Perverse small-target strategies leave voters guessing

Industrial relations and climate change have dominated election campaigns for years, but this time around you can barely hear a whisper on either.  We shouldn't have to be detectives to work out what the policies are.

Oppositions often run small-target strategies.  It's been pretty special to watch an incumbent government run one.

On the one hand, this approach by the Turnbull Government has its logic.

Looking at nothing but precedent, you'd bet on a first term government holding power.  Yes, even after the recent upsets in Victoria and Queensland.  Commonwealth politics is still very different to state politics.  It has a different dynamic.  The chance that this government would be the first Commonwealth government since James Scullin to lose an election after one term is low.

But on the other hand, the strategy leaves voters with a dilemma.

A vote at an election is either an endorsement (or rejection) of the performance of a government's previous term, or an endorsement (or rejection) of its promises for the future.  The two are of course related — previous performance offers some guide about how promises might be fulfilled — but what use is that if the government is coy on its future plans?

It is striking how many policy issues have been ruled out, are seen as out of bounds, or deliberately downplayed throughout this campaign — issues that have dominated the elections of the past, issues that have swung votes, issues that have led to the downfall of leaders and governments.

Take climate change policy for one.  For the last decade Australian elections have featured complicated, emotional and often arcane contests about emissions trading schemes, carbon taxes, the cost of emissions restrictions on living standards, and the ability of Australia's parliament to affect the global climate.

But this year you'd be hard-pressed to find much discussion on the national stage about the fact that not only does Labor have a policy to reintroduce the emissions trading scheme, but the Coalition's direct action scheme has a built-in mechanism — the so-called safeguard mechanism — that could easily be switched into a full-blown trading scheme at will.

Labor doesn't overemphasise its policy for fear of sparking the sort of criticism that characterised the last three elections.

For its part, the Coalition doesn't want too many voters to know about their safeguard mechanism because the whole thing relies on a confidence trick.  The Turnbull Government is building an emissions trading scheme that doesn't look like an emissions trading scheme.

In this sense, climate policy is not just bipartisan.  It is deeply misleading.  Voters deserve to know that debate on Australia's role in global climate policy has been ruled out.

Same with industrial relations.  The reforms to union management that were the justification of the double dissolution in the first place have been underemphasised to the point of constitutional negligence.

When Turnbull became leader last year it looked like the ducks were lining up for changes to penalty rates.  I wrote about this at the time.  Earlier this month Turnbull even ruled out legislation to enact the minor penalty rate change recommended by the Productivity Commission — that is, bringing Sunday penalty rates in line with Saturday ones.

Both Labor and the Coalition have decided to defer to the independent Fair Work Commission, which will make a decision on penalty rates sometime after the election.

But penalty rates are such a minor part of Australia's industrial relations system — and the proposal to bring Sunday rates and Saturday rates together is such a minor change — that this hardly counts as any policy at all.

Ironically, Tony Abbott — the leader who declared WorkChoices "dead, buried and cremated" — had a more prominent policy on industrial relations in 2013, when he was very clear that the Fair Work Act was going to be reviewed for its red tape burden.

After the success of Brexit many supporters of the Remain camp have focused on the apparent ignorance of voters.  It is certainly true that people make votes with less than complete knowledge.  How could they do otherwise?  A vote to change a government is one of the most complex, information-intensive decisions we ask the population to make.

Even voters who are relatively informed compared to their fellow citizens are, in an absolute sense, highly under-informed.  There is just no way a single voter could maintain a working knowledge of the sheer volume of policy responsibilities of the Commonwealth government.  Governments are so large, have their fingers in so many pies, and affect our lives in so many ways.

That's what makes the deliberate, strategic shrinking of the range of political debate so perverse.

The next government, whether it is under Bill Shorten or Malcolm Turnbull, will have an industrial relations policy and they will have a climate change policy.

It shouldn't require painstaking detective work for voters to figure out what those policies are.

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Rio's financial crisis reveals the moral bankruptcy of the Olympics

The Olympic movement likes to affect an image of sporting valour and nobility.  But it is the epitome of government waste, almost always doing great harm to its host and taking a real human toll.

The mayor of Rio de Janeiro would like the world to know that the economic crisis engulfing Brazil "in no way delays the delivery of Olympic projects and the promises assumed by the city of Rio."

Other non-Olympic promises are in jeopardy.  On the weekend Rio's state governor declared a state of financial emergency.  The city faces "a total collapse in public security, health, education, transport and environmental management" if it does not receive funding from the federal government of Brazil.

What a contrast.  On the one hand, Rio's politicians have absolute confidence they will deliver this year's summer Olympic games, which begin on August 5.  On the other hand, they have almost no confidence they will be able to provide their citizens with the basic functions of government.

Rarely is the moral bankruptcy of the Olympics so starkly put.  Bread and circuses both consume scarce resources.  What should we think of governments that put circuses first?  What should we think of the circus?

Brazil is in the middle of an economic and political crisis.  The Brazilian economy has been in recession since the start of 2015.  It has shrunk a massive 5.4 per cent since this time last year.  Brazil's inflation rate is around 10 per cent.  The only silver lining is that the economy shrunk by slightly less than experts had predicted.

Brazil's recession is having social consequences.  The cash-strapped Rio state government cut the police budget by a third, reversing advances in crime reduction made since the turn of the century, and raising concerns about tourist safety during the Games.  Unemployment is at 11 per cent and growing, and 24 per cent of young people are unemployed.  This is the worst economic crisis in Brazil since the 1930s.

The political crisis is almost as calamitous as the economic one.  President Dilma Rousseff has been stood down while she is impeached by Brazil's senate.  Rousseff is formally accused of manipulating the government budget to hide the size of the deficit.  (Simply servicing Brazil's debt costs 7 per cent of the country's GDP.)  But she's also tied up in a major corruption scandal concerning a state-owned oil company.  The interim president is also tied up in a corruption scandal.  Indeed, up to 30 per cent of the country's politicians might be implicated in a corruption scandal shortly.

It could well be that the Rio Olympics go off without a hitch.  News stories about delayed projects and panicked construction are as much a part of the Olympic ritual as the torch relay and parade of nations.

But outside the athlete's village and ticket-only areas will be a country straining to foot the enormous Olympic bill.

Hosting the games is a terrible economic deal at the best of times.  Hosting the games when you're a developing economy in the middle of a serious recession is its own scandal.

The woeful economics of the Olympics are clear-cut and, outside the corridors of political power, uncontroversial.  A paper published in the Journal of Economic Perspectives in May this year summarising a mass of scholarship and analysis found that the Olympics are almost always a "money-losing proposition".

The influx of tourism rarely compensates for the decline of economic activity displaced by the Games, and rarely translates into long run tourism increases.  It is true that hosting an Olympics encourages governments to invest in infrastructure, but the bulk of those funds are spent on uneconomic specialised venues that cities struggle to utilise once the closing ceremony is finished.  Only construction and development companies gained from the Sydney Olympics, as Sinclair Davidson has found.

The economics are even worse for developing countries.  To avoid disaster host cities need extremely capable and non-corrupt management, as well as the political stability to facilitate that management.  These sorts of institutions are sadly lacking in poorer nations.

Hosting the Olympics is particularly dangerous for countries that lack tight control over government expenditure.  For instance, the Athens games in 2004 exacerbated Greek fiscal profligacy — while the Olympics did not cause the Greek economic crisis, the stadiums and infrastructure stand as monuments to the reckless spending that did.

Brazilian governments spend 41 per cent of the country's GDP, which, as the Wall Street Journal pointed out in April, approaches the sort of spending levels seen only in mature social democracies like Germany and Norway.  It is just not a country with the institutions to manage the extreme political and economic pressures of Olympic hosting.

It is galling, then, that the International Olympic Committee has been encouraging bids from developing countries.  Even a failed bid can be extremely expensive – the "low cost" bids for the 2024 games cost about $AU80 million each.

This money of course comes not from the politicians who flank their bids and take box seats at opening ceremonies.  It comes from the taxpayers of the bidding countries, and from the public services not provided as scarce resources are redirected towards stadiums and ceremonies.

The Olympic movement likes to affect an image of sporting valour and nobility.  But it is the epitome of government waste, almost always doing great harm to its host and taking a real human toll.  Once the athletes have gone home, let us hope Brazil can recover from this recklessness quickly.

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Australia isn't immune to the Brexit debate

The European Union represents the worst inclinations of modern government — heavily bureaucratic, deliberately undemocratic, meddling and interventionist.  Australian policymakers should not imagine that British discontent with Brussels has no lessons for them.

It is not always a good idea to draw an opinion on the domestic affairs of other countries.  But in the case of the upcoming British referendum on June 23 to withdraw from the European Union, Australians should be paying close attention.

The pathologies that have led to the Brexit vote are not unique to Europe — there are deep lessons for Australian policymakers too.

At its heart Brexit is a contest between technocracy, red tape and administrative power on the one side, and democracy and sovereignty on the other.  In other words, what we see in the byzantine bureaucracies and agencies of the EU is an extreme form of trends that are common across all Western liberal democracies.

Polling this weekend showed the vote to withdraw from the EU has a 10-point lead over the vote to Remain, with 55 per cent of respondents supporting Leave.

This finding is important not just because of what it suggests about the outcome of the vote.  The received wisdom has been that voters primarily concerned about immigration — the free movement of people across Europe has never been more controversial than after the Syrian refugee crisis — would vote Leave.  Voters primarily concerned about the economy would vote Remain.

Modelling done by the UK Treasury has claimed that British households would be £4,300 worse off in 2030 if the country had left the EU than if it had stayed.  This result is derived from the apparent decline in openness to trade and foreign investment that withdrawing from the EU might bring.

But the weekend's polling shows that the Leave argument is making significant inroads into the group of voters who see the economy as paramount.

As Dan Hannan, a British member of the European Parliament and supporter of Brexit has pointed out, catastrophic claims about the decline of trade and openness resulting from a Leave vote are nonsense.  Withdrawal will not be instantaneous following a successful referendum.  Rather, the referendum is a mandate for the British government to negotiate withdrawal;  to forge new trade agreements and arrangements while simultaneously stepping back from Europe-wide ones.

There are two distinct visions of European unity.  One has perversely flourished, and the other has become distorted beyond recognition.  The first is the dream of a government of Europe — a transnational European equivalent of the bureaucracies and political institutions that run national governments.

This first project, it must be said, has been an enormous success.  The EU has a parliament, courts, a monetary system, and an enormous administration.  One 2008 estimate of the number of bureaucrats working in EU institutions — the EU itself is cagey on its total staff — came to 170,000.  This is more than the British army.

But it's one thing to create a government, it's another to create a responsible, legitimate government.  Even the EU acknowledges that it suffers from a perceived democratic deficit — that the citizens of Europe do not feel they are able to reject the administrations and policies that rule them.

While the European Parliament is an elected body, the six other key European institutions are not.

The European Council, the Council of the European Union, the European Commission, the Court of Justice of the European Union and the European Central Bank are all at one or more steps removed from popular control.

In this sense EU institutions are the natural end point of a trend that affects Australian administration as well — the spread of administrative and regulatory independence designed to keep politics out of policymaking.  But this comes at the expense of democratic control.

The second vision of European unity was as a free trade bloc.  The 1957 Treaty of Rome conceived of Europe in distinctly classical liberal terms, allowing goods, services, capital and labour to move across borders.  This was an enormous achievement at the time, given the economic source of so much intra-European antagonism.

The perversion of the ideal of European free trade occurred with the development of the common market.  Properly understood, a country with its markets open to free trade is still able to write its own rules about the conditions in which goods and services are produced and sold within the borders of that country.  However, the European common market developed in such a way that widened its focus to the regulatory constructs within each country that make it harder to sell (for instance) an Italian product produced according to Italian standards in France, where French standards apply.

The common market aimed to eliminate these differences.  Unfortunately it did so by imposing pan-European regulatory requirements across the whole continent.  Without the constraints provided by democratic institutions, the EU has been an enormous source of new regulation and red tape — what is understood by European citizens as EU meddling and domestic interference.

One think tank calculated that since 1957 the EU had passed and incredible 666,879 pages of law.  In some states up to 84 per cent of national legislation involves the implementation of new and adjusted EU rules.  Analysis based on the British government's own regulatory impact statements show that red tape coming from Europe costs the British economy at least £33 billion (AUD $63 billion) a year.

The European Union represents the worst inclinations of modern government — heavily bureaucratic, deliberately undemocratic, meddling and interventionist.  Australian policymakers should not imagine that British discontent with Brussels has no lessons for them.

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The case for a company tax cut is rock solid — and Labor knows it

Labor may have reversed its position on company tax cuts because we're nearing an election, but that doesn't change the fact that a cut would be good for the Australian economy.

To read most election comment you'd be forgiven for believing that what was until very recently a bipartisan consensus — that there was a strong case for Australia's company tax rate to be cut — was in fact a mass delusion.

In 2010 Wayne Swan as treasurer declared that, "Reducing company tax will create new jobs and grow the economy right around the country" and was open to a reduction in the rate from the current 30 per cent to 25 per cent.  Chris Bowen was arguing for a 25 per cent rate as recently as September last year.

But now that the Turnbull Government has announced a reduction to 25 per cent to be phased in over the next decade, Swan says there's "no case for a company tax rate" because multinational companies are avoiding their tax and to suggest otherwise has something to do with Margaret Thatcher and Ronald Reagan and "trickle-down economics".

For their part, Bowen and Bill Shorten now describe the 25 per cent rate as a $50 billion giveaway to big companies.

This is a rather damning indictment of the current Labor leadership, which has abandoned a long-held position simply to paint the Coalition as pro-big business during an election campaign.

Still, why blame a politician for acting like a politician?  The populist argument against company tax cuts is just too easy to make.  What's remarkable is not that Labor has reversed its view but that successive governments actually managed to reduce the company tax rate from 49 per cent in the late 1980s to 30 per cent today.

The case for a corporate tax cut is rock solid.  It's about ensuring that the Australian economy is internationally competitive.  A competitive economy attracts foreign investment — and with that investment comes growth and jobs.  By contrast, an uncompetitive economy is a declining economy.

As the Rudd government's Henry Tax Review pointed out, in 2001 the OECD average corporate tax rate was 32.5 per cent.  At that time Australia's 30 per cent rate was a good effort.  But now the OECD average is about 25 per cent, and Australia's rate hasn't changed.

A word has to be said here about our system of dividend imputation.  Under dividend imputation, investors receiving a dividend are credited for tax already paid on company profits.  This avoids profits being taxed twice — first as company tax and then as personal income tax when dividends are returned to shareholders.

You often hear that dividend imputation makes the 30 per cent headline rate meaningless, as a reduction in company tax would be automatically made up by a corresponding increase in income tax collection.  But that only holds true for domestic shareholders.  Foreign companies have foreign shareholders who do not benefit from dividend imputation.  And it is foreign companies we want to attract — along with their money and jobs and economic activity.

Indeed, the fact that we need a dividend imputation system at all partly demonstrates why the company tax is a bad tax.  In truth no "company" pays tax.  Companies are made of people and people pay tax — whether those people are company's customers, shareholders, workers or management.

Who ultimately pays what proportion of the company tax is a matter of great controversy.

Last year Chris Bowen accepted that the bulk of the company tax was paid by workers.  If, alternatively, investors pay the bulk, then it's worth remembering that through compulsory superannuation we're all investors.  If management pay the bulk — and you sometimes see arguments that the company tax is a de facto tax on wealthy managers — then it is a wildly indirect way of taxing the rich.

This confusion and complication is why every serious investigation into tax points out that the company tax is one of the most inefficient — that is, wasteful — taxes available to government.  (See Chart 1.5 of the Henry Review.)

Yet Australia relies on this inefficient tax for its revenue (18 per cent of the total tax take as of 2013) more than any other OECD country (with the exception of Norway, where company tax provided about 22 per cent of the total tax take).

In that light, Wayne Swan is exactly wrong to argue that multinational tax avoidance means we shouldn't reduce the company tax rate.  I've argued in the past that avoidance is for the most part a non-problem.  But to the extent that company tax is being avoided, it is because other jurisdictions — like Singapore — offer much more welcoming tax environments than Australia does.

Our extreme reliance on company tax makes us particularly vulnerable to corporate tax avoidance and demonstrates how uncompetitive Australia has become for investment.

Labor used to understand this.  Given how close they are to winning government, it's a real worry they no longer do.

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Why we're seeing less pork barrelling this election

Sure, there's still the usual cash splash on playgrounds and intersection upgrades, but for the first time since the GFC our major parties realise the seriousness of the budget deficit and are toning down campaign spending promises.

When you boil them down to their essence, Australian election campaigns are really just elaborate pork barrel road shows.  For all the talk about vision and ideology, politics is about what pleases marginal electorates, not philosophy.

Bill Shorten was in Western Australia last week doling out $45 million for Perth's Wanneroo Road.  Malcolm Turnbull was there a few days later, announcing his own Wannaroo Road upgrade, but a slightly cheaper one — just $20 million.

I complained about this pattern in the 2013 election.  Shorten and Turnbull are competing to head the government of a $1.6 trillion economy — Australia is one of the richest countries in the history of the world — and their job application involves dribbling out money for grade separations.

And yet there's something different about this election.  It's not that the pork barreling isn't happening.  Coalition and Labor candidates are dutifully travelling their electorates to announce minor environmental projects, CCTV installations and community centre upgrades.  But at a national level there's a slight feeling of embarrassment about the whole charade.

Fundamentally both major political parties know that every new spending promise — every new security camera, every new fence around a local park — is a further setback to repaying the national debt.

This week Shorten announced that Labor would not promise to restore the Schoolkids Bonus, which had been scrapped by the Coalition, and refused to guarantee it would restore money to the pension that the Abbott government had cut.

These announcements constitute a dramatic reversal of years of Labor rhetoric.  Both the Schoolkids Bonus and the pension changes were essential elements of the attack on the Coalition as being unfair to low and middle income earners.

Tony Abbott and Joe Hockey made the changes on the grounds that cuts had to be made to the Commonwealth budget if it was ever to return to surplus.  Now finally at the end of the Coalition's first term in government Labor has conceded the point — yes, perhaps cuts, even uncomfortable, unpopular cuts, need to be made.

No doubt Shorten has known this for some time.  Labor in government was unable to restore the surpluses they promised, but were nonetheless willing to reduce spending in ways that hurt them politically.  Recall the cuts to single parent payments which so agonised Labor's own supporters.  Shorten must feel he has a non-trivial chance of becoming prime minister, and needs to start tamping down expectations.

This is the first election since the Global Financial Crisis in which the reality of deficit politics is beginning to dawn on both major parties.  Neither party has a plan to bring the budget back to surplus, but they are starting to accommodate it.  It seems unlikely either side will give the sort of blanket "no cuts to health, education, the ABC, SBS" promise that Abbott did so fatefully on the eve of 2013.

Both Labor and the Coalition announced tax increases before the campaign begun.  We saw in the debate on Sunday night that the Coalition is still trying to deal with the fallout from its retrospective superannuation changes.  Tax increases are not ideal electoral politics, and the last thing the economy needs is a heavier tax burden.  But the increases were probably necessary to give at least some patina of credibility on all the spending promises that were to be announced — at least in the absence of expenditure reduction.

Shorten says that his backtrack on the Schoolkids Bonus and pension changes came after the release of the Treasury's Pre-Election Economic and Fiscal Outlook.  This is nonsensical.  PEFO — one of the rituals which makes up Australian elections — did not forecast anything significantly different from the 2016 budget.

But PEFO represents Treasury's "best professional judgement" on the state of the economy, undiluted by the political needs of its masters.  The Coalition in opposition is sometimes willing to second-guess Treasury.  Labor is not.

PEFO made two claims that have been obvious for a while but look particularly devastating when expressed in an official Commonwealth document.  First, without either tax increases or spending reductions there will be no sustained budget surplus.

Second, budget forecasts are based on an assumption that economic growth will return to its long run average.  If that assumption does not hold — if, say, we go into an economic downturn — then the budget is going to be in a dire state.

The upshot of PEFO is that no side can believably maintain the traditional laissez faire approach to campaign spending promises.  Sure, there's the usual money for playgrounds and intersection upgrades.  But the 2016 election carnival has an unusually depressing tone.  The Australian political class is learning to live with deficit politics.

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People or profit: How does the Greens' corporation plan stack up?

The Greens want to establish a new class of corporation that focuses on social good as much as profit.  It's a nice idea, but perhaps not for the reasons the Greens might think.

It is turning out to be a very peculiar election.  Last week the Greens wholeheartedly embraced the notion of personal choice — and in the realm of corporate law no less.

The new Greens innovation policy, launched on Friday, is for the most part the standard set of spending boondoggles, new bureaucrats and empty jargon that constitutes deep thinking about innovation these days.

But buried in the policy document is a proposal to create a new class of corporation in the Corporations Act:  the "benefit corporation", which, as the Greens describe it, will "consider the collective good, generate public benefit and generate profit."

This is not a bad idea — but not for reasons the Greens might think.  With this policy, the Greens may have subverted a few decades' worth of left-wing agitation about corporate social responsibility, the idea that firms need social licenses to operate, the stakeholder model of capitalism, and the campaign for ethical divestment.

We'll come to all that in a moment.

The idea of a benefit corporation is simple.  The Greens argue Australian companies are too focused on profit.  The Corporations Act says company directors have a duty to act in the best interests of the company as a whole, which has long been interpreted to mean that they should act in the best interests of the shareholders who own the company.

In a benefit corporation, by contrast, directors are required to take other goals into account alongside profit — typically social and environmental goals.

Right now, directors' duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire.

Since 2010, some 31 American states have started to offer the benefit corporation with a standard model.  This is almost certainly the model the Greens are thinking about.  To ensure transparency — it's easy for shareholders to see when firms are maximising financial value, but not so easy to see when they are maximising social value — firms sign up to third party standards which measure their work against agreed criteria.

But the idea that company directors are narrowly interested in profit is a myth.  Yes, it is true that Milton Friedman once famously said that the sole social responsibility of business is to increase its profits.  But good luck finding an Australian company director that agrees with Friedman.  A 2006 survey of company directors found that nearly 95 per cent believed that they had a duty to take account of the interests of stakeholders other than shareholders.  An astonishing one in five did not consider shareholders to be among their top three priorities.

The simple fact is that, right now, directors' duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire, just as long as it can loosely be justified as a public relations measure.  This is why we get firms jumping on board political campaigns like Recognise.

Directors are human.  It is unsurprising that they would like their friends and families to see them doing good as much as doing well.  But it's not their money they are playing with.

One basic problem facing any organisation is how to ensure that the people who run it do so in the interests of the people who own it.  The duty to maximise shareholder value is an institutional mechanism to try to get shareholder and management interests to align.

This is why the benefit corporation is such a powerful idea.  Not because corporations are only interested in profit, as many progressives claim, but because they're not only interested enough.

In effect, the Greens policy would offer for-profit companies a choice:  do they want narrow shareholder-focused, profit-first directors duties, or do they want to pursue broader social and environment goals?

Firms interested in the latter could convert to benefit corporations — to pursue ethical investment strategies, to donate to fashionable social and political causes, to talk about community and social licenses and the environment.

But those that remain would have a much clarified mission.  Promote shareholder value.  Ignore all the other stuff.

Shareholders too would have a choice — higher returns from profit maximising companies or potentially lower returns from benefit corporations.

This is, indeed, the basis of left-leaning critiques of the benefit corporation model, in that it strengthens the profit maximising goal among firms that do not convert.

Of course, to make the benefit corporation meaningful, the Greens should be advocating stronger shareholder rights to ensure that normal companies actually focus on increasing shareholder value.

For decades the corporate form has been a target of anti-capitalist sentiment.  Corporations have been depicted as "psychopaths" for pursuing profit on behalf of shareholders.

Basic liberal theory tells us if society disagrees on an issue we should create institutions that allow people to make choices for themselves, according to their own values.  How wonderful to see the Greens embrace that principle when it comes to corporate social responsibility.

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Why the super debate is a Liberal flashpoint

The debate around superannuation changes and retrospectivity may seem technical nitpicking, but it goes to the scepticism many Liberal Party supporters have about compulsory super and opens up Labor attacks on fairness.

Casual observers might be confused why what appears to be a technical legal debate — what counts as retrospectivity for the purposes of superannuation policy — has been so emotive within Liberal circles over the last fortnight.

The answer is historical and philosophical.

For the last two years Labor has been beating the Coalition up on "fairness", arguing that its economic policy favours the rich.  The superannuation changes are intended to counter this attack, hitting the Coalition's own supporters in their retirement accounts.

But with the retrospectivity debate the Government just dropped itself into another fairness debacle.

Retrospective law changes the legal status of actions that were performed before the law was passed.  The issue here is that the new lifetime cap of $500,000 on after-tax concessional superannuation contributions is backdated to 2007.

That means there are Australians who have been planning their retirements on the basis of the law of the day and who have suddenly been informed that the law was, in retrospect, different, and that they were working towards a contributions cap that they never knew existed.

That retrospectivity feels unfair, in the sense that it is unjust to rewrite the past in a way that negatively affects the future.

(Retrospectivity is not inherently unfair or unjust.  No one could object to posthumous pardons of men convicted of homosexual offenses in the 20th century.  And no one should object to the post-war convictions of Nazi war criminals, even though, given they had not violated German law, their offenses had been retrospectively created and applied.  But people planning for retirement are neither of those.)

As much as Bill Shorten has tried to suggest otherwise, fairness is not just a question of how heavily the rich are taxed.  It encompasses the feeling that a citizenry acting in good faith will be reciprocated with good faith actions by the state.

Particularly since the Howard government, Australians have been told to put superannuation at the centre of their future planning — to contribute as much and as often as they can.  Making superannuation the central pillar of retirement income has been a deliberate policy and political position of government after government.

It is hard to exaggerate how much pushback the Coalition is getting from its own supporters on the unfairness of retrospectivity.

In part this is because retrospective law has a particularly sensitive history in the Liberal Party.  The Fraser government's 1982 legislative volley against the bottom-of-the-harbour tax minimisation schemes (where companies stripped all their assets just before their tax was liable) included a provision that required these companies to pay all the tax that would have been due between the years 1972 and 1980, when the bottom-of-the-harbour schemes were believed to be legally sound.

This created a firestorm among the business community.  The issue wasn't so much that the loophole was being closed.  It was that people who had made decisions under the law as it was were suddenly being told that they had actually been acting unlawfully.  It was, fundamentally, a fairness battle fought against the government's supporters.

In his autobiography, John Howard spends a big chunk of his account of his time as Malcolm Fraser's treasurer detailing the political havoc that the legislation created.  Fourteen Coalition members crossed the floor against the bill.  Howard told a radio interview in 2006 that he still carried a few scars from the debate.  As prime minister he regularly made hostility to retrospective law a basic liberal value.

Twenty-four years after it was introduced, compulsory superannuation is still a policy experiment vulnerable to tax grabs and policy change.  While this has been obvious from a theoretical perspective for a long time, the 2016 budget confirms the uncomfortable fact: superannuation is an unreliable store of our retirement money.

Retirement savings are unique in that they constitute fixed investments made with a time horizon of 40 or 50 years.  The Coalition Government seems determined to demonstrate that they can fiddle apparently unhindered and consequence-free with the tax treatment of this long-term asset.

Are we supposed to believe that this will be the last change to superannuation?  Under the Turnbull Government's new policy, the accumulation accounts that are supposed to hold super balances above the $1.6 million lifetime cap will be taxed at 15 per cent.  It is virtually certain that here will be a government soon that decides that 15 per cent is too low.  That it ought to be equivalent to the company tax rate (30 per cent) or the top marginal income rate (45 per cent).  Or decides that the money should be taxed when withdrawn at the equivalent marginal income rate.

If it was any other investment, of course, we would be free to move out of this now provably unreliable asset and put our money elsewhere.  But that is against the rules.

There are a lot of people — and many Liberal Party supporters — who are quietly sceptical about the whole idea of compulsory superannuation for this reason.  It is fundamentally unfair to prevent people by law from accessing until retirement money they have legitimately earned.

And as Labor knows, once people have it in their mind that a policy is unfair, that impression is hard to budge.

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Rejecting a Chinese bid for land is in "the national interest"? Show me how

If it wasn't clear that "the national interest" was a pretty hazy criterion on which to deny foreign investment approvals, then Scott Morrison confirmed it last Friday.

The first time the Government rejected a Chinese bid for the S Kidman & Co. estate — Australia's largest private landholding — it was because part of the property, Anna Creek, was next to a sensitive defence site.

In fact, some of Anna Creek is in the least important green zone of the Woomera Prohibited Area, which is infrequently used by the Woomera Rocket Testing Range.  Nevertheless, the Foreign Investment Review Board was skittish about a Chinese company owning property nearby, so the deal was scuttled in November 2015.

The Kidman deal was then restructured to exclude Anna Creek.  Last week, Morrison announced that this wasn't enough — the property is just too large to be sold to a Chinese firm.  Kidman and Dakang Australia Holdings have until Tuesday to come to another arrangement, otherwise Morrison's "preliminary decision" to prevent the sale will become a permanent decision.

It's easy to present the Kidman sale as a big deal.  It is, indeed, an enormous collection of properties, spread across Western Australia, South Australia, the Northern Territory and Queensland.  It was put together in the 1890s by Sidney Kidman, to whom the words "baron" and "legendary" are usually affixed.

But the land is in fact some of Australia's least productive.  We're talking about desert.  The Kidman holdings are enormous because they have to be — to run cattle across such stark landscape you need space.

As David Uren pointed out in The Australian over the weekend, S. Kidman & Co wouldn't even rank in a list of Australia's largest 2000 companies.  It has nowhere near the largest number of head of cattle of Australian companies.  Geographic size isn't everything.

Still, you might object, size does matter.  But how?  Why?  Morrison's press release announcing his preliminary decision is completely empty on this point.  It states simply that the sale of a property of Kidman's size is not in the national interest.

How so?  Is it because, as Morrison points out, there are some Australian companies that are interested in the property?  This assumes what needs to be shown — that large scale foreign investment is against the national interest, but domestic investment would not be.

Usually governments feel the need to offer arguments in defence of their position.  Morrison's press release offers no justification — just "the national interest", an empty signifier with no qualification or clarification.

If Kidman is sold, the land would remain in Australia, obviously.  The property's new foreign owners would be able to do no more or less with it than any Australian owners would.

Some have claimed that the sale might result in the loss of Australian jobs, if the new owners brought in Chinese workers.  But any Australian purchaser could do the same.  The thing that is stopping them is our strict immigration system, and the heavy regulatory constraints around the 457 skilled worker visa program.

Simply put, land owned by foreign investors continues to be governed by Australian law.  It is private land so it can be used for private purposes, within those legal constraints.  To be afraid of foreign ownership of land is to be afraid of private ownership of land.  And to punish it.

Two things are going to happen if Morrison fails to approve the sale of Kidman.  First, Kidman's owners are going to get less money for their property than otherwise.  Less money is less investment in Australia — with its superior bid, we can assume that Dakang believes it can run a more efficient and profitable enterprise than any other bidder.  Australia is still desperate for capital investment, particularly in the vast interior.  Investment brings jobs.  Investment brings growth.  Blocking investment harms both.

Second, any failure to approve seriously damages Australia's reputation for stable and reliable investment, and the marketability of other properties that might be sold in the future.  Hence the concern from farming groups — WAFarmers and the Northern Territory Cattlemen's Association, for instance.  All this populist handwringing about foreign investment in agriculture actually harms the real farmers who want to maximise investment and sale prices.

We have a clear national interest in attracting investment;  a clear national interest in promoting investment certainty;  a clear national interest in developing the interior;  a clear national interest forging tighter economic links with China;  and a clear national interest in allowing Australian property holders to get the best deal for their property.

All of these things encourage economic development and growth, with flow-on effects that enhance our living standards.  The Coalition understood this, when, after the 2013 election, they declared that Australia was open for business.  How are potential investors in Australia supposed to see that promise now?

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No wonder we hate the banks

Our financial and corporate regulatory system manages to be both bad for the economy and bad for public transparency.  And neither the Government nor the Opposition has a plan that will likely resolve it.

It's not really a surprise that two-thirds of voters support Labor's royal commission into banking, as the Fairfax/Ipsos poll found yesterday.  Anti-bank populism is a fundamental part of Australia's political culture.

Back in 2012 Essential asked voters how, specifically, they would like the banks to be controlled.  Ninety per cent wanted the government to fix bank fees.  Eighty-one per cent wanted the government to fix the salaries of bank CEOs.  Seventy-four per cent wanted to forcefully peg interest rates to the Reserve Bank's monthly interest rate determinations.

It seems likely that voters would welcome a return to the pre-1980s regulatory regime where the government fixed interest rates and micromanaged the products and investments of the banks — where credit was scarce and you had to beg banks for a loan.

So this fortnight's debate over the royal commission into banks and the government's alternative — to boost the powers and funding of the Australian Securities and Investment Commission (ASIC) — is not just a minor election year spat.

It's a revealing window into how the government changed the way it controls business over the last few decades.

The market-oriented reform of the 1980s and 1990s revitalised the Australian economy after the stagflation of the 1970s.  But in the wake of that reform grew up a complex regulatory state that pleases no one.

Now control of the economy has been delegated to arms-length independent regulators.  They oversee vast regulatory regimes that create uncertainty and impose heavy costs, while at the same time doing nothing to satisfy the anti-corporate populists who imagine that industries like banking have been left up to the "free market".

Take, for instance, the complaint last week in the Sydney Morning Herald by Allan Fels — himself a former regulator — that ASIC has failed to be the "tough cop" on the corporate beat because it has been too eager to sign negotiated settlements with the firms it is supposed to regulate.  Fels would rather ASIC take more firms to court.

No doubt many readers nodded in approval, the report further confirming their belief that ASIC is soft and that we need a royal commission.

But the idea that the increasing use of negotiated settlements and so-called "enforceable undertakings" is a sign of regulatory softness is bizarre.

The practice of negotiating enforceable undertakings — essentially promises made by firms to do certain actions which can be enforced in court — was developed to give regulators discretion to be more intrusive, not less.

The idea is this:  rather than going to court every time the regulator wants a firm to do something, it can negotiate.  Negotiation is cheaper for all involved, but it also gives the regulator more power.  With a negotiated settlement, the regulator can persuade firms to do more than the letter of the law would require:  do this, and we won't take you to court.

Enforceable undertakings are a big part of the "responsive regulation" idea that was supposed to strengthen the power of regulatory agencies.  ASIC is a big fan of responsive regulation.

Now, in my view, this sort of regulatory practice is bad policy.  Firms should know exactly what is lawful and what is unlawful.  Regulation shouldn't be a matter of discretion — it should be clear and unambiguous.  Uncertainty is bad for the economy.

But it's bad politics, too.  Recall that old aphorism:  not only must justice be done, it must also be seen to be done.  Regulatory agencies spend their life negotiating in private with firms rather than publicly enforcing clear rules in court.  No wonder voters think those agencies are a bit hopeless.

We can debate how heavily regulated companies should be, but surely we can agree that the regulation should be transparent.

Into that political void has fallen Bill Shorten and his royal commission into banks — an exercise that appears more about adverse publicity rather than a genuine desire for reform.

After all, if Shorten had any grand regulatory dreams for the sector he had ample opportunity to chase them in the three years he spent as Minister for Financial Services and Superannuation.

But it is hard to imagine a royal commission that did not recommend more regulation.  They're structurally designed that way.  Lawyers tend to be more sympathetic to legal controls on market transactions than the economists that dominate most other forms of banking inquiry.

The Coalition government has its own policy to strengthen ASIC — with new powers, a new funding model, and some more resources.

None of these options is likely to resolve the deeper problem — that the discretionary, arms-length, ambiguous regulatory state offers nothing but uncertainty to firms and the public.

No wonder voters don't have confidence in the system.  No wonder they like the idea of a populist royal commission.

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Negative gearing changes aren't bold or courageous

Why are we talking about negative gearing?

The simple answer is Bill Shorten released Labor's negative gearing policy.  (For better or worse, this is how you control the media cycle.  Release policies.)

The more complicated, more worrying answer is that the economic debate is so empty — that the range of acceptable discussion is so narrow, that big picture ideas are so thin on the ground — that changing negative gearing is the boldest economic reform the political class can reckon with.

Removing negative gearing has been done before.  Where in 2016 negative gearing changes counts as a courageous barbecue stopper, the Hawke government's abolition of negative gearing barely rates a mention among the great regulatory upheavals of the era.  It's a sad illustration of how our vision of the range of possibilities has shrunk in three decades.

An even more depressing thought is how disconnected the negative gearing discussion is from the big economic challenges we face.  There are two reasons one might consider negative gearing changes.  We might want to gather more revenue for the Commonwealth budget.  And we might want to ease pressure on the housing market.

That Labor has a more-tax-revenue approach to budget repair and favours negative gearing as an explanation for high house prices is well-known.

On the other hand ...

But it's a worry that the Treasurer, Scott Morrison, while defending negative gearing in general, believes that the "excesses" of negative gearing need to be tackled.

First, this goes against Morrison's apparently rock-solid belief that spending needs to be reduced, rather than revenue increased.

Second, it implicitly concedes the view that the house price boom is caused by demand — too many investors — rather than supply — restrictions on land release and NIMBYism.

Third, and most importantly, changes to negative gearing have nothing to do with economic growth.  Nothing.

It's true that you could make a creative, complicated, multi-stage argument that lower house prices might eventually lead to growth benefits.  But all else being equal, it is hard to see why removing money from the economy — as any proposal that increases government revenue would — might help the economy, rather than hinder it.

The unfortunate conclusion is that both the Government and the Opposition are talking about negative gearing because they have so few ideas of what to do next.

Just look at Morrison's speech to the National Press Club last week.  As a generic political speech it was perfectly adequate — an outline of the economic climate and reiteration of previously announced policy positions.  But as an attempt to articulate the economic direction of the Turnbull Government it was empty.

On the question of budget balance Morrison only managed to demonstrate that very little had been done to reduce the deficit — as his 7.30 interview made perfectly clear, the Coalition has spent $70 billion of the $80 billion it has saved.

Perhaps the problem is that the bank of reform ideas is empty.  Property commentators have been hyperventilating about negative gearing for ages.  Maybe it's only being talked about because the political class has run out of other things to talk about.

Yet the Australian policy community is rich with ideas:  big bang ideas and small marginal ideas.  The Abbott government commissioned the production of many of them.  We've had the Harper review into competition policy, the Murray inquiry into the financial system, and the encyclopaedic audit commission report.  These reports offer hundreds and hundreds of pages of policy discussion, recommending everything from intellectual property law changes to returning some income tax powers to the states.  So where is the shadow of that formidable ideas production in our federal parliament?

Morrison has given a partial answer.  From a growth point of view, cutting the company tax rate could get the biggest bang for our reform buck.  This would be hard politics, especially if the revenue loss was compensated with a GST rise.  As the Treasurer explained, "the proposition that you tax mums and dads more so companies can have a tax cut has an obvious problem."  Yet that problem has been surmounted before.  Company taxes were cut in 2000, and again in 2001, at the same time as the GST was introduced.

It seems clear that politicians feel more hemmed in than they were in the past.  That's either because they lack courage — or because they lack the stable foundations on which to be courageous.  Australian politics has now experienced half a decade of leadership instability, brought about by the fractious decision to roll Kevin Rudd in 2010.

Our policy debate is more shallow, limited and parochial than it has been for decades.  Yet at the same time the need for major changes — changes that would spark economic growth — is as pressing as it has been since the 1970s.  That changing negative gearing is the best that Labor and the Coalition can come up with is a condemnation of their failure to lead.

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The canned tomatoes war and the conspiracy against consumers

On Thursday last week the Turnbull Government announced it was going to impose tariffs on two brands of imported Italian canned tomatoes — Feger and La Doria.

There's a long and dirty backstory here, which I'll relate in a moment.  But first things first.

In his press release announcing the new tariff, Industry Minister Christopher Pyne declared a "win for Australian tomato growers and producers" who could not compete against the cheaper Italian imports.  Notice who is missing?  What about tomato consumers?  The bulk of the Australian population is now forced to pay more than they otherwise might have for this basic kitchen staple.

Yes, this is the basic calculation of protectionism and has been for centuries, but it's worth pausing to consider how terrible it is:  the Government is forcing up the price of food on everyone to support a tiny industrial minority and their shareholders.  Needless to say, raising the cost of canned goods at the bottom end of the price schedule disproportionately affects the poor.

So why have they done this?  The Government's Anti-Dumping Commission believes that Feger and La Doria have been "dumping" canned tomatoes in Australia at a price below their normal value.  You can read the commission's final report.

The commission concludes that the market for tomatoes is highly price sensitive and that Feger and La Doria have "caused injury" to local producers by suppressing the competitive price.  But this, you might fairly object, is exactly how market competition is supposed to work.

The theory underpinning anti-dumping regulation is pretty simple.  The fear is that a foreign producer might pour cheap goods into the Australian market below the cost of production.  Unable to compete against loss-making products, Australian firms will go out of business.  Then once those Australian firms are kaput, the importer jacks prices up, and reaps "predatory" profits.

This is an entirely theoretical concern.  No obvious example of any firm pulling such a Machiavellian manoeuvre exists.

Indeed, the canned tomatoes market shows why.  Once the scheming importer starts charging high prices they are themselves vulnerable to being undercut by competitors.  Even if Australian tomato producers were unable to quickly return to the market, other importers could swoop in.

Thursday's decision is the denouement of a legal war against canned tomato imports waged for more than two decades.  In 1992 the then-anti-dumping authority imposed tariffs on Italian, Thai and Spanish canned tomatoes at the behest of the local industry.  These tariffs only expired in 2007.

SPCA then launched an anti-dumping complaint in June 2013.  In April 2014 the commission decided that every Italian tomato importer was dumping — except for Feger and La Doria, whose dumping margins (the difference between "normal" price and price charged in Australia) were calculated by the commission to be below the minimal threshold for action.

SPCA waited a few months, then launched another complaint specifically targeted at Feger and La Doria.  After more than a year of debate about what constitutes a normal Italian market price, the commission found in SPCA's favour.

(It's worth noting that the fact that there are many Italian companies importing tomatoes into Australia, each with different price structures, makes the theoretical fears of predatory dumping more than a little ridiculous.)

While doing all of this, SPCA also convinced the Government to launch a Productivity Commission investigation into whether "safeguard" tariffs — emergency tariffs designed to protect domestic producers against sudden surges in foreign imports — could be slapped on Italian canned tomatoes.  The PC found that no surge had occurred.

Then over the summer of 2013-14, SPCA campaigned for a bailout package from the Federal Government.  You'll remember the political fight that ensued.  The young Abbott government refused SPCA a bailout, but in the end the prematurely aging Victorian Napthine government was happy to supply one.

As this suggests, SPCA has done everything to make canned tomatoes not a contest of economics but a contest of politics.  Anti-dumping law is supposed to prevent predatory business practices.  But who is the predator here?  A diverse range of Italian firms?  Or the Australian company moving mountains to raise prices on consumers?

Two claims by SPCA and their supporters in the press need to be addressed.  The first is that Italian canned tomato producers unfairly benefit from the European Union's agricultural subsidies.  This is undoubtedly true, but it is really unfair to EU taxpayers, who are in effect subsidising Australian consumers.

The second claim is that Italian producers are paying migrant workers less than the minimum wage and are connected in some way to the mafia.  It's easy to see the shadow of a public relations campaign.  Even if the allegations are true, foreign labour standards have nothing to do with whether canned tomatoes are being dumped in Australia.

In a 2010 report, the Productivity Commission argued that anti-dumping regulation ought to be subject to a "public interest" test.  This would at least allow for the interest that consumers have in cheap imported goods to be considered.

The fact that no public interest test has been introduced is revealing.  Australia's anti-dumping regime is a conspiracy against consumers, using the law to raise the prices of basic commodities to protect private profit.

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Is the Government chasing growth, or just revenue?

How on earth did tax reform come to be seen as the great white whale of economic reform in the 21st century?  The debate about whether to raise the GST to 15 per cent is a classic case study in out-of-control policy making.

A White Paper into taxation was part of the Coalition's 2010 election policy platform, intended to set an incoming Abbott government with an agenda for a second term.

Having cautiously sympathised with the arguments for increasing the GST while in opposition, in 2013 Joe Hockey revealed the GST would be part of the White Paper process.  This had a political message.  The Rudd government hadn't even allowed its "root-and-branch" Henry Review to consider changes to the rate or breadth of the GST.

Half a decade after it was announced, the White Paper process is as good as dead, and over the weekend Malcolm Turnbull was backpedalling furiously from a GST increase.

There's been lots of sound and fury.  Remember Rudd's pantomime about Vegemite in the 2013 election?  Now nothing.

There is of course a very sensible economic argument for a GST increase.  The GST is a relatively efficient tax.  It is also very transparent.  We know who pays the GST — consumers.  In this sense it is much better than some of the other mainstays of the Australian tax system, like the corporate tax, which is levied on corporations but the economic burden of which is actually shouldered by a combination of workers and investors.

Consumption taxes encourage saving and do not discourage earning, as personal income taxes do.  Swap inefficient taxes for efficient ones and all else being equal there will be economic benefits.  Stop me if you've heard this all before.

But in practice, as Turnbull became more interested in a GST change over the last few months it became clear those benefits were illusory.

First, much of the new revenue would be eaten immediately by compensation to lower income groups.  Second, some of it would probably be given to the states to satiate their demands for revenue and pay fidelity to the original GST revenue bargain.  Only what was left could be traded off for tax cuts.

In the Australian on Monday, Paul Kelly argued that dropping the GST showed that, for Turnbull, short term politics had trumped sound policy.  Kelly asked:  "Where does the growth dividend he badly needs come from once ambitious tax reform is rejected?"

Yet by the time all the stakeholders had been bought off, it is not at all clear that an ambitious GST increase would bring a growth dividend — and certainly no growth dividend large enough to justify the cost of political capital.

The lesson here is that politics and policy are not really opposed.  We live in a democracy.  Everything is compromise.  Good policy that is politically impossible cannot be considered truly good policy.

Anyway, even in a perfect world an increased GST would be a hard sell.  Probably much harder than the original GST, even though a five percentage point increase is smaller than the original 10 percentage point introduction.

The Howard government was justifiably able to pitch their new 10-per-cent-on-everything tax as "not a new tax, a new tax system", because the GST was novel, coherent and substantive.

Anything an Abbott or Turnbull government might do — even the grandest trade of a consumption tax increase for income tax cuts — could only appear as marginal changes to the Howard tax settlement.  And without the look of revolution it was going to be hard for GST changes to look like anything more than a tax increase, and one widely believed to burden poorer Australians.

Imagine if the Government actually proposed a GST boost in order to fund a tax cut for corporations.  This would be at the same time economically sensible (that is, likely to bring a big boost to economic growth) yet it would also be politically suicidal — especially for a government struggling hard with the "unfair" legacy of the 2014 budget.

There is no question that marginal efficiencies could be found if the tax system was rewritten.  But not of the sort of economy-boosting significance that the Turnbull Government hopes.

The GST has taken on an aura of bold reform that it does not deserve.  And, having taken that aura, it has crowded out discussion and debate about alternative growth enhancing strategies that would leave the tax system as it is.

That aura means there is lots of support for tax reform in the press.  But so what?  There is no agreement as to whether tax reform is supposed to help the economy, or whether it is simply to raise more revenue.  The Government has been stuck haplessly between these two forces ever since Hockey released his tax discussion paper last year.

Right now Turnbull and Scott Morrison are casting around for new approaches to tax in the lead up to the May budget.  But they first need to answer a simple question:  why are they interested in tax reform at all?  For revenue, or for growth?

It has to be said, once again:  persistent budget deficits are a terrible time to attempt tax reform.

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Donald Trump is not a conservative — just look at his views on trade

Donald Trump's proposal to end all Muslim immigration to the United States has unleashed a justified torrent of commentary around the world.  But it is his views on free trade that are more indicative of the source of his support, and the tensions he creates within the conservative movement.

Trump displays none of the conservative virtues.  He is rash, inconsistent, disdainful of knowledge and policy detail, and nonchalant about making pledges which he could not, as president, possibly fulfil.

If conservatism is a temperament — a deference to tradition, or, as Edmund Burke said, to a "manly, moral, regulated liberty" — then Trump is not a conservative.

He appears to have no interest in statescraft or stability.  Remember Tony Abbott's 2013 promise to slow down the news cycle and end political dysfunction?  Trump promises the opposite.  And it is entirely possible that he will be voted as the nominee of the conservative Republican Party.

At the sixth Republican candidates debate last week, Trump tried to explain what he meant when he told the New York Times editorial board that he wanted to impose a 45 per cent tariff on all Chinese goods coming into the United States.

First he tried to say the New York Times reported him wrongly — which, if you listen to the audio of his meeting, is an outright lie.

Then he argued that he was, in fact, "totally open to a tariff", because he believes China is manipulating its currency and imposing tariffs to penalise American manufacturers.

It is shameful that the Grand Old Party is so close to nominating such an empty demagogue.

It fell to Marco Rubio to explain during the debate what economists have been trying to explain for two centuries:  tariffs harm consumers by raising the price of goods at home and do nothing for economic development.

The cost of any tariffs imposed by China on imports is borne by Chinese consumers.  The cost of a Trump tariff would be borne by American consumers.  The United States would do better to ensure that its businesses were free to grow at home rather than resent the self-harming policies of its trading partners.

That Rubio's bog-standard defence of trade was a rare moment of rationality in the Republican debate is a sign of how the Trump phenomenon has unmoored all but the most moored candidates, chasing the resentment that this garish business mogul has tapped into.  It is shameful that the Grand Old Party is so close to nominating such an empty demagogue.

Every political party is a coalition of groups, each with their own attitudes and appeal that have banded together to form government.

The Republican party has always had a populist wing that co-inhabits uneasily with the business conservatives who are more interested in free markets and small government.  There is a lot of overlap in ideas between these two groups, but also much to distinguish them.

Trump is unusual as a presidential candidate because he has no interest in managing that coalition.  His strategy is to appeal directly to the populist market, and ignore the business conservatives.  Hence the repeated claims that his wealth means he is not beholden to party donors.

Trump represents one side of the Republican party in revolt against the other.

The numbers tell the story.  A November 2015 survey found that where the rest of the field count around 35 per cent of their support from white working class voters, Trump enjoys 55 percent of this demographic.  It is these voters who most believe they have lost out from industrial globalization, and feel they are suffering from competitive pressure from new migrants entering the workforce.

Regardless of whether Trump wins the nomination or flames out in the next fortnight, the significance of his candidacy for the Republican ideological coalition will be felt for decades.

So why is Trump's position on free trade a more powerful indicator of his significance for the conservative movement than his much more radical immigration policies?

As well as the ban on Muslim immigration, Trump wants a fence on the US-Mexico border that he insists Mexico will pay for.  And he wants the 11 million undocumented immigrants in the United States forcibly deported.

But as extreme as these positions are, the domain of Republican immigration policy had already been ceded to the demagogues before Trump came along.

If you watched the sixth debate, you would have seen Rubio back away from his role in the 2013 bipartisan immigration bill — a bill lauded at the time by business conservatives — that would have provided a way for the 11 million immigrants Trump wants to deport to become citizens.

By contrast, until Trump, the cause for free trade has at least received lip service support, despite globalisation's role in changing the industrial landscape that many working class Republican voters have resented.  No question that there are always some stark violations of the free trade principle.  The Republican platform says the party "stand[s] ready to impose countervailing duties if China fails to amend its currency policies".

But Trump goes much further, calling for "fair" trade at the same time as he describes himself a free trader — the classic protectionist pitch — and damning even the North American Free Trade Agreement as a "disaster".

In a perceptive National Review piece, writer David French argues that Trump's rise shows that Republican strategists have overestimated the conservatism of Republican voters.  Regardless of whether Trump wins the nomination or flames out in the next fortnight, the significance of his candidacy for the Republican ideological coalition will be felt for decades.

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The alternative to Uber's surge pricing isn't fair either

Uber's surge pricing seems to offend our sense of egalitarianism, but it's because of this feature that the service is constantly available for those who need it.

On the morning of New Year's Eve, the ridesharing company Uber sent its customers an email warning of increased prices particularly between 12:30am and 4am the next day, the time that revellers were likely to want to go home at the same time.

Nevertheless, on January 1, there was an inevitable spate of outraged press stories where customers complained about the extremely high prices charged by Uber during those peak hours.  In some cities, Uber prices were nearly 10 times the normal price.  One person paid $720 for a ride from Sydney to Blacktown.

This can't have been a surprise.  The price is set by an algorithm.  As well as the email that morning, Uber notified riders of the surge prices and required them to manually accept the increase before they confirmed the ride request.  The Uber smartphone application also allows riders to estimate fares in advance.

One suspects that more than a few of these unhappy riders were "tired and emotional", in that charming media euphemism.

The case for what Uber calls "surge pricing" is simple.  Uber drivers cannot be simply forced to work at the busiest or most inconvenient times.  They have to be enticed to drive on New Year's Eve — an evening where many drivers would probably rather be partying than ferrying passengers.  Higher prices are enticing.  This is basic supply and demand stuff.  Surge prices also encourage drivers already on the road to go to where demand is highest.  In the absence of surge pricing, there would almost certainly be shortages and queues.

Uber did not invent market incentives.  The company just exploits them.  Allowing for demand-driven pricing is one of Uber's best features:  it ensures the service is constantly available for those who need it.  Surge pricing is one of the reasons Uber is walking all over the taxi market.  Yes, it would be nice if our fellow citizens were happy to drive us around at the cheapest prices on demand at the busiest times, but as Adam Smith said, you can't run an economy on benevolence alone.

And yet it is undeniable that many people see price surges like those engineered by the Uber algorithm as violating an unstated ethical code.  When a smaller surge occurred during the Sydney siege, the outrage was worse, as it seemed like Uber was profiting from the city's fragile state.

Supporters of markets have a habit of sometimes dismissing these concerns out of hand, but they shouldn't.  Market exchange, as one of the basic forms of human interaction, has a deep ethical dimension.  It needs to be defended.

The earliest traces of what we now call economic reasoning was preoccupied with the search for principles that would explain why certain goods were more expensive than others.  The debate was concerned with how the "just price" was determined — a price which was fair and ethical according to the ideas of Christian justice.

Some medieval theologians and philosophers believed the just price was the price it would take to cover the cost of production plus a small profit.  Thomas Aquinas argued that the just price was what a just person would agree to.  Others believed the just price was whatever the prevailing local market price was.

This final explanation might seem a cop-out but it packed an intellectual punch in the medieval period.  According to these proto-free marketeers, the just price was that which could be freely and voluntarily agreed to by two independent agents.  After all, one of the alternatives to the market setting a price is if a lord sets a price by diktat, and forces those they rule to sell for less than market value.

Social institutions are about trade-offs, not solutions.  There is no perfect way to resolve the tension between supply and demand.  Unless market participants are forced to provide a service, that service will either be rationed by price or it will be rationed by queuing.

Surge prices seem to offend our sense of egalitarianism, but as Jason Brennan and Peter M Jaworski point out in their recent book Markets Without Limits, queues are not very egalitarian either.  Queues don't treat everybody equally.  Queues favour those who are willing to spend time in queues.  Not everybody has that time.  Some people really need an immediate Uber ride, to get home to babysitters or because they are unwell.  Others merely want a ride.

Psychologists and behavioural economists have spent decades documenting all the irrationalities, systemic errors, and cognitive biases that lead humans to make bad decisions.  The intuitive revulsion many of us have to market pricing in moments of extreme demand ought to be one of them.

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The Dries have it: The past and future of economic reform

Over Christmas Jim Carlton, one of the leaders of the most pivotal political movements of recent times, died.  Malcolm Turnbull's success could well depend on whether Carlton's successors are preparing the ground for future reform.

An unfortunate consequence of the ideological makeup of Australian historians is that one of the most important political and intellectual movements in 20th century Australia is still poorly understood and underappreciated.

Every factional nuance of the Labor Party and union movement has its own dedicated history.

By contrast, the Dries — the parliamentary and extra-parliamentary grouping that drove free market thinking in the Liberal Party;  that laid the foundations for the deregulation of the 1980s and '90s;  that held the Liberals to their private enterprise beliefs during those reforms against the attraction of populism;  that seemed to flame out with the failure of Fightback! at the 1993 election but whose program has been vindicated by decades of bipartisan economic change — has been largely ignored.

At best the Dries receive a perfunctory paragraph in political histories, dismissed either as Margaret Thatcher copycats or the ciphers of business interests.

Over Christmas one of the leaders of the Dries, Jim Carlton, passed away.  You can read Malcolm Turnbull's comments commemorating Carlton's life.

Carlton should be seen as one of the pivotal figures in Australian political and economic history.  This importance is not necessarily obvious from his CV.

Carlton entered parliament in 1977 as member for the Sydney seat of Mackellar.  He was the minister for Health for a short time in the Fraser government before it lost power.  He was shadow treasurer under John Howard during the 1980s, and left parliament in 1994.

Yet it was his role in building the Dry movement, and establishing a parliamentary group, the Society of Modest Members (along with the other core members of John Hyde and Peter Shack), that assures his long-term significance.

In the late 1970s and early 1980s the Dries were opposed to the Keynesian post-war consensus and advocated the monetarist approach to macroeconomic policy expounded by Milton Friedman.  They opposed the high tariff barriers that Australia placed between itself and the world.  They called for the industrial relations system — one of the most restrictive in the developed world — to be dismantled, and wages to be set by the market rather than judges.

The Dries had a love-hate relationship with the Fraser and Howard governments.  They were disappointed in Malcolm Fraser's failure to kickstart necessary reform;  a failure made more politically bitter by the fact that the Labor Party under Bob Hawke filled the gap.  It is a sign of the ideological success of the Dries that their view about the Fraser government — as a "missed opportunity" for reform — has become the dominant one in the modern Liberal Party, rather than more common idea of Fraser as a welcome return to the stable, middle-of-the-road government of the Menzies years.

It was thanks to Dry pressure that Fraser and his treasurer, John Howard, instigated the Campbell committee into the Australian financial system and gave it the philosophical direction that shaped the deregulatory movement for two decades later.  Hawke and Keating would not have been able to do what they did to the financial sector without these foundations.

Howard was affiliated with the Dries under Fraser and then during the Hawke years.  Yet Howard never fully signed up to the Dry program, in part by temperament, and in part due to a conscious effort at striving for the political mainstream.

Indeed, the Dries operated as a counterculture within the Liberal Party — albeit an extremely influential one.  This idea that the political mainstream would be influenced by the political margins was part of the Dry identity.  Carlton's Society of Modest Members was named after Bert Kelly, the Liberal member for Wakefield between 1958 and 1977, whose quasi-serious, quasi-comic "Modest Member" columns were a fixture of the Australian press for decades.  Kelly was a gadfly urging conservative governments to pursue tariff reduction and market liberalisation.

In 2011 the Society of Modest Members was revived within the federal Liberal Party, as an attempt to recapture the intellectual ferment of the era of Kelly, Hyde, Shack and Carlton.  This reconstituted group was, like the original society, an implied critique of the prevailing orthodoxy within the Liberal Party.  Free market Liberals believed that Tony Abbott needed some prodding if he was to bring about market-oriented economic reform, and needed an internal bulwark against big spending promises like paid parental leave.

Yet the new Society for Modest Members seems to have come to little, and Abbott's term in office is likely to be seen as another missed opportunity.  The original Dries were first and foremost an intellectual movement.  Turnbull's success depends on whether today's Jim Carltons are preparing the ground for future reform.

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