Politicians’ promises: either Peter pays Paul, or productivity pays all

The financial markets

Prudential requirements, but more importantly the policing thereof, do need tightening, I suspect. Doing the job properly is essential. Recent government intervention in other markets (cars, education, insulation, etc.) isn’t encouraging.

Peter, Paul and Mary just pay.

The macro-economy

Australia has avoided recession so far, and the loss of human capital associated with high unemployment. This success has many fathers. Low interest rates, a flexible exchange rate, a relatively sound financial sector, still-booming China, and the current government’s stimulus measures, are all undergoing paternity tests.

Nobody knows what the “counterfactual” scenarios might have been. Stopping the collapse in confidence as the GFC emerged was crucial. Government action might have helped a fair bit. There remains a debate about how much stimulus was needed. Much of it was inefficient (e.g., the BER).

In hindsight, if we had to get the money out really fast, and to households, the better option might have been to provide all of it as a one-off, somewhat better-targeted, “cash splash”.

Peter, Paul and Mary paid themselves, but maybe they’ve paid to keep their own jobs - so far.

Improving productivity to pay for election promises has gone missing in the campaign.

Running projects through rigorous cost-benefit analysis is also absent. The national broadband network has escaped this filter. Resurrection of expectations about very fast trains based on yet another review doesn’t cut the mustard. (Incidentally, has anybody commented on the geomorphology between Sydney and Newcastle?)

Most policies in this election campaign are about trying to redistribute resources, and hoping those who pay won’t notice. This is not a “zero-sum” game. Redistribution often has “deadweight costs” due to losses in national efficiency. These adversely affect Peter, Paul and Mary.

We need a productivity filter.

The Productivity Commission is the appropriate “citizen’s assembly” filter. It already has the right focus.