Retain our privacy, not our data

Australian Federal Police Assistant Commissioner Tim Morris told an audience at the weekend that "those with nothing to hide have nothing to fear".

This was written up in Fairfax papers as "carefully worded case" for the Government's mandatory data retention policy.

Now, every piece of evidence we have suggests the terrorist threat right now is severe.  It might be growing.

But Morris's statement is a worry.  It lacks all sense of proportionality — essential when crafting security policy.

More importantly, it shows how poorly defended our privacy rights are.  Are we really at the stage where we even have to justify the very existence of private spaces — spaces where we are hidden from the all-seeing state?

It is true that the value of privacy is conceptually difficult.  We're constantly trading away privacy for other goals.

Whenever we provide our details to someone at a call centre, share secrets with friends, interact with governments, even simply go outside, we're in some small way relinquishing control over our own personal information;  allowing others to see or know details about ourselves that might otherwise be secured.

It's particularly difficult today, when we have more opportunities than ever to share information — and the authorities have more capacity than ever to obtain information about us without our consent.

So many people dismiss privacy as a sort of anachronism:  either a lost cause or something that only a recluse would care about.  Privacy is dead.  You've heard this before.

But I'll bet even AFP assistant commissioners secure their internet banking passwords and close their blinds at night.

Privacy fulfils a deep psychological need.  Society demands that we mask our true selves and moderate our behaviour when we interact with others.  Social norms regulate how we act in public.  In many ways these norms are valuable because they ensure a well-ordered public space.

But those norms can also be stifling.  We need a space of our own as relief from the judgment of others, if nothing else.

Indeed, the move towards toleration for identity that violated current social attitudes — like homosexuality — was begun by defending the privacy of one's own home.

Happily we've moved past the days where sexuality is just a matter of what people do behind closed doors.  But we shouldn't forget how for such a long time privacy offered protection against an oppressive society.

The need for privacy seems to be an innate part of the human condition.  Ethnographers have found that privacy is a universal cultural attribute.

And if you believe in individual freedom — if you believe in any way that we should protect the rights of the individual against the collective — you should be very jealous of any coercive encroachments on the private realm.

As the sociologist Wolfgang Sofsky writes:

Privacy is the citadel of personal freedom.  It provides defence against expropriation, importunity, and imposition, against power and coercion.

With all this in mind, the nothing-to-hide, nothing-to-fear argument is truly creepy.

Think of all the assumptions that underpin it.

First:  you have to know what you're doing is wrong.  Second:  you have to agree that what you are doing is wrong.  Third:  you have to trust government agents to only violate the privacy of the bad guys.  Fourth:  you have to trust government agents to not misuse what they find when they observe you.  Fifth:  you have to believe that only government agents are able to observe you.

These assumptions are questionable, to say the least.

Attorney-General George Brandis has been assuring us we can trust the Government, but that's not very satisfactory.

Anyway, government agents aren't the only people who might access data kept under data retention laws.

What about rogue staff of internet service providers?  Or hackers attracted to these giant new honey-pots of data?  Or private litigants?  Data kept under data retention laws will be available in civil litigation as well.

In his national security statement on Monday Tony Abbott flagged further legislation clamping down on "organisations that incite religious or racial hatred" and signalled his intention to strengthen "prohibitions on vilifying, intimidating or inciting hatred".

But the Government passed legislation that, we were told, was intended to do pretty much the same thing.  I argued on The Drum in September that new limits on "advocacy of terrorism" were redundant at best, dangerous at worst.

Who knows what this next tranche of laws outlawing advocacy of terrorism are supposed to add.

But recall the first assumption of the nothing-to-hide argument.  You have to know what you are doing is wrong.

With speech prohibitions growing as fast as legislators can draft them, there's every reason to be afraid for our privacy, and every reason to care when it is taken from us.

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Politically charged English website puts students on the wrong path

"Living with trash".  "Protest".  "Save one island, save them all".

The headings sound like they might have come from some progressive "social studies" program.  Unfortunately, this is not the case.

On the contrary, these are the names of unit outlines from ­English for the Australian Curriculum (E4AC), a federally funded website that provides unit outlines for English teachers, to complement Australia's national curriculum.

The national curriculum for English has enough problems of its own.  Any decent content in there is heavily diluted by heavy content on "social studies", the coverage of grammar is rather patchy, and the Western literary classics are scarcely mentioned.

But if you thought the curriculum itself was flawed, spare the time to take a look at E4AC.

Released in early 2013, the website was funded by the then department of education, employment and workplace relations, and ­developed by such prestigious educational bodies as Education Services Australia, the Australian Association for the Teaching of English, the Australian Literacy Educators Association, and the Primary English Teaching Association Australia — bodies which are supposed to represent more than 10,000 English teachers from across the country.

The result of their combined efforts is a sequence of 12 "thematic based inquiry units", exploring topics such as "changes to democratic and citizenship rights of Aboriginal and Torres Strait Islander peoples" ("Talk about rights", Year 6), "the sustainability issue of living with trash" ("Living with Trash", Year 8), and "ways that protest literature represents the world as it could be" ("Protest", Year 10).

The units outline a number of activities to be done in English classes.  Many of them have very little to do with English.

For example, at the end of the Year 8 "Living with Trash" unit, students are supposed to "create their own art from trash piece that will aim to provoke thoughts in viewers" then display it as an art exhibit.

Elsewhere, the unit suggests students watch videos on how to make an "earth bench" out of ­"bottle bricks", complete "opinionnaires" on attitudes towards trash and recycling, and "use butcher's paper and highlighter pens to create a picture map" to represent "key ideas about sustainability".  Only occasionally does the unit outline actually include some content that relates to reading and writing — for example, when it suggests students should consider "how trash has been used as a setting in fiction" and how to write feature articles (about trash, of course).

In the Year 10 unit "Protest", students consider issues such as "representations of gender" and "protest, respect and identity".

They are asked to "discuss the view of men and women" represented in the "I bought a Jeep" commercial, study Paul Keating's Redfern address, and analyse the design of Amnesty International Australia's website.

It could hardly be more blatant that the "English units" outlined on this website are more about ideology than they are about teaching kids how to read and to write coherently in English.

Although E4AC occasionally slips in a little content about structuring pieces of writing and rhetoric, the bulk of the material appears to be concerned with ­social issues rather than the ­rudiments of English.

For the most part, it doesn't even recommend good reading material.  Aside from a summary reference to George Orwell's ­Animal Farm in Year 10 and the prologue of Romeo and Juliet in one of the Year 7 units, there isn't much in the course in the way of literature.

What's more, even when it does reference reading material, half the time it doesn't imply students should actually be required to read it.

In one of the Year 8 sequences, for example, it says students should examine the cover of and a 370-word extract from Andy Mulligan's 2010 novel Trash.  Students are not actually required to read the novel as part of the unit, ­although it does concede elsewhere:  "Students can be encouraged to read the novel for their own interest."

And so, there we have it.  In the lead-up to 2013, the federal government funded various teachers' organisations to produce these blatantly politically charged English units that focus heavily on social issues, are filled with material that has little to do English itself, and which rarely require the ­students to actually read anything.

It is shameful any federal government ever funded something like this.  Unfortunately, a couple of years ago it did, and as a result we have all paid for it.

The only consolation is that E4AC is not actually the national curriculum, and so there is no pressure on schools to actually use these unit outlines.

Let's hope not, anyway.  The fewer kids there are studying "trash" in their English classes, the better.

Sub decision should be divorced from industry policy as choice presents taxpayer risks

The latest submarine controversy illustrates that the vital task of equipping our defence force is fraught with very great risk to the taxpayer.

For many Australians the Collins Class submarine, for better or for worse, stands out as perhaps the household-name example of public sector major project failure.

With government body the Australian Submarine Corporation awarded a contract to build the submarine in 1987, the fleet of six diesel-powered Collins Class Boats have been in operation since 1996.

But the performance of the submarines have endured critical scrutiny over many years, with several maintenance problems, such as offline repairs for serious engine defects, meaning the Collins Class has consistently underperformed against operational targets.

In 2012 an independent report by defence services expert John Cole found "the availability performance of the Collins Class has been slightly over half that achieved by the comparable international programs".

With initial expectations that the Collins Class fleet would operate more quietly than its predecessor Oberon Class, tests subsequently uncovering excessive noise as the sub passed through water added to the diminishing esteem attached to the entire project.

And given that each sub costs more than $110 million per annum to maintain, with the Collins Class estimated to absorb almost a third of the Navy's annual sustainment budget, naturally the existing submarine program has been questioned on value for money grounds.

But seemingly demonstrating an inability to heed the basic lesson that Australia simply needs the best submarine, from whichever source, we are potentially setting up both our defence interests and taxpayers for another fall in the shape of the grandiose Future Submarine Project.

One of the great threats is that "picking winners" industry policy objectives would be smuggled into matters of defence procurement and so it has been the case these last few years.

The 2009 Defence White Paper canvassed a significant expansion of our maritime defence capabilities, doubling the Australian submarine fleet size to 12 fitted with new weapons, enhanced weaponry range and tasked with additional roles.

Some defence analysts have previously described the government as ambitiously seeking the capabilities of a US nuclear-powered vessel in a diesel-electric boat, and for this to be assembled by Australian industry needing radical upskilling to perform the task effectively.

The subsequent White Paper, presented in 2013, went one step further to prop up the sub-making establishment in Adelaide by ruling out the acquisition of already existing "off-the-shelf" submarine designs from other countries.

Policies are always subject to change upon the election of a new government, and the Abbott government previously made overtures to the Japanese government to acquire a version of their Soryu Class submarine with combat systems and weaponry fitted out in Adelaide.

But it seems that confusion has now set into the Future Submarine Project, thanks to some apparent political undertaking to South Australian politicians that some kind of "open tender", inclusive of a local designed and built sub option, would proceed.

While the government has tried to sop up this latest mess by insisting that procurement of a new submarine fleet will be made through a "competitive evaluation process" (spot the difference?), the underlying principle of efficient, sound procurement policy remains as vital as ever.

And that is Australia should simply seek out the best military capability, to defend the realm, for the least available cost, to the advantage of the taxpaying public.

With the automotive manufacturing industry bearing the brunt of tariff reductions and global competition, and more recently economic slowdown, successive federal and state governments have sought to create new "make-work" ventures to absorb retrenched labourers.

For a union movement wanting to sustain membership, and political parties ideologically wedded to the idea of manufacturing autarky, the answer is to substitute defence industry protectionism and subsidisation for car industry assistance.

And the prospective costs of a local submarine project might well be quite steep, with some estimates of taxpayers lumped with subsidising an Adelaide workforce of about 700 to 800 people at a cost of up to $15 million per job.

Given the globalised nature of the defence industry, and the significant repository of equipment manufacturing research and expertise in other countries, it is impossible for Australia to aspire for naval shipbuilding self-reliance.

That the Collins Class submarine is fitted with American combat control systems belies the perception that we are capable of building a wholly home grown product for our maritime conditions.

In many other areas of defence procurement, such as the provision of aircraft and tanks, Australia has been satisfied with purchasing infrastructure from our allies abroad.

Taxpayers could not be inspired with any great confidence that an Australian future sub will not encounter the cost overruns, design flaws and operational problems besetting the Collins Class, as well as the likes of the F-35 Joint Strike Fighter and Seasprite helicopter.

Some experts indicate designing and building a new fleet of subs in Australia could cost at least $40 billion, and this would be undertaken over a 15-20 year period in which the federal Budget is projected to remain under intense fiscal pressure from non-defence portfolios.

In such circumstances, and in recognition of the lack of scale economies in relatively high-cost Australian manufacturing, a better option appears to be to acquire a new sub fleet from overseas.

Certainly there are reports French, German and Swedish interests have been showcasing their wares to Australian defence authorities behind the scenes, and there is also an adaptation of the Japanese Soryu on the table.

Others have preferred Australia go down the route of purchasing American nuclear-powered Virginia Class submarines, with leasing and establishment costs in the order of $15 billion less than the Future Submarine Project high-end price tag.

But the Defence Department should also be cognisant of a fixation upon larger boats, with global submarine manufacturers also offering smaller vessels which may merit some consideration.

It is true that defence procurement decisions are rife with instances of dashed efficiency and wasted value, almost wherever one may look, and that observation is critically driven by the monopolistic position in which national defence interests everywhere are held.

But even in the highly imperfect world of defence equipment purchasing and maintenance, there is still room for judicious policy choices to be made.

Australia would be very well served by not rolling costly and ineffective industry objectives into an otherwise rather clinical decision to improve our submarine capability with minimal fiscal exposure to taxpayers.

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Innovation strangled by red tape

My recent research has demonstrated that business entry rates in Australia have been in steady decline for the previous decade to June 2014.  This falling business turnover signals a decline in Australian dynamism and entrepreneurship.

It is precautionary government regulation that is instigating this decline.  The current culture of red-tape threatens to prevent the next Facebook or Google launching on Australian shores by over-valuing certainty, and under-valuing flexibility.

The process of the free market is the only true business selection mechanism;  expanding productive and innovative businesses while replacing unproductive dead wood.

This process is irreplaceable, but it may certainly be hindered.  Many regulations, while framed in terms of ‘public interest', more accurately act as friction in the free market process;  their costs are often ignored.

These frictions prevent the market from facilitating learning and experimentation with new ideas, technologies and businesses.

The market cannot select what is worthy and what is not if technologies are continually restricted before we even know how they are best used.

Rather than as a nation of rules, regulations and road-blocks, Australia must position itself as a nation of experimentation, testing and exploration for entrepreneurial talent.

Much of this friction is due to the ‘precautionary principle', where governments over-value hypothetical harms, and undervalue the capacity of the market to test, experiment and evolve.

Industry-specific regulation and red-tape must be critically avoided.  This includes occupational licensing, quotas, subsidies and suchlike.  These apply artificial rigidity in what are constantly evolving industry boundaries and the development of innovative new sectors.

The jobs promise that pollies cannot make

An interesting pastime is pondering what politicians would ask for if they were granted one wish.

The practical ones would want to be president for life.  Hopefully principled Liberals would want lower taxes, while presumably Labor MPs sticking to their principles would want the opposite.  The pragmatic ones would simply wish to keep their jobs.

In the absence of a parliamentary fairy godmother, the closest any backbencher can ever get to getting their one wish granted is to have the prime minister ring you on the weekend before a Monday morning motion to spill the party's leadership and ask you for your vote.  Two weeks ago that's what happened to Sean Edwards, a Liberal senator from South Australia.  After the Prime Minister assured him the government-owned ship-building company ASC, based in Adelaide, could bid to build a fleet of new submarines, Edwards said he would vote to support the Prime Minister.

Of all the things the senator could have asked for, asking for ASC to bid to build some submarines was not the worst.  However, ASC's chances are remote.  Based on the experience of ASC building the Air Warfare Destroyer ships, if the company made the submarines they would cost at least 30 per cent more than if they were bought overseas.  Given the submarines' price tag is anywhere from $20 billion to $40 billion, having them stamped "Made in Australia" is an expensive luxury.  To put these amounts in context, Australia's defence budget is $25 billion a year.  After the then defence minister said he wouldn't trust ASC to "build a canoe", an opinion more than a few observers would agree with, he was sacked.

A better wish for South Australia would have been for Edwards to ask Tony Abbott to put Australia's first electricity-generating nuclear reactor in Adelaide.  The royal commission into uranium and nuclear energy announced by the South Australian premier is the welcome first step to Australia eventually getting nuclear power.

In the midst of the frenzy of leadership speculation it was inevitable political commentators would focus on the PM's promise to Edwards, in terms of its impact on party room votes.  But the significance of what the senator asked for goes beyond just votes for the leadership, it sums up the problem confronting the Abbott government.  Edwards asked for something the Prime Minister couldn't give him — the guarantee of jobs.  There's nothing unusual about a politician wanting government contracts for their electorate, but in the current climate jobs and job security have a special salience.  The national unemployment rate is 6.4 per cent, the highest in 12 years,and in South Australia it is 7.3 per cent.

And these official figures don't reveal the extent of underemployment.  The theme of jobs featured in the Victorian and Queensland state elections.  In Victoria the Coalition and Labor both campaigned heavily on their respective jobs "plans".  The reason that relatively minor reductions in spending on vocational education and training by the Victorian Coalition had such prominence in the campaign was because training is so inextricably linked to employment.  In Queensland public service cuts and privatisation — which is associated with job losses — cost Campbell Newman government.

The public know the Australian economy is in transition.  They are told that constantly by the media and they see it in the falling value of their resource stocks in their share portfolio.  The public is realising the economy is transitioning away from taxpayer-subsidised employment in car-making and submarine-building.  Yet there's uncertainty about what it is transitioning to.  Or to put it in the way the question is usually asked — "where will the jobs come from?"

Which leads back to what the Liberals' leadership turmoil of a few weeks ago was about.  The spill motion was prompted by many factors but one of the core concerns of backbenchers was the seeming inability of the government to sell an economic message and communicate that it has a plan for jobs that involves more than just cutting the budget.  And in the absence of such a plan, all that is left for a backbencher to do is trade their vote for the uncertain promise of a chance for workers in his state to build over-priced submarines.

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Australia is not a country of rorters: our tax system is sound

The Henry Tax Review identified 125 taxes within Australia levied by all levels of government.  Of those 125 taxes, just 10 taxes raised 90% of all tax revenue.  The company tax is the second largest source of revenue to the Commonwealth.  This consideration immediately suggests two points:

• The Australian company tax is a successful tax in that it generates substantial revenue.
• The integrity of the company tax is particularly important for public finance purposes.

Yet the public debate seems to suggest that the integrity of the Australian company tax system is compromised.  Late last year the Tax Justice Network Australia released a report that suggested widespread tax avoidance, if not outright tax evasion.  In particular, it claimed:

• The average effective tax rate of the ASX 200 was 23%, and
• If the ASX 200 were paying tax at the statutory rate an additional A$8.4 billion could be raised in company tax revenue.

While these claims were well received in parts of the Fairfax press and the Australian Broadcasting Corporation, Australian Treasury officials testifying at Senate Estimates were nonplussed.  Referring to the 23% average effective tax rate, Rob Heferen, executive director of the Treasury Revenue Group, told the Senate, "I must confess I was surprised it was so high".  That comment in turn suggests two things;  first deviations between average effective tax rates and the statutory rate are not unusual and, more importantly, it is very unlikely that $8.4 billion could be raised by increased compliance activity.

In short, there is no fiscal free lunch.  If government wants to raise more revenue in taxation, it is going to have raise taxes.

When thinking about Australian company tax, the first thing to understand is that financial accounting is very different from tax accounting.  The former communicates information to shareholders while the latter communicates information to taxation authorities.  There is far more leeway in how firms communicate to shareholders than there is to the tax authorities.  As such we expect to see differences between effective tax rates calculated from information contained in annual financial statements and the statutory company tax rate.  That difference can be calculated from the ATO Tax Statistics.

In the academic literature that difference is referred to as "the book-tax income gap" and has been extensively studied by academics.  Alfred Tran summarises the book-tax income gap (emphasis added):

The major causes of the book-tax income gap are attributable to deliberate government policies and different objectives of the tax and the financial reporting systems.  Tax incentives, dividend rebates, concessional treatment of capital gains, and non-deductibles are all the results of government policy decisions.  There are good economic, political, and administrative reasons for these policies.

In short — not only does the ATO know about the book — tax income gap, it is a direct result of deliberate government action.

So the mere existence of a book-tax income gap doesn't necessarily mean there is widespread tax avoidance.  On the other hand just because we can explain the gap doesn't mean that some firms aren't avoiding company tax either.

There is an argument that suggests that large companies are more likely to avoid taxation than are small companies — that was the clear implication of the Tax Justice Australia report.  Alfred Tran and Richard Yu suggest that large firms can afford better tax planning activities:  that is, engage in aggressive tax minimisation and are better able to "influence political processes in their favour".  Grant Richardson and Roman Lanis (2007, 2008) are predisposed to the latter view pointing to a "political power hypothesis" that suggests an inverse relationship between firm size and effective tax rates.

By contrast in joint research with Richard Heaney of the University of Western Australia, I find evidence of a "political cost hypothesis" — the notion that larger firms would be subject to greater scrutiny from the taxation authorities leading to higher effective rates of taxation.  Heaney and I conclude:

Claims that larger firms are paying substantially less than the headline rates of taxation or even less than smaller firms should be viewed with some caution.  This in turn suggests that policy efforts to increase revenue from the corporate tax by closing the book-tax income gap are less likely to be successful.  In other words, increased enforcement of existing tax laws is less likely to raise revenue relative to policies that reform the tax base or change the tax rate.

So the very companies that more likely to be in a position to engage is tax avoidance attract the attention of the tax authorities and are so unable to avoid much tax at all.  That should provide some confidence that large companies are not engaged in widespread tax avoidance.

This still does leave unanswered the question as to whether multinational companies are able to pay less tax than purely domestic firms.  Kevin Markle and Douglas Shackelford explicitly investigate this question.  They employ data for 11,602 companies over the period 1988-2009 across 82 countries (including Australia) to investigate the impact of domicile on company effective tax rates.

After controlling for country, industry, and firm effects, they report that multinationals and domestic-only firms face similar effective tax rates.  In the case of Australia, they report, everything else being equal, domestic-only effective company tax rates and multinational corporation effective company tax rates vary by 1% and that difference is not statistically significantly different from zero.

All up, the integrity of the Australian company tax system is sound.  That isn't to say that there aren't some companies that cut corners and evade tax when they should be paying tax, but there is precious little evidence of systematic rorting of the company tax system.  That reflects well on the efforts of the ATO who police the system — but it does make life difficult for politicians hoping for quick and easy fixes to the budget deficit.

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You can't blame foreigners for high house prices

On Friday Daily Telegraph readers learnt an "elite audit and compliance unit" of the Commonwealth Treasury has been tasked to hunt down foreign investors who have illegally bought houses in Australia.

The elite unit will then force those "dodgy investors" to sell their properties, and prevent them from "pushing up house prices".

This is ... how shall I put it ... a bit iffy.

Lots of reasons have been advanced for Australia's high house prices.  Some people blame negative gearing.  Others blame things like first-home owners grants, or loose lending standards by the banks, or the Reserve Bank's monetary settings, or just an irrational market boom.

Some of these are plausible, some less plausible.

The most likely culprit is that government regulation has unbalanced the relationship between supply and demand.  State governments have restricted supply at the outer fringes of our cities and placed strict limits on development in the middle.  This creates artificial scarcity and pushes up prices.

Anyway, these are all good theories, and worth serious discussion.

But the explanation being advanced by the Government — that foreign investors are causing, at least in part, our globally high house prices — simply doesn't rate.

If there is foreign demand for investment in Australia, then supply should grow to meet it — unless supply is constrained in some way.  Anyway, if you're worried about foreign demand now, wait until you hear about natural population growth.

So it's a bit disturbing that the foreigners-make-housing-expensive thesis appears to be a central part of the Abbott Government's economic agenda for 2015.

In March last year Treasurer Joe Hockey asked the House of Representatives Economics Committee to look at foreign investment in housing.  He wanted to know the pros and cons, whether that investment boosts supply of new houses, how Australia compares to overseas, and so forth.

The Treasurer may already have his own views.  Back in 2010 he claimed increased foreign investment was "forcing up prices — particularly in Melbourne but all over the country".

Anyway, the House Committee report was released in November.  It's 148 pages but the nub is this:  "No one really knows how much foreign investment there is in residential real estate, nor where that investment comes from."

That's it.  We don't have enough information.  Anything more than that is insinuation.

Still, insinuation is something that politics excels at.

Currently the Foreign Investment Review Board screens all foreign applications for house purchase.  It is illegal for non-resident foreigners to purchase existing homes.  Temporary residents have to sell their houses when their visas expire.

The fear is that some foreigners evade Foreign Investment Review Board screening and buy houses illegally, or fail to sell them when they go home.

But there hasn't been any court action against foreign investors by the Foreign Investment Review Board since 2007.  The committee writes that it "defies belief that there has been universal compliance" with the rules for that long.

Perhaps.  But really we have no idea.  Foreign investment laws are probably broken occasionally.  But then again all laws are broken occasionally.  The question is whether it happens often enough to draw the attention of the upper echelons of the Australian government.

And there is no evidence — none — to suggest that.

Of course the point here isn't the sanctity of the law.  It's the politics of foreign investment.  This is a political gambit designed to play to the assumed xenophobic instincts of the electorate.

You've heard the rumours about people being outbid at auction by "Chinese" buyers?  Well, here's a Commonwealth government policy to match!

I've written on The Drum in the past about how regressive and damaging restrictions on foreign investment can be.

Recall Kevin Rudd's claim in the 2013 leaders' election debate that he was "a bit anxious, frankly, about simply an open slather approach" to foreign investment, particularly in agriculture.

At that debate Tony Abbott was on the pro-foreign investment side, despite the Coalition's policy to lower the review threshold for agriculture investment.

The political hostility to foreign investment was sparked by the Gough Whitlam-led Labor opposition in the late 1960s and early 1970s, and blindly aped by John Gorton and Billy McMahon as they tried to demonstrate Liberal Party renewal.

This was an era when closing the borders to foreign money was seen as the "progressive" thing to do.

But in 2015 it seems incredible that, in such a country so hungry for capital, Australia's political leaders are still trying to lay the blame for our economic problems on foreigners.

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Abbott's strategy just a blast from the past

Here's the problem.

Yes, Tony Abbott survived the spill.  But that majority vote of support in the Prime Minister was not in spite of his public unpopularity.  It was in spite of his underdeveloped plan for the next year of government.

Everybody is wondering how Abbott might be able to turn the ship around.

And Abbott's plan, offered first at the National Press Club last week and repeated to ABC political reporter Chris Uhlmann the night before the spill, is worryingly insubstantial.

Far too much of the plan for the future harks back to the past.  Not just avoiding the wasteful spending of the Labor years, but reversing or modifying Abbott's personal commitments.  No more prime ministerial picks for knights and dames.  No more paid parental leave.

Stripped of all the rhetoric, the future of the Abbott Government looks like this:

One:  a crackdown on unlawful foreign investment.  "Better scrutiny and reporting" of agricultural sales and "better enforcement of the rules" governing house sales.  Two:  a further crackdown on Islamist radicals in Australia.  Hizb-ut-Tahrir, we're looking at you.  Three:  a families package, probably something to do with childcare.  Four:  small business tax cuts.

This is just not enough to pin the Government's future on.

One of the most revealing and probably most politically powerful stories to come out this week was of a quiet discussion between Malcolm Turnbull and Tony Abbott in the Prime Minister's office during the two-day cabinet meeting.

Turnbull asked Abbott what the plan was.  Abbott repeated the major points from his press club address.  Foreign investment.  Hizb-ut-Tahrir.  Turnbull, it was reported, was "underwhelmed".

The story is drenched in Turnbull camp spin.  But it's very revealing nonetheless.

At the Guardian, Katharine Murphy has a good observation about how Abbott has struggled to define himself in government:  "Abbott didn't know if he was freedom Tony, or security Tony, or austerity Tony, or double the deficit Tony."

But the confusion goes much deeper than Abbott's personal philosophy.  The Coalition came into power with twin but contradictory stories about how it would operate.

The first story was that the Abbott Government would be the restoration of the Howard era, an era of certainty, and relative economic prosperity.  Labor had bickered and bungled around for six years.  Abbott would bring back not only John Howard's governing style, but much of Howard's governing team.  They would be an adult, long-term government.  Politics would fall off the front pages.

Ironically enough, this desire to be an "adult government" actually created some of the problems of the first few months, as I pointed out in The Drum at the time.

Yet against this story of stability and certainty was the policy challenge the Coalition believed it had been elected to fix.  It is relatively easy to abolish the carbon tax and mining tax, and, as Scott Morrison has demonstrated, not impossible to stop the boats, if stopping boats is your sole concern.

By contrast, fixing the budget in an era of economic sluggishness is an incredible challenge.  It requires big, aggressive calls in controversial public policy areas.  It requires revolution rather than stability.  It makes boldness a more necessary virtue than steady competence.

You could see them struggle to balance these two stories all the way through September 2013 to May 2014.

Eventually crunch time came.  Joe Hockey decided to lump all the big calls together in their first budget.  They were presented as deficit reduction measures rather than reform proposals in their own right.  This was a mistake.  Rather than arguing for the budget proposals on their own merits, they stuck with a macro-level Labor-debt-and-deficit line.

Anyway, it all played out very poorly from there.

After many traumatic months nobody imagines that the boldness of the 2014 budget will reappear in 2015.  We're faced with the prospect of Bill Shorten's small-target Opposition facing off against a gun-shy Government trying to compress itself into an even smaller target.

The prime minister's office no doubt hopes the small target approach will stop Abbott from haemorrhaging in the polls, but at the same time it will do nothing to put the Government in a competitive position against Labor at the next election.

Governments, even stable, competent, Howard-esque ones, need a purpose;  a goal, a vision.  Clamping down on foreign investment — even if it was a good idea — isn't enough.

And in the meantime, the nation's finances are only going to get worse and worse.

Turnbull failed to put up his hand for the spill on Monday in more than one way.  The Communications Minister may have been underwhelmed by Abbott's plans but has offered no plan of his own.  He's presented no alternative strategy for righting the Government.

And that is almost certainly the conversation Coalition MPs are having right now.

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Why MOOCs will fail — they're not dating sites

One of my Phd students is studying how parents make decisions about education for their children (you can participate in his survey here).  We economists treat this as a problem of investment under uncertainty, which is to say that education is a bit like buying a stock, in that it has an uncertain future rate of return but a known upfront cost.

But it's actually a harder problem than that, because unlike a stock, which will have dividends and hopefully capital gains, both measured in dollars, the return to education has many dimensions.  Some are from labour markets and are measured with money, but other returns give rise to less tangible contributions to personal well-being along with broader spillovers to society.  So economists have had to get good at measuring these total benefits and then using them to reverse engineer the choices people make about education.

Now I'm mentioning all of this because we've just noticed a fairly large hole in the case for MOOCs (massively open on-line courses) as compared to traditional bricks and quadrangles universities with expensive buildings and eye-watering fees.  It's this:  the reason MOOCs will fail to displace universities is that, unlike universities, they're not dating sites.

We make this claim based on some very recent work by economist Gustaf Bruze, who applies some clever economic modelling to large Danish data sets to generate very interesting and insightful findings about the "returns to schooling".  Specifically, he finds that "Danish men and women are earning about half of their returns to schooling through improved marital outcomes".

The case for MOOCs has always been that they can deliver the same educational services, but at a fraction of the cost through the use of new technologies and business models.  But this Danish study quantifies the extent to which educational outcomes are not the only valuable service that universities deliver — namely that a further and large component of the implicit demand for education is assortative mating — and MOOCs might not be so good at that.

In the economics of education, there are two broad explanations for the demand for a university degree.  There is the human capital model, which argues that you go to university to learn things, and these things are like investments in capital, namely they increase your productivity, making you more valuable on the labour market.  You invest up to the point where the cost of the education equals the expected return on your increased skills.

This predicts that by lowering the costs of acquiring human capital, MOOCs should increase the demand for higher education.

The other model is costly signalling.  This argues that you go to university to acquire a signal to send to potential employers that you are smart and hardworking.  You already know this of course, but employers don't, and the problem is that anyone can make that claim.

So you have to do something that only smart, hardworking people will not find prohibitively costly.  Interestingly, lowering the costs of a degree degrades the value of the signal.  This will drive credential inflation, forcing the truly smart and hardworking to pursue graduate studies, or some other costly pointless thing, in order to differentiate themselves.

The private rate of return to higher education is not in debate here — it is substantially positive, with a wage premium around 60% over non-graduates and with an annualised return on the order of 10-18% — although as a recent report by Andrew Norton from the Grattan Institute shows, it does matter what you study.

What these types of studies tend to emphasise is:

(1) the importance of studying hard things, for example STEM subjects

(2) the importance of finishing them (called the sheepskin effect), ideally at prestigious places.

Now MOOCs might well be more effective ways of studying, especially of hard things.  And MOOCs are tightly linked with some of the world's most prestigious universities (e.g. here and here).

But are MOOCs more effective ways of dating?  That's the question it seems that no-one is asking.  This matters because, as the Danish study shows, a large component of the return to higher education is due to better quality matches in household formation.

And if MOOCs are terrible at that (this is not a foregone conclusion;  they may evolve to include local meetups, for instance) then that may well be the unreplicable competitive advantage (what investors call a "moat") classic universities have.

This is not really the argument that most Vice Chancellors have in mind when selling their product (and paying my salary!).  And it's also likely that this private benefit translates into some social harm when assortative mating drives income inequality (see here, and here).

But the real story here is that those same Vice Chancellors shepherding their university's enormous property portfolios might sleep a little easier knowing that these MOOCs are not going to eat their lunch and destroy their business model with their relentless cost advantages.  Because MOOCs can't supply the thing that Danish men and women, and likely Australian ones too, also want in their return to schooling — high quality matches not just with jobs, but with each other.

Time for discriminatory minimum wage to be abolished

Advocates for the Australian minimum wage system must contend not only with its harmful effects today, but with the burden of its unpalatable historical legacies.

The Abbott government asked the Productivity Commission recently to conduct an inquiry into the performance of the Australian workplace relations policy framework.

The inquiry, set to deliver its final report late this year, will investigate many aspects of the Fair Work Act, such as "fair and equitable pay and conditions for employees, including the maintenance of a relevant safety net".

This task has already rekindled the largely emotional debate about the adequacy of employee pay and conditions, with the federal opposition and unions already labelling the Productivity Commission inquiry effectively a reincarnation of the demonised Howard-era WorkChoices policy.

An important element of investigations the commission will surely undertake surrounds the economic and social impacts of the minimum wage regulatory regime, imposing the condition that bosses must pay workers at least $16.87 per hour.

Standard economic theory makes it clear that a government imposing a minimum wage rate, in effect a price floor applied to the labour market, would exert two reinforcing effects that are felt simultaneously.

There is a supply-side effect, where the minimum wage would induce existing employees to offer to work longer hours, and also encourage some people to re-enter the labour force to find work.

There is also a demand-side effect, where the implied increase in the cost of hiring staff would discourage employers from hiring additional staff, or asking current staff to work for longer hours.

A more plentiful supply of labour relative to demand at the minimum wage rate and we contend with unpalatable unemployment, as too many workers chase the too few positions available.

But much of the heated academic and policy debates hinge on the existence of empirical confirmation that the minimum wage leads to job losses.

Advocates for the Australian minimum wage system often point to analyses concluding that the economic effects of minimum wages on employment are negligible or zero.

Some even refer to a much-discussed 1993 study by American economists David Card and Alan Krueger pointing to positive employment effects of minimum wages in fast-food restaurants in New Jersey and Pennsylvania.

On the other side of this debate are economists citing evidence of large disemployment consequences, or indicating the bulk of studies confirm the hypothesis that imposing, or increasing, minimum wages will cost some people their jobs.

Another pair of American economists, David Neumark and William Wascher, used empirical techniques to warn policymakers about the job-destroying properties of minimum wages.

One could accept the notion that small changes in regulated minimum wages tend to yield small economic impacts, and there are plenty of analysts and pundits proclaiming this, but there remains something of an outstanding puzzle regarding the debate.

The minimum wage advocates of today would agree that unemployment is undesirable, but dismiss the charge that the minimum wage induces unemployment.

By contrast, the minimum wage advocates of yesteryear generally conceived that the minimum wage induced unemployment, and that this was desirable because such a policy would screen perceived "undesirables" out of the workforce.

Victoria is the birthplace of the international minimum wage policy movement, where in 1896 Liberal Premier George Turner, supported by the likes of Alfred Deakin and Henry Higgins, introduced "minimum wages boards" advising the government on appropriate minimum wages for certain industries.

Following the abolition of slavery in the Western world, minimum wages were considered necessary so that people offering their labour services in the marketplace would never experience the meagre rewards previously allotted to slaves.

But these sentiments were expressed through the prism of racialist concerns of the era, particularly the fear that the white male worker of British descent would suffer as a result of the influx of migrants adjudged to be accustomed to working for much lower wages.

Trade unionists and manufacturing business concerns often joined political forces in decrying the harmful effects allegedly exerted by Chinese workers plying their trade, for example, in Melbourne's furniture-making and clothing industries.

In testimony to a Victorian parliamentary inquiry in 1895, cabinet maker and unionist Henry Harwood said a minimum wage "is a perfectly fair suggestion, because it would protect the scrupulous contractor as against the unscrupulous ... the system at present ... starves out the good men and rewards the inferior".

Favouring labour market discrimination, Henry Higgins, later the presiding judge of the famous 1907 Harvester national "living wage" case, remarked during the parliamentary debates "we did not want to have our workers degraded to the position of the people who lived in China".

It should also be remembered that the Victorian debates were also influenced by the notion that men could also become priced out of the labour market by women, if a uniform minimum wage was not fixed.

One parliamentarian, John Hancock, tellingly supported a minimum wage for all because "the principle ought to be to make the wages of the men so high that there would be no necessity for women or children to work at all".

Using minimum wages and other regulations to exclude groups of people deemed undesirable to participate in the workforce was influential during the late 19th and early 20th centuries, with similar arguments heard in Britain, Canada, New Zealand, and the United States.

The defenders of the status quo today would dare not speak in favour of minimum wages on such racist and sexist grounds, as their political and unionist forebears did unrepentantly.

But the evidence suggests the minimum wage now, as it did then, remains discriminatory in its effect.

Andrew Leigh's 2003 Australian minimum wage study shows, for example, that young women in particular are more likely to be detrimentally affected by minimum wage increases than men.

A sentiment is often publicly expressed that we must recognise racism and sexism to end these blights on our society.

I agree with this, and this is another reason why I believe Australia should abolish its minimum wage.

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Economic reform is alive and well, but it isn't easy

Tony Shepherd, the former president of the Business Council of Australia, could have been talking about the election result in either Queensland or Greece when he said the "philosophy of tax, borrow and spend is being rewarded".  As it was, he was talking about Queensland.

Not surprisingly, left-wing commentators have welcomed Campbell Newman's defeat.  For them it's proof "Austerity is Dead" not only in Athens and Madrid, but also in Brisbane.  If Queensland does go broke, Brisbane could claim from Melbourne the title of Australia's most European-like city.

But the reality is that austerity is not dead.  Austerity is simply not leaving beyond your means.  No individual, no state government, and no country can live beyond their means indefinitely.  And living beyond your means has consequences, as the young people of Greece are discovering.  In 2013, youth unemployment in Greece was 61 per cent.  The situation has since improved.  That figure is now 51 per cent.

The Queensland election outcome and the travails of the Abbott government's first budget don't actually tell us much about the public's appetite for economic reform.  What they do tell us about the public is that the public doesn't like politicians who break their promises.

Campbell Newman was absolutely right to cut the size of the Queensland public service.  Under successive Labor governments the number of public servants in the state increased by 40 per cent in just over a decade.  What Newman did that was wrong, was as opposition leader, to as good as promise that every public servant's job would be safe.  And the same applies to what Newman said about privatisation.

In opposition the federal Coalition enthusiastically supported the unfunded spending commitments of Kevin Rudd and Julia Gillard.  Then the Coalition got into government, said there was a "budget emergency", and walked away from the promises it made in opposition.  The Coalition shouldn't just reduce slightly reduce what it pays the ABC and SBS, it should instead be planning to ultimately sell them.  In a liberal democracy government-owned television and radio stations are no less objectionable than government-owned newspapers.  But the statement "No cuts to the ABC or SBS" that Tony Abbott made before the election is pretty unequivocal.  If he said it, he has to abide by it.

Economic reform is hard.  But economic reform has always been hard.  Somehow a myth has developed that the economic reform in the golden age of the 1980s and 1990s was easy.  It wasn't.  Viewing history through rose-tinted glasses can be dangerous.  In November 1992, 100,000 people marched through Melbourne in protest at the Kennett government, which had been elected the month before.  It was the largest protest since the Vietnam War.  Kennett shut 350 schools, more than 10 per cent of all the schools in the state.  In 1996, he was easily re-elected after losing only two seats in the lower house.  John Howard's introduction of the GST was anything but easy.

When politicians claim the blame for the lack of reform rests with a recalcitrant Senate, the rise of social media, and the onset of 24/7 news — they're simply looking for excuses.  The task of any democratically-elected politician who wants to change something is no different today from what it was a hundred years ago.  Put simply, politicians need to communicate what they want to do and why.

And perhaps that's the difference between now and the 1980s and 1990s.  The modern-day presence of an all-pervasive media has fooled politicians into thinking that they need to communicate less, when in fact they need to communicate more.  In a world where they have to compete against the latest Twitter storm for the attention of voters politicians need to think hard about what they say and how they say it.  And the truth is that in recent years as government revenue surged our elected representatives didn't have to think very hard.  All they had to do was ponder how to spend taxpayers' money.  Those times are now over.

After the Queensland election Tony Abbott said "the lessons are not to give up on reform, but to make sure that everything you propose is fully explained and well-justified".  He's right.

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Conservatives turn their critical eye on Abbott

You almost never get a natural experiment in politics like this.  Yet now we're in the third prime ministerial leadership crisis in five years.

So let's use this unique and rich dataset (n=3) to draw some preliminary conclusions about Australian political culture.

Crisis 1 occurred in June 2010.  Kevin Rudd was rolled by Julia Gillard.

Crisis 2 occurred in June 2013.  Julia Gillard was rolled by Kevin Rudd.

We could add some nuances here.  Perhaps Gillard's entire prime ministership was one big leadership crisis.  Rudd and his backers had brought the matter to a head twice before the final blow, in February 2012 and March 2013.

Whether Crisis 3 turns into Spill 3 is hypothetical of course.  But we mustn't let details like that hold us back.

In fact, we can't.  It is the nature of these crises that everything is, and will be, interpreted through a leadership lens.  Malcolm Turnbull made a speech about Asia?  Leadership pitch.  Julie Bishop tweets during Abbott's press club address?  Leadership pitch.  Scott Morrison put out a media release?  Leadership pitch.

Once the cat is out of the bag it is hard to stuff back in.  Every press conference is now about leadership.  Even if Abbott pulled off a miracle — even if he is prime minister for 10 more years — leadership questions will fester through everything he and his ministers do.

A leak to Kieran Gilbert at Sky now suggests Bishop refused to guarantee she wouldn't challenge Abbott at a meeting between the two on Sunday.  We all know how this plays out.  Things are moving very quickly along a well-worn path.

It's tempting to blame the media for creating the crisis in the first place.  This makes sense.  They're the ones asking all those distracting questions about who supports the PM.

But, as we know from last time and the time before that, all those anonymous quotes that litter our newspapers come from somewhere.  All those public denials are undermined by private briefings to favoured journalists.

Recall that the Labor Senator Doug Cameron was so publicly angry about anonymous leadership stories in the Daily Telegraph in November 2011 that he threatened a press crackdown, accusing News Limited of being "a threat to democracy in this country".  Of course, it later turned out that Cameron was a big Rudd backer.

Peter van Onselen — who has had his fair share of briefings from discontented Liberal MPs — claimed on Twitter that some of the politicians roped into supporting Abbott at a weekend press conference didn't actually support him in private.

Yes, Parliament House is really just a nest of professional liars.

And once a party's stone-faced loyalty has been broken — as it has been, with seemingly every backbencher opening their hearts to every journo that calls them — it's impossible to get back.

There's something else that's blindingly evident when we compare the Labor crises to this one.

Much of the conservative leaning commentariat admired Tony Abbott in opposition.  He talked about the right things.  He offered (many of) the right policies.

But a year and a half in, their critical floodgates have opened.

Now every significant conservative commentator has offered brutal assessments of how things are going.  And they're not just repeating Abbott's "blame Labor" explanation.  See, for instance, Andrew Bolt, Janet Albrechtsen, Piers Akerman, Grace Collier, Chris Kenny, and Miranda Devine.

This is healthy.  When the dust settles — wherever it settles — hopefully conservatives will be able to identify the deeper sources of the Government's malaise.

We saw nothing like this during the Gillard years.

Rather, the story from Labor's media supporters was that Gillard was actually a great prime minister (great policies, great parliamentary negotiation skills) but let down by a mendacious News Limited, the Abbott wrecking ball, the evil Kevin Rudd, and the fact that she was female.

Oh, and those ubiquitous "communications problems".

Now it seems Labor's self-awareness has plateaued:  the bulk of the blame has been laid on Rudd for "stalking" Gillard.

The conservative commentariat didn't create this latest leadership crisis.  But they're reflecting a deeper dissatisfaction with the Government within the broader conservative movement — a dissatisfaction that began with Abbott's slow start in 2013, crystallised with the deficit levy in the 2014 budget, became exposed after the Section 18C promise was abandoned, and spiralled out of control over the Christmas break.

The Prince Philip thing was just the catalyst, not the cause.

And if we've learned anything from the last few leadership crises, once there's agreement on the cause, the consequences are hard to avoid.

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The True ''Common Core'' of English Literature

The Story-Killers:  A Common-Sense Case Against Common Core
by Dr Terrence O. Moore
CreateSpace Independent Publishing Platform, October 2013, 292 pages

Dr Terrence Moore's book, The Story-Killers:  A common-sense case against the Common Core, reveals how the teaching of the Western literary canon is being eroded in the United States by progressive educationalists.  The Common Core ― a government-funded school curriculum ― is currently operational in 46 American states.

Moore is deeply concerned that the truly great stories of Western Civilisation ― Homer, Shakespeare, and the rest ― may cease to be read or studied as whole works in schools across America.  Even now, a twelfth grade "Literature" textbook produced by major publisher Pearson/Prentice Hall teaches Mary Shelley's Frankenstein without setting it as a reading text.

The textbook provides students with page after glossy page of photographs, modern anecdotes and personal reflections on the Frankenstein mythos, but offers no excerpts from the original work or any suggestion that the students should actually read the classic novel.

Is this the future of literature in American schools?  Under the Common Core it might well be.

In a similar vein to the Australian Curriculum for English, the Common Core documents are written in dense educational jargon, and emphasise the development of skills over the acquisition of knowledge.  They provide little useful instruction to teachers, fail to mention many great works of the Western literary canon, and even impede good teaching practices.

In The Story-Killers, Moore proposes an alternative curriculum with classical literature at its core, in place of the progressive paradigm.  In plain language, Moore offers a clear outline of what a solid, classical, liberal curriculum for literature should contain.  He is eminently qualified for the task, having founded a classical charter school for K-12 students in Colorado.  Moore is now principal of the Atlanta Classical Academy, and acts as an advisor to several other classical charter schools via the Hillsdale College Barney Charter School Initiative.

According to Moore, literature should be treated, first and foremost, as a means to study human nature through investigating the thoughts and actions of seemingly real characters.  The motives, ambitions, faults and virtues of human characters are brought to the fore through careful observation and analysis.

The teacher should not be overly preoccupied with structural features in the text (such as its setting and plot trajectory), as these draw attention away from the study of characters and ruin the suspension of disbelief which allows students to truly lose themselves in good literature, as the author intended.

In the final chapter, Dr Moore presents his high school curriculum ― a curriculum which has been successfully implemented in classical charter schools across the US for years.  In essence, it consists of a list of books set for each semester from ninth to twelfth grade.  Arranged in chronological order, this list begins with the foundations of Western literature.  The whole of Homer's Iliad and Virgil's Aeneid are read in ninth grade, along with other Greek and Roman literature.

The tenth grade is devoted to British literature, including the works of Chaucer, Shakespeare, Milton, Austen and Dickens.

Classic American literature is studied in eleventh grade, requiring students to read the Scarlet Letter, Moby Dick, and Huckleberry Finn among other works.  The final year introduces the most recent works of the literary canon, including Orwell's Nineteen Eighty-Four and Conrad's Heart of Darkness.  In all, Moore's literature curriculum is a sweeping overview of the greatest literary works of the Western Civilisation.

Moore provides extensive examples and commentary on progressive failures, but The Story-Killers goes far beyond exposing the intellectual bankruptcy and ideological underpinnings of progressive literature teaching in the United States.

Moore provides viable, positive instruction on how to create a true "Common Core" for literature.  The greatest literary works of our Western heritage should be at the heart of any literature curriculum that claims to provide the best education for young people.

These insights are particularly critical for us in Australia, as we likewise face up to the astounding neglect of literature in the Australian Curriculum for English.

Better to Ask For Forgiveness, Not Permission

Permissionless Innovation:  The continuing case for Comprehensive Technological Freedom
by Adam Thierer
Mercatus Center at George Mason University, 2014, 106 pages

The abundance of information available to us today would have been unimaginable to people living only twenty years ago.  Previous generations found themselves bound to a restricted group of information channels and distribution networks, which were often slow and with limited scope.  With the emergence of the internet everything changed.  Suddenly, the flow of information and the methods of exchange became seemingly limitless.

Through recent developments in mobile technologies ― laptops, tablets, and wearable digital devices such as glasses and watches ― the movement and exchange of ideas and knowledge has made information even more accessible and ubiquitous.

Underpinning this great leap forward has been the ability for anyone to participate.  The internet is a global platform which gives a high school student in Siberia or a university drop-out in Shepparton the same opportunity to experiment and create as a professor at Stanford University.

According to Adam Thierer, the author of a new book Permissionless Innovation:  The Continuing Case for Comprehensive Technological Freedom, it is this freedom to experiment and invent without asking permission that has underpinned the economic benefits of the internet.

Thierer argues:  "Permissionless innovation is about the creativity of the human mind to run wild in its inherent curiosity and inventiveness.  In a word, permissionless innovation is about freedom."  The key outcome of the freedom that results from permissionless innovation is not anarchy but openness.  It creates an environment in which entrepreneurs and innovators can flourish by removing the barriers to entry.

However, new technologies are disruptive.  Faced with the upheaval that they can cause, modern policy debates continue to revolve around one key question:  "Must the creators of new technologies seek the blessing of public officials before they develop and deploy their innovations?"

On the one side, those that espouse the importance of the precautionary principle argue that new inventions and technologies must be curtailed until an inventor can prove beyond all doubt that their inventions will not harm individuals, the environment, or damage cultural or social norms.

The other disposition, "permissionless innovation", refers to the notion that "experimentation with new technologies and business models should generally be allowed by default".

Of course, history is riddled with examples of regulators being precautious by default.  In the mid-nineteenth century, the British Parliament passed the "Red Flag Law" as part of the 1865 Locomotive Act, designed to limit the dangers caused by the development of the automobile.

As a result, early cars were restricted to a speed limit of two miles an hour in towns and cities and four miles on the open road.  The law also stipulated that three people were required to operate any automobile:  one to drive, one to stoke the engine, and one to walk fifty meters in front with a red flag or lantern and warn pedestrians of the approaching danger.

These laws, which were introduced because of heavy lobbying from stage coach and railroad companies, stifled the growth of the industry in Britain.  But in Germany and the United States (except the state of Vermont), who did not have any such laws, the industry flourished.  Britain finally repealed this law in 1896.

More recently, the regulatory reaction to the use of commercial drones, 3D printing, and autonomous cars offer interesting case studies which Thierer examines in an accessible fashion.  But it is tempting to think about restrictions that continue to be applied to GM crops and the onerous regulations that add millions of dollars to the cost of developing new pharmaceutical drugs and medications ― a cost that is inevitably passed onto the consumer.

The internet itself is the most poignant example of the dangers of the precautionary principle in practice.  Although permissionless innovation has been a pivotal element of the success of the platform in transforming our lives, few people realise that it was not always the default position.

Indeed, for many years commercial use of the internet was not allowed.  Drawing from the 1982 MIT handbook for the use of ARPAnet, the predecessor of the internet, Thierer highlights original restrictions that were placed on the technology:

It is considered illegal to use the ARPAnet for anything which is not in direct support of government business ... Sending electronic mail over the ARPAnet for commercial profit or political purposes is both anti-social and illegal.  By sending such messages, you can offend people, and it is possible to get MIT in serious trouble with the government agencies which manage the ARPAnet.

As a result of those restrictions, the internet remained, in its formative years, a closed club for selected university professors, government bureaucrats, and some engineers.  Although these restrictions were no doubt placed on the web with the best of intentions, in hindsight the opportunity costs of such restrictions were immense.

Once these restrictions were removed and commercial use was allowed to proceed, social and economic opportunities became apparent and the internet developed beyond most people's wildest expectations.

Yet despite the technological progress that has resulted from innovators who did not seek prior approval from regulatory bodies and the beneficial results that have emerged from the internet, social networks, and mobile technologies, there remains a prevalent disposition to be overly cautious about new things.  Groups that espouse this way of thinking seek to beat all imagined harms out of any new development before they will allow it to proceed, with intensely harmful consequences for innovation and economic growth.

Of course, that does not mean that problems that develop from disruptive technologies should be ignored.  But regulation should remain a last resort.  Bottom-up adjustment and integration will always be more effective than top-down bureaucratic controls.

Furthermore, Thierer argues that torts, common law, and class actions provide mechanisms that hold firms introducing potentially dangerous products in to the market accountable.  These instruments create an incentive for firms to make better, safer products over time.

The limited regulation placed on the internet has shown what entrepreneurs can achieve when government gets out of the way.  Thierer makes a powerful case for slow-moving and risk-averse regulators to take heed of this lesson and ensure the freedom to innovate without permission becomes the default position, rather than the rare exception.

The Father of History

The Histories by Herodotus
Translated by Tom Holland
Penguin Classics, 2013, 880 pages

"Herodotus", Tom Holland writes, "is the most entertaining of historians.  Indeed, he is as entertaining as anyone who has ever written ― historian or not."

A bold claim though this may be, it cannot be denied that Herodotus' work has influenced myriad writers that have come since.  His legacy has been both profound and long-lived, and continues to be felt today.

As with many Classical authors, very little is known of Herodotus' life.  We know that Herodotus was born in the Carian city of Halicarnassus in south-western Anatolia (now Bodrum, Turkey) at some point in the early fifth century BC, and we definitely know that he wrote a ἱστορία (historia, or "enquiry") in nine books.  Everything else is highly speculative.

Nevertheless, his great legacy ― the carefully-compiled historia ― gained a life of its own, and ultimately gave its name to a literary genre and academic discipline.  In the fifth century BC, he produced what was essentially the first prose non-fiction work in Greek ― apparently the product of tireless research and the cataloguing of many different accounts.  Its stated purpose was to ensure "that human achievement may be spared the ravages of time, and that everything great and astounding ... be kept alive".

In his treatise De Legibus in the first century BC, the Roman orator and statesman Cicero referred to Herodotus in passing as pater historiae ("the father of history").  Herodotus has likewise been dubbed "the father of history" by hosts of academics since.

If he was the "father of history", however, Herodotus was not the father of the political, scientific form of history;  that title more properly belongs to Thucydides, the Athenian historian who flourished in the generation after Herodotus.  Thucydides' history had a specific, clear focus:  his purpose was to recount the Peloponnesian War ― the brutal conflict between Athens and Sparta towards the end of the fifth century BC ― and to report only facts that related directly to his main topic.  Naturally, as an Athenian he was selective of the facts which were included.

Herodotus' work stands in bewildering contrast to that of Thucydides.  True:  the main topic of Herodotus' writing is essentially political, as it concerns the origins of the war between the Greeks and the Persians and the defeat of the Persian invasion of Greece in the early fifth century BC.

But his account entails a great deal more.  He begins with the story of Gyges, who was compelled to kill the king of the Lydians after being forced to see the queen naked.  This then leads to the story of Gyges' great-great-grandson Croesus, who foolishly declared war on the Persians and destroyed his kingdom in doing so.

Elsewhere, Herodotus' narrative digresses to discuss the explorations of the Phoenicians, the customs of the Egyptians, the source of the Nile, the geography of Scythia, and various dynastic struggles in Persia.  In fact, it is only half-way through his work ― in book five ― that Herodotus finally approaches the outbreak of the Persian wars with the Greeks, and only in book seven that Xerxes arrives on the Greek mainland.

Given the extremely broad interests of his work, it is perhaps unsurprising that Herodotus laid the foundations for many disciplines in addition to history.

As Holland argues in his new translation of the historia, Herodotus produced the earliest example of a work on geography, political discourse, and academic research in general.  "The process of researching and recording facts on a would-be encyclopaedic scale begins with his history", so Holland writes.  "Anyone who has ever used the internet to check up on a fact stands in a line of descent from him".

Holland is a London-based historian and prolific writer, whose main interests are ancient and early medieval history.  In addition to writing four historical novels, radio adaptations of important Classical works, plays and documentaries, he is the author of a series of non-fiction bestsellers which collectively explore some of history's most dramatic turning-points.  First, in 2004, was Rubicon, which charts the collapse of the Roman Republic in the first century BC.  This was followed in 2006 by Persian Fire, on the Persian invasion of mainland Greece in the fifth century BC.

His 2009 book, Millennium, explores the rise of medieval Western Christendom in the two centuries surrounding AD 1000, and his 2012 book, In the Shadow of the Sword, concerns the rise of Islam in the sixth and seventh centuries.  In his latest book, Holland has tried his hand at something different.  He provides a bold new translation of Herodotus.

For the most part, he succeeds, although he hardly provides a literal translation from the Greek language.  In the first book, for example, he has the reluctant regicide Gyges say to the Lydian queen,

"... now that you have twisted my arm, and made me swear to kill my master ― something I really do not wish to do, I can assure you ― answer me this:  how do we actually lay our hands on him?"

While this captures the sense of the original, the idiom "twisting the arm" would have been alien to Herodotus.  A more literal translation from the Greek would look something more like this:

"... since you compel me, not willing, to kill my master, please:  I will hear what manner we will lay our hands on him."

The pages of Holland's book are littered with other such modern English idioms that certainly were not in Herodotus' original ― including "to cut a long story short", "I haven't the foggiest idea", "nipping Persian greatness in the bud", and "crack open the wine and start partying".  Holland also has a tendency to turn statements into questions, and generally rephrases sections for dramatic effect.

While it isn't an accurate rendition of the Greek, Holland's version makes better English than a more literal translation would, and is a compelling read for anyone wanting a highly readable introduction to Herodotus' work.

Holland's translation is supplemented with useful notes by the Cambridge Classical historian Paul Cartledge.

In addition to providing much helpful background information on Herodotus' life and style, Cartledge makes some unusual observations on Herodotus' legacy in the contemporary era.

Traditionally, Cartledge notes, Thucydides was regarded as the model historian, not Herodotus.  Although both were essential school texts at various times, Thucydides was preferred both because of his Attic Greek and because of the extremely focused, political, and secular nature of his account.  Herodotus received some criticism because of his tendency to digress on irrelevant matters and the extremely broad interests of his work.

Even in antiquity, writers like Cicero could not help but be irked by Herodotus' tendency to incorporate mythology and local legends into his supposedly factual account;  indeed, in one very hostile essay from the first or second century AD, the historian Plutarch dubbed Herodotus the "father of lies".

In the twenty-first century, this perception of Herodotus has changed.  "The balance has tilted", Cartledge argues, "quite sharply away from Thucydides and towards Herodotus".  To this, Cartledge offers two explanations.  The first, he suggests, is the end of the "old East-West, Communist v. Free World, Cold War" dichotomy and a decline in interest in political history.

The second explanation that he gives relates to the way the historical discipline has reacted to the challenge of "postmodernism" ― namely, traditional historians have given more weight to the reliability of their sources.

According to Cartledge, this has made Herodotus, who took great care in citing his sources and weighing different accounts, preferable to Thucydides, who purports to state only the facts, and so rarely does either.

It should be seriously debated whether all of these changes to the history discipline have ultimately been good, and whether the wandering Herodotus is always a better model than the firm and focused Thucydides.

Nevertheless, it is indisputable that both produced works that were, in their own unique ways, earth-shattering.  Holland's most recent book provides a compelling introduction to one.

Australia's Bright Future

The Australian Century
by Asher Judah
Connor Court, 2014, 287 pages

An important contribution to the debate about Australia's future prosperity, The Australian Century ― a new book by Asher Judah ― sets out a roadmap that will ensure we remain a key economic and political actor over the twenty-first century.

It is easy for modern Australians to forget just how perilous it was for early Europeans undertaking the journey to establish the first Australian colonies so far from the civilised world.  As easily forgotten are the precarious conditions early settlers endured in a foreign and largely inhospitable environment.  Over time, the establishment of viable crops in the wetter regions around the South Eastern coast and later the foundation of livestock and wool industries were pivotal to creating a sustainable base for the economies to become self-sufficient and grow.

However, it was the discovery of coal in New South Wales and, more importantly, gold in Victoria that would revolutionise the settlements.  As a result Australia was able to attract migrants that would help create a thriving private sector and push GDP per capita to levels 40 per cent higher than that of the United States between 1870 and 1890.

Today, Australia stands on the cusp of an economic opportunity that has the capacity to once again revolutionise its economy and drive Australia into global prominence.  This is largely thanks to the predicted rise of 3.1 billion people into the global middle class over the next two decades.

This is the underlying thesis of Judah's refreshingly optimistic take on the huge opportunity that stands in front of Australia over the remainder of the twenty-first century.

Rather than seeing Australia as a support actor in a century dominated by rising prosperity in Asia, Judah prefers to place Australia in the lead role ― something he believes few politicians have done in recent years.

While Australia will not be the only nation to take advantage of this incredible growth in global prosperity, Judah believes it is best placed to do so.  Australia's advantageous position is affirmed as Judah methodically articulates the huge challenges emerging nations will face as they seek to modernise.

China and India best exemplify these challenges.  Over the next 40 years both countries will require an estimated $10 trillion worth of infrastructure to reach parity with the developed world.  China alone will need to build three cities the size of Sydney every year through to 2030 to support its drive to urbanisation.  India's current cities, already at bursting point, will need to accommodate another 500 million people in a similar time frame.

Judah is pessimistic about the long-term prosperity of nations once held to be core players, such as France, Germany, Italy and Japan, all of which face structural and demographic problems which will put a hand-break on their future progress.  Similarly, due to their geographic locations, all will confront the possibility of destabilising population movements as a result of regional conflicts and the real possibilities of territorial disputes.

Three nations in particular remain best placed ― through their geographic location and size, their demographics and their wealth of natural resources ― to take advantage of the huge opportunities that exist:  Australia, Canada, and the United States.

This is a rare opportunity for Australia.  High demand for raw materials, energy and agricultural products is predicted to grow with demand cycles reaching well into this century.  Australia, as a major supplier of these commodities, will consequently retain positive terms of trade and long-term strategic importance.

The services sector is also expected to benefit as Australia's expertise in education, wealth management, medicine and technology becomes increasingly important.  Just as the commodity boom has fuelled recent growth in Australia's economy, our services sector is predicted to drive the economy to even greater heights.

All of these factors are predicted to increase the value of Australia's exports, stimulate further foreign investment, encourage high employment and attract the best and brightest migrants from around the world as other nations struggle to overcome challenges Australia finds itself immune to.  Thus a virtuous circle will emerge in which Australia will continue to rise in prominence as the century unfolds.

Of course, this does not mean that future growth is a fait accompli.  Australia is not without its challenges.

Australia's future prosperity is reliant on the success and management of what Judah terms "population islands", of which he identifies five.  Located around the cities of Sydney, Melbourne, Brisbane, Perth, and Adelaide, they make up 60 per cent of the nation's population and 63 per cent of its GDP.

Planning and encouraging the development and success of these disparate yet individually vital islands will be as pivotal to Australia's future success as the mines, gas wells, and farms whose products will be in such high demand.

This will require some difficult decisions, but a more sustained move toward privatisation of government assets, the introduction of user pays infrastructure, and asset transfers to the private sector must underpin any future development.

As Judah rightly notes in his book, our ongoing success is not a sure thing.  Although our natural endowments will ensure Australia is blessed with the best opportunity to succeed, any progress and development will be driven by enterprising individuals and businesses taking advantage of the opportunities that exist.

Recent history shows that Australia's economy is in the process of sustained transition, as our manufacturing sector increasingly slows and our mining investment plateaus.  Although many of the factors that Judah discusses are of vital importance to our future prosperity, the only way to ensure that prosperity ensues is by making Australia a competitive place to invest and do business.  Reforming Australia's taxation and regulatory regimes will therefore also be of vital importance.

Judah's book makes for fascinating reading, with conclusions built upon an extensive body of research.  The Australian Century makes for an informative and optimistic view of Australia's potential in the future.