A hollow victory for the anti-austerity crowd

Prime Minister Julia Gillard informed us yesterday that the budget deficit will be much worse than predicted.  Her speech has been greeted with the usual debate about whether it even matters if we go into deficit.

But this time is different.  Thanks to a recent academic controversy, it seems like the anti-austerity, pro-deficit spending crowd has won a major victory.

Here's the story.  In January 2010, two prominent American economists, Carmen Reinhart and Kenneth Rogoff, released a working paper, ''Growth in a Time of Debt''.

The paper took data spanning 200 years from 44 countries and analysed the relationship between public debt and economic growth.

The findings were striking.  Once debt hits 90 per cent of GDP — that is, when a government owes almost as much money as the entire economy produces each year — then the rate of economic growth dramatically slows.  (Obviously Australian debt is nowhere near this high.)

But fast forward to April 2013 and three economists at the University of Massachusetts Amherst published a critique after looking at the original data sources.  They found that Reinhart and Rogoff a) made a coding error in Excel, b) excluded some data, and c) made some methodological choices which they describe as ''unconventional''.

Then came the wall of commentary.  It was hard to avoid.  Here's one interesting take on the controversy.  Here's another.  And another here.  Here's one, another here, here, here, and here.  Julie Novak weighs in here.  Reinhart and Rogoff respond here, and here, and here.

And here, the Nobel-winning New York Times columnist Paul Krugman asks:  ''Did an Excel coding error destroy the economies of the Western world?''

Well, obviously not.

This whole spat has nothing to do with the economics of public debt.  It has everything to do with the politics of austerity.

Strip away the rhetoric and the actual argument about the paper is actually pretty modest.  Is the 90 per cent ratio a tipping point — a line countries must not cross?  Or does economic growth just decline slowly while public debt rises?  The tipping point argument was interesting, but not particularly compelling.  It's all well and good to crunch some numbers that throw up an interesting result.  But you have to explain why it has done so.  What's so special about 90 per cent?

Yet after all this fire and brimstone, nobody seriously disputes that high debt and low growth are correlated.

More important is figuring out whether debt hurts growth.  Or is it that low growth leads to increased debt?  In other words, is debt to blame for economic problems or is it merely a symptom of those problems?  Have a flick through the links above.  The answer is probably a bit of both.

The problem with public debt is today as it always has been — politicians have few incentives to balance their budgets, and every incentive to grow debt unsustainably.  Just look at the United States to see how this plays out in practice.  But eventually bills have to be paid.

Reinhart and Rogoff did not invent the problems of unsustainable deficits.  Ever since Adam Smith, economists have been talking about the need to balance budgets.  And Smith didn't rely on Excel to make his case.  Two and half centuries later, there is a huge literature on public finance.

Nor did Reinhart and Rogoff invent the current austerity movement.  The timeline doesn't work.  In the UK, David Cameron was talking about an austerity budget early in 2009.  Spain had an ''austerity plan'' that December, a month before the Reinhart-Rogoff paper was released.  As did Greece, Ireland, Romania, and Latvia.

Anyway, for all their rhetoric, it isn't clear many countries have really pursued ''austerity'',as I argued in the Drum last year.

So let's not overestimate the political power of academic research.

In his most famous book, the General Theory of Employment, Interest and Money, John Maynard Keynes wrote, ''Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.''  Obviously economists love this little quote.

The irony was governments were following Keynesian-esque policies well before the General Theory was released in 1936.  They were already trying to spend their way out of the Great Depression.  Keynes' theoretical arguments suited the times.

It's the same story with austerity.  No surprise that some politicians who had already committed to cutting spending embraced Reinhart and Rogoff's paper.  Paul Ryan cited their 90 per cent tipping in his Path to Prosperity budget plan.  Surely nobody thinks these two academic economists gave Ryan the idea to cut government spending?  Politicians will take any evidence they can find to support their existing views.

And those who are certain austerity is the wrong path — that it has led the world into a deeper crisis than Keynesian spending might have — have embraced the Reinhart-Rogoff saga as a sort of intellectual triumph.  But they're being even more opportunistic.

One of the Massachusetts economists believes their critique demonstrates that ''under particular circumstances, public debt can play a key role in overcoming a recession''.  This is a huge overreach.  As Greg Mankiw has written, ''just because someone in Team A makes an inadvertent excel error does not mean that everything Team B believes is true.''

If nothing else, this saga should remind us that excessive government spending is first and foremost a political problem, not an economic one.

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The last thing we need is an increase in taxes

Nothing quite sharpens minds more than the realisation that Australia's fiscal problems are substantive and becoming entrenched.

After repeated claims by the Gillard Government that it would target a return to budget surplus in 2012-13, the jig was well and truly up when the Treasurer made his public confessional late last year of the unlikelihood that this undertaking would be achieved.

Since that time the Government has struggled to maintain a consistent public posture regarding its approach to minimise the size of the deficit.

Treasury and Finance portfolio ministers initially talked tough about the need for deep spending cuts, however this discourse appears to have gone the way of the dodo.

Over the past fortnight, the Gillard Government has arrived at the position that any transition back to budget surpluses in the near, or more likely distant, future must depend upon revenues growing more strongly, rather than significantly reducing expenditures.

This newly enunciated position seems to have acted as a proverbial siren call for those with a preconceived disposition favouring higher taxes, with a range of academics and organisations coming out in recent days supporting revenues being bolstered by tax increases.

Tim Soutphommasane, a University of Sydney philosopher, recently wrote that ''if future governments are to support the kind of public services and investment that Australians appear to want, taxes will need to rise.''

The Grattan Institute, a government-funded think tank, has similarly called for tax increases as part of a broader fiscal consolidation strategy by both Commonwealth and state governments.

Former federal Labor minister Graham Richardson stated that a potential Abbott Coalition government ''will have to look at the revenue side'' (pay wall) with an emphasis on increasing the GST in addition to spending cuts.

Even former Coalition finance minister Nick Minchin has come out advocating an increase in the GST rate or broadening its taxing base.

As popular as higher taxes have become among some, raising taxes, in any way, shape or form, would be the worst economic outcome that any government could pursue, in efforts to return some normality back into their budgetary settings.

The notable works of economist Alberto Alesina, who has examined the interaction between alternative fiscal consolidation strategies and economic growth in numerous countries, suggests that expenditure reductions can help achieve the desired budget recovery outcomes, with the least adverse economic effects.

Alesina indicates that expenditure-based fiscal adjustments are associated with smaller economic downturns, if at all, than tax-based adjustments, and these policies, especially when combined with deregulation, have in some circumstances supported economic growth.

In addition, a more general empirical literature exists which mostly indicates that, putting aside issues of tax structure, higher rates of total taxation imposed upon individuals and businesses are associated with slowing rates of economic growth over time.

A recent study (PDF), by Davide Furceri and Georgios Karras, for 26 OECD economies, including Australia, found that an increase in total taxes equivalent to 1 per cent of GDP will reduce long-run real GDP per capita by up to 1 per cent.

A number of other studies, for single economies such as the United States and Canada, also allude, in the main, to the growth-hampering effects of increasing taxes.

These and other studies support the longstanding understanding of economists that the imposition of higher taxes would distort economic activities, by hampering productive behaviours such as working, saving, investing, or exercising innovative or entrepreneurial conduct.

In short, it seems that the latest round of calls for higher taxation would propel Australia down the wrong economic track.

To provide greater certainty for investors and bolster consumer confidence in the present economic climate, what is actually needed in the lead up to the federal election, and beyond, are clearly enunciated political statements that increasing taxes would not be countenanced, regardless of circumstance.

Political form on this issue has not been promising so far, however.

In addition to the carbon dioxide and mining taxes, Australians have been hit by flood taxes, rising alcohol, fuel and tobacco excises, and the abolition of several income tax offsets and other forms of tax relief over the past few years.

More recently, the Government announced a new tax on superannuation earnings over $100,000.

The Coalition's promise to introduce a parental leave scheme, funded by an increase in company tax on the largest 3,200 companies, has also been met with disapproval by a number of economists.

What is needed is for the major parties to turn away from their higher taxing promises, have the party leaderships utter something similar to George H W Bush's ''read my lips, no new taxes'' line, and back this with a practical commitment, in government, to not break such a promise.

Spending reductions and privatisation should, then, perform the heavy lifting of fiscal consolidation.

All too often good politics unfortunately aligns with bad economics, and indeed the persistent federal budget deficit is a case in point.

However an explicit shift in strategy by a major party toward a 'no tax increase' commitment would represent a rare and welcome occasion upon which good politics and good economics finally meet.

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Power is not meant for bureaucratic hands

Terry Moran wants senior public servants to be liberated to ''talk sensibly'' in public about ''long-term and self-evident truths'' without being seen as betraying their political masters.

That is, Moran wants to revive the public service mandarin, updated for the media-centric demands of the 21st century.

Moran was recently the head of the Prime Minister's Department.  You can read his argument in the Australian Journal of Public Administration here.

It's an important piece.  It reveals, subtly but distinctly, what Australia's bureaucracy wants, and what it fears.

Our ideas of the public service waver uncomfortably between two largely incompatible doctrines.

The first is the strict Westminster doctrine of ministerial responsibility.  According to this doctrine, the bureaucracy is accountable to the minister — it acts solely according to the wishes of its elected master.  It is non-partisan and neutral.  It provides advice, of course, but does so privately.  It is nothing more than ''an extension of the minister's capacity''.

The second doctrine is more nebulous and romantic:  that of an autonomous, technocratic and permanent bureaucracy, which has its own mandate to advocate and act in the best wishes of the nation.  We could call this doctrine Hegelian — drawn from the 19th century philosopher Georg Hegel, who believed the bureaucracy had a moral mission to pursue what was in society's general interest.

Taken far enough, the Hegelian bureaucracy is fundamentally anti-democratic.

Senior bureaucrats already can, and do, speak in public about their areas of responsibility.  Here are recent speeches given by public servants at the Department of Climate Change, and those given by the Department of Health and Ageing.

This is a good thing.  Information provision is a vital part of the bureaucracy's job.  When politicians come up with grand schemes it is necessary for bureaucrats to translate those schemes into reality and to clarify for a confused public what on earth they actually mean.

But on top of this, Moran would like public servants to be free to talk about ''long-term strategy''.  He is proud that many of the reforms of the 1980s were ''conceived and championed by the public service'', and hopes the public service can lead again — but this time as much through high-profile speeches on ''self-evident truths'' as through internal advocacy.

Don't let the fact that the liberalisations of the 1980s were an unambiguous success obscure how undemocratic this idea is.  The bureaucracy has neither the authority nor the legitimacy to publicly call for what it thinks a government should do.

Moran also wants ministerial advisors — or, more crudely, political advisors — to be subject to the same rigid accountability structures as the public service.  This would include being given bureaucratically defined roles and having to answer to parliamentary committees.

The biggest threat to the influence of the public service has been the rise of political advisors.  These advisors are a competing source of counsel.  Public servants no longer have the unencumbered access to the ministers they once had.

It's common to read complaints (particularly from the Rudd era) about how arrogant and young advisors swan around Canberra apparently unchecked by any person or sense of propriety.  You can understand why advisors get the public service so riled up.

But these advisors exist for a reason.  Newly appointed ministers are easily brow-beaten by experienced public servants.  The relationships depicted in Yes, Minister are not fictional.  If you want to read how some agencies and departments used to treat their minister as just a rubber stamp, read Neil Brown's great and amusing memoir On the other hand.

Faced with a self-interested, confident, and experienced bureaucracy, it helps to have an advisor or two who is unambiguously on the minister's side.

So whenever you hear public servants complain about political advisors, think:  power-play.

(And, contrary to Moran's claim, the original spark for the 1980s reforms didn't come from the public service, but from advisors:  for instance, John Rose in Malcolm Fraser's office and John Hewson in Treasurer John Howard's office.)

I quoted a basic definition of the Westminster concept of the public service above.  One of Australia's greatest mandarins, Sir Henry Bland put the case more forcefully:

[T]he Minister is the department.  Without a Minister there cannot be a department ... The Permanent Head is the Minister's adviser and the manager of the department's staff ... And remember, Parliaments do not provide funds for Permanent Heads.

It is ministers who have power and authority in our democratic system.  Ministers are the ones elected.  Ministers are the ones who are ultimately accountable.

Senior bureaucrats might like recognition and intellectual prominence — to be seen by the public as visionaries and ''thought-leaders''.  But that, simply, is not what they are there for.

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Double click on the next digital revolution, then brace yourself

At first, the internet was treated as a curiosity.  YouTube has a television segment from 1981 on newspapers experimenting with sending digital stories over the phone line.  ''Imagine, if you will, sitting down to your morning coffee, turning on your home computer to read the day's newspaper'', said the host with a bemused smile.

We all know how that turned out.  The internet has played havoc with the newspaper industry.  It has ripped up the music industry and intimidated Hollywood.  What is a curiosity today might be the industry-disrupting, society-realigning, prosperity-enhancing and utterly essential technology of tomorrow.

Two recent innovations suggest the next few decades will be more disruptive than any other time in living memory.  Right now, Bitcoin and 3D printing seem the province of geeks and hobbyists.  But they're omens of revolutions to come.

Bitcoin is a digital currency that can be used like normal money.  You can buy or earn Bitcoins online and use them to purchase goods or services.  An increasing number of online retailers accept Bitcoins as payment — including one of the world's biggest dating sites, OkCupid.  But unlike normal money, Bitcoins are very hard to trace, extremely hard to tax, and can be completely anonymous.  With only a bit of care, you can make it impossible for the government to pry into your Bitcoin account.

Scepticism is reasonable.  Bitcoin is an immature technology.  It seems prone to huge swings in value, so it's hard to be confident about using the currency in the marketplace.  Bitcoin may end up fizzing out.

But the idea underpinning it is both radical and plausible:  that digital technology allows the creation of an entirely new global currency outside the control of governments and central banks.  Political power and power over the currency have always been intertwined.  Technology may break — or at least undermine — this age-old relationship.  Sound far-fetched?  So did the internet.

3D printing allows hobbyists to easily and cheaply produce three-dimensional objects at home.  The only costs are the printer itself and the raw material — plastics, rubber, even metal — that are made into the final object.  The printers cost just a few thousand dollars.

For the most part, 3D printing is used to make trinkets.  But it can also be used to make more valuable things — prosthetic limbs or replacement car parts.  Or firearms.  There's a group of hobbyists in the US working to build 3D-printable semi-automatic rifles.  These weapons are illegal in most countries, but may soon be easy to build in your own home.

Our legal and economic institutions are not well equipped to deal with these sorts of technological innovations.  Usually, when governments want to ban or regulate something, they target its source.  If it takes a big factory to make prohibited goods, it's not hard to detect.

Complex laws and well-funded regulators manage our financial transactions.  Yet imagine a world where you can store your earnings outside the government's reach.  We're nowhere near that scenario yet.  But in 1981, we were nowhere near being able to access every newspaper in the world and every song ever recorded on a tiny phone.

The economic consequences of these innovations are huge.  But economies are used to change.  One of the advantages of a free market is how it is able to adapt.  Absolutely, those adaptations aren't always pretty.  The shift from a manufacturing to a service economy has been traumatic for some.  When we can make custom industrial products in our own home, what happens to all the companies and workers doing that now?  Yet we've been through this sort of rapid industrial change many times.  And we always end up more prosperous.

Legal systems are not as flexible as the market.  Politicians are backward-looking.  Only this year was the classification system fixed to properly account for video games.  Our laws haven't caught up with the internet.  Legislators have no idea what to do about music and movie piracy — our copyright laws are routinely ignored.

So do we want people to be able to 3D print anything they like?  Well, how on earth would we stop them?

These future innovations will be enormously beneficial.  It's why viewers of the 1980s were titillated by the idea of digital newspapers and why it's fun to imagine what comes next.  They will enhance our living standards, give us more choice and greater comfort.

But if you think the internet has been disruptive, brace yourself for what comes next.

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The state payroll just isn't working

In Australia in 2000, for every job in the public sector there were 3.2 private sector jobs.  In 2013, for every public sector job there are now 2.5 private sector jobs.

Between 2000 and 2013 the number of people employed in the private sector grew by 20 per cent — from 6.7 million to 8.2 million people.  Over that time the number of people employed by the public sector grew by more than 60 per cent — from 2.1 million to 3.3 million people.

In this context the public sector is counted as federal, state, and local government and certain industries where there is government ownership, or substantial government subsidy, or direct price regulation by the government.  So for these purposes the public sector includes government employees, and employees in education, healthcare, social assistance, arts and recreation, and some utilities.

I anticipate in coming years the situation will only get worse.

The two ''reforms'' Julia Gillard wants to fight the federal election on are her plans to increase spending on school education by $14 billion over the next six years and the creation of a National Disability Insurance Scheme which, when fully implemented, could cost the government an additional $10 billion a year.  Both ''reforms'' will add thousands of employees to the government payroll.

Even those additional teachers, nurses, and care givers employed by private schools and non-government agencies as a result of these reforms will nevertheless have their wages heavily subsidised by government.

Since the global financial crisis in 2008, private sector jobs in Australia have increased by 279,000, while public sector jobs have increased by 406,000.  Australia still has a relatively low unemployment rate (at least compared with the US or Europe) of 5.6 per cent only because of the growth in public sector jobs and a decline in the number of people looking for work.

There have been many explanations for this country's declining productivity.  No one has yet mentioned what's obvious.  Productivity could be falling because there are too many public sector employees implementing efficiency-sapping government initiatives, and on any measure the private sector is more productive than the public sector.

Measuring the size of government but comparing government spending to a country's gross domestic product is a very blunt way of gauging the dead hand of the state.  For one thing it doesn't consider the composition of government spending.  Spending on public infrastructure has a different impact on the economy than spending on public servants' salaries.

Public servants are dependent on the people who generate the wealth who can then pay taxes which allow those public servants to be paid.

But it's worse than that.

For one thing, more public servants means more red tape and more restrictions on the private sector.  More public servants also means more regulation of the public service itself.

What's happened in the Queensland Department of Health is a good example of what happens as public service numbers increase.  Campbell Newman has been attacked for cutting 1500 jobs from the department.  More than 80,000 people work in the department.  Over the past 10 years the department grew by more than 32,000 employees.  The number of nursing positions increased by 65 per cent.  But the number of managers and clerks increased by more than 100 per cent.

We shouldn't forget that public servants are voters, too, and they tend to vote for political parties which tend to promote the ideals of larger government.

In recent years a lot of attention has been given to the ''dependency ratio'', which measures the working age population against the number of dependents — people too young or too old to work.  This is the ratio that's been the focus of the federal government's various Intergenerational Reports.  But asking about the dependency ratio is the wrong question.  It obscures the issue of who's creating the wealth in the first place.  It doesn't matter how big the working population is if everyone is working for the government.

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Carbon market flaws evident

The collapse of the European carbon price exposes the structural flaws of the government's plan to cut greenhouse gases.

A European Commission plan to cut emissions permits for up to seven years and thus push up their price was rejected on Tuesday by the European parliament because it would pass on higher costs to struggling industries and consumers.

Emissions trading is supposedly a market system based on supply and demand.  But behind the jargon, trading schemes are just government-mandated markets influenced by political interests.  When too few companies are required to buy emissions permits, or too many permits are allocated, or both, the price collapses.

This reality is unfolding in Europe.  A tonne of emissions is now $3.20, and is expected to fall to $1.20 compared with $7 earlier this year, a 2008 starting price of nearly $50 and Australia's $23 carbon tax, which will increase to $24.15 on July 1.  The European carbon price crash is not unprecedented.  The voluntary Chicago climate exchange traded permits for about $7.50 in 2008, but bottomed out at 5c when the scheme closed in 2010.

Political manipulation of carbon pricing for private interests was always likely.  Even Ross Garnaut argued in his 2008 review, ''If there is a chance that political pressure will reap rewards in the form of special treatment, then the system will promote a large diversion of management resources towards rent seeking from governments''.

European politicians have recognised how little public appetite there is to increase their hip pocket costs to cut emissions and reward rent seekers.

All this bodes poorly for Australia.  Under the government's plan the Climate Change Authority will recommend our emissions target with the assumption our elected officials would blindly adopt it.  That assumption is now exposed for the hokum it always was.  Politicians can always make political capital opposing tax increases.  The only difference with Europe is Julia Gillard included an automatic target cut if the parliament can't agree on an alternative.

The capacity for political manipulation ensures carbon markets never deliver the certainty their supporters claim.  That might not matter if they cut emissions, but they fail there too.

A report by the UN's climate change secretariat concluded Europe would largely meet its Kyoto targets because of economic decline.  By comparison the US Energy Information Administration reported a rapid drop in US emissions last year, to their lowest level since 1992.

This was achieved ''during a year of positive growth in gross domestic product'' from expansion in the use of cheap, fracked gas.  Meanwhile the Treasury's Strong Growth, Low Pollution modelling shows that despite having the world's most broadly applied, highest cost carbon tax Australia's emissions will continue to rise.

It's probably the only assumption Treasury got right.  Comprehensive modelling would have assumed realistic scenarios about whether countries would impose their own equivalent schemes and sign up to a global carbon cutting agreement.

Instead Treasury assumed an utterly unrealistic global carbon price of $29 in 2015, and that each country would have carbon taxes, or their equivalent.  The scheme, linked to the lower European price, exposes a fiscal gap between the fixed ''over-compensation'' and the billions in expected government revenue.  It is a mess.

Technocrats advocate for trading schemes in theory because it is the most efficient way to price emissions, in practice they can be manipulated like any other regulation.

The European parliament's action this week to avoid increasing taxes on households has exposed the problems of emissions trading.  Europe should abandon its structurally flawed scheme, and Australia should learn from their mistakes and follow.

US leads on shale gas, and we ought to follow

President Barack Obama's spending and regulatory excesses are battering the US economy.

However, notwithstanding government unfriendliness to fossil fuels, America's entrepreneurial resilience has unleashed a mining bonanza based on shale oil and unconventional gas.

Twenty years ago, these were minor energy sources.  By 2020 they will supply three-quarters of US gas, resulting in the US overtaking Saudi Arabia in oil and gas production.

Already, shale gas developments have brought about a two-thirds fall in the US gas price.

The US Energy Department reckons Australia's unconventional oil and gas reserves are comparable to those of North America.

It estimates our shale gas potential is three times larger than known natural gas reserves.

At present there is no Australian shale oil and gas production.  There is a mixed regulatory picture for related coal-seam gas mining processes.

A broad antidevelopment alliance has unleashed spurious objections to the extraction technologies, even though they are well-proven.

Using pseudo-science, the Opposition's green leftist leadership argues that mining the new energy source will poison the water table.

They maintain that people use too much energy anyway, and that we should also use solar energy at a fivefold price premium.

In Queensland, however, sound government policies have allowed coal-seam gas developments to proceed.

With 4000 wells, coal-seam gas from Queensland now accounts for 12 per cent of Australian gas production.

In addition to providing most of the state's gas, coal-seam gas supplies will be the basis of a major new export industry.

NSW is a different story.  Although it has similar prospectivity to Queensland, it has allowed only about 250 coal-seam gas wells to be sunk.

The industry in NSW faces a lethal brew of hobby farmers, pro-poverty green zealots and radio shock jocks.

Last November, the Government established stringent policies that outlawed development in some highly promising areas.

Three months later, it suddenly announced additional no-go areas and further regulatory barriers.

Victoria is even worse off.  The former energy minister (now Treasurer), Michael O'Brien, was spooked by a handful of militants into declaring it illegal to use fracking to mine coal-seam gas.

Even exploration approval involves highly bureaucratic procedures.  The Government has warned companies that any successful find will be bogged down in red tape for more than five years.

Not only are the present arrangements thwarting a new industry, they are denying revenue to the Government.

Governments in Canada, where, as in Australia, the minerals are owned by the state and not the landowner, have been far more supportive.

Canada, as a result, is expecting a tenfold increase in shale gas production in the next 25 years.

Woodside's recent cancellation of its proposed giant Western Australian gas project illustrates how regulations can derail projects.

To reject the new gas and oil extraction techniques is to reject affluence from cheaper prices.

Cheap energy offers export industries to Australia and advantages to consumers and industry — Asian gas prices are five times the Australian level.

But regulations can undermine our energy wealth and prevent us from adopting the modern, well-proven, safe technologies that will enable us to discover new reserves to provide low prices and exports.

Hanging out each others' washing

As the vast amounts of newspaper ink spilt around the country attests, the primary focus of attention on recent labour market statistics has been on the unemployment rate.

Last week the unemployment rate, as calculated by the Bureau of Statistics, continued upon its typical monthly pogo stick journey by increasing 0.2 percentage points to a seasonally adjusted 5.6 per cent last month.

Naturally two divergent political outtakes have emerged from this result, with the government continuing to draw favourable comparisons between Australia and other Western economies and the opposition warning that the increase is a harbinger for worse to come.

While concerns about the movement in the unemployment rate remains a legitimate concern, given the severe economic and social costs of unemployment faced by the jobless, there is a similarly profound feature of the labour market statistics that are often overlooked in policy discussions.

This concerns trends in the division of employment between the public and private sectors of the economy.

Using industry-level employment data provided by the ABS, it is possible to demarcate industry employment as being either ''private'' or ''public'', on the basis of the extent of government ownership, subsidisation and direct price regulations.

While there is some degree of judgment involved in making these distinctions, aggregate public sector employment can be calculated as including those employed in public administration and safety, education and training, health care and social assistance, arts and recreation, and utilities.

The private sector employment classification includes some key industries in the Australian economy, such as agriculture, mining, manufacturing, construction, retail and major services.

Using the ABS statistical series from 2000, when most of the privatisation efforts of the 1980s and 1990s had been completed, it can be shown that employment in the private sector is considerably greater than in the public sector however the jobs dominance of the private sector has receded.

In February 2000 for every public sector job there were 3.2 private sector jobs, however by February 2013 this has shrunk to 2.5 private sector jobs for each public sector job.

In other words, most of the jobs growth in recent years has been concentrated in industries dominated by public sector financing and output provision.

From February 2000 to February 2013 the overall growth of private sector employment was in the order of 20 per cent, which was exceeded by public sector employment growth of about 60 per cent over the same period.

The statistical evidence also tends to belie claims by governments and trade unions that harsh, deep cuts have been made across every part of the public sector since the onset of the global financial crisis in late 2008.

Since the GFC employment in public sector industries have risen by about 406,000 people, with health care and social assistance leading the charge with an extra 269,000 people employed in that industry alone followed by education with an extra 78,000 jobs.

While there is now some belated evidence of job cuts in public administration and safety over the past twelve months, with about 19,000 job losses nationally, the education, health and social assistance employment continued to rise with an additional 101,000 jobs.

The relative enlargement of public sector employment has profound consequences for the future robustness and competitiveness of the Australian economy.

Since government cannot produce anything of its own accord, but relies upon the private sector to empower its capacity to forcibly redistribute resources, extra taxes paid by the private sector to hire public sector employees reduces the employment creation potential of the private sector.

The perceived security provided by a public sector, which does not rely upon pleasing taxpayers for its very survival, appeals as a drawcard for many of the government's employees, exacerbating skills shortages faced by the private sector especially for white collar professionals.

Finally, additional public sector employment can retard private sector jobs growth because some government employees are charged with implementing and monitoring growth-inhibiting taxes and regulations, whilst others deliver services at lower levels of efficiency than if they were delivered by the private sector.

Public sector jobs growth, particularly in the ''new commanding heights'' of education, health and welfare, has proceeded on its merry way, irrespective of the economic weather, whilst major productive sectors have struggled to maintain their jobs base in an underperforming post-GFC Australian economy.

A significant reduction in public sector employment, founded upon critically assessing the economic merits of functions and activities presently undertaken by government, remains a meritorious strategy for reform-minded governments to promote long term economic growth and productivity.

It is about time that the jobs growth pendulum swings the other way.

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Instead of the state, globalisation has withered

Arguably the most pervasive economic phenomenon of our generation is globalisation, entailing the integration of people, capital, ideas and cultural norms across global economic space.

To a great extent this widespread order owes much to the economic stance of openness embraced, willingly or otherwise, by nation states, featuring the reduction of protectionist trade barriers, easing restrictions on capital flows across borders, and increasingly non-discriminatory immigration programs.

Although complete international economic, social and cultural integration is yet to be achieved, there is little doubt that, on balance, the globalising trend of recent decades has delivered substantial benefits.  Immigrants have secured economic and social gains from reduced entry barriers imposed on cross-border movements, with opportunities to live safer, happier lives in countries providing more abundant job opportunities.

Incumbent residents in countries welcoming mass migration also benefit, with a larger population supporting economic development and with new and interesting cultural precepts injecting more cosmopolitan outlooks into the population at large.

Reduced tariffs on merchandise and foreign investment has extended economic prosperity by growing profitable industries and expanding employment, and providing customers with a greater choice of often cheaper products.  Foreign investors and domestic taxpayers alike have benefited enormously from tax-rate reductions on income and capital enacted by governments in their efforts to attract skilled labour and specialised capital to their countries.

While the international transmission of policies lending support to economic deregulation can be credited for yielding these gains, there is always the attendant risk that some countries could act in unison and perversely restrict opportunities.

The most optimistic had hoped that post-1970s globalisation would wither away the state, but the 2008 global financial crisis ushered in a largely synchronised enlargement of government with a momentum rarely seen in the postwar period.  In other words, what we have experienced in recent years is effectively the globalisation of statism on policy steroids.

Demonstrating that Soviet socialism might be dead, but dormant Western Keynesian socialism only needed resuscitation, incumbent politicians of all parties embarked on an unprecedented ''fiscal stimulus'' spending spree sending previously sound budgets into a parlous state, and parlous budgets into an even more parlous condition.

The consequence of this overspending was a dramatic increase in public-sector indebtedness, with some estimates indicating that debt owed by the globe's taxpayers to each other, in the name of their governments, stands at more than $50 trillion.

The justly criticised incestuous relationships between governments and their bailed-out domestic financial sectors drew ever closer as politicians laid out stricter guarantees on capital reserves and obligations on private banks to buy more government securities.

But the global financial crisis policy surprises were not limited to dusting off Keynes' General Theory of Employment, Interest and Money or the retreat from financial liberalisation.  Conventional understandings of the arm's-length relationship between fiscal and monetary policies, and the appropriate degree of monetary policy activism, have also been shaken to their core.

Monetary policies were once again openly conducted for macro-economic stabilisation, such as enhancing economic and employment growth, as opposed to the prior consensus that central banks conduct monetary policies primarily with a view to controlling inflation.

A clear manifestation of changing central bankers' dispositions regarding monetary policy conduct was the substantial reduction in official interest rates to close to zero in many advanced economies, a policy supposed to fuel private investment but which has underhandedly reduced the returns to savings.

Interest rate reductions have been accompanied, mainly in the United States, Britain and eurozone countries, by successive rounds of ''quantitative easing'', effectively printing money so that central banks can buy government securities through secondary markets.

These procedures, however, may have paved the way for governments to borrow to fund their overspending.  As Adam Smith put it:  ''The honour of a state is surely very poorly provided for, when in order to cover the disgrace of real bankruptcy, it has recourse to a juggling trick of this kind.''

Some policymakers may perceive that the fiscal and monetary policy juggling trick, all geared for the grand political purpose of spending today and paying tomorrow, can continue with no end in sight.  But, eventually, even the policy jugglers must tire or lose concentration as more policy balls are thrust into the air all at once.

So long as governments are unprepared to countenance correcting their overspending habits, new and increasing taxes, even on the previously perceived untouchables of bank deposits, superannuation nest eggs or other savings, become the politician's friend to repay public debt.

It also seems the central banking jugglers hadn't quite thought through the long-term consequences of their activism, as any future interest rate increases could further stall growth and raise public-debt servicing costs.

Such measures, if applied widely and in synch, would certainly hamper the resilience of global markets, and the damage would be magnified if politicians return to protectionism, financial barriers and immigration lockdowns in response to domestic voter demands for security in a low-growth and still uncertain world.

If for nothing else, our tethered world of burgeoning deficits, astronomical debts and debased money serves as a stark reminder that reckless policies threaten globalisation's promises of prosperity and social cohesion for all.

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Iraq stands as a warning against foreign intervention

Ten years after the invasion of Iraq and you'd think the only issue was whether John Howard ''lied''.

Howard, you might recall, happened to be prime minister of Australia (in Canberra) when the president of the United States (in Washington DC) decided to overthrow Saddam Hussein.

The idea that Howard had any control over George Bush's decision is ludicrous — almost as ludicrous as the idea his government would decline to support Australia's closest ally 18 months after September 11.

So this interminable debate — which intelligence officer said what to who about weapons of mass destruction — is an indulgent smokescreen.  It's being used to obscure the significance of the Iraq War.

Iraq was an intellectual crisis for both left and right.  In 2002, the academic Samantha Power influentially described foreign genocide as a ''problem from hell'' — surely we are morally obliged to prevent it, but how?  Her answer was liberal interventionism:  a call from the left to use the US military to protect human rights around the globe.

This was not an obscure doctrine.  Liberal interventionism was intellectually prominent when the Clinton administration was trying to deal with Kosovo and Rwanda.  Power has become an adviser to Barack Obama and urged him to act on Libya.

Bush's plans for Iraq were a dilemma for liberal interventionists.  Power opposed the war, but reluctantly:  in her view the ideas were sound, but the Bush administration had squandered too much international political capital to make it work.  Others on the left were supportive — Tony Blair, for one.  This interesting 2008 piece by Blair's former chief of staff tries to keep the liberal interventionist case alive.

Neoconservatism was liberal interventionism's right-wing relative.  It was more messianic and more ambitious.  Rather than merely stopping genocide as it occurred, neoconservatives thought America could prevent such crimes;  the US could actively create liberty abroad.  Think of Christopher Hitchens as a crossover between these two camps.

Both these philosophies of foreign policy rejected the amoral calculations of national interest that had led America to tolerate, even support, dictatorships.

There was even an open debate among libertarians at the time about the justness of military intervention to expand individual liberty and human rights.  In retrospect that seems bizarre.  Government small enough to drown in a bathtub but big enough to invade, liberate and rebuild faraway countries?  For what it's worth, I supported the war at the time.  This was a mistake, but we've forgotten how live those debates were.

The claim that Bush — or Howard — went to war in Iraq simply because of weapons of mass destruction is complete historical revision.  Rightly or wrongly, they saw it as a moral cause.  Ba'athist Iraq was one of the worst tyrannies on the planet, and the Iraqi people some of the least free.  In 2003, it seemed like something could be done about that.

The great cause collapsed for two reasons.  The first was money.  American house prices peaked two years after the invasion of Iraq.  It was all downhill from there.  The richest country in the world discovered that moral causes were out of its price range.

The second was more critical.  The United States simply does not have the intellectual or administrative capacity to construct free and prosperous democracies out of ruins of tyranny and war.  Nobody does.

''The curious task of economics,'' said Friedrich Hayek, ''is to demonstrate to men how little they really know about what they imagine they can design.''  Hayek was talking about how hard it is to regulate an economy.  Rebuilding a free country from ruins is much, much harder again.  There is no evidence to suggest that the Coalition of the Willing, or the Department of Defense, or the White House, had thought in any great detail about the institutions that make a free and stable country.

Confusion set in from the start.  The Coalition Provisional Authority took over the government of Iraq one month after American tanks entered Baghdad.  But what actually was the CPA?  Who was it responsible to?  It wasn't a sovereign nation.  Was it a federal agency of the United States?  Or a body of the United Nations?  Was the CPA part of the US military's chain of command or a civilian agency reporting to the Department of Defence?  This damning 2005 paper by the Congressional Research Service could come up with no clear answer.

That confusion wasn't academic.  Administrative arrangements matter, even in a war-zone.  The worst decision made in the wake of the invasion was the disbanding of the Iraqi army, which threw hundreds of thousands of frustrated armed men out of work.  That decision was made unilaterally by CPA chief Paul Bremer.  It was apparently contrary to the pre-war planning.  Yet if there was an authority that could have overrode Bremer, nobody was clear who it was.

So blaming all problems after the invasion onto a failure to adequately plan for reconstruction doesn't really capture the problem.  Rehabilitating entire countries is not just a question of careful planning.  There is no check-box list or OECD best-practice guidelines.

Supporters of the Iraq war said the successful reconstitution of Japan and Germany show this formidable task can be done.  But Japan and Germany are just two data-points in a long history of failed and unfree states.  Why the confidence those successes could be easily replicated?

It was easy for neoconservatives and liberal interventionists to imagine great moral causes for the American military power.  To lots of people, government looks like a perfect tool for problem-solving.

But in 2013, Iraq has some of the most endemic corruption on the planet:  the Corruption Perception Index ranks it 169 out of 174.  It has one of the lowest levels of economic freedom;  it is one of the least free Arab nations, which also makes it one of the least free in the world.  It's 150 out of 179 on Reporters without Borders' index of Press Freedom.

And 50 Iraqis were killed overnight in dozens of bombings and attacks.  Iraq goes to the polls on Saturday.  Fourteen election candidates have already been murdered.

Freedom House's omnibus Freedom in the World index categorises Iraq simply as Not Free.

Saddam Hussein is dead, and that's great.  But Iraqis were promised more.

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Conservatives have got gay marriage all wrong

There was a weird moment in one episode of the ABC's Kitchen Cabinet last year.
The host, Annabel Crabb, was being treated to a barbecue by shadow treasurer Joe Hockey.  The conversation turned to Hockey's view on gay marriage.  He restated that he was opposed.  Okay, fine.  But then he admitted that it was probably inevitable:  Australia will allow two people of the same gender to marry eventually, regardless of what he thought about it.
This is not how conservatism is supposed to work.  William F Buckley famously (and sympathetically) described a conservative as someone who stood athwart history yelling ''Stop!''
On gay marriage, the conservative mainstream is now just standing to the side, watching the world rush by, with a sort of hapless resignation.
It must be strange to know you are on the wrong side of history.  And Hockey's position seems to be a common one.  It's not a position that says gay marriage is inevitable yet subsequent events will prove it to be a mistake.  No, it seems to be more that gay marriage is both inevitable and inconsequential.
Perhaps, as the great conservative philosopher Michael Oakeshott once wrote, change simply has to be suffered.
On gay marriage at least, social conservatism has suddenly shifted from being a political asset to a liability.  This was most illustratively shown during the Senate confirmation of Chuck Hagel as Barack Obama's secretary of defence in January.
In 1998, Hagel was a senator for Nebraska and on the other side the confirmation process.  He criticised one Clinton ambassadorial candidate for being ''openly, aggressively gay''.  This little episode was dug up during Hagel's confirmation this year as evidence that he was a secret bigot.
That's fair enough.  But Hagel's contemporary critics have tried to pretend that such showy political homophobia was rare, when it was distressingly common until very recently.  Clearly, elected politicians of the time believed making anti-gay statements was of political benefit.  This is no longer the case.
The gay-marriage-is-inevitable line has swept through American conservative circles.  Even Rush Limbaugh — possibly the world's most famous shock jock — says conservatives will have to get used to the fact they have lost the debate.  Many conservatives have gone further and actively embraced marriage reform.
The Australian right has been slower than its American counterparts.  But it's happening.  Malcolm Turnbull now backs gay marriage.  You'd probably expect that.  Turnbull is a small l-liberal who enjoys swimming slightly out of the pack.  But he had been coy about the whole thing for a very long time.
More interesting was the declaration of support earlier this month by Kelly O'Dwyer — Liberal member for Higgins, former Peter Costello staffer, and one of those recent parliamentary entrants who everybody says is leadership material.
It is hard to imagine there being any serious political cost to O'Dwyer's position.  Over half of self-identified Coalition voters support gay marriage.  The South Australian Liberal Senator Simon Birmingham, who announced his support all the way back in November 2010, looks less like an outlier and more like a forerunner.
In a famous speech in 2011, David Cameron said he supported gay marriage not despite the fact that he is a conservative but because he is a conservative.  That wasn't just the cheap rhetoric of a politician.  The conservative argument for marriage is compelling and convincing.  A happy couple in marriage is an absolute good, individually and socially and financially.
The evidence suggests marriage offers specific, concrete benefits to those who pursue it.  Extending it to same-sex couples should be a no-brainer.
And we shouldn't pretend that traditional marriage is some unchanging, unbroken institution now under existential threat.  Rush Limbaugh is wrong to say that conservatives have lost the argument because they have allowed the word marriage to be ''bastardized and redefined''.  Marriage has always been bastardised and redefined.
This important paper by the Australian writer Helen Dale for the American free market think tank Reason Foundation shows that human history has had many different ideas about the purpose of marriage.
One particular point is well made.  Modern opponents of gay marriage claim that marriage has historically been about procreation.  This sounds plausible, at least until you recall the extreme levels of infant mortality in past eras.  As Dale writes, ''children were by no means guaranteed''.
Most attempts to divine a universal core in the idea of marriage are unhistorical.  So allowing same-sex couples to enjoy the benefits of this institution is less radical than it first seems.
Proper conservatism understands that tradition reflects deeper truths;  that the social institutions we have inherited have proved their merits by their own survival.  Monogamous marriage is one of those institutions.  Age is a virtue, not a flaw.
This makes conservatives reluctant to embrace radical change.  But in the rush to defend marriage strictly as it is, conservatives have forgotten what makes marriage so beneficial.  Those benefits have nothing to do with gender.  To actively support gay marriage — not to powerlessly regret it — is unambiguously the most conservative approach.

Sport and betting have always been teammates

Victorian Greens senator Richard Di Natale has drafted a bill to ban betting odds being aired during sports broadcasts.

No, let's rewrite that.  Senator Di Natale has drafted a bill to kick Tom Waterhouse off the television.

Of course, Di Natale's bill is no more likely to go anywhere than the other few dozen or so bills that have been introduced to the Parliament by minor parties.  They are really just written for symbolic purposes.

And appropriately enough, in this case.  Banning betting odds during broadcasts is the ultimate symbolic gesture — arbitrary feel-goodism masquerading as social policy.

The backlash against sports betting exposes the flimsy edifice that Australian culture has built around sport.  On the one hand, we know sport is a multimillion-dollar corporate business where young and athletic men are split into groups, churned through training regimes, and paid to compete for our amusement.  It is a vast money-making ecosystem.

Sport is like Hollywood, but much less risky:  investors don't have to worry about whether the creative types will come up with new and exciting stuff.

This industry is the world of Tom Waterhouse and government subsidies for stadiums and the Australian Crime Commission's report into sports doping and the $1.2 billion the Seven Network and Foxtel paid for AFL television broadcast rights.  It is a world where behaviour standards are written into player employment contracts to ''protect the brand''.  People get rich, people get sacked, people get sued.  In other words, sport is an industry like any other.

And that is all great.  Industries are great.  Yet onto this particular industry we impose a web of mythology and fantasy that tries to lift sport above a business to a quasi-religious undertaking.  Nobody works themselves into a moral fervour about drug use in investment banking, or in motion pictures.  But they do in sports.  The sporting world is obsessed with honour and sportsmanship.  And purity.  It is no coincidence people keep calling for sporting codes to be ''cleaned up'', or say a game was played ''clean''.

The ideologists of sport proclaim it can bring communities together.  In past eras — especially before the violent 20th century — they thought sport could replace warfare.  These days, it is mostly about children and vague feelings of social cohesion.  The federal government offers funding for a Multicultural Youth Sports Partnership Program.  AFL clubs eagerly promote Harmony Day.  It's all very ... romantic.

Yes, apparently there are still people who believe sport reduces social tension;  people who are able to ignore the decades of violence and nationalistic politics that have swirled around domestic and international sport.  And many of these romanticists appear to view the industry of sport with horror.

By now, everybody who is not a first-year arts student has come to terms with the fact that sport involves money.  An older debate along these lines — about whether sport should remain amateur or go professional — looks very quaint from the vantage of the 21st century.

Sports betting is just the latest bogyman — yet another threat to that romantic vision.  Yet betting on sport is as old as sport itself.  One British sports historian, Wray Vamplew, says that much of the strict codification of the rules of sport in the 19th century was driven by the needs of gambling.  Early punters found it hard to bet when the rules weren't codified.

So the sudden panic about odds being broadcast on television is a bit precious — a triumph of the mythology of sport over the reality of sport.  It is indicative that most critics of sports betting say they are not worried about the betting so much as seeing the odds on television.  They don't want to break the fantasy.  They don't want to see the revenue streams behind the curtain.

For the hyperbole and hand-wringing, sports betting is a tiny sliver of gambling in Australia.

The Queensland government keeps national gambling statistics.  In 2009-10 (the latest year for which comparable figures are available), Australians spent a total of $18.5 billion on all gambling.  This number includes everything from racetrack betting to pokies to TattsLotto.  They only spent $303 million on sports betting — just over 1.5 per cent of the total.

Yet one academic proclaimed on The Conversation website last week that sports betting represented the steady ''gamblification'' of everyday life — Tom Waterhouse is a sign that Australia is being buried by gambling.

The evidence suggests quite the opposite.  Total expenditure on gambling has remained steady over the past decade.  And if we take population growth into account, then in recent years gambling has begun to decline.  Nothing here screams ''impending social problem''.

Instead, the Greens' Richard Di Natale falls back on an old standard.  ''It's becoming increasingly hard for young kids to know where the sport ends and the gambling begins,'' he said in a press release announcing his bill.

That's the think-of-the-children argument, a favourite of censors, wowsers and reactionaries for two centuries.

It is fine to view sport through a romantic lens.  But that lens won't survive if it requires deliberate ignorance.

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Lessons from Hawke for Abbott

In August when Tony Abbott launches the Coalition's campaign for the September 14 federal election, he could start as follows:  ''And the first pledge I now make, a commitment which embraces every other undertaking, is that everything we do as a government will have the one great goal — to reunite this great community of ours, to bring out the best we are truly capable of, together as a nation, and bring Australia together to win our way through the crisis into which the policies of the past and the men of the past have plunged our country.''

He could go on and say it is ''the politics of division'', and ''the politics of confrontation, which threaten to poison the very wellsprings of the national life, the true, decent, Australian way of life''.

If Abbott did in fact use these lines, he would of course be quoting Bob Hawke, word for word, when 30 years ago Hawke as the new Labor leader launched the ALP's 1983 federal election campaign.

If he said this, Abbott could bury class warfare once and for all.  He could declare an end to the battle against self-funded retirees with more than $1 million in their superannuation accounts.  He could cease hostilities against key industries.  And he could promise never to use any person's gender for or against them.

THE DIFFERENCE BETWEEN HAWKE AND GILLARD IS CONFIDENCE

It's a measure of how much the Labor Party has changed to compare how Hawke conceived of politics to how Prime Minister Julia Gillard does.  Confidence sums up the difference between the two.

Hawke was confident enough in his own abilities and his own policies to go after 50-plus-1 per cent of the vote.  There wasn't a vote Hawke did not believe he couldn't get.  There wasn't a person, a trade union delegate, or a business boss that Hawke didn't think he could persuade of the merits of his argument.

So confident was Hawke in his ability to get people to agree with him that the last thing he would have wanted was to permanently alienate key segments of the community.

In contrast, the modern-day Labor Party has no qualms about declaring its opponents to be, for example, anyone it classes as a carbon ''polluter'', a successful mining entrepreneur, or as a ''cossetted silvertail'' on Sydney's North Shore who is not in touch with ''real families''.

The Prime Minister and her Treasurer appear to have given up trying to persuade anyone of anything.  They are shoring up the ALP's core vote of 30 per cent of the electorate by distributing favours and privileges to their trade union base.  In fairness to the Treasurer, even he would recognise it's difficult to talk about the economy or the budget with any confidence when basically every prediction he has made is wrong.

AND IT TAKES CONFIDENCE TO BE MAGNANIMOUS

It takes confidence to be inclusive.  Likewise magnanimity is a product of confidence.  When someone goes looking for enemies (real or imagined), it's usually because they're scared, or paranoid, or both.  The federal party appears to believe a person is judged by the quality of his or her enemies — not his or her friends.  This might apply in some circumstances, but it isn't helpful when your enemies get a vote.

None of this should overstate the consensus that Hawke practised once he was in power.

He didn't have much time for reconciliation with the airline pilots or the HR Nicholls Society when it called for the deregulation of the labour market.  Hawke labelled the society ''political troglodytes and economic lunatics''.  Nonetheless, Hawke didn't go out of his way to make enemies.

It's interesting to note that the key Labor figures in recent weeks urging the Gillard government to stop making enemies are all, like Hawke was, former leaders of the trade union movement — Simon Crean, Martin Ferguson and Bill Kelty.

Trade union bosses might understand that the employer you're striking against today you're going to have to work with tomorrow.

For his campaign launch, Abbott might update slightly what Hawke said.  Abbott might talk about ''men and women'' of the past.  And he might not start a sentence with an ''and''.  But they would be the only changes he would need to make.

Abbott might even reprise Hawke's 1983 campaign slogan — ''Bringing Australia Together''.

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Everyone promises less red tape, but very few succeed

It pays to be sceptical about the promises of oppositions.

Kevin Rudd said he would take a ''meat-axe'' to the bloated public service, and that the reckless spending would stop.  In his 1996 campaign, John Howard promised to halve the regulation that was ''enveloping small business'' during his first three years of government.

Now Tony Abbott says his government will reduce ''red tape'' too.

Labor partisans like to bang on about whether the Coalition's policies are ''fully costed''.  This is a traditional election ploy.  Oppositions can't win that game.  They don't have the policy development resources enjoyed by the incumbents, and errors can be devastating.

So more interesting are the big, bold statements about chopping down the bloated public service and reducing red tape.  They're obviously appealing.  Who could support bloated bureaucracies?  Who likes red tape?  But they're always light on specifics.  And, in government, they're never achieved.

It is these sorts of promises that oppositions need to be questioned about.

This is Tony Abbott's exact promise, which appears in the Coalition's November 2012 Deregulation Reform Discussion Paper:

The Coalition will reduce the regulatory and red tape burden for individuals, businesses and society as a whole by at least $1 billion a year.

That one billion dollar number is nonsense.  (But the ''at least'' is a nice touch.)

There's a rich academic literature on estimating the costs of regulation.  The upshot?  It's very, very hard.  And, more importantly, any estimate will be very, very debatable.

Part of the reason is that regulation imposes two different ''costs''.

There's the paper-burden cost — that is, the time spent filling out government forms, or the money spent on lawyers to make sure you're compliant with the regulations, or the direct cost of license and application fees.  This is usually what people mean when they talk about red tape.

But more significant are the costs imposed on the regulations themselves — that is, what the regulations are actually designed to do.  The firms that aren't started.  The projects which never happen.  The business decisions for regulatory compliance reasons rather than the efficient production of goods and services.

Paper-burden costs aren't easy to estimate, but we have some strategies.  We can survey managers about how long they spend on regulatory compliance, for instance.  The answer will be wishy-washy and inexact, but at least it's something.

Calculating the second types of costs is much more problematic.  Businesses have many reasons they delay or cancel projects.  Tony Abbott discovered this when he tried to blame BHP's decision to shelve its Olympic Dam project on the carbon tax.  Regulations are often a factor in cancelled projects, but try putting a dollar figure on it.

Ultimately, the Coalition's one billion dollar promise is an illusion.  It's just a big, magical round number.  There will be no way for voters to see whether they have achieved the promise or not.

Still, if our political parties want to reduce the regulatory burden, then they'll need to do something.

The Coalition's discussion paper offers up a few ideas.  It proposes a couple of new bureaucratic requirements — cabinet submissions for new policies will have to include regulatory impact statements, for instance — and a system of audits and reviews.  (Hopefully they recall John Howard's regulation taskforce, which did as much good for deregulation as a wet sock.) The most interesting idea is two dedicated parliamentary sitting days every year for repealing existing legislation.

These clever little ideas miss the broader issue.

The greatest success at reducing regulation in recent history occurred in the Netherlands last decade.  In 2003, a new Dutch Coalition government set itself 25 per cent reduction target in the paper-burden costs of regulation.  Using a model of regulatory costs that they developed specially for the task, the Netherlands achieved that goal in 2007.  (Here's an OECD overview of the Dutch program.)

They did this in a number of ways, including setting up two new bureaucratic institutions — one inside the Ministry of Economic Affairs, and an independent advisory watchdog.

But most of all, the success of the Dutch experiment was driven by overwhelming political and institutional support from the Prime Minister on down.  Regulatory reduction wasn't just a throwaway election promise.  It was a sustained, aggressive, and universal program.  It had to be:  the political backbone needed to be stronger than government's natural inclination for increased regulation.

It's trivially easy for politicians, especially in opposition, to talk in big broad strokes.  There is too much regulation, in general.  We're spending too much, in general.  There are too many public servants, in general.

But when it comes to actually reducing those unwanted things, it gets complicated very quickly.  Particularly when a minister is confronted with specific, individual regulations, whose effectiveness is usually unknown, whose cost is debatable, and upon whom layers of special interests have come to rely.

If Tony Abbott's Coalition government isn't single-mindedly, obsessively, neurotically dedicated to lighting a regulatory bonfire, it simply won't happen.

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