Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
The remarkable thing about the December quarter national accounts is that despite all the focus on particular areas of weakness in the economy during 2019, it managed to end up with growth of 0.5% or 0.6% each quarter for an annual total of 2.2%.
Taking a short-term view — while 2.2% annual growth (and 0.7% in per capita terms) is nothing to crow about — it’s far from recession territory, and the economy entered 2020 with some momentum.
That is all in the rear view mirror. We now know that the bushfires and coronavirus (or COVID-19) impacts will detract from that momentum, though the extent and duration are highly speculative at this stage. The question for policymakers is, what can and should macro policy do to offset those negative impacts?
In the spirit of ‘don’t just stand there, so something’, the Reserve Bank has acted swiftly with its 25 basis points cash rate cut. This will do no harm in the short-term — but also little good.
A cut in rates will do very little to relieve fear and uncertainty about COVID-19 or the supply chain problems it has created. Rates were already so low that they were not a hindrance to anyone wanting to spend or invest; and the cut may inflate asset prices (particularly house prices) further.
Meanwhile, whenever the coronavirus scare subsides, the RBA will be slow to reverse course or will not do so at all, and the economy will be dealing with the damage wrought by interest rates even closer to zero than they already were.
The bigger issue is whether the government should inject a discretionary fiscal stimulus; for example, something of the kind (but not the magnitude) of the Rudd government’s fiscal response to the global financial crisis.
The answer, at least at this stage, should be a resounding ‘no’. The scale of COVID-19 and its economic implications are far too speculative.
Above all, policymakers should not act simply to be seen to be doing something. With that motive, the story always ends badly.
This is an edited extract of an opinion piece published in the Australian Financial Review as There’s no call for pink batts version 2020
Australian education is still paying the price of bad, expensive ideas from previous reviews. Let’s hope the NSW government’s recently-announced TAFE review to be headed by university chancellors David Gonski and Peter Shergold isn’t another dud.
But the track record of Gonski education reviews isn’t promising.
The 2011 Gonski review of school funding simply assumed that significantly more school funding was required, came up with a funding model that was almost impossible to implement in the real world — and resulted in a massive increase in spending that has demonstrably failed to lift student achievement.
And while the Gonski model presumes enormous school funding increases are still necessary, when it comes to a case of The People v Gonski, most parents think their child’s school has enough resources.
The ‘Gonski 2.0’ review of schooling in 2018 wasn’t much better. One of the major recommendations was to move towards a curriculum based on ‘learning progressions’ — a hugely disruptive and expensive proposal, with little evidence to support it. And to this day, proponents have been unable to answer a basic question: is there even one high-achieving school system anywhere in the world that uses learning progressions?
You would think that if a review panel suggests a gargantuan reform, they might first investigate if it has actually worked anywhere before. But evidently the panel couldn’t be bothered to shoulder the burden of proof for their grand plans.
For the sake of taxpayers and TAFE students, hopefully the ‘Gonski 3.0’ panel will get third-time lucky and come up with evidence-based proposals that don’t cost the world.
In Australia we have an endless, uncoordinated, overlapping barrage of education reviews — the NSW review of TAFE is at the same time as the NSW curriculum review, and the national review of senior secondary pathways, and follows on from a national review of VET last year. This proves the absence of any real vision at a national and state level.
Governments should simply ignore review panels when they propose bad ideas. And governments can’t absolve themselves of blame for poor policy by claiming they just did what a review told them to do.
There’s a concerted effort to shift the focus of economics away from financial data towards social. Specifically, it’s argued that economic welfare would be better measured by our individual and collective ‘wellbeing’ than by the GDP (the value of goods and services produced in the economy).
Would-be Treasurer under a Labor government, Jim Chalmers, has thrown his support behind this idea, praising New Zealand’s ‘wellbeing budget’. He promises a two-pronged assault: first, to supplant GDP’s primacy with a more holistic measure of wellbeing; second, to weigh up budget decisions in terms of social objectives — rather than economic merits.
Chalmers argues that alternatives to GDP would instead “measure what matters” and “redefine what success means in terms of economic outcomes.”
To better measure a country’s progress, the Kiwis now monitor levels of (among others) loneliness, belonging, mental resilience, and digital inclusiveness — all supposedly more important than money. The marker of success for NZ, then, is moving the needle on these indicators, irrespective of the economics — implying that a happier society is better off than a more prosperous one.
Where this comes from is a pessimistic view that, despite nearly 30 years of economic growth, Australia supposedly hasn’t enjoyed social progress —we’re apparently all living miserably.
It’s important to understand this isn’t supported by the economic data or social indicators. First, as the Productivity Commission argued, income inequality has not significantly worsened in Australia.
Second, according to the OECD’s Better Life Index, Australia scores the second highest of any country in the world. And we are sixth on the UN’s Human Development Index — which includes both economic and other factors — and on an upward trend.
Not to forget that economic factors are themselves important indicators of the health of a society.
Indeed, focussing on social indicators rather than economic growth leads to policymakers treating the symptoms rather than the cause of social problems — many of which stem from, or are exacerbated by, adverse economic outcomes.
In short, healthy economies breed healthy societies — and the progressives are wrong about the direction of this causation.
Social progress and cohesion are important policy goals, but prioritising these over broader economic goals would be counterproductive. It also distorts fiscal policy decisions by evaluating spending proposals on the basis of their direct social impact; not financial prudence, or in context of the macroeconomic stability lever that has been the convention.
We can’t afford for economic priorities and progress to be derailed by progressive social policy — especially with the vulnerabilities of today’s economy.