This ALS Friedman dinner will be co-hosted by the newly formed Queensland branch of the HR Nicholls Society, chaired by Graeme Haycroft.

When?     7pm, Wednesday 15th of February
Where?   Kookaburra Cafe: 280 Given Terrace, Brisbane
What?      Pizza, ribs, salad, chocolate cake & good debate
Who?       Hon Peter Reith, Prof Judith Sloan & others
Topic?     Labour market reform
Price?      $30 ($25 for ALS students)

You can RSVP by e-mailing john.humphreys99@gmail.com or by joining the facebook event. This is an open event, so please feel free to invite friends, but you must RSVP to ensure a place at the dinner.

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About the speakers:

Peter Reith has degrees in law and economics and worked as a solicitor before entering politics. He served as shadow Treasurer for the Liberal Party under John Hewson and was involved with the “fightback” policy document. In government, Peter served as the Minister for Workplace Relations and then Minister for Defence, until retiring in 2001.

Judith Sloan has 1st class honours in economics, and two masters degrees (from Melbourne & LSE). She has worked previously as the Director of the National Institute of Labour Studies, Professor of Labour Studies at Flinders, and a Commissioner at the Productivity Commission & the Australian Fair Pay Commission. Judith is currently an Honorary Professorial Fellow at the University of Melbourne and a contributing economics editor at The Australian.

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.

To assess this idea we need to consider how the current welfare system came about. In the early 20th century the welfare system was created with the idea that when people fall on bad times the state will help support them. This is a good idea in theory, however within one generation of the welfare states creation entire communities became completely depended on the state. Many people who would choose to work decide not to because the money they can earn in an entry level job does not exceed the value of their benefits and the value of what economists call their leisure time. This is the value people put on the time they would otherwise spend at work, for example a mother being at home with their children. Or they fear losing their welfare payments. A negative income tax would eliminate this second barrier to employment.

In a backlash by the community against those who choose not work, the people have demanded that those on unemployment are forced to look for work and in some cases work for the dole. It would be fair to say despite some success these programs have not forced many voluntarily unemployed people into work. Equally, many of those with the genuine desire to work have found themselves having to work with a welfare and employment services bureaucracy that is often demeaning and inefficient. Although these programs are popular and make the government look like they are doing something about unemployment they cannot be said to be effective.

Working in the employment services industry I have a vested interest in the current system. However, I feel that the negative income tax system has never received proper consideration and faces resistance from the welfare bureaucracy and the employment services and training sectors. This combined with the fact some people on welfare especially those are receiving what could be classed as middle class welfare will lose out making the idea politically difficult. Another problem is that welfare payments vary between groups. For example, presently pensioners receive more on the welfare system than the unemployed. Clearly, this is due to political reasons not due to any rational argument that it is cheaper for the unemployed to live than those people on pensions.

The employment and training sector under a negative income tax would be significantly smaller and would be working with clients who have voluntarily chosen to look for work and participate in study. In the show Friedman shows a technical college which is design to equip the unemployed with skills for the labour market. Then like now such schemes had a very low completion rate and had limited success. Any training government provided or subsidised under a negative income tax would only goes to those who choose to do it rather than forced to do it as a way of meeting their activity test as a condition of receiving welfare.

So the question is would a negative income tax, increase the incentive for those to who can to work, reduce the humility imposed on those who can’t by welfare rules and regulation and reduce the financial cost to the taxpayer? From what I’ve read and experienced, probably.

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.

Please click here for more videos.

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.

Books would cost between $20-30 and textbooks could be up to the cost up $100. Now ten years on, Borders has gone bust and rumor has it that the building will become one of those ghastly Apple stores. Sorry, couldn’t resist. This is where creative destruction comes in. The Oxford economic dictionary describes creative destruction as, “A model of economic growth driven by quality-improving innovations that make old technologies or products obsolete.”

That pretty much describes my once beloved Borders, obsolete. I now have two new superior ways of buying books, first, Better World Books and second Amazon kindle. For my studies I have only bought one new textbook in 2 years. Others, I have bought secondhand on Better World books. Technology has allowed me to connect with bookstore all over America where slack students have foolishly sold their old textbooks allowing me to buy them for between $10-$20. Amazon Kindle has allowed me to purchase new books at a fraction of the price I would have paid at Borders.

This technological innovation has dramatically increased my consumer surplus. Not only in quantity but in quality. I recently was preparing for a job interview as a Business Analyst and realised I didn’t have sufficient skills using Microsoft Excel. In the bad old days, I would have driven to the bookstore, not found a book that really covered what I wanted and would have settled for some more basic book about Excel with a few accounting formulas in it. Instead, I went to the Amazon Kindle store, within five minutes I had a book called Business Analysis in Microsoft Excel 2010. I could read reviews about the book confirming the books quality and ensuring the author handled the topic well. This book covered everything I needed, there would have been almost no chance of me finding such a book in a bookstore in Australia.

From a bookstores point of view had they had such a book it would have sat on their shelf for months waiting for an econ nerd like me to come in, if I had come in at all. The price would have been significantly higher to cover the much higher costs of having that inventory sitting on their bookstores shelf for so long. So technological innovation increased the quantity of products I could choose from and lowered the price. Creative destruction.

That doesn’t just mean that I support Andrew Bolt’s right to say whatever he likes about aboriginals, irrespective of who gets offended. And it doesn’t just mean that I oppose all censorship, such as the banning of Mein Kampf in some European countries. It also means I oppose defamation laws, and I believe you should be allowed to say anything about anybody, whether true or false, for whatever reason. It even means I believe that tobacco companies should be free to advertise.

I believe attempts to limit speech “for the public good” will mostly do more harm than good, and that messy and imperfect freedom is better than neat and tidy (but even more imperfect) government control.

Today I was discussing another of the controversial areas of free speech. Yesterday, that crazy old kook of the blogosphere grumpy-Graeme Bird wrote an eloquent rant aimed at me, where he said:

“He must die. John Humphreys must die so that this country can live.  He has betrayed this country too many times and he must no longer live … This is too important a subject to let John Humphreys live. Where does the lying end. I’m convinced that it only ends when John Humphreys is cold and stiff … HE MUST DIE, FOR THE LYING TO END. AND THIS IS A LIFE OR DEATH MATTER … I am accusing Humphreys of being a knowing traitor … SO MY NEW CLAIM IS THAT HUMPHREYS WILL NEVER STOP LYING. THAT HE WILL NEVER BE A SAFE PAIR OF HANDS. THAT HE WILL ALWAYS BE A TRAITOR. WHILE HE YET LIVES.”

My first death threat. Now I know that I’m important. A few friends have suggested I take it seriously, and one kindly offered to call his federal police friend who would call Graeme… but I nixed that idea. For his part, Graeme says that it is not a death threat because he doesn’t plan on doing any killing himself. That’s good to hear. But another friend pointed out that the above sentiments might still be considered incitement to violence… which got me thinking about free speech.

My conclusion, once again, is that death threats such as above should be allowed as free speech.

The moral reason to allow the above sort of rants is that Graeme hasn’t actually directly hurt anybody with his rant, nor has he tried to coerce anybody (by saying “do XYZ, or else”), and so he should be left alone. He has simply stated that he wants me dead. If somebody were to act on Graeme’s death wish, then in my opinion the responsible person is the killer, and not Graeme.

We are surrounded with advertising every time we turn on the TV or go outside. We are more subtly being influenced every time we read a newspaper or book or website, or when we talk with our friends. We are even being influenced when we simply watch strangers on the streets. But ultimately, I believe that each person needs to be held responsible for their own actions, and that responsibility can not be passed on to the people who have influenced the actor. If I say that a book is good, and you go and buy the book… then it is you (not I) who is responsible for your actions. Likewise, if grumpy-Graeme says he wants me dead, and mad-Doug (another freak with an unhealthy fixation on me) actually comes and kills me… then it is mad-Doug (not grumpy-Graeme) who is responsible for the murder.

The idea that advertisers or influential people are responsible for the actions of others undermines individual responsibility, and it sets a dangerous precedent for controlling who is allowed to say what to whom. And once we start controlling speech to only “good speech” we get into dangerous territory.

None of this is to say that all speech is equally ethical or nice. If you spread untrue and nasty rumours about someone, then you’re an asshole according to my view of ethics. If you incite people to violence, or say things with the intention of hurting others, or knowingly defame somebody, or encourage people to do something you think will likely be bad for them — then you’re not a nice person. This is why most people think Graeme & Doug are jerks. But I do not believe that the government should set laws that require us to be “nice”.

The idea that the government should enforce their “correct” ethics on everybody is problematic both because different people have different ethical systems (consider different religions) and also because to impose the “correct” ethics it is first necessary to have a perfect person who knows the divine truth. I doubt that the government is run by such divine perfect people. Indeed, I doubt such a person exists. The best way to encourage ethical behaviour is the natural approach of civil society, where nice people tend to have friends and assholes tend to be excluded, and where people with similar ethics tend to congregate together. This explains why grumpy-Graeme and mad-Doug are the only people who take each other seriously.

There is also a practical reason why the above sort of death threats should be legal. If there actually was some sort of plan to kill me, then it would be very helpful for me to know. Keeping such sentiments underground may protect some delicate sensitivities, but it will not necessarily reduce the sentiment. Now at least if I wake up dead everybody will know where to start the investigation.

P.S. Christopher Hitchens also has some choice words to add regarding free speech:

This was cross-posted at my personal website johnhumphreys.com.au