ALS: thoughts on freedom

Australian Libertarian Society Blog

Does Australia need industrial relations deregulation?

Last Wednesday I attended a joint Friedman/HR Nicol Society dinner arranged by the infamous John Humphreys. The guest speakers were Professor Judith Sloan and the former Howard minister Peter Reith. Both made the case for deregulation of the labour market and condemned the current Fair Work system as imposing excessive costs on employers and stifling flexibility. This is clearly a controversial issues and Labor is quick to remind people of workchoices.

Flexibility is one of those hot words when it comes to industrial relations. For many it’s code for employers being flexible with pay and conditions, while workers work harder in less certain jobs. For those who are employed in industries where they have little bargaining power and are working in jobs where little skills is required this is a likely consequence of a more flexible industrial relations system. Trade unions use the fears of such people to defend the arbitration system that gives them significant power.

What is often not mentioned in arguments about industrial relations is the cost of a highly regulated system to those people who are excluded from employment. Setting minimum standards for wage rates sets wages above the market rate, meaning that there are people willing to supply their labour for less than the award rate. Industrial laws actually make it illegal for people to work for less than the award rate. The result of this restriction on individual liberty means for those people who due to a lack of experience, training or ability are not productive enough to justify the award rate are excluded from the labour market.

The Government itself has all about acknowledged this by providing wage subsidies for its employment services to use. The ultimate effect of a wage subsidy is to reduce the cost the employer incurs employing people who lack experience or education. This method of creating flexibility has significant transaction costs to the employer and financial costs to the government. Wage subsidies have to be agreed to and both employer and jobseeker are at the mercy of government policy to determine if they are eligible for the subsidy. Ultimately the employer is getting taxpayer money for employing someone and the worker is getting a wage above market rates.

Another deficiency of the current system is that imposes a set of penalty rates on both employers and employees. Of course these benefits are popular with workers who earn extra money for working weekends, what often doesn’t get reported is the employment opportunities that never occur because employers choice not to open their doors. Rules that impose penalty rates and minimum hours eliminate opportunities for unskilled jobseekers to enter the labour market. While doing dishes for two hours on Sunday afternoon may seems like a “shitty” job to many of us, for others it is an opportunity to enter a new industry, gain some experience and a credible reference for their resume. This can be an important first step for some to enter the labour market. Unfortunately, “fairness” for workers at the bottom of the labour market comes at the expense of those excluded from the labour market. These are the true forgotten people in the industrial relations debate.

February 22, 2012 Posted by | General | , | 1 Comment

Is the medicare rebate middle class welfare?

I should start by saying this piece is more of debate about ideology rather than economics. The medicare offset known commonly as the medicare rebate can be seen as a subsidy of 30% to the holders of private health insurance. These people are mostly middle class or in a high income bracket. However, many people, especially those with health issues choice to purchase a private health insurance policy despite not having a high income. Alternatively, the policy could be seen as a way of giving health consumers choice. In that if people decide to insure themselves privately they can at least claim a deduction on their tax for the cost of the policy allowing them to pay with their gross income rather than net.

How a tax offset differs from a deduction is that a deduction reduces a persons reportable income on their tax return and results in a reduction of tax of whatever the top marginal tax rate the consumer was paying. So assuming the person who bought the policy was earning 200k the deduction would be 45% plus a reduction in of the medicare levy making a total tax deduction of 46.5% of the policy cost. This would mean that the wealthy would get a bigger deduction for purchasing health insurance than people not paying the top marginal tax rate. An offset instead is a blanket 30% of the policy cost regardless of who buys it. It’s for this reason and to reduce the cost of the policy the Howard Government would have chosen to have an offset rather than a deduction.

This with the fact its commonly known as a rebate has seen this policy portrayed as middle class welfare. This with the private vs public school debate really comes down to the question should people be able to opt out of government provided services? Clearly in health people still continue to benefit partially by the public system and will still continue to receive benefits from it, but should people who choose to partially seek healthcare through the private market be made to pay the full cost of the public system that they now are far less likely to use. Many people have the view yes, if people choose to use private services than they should still contribute 100% to the public system and receive no assistant/deduction for their private expenditure.

Another argument that is often used is the claim that people should pay their fair share. Too often a person’s fair share is their share and about four other peoples share and then are to be told they can’t access the service they paid for becomes of a means test. It’s apparent that the expansion of middle class welfare in the late Howard years was a response to the fact the middle class felt they were paying taxes into a system that wasn’t interested in helping them or their family.

As a libertarian I believe in a perfect world much more of the health system would be left to the private market with competitive pressures rather than a system that helps line the pockets of the medical profession. (I believe we do need a public helathcare system, probably similar to what Queensland had pre Medicare) However, we do not have that system, we probably will never have that system as the average person does not under that government funding of many medical services in the long run raises the price of those services. So as a next best solution those people who do not want take a chance with government waiting lists is to allow them to choose to access services through the private market. By allowing a 30% rebate of private health insurance means the individual gets a small deduction of their tax as an incentive, while they still continue to pay the medicare levy and a significant proportion of their taxes still goes towards funding the system.

February 19, 2012 Posted by | General | , | 10 Comments

Should alternative medicines be regulated?

Earlier this week I was listening to radio national and a group of doctors and scientists were campaigning for universities to stop teaching alternative medicines. Their argument was that universities teaching it gives these unproven and unverifiable practices legitimacy they don’t deserve. (Like Keynesian economics. Jokes……..) Readers of this blog should know that I am an atheist skeptic who can be very hostile to ideas I consider stupid. Most alternative medicines and religion come under this category. I am also a pretty hard line libertarian.

From the mid twentieth century on government has created an alphabet of regulation and departments to protect us the consumer from poor quality goods and services. In some cases these departments have done good in many others they have imposed significant cost onto both the taxpayer and the consumer. They have also protected monopolies but creating artificial barriers to entry for new competitors. In fact some experts have argued that the creation of new miracle drugs stopped about the same time as the establishment of the Food and Drug Administration in the United States. It is quite likely that modern medicine ran out of a low hanging fruit to pick around this time, but there is no doubt that the FDA has made it enormously expensive to develop new drugs.

The creation of regulators for consumer protection is a rejection of the idea that both the marketplace and the court system will provide an incentive for producers to make products that work. Regulation is a vote of confidence in the expert. In the case of alternative treatments sometimes they can provide effective treatment in spite of supporting evidence that such a treatment should work. This is nothing new and not limited to the alternative lifestyle types. Sister Kenny promoted physical therapy as a treatment for polio, her understanding of what polio was complete quackery. However, her treatments were effective in a time before vaccination. The medical establishment then as they do now tried to prevent her from offering this treatment. This was an example of the marketplace being ahead of medical science.

Like many government policies regulation of medical services has unintended consequences. The victims of an unregulated shocky service are loud and politically powerful. However, the people who are priced out of medical services due the increased in price caused by complying with regulation has no voice. Nor are those who die because medication were never developed.

Chiropractors are an excellent example, many people who use these services would love nothing more to see a pain specialist and Osteopath. Chances are those people can’t afford those services. Osteopaths and the broader medical profession resist Chiropractors operating in their area of specialty, they regularly attempt to get the government to regulate against alternative treatments and publicly attack alternative treatments as quackery. No doubt the medical profession would deny this about their financial interest and says something like, the government should fund people to see an Osteopath. Aghhh yes our old friend rent seeking.

The broader point is in the examples of chiropractors is to regulate them assumes people are stupid. That people would continue to see people throw away money on services that fail to deliver results. I’m sure as medical science develops betters ways of treating backpain the chiropractic profession will be dramatically reduced, however until then these professionals are delivery a service people believe work and that people are willing to regularly use.

Ultimately, in an age where people can use the legal system to sue business that fail to deliver services and were information by other consumers are readily available on the internet. Do we really want the Government whom response to vested interests telling us as consumers what we can and cannot buy. I don’t.

February 17, 2012 Posted by | General | | 28 Comments

Negative Income Tax – An alternative to the welfare system?

I’m currently on holidays and have decided to spend my time productively, watching Milton Friedman’s hit 1980s series Free to Choose. http://www.freetochoose.tv/ About two years ago, I stumbled across a copy of the companion book for this series in an OP shop. I quickly grabbed hold of the book and guarded it in case someone else wanted to buy it. Surprisingly, the book looked like it had been on the shelf for a while and it did not create the kind of excitement used copies of Harry Potter can cause. The bewildered shopkeeper seemed surprised at my excitement. On another another occasion a staff member at an op shop seemed amazed when I was clearly excited buying a TI-84 programmable calculator for only $10.

Anyway, Friedman in an episode about the welfare state raised the prospect of a negative income tax. http://en.wikipedia.org/wiki/Negative_income_tax I have provided a link to information on this idea but basically instead of having welfare payments and a massive welfare bureaucracy to administer it, you would instead get paid the equivalent of your tax free threshold and the low income offset in cash if you weren’t working and this would be phased out the more income one earns. The idea is that this would remove many of the perverse barriers to work that the interaction between the welfare system and the tax system currently produce. It would also be dramatically cheaper, Centrelink and the Employment Services industry would be largely abolished leaving only minimal paperwork to confirm how much income one earned.

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January 14, 2012 Posted by | Economics | , , , | 22 Comments

Paul Krugman Drinking Game

In Australia, universities are currently on their summer holidays. This is a time where instead of allowing students to finish their degrees earlier, universities allow their lecturers to do their “real work” without all those pesky students to teach. In the absence of formal education students need to find fun ways of learning more about economics. In response to this need I have created the Paul Krugman drinking game. The rules of the game are simple.

1. First one person is chosen to read articles from Paul Krugman’s New York Times blog, the Conscience of a Liberal.
2. Everytime Prof. Krugman refers to one of his own papers or claims to have written about something before anyone else you have a drink.
3. Don’t drive home after this game as you will be very drunk.

Just to be fair to Paul Krugman I have enjoyed reading many of his papers, blog entries and his book return to Depression Era Economics.

January 14, 2012 Posted by | Humour | , | 6 Comments

Iceland: The Forgotten Country

I was thinking the other day, whatever happened to Iceland? At the beginning of the global financial crisis Iceland’s three banks collapsed leveraged beyond the small nations GDP. Total debt reached 9.553 trillion Icelandic krónur (€50 billion) compared to Iceland’s GDP in 2007 of 1.293 trillion krónur (€8.5 billion). Iceland went cap in hand to the IMF, its currency collapsed to about half its previous value compared with the USD. The world for the most part wrote off Iceland and the IMF required a significant austerity package in condition for their support.

So what has been the experience of Iceland since 2008?

GDP Growth: 2008 1.4, 2009 -6.9, 2010 -3.5, 2011 2.2, 2012 2.9.

Unemployment: 2009 7.2%,2010 7.5%, 2011 7.0%, 2012 6.2%, 2013 5.3%

Government Debt (% of GDP): 2008 102%,2009 120%,2010 120.2%

Government Fiscal Condition: 2008, -13.5, 2009 -10.0, 2010 -7.8 (Expected to return to surplus 2013)
(Source OECD, http://www.oecd.org/document/62/0,3746,en_33873108_33873476_45269950_1_1_1_1,00.html)

So what can be learnt from Iceland? First Iceland did not bailout its banks, choosing only to bail out its depositors and not the investors. Second, Iceland has managed to stage a slow recovery despite the ongoing crisis amongst its European neighbors. Thirdly, having a national currency that can respond to crises may help other industries stage a recovering. Large energy intensive investment projects and a residential construction boom has led economic growth. Finally, austerity measures that led to sustainable government debt levels may play a role in supporting the economic recovery.

While I can’t claim to know enough about Iceland’s unique situation or how it impacts on the sovereign debt crisis, I suspect that there has been little effort to learn any lessons from Iceland and instead the Government’s in Europe continue to look for a painless recovery.

December 23, 2011 Posted by | Economics | , | 2 Comments

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