UBI gets the city press, but the bush wants a JG scheme

UBI continues to capture the imagination of people searching for ways that the status quo could be improved. As I’ve argued before, UBI is superficially a good idea, but ultimately will fail to produce the outcome its proponents suggest.

A perfect example is Tim Dunlop’s ‘Something big has to change’: could Australia afford a universal basic income? that appeared in yesterday’s Guardian. In arguing the pros and cons, he hits the problem on the head:

Although at first blush, UBI sounds like some idealistic, leftwing idea, the reality is it has long had support in rightwing politics and economics. Richard Nixon nearly introduced a type of basic income when he was the US president, while Milton Friedman – one of the most influential champions of “free” markets and small government – promoted a basic income scheme known as a negative income tax. Even today, right-of-centre organisations such as the Adam Smith Institute argue for the introduction of such a scheme.

This rightwing pedigree makes many on the left suspicious of UBI, and former union head Tim Lyons speaks for many when he says he is “deeply unconvinced by the push for a universal basic income”.

What the left fear, not without some justification, is that instead of UBI being used as a supplement to other forms of service provision, it would be used to replace them. Citizens would then be forced to use their UBI to buy health, education and pension services from private providers. This sort of rightwing UBI would simply be a transfer of public wealth to private businesses, a further marketisation of democratic society.

Of course, a UBI needn’t work that way, but such concerns mean the design and implementation of a scheme – the politics – are as important as the economics.

It needn’t work that way, but you know that’s what will happen. The demonisation of the unemployed as the architects of their own penury, refusing to work and just bludging off the taxpayer are neoliberal mythology that has become very hard to shake.

The problem with the UBI is that it does not directly solve the problem of unemployment. Yes, additional spending power at the lowest echelons will lead to increased sales and therefore might result in more workers being hired. But it can just as easily lead to price increases for the more inelastic products and services, as demand increases but supply cannot meet it. A good example of this is dental services, something that the poor are known to skimp on due to cost. There aren’t too many unemployed dentists that can be brought into “production” to meet an increased demand for their services if there is suddenly more disposable income that could buy it. The natural outcome will be a rise in price for dentistry.

And it strikes me as fanciful that giving everyone a living wage is going to somehow lead to some nirvana where we all just do charitable works and produce creative output, as people allegedly have their basic needs met by the UBI and can spend their time doing other worthwhile things. This argument is often linked to the rise of the machines – that robots are going to do all the work anyway, and there won’t be any need for jobs.

Well, for a very narrow definition of the word ‘job’, maybe. Automation has been happening since the industrial revolution, and there are always new jobs to replace old ones. I’m not sure why we simultaneously panic about automation and the ageing population issue: the idea that there won’t be enough workers to support the retired. Surely one offsets the other to some extent?

The Job Guarantee Concept.

If you’re going for radical change, a Job Guarantee scheme is a far better solution than UBI. Most advocates of a JG recommend that it be federally funded and locally administered. So that the local community can make the determinations on what services they require.

Put it this way. If you said to your local council: “here’s a standing army of people that the federal government will pay the wages for as long as you can put them to doing meaningful work, what services could they perform to improve your area?” Look around – what could be done to improve the amenities, functions and services in your area if there were people available to do them? Pretty much anything that would be considered socially “good” but won’t ever be done by the private sector because there’s not a quid in it would be a candidate for JG programme.

A JG scheme sets a minimum price for labour, and effectively buys all excess labour off the bottom. It is not competing with the private sector for labour, it is just mopping up the excess labour that the private sector cannot employ. As a result it’s not inherently inflationary (beyond some adjustment to its initial implementation – the likes of 7-11 might get a rude shock when no-one is prepared to work for less than the minimum wage offered by the JG scheme). Like the Wool Board, it buys excess when it exists so it can be released when demand returns, to smooth out the effects of the business cycle.

And of course there’s no coercion here. If you really are a bludger, you’re likely to stay in your current circumstances. On the other hand, if you don’t have a job but you do want to work, JG employment will be given to you. In the best possible scheme, a job that makes use of your existing skills, or trains you in new skills. Ultimately it keeps you job-ready, and employable, for when a better paid private sector opportunity comes along.

None of this is my idea, far brighter minds than I have been developing the JG scheme for years. The Centre of Full Employment and Equity and the work of Dr Bill Mitchell is largely the home of this concept, and there’s no shortage of research material available. Including costing, which shows such a scheme could be implemented for less than what a UBI would cost.

But it was very interesting to hear ABC PM yesterday, and in particular the segment Aboriginal groups call for alternative employment model. Unfortunately the ABC has cut their transcription of news stories, so the piece is only available as audio. (Another example of a socially good job that someone could be doing!) There is also a related article here.

The crux of the story is that rather than penalising or “breaching” the unemployed in aboriginal communities who are expected to travel vast distances to work for the dole, the local community has no end of useful things those people could be doing in their own area, and are calling on the federal government to allow them to find work for their unemployed community members. Breaching them (denying them welfare) is leading to greater hardship, and increased property crime. What this community is asking for is the Job Guarantee Programme!

Hypothecation, Jam Jars and Locked Boxes

In his speech on Thursday, the irrepressibly ignorant Scott Morrison made some very dubious claims about the Medicare levy. As Gabrielle Chan reported in the Guardian’s Politics Live thread:

In arguing the case for the Medicare levy rise, Scott Morrison has said in future, the government wants to lower taxes – apart from increasing tax for the NDIS.

Asked if 100% of the levy rise would go toward the NDIS, Morrison says:

“100%, all of it.”

The treasurer makes this point and while I usually speak Morrison, I am having trouble with this one. I think his main message it that the levy will be put in a separate bucket, otherwise known hypothecation.

“In the future, governments like our government would want to reduce taxes … if it was a Bill Shorten government he would want to increase taxes. In either case, the way this is designed is that the levy at 1% out of the total 2.5%, that would be secure so governments could on transfer payments, welfare payments, make whatever changes a government may wish to make but the funding flow from the Medicare levy would be secure.”

Gabrielle Chan goes on to comment later in the thread:

I want to go back to hypothecation (because it’s such a alluring term) and the idea that the Medicare levy increase for the NDIS goes into a locked box.

Fairfax’s Peter Martin addressed this issue back in February.

“In reality there are no locked boxes. Clause 81 of the constitution says “all revenues or moneys raised or received by the executive government of the commonwealth shall form one consolidated revenue fund, to be appropriated for the purposes of the commonwealth in the manner and subject to the charges and liabilities imposed by this constitution”.

There are no separate jam jars.

But it hasn’t stopped the governments of all persuasion from acting as if there are. The best-known is the Medicare levy, which we are told funds Medicare and the National Disability Insurance Scheme, but which in reality goes straight into consolidated revenue (and couldn’t anywhere near fully fund them in any event).”

Sorry, Gabrielle, but Peter Martin led you up the garden path as well. There’s not only no jam-jars or locked boxes, but no consolidated revenue either. Money that returns to the government through taxes does not get recycled. There’s no warehouse that your tax dollars end up in, waiting to get re-spent. Tax dollars cease to exist, and every dollar the government spends is a brand new dollar, brought into existence by the act of issuing it.

Taxes don’t pay for anything. What they do is drain money away, thus making room for further non-inflationary government spending.

The government does not need this tax to fund NDIS, or anything else they do. Not only is hypothecation an utter crock, all discussion of “but how are you going to pay for it?” totally misrepresents how a sovereign currency functions.

The government’s role is to ensure that the real resources (human and physical) available are put to work in the most optimal manner possible, for the betterment of the country now and into the future. And the issuance and reclaiming of dollars is a tool at their disposal to orchestrate that.

At the moment we have willing human labour going underutilised, the limited resources being consumed as if there’s no tomorrow, just so the government can feel good about the number of dollars (the one thing they have in limitless quantity) they’re issuing, as if that means anything real.

Winter is Here!

The Echuca Moama Winterblues Festival, that is. And what an awesome holiday Ryan and I had. Ten days in all, via Melbourne and Geelong first, and then back up to Echuca so he could participate in the Blues Boot Camp, which was followed by the festival, the 18th running of this terrific event. I was alerted to its existence by wonderful friends who have recently moved to the town, who will welcome you at the National Holden Motor Museum if you’re in Echuca, which I highly recommend.

Following the concert that marked the end of the Boot Camp and the start of the festival proper, Ryan was invited to play with professional musician Wayne Jury at his gigs on Saturday and Sunday. Mind you, there were no rehearsals, the plan was simply “we’ll play some standard twelve bar stuff”, but to watch these performances, you’d never know.

We had such a fantastic time in Echuca, we can’t wait to return next year.

There are six videos in all, and I highly recommend them all. Proud Dad, y’know.

Tony Abbott and his latest Manifesto

Ah, Tony Abbott. “No sniping, no wrecking, no undermining.” Well that’s proven to be about as believable as the “No cuts to education, no cuts to the ABC…” One thing about old Tony, he’s consistent.

And how about this new 6 point plan? They always go so well, just ask Jaymes Diaz. I will now – largely for my own bemusement, I suspect – explore this manifesto. Here’s what it says:

Fix the Parliament.

Hang on, didn’t we just do that? Wasn’t it the Liberal’s great masterstroke to change the rules about how we get to vote for Senators, just before the last election? How’s that working out? And if Tony’s planning on trimming the Senate’s constitutional powers, well, good luck with that. I assume he knows that will require a referendum…

Live within our means.

Here we find the Standard Neoliberal Groupthink. Government debt is not like private debt, unless the government has debts denominated in someone else’s currency (and they don’t). They – and they alone – issue our currency. It is literally the one thing they have in endless supply, and spending it no more puts our grandchildren into debt than Menzies’ string of unbroken deficit budgets indebted you or I.

The government’s “means” are the physical and human resources available in the economy that can be put to work. Not the small pieces of paper.

Take the pressure off power prices.

Apparently Tony thinks we must end subsidies of green energy, but it is perfectly OK to subsidise Adani, Rhinehart and the various other usurers that dig up and sell fossil fuels. Here’s the thing: the reason coal fired electricity is cheap is because the pollution costs of it are not borne by the producers. In economic terms, these costs are “externalised”. What that actually means is that we are putting the costs of that power “on the national credit card”. The cost of fixing the climate, or the effects of its changes – they’re the debt we’re leaving to our grandchildren.

Make housing more affordable.

It’s those immigrants, apparently. Not the toxic combination of capital gains tax discount and negative gearing that have caused the dramatic spike in house prices. Never mind the fact that we’ve always had immigration, but real estate has only skyrocketed since ’99, when Costello tweaked the CGT and NG rules. No, clearly it’s all down to the brown people who somehow manage to simultaneously take our jobs, buy our real estate and bludge on our welfare. And clog up the M4, according to former Liberal MP Fiona Scott. Remember her? Tony thought she was a bit of all right.

Make Australia safe.

You are more likely to die in Australia from a collapsing chair than you are from terrorism. Having Police shooting people in the street, or soldiers patrolling the city do not strike me as measures that will make me feel safe. I’m perfectly happy to go about my normal life, confident that the cops know what they’re doing, that they have eyes and ears on any trouble-makers, and that we can only be terrorised if we allow ourselves to be. And I say that as someone who knew Curtis Cheng personally, and considered him a friend. He was horribly unlucky to cross paths with that radicalised kid, and his death was a shocking, senseless act. But if you want to defuse home-grown terrorism, you need to get to the root causes, not sow division and increase the us vs them mentality.

Celebrate Australia – don’t run it down.

Tony wants to “End funding for bully bureaucracies”. I assume he’s talking about Centrelink, and their “robodebt” debacle, sending the debt collectors around to people to collect debts they don’t owe? And by “straight talking”, is he referring to Brandis’ line that “people do have the right to be bigots”?

So here’s some straight talking. This manifesto is some of the most transparently racist, bigoted and economically illiterate garbage to ever be promulgated by a so-called “senior politician”. If you really want to “Make Australia Work Again”, what you need to do is implement policies that provide the means for people to work. If you’re not doing that, you’re full of shit. As if that wasn’t patently obvious from recycling a Trump slogan, of all things.

GST on imports: plumbing new depths in stupidity

I thought the Backpacker Tax was the high watermark of brain-dead macroeconomics, but it turns out this government is capable of anything, and not in a good way. So just how stupid is this proposal to apply GST to privately imported goods purchased through international sellers? Let me count the ways:

  1. So much argy-bargy, so little money. This is something that the GST on Imports shares with the Backpacker Tax. It raises such a pathetic amount of money it is simply not worth bothering with. This policy is expected to raise $300M over 4 years. That’s $75M per year. To put that in perspective, the federal government expects to collect $63B (that’s Billion) in GST in FY2017/18. So this sop to the Gerry Harveys of the world is worth just 0.1% of GST. And that’s before we even discuss the cost of implementation.
  2. So little jurisdiction. The federal government does not have the power to levy taxes in foreign countries. It is completely unclear how they think they can impose this tax on companies that have no presence in Australia. I can easily imagine a scenario where unscrupulous sellers collect the GST when selling to Australian customers, and quietly trouser it. What’s to stop them?
  3. So little business acumen. How much is it going to cost to collect this tax? Currently any import of less than $1000 in value is not subject to GST, because it is not worth the while of Customs, the Post Office, the Tax Office or any other agency to recoup the money. Now it’s feasible that the cost of recoup has gone down since that decision in 1999/2000 (when the GST was first implemented). Perhaps the threshold should be reevaluated, but removing it completely? How can it possibly be cost-effective to recoup GST on a $4 parcel from Hong Kong?
  4. So little business understanding. This GST collection is supposedly going to be imposed on Ebay. That shows that the government have no concept of how Ebay works. You don’t actually buy anything from Ebay. Ebay is a marketplace that brings buyers and sellers together. When you buy something on Ebay, you pay the seller directly. The seller is charged by Ebay for their use of Ebay’s service. To suggest that Ebay are liable for the GST is like saying Westfield should pay the GST on behalf of their tenants.
  5. So little so late. This policy is well past its use-by date. Joe Hockey first proposed it. Back when he was Treasurer, the $A was buying $US1.10, and that made foreign goods pretty attractive. Now, the dollar hovers around $US0.73, which has put the handbrake on private imports in a big way. Even if this policy was a good idea when it was first broached (and it wasn’t), you would still have to ask the question whether there’s any continuing need for it.
  6. So little fiscal necessity. There’s not room in this post for the full MMT discussion, but taxes don’t fund spending. The government does not need this money, regardless of whether it’s the pitiful amount under discussion or some massive chunk of cash. This policy simply trims the public’s purchasing power by 10% when privately importing goods and services. It in no way changes the government’s ability to fund services or people.
  7. So little consistency. This government have made a great virtue of their “repeal of red tape”. It would seem that small government, light-touch “invisible hand” leave-it-to-the-market philosophy doesn’t apply when we’re talking about big donors like Gerry Harvey.

That’s seven reasons why GST on imports is bad policy off the top of my head. No doubt there are more. I can’t see any angle from which it makes the slightest economic sense to implement this policy, unless you’re Gerry Harvey.

Viagogo and related leeches

Ed Sheeran’s Australian tour was announced the other day, with tickets at two price points, neither excessive: $70 or $165. Of course, no good deed goes unpunished: Scalpers thwart Ed Sheeran’s noble gesture for Australian fans with tickets offered on ticket flipping sites like Viagogo for $1500.

It would be nice if sites like Viagogo were outlawed. Easier said than done though, when they aren’t physically located in Australia. And for all the promoters’ tut-tutting about scalping, they’re making their money, and there’s little downside for them when people flip tickets like this.

But resale sites need a critical mass of buyers and sellers to be successful. I think the only way they could be starved out is if Visa, MasterCard, Amex and PayPal refused to offer them payment gateway facilities. If they were forced to handle payments using bitcoin, Western Union or some other niche method, their business model collapses. Unfortunately there’s no great incentive for the card companies to do this either, of course. But the cost to those companies is inconsequential, and the goodwill possibly quite significant.

That’s the only solution I see.

Surreal Disarray

Politico has a brilliant piece rounding up the interviews Trump gave to mark his first 100 days in office. Chin up! Only 1,361 days to go.

Entitled “Trump’s dizzying day of interviews“, I was particularly taken by this paragraph:

White House officials said privately there was no broader strategy behind the interviews. GOP strategists and Capitol Hill aides were puzzled by it all. “I have no idea what they view as a successful media hit,” said one senior GOP consultant with close ties to the administration. “He just seemed to go crazy today,” a senior GOP aide said.

He. Just. Seemed. To. Go. Crazy. Today.

That’s comforting.

More Goodies and Baddies

So on Thursday morning we were greeted by the thoroughly unedifying spectacle of Federal Treasurer and Irredeemable Incompetent Scott Morrison pitching up the idea that there is now “Good Debt” and “Bad Debt”. You have got to be kidding me. After years of relentless talk of “Debt and Deficit Disaster”, people are starting to notice that under this government, the debt and deficits continue to climb, yet unemployment remains stubbornly high, inflation has been well below target, and consumer confidence is shot. Which begs the question: what the hell are they spending this money on? It clearly isn’t going anywhere useful.

So now ScoMo is going to rewrite the rules, and retrospectively declare some debt good, and some bad. Furthermore, entire functions of government will be rated on their net debt, as if the whole thing were some corporation implementing an internal charge-back model, rather than, well, government programmes: doing the unprofitable things of positive social worth. It’s just idiocy. You don’t have to be Einstein to figure out that this is going to lead to an apples and oranges comparison of all debt under Labor, versus (what they hope will be) a downward trajectory of “bad debt” under their so-called superior economic management. Ignore the “good debt”, nothing to see there, folks! That’s investment! Jobs and Growth. Just ignore that man behind the curtain.

So how will debt be classified?

This unmitigated disaster of an NBN, that will be worth a fraction of what’s been spent on it when completed, that’s a “good debt”, presumably? Obviously welfare will be “bad debt”, that goes without saying. Where does the Health Insurance Rebate fit? How about the Chaplaincy programme? Wars on Terror etc?

This mob truly are irredeemably incompetent. They’re obsessed with what the ratings agencies think of them despite it being of zero consequence to anyone, and fixated on how many dollars they can claw back out of the economy, as if they’re some scarce resource we might run out of, rather than the renewable fuel necessary to makes the economy work.

And whilst they bloviate, millions of hours of productive human potential are wasted every day, lost forever.

The Earth Is Doomed

In an unusual development, The Associated Press have published a verbatim transcript of an interview with The Donald. It’s pretty heavy going. I pointed it out to a friend in the US, and he said he would read it before going to bed (since he was working at the time I messaged him). I strongly advised against that. It’s not something I would recommend attempting to read unless you’re in an upright position, and preferably with a strong beverage handy.
Lindy West has written a pretty good piece about it in the Guardian, entitled “100 days of gibberish – Trump has weaponised nonsense”, which I’d also highly recommend. But you really do have to force yourself to read the original. It’s long in words yet bafflingly short on meaning, full of rambling paragraphs that surprise the reader here and there with glimpses of something approaching reality. Not actual reality, of course, but something that might be vaguely related to it.

But most of the time it’s simply extraordinarily unhinged. Not so much an interview as a stream of consciousness, into which a reporter occasionally interjects.

Often times bloggers write pieces that say something along the lines of “I’ve read this so you don’t have to, and here’s a summary”. But you really do need to have a go at taking in the stupefying madness of it yourself. That said, don’t feel bad if you can’t get through it all. There’s not even a prize if you do.

The man is crazy. Deeply, thoroughly, batshit crazy.

Sukkar – New face, same old rubbish argument

The ALP recently announced further proposals for reining in the escalating price of real estate in Australia, and the eastern seaboard capital cities in particular. These proposals add to the changes to negative gearing and capital gains tax announced prior to the 2016 election, and introduce much higher fees for foreign property investors, and outright banning of borrowing for investment in real estate by self-managed super funds (SMSFs). There was also talk of “bond aggregators” for housing construction (meh), and the opening of a discussion with state governments about vacancy taxes on properties.

I’m not sold on the bond aggregator idea, but the rest of the proposal seems meritorious, and good on the Labor Party for getting ahead of the May budget with some concrete policy.

All that said, it’s no surprise whatsoever that the government have come out hard against these ideas. The Assistant Treasurer Michael Sukkar was quoted in The New Daily:

But Assistant Treasurer Michael Sukkar said Labor’s housing plan, including its policies around negative gearing, would actually make it harder for first home buyers to enter the market.

“We also know Labor’s tax will make it more difficult for renters,” he said.

“If you increase taxes on investment into the residential housing market, you ultimately push up rents.”

In a media release, Mr Sukkar said: “Labor’s attack on Self-Managed Super Funds shows they are once again reaching for the chainsaw.”

“Labor just don’t understand the need for finely tuned measures on housing,” he said.

He also accused the opposition of “plagiarising” the Turnbull government’s policy work on a social housing bond aggregator.

The outright case of the sooks about plagiarism can be safely ignored. The man is just being childish. But the rest of his argument about pushing up rents is simply rubbish, for one very simple reason. The renters and the prospective first home buyers are the same people. Virtually everyone trying to become a new owner occupier is currently renting a house or unit. Every property sold to a new owner-occupier reduces demand for rental property, so they largely even each other out. To put that another way, supply of rental properties may fall, but so will demand at roughly the  same rate. The proposition that these changes, (and the negative gearing and capital gains tax changes announced previously), will push rent through the roof must be challenged. It’s a failure to appreciate the macro aspects of renting versus home owner-occupancy.