Archives for posts with tag: Politics

From Thomas Piketty’s new blockbuster:

[I]t seems to me that all social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off.

(Via Matt Bruenig)

One of the key economic policy battles in the first term of any government is to shape the public’s understanding of the previous government. Howard and Costello successfully associated the Keating and Hawke governments not with a massive program of economic liberalisation, but with “Beazley’s black hole,” a supposedly hidden fiscal deficit that was used to justify sharp spending cuts. The first Rudd government could and should have made more of Howard’s failure to make the most of the mining boom, squandering much of the benefit in unsustainable tax cuts, but they failed to ram this message home.

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In mid-1983, Michael Foot led the British Labour Party to a disastrous general election loss. The party, already in opposition, lost 60 seats in a 9.3% swing against it. Labour barely scraped into second place ahead of the SDP-Liberal alliance, with just 27.6% of the vote. Foot’s economically interventionist manifesto and socialist rhetoric were blamed for the scale of the loss.

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A debate has broken out across various left-leaning policy blogs about the virtues of a technocratic view of politics versus one that revolves around mobilising organised interests. It’s a fascinating discussion about the means and ends of progressive politics. I don’t have much to add to it, but I thought it might be worth linking to some of the key contributions for anyone who has missed the whole back-and-forth.

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Like most people I know, I’m obsessed with the Wire. I’ve watched the entire five-series set from start to finish twice, and I’m itching to do it again. One of the strengths of the show is the way it manages to make extremely powerful political points in a subtle way – characters don’t give moralising sermons that are directed at the audience. Instead, we’re left to see for ourselves how the interconnected web of rotting institutions that comprise David Simon’s Baltimore conspire to keep its citizens down.

One of the more heartbreaking storylines concerns the Baltimore school system, which is depicted as a bleak, bureaucratic wasteland in which talented students, teachers and administrators labour in vain to overcome the inherent limitations of the system. A big part of the problem is simple: money. Specifically, they don’t have enough of it.

The school system’s lack of money, in turn, is due to the structure of the American tax system. In the US, a lot of the functions of government like education are devolved to the local level. The amount of money that’s available for schools, police and all the other vital functions of government therefore depends on the amount of tax revenue that the local government is able to raise. That means that poor areas, in which few people work and there are no significant businesses, can’t devote much money to these services, simply because the tax base isn’t there. Thus begins the horrible vicious circle in which poor areas stay poor.

In Australia, we’ve sought to overcome this problem by equalising the funds available between states. The idea is that each state or territory should have enough resources to fund an equal standard of government services, so that citizens can expect decent schools and hospitals no matter which state they happen to live in. This principle is known as “horizontal fiscal equalisation” and it underlies the Commonwealth Grants Commission’s calculations of the share of GST revenue that each state will receive. Formally, the CGC defines horizontal fiscal equalisation as:

a distribution of GST revenue to State governments such that, after allowing for material factors affecting revenues and expenditures, each would have the fiscal capacity to provide services and their associated infrastructure at the same standard, if each made the same effort to raise revenue from its own sources, operated at the same level of efficiency and maintained the average per capita net financial worth.

Behind that dense, nearly impenetrable fog of bureaucratic obfuscation is the simple idea that all Australians should be able to expect decent government services. In practice, this means that wealthier areas, which can derive a lot of extra revenue from activities like mining, transfer funds to states without the same ability to raise their own revenue. The Northern Territory is the prime recipient state, but Tasmania and South Australia both also receive more GST revenue than their citizens pay.

With the mining boom in full swing, the West Australian government is able to raise a lot of revenue from mining royalties, as well as from increased payroll taxes and stamp duties. That means that its citizens pay more in GST than the state receives back from the Grants Commission, as some of the funds are sent to the Northern Territory and elsewhere.

Colin Barnett, the WA Premier, does not support this system. He has suggested that WA’s diminishing share of the GST funds could incite a “Tea Party style revolt” in the West.  Let’s set aside the fact that WA still received more GST revenue than its citizens paid as recently as 2005/06, when the rivers of royalty gold were already flowing strongly into State Treasury’s coffers. Let’s also forget the inconvenient truth that the Grants Commission and the principle of horizontal fiscal equalisation were created for WA’s benefit when the state was a struggling economic minnow back in the 1920s.

Barnett’s position is morally reprehensible not just for its hypocrisy, but for its callousness. The notion that there should be a special deal to allow WA to retain a greater proportion of its GST payments would imply, necessarily, that WA residents would be entitled to expect better quality schools and hospitals than residents of poorer states. Poor kids in the Northern Territory or Tasmania would have a lower quality education than citizens lucky enough to be born in WA, thus further entrenching and amplifying regional inequalities in future generations.

It’s this sort of ruthless indifference to poorer areas that underpins the American approach, illustrated so vividly on the Wire. I’m not claiming that a recalibrated Commonwealth Grants Commission funding formula would lead us to a situation like Simon’s Baltimore, but I am suggesting that any deviation from the principle of citizens’ equal entitlement to government services would be a disastrous and repugnant step, however tentative, in that direction.

Until January this year, I had never lived anywhere other than Perth. It’s a great city and a great state, but the collective indignation about the state’s share of GST revenue is unedifying and does the state no credit.

A new US essay summarises the things political scientists know that are at odds with conventional wisdom.

1. It’s the fundamentals, stupid.

Voter behaviour can be explained to a large extent by changes in real disposable income.

2. The will of the people is incredibly hard to put your finger on.

In the author’s words, you know a political commentator is making stuff up if “they pretend to know what ‘the American people’ want, think, will do, or anything else”. Most people are not very ideological, not politically engaged, and inclined to take their cues from party and political leaders.

3. The will of the people may not even exist.

It is difficult, and perhaps impossible, to aggregate the opinions of millions of people on a complex issue and divine a coherent ‘will’.

4. There is no such thing as a mandate.

This is my personal favourite. The authors say: “Take items #1, #2, and #3 together, and it is hard to interpret elections the way that politicians and pundits want us to. Economic fundamentals guide voters whomight not have well-defined attitudes to vote in a system that cannot satisfy all thedemands of democratic decision-making. This is not a formula for sending a clearmessage to anyone”.

5. Duverger: it’s the law.

Duverger’s law is that “the simple-majority single-ballot system favours the two-party system”.

6. Party on

Party differences are meaningful and unavoidable, and we shouldn’t wish to smooth them over. Parties are essential for mass democracy.

7. Most independents are closet partisans.

The true independent (or swinging voter) is largely mythical.

8. Special Interests Are A Political Fiction

“Special interests are labor and business. They are environmentalists and developers. They are pro-life and pro-choice activists. They are gays and they are fundamentalist Christians. They are you. They are me. It is hard to think of any political outcome that does not satisfy some interests and oppose others”.

9. The Grass Does Not Grow By Itself

The distinction between ‘real’ movements and ‘astroturf’ is largely illusory. The authors suggest: “If a movement is astroturf if some outside force is organizing it, then all movements are astroturf. People do not spontaneously wake up and go to rallies. Someone hosts the rally and invites them to come”.

10. We Do Not Know What You Think You Know

The paper concludes with a list of accepted wisdom about politics that is unsupported or only weakly supported by the political science literature. The unsupported nuggets of conventional wisdom include the notion that money buys votes, that democracy leads to economic growth, and that voters choose the candidate that is closer to their own preferences.

The Australian editorial page, February 18 2009:

This newspaper has, with some reservations, supported the Rudd Government’s budget stimulus packages. The Government is right to seize the initiative to do whatever it takes to prevent the global crisis producing recession in Australia. That initiative includes two sizeable budget stimulus packages – the first worth just over $10.4 billion, announced in October, and a second tranche of $42 billion, which will include millions of cheques to Australians to encourage them to spend now.

The Australian editorial page, October 8 2010:

Kevin Rudd’s intellectually fragile essay proclaiming an epochal change in the relationship between the government and the market looks faintly ridiculous with the passing of time but it betrayed his view that interventionist government should act as a counterweight to self-interested capitalism and laid the philosophical groundwork for an excessive Keynesian binge.

In this fascinating interview, Bob Gregory talks of growing up in an unremarkable middle class suburb in Melbourne’s north. He recalls believing that his little street in 1940s Pascoe Vale was representative of the nation at large, a belief that is probably common to most children bar the well-travelled.

I thought the street represented all Australia and that the richer and poorer people in the street represented the range of Australian experiences as a whole. I had never seen a rich neighbourhood, a Toorak, for example, until I was twenty years old. I can even remember the day.

I had a similar experience. I thought the people living in the suburbs along the coast in the northern suburbs of Perth were rich until I went to UWA and met actual rich people.

Some people never quite grow out of that childhood naivete about the level of inequality. Andrew Leigh has written about the effect that opinion leaders’ overestimation of most Australians’ living standards has on the prospect of progressive tax reform:

For the most part, the taxation rates applying to most politicians, journalists, business executives and think-tank staffers (and indeed, to academic economists) are not those that apply to the average voter. In all these professions, six-figure salaries are common. Yet only 4.5 per cent of Australian adults have an income that exceeds $100,000 per year, and only 1.5 per cent have an income that exceeds $150,000 per year.

(Note: 2006 dollars).

A recent study sought to quantify exactly how out of whack Americans’ perceptions of the wealth distribution are from reality. They conducted a large poll and found that people believed that the wealthiest 20% of Americans owned 59% of the wealth, when in fact they own 84% of US household wealth.

Here’s the respondents’ estimated wealth distribution, their ‘ideal’ distribution, and the actual distribution:

In short, people think the poor are richer than they are and that the rich are poorer than they are.

I have little doubt that Australians would similarly underestimate the degree of inequality in our society, though our actual wealth and income distributions are less grotesque than America’s. Still, the widespread misperception of the shape of the income distribution has serious implications for the nature of our public policy debates.

Take tax, for example. The usual suspects are able to carry on as if cutting the top marginal tax rate, or increasing the threshold at which it applies, would constitute meaningful “tax reform”. They get away with this mainly because most people don’t understand how marginal tax rates work (confusing them with average rates) and don’t understand where the top rate kicks in.

You need to earn 3.5x average weekly earnings before you hit the top marginal tax rate. Less than 2% of taxpayers are in the top bracket. It’s worth remembering that fact with the looming tax debate.

Elsewhere: Alex White.