Piketty questions on Australian Inequality

The French economists Thomas Piketty recently published a long-prepared book on the growth of inequality in the Western World over the last few centuries. His main contention, as I see it, is that wealth inequality is rising rapidly again and that we are returning to 19th century levels of inherited inequality, complete with ‘upper class’ behaviour and dismissive attitudes towards the poor. His work finds an echo in this recent book by Andrew Leigh on Australian inequality that similarly notes the increase in inequality over the last few decades.

From a research point of view, the main questions Piketty’s views raise for Australian economic scholars who are worried about inequality, are:

 

  1. How do the super-rich in Australia actually make their money? Did they make it ‘on merit’ by inventing new techniques, or did they make their money by ‘grabbing it’ from the public purse by means of political patronage? The easiest way to answer this question is to go over the list of wealthiest Australians and look how they made their fortunes: by being innovative geniuses or by cosying up to political power and thus get away with stuff others did not. Pikketty very much points to the second source of wealth as a key mechanism for the explosion in the pay of super-managers, like bank-managers, whose pay is not truly linked to ‘performance’ but much more to what they manage to grab from their heavily-subsidised institutions. The same goes for CEOs in many major companies: they often did not build them up or add much to their productive value, but are in the position to grab the wealth created by these organisations anyway, no matter how incompetent they might be. In Australia there is an argument to be made for run-away ‘political rent-seeking’ as the prime cause of increasing inequality, but more extensive data on this point is needed.
  2. What institutions and tax arrangements would actually work to reduce the importance of political patronage if that is indeed the main cause of the rising inequality? Australia, like much of the Western world, already has quite a few institutions dedicated to fight the abuse of (market) power, such as the ACCC and the many public utilities regulators, but it might be the case that we are nevertheless in a period of reduced vigilance because the nature of the economic system has changed. The ‘old institutions’ that worried about abuse of power in manufacturing and public utilities might not be so relevant for an economy in which over 70% is service based, meaning one needs to think about what institutions are appropriate for the more murky world of property development, education, and financial services, in which government regulation is both inevitable and creates tremendous opportunities for rent-seeking. The recent proposal in Queensland to prevent the Crime and Misconduct Commission from looking into political misconduct, undoing the key part of the Fitzgerald reforms following an earlier period of rampant political corruption in Queensland, is in that sense a clear move backwards.
  3. How detrimental is inequality based on patronage for the wellbeing of the vast majority of Australian? Does it lead to a culture of compliant acceptance of the majority with a low station in life and low opportunities for their children too; or does it not matter much because even the poorest still get a pretty decent life? Can Australia as a small country ignore the World-wide effects and opportunistically base its economy on catering for the whims of the super-rich within the Asia-Pacific region, effectively making a world-wide change work for us? Those of us who are not super-rich themselves then can be their educators, cleaners, plumbers, gardeners, nail polishers, call-girls, security guards, and superannuation consultants. Somewhat our current trajectory.

I merely have strong suspicions on these research questions, no evidence that would convince a reasonable skeptic. Anyone who already thinks they have an educated answer to these questions should thus share their wisdom in the comment thread!

Humiliation and the dole: a forgotten debate

A decent society is one whose institutions do not humiliate people - Avishai Margalit

Menzies

The Great Depression stripped many Australian workers of their dignity. For many, applying for government relief was like begging for charity. Instead of giving unemployed workers cash, state governments doled out relief through tickets that could be redeemed for food. The recipient would then present their ticket to the milkman, the baker, the butcher and the grocer and recieve their rations. Often they would have to work for this ‘dole’. To get any kind of relief, applicants had to show that they had exhausted all their resources and were incapable of supporting themselves or their families. Many found this means test humiliating.

In the wake of the depression it was harder for people to believe that unemployment was always the result of laziness or personal inadequacy. To many Australian, it no longer seemed decent to humiliate unemployed workers as a way of deterring idleness and dependency. When legislation to create unemployment benefits came before the House of Representatives, Labor MP Thomas Willams declared that the scheme: "will go a long way towards ensuring that the precious children of this vast and undeveloped continent will never suffer the shame and degradation which seared the souls of the children of this country during the depression" (p 2353 pdf).

But while the major political parties agreed that Australia needed a modern social security system, they could not agree about how it would work. The Labor government wanted unemployment benefits to be funded out of tax revenue. But Robert Menzies wanted an insurance scheme funded out of contributions. He argued:

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‘Learn or earn’ is the politicians’ equivalent of Stairway to Heaven

stairway

According to the Australian, the Abbott government’s first budget will include tough new "learn or earn" Measures designed to force young people off the dole and into education, training or work. "One thing the government doesn’t want to do is to continue to pay people to stay at home and do nothing," a senior government source said.

There’s a sign on the wall

There’s a scene in the movie Wayne’s World where Wayne goes to a guitar store, picks up a Fender Stratocaster and starts playing Stairway to Heaven. The clerk grabs the guitar and points to sign on the wall – "No Stairway to Heaven" [video]. For decades, guitar students have been learning the song’s intro by heart and playing it to impress their friends. But guitar store staff are not impressed. They’ve heard it too many times.

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The paradoxes of politics

In an everyday political sense I suppose we can’t really blame Little Bill Shorten for cynically and dishonestly demonising the Abbott government’s mooted tax increases and spending cuts. After all, Abbott cynically, dishonestly and very successfully demonised Labor’s carbon and mining taxes. What’s sauce for the goose is sauce for the gander, as they say.

On the other hand, perhaps we really can’t blame Tony Abbott for doing this either, because Labor and the trade union movement (prominently including Little Bill Shorten at the time) cynically and dishonestly demonised the Howard government’s Work Choices system, despite the fact that it was an entirely reasonable and fair one at least once the “no disadvantage” test was restored. Then, of course, there is Kim Beazley’s (and before that Paul Keating’s) even more cynical and dishonest demonising of Coalition GST proposals despite the fact that Keating himself had championed precisely such a tax back in the 1980s.

I guess the bottom line is that dishonestly demonising opponents’ policies is the everyday business of politicians. It’s the business of the government politicians of the day to sell their policies effectively and persuade the electorate that the Opposition’s arguments are indeed dishonest scaremongering.

That would seem clearly to be the case with the current budgetary situation. Economists largely agree that weak leaders from both political parties over the last decade (Howard, Rudd and Gillard) largely squandered the windfall of the China-driven resource boom by creating permanent spending programs (largely of a middle-class welfare nature under Howard) and equally permanent tax cuts despite knowing that they were being funded by the inherently temporary proceeds of the resource boom. Presumably they all knew what they were doing but hoped that the chickens would come home to roost on some later government’s watch. It looks like the chickens have arrived, because it is now unavoidably apparent that there is a long-term structural deficit which will not be repaired without tough measures both on the revenue and spending sides of the ledger.

No doubt Abbott and Treasurer Joe Hockey could, if they wished, have avoided taking the tough decisions by claiming (truthfully in a narrow sense) that there isn’t a “budget emergency” and that Australia’s net debt will only peak at around 17.5% of GDP in a few years time, which is much less than nearly all of our major western trading partners. But that would be ignoring the fact that it will indeed become a larger and larger problem over the years, with a high probability that deficits will continue indefinitely into the future and the interest burden continue progressively to increase until it really does become a significant impediment to government policy. Far better to grasp the nettle now and take the hard decisions while faced with a weak and discredited Opposition with a radically unimpressive and tainted leader in Little Bill Shorten.

Of course, it could all end in tears for the Abbott government, with the apparent decision to impose a temporary income tax levy on high income earners (and perhaps increases in fuel excise) being seen by history as Abbott’s “no carbon tax” moment and a courageous decision in a Sir Humphrey Appleby sense. Nevertheless, as someone who prefers sound policy to political theatre I certainly hope not. As far as one can tell from the budget leaks, it would appear that what Abbott and Hockey have in mind is very much sound economic policy. Fortunately, I think that Abbott is a much better political salesman than either Rudd or Gillard. Moreover, with any sort of luck the Coalition should be able to keep a figurative foot on Labor’s throat through an unending stream of embarrassing news stories emerging from former High Court Justice Dyson Heydon’s royal commission into trade unions. Mind you, the current ICAC hearings in New South Wales provide an amusing illustration of the propensity of independent inquisitions to end up biting the instigator that fed them as well as the intended target.

Moreover, in a somewhat perverse and paradoxical sense, a royal commission which exposes and dramatises the skulduggery of a significant minority of the trade union movement may actually be to the ALP’s benefit in the long term. Labor renewal in my opinion depends on reducing the almost complete dominance of a tiny cabal of union and faction leaders over both Party administration and preselection. They are unlikely to surrender power willingly, but may well be much easier to displace if preoccupied by defending themselves before a royal commission and avoiding imprisonment for corrupt activities.

A speech at the unveiling of a portrait of my father

FHG

Last night I attended the unveiling of a facsimile of a portrait of my father painted when he was fresh off the boat in 1941. Thanks go to Bruce Chapman above all, but to many others for organising. To Erwin Fabian, who pained the portrait all those years ago. It’s been over 16 years since Dad departed and I’ve made two other speeches reflecting on things, one at his memorial after he died, another, more general one using Dad as a foil to reflect on ‘the asylum seeker issue’. I needed to make another one!

                                                                                                                                                                                          I.

When Heinrich Schliemann unearthed a gold mask in Mycenae, he was reputed to have said “I have gazed on the face of Agamemnon”. In a more modest way Erwin Fabian’s magnificent portrait allows us to gaze back through time – upon the face of a very different person to the one we all knew.

When Dad arrived in England in 1936, he was 15 and alone. He must have been scared. Met by a teacher from Herne Bay College where he was to board, Dad had no English. “Salve” he said, greeting the teacher in Latin. No dice: He was the gym instructor.

The portrait was painted just four months after the Dunera arrived. To find him in those days you just followed the signs in the main street of Hay to the “Concentration Camp”. Dad must have wondered where his mother Marianne was; how she was. She was taken to Theresienstadt. It was a way-station to Auscwitz.

It also had creepy similarities to Hay. Theresienstadt was Hitler’s home for Europe’s Jewish cultural elite. So, as the inmates quietly starved, it doubled as a set for Nazi propaganda showing how well Jewish ‘resettlement’ was going. As she waited to discover her fate, Marianne would sometimes have attended lectures, recitals, poetry readings, and concerts, just as Dad was doing in Hay.

                                                                                                                                                                                          II.

I’ll return the person in the portrait shortly, but I thought I’d list some propositions I take from my father’s success.

  • You make your own life
    • But look after people
  • Knuckle down. Work hard. Get on with things
    • But don’t be a workaholic
  • Take yourself seriously
    • But not too seriously
  • Don’t be shy. Chat with strangers.
    • If you’re nice to them, they’ll probably like you
  • Believe in, invest in, your own integrity and that of others.
  • Don’t get on your high horse or start a fight unless it really matters
    • You’ll know it really matters if, maybe only if, real injustice is done to someone who can’t easily defend themselves
  • If you want your intellect to make a positive contribution to people’s lives the trick is to combine a warm heart with a cool head.
    • There is no shortage of people with exceptional intelligence and no damn sense
  • Listen carefully to those who disagree with you.

The future of online courses?

My own university, the University of Queensland, has around 6 flagship courses that it puts online for free, in a deal that involves universities from around the world who put up the courses that they excel in. It typifies the current reality of online courses: it is free; it is relatively high-quality; and almost no-one uses them because it is not material that is worth something.
Online courses currently are much like bootlegged high-class literature: it enables those who are self-driven to learn something about everything without paying for it, but it does not tap into the money streams of the education market, which, after all, is a market of diplomas and accreditation. Until online courses come with accreditation, there simply is no money in online courses and we are looking at the academic equivalent of owning horses: a gentlemanly way to get rid of your money.

What would a future with accreditation look like? Since students want high-name brands, it would involve many thousands, perhaps millions, of students doing the same exam by a top-brand name at the same time, and receiving a diploma from that top-brand name based on the exam results.

How would this work? Well, since it is important for a top-brand name to maintain confidence in its brand, that top-brand would have to control the examination as it happens all around the world simultaneously. This means it will only send out the exam seconds before the start of the exam, but much more importantly, it will mean that the people doing the exam will be monitored by cameras and brand-accredited examiners all around the world.

In effect, we would thus be looking at a system of world-wide examination rooms in which one can do, say, 1st year biology from Harvard, 2nd year physics from Oxford, and 3rd year economics from a conglomeration of Dutch universities (like the Tinbergen Institute). The material on which the exam is based will then be online and for free, but local universities will have provided tutorials in which students get trained and in which their misconceptions get ironed out so that they understand the material: the ‘low-tier’ universities start to become a franchise of the high-tier universities and they mainly offer feed-back on the learning of their students.

What is in it for the high-tier universities? Lots and lots of money. Continue reading

The best of Melbourne’s Spanish Film Festival

You know the drum. There’s a film festival on and these are the films that rate four stars or more.
In 1966, John Lennon was determined to leave the Beatles to become an actor, and arrives in Almería to shoot ‘How I Won the War’. Antonio, a school teacher in the small Spanish town of Albacete, learns that Lennon is visiting and decides to undertake the journey to meet his hero. On his way, Antonio meets two runaways; Juanjo, a 16-year-old boy who is escaping his home, and Belén, a 20-year-old pregnant girl reluctantly planning to go home to her mother. Together they travel to reach a destination where they will learn more about themselves and one another than they could have imagined.
☆☆ IMDB
☆☆☆☆ View Auckland
Show Timings:
After losing his mother to senseless violence, 12- year-old Lucas embarks on a brave journey to meet the grandmother he never knew. But the graceful, elderly Martina has no idea Lucas is on his way-she is terminally ill, and after thirteen years has decided to return to the region where she spent happy times with her husband. During his travels, Lucas meets up with Kayemó, a young man with a money problem and a gun, who reluctantly agrees to accompany him to his destination. Together, Lucas and Kayemó will discover there is only one destiny, the one you choose for yourself.
☆☆☆☆ IMDB
Show Timings:
Diego, a young and successful photographer, lives comfortably in the glamorous but shallow and excessive world of fashion. His deeply committed partner Fabrizio works as a paediatrician. However, Diego is not ready to commit to their relationship…until a tragic accident turns his world upside down; Fabrizio is now in a coma. Unexpectedly, and right at this inopportune time, Diego’s estranged son Armando shows up. Both of them have to adapt to each other; Armando to the unknown, homosexual world of his father, and Diego to the closed attitude of his teenage son.
☆☆☆☆ IMDB
Show Timings:
Claudia has grown up alone for almost her entire life. She fends for herself, living in a small room in a run-down neighborhood of Guadalajara. One day, she falls ill with appendicitis and winds up in hospital. In the bed next to her is Marta, a woman with four children and an endless lust for life, in spite of her terminal illness. Each of her children are very distinct from one another, but all love her profoundly. Claudia is gradually drawn into the family unit, forming a special bond with each one of them and filling a long-empty void in her life. As Marta’s illness advances, Claudia takes on a role within the family, keeping Marta company on regular hospital visits, accompanying the children to school, helping around the house, and even going on holiday with them.
☆☆☆☆ IMDB
Show Timings:
In order to escape from the squalid barrio in which they live, young Guatemalan teens Juan, Sara and Samuel make the decision to attempt the 1,200 mile-long arduous border crossing into “The Golden Cage”, i.e. USA, via Mexico in search of a better life. In order to blend in with the group and protect herself from the harm a woman can suffer on the journey, Sara initially disguises herself as a boy named Oswaldo. Not long after their departure, the group encounter Chauk, an Tzotzil Indian who speaks virtually no Spanish. Despite Juan’s fervent and passionate opposition, Sara insists they allow Chauk to join the gang. A harsh road follows as the four children show inspiring bravery in the face of relentless danger and obstacles, both natural and man made.
☆☆☆☆ Eye For Film
☆☆☆☆ IMDB
Show Timings:
Paula is desperately in love with Jorge, a once divorced literary genius who keeps his feelings held close to his heart. Jorge is nominated to win a prominent literary award, but is only eligible if he completes his current novel. Much to Paula’s dismay, he decides to spend some months living away in his lakeside cottage to complete his writing. Although she accepts the move, Jorge’s lack of passion wears on Paula’s mind, and the limits of her loyalty begin to present themselves. She gradually loses interest in the relationship and gains enthusiasm for her own writing and her compelling thesis supervisor. Her withdrawal initiates a reversal, sparking Jorge’s desire for her and a relationship tug-of war is initiated.
☆☆☆☆ IMDB
Show Timings:
After a relationship break-up and being fired from his TV job, Siminiani embarks for India in search of material for a new feature. Anticipating a renaissance of his life, he travels from Delhi to Calcutta, with stops in various striking locations, both urban and rural. As he desperately seeks deep connections between his past and present, he decides he needs a female companion. But when he realizes that she is back in Madrid, his Indian soul searching comes to an abrupt end, and a new journey commences back in Spain.
☆☆☆☆ IMDB
Show Timings:

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