Australia should not follow the American path to inequality

Does Tony Abbott's government understand what deregulation and liberalisation have done to the US economy, asks Joseph Stiglitz

http://www.theguardian.com/business/2014/jul/09/australia-american-path-to-inequality

For better or worse, economic policy debates in the United States are often echoed elsewhere, regardless of whether they are relevant. Australian prime minister Tony Abbott's recently elected government provides a case in point.

As in many other countries, conservative governments are arguing for cutbacks in government spending, on the grounds that fiscal deficits imperil their future. In the case of Australia, however, such assertions ring particularly hollow – though that has not stopped Abbott's government from trafficking in them.

Even if one accepts the claim of the Harvard economists Carmen Reinhart and Kenneth Rogoff that very high public debt levels mean lower growth – a view that they never really established and that has subsequently been discredited – Australia is nowhere near that threshold. Its debt/GDP ratio is only a fraction of that of the US, and one of the lowest among the OECD countries.

What matters more for long-term growth are investments in the future – including crucial public investments in education, technology, and infrastructure. Such investments ensure that all citizens, no matter how poor their parents, can live up to their potential.



The Australian model has performed far better. Indeed, Australia is one of the few commodity-based economies that has not suffered from the natural resource curse. Prosperity has been relatively widely shared. Median household income has grown at an average annual rate above 3% in the last decades – almost twice the OECD average.

To be sure, given its abundance of natural resources, Australia should have far greater equality than it does. After all, a country's natural resources should belong to all of its people, and the "rents" that they generate provide a source of revenue that could be used to reduce inequality. And taxing natural-resource rents at high rates does not cause the adverse consequences that follow from taxing savings or work (reserves of iron ore and natural gas cannot move to another country to avoid taxation). But Australia's Gini coefficient, a standard measure of inequality, is one-third higher than that of Norway, a resource-rich country that has done a particularly good job of managing its wealth for the benefit of all citizens.

One wonders whether Abbott and his government really understand what has happened in the US? Does he realise that since the era of deregulation and liberalisation began in the late 1970s, GDP growth has slowed markedly, and that what growth has occurred has primarily benefited those at the top? Does he know that prior to these "reforms" the US had not had a financial crisis – now a regular occurrence around the world – for half a century, and that deregulation led to a bloated financial sector that attracted many talented young people who otherwise might have devoted their careers to more productive activities? Their financial innovations made them extremely rich but brought America and the global economy to the brink of ruin.

Australia's public services are the envy of the world. Its health-care system delivers better outcomes than the US, at a fraction of the cost. It has an income-contingent education-loan programme that permits borrowers to spread their repayments over more years if necessary, and in which, if their income turns out to be particularly low (perhaps because they chose important but low-paying jobs, say, in education or religion), the government forgives some of the debt.

The contrast with the US is striking. In the US, student debt, now in excess of $1.2tn (more than all credit-card debt), is becoming a burden for graduates and the economy. America's failed financial model for higher education is one of the reasons that, among the advanced countries, America now has the least equality of opportunity, with the life prospects of a young American more dependent on his or her parents' income and education than in other advanced countries.

Abbott's notions about higher education also suggest that he clearly does not understand why America's best universities succeed. It is not price competition or the drive for profit that has made Harvard, Yale, or Stanford great. None of America's great universities are for-profit-institutions. They are all not-for-profit institutions, either public or supported by large endowments, contributed largely by alumni and foundations.

There is competition, but of a different sort. They strive for inclusiveness and diversity. They compete for government research grants. America's under-regulated for-profit universities excel in two dimensions: the ability to exploit young people from poor backgrounds, charging them high fees without delivering anything of value, and the ability to lobby for government money without regulation

https://www.businessspectator.com.au/article/2014/7/8/australian-news/australia-fast-becoming-land-unequal-opportunity

A brief trip from Nobel Prize-winning economist Joseph Stiglitz has once again established inequality as a central issue for Australians and the Australian economy. Nevertheless, our politicians remain blasé on the topic and in the process have fundamentally misread the public mood.

Stiglitz has been in fine form during his Australian stay and his warnings regarding the recent federal budget are well worth consideration. Australia would do well to avoid following in the US’ footsteps, at least in regards to university fees and healthcare spending.

“Countries that imitate the American model are kidding themselves,” Stiglitz said. “It seems that some people here would like to emulate the American model. I don’t fully understand the logic.”

The changes to university fees and Medicare were central pieces in what was ultimately a highly regressive budget. It was a budget that left most of the heavy lifting to those least able to bear it. Welfare -- which mainly benefits lower income earners -- was slashed. But tax concessions -- which mainly accrue to the already wealthy -- were largely untouched.

Despite two decades of unprecedented economic prosperity, measures of inequality and poverty have deteriorated in Australia. A greater share of our income and wealth has been captured by the top of the income distribution, and inequality and poverty is set to rise further unless these measures are blocked in the Senate.

According to the Organisation for Economic Co-operation and Development, Australia’s gini coefficient -- a common measure of inequality -- is the 11th highest among OECD countries and has increased noticeably over the past 15 years.

Meanwhile, poverty in Australia has increased from 11.4 per cent in 1995 to 14.4 per cent in 2010. Australia tracks above the OECD average and well above the likes of New Zealand and the UK.

Part of the reason for this has been globalisation and trade liberalisation, which has opened our markets to a range of low cost alternatives and reduced the bargaining power of low income employees. Technological change has benefited those most able to take advantage of that technology, putting a premium on high-skilled employees. 

We shouldn’t underestimate how disruptive globalisation has been to a number of Australian industries. Even if the economy as a whole has benefited -- the economic pie is undeniably bigger -- pockets of the population, typically those holding blue collar jobs, have become worse off.

But while globalisation is largely out of our hands, domestic policy can still play a role in whether inequality rises further.

I have written in favour of the Medicare co-payment, though not with great enthusiasm. It remains a regressive policy that places most of its burden on lower-income earners. It also remains unclear whether co-payments will reduce superfluous demand or simply increase the cost of care.

Health care spending needs reform -- it is set  to rise sharply as a share of GDP -- but co-payments or greater use of private insurance are not the best nor most equitable methods to keep spending down. Private health insurance by virtue of being less efficient than the public health system would actually increase the cost of health care for many Australians (A more expensive healthcare cop-out, May 2).

Rather than shifting the responsibility of health to the private sector, healthcare reform should place greater emphasis on service efficiency. According to the Productivity Commission there were around 200 procedures in Australian hospitals where the cost varied from half to around one-and-a-half times the average cost, depending on the hospital undertaking the procedure.

Greater collaboration between hospitals is needed to determine best practice and identify the most effective procedures. With the Australian health system primarily a public affair (at least for now), greater collaboration across health providers should not be difficult. Health care reform need not require an increase in inequality.

Great proganda there Vik.

Worthy of Goebbels

From the perspective of rising inequality, the more troubling policy proposal is the deregulation of university fees, which will see the cost of degrees and the repayment of student loans rise sharply for new university students. This, along with climate change policies, gives rise to greater intergenerational inequality.

Fee deregulation will be particularly burdensome for women since they tend to repay their student loans over a longer period. That is true of the current HELP system, although the effect is largely negligible in most cases. In the absence of lower fees, some women will be discouraged from entering university (Tinkering with education will tear through Australia’s social fabric, June 26).

Intergenerational inequality could very well cripple Australia’s economic future but it’s an issue that will be largely ignored by our federal government. One only had to witness the irrational joy by Coalition ministers when they repealed the carbon tax to realise that our politicians place very little importance on Australia’s future.

Stiglitz’s comments bring with it the authority that can only come from being an expert in your field. But the Australian public is quickly realising that something is not quite right in Australian politics or the policies that are apparently going to save them from lasting despair. The Coalition would be negligent if it ignored the recent shift in public sentiment.

There are many areas in which the US excels. It is a highly innovative and dynamic economy, but it remains an increasingly unequal one as well. Following its lead and pursuing the American model on healthcare and university fees is not in the best interests of the Australian economy or the welfare of its citizens.

https://www.businessspectator.com.au/article/2014/7/8/australian-news/australia-fast-becoming-land-unequal-opportunity

The thing is a lot of us DO understand Tony and tried to warn people about him.

It's the voters that fell for the 3-word slogans and the lies who are the ones that don't understand him.

LIAR LIED

 

When Abbott fought an election on a platform of trust and integrity people expected he would keep the promises he made.....Now we see the rusted on right wing hacks making excuses for Abbott's lies claiming the truth no longer matters.....Who in their right mind would believe anything Abbott ever says again to win an election.....Abbott has already lost what little respect most thinking Australian's ever had for him.....The bloke has proven to be the failure I expected he would be in spectacular fashion!!!



Ambition drove many men to become false; to have one thought locked in the breast, another ready on the tongue.
Sallust (86 BC - 34 BC), The War with Catiline

As long as Gina and Rupert throw money at him Abbott will continue to introduce policies that advantage them.