Negotiating with free marketeers
Greg Mankiw, an economics professor at Harvard and a former advisor to Republican Presidents, wrote an excellent open letter to President Obama in the NYTimes (which I missed) offering advice regarding the best way to deal with the new Republican Congress on economic issues.
The column highlights key differences in philosophy and outlook between big government types and free marketeers, and shows how an understanding of these differences could allow debate about turning around America’s economy to reach higher ground.
After outlining the main differences in economic philosophy between conservatives and liberals, Mankiw finishes with a political message:
DON’T MAKE THE OPPOSITION YOUR ENEMY Last month, when you [President Obama] struck your tax deal with Republican leaders, you said you were negotiating with “hostage takers.” In the future, please choose your metaphors more carefully.
Republicans are not terrorists. They are not the enemy. Like you, they love their country, and they want what is best for the American people. They just have a different judgment about what that is.
Let me propose a New Year’s resolution for you: Have a beer with a Republican at least once a week. The two of you won’t necessarily agree, but you might end up with a bit more respect for each other’s differences.
Leaders in State and Federal Government all over Australia, attempting to govern with a hung parliament, could learn from this message.
The column is here.
NYR
My New Year’s Resolutions are probably the same as most people – lose weight, be healthier, earn more, read lots, learn a new skill, be kinder/gentler/nicer etc.
They have started off reasonably well. I am calorie counting and exercising everyday. I have had an interview for a new job (hopefully know the outcome soon). I’ve made an agreement with people to start playing golf weekly and do a french language course. I’ve been reading every night and am aiming to finish a book a week (and have three on the go at the moment that look as though will all be finished some time next week, making me on track). I’m trying my best to treat everyone as my next “million dollar” customer.
Coming up with these goals has not been hard. I follow the same process every year.
- Get a blank sheet of paper and a pen and list as many of the things I would like to do over the course of the coming year.
- Decide which goal would make the biggest difference in my life, by asking the question “if I could make any one of these goals happen by waving a magic wand, which one would I pick?”.
- Make the goal as specific as I can, pick a date that I want to achieve the goal by, and word the goal as if I had already achieved it (e.g. “I have $xx,0000 in a dedicated savings account for a home deposit on 15 December 2011″).
- List as many ways as I can think of to achieve the goal, making them as specific as possible. The list would consist of both easy things like “direct debit $x,000 from my pay each fortnight” or “cut down regular spending on dining out to $x00 per fortnight” to more creative things like “take a second job waiting tables bringing in an extra $xx,000 per annum” or “buy high risk stocks”.
- Rank those actions in list of both feasibility and sequence using the magic wand test (sequence) and whether I am in a position to invest the time/resources necessary (feasibility) to carry out the action.
- Write the most preferred action in terms of what I could do as a first step to get started on completing the action start working towards the goal (e.g. “Phone the bank and organise the transfer of funds” or “Apply at www.bankname.com.au for a high interest savings account”.
- Perform one of the actions straight away.
- Repeat Steps 2-7 for other goals.
- Review goals and actions and perform one task every day which moves you closer to the goal.
I was taught this method when I was in my teens, and it has never failed as long as I have maintained the discipline required to review and do one task each day. Reminding yourself of your goals and actioning a task each day which moves you closer towards them is the key for me to maintain the self-discipline necessary to achieve the bigger goal.
Give it a go for yourself and keep track of how long you can keep it going by writing it on your calendar.
The Easter bunny is a libertarian
When I was young (about two years old), my family moved to Abidjan, the then capital of Ivory Coast. Dad worked for a large multinational company with interests in resources, and West Africa was becoming a region of interest for a lot of foreign corporations.
The small nation had experienced a period of growth since independence from France in the 1960s. The country was ruled by the benevolent dictator Félix Houphouët-Boigny, who (luckily) recognised the important role commerce and foreign direct investment played in ensuring the well-being of his citizens. The result was that Ivory Coast had excellent infrastructure and a reasonably modern standard of living, even back in the 1980s. But it was still Africa. I contracted meningitis as a kid and had to be airlifted to London by the Swiss Flying Doctor Service for treatment, because health care was not to a high standard.
Nevertheless, it was wealthy by regional standards and showed a lot of potential, with many touting it as the next miracle economy.
After Houphouet-Boigny’s death and subsequent democratisation in the 1990s, the country went through a period of turmoil. There was a coup de tat in 2000, and the country’s economy tanked as drought hit and the world economy slowed. The current problems in the country, where election results are being treated suspiciously and leading to the possibility of further civil war, are resulting in predicatble questions from left-wing commentators regarding whether democracy is “appropriate” in Africa, as if freedom’s desirability is dependent on target location or people.
This all feeds into the hard left’s broader narrative about the follies of democracy and capitalism, and the need for greater state control over markets and people. But as so often happens, the problems in Ivory Coast are actually caused by poor government decisions rather than people acting freely.
For instance, Ivory Coast is the world’s largest supplier of cocoa (43% of global supply). It supplies more than double the output of the next biggest supplier (Ghana). The country’s cocoa industry supports over 6 million Ivorians. But none of the revenue trickles down to those at the farm-gate – not because of evil multinational corporations exploiting the workers, but because of a government that seeks to control production and gets it wrong.
The government chokes the industry with taxes levied at over 32% on an industry in which gross income is only US$1,600 per capita. It does not encourage free and functioning markets for cocoa, and seeks to control the price by restricting information. Allocation of property rights are unclear, with the government able to intervene in farm production in certain circumstances. Instead of playing a positive role in contributing funds for a farmer’s self-education – to learn about new fertilisers and the effects of land clearing etc – it instead foists one size fits all solutions on farms, breaking the cardinal rule of public policy that – as much as possible – government funding should increase the breadth of choices available to citizens, not lock them in to predetermined courses of action which may not be suitable.
This causes ongoing economic, as well as social and environmental, degradation, as seen in the below diagram.
The full presentation from The World Bank can be found here.
If taxes were reduced, property rights fully granted, and government concentrated on providing basic services instead of trying to command the economy, then cocoa farmers would receive a fair return for their labours, the Ivorian economy would prosper, and the left could be less concerned about worker exploitation.
Instead, the industry is about to collapse, along with the government. And the high cocoa prices will arrive just in time for Easter, reducing the number of chocolate eggs enjoyed by families.
Thanks, statism. (That’s why the Easter bunny is a libertarian).
Holistic history
I am not one of those who get agitated at filmmaker Michael Moore’s diatribes against capitalism, or Al Gore’s An Inconvenient Truth, or Zionist conspiracies. Propaganda is everywhere in our society, it is usually recognisable, and the people that hold similarly strong views are normally zealots themselves.
But I do occassionally get agitated at versions of history which tell both sides of the story, but then legitimise the actions of the victim, no matter how heinous those actions. I think most will accept that there are moral absolutes, and if these are violated, then they deserve condemnation, no matter their other virtues. Some historians down-play these violations in an attempt to make their point more strongly, leading to the romantacising of despicable characters like Che and Mao.
So I enjoyed the new article by historian Tim Stanley in HistoryToday, which demonstrates how easily people slip into moral relativism when looking at history, particularly when looking at those who fight oppression themselves. The best paragraph is:
This is a classic example of crazy Sixties thinking – that someone has to be powerful to do wrong. The flip side is that whenever someone at the bottom of a power structure does or says something objectively evil, many historians legitimise it by calling it ‘resistance’. No one denies that tyrants and conquerors are oppressive, or that those who seek liberation have just cause. But that doesn’t mean inverse prejudice or terrorism should get a free pass. If history is to be both intelligent and ethical, then we must be detached enough to appreciate context, but superior enough to apply universal, timeless moral standards. It’s wrong to bend someone over a stone and pluck out their heart – no matter how badly the Aztecs’ crops were doing.
The full article is here.
Political rule #1: Eat your greens
I’ve been a member of the Liberal Party for twelve years, and am just finishing up my term as the Federal President of the Young Liberal Movement. Across that time I’ve learnt a number of “rules” which I think young political aspirationals would do well to follow to further their own political careers, regardless of their political allegiances. “Eat your greens” is the first rule.
There are two different types of people involved in Australian public debate. The first are red-blooded political animals – the types who love the cut and thrust of debate, the intrigue an important vote brings, the idea of manipulation being used or combatted. They revel when engaging in a despatch box stare or the withering put down of an opponent who has acted stupidly. For such people, it is all about the drama. These are the carnivores.
Carnivores are typically found in all major political parties. Most of the factional leaders – regardless of party – are carnivores. They can be powerful and impressive. Equally, they can be liars and narcisists. The good ones retain their integrity and continue to move up the totem pole, whilst the bad ones only get so far, peak early, before never being heard from again. Carnivorous factional leaders can also start out good, and go bad, undermining an entire faction – like an apple which rots and spoils the entire barrel.
The other group invovled in debate are herbivores. They like to present both sides of the story. They favour balance, evidence and nuance. They feel that if people took a little more time to understand the issues in a problem, a better policy solution would result. They are typically smart and passionate in their chosen field. They rely on data, rather than ideology, to guide their advice. They believe this gives them a moral credibility that carnivores lack.
But their advice is typically convoluted and caveated to within an inch of comprehension. Usually the advice recommends incremental action, rather than sweeping change, thus making it hard to sell to those unfamilar with the issues. Impenetrable bureaucratese, along with complex graphs and statistics, are the mainstays of a herbivore’s debating tools.
Both are often regarded dubiously. Carnivores usually end up being seen as shallow, melodramatic, self-interested pseudo-thespians (think Steve Fielding, Stephen Conroy, or John Brogden). Herbivores are seen as the boring professors that mean well but do not have the presence to carry their arguments right through and realise change (think the UN International Panel on Climate Change).
On balance though, people in the youth wings of political parties are more likely to be carnivores than herbivores. They are more likely to be concerned about being on the winning side of a vote, than on what the broader implications of that vote might be. They rarely ask for evidence or hard data when weighing up arguments, and rely on the opinion of others more heavily when making up their minds.
This is not healthy for political parties. Political parties need their youth wings to act as a check and balance to conventional wisdom which may be becoming outdated. They need youth wings to act as an engine room of ideas.
So my advice to young people wanting to make a difference in politics is “eat your greens”. Read widely about public affairs. Learn how to work through the eight step process required to properly analyse policy, and the theoretical models you can use to make an assessment of how well a policy will work. Learn how to read budget papers so you can identify a government’s spending priorities. Develop an interest in one or two policy areas and become as expert as you possibly can. Always ask for data before accepting arguments at face value – and be suspicious when there is none.
Adding such skills to your carnivorous debating talents will give you more credibility, and make you more effective – and will give you something to really fight for.
Marginal tax rates explained in simple English
An excellent paper on Australia’s tax and transfer system, and the perverse effect it has on marginal tax rates, has been released by two economists from The Commonwealth Treasury.
The paper’s abstract reads:
Australia has a progressive personal income tax schedule with a seemingly simple five rate structure (including a zero rate). Overlaying the statutory tax schedule are more than 40 offsets designed to reduce tax liability for certain taxpayers. These offsets add complexity to the tax system and result in a person’s tax liability being determined by several factors, not just their level of income as implied by the statutory schedule. In this article, we discuss the adverse impacts of high levels of tax system complexity and list the offsets which are available in the personal income tax system. We describe the operation of the low income tax offset and the Medicare levy to illustrate how offsets and other features of the tax system can add complexity and reduce transparency.
“How to Drink” by Victoria Moore
I’m half way through the first vodka and tonic of the summer, sitting outside at 11pm after spending the day – like most of Perth – as a refugee from the sun and its forty degree heat.
It seems as though we do this every year, with Perthonalities saying that we are sick of winter, and then acting surprised at how hot it is once summer finally arrives. I spent most of the day in front of the cricket until it became too morose to continue.
So I set about reading Victoria Moore’s “How to Drink”, which I got given for Christmas. I got about half way through until I was annoyed by a printing error – my version of the book skips forward about twenty pages and without any trace of the missing ones.
The book is good. It isn’t just about alcoholic drinks. While I suspect this will make up a large proportion of the (partly absent) second half of the book, the first half spent much time focusing on tea, coffee and fruit juice as part of the morning ritual. How to make a cup of each, from the freshest ingredients, how to buy those ingredients, and handing out helpful little tips to make the drinking experience richer. Things like being reminded about the difference between robusto and arabica coffee, the different types of tea, when to put milk in (contentious in England – how English), what cups to use, and how to blend different fruits successfully.
So I skipped forward a bit and found Moore had a shorthand for successful mixed drink at home. Twice as much as ice as you think you’ll need, appropriate ratios, and use the best garnish you can find. And it’s not bad.
Ice is melted. Time for a second one just to make sure the first one wasn’t a fluke.
Merry Christmas from the bureaucrat…
Boom town
If you were summing up the world in 2011, you would say it was pessimistic. Lacking confidence. Depressed.
It’s the obvious conclusion any traveller draws from trips around Australia or overseas. Visiting Dublin earlier this year, every waitress and hotel manager just shook their heads and said nothing when I asked how business was.
But Perth is different. Cranes, lugging huge, symetrical building blocks of iron and concrete, dot the CBD’s skyline as they construct the skyscrapers to house burgeoning multinational corporations. Flecks of conversation which become audible just above the din in coffee shops are as likely to include the words “Gorgon” or “Pannawonica” as “Warney” and “Wikileaks”. Fly-in, fly-out workers fill the Qantas Club at every hour of every day as they wait for planes which will take them to places where they’ll earn six figure salaries they never would have dreamed of ten years ago.
This realisation is not common in Perth yet. The prevailing wisdom in one of uncertainty over the future. Retailers in Perth have been having pre-Christmas sales, and there have been concerns about small falls in average house prices over successive quarters. Cars are not selling as fast as previous years. People are saving for rainy days. The media fuels doubt over whether the boom will be realised.
But with the USA’s Federal Reserve unsure if their continued strategy of quantitative easing will cause deflation or inflation, New Zealand announcing a poor set of numbers in the week before Christmas, and European countries suffering to the point where the virtues of economic integration are being contested for the first time since the 1990s, Perth is in better shape than anywhere in the world.
The demographic forces at work in Asia, with over a billion people set to come out of poverty in the next twenty years, is a market that businesses across the world are looking to tap. Western Australia has the natural resources they are looking for, a stable political and investment climate, and wakes up in the same time zone as those same billion people.
That is why they will keep coming to Perth to do the deals they need to keep their economies growing.
And if we play our cards right, we’ll grow with them.
Blogging again…
I’m not really sure why I’ve decided to start blogging again. Last year I stopped my piping blog because of a lack of time.
This year has been has been no different – busier actually: I’ve moved to Perth from Canberra; changed jobs to a executive position in the WA public service, been Federal President of Young Liberals, been elected as a State Councillor in the WA Liberal Party; successfully defended the title of Australian Pipe Band Champions on the Sunshine Coast; helped found the Perth branch of the Young Energy Professionals; started a Masters of Economics; competed in the Grade One World Pipe Band Championships; toured Scotland and Ireland; joined the Rotary Club of Crawley; moved in with my amazing partner Kate; played in a great concert with the WA Police Pipe Band; and met a whole stack of new friends.
Amongst it all I’ve managed to cultivate a love of cigars, continued drinking premium red wine, become interested in ancient history, outlined the contents of a book to write, and thought about investing in art despite a lack of funds.
Kate is very tolerant.
So goodness knows if this blog will be regularly updated. But I would like to start putting my thoughts down as some sort of diary with photos and other experiences which characterise 2011.
We’ll see how it goes and whether this promise follows the well worn path to failure of other good intentions and new year’s resolutions.
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