Download The future of economics: Re-imagining economic reform

The future of economics:
Reimagining economic reform
Australian Fabians National Policy Conference:
Economics, equity and trust in the twenty first century
Nicholas Gruen
1
Background
Australia’s experience is unique.
ALP has been the party of economic reform
Results have exceeded New Zealand, US, UK
– economic growth
– equity
ALP drove reform, not the right
ALP’s reform was in the spirit of Adam Smith
• systematically sympathetic towards the poor
• suspicious of privilege
• persuasion rather than power
2
Background
Reform gradually morphed into deregulatory
formula
Now encountering diminishing returns.
Further areas of reform
– rats and mice
• taxis, post, newsagents, pharmacies
– reforming the tax - welfare interface
– health, education and federalism
A new canvass
3
Traditional ideas of the economy
4
New frontiers: New themes for reform
5
Information
Major theme of economics
– since Hayek, Arrow, Stigliz and Akerlof
– Yet little attention to improving information flows.
In workplaces workers compensation premiums are a
good proxy for OHS performance
– should be disclosed to all prospective employees
Job satisfaction could be measured and published by
workplace
– producing a market in job satisfaction
6
Information
Information can drive improvements in health and
educational performance.
We should audit the Report on Government Services
Generate and publish information on
– objective performance of
• investment advisors
• real estate agents
– customer satisfaction and error rates of selected other
areas
7
Public information on past
performance
Agent 1
Agent 2
Agent 3
Accuracy of past
prognoses
Prognosis
5%
$ 420,000
-2%
$ 415,000
$ 450,000
-15%
Expected
price
$ 441,000
$ 406,700
$ 382,500
8
‘Gruen Tenders’
Hospital A
Hospital B
Hospital C
Correction for
Raw
accuracy of past
Prognosis prognoses
-30%
2.0%
25%
4.0%
30%
1.5%
Expected
chance of
adverse event
1.40%
5.00%
1.95%
9
Risk
Approaches to government risk are primitive
– Government balance sheets are a residual
Privatisation, fiscal consolidation and
retirement incomes policy has improved
productivity but worsened risk bearing
– foisting risk on private sector is costly
• Sydney’s cross-city tunnel may be a turning
point
– Governments should borrow to invest
• Like families and firms
10
Risk
Large risk management agenda sketched out
by Shiller which governments should help
foster risk markets in such things as
• GDP growth
• House prices by suburb
• Employment prospects - by skills
11
Law
We only really have a legal system for the rich and
those with access to legal aid
• Otherwise you risk your life savings
We need a legal system which is
• independent
• timely
• cost effective
Legal procedure must ensure legal resources are
commensurate with the magnitude of disputes
Right to pre-emptively forsake appeal
• subject to opponents’ right to appeal on bearing all costs
12
Complexity, defaults and simplification
Complexity is a major economic issue
What happens ‘by default’ becomes
increasingly important.
We should simplify life and improve outcomes
for ‘default’ behaviour
– superannuation and investment
– presumption that complex contracts are
reasonable
• a duty to disclose unreasonable provisions
– End tax returns for most employees
13
Regulation
Regulation is hugely important
– Debate still bogged down in left-right sloganeering
– No country has done it well
Some ideas
• Regulation is an interface in a complex system
– between government and persons (actual and legal)
• Responsiveness to new ideas, information and needs is crucial
• Rghts to alternative compliance
• We need new institutions to mediate the ‘politics of detail’.
14
Macro governance
Rule of law requires independent institutions that cohere
through political changes in government.
– Judiciary
– Monetary policy
And obligations to obtain independent advice
– Industry assistance
If we believe in the power of government to manage the
economy we must develop its independence
– begin with obligations to receive independent fiscal
advice like Victorian Government Auditor General
15
Tax
Tax pollution
– greenhouse gases
– congestion
Difficult to establish the debate from Opposition
16
Oppositions can initiate change !
The more complex our society the less powerful is, central
‘command and control’
• the more powerful are attitudes and decentralised decisions
Achieving reform from Opposition would be good for
• Australia
• the Opposition, which would be actively building its vision,
rather than just carping from the sidelines.
Areas where one can start from outside government
• Job safety and satisfaction ratings
• Investment advisors keeping public sample portfolios
• Default superannuation
And health and education are with the State Governments!
17
What’s reform for?
These ideas can not just help us become richer
Not just help us manage ‘the economy’ and minimise
government expenditure - as worthwhile as those
aims are
They can make important contributions to
– the quality,
– security and
– fairness of our lives
And the fitness of our institutions for their purpose
18