to be collected. About half of all the taxes collected in Australia are directed to social spending, but because we spend less than average we also have lower taxes than average. With taxes at about 27 per cent of GDP in 2008 compared to an OECD average of close to 35 per cent, Australia is the sixth lowest-taxing country in the OECD.

So it’s fair to say that we are a relatively low-taxing country compared to other rich nations, and to a significant extent this is because we have lower levels of welfare spending. But is this spending particularly egalitarian and are our taxes progressive?

To answer these questions, we need to look at how social spending and taxation is distributed across income groups. And to do that, the most up-to-date comparisons, using 2005 data, are in a 2008 OECD study, Growing Unequal? Income Distribution and Poverty in OECD Countries. (Although the data is six years old, the ways in which benefits and taxes are distributed tends not to change significantly over short periods of time, as was confirmed by an analysis prepared for the OECD Ministerial Meeting on Social Policy in May this year.)

It’s important to remember that the Australian social security system differs markedly from those in other OECD countries. In Europe, the United States and Japan, social security is financed by contributions from employers and employees, with benefits related to past earnings; this means that higher-income workers receive more generous benefits if they become unemployed or disabled or when they retire. By contrast, Australia’s flat-rate payments are financed from general taxation revenue, and there are no separate social security contributions; benefits are also income-tested or asset-tested, so payments reduce as other resources increase. The rationale for this approach is that it reduces poverty more efficiently by concentrating the available resources on the poor (“helping those most in need”) and minimises adverse incentives by limiting the overall level of spending and taxes.

Economist Nicholas Barr from the London School of Economics has pointed out that the main objective of social security systems in most countries is to provide insurance against risks like unemployment, disability and sickness, and to redistribute income across the life cycle, either to periods when individuals have greater needs (for example, when there are children in the household) or to periods when they would otherwise have lower incomes (such as in retirement). Barr describes this as the “piggy-bank objective.”

A second objective of the welfare state can be described as “taking from the rich to give to the poor” – or what Barr calls the “Robin Hood” motive – and Australia is the strongest example of a country emphasising this approach. Our system relies more heavily on income-testing and directs a higher share of benefits to lower-income groups than any other country in the OECD (and probably in the world). The poorest 20 per cent of the population receives nearly 42 per cent of all the money spent on social security; the richest 20 per cent receives only around 3 per cent. As a result, the poorest fifth receives twelve times as much in social benefits as the richest fifth, while in the United States the poorest get about one and a half times as much as the richest. At the furthest extreme are countries like Greece, where the rich are paid twice as much in benefits as the poorest 20 per cent, and Mexico and Turkey, where the rich receive five to ten times as much as the poor.

Because of these design features, Australia has the most “target efficient” system of social security benefits of any OECD country. For each dollar of spending on benefits our system reduces income inequality by about 50 per cent more than the United States, Denmark or Norway, twice as much as Korea, two and a half times as much as Japan or Italy, and three times as much as France.

Other countries that are similar to Australia in this regard include New Zealand, the United Kingdom and Ireland, and also Denmark and Finland. In fact, nearly all of the high-spending Scandinavian welfare states target to the poor more than does the United States.

Australia also has one of the most progressive systems of income taxes of any OECD country and, like our social benefit system, our income taxes are the most “efficient” at reducing inequality of any rich country. It is important to note that the progressivity of taxes in Australia is not a result of high taxes on the rich; rather, it’s due to the fact that lower-income groups in Australia pay much lower taxes than similar income groups in other countries (with the exception of the United States and Ireland).

The extent to which the Australian welfare state redistributes to the poor is determined by the interactions between the tax and social security systems, both in terms of the size of taxes collected and benefits paid and the distribution of these taxes and benefits. The chart shows an estimate of “net redistribution” to the poorest 20 per cent of the population in 2005. This is calculated by estimating the level of spending on social security benefits as a percentage of household disposable income and then taking account of how much of this goes to the poorest fifth. The same procedure is used to calculate how much tax is paid by people in that group, which is then subtracted from the benefits received to give “net redistribution to the poor.”

The chart shows that there are large differences in how countries redistribute income to low-income households, ranging from more than 5 per cent of household disposable income in Australia, Belgium, Denmark and Sweden, to around 2 per cent in Japan, Poland and the United States and less than 0.5 per cent in Switzerland and Korea. Nordic countries transfer large amounts of gross benefits to low-income people but also levy a significant amount in taxes from them; conversely, most English-speaking countries pay less generous benefits to the lowest-income households but partly offset this by levying lower taxes on them.

As a result, even though Australia spends below the OECD average on social security benefits, the distribution of benefits is so progressive, and the level of taxes paid by the poor is so low, that Australia redistributes more to the poorest 20 per cent of the population than any other OECD country except Denmark (which spends about 80 per cent more than Australia).

These figures suggest that in important respects the debate over Australia’s welfare state is misconceived. Following the federal budget earlier this year, for example, the issue of “middle-class welfare” attracted considerable media attention. But the OECD data shows that Australia actually has the lowest level of middle-class welfare of any OECD country, a position it has consistently held for at least the past thirty years. Organisations such as the Centre for Independent Studies have also argued that the Australian welfare state is marked by a high level of inefficient and wasteful “churning,” meaning that many people who use welfare state benefits and services finance most or all of what they receive through the taxes they pay themselves. But the OECD data shows that Australia has the lowest level of churning of any OECD country except Korea – and Korea only has lower churning because it has very little at all in the way of welfare payments. Claims by the Institute of Public Affairs that the main beneficiaries of the welfare state are the middle-class bureaucrats who administer the system are equally misleading.

While our social security system has a lot of strengths, this certainly does not mean that there are not real shortcomings to deal with, including the inadequacy of unemployment benefits and rental assistance. The fact that poor Australians get higher benefits than many poor people in European countries or the United States doesn’t actually help them pay their bills. It is always possible to be more efficient, and every year governments go through the laborious process of incrementally adjusting our benefit system to try to produce better outcomes. These changes often look like tedious fine-tuning, but the evidence suggests that it is changes of this sort that produce real improvements, rather than grandiose plans for completely replacing our welfare arrangements. •

Peter Roebuck, the Fairfax cricket writer, has joined Mike Atherton in suggesting a boycott of Sri Lanka. For England that means next year; for Australia, next month. It’s good to see that someone outside the cloisters of human rights activism is prepared to make a stand against the arrogant, unaccountable gloating and spin of Mahinda Rajapaksa’s government.

The UK Channel 4 documentary ‘Sri Lanka’s Killing Fields’ shown on Four Corners last week was truly sickening. The Sri Lankan army, in the course of its rout of the LTTE in May 2009, appears to have recklessly if not deliberately bombarded civilians in ‘no-fire zones’ with artillery; and to have carried out summary executions of captured Tamils, including women, some of whom appear to have been raped.

As explained in the program, Sri Lanka is not a member of the International Criminal Court, so its leaders and generals could only be indicted if the case was referred to the ICC by the Security Council. Since this is not likely to happen, the only option is concerted international pressure, at two levels: on the Sri Lankan government to permit an independent investigation; and on the members of the UN Human Rights Council to revisit the issue, having voted a week after the fighting finished to congratulate Sri Lanka on its prosecution of the civil war. (Continued)

For more – here.

I reckon this is the most succinct, accurate and balanced summary I’ve read of the current state of the carbon pricing debate:

Pricing carbon in Australia is about pricing carbon, not saving the planet. As an insurance policy, we need to have a soft mechanism in place that can be ramped up in the future if it needs to be, if the rest of the world joins Europe in getting serious about it.

It won’t do much and it won’t hurt much either. Capitalism as we know it is not about to come to an end, despite the rantings of the Alan Jones/Chris Monckton side show. The coalition’s crazy promise to spend billions burying charcoal, that too will pass.

And the Greens will have a new bureaucracy to play with as they try to forget their big mistake. A national propeller hat roll out can’t be far away.

Abbott’s Direct Action policies, not to mention the Greens’ equally silly plans that Gillard has been forced to embrace despite being debunked by the Productivity Commission, are peas in a pod.  At least judging by the leaks to date,  Gillard’s  carbon pricing scheme is modest, sound and sensible policy.  It’s a miracle of political negotiation and constructive compromise that she managed to get the Greens to accept it.  Julia’s skills at public communication aren’t as great as I’d hoped but she must be an awesome behind-the-scenes deal-maker, possibly the best Australia has seen.   Moreover, given the disparate interests and personalities among the Greens and cross-bench Independents, the only way she would have achieved such an outcome is to have impressed all of them as a leader of great strength, integrity and fundamental decency.  You don’t  hold together people like Windsor, Oakeshott, Wilkie or the Greens by being mean and tricky. But that assessment doesn’t fit the current MSM hive mind narrative so it’s probably not what you’ll hear and read.

PS And, for schadenfreude afficionadoes, that treacherous prick Rudd will know in his guts that a bloke with his personality and skillset could never have pulled it off in a million years. And so will the rest of the Labor Caucus who’ve had to deal with his prima donna antics on a daily basis.

Update – The actual program is if anything a bit more ambitious and substantive than I’d expected.  A modestly progressive redistributive taxation alement is a positive feature.  And the independent Climate Change Authority is a definite plus, a transparency/accountability check and balance along similar lines to Nicholas Gruen’s long-advocated fiscal probity authority and the enhanced Infrastructure Australia that I’ve been writing about for a while.  In other areas, Gillard was right to steal the Coalition’s proposal to call for tenders for closing down or scaling back the dirtiest coal-fired power stations.  It was the only sensible part of Abbott’s Direct Action policies.  OTOH the renewable energy and soil carbon funds are no worse than Abbott’s policies and the unavoidable cost of getting the Greens, Windsor and Oakeshott onside.  All in all, better than I expected.  Whether Julia can sell it successfully in the face of Abbott’s willingness to mislead and deceive in every possible way is another question.  But having a solid product to sell is a damn good start.

No Kidding. They’re making a movie of Franz Stampfl’s life – a doco. Who was Franz Stampfl I hear you cry?

Wikipedia says this:

Stampfl was born in the capital of then Austro-Hungarian Empire. He was the son of an Austrian general. He studied writing and painting in school. After high school he attended the Vienna Academy of Art and had some success as a skier and javelin thrower. He represented his country at the 1932 Olympic Games in Los Angeles in the Javelin.

In 1936 sensing the rise of Adolf Hitler, he fled to England to study at Cambridge university. When Hitler marched into Austria in 1938, the British government demanded that he leave the country unless he showed a unique and necessary skill. Having taught skiing back in his homeland, Stampl pitched AAA officials to coach their athletes, earning him a job in Northern Ireland. This was in part due to assistance by Olympic legend Harold Abrahams [of Chariots of Fire fame].

Wikipedia doesn’t say he was Jewish, so I guess he wasn’t. In any event, on being shipped out here on the Dunera and interned for the duration, he married an Australian and then returned to England and contributed to the development of ‘interval’ training – involving bursts of flat out effort followed by periods of recovery. This helped a number of runners, none less than Roger Bannister who broke the four minute mile. He then returned to Australia and trained John Landy and also Ralph Doubell who chased down Wilson Kiprugut in the 1968 Olympics.

In his later days he was holed up in a shack by the athletics oval of Melbourne University. He was known to like driving fast cars and became a quadriplegic after a car accident, though I’m now thinking the fast cars business may have been an urban myth having read on Wikipedia that he was made a quadriplegic from being crashed into “while stationary at a traffic light”.  In any event, I was quite a fast sprinter ‘back in the day’ – the early 1980s and I thought I’d go down and see Franz, tell him of our mutual connection (my Dad being a Dunera Boy and all) and see what was involved in training with him.  No problem – he told me to go and run thirty laps and come back when I had. I trudged round watching his various proteges like Bev Francis a shot putter who looked like Arnold Schwarzenegger in his younger days.

Like Franz is quoted as saying in the promo on the site “Your mind can overcome any sort of adversity .  .  . sure it will be painful, but what’s pain?” Well my mind didn’t overcome the thirty laps, or if it did, it didn’t overcome the next stage which was interspersing it with 200 metre sprints.

It was a very efficient mechanism for not wasting time on those who not would get past his pain barrier – not, as it turned out – me. But I’ll check out the movie.

From Supersizing supercenters? The impact of Walmart Supercenters on body mass index and obesity, by Charles Courtemanche and Art Carden, Journal of Urban Economics 69 (2011) 165–181

Researchers have linked the rise in obesity to technological progress reducing the opportunity cost of food consumption and increasing the opportunity cost of physical activity. We examine this hypothesis in the context of Walmart Supercenters, whose advancements in retail logistics have translated to sub- stantial reductions in the prices of food and other consumer goods. Using data from the Behavioral Risk Factor Surveillance System matched with Walmart Supercenter entry dates and locations, we examine the effects of Supercenters on body mass index (BMI) and obesity. We account for the endogeneity of Walmart Supercenter locations with an instrumental variables approach that exploits the unique geo- graphical pattern of Supercenter expansion around Walmart’s headquarters in Bentonville, Arkansas. An additional Supercenter per 100,000 residents increases average BMI by 0.24 units and the obesity rate by 2.3% points. These results imply that the proliferation of Walmart Supercenters explains 10.5% of the rise in obesity since the late 1980s, but the resulting increase in medical expenditures offsets only a small portion of consumers’ savings from shopping at Supercenters.

You’ll be pleased to hear that the Mortgage Industry Association of Australia is on a campaign to ramp up the qualifications of mortgage brokers.  Just because all they do is sell loans and fill out forms – and otherwise manage the process by which you apply for a loan – is no reason we shouldn’t want them to have higher and higher levels of qualification. There’s already a process of professional development, according to which mortgage brokers must get something like 14 professional development points per year.  Peach’s brokers can get 8 points for learning how to write commercial loans, and since we don’t do commercial loans, it will be totally useless.  But at least it will be a quick way of getting within striking distance of the yearly requirement. A couple more days of workshops where you are told of some lenders’ products (it’s much better to get it live from an instructor, even if you can read) with a nice afternoon’s golf and Bob’s your uncle. Next stop university degrees for all mortgage brokers. And why not?

I never fully understood Google Health.  It seems to be a consumer product, inviting you to input your data and track your health, set health goals and so on. Certainly there could be some benefits in this and in the aggregation of information, but the amount of effort maintaining all your records and doing so accurately boggles the mind.  I can’t see myself wanting to do it.

But its real power, surely, would come from the way in which it might operate as a unit patient record, and if it was going to operate as one of those, you needed to get buy in from health systems. Then you could really be cooking with gas with the system inputting data, you doing likewise as well as controlling the permissions that allow people to access your data at different levels of intimacy. With a lot of people included in the system the data would really be powerful when aggregated.

Given that, I thought Google’s strategy would be to build the best consumer app they could but then go hell for leather to get some health systems to interface with them.  Then once some health systems demonstrated the power of the approach, Google would be sitting on top of the incipient standard and – they’d be happy campers, and given that the health systems would not agree to do this without assurances of the portability of data, it’s hard to see how we all wouldn’t be happy campers. I don’t know how much they tried to engage health systems if at all.  They do talk about “adoption among certain groups of users like tech-savvy patients and their caregivers, and more recently fitness and wellness enthusiasts”.

“But” Google reports, “we haven’t found a way to translate that limited usage into widespread adoption in the daily health routines of millions of people,” and so they have just announced the closure of Google Health.

(Continued)

Last night Jen prevailed on me to watch an episode of the doco series The First Australians.  Such programs tend towards the irritatingly sanctimonious and question-begging in my experience, and that may well be true of many of the episodes of this series too.  However the one Jen had me watch (see YouTube video above – also see part 2, part 3, part 4, part 5) was really excellent.  It emphasised dramatically just how adaptable Aboriginal culture once was to to the dominant culture of the White invaders.  Simon Wonga and William Barak of the Wurundjeri clan near Melbourne were truly heroic figures about whom all Australians should know more.

Those same features of adaptability (and in particular willingness to move and work to take advantage of economic opportunity) were also evident in the initial responses of Northern Territory Aboriginal people to European encroachment.  Among other things they became the economic backbone of the pastoral industry.

Eventually the relentless racism of individual and systemic responses to Aboriginal people suppressed that inherent adapability and reduced most Aboriginal people to a state of sullen, despairing  passivity.   Even when racist responses began to be replaced by entirely benignly-motivated self-determination policies over the last three or four decades, the results were anything but positive.  In fact the conditions of Aboriginal people in Australia’s north have continued to deteriorate on just about all objective measures.  Attempting to understand why, and what might be done to change the situation for the better, is a question that has obsessed me for much of the 28 years I’ve lived in Darwin.  I can’t comprehend how that would not be the case for anyone of conscience surrounded by the evident misery, violence and despair of so many Aboriginal people.

I’ve observed in previous posts that the answers are unlikely to be simple or short term, and that they will certainly involve Aboriginal people themselves in taking responsibility and confronting and adapting aspects of their own culture which militate against successful adaptation.  What the story of Wonga and Barak brought home for me, though, was the extent to which Aboriginal society once did possess the necessary adaptive qualities.  Moreover, and despite the appalling health and educational outcomes for two successive generations of contemporary Aboriginal adults, there is no reason why those qualities of adaptability should not manifest themselves again, if we remove the perverse incentives in our education and welfare systems which create and perpetuate welfare dependency.  Although, as I say, solutions will be both multi-faceted and long-term, thinking about Wonga and Barak convinces me that Noel Pearson’s identification of welfare dependence as the key issue may well be correct.  On the other hand, ANU’s David Martin persuasively argues that Pearson overstates the extent to which Aboriginal people will succeed in achieving the necessary adaptation unaided, and underestimates the extent to which co-ordinated but respectful government interventions will continue to be necessary.

Retiring senior NT bureaucrat Bob Beadman outlines the welfare dependency syndrome succinctly, as The Australian‘s Nicolas Rothwell writes:

(Continued)