Blaming immigrants for unemployment, lower wages and high house prices is too simplistic

Robert Breunig, Crawford School of Public Policy, Australian National University and Mark Fabian, Australian National University

Australia should cut its immigration intake, according to Tony Abbott in a recent speech at the Sydney Institute. Abbott explicitly cites economic theory in his arguments: “It’s a basic law of economics that increasing the supply of labour depresses wages; and that increasing demand for housing boosts price.”

But this economic analysis is too basic. Yes, supply matters. But so does demand.

While migration has increased labour supply, it has done so primarily in sectors where firms were starved of labour, and at a time of broad economic growth.

Immigration has put pressure on infrastructure, but our problems are more a function of governments failing to upgrade and expand infrastructure, even as migrants pay taxes.

And while migrants do live in houses, the federal government’s fondness for stoking demand and the inactivity of state governments in increasing supply are the real issues affecting affordability.

The economy isn’t a fixed pie

Let’s take Abbott’s claims about immigration one by one, starting with wages.

It’s true that if you increase labour supply that, holding other factors that affect wages constant, wages will decline. However, those other factors are rarely constant.

Notably, if the demand for labour is increasing by more than supply (including new migrants), then wages will rise.

This is a big part of the story when it comes to the relationship between wages and migration in Australia. Large migrant numbers have been an almost constant feature of Australia’s economy since the end of the second world war, if not earlier.

But these migrants typically arrived in the midst of economic growth and rising demand for labour. This is particularly true in recent decades, when we have had one of the longest periods of unbroken growth in the history of the developed world.

In our study of the Australian labour market, we found no relationship between immigration rates and poor outcomes for incumbent Australian workers in terms of wages or jobs.

Australia uses a point system for migration that targets skilled migrants in areas of high labour demand. Business is suffering in these areas. Migrants into these sectors don’t take jobs from anybody else because they are meeting previously unmet demand.

These migrants receive a higher wage than they would in their place of origin, and they allow their new employers to reduce costs. This ultimately leads to lower prices for consumers. Just about everybody benefits.

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There’s an idea called the “lump of labour fallacy”, which holds that there is a certain amount of work to be done in an economy, and if you bring in more labour it will increase competition for those jobs.

But migrants also bring capital, investing in houses, appliances, businesses, education and many other things. This increases economic activity and the number of jobs available.

Furthermore, innovation has been shown to be strongly linked to immigration. In the United States, for instance, immigrants apply for patents at twice the rate of non-immigrants. And a large number of studies show that immigrants are over-represented in patents, patent impact and innovative activity in a wide range of countries.

We don’t entirely know why this is. It could be that innovative countries attract migrants, or it could be than migrants help innovation. It’s likely that the effect goes both ways and is a strong argument against curtailing immigration.

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Abbott’s comments are more reasonable in the case of housing affordability because here all other things really are held constant. Specifically, studies show that housing demand is overheated in part by federal government policies (negative gearing and capital gains tax exemptions, for instance) and state governments not doing enough to increase supply.

Governments have responded to high housing prices by further stoking demand, suggesting that people dip into their superannuation, for instance.

In the wake of Abbott’s speech there has been speculation that our current immigration numbers could exacerbate the pressures of automation, artificial intelligence and other labour-saving innovations.

But our understanding of these forces is nascent at best. In previous instances of major technological disruption, like the industrial revolution, the long-run effects on employment were negligible. When ATMs debuted, for example, many bank tellers lost their jobs. But the cost of branches also declined, new branches opened and total employment did not decline.

Read more:
New research shows immigration has only a minor effect on wages

In his speech, Abbott said that the government needs policies that are principled, practical and popular. What would be popular is if governments across the country could fix our myriad policy problems. Abbott identified some of the big ones – wages, infrastructure and housing affordability.

What would be practical is to identify the causes of these problems and address these directly. Immigration is certainly not a major cause. It would be principled to undertake evidence-based analysis regarding what the causes are and how to address them.

The ConversationA lot of that has already been done, notably by the Grattan Institute. What remains is for governments to do the politically difficult work of facing the facts.

Robert Breunig, Professor of Economics, Crawford School of Public Policy, Australian National University and Mark Fabian, Postgraduate student, Australian National University

This article was originally published on The Conversation. Read the original article.


China, North Korea and trade the key talking points when Turnbull meets Trump

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Malcolm Turnbull will be relieved to have some time away from the Barnaby Joyce affair when he arrives in Washington this week.
Reuters/Jonathan Ernst

Tony Walker, La Trobe University

Malcolm Turnbull was no doubt relieved when the prime ministerial jet lifted off from Australian soil yesterday, bound for the United States and his first formal round of discussions in Washington with an American president.

In Turnbull’s own words – applied to Deputy Prime Minister Barnaby Joyce’s domestic troubles – he will be hoping to leave behind a “world of woe”.

After a steadier start to the new year, the Joyce scandal, involving an affair with a political staffer, has cut the ground from under those improved prospects.

This has been reflected in the latest round of polling, which shows the Coalition slipping back against the Labor opposition. Turnbull’s own approval rating has taken a hit.

For these and other reasons, not least the need to establish a sound working relationship with a new administration, the prime minister will be looking to a circuit-breaker.

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Whether Turnbull’s “first 100 years of mateship” visit to Washington – with state premiers and business leaders in tow – provides a diversion from his domestic woes remains to be seen.

The hokey branding for the mission refers to the centenary of American soldiers fighting under Australian command on the Western Front in the Battle of Hamel in 1918.

In Washington, Turnbull’s discussions with President Donald Trump will focus primarily on China’s rise, the North Korean nuclear issue, and trade.

How to respond to North Korea’s provocations represents an immediate problem. But in the longer term, China’s expanding power and influence constitute the greatest security challenge facing Australia since the second world war.

In his public statements, Turnbull has been alternately hawkish and conciliatory toward Beijing, but it appears his instincts tend to align themselves with an American hedging strategy.

The Turnbull view of how to manage China’s rise was given particular expression in a speech in June 2017 to the annual Shangri-La Dialogue in Singapore. In this speech he called for “new sources of leadership [in the Indo-Pacific] to help the United States shape our common good”.

Turnbull’s Shangri-La speech was forthright for an Australian prime minister. He sharply criticised China’s “unilateral actions to seize or create territory or militarise disputed areas” in the South China Sea.

Beijing denies it, but it is clear it has been constructing a defence perimeter on islands and features in disputed waters. This prompted the following from Turnbull:

China has gained the most from the peace and harmony in our region and it has the most to lose if it is threatened … A coercive China would find its neighbours resenting demands they cede their autonomy and strategic space and look to counterweigh Beijing’s power by bolstering alliances and partnerships, between themselves and especially with the United States.

That speech was followed by increased efforts to expand a quadrilateral security dialogue between Australia, Japan, India and the US.

Turnbull’s visit to Japan in January for high-profile talks with Japanese Prime Minister Shinzo Abe emphasised shared regional security goals with other members of the so-called Quad.

What steps might be taken to further develop security collaboration between Australia, the US, India and Japan will almost certainly be on the table in Washington.

The Trump administration’s appointment of Admiral Harry Harris, the outgoing head of the US Pacific Command, as the ambassador-designate in Canberra is a signal of its intentions.

Harris has a hawkish view of China’s expanding influence in the Indo-Pacific. His participation in a security conference in Delhi in January along with Australian, Japanese and Indian naval commanders was significant in light of stepped-up efforts to bolster maritime collaboration between Quad members.

However – and this is a sizeable “however” – Turnbull needs to be careful not to be sucked into an American slipstream where China is concerned. Australia’s commercial interests dictate prudence in how it positions itself between a rising China and the US under an unpredictable Trump presidency.

The new US National Defence Strategy exposed differences between Canberra and Washington in their views of “revisionist” China and Russia as threats to US hegemony.

Foreign Minister Julie Bishop felt obliged to distance Australia from the Trump administration’s characterisation of attempts by China and Russia to “shape a world consistent with their authoritarian model”. She said:

We have a different perspective on Russia and China, clearly. We do not see Russia or China as posing a military threat to Australia.

Turnbull, for his part, provided a more nuanced response. He said:

We don’t see threats from our neighbours in the region but nonetheless every country must always plan ahead and you need to build the capabilities to defend yourself not just today but in 10 years or 20 years hence.

Australia’s 2016 Defence White Paper and 2017 Foreign Policy White Paper (the two documents should be read in conjunction) sketched out a future in which the country needs to buttress its defence capabilities in light of China’s rise.

Apart from China and related security matters, Turnbull will focus on trade in Washington. He will no doubt try to persuade Trump to revisit his decision to pull the US out of the Trans-Pacific Partnership trade agreement, now rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The US withdrawal from the TPP, as one of Trump’s first executive acts as president, was disappointing. A trading bloc in the Indo-Pacific accounting for 36% of global GDP would have served as a counterweight to China’s surging trade and investment ambitions.

The revised CPTPP – including Australia, Japan, Canada, Mexico, New Zealand, Malaysia, Peru, Singapore, Chile, Vietnam and Brunei – remains significant. But clearly the abrupt US withdrawal has lessened its reach.

Significantly, Turnbull will discuss the CPTPP on the eve of the initialling of the agreement among the 11 remaining participants on March 8.

Trump has indicated he might be receptive to arguments for American re-engagement in the CPTPP process. However, this would require the renegotiation of provisions on such contentious issues as dispute settlements, copyright and intellectual property.

It is hard to see this happening in a timely manner. In a sense, the train has left the station.

Read more:
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The Turnbull-Trump focus on China may also yield discussion about a competing regional infrastructure investment initiative to balance China’s “Belt and Road” program.

The latter is a vast Chinese infrastructure scheme. China is seeking to strengthen its influence in surrounding states by recycling a portion of its foreign exchange reserves in road, rail, port and other such projects.

It is not clear just how Turnbull and Trump might seek to provide alternative sources of infrastructure funding for projects to counter Chinese attempts to buy influence far and wide.

The ConversationSuch a scheme emerged from a pre-summit briefing in Canberra. The fact it is being floated attests to concerns in Washington and Canberra about China’s success in using its financial heft to extend its security interests.

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article was originally published on The Conversation. Read the original article.

A public broadcaster that bows to political pressure isn’t doing its job

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The ABC’s independence is a global concern.
AAP/Joel Carrett

Johan Lidberg, Monash University

The ABC’s chief economics correspondent, Emma Alberici, did her job the other day. She wrote a well-researched analysis piece investigating whether the Turnbull government’s proposed company tax cuts would grow the economy and break Australia’s wages deadlock.

Alberici’s article came in for a lot of criticism from the Turnbull government for its one-sidedness and lack of balance. Later, the ABC took down the article from its website.

If you read her piece, you’ll see that, yes, she could have included more voices, and yes, the case for company tax cuts was forcefully argued against. But the argument and analysis was built on sound research, as Saul Eslake (one of Australia’s most senior and respected independent economists, who was quoted in Alberici’s story) has pointed out.

So, why on earth did ABC take the article down?

Part of the answer to this lies in the very editorial policies that are supposed to safeguard the ABC’s independence. The current wording of these polices function as a straitjacket on ABC journalists and make it hard for them to toe the line between analysis and opinion.

And that in turn makes the ABC look less independent.

High level of trust

One of the ABC’s greatest assets is the high public trust it enjoys compared to many of its commercial media competitors.

That trust is to a large extent built on the broadcaster maintaining and defending its independence from commercial, political and any other societal interests.

There are a lot of misconceptions regarding what a public broadcaster is. But one thing it is not is a government or state broadcaster.

There are certainly examples of some public broadcasters that are. One prominent recent case was when the Polish government in practice took control of the country’s public broadcaster and turned it into a government mouthpiece.

A serious case of self-doubt

The ABC Act and the ABC Charter are the safeguards of ABC’s independence from the government of the day. This independence was challenged to unprecedented levels by the Abbott government a few years ago.

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A new major challenge to the ABC’s independence is the current change, driven by One Nation, to the ABC Charter requiring it to be “fair” and “balanced” in its reporting. If you recognise these terms, that’s because it used to be Fox News’ catchphrase.

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How the government and One Nation may use media reforms to clip the ABC’s wings

The ABC is not turning into the Polish Broadcasting Corporation, but it has clearly lost a lot of confidence lately. In Alberici’s case, it appears it bowed to government pressure when it should have stood its ground.

But getting heat from the government of the day (regardless of the particular side of politics) is an indication that a public broadcaster is doing its most important job (provided you get your facts right): holding power to account. If you bow to political pressure, you’re not doing your job.

A public broadcaster with a confidence problem is a serious issue for political and democratic wellbeing.

Globally, there are between ten and 15 properly funded public broadcasters (depending on what level of funding you define as proper) with enough funding and safeguards to be able to call themselves editorially independent. This means there are only ten to 15 large repositories of in-depth public interest journalism – globally.

The ConversationSo, the case is strong for the Australian public to get behind the ABC and ask it to snap out of its crisis of confidence. Then it can get on with the job of keeping power to account – just like Alberici tried to do.

Johan Lidberg, Associate Professor, School of Media, Film and Journalism, Monash University

This article was originally published on The Conversation. Read the original article.

Australia may be engaging in ‘free trade’ but it’s becoming more protectionist too

Giovanni Di Lieto, Monash University

The federal government may be aggressively negotiating free trade agreements, but in other ways it is restricting trade. The government has been giving itself extensive new anti-dumping powers, targeting steel and aluminium markets in particular.

There was a nearly two-fold increase in anti-dumping investigations in Australia in 2017. According to the Productivity Commission, these protectionist measures “raise costs to consumers and reduce competitive pressures, leading to less efficient resource use in the country levying the protection”.

Higher tariffs lift the costs of imports and disrupt global supply chains. This harms consumers, producers and workers.

The Productivity Commission estimates that for every A$1 increase in tariff revenue, economic activity in Australia falls by A$0.64. The commission also says that for “every year that higher tariffs prevailed, GDP would be lower by over one per cent”. Thus, “a household that spends A$2,500 a fortnight on goods and services would be worse off by A$100 a fortnight”.

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The Australian Department of Industry explains that:

dumping occurs when goods exported to Australia are priced lower than their “normal value”, which is usually the comparable price in the ordinary course of trade in the exporter’s domestic market.

A recent example of this in action was when the Anti-Dumping Commission found that major exporters of tinned Italian tomatoes were dumping their product in Australia. The government swiftly imposed dumping duties of up to 8.4%.

In principle, this is perfectly legitimate. World Trade Organisation agreements allow these duties to be imposed when dumping or subsidisation threaten to cause material injury to a domestic industry.

More power for the government

But recent changes to Australia’s anti-dumping laws, while purportedly aimed at “levelling the field”, place a greater legal burden on overseas businesses with more stringent submission requirements.

Moreover, legislative proposals tabled in the federal parliament in late 2017 could vastly expand the discretionary power the government has to set benchmark prices for imported products in the Australian market. These can even be set at higher levels than the prices in the home market from which they were exported.

Indeed, according to international trade law practitioners, “dumping duties at high rates will give the Minister an unprecedented price-fixing power over imported products, to the extent that foreign exporters and their Australian importers may be unable to compete in Australian markets”.

In other words, this proposal could exacerbate the trend of covert trade protectionism in Australia.

According to a 2017 WTO report on trade measures in the G20 countries, new anti-dumping actions have outpaced terminations by three to one. This is the largest gap since 2012. Australia also had a fourfold increase in new countervailing duty measures (trade retaliations, in other words) from 2015 to 2016, second only to the USA. In 2016 Australia started nearly one-third of all G20 trade retaliations.

Initiations of anti-dumping investigations in G20 countries (2016-17)
World Trade Organization
Initiations of countervailing duty investigations in G20 countries (2015-16)
World Trade Organization

The subjects of anti-dumping actions are usually technical barriers to trade that measurably affect certain industries. In the G20 countries most of these relate to agricultural policies.

Australia has in recent times raised specific trade concerns about the European Union’s agriculture policies, India’s minimum prices for wheat and sugar, Canadian subsidies for milk and wine, and the United States’ purchase of cheese stock, export credit guarantees and international food aid.

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The anti-dumping data and legislative trends clearly show that Australia is at the forefront of the trend towards greater (covert) trade protectionism among developed countries.

Several government policies, including the abolition of the temporary work 457 visas, the Australian Securities and Investments Commission’s exemption of certain foreign financial suppliers from particular regulatory requirements, and the Mobile Black Spot Program (to improve mobile coverage in regional and remote Australia) have also come under scrutiny by the World Trade Organisation

The ConversationThis does not completely undermine Australia’s leadership in new free trade agreements in the Asia Pacific region and beyond. But it does show that Australian trade diplomacy is taking place within the creation of a less-than-liberal order of global economy.

Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University

This article was originally published on The Conversation. Read the original article.

The New Payments Platform may mean faster transactions, but it won’t be safer

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The New Payments Platform could lead to more fraud and abuse.

Steve Worthington, Swinburne University of Technology

Australians will finally enjoy the ability to send each other money in “real time”, with the launch of the New Payments Platform (NPP) today. The platform is a mixture of new processes for settling transactions between banks, guided by the Reserve Bank of Australia.

But while this may make payments faster, it could also make them less safe.

And data from the United Kingdom’s real-time payments platform, Faster Payments, show the take-up of Australia’s system may not be that strong. Although it was launched 10 years ago, Faster Payments has not yet become the most popular payment method in the UK. The most popular is still the traditional system, which takes three days to clear.

Research into the Faster Payments platform shows it is rife with fraud and scams. Part of the problem in the UK is that banks have trouble identifying potentially fraudulent transactions.

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The New Payments Platform will also change how you transfer money. BSB and account numbers will still exist, but individuals and businesses can create other identifiers, called “PayID”. This means mobile numbers or email addresses can also be used as a way to identify yourself, both to pay and be paid by others.

The platform will also remove the delays caused by weekends and public holidays and mean you can make transfers after business hours.

The impetus for a real-time payment platform came from a 2012 review by the Reserve Bank of Australia. It found that Australia’s payment system lagged behind even less developed nations, such as Mexico.

But not all banks have signed on to the new payments platform. Those taking a wait-and-see approach include Bank of Queensland, Suncorp and Rabobank. Even some of the subsidiaries of one of the big four banks, Westpac (such as Bank of Melbourne and St George), will not be involved in the launch of the New Payments Platform.

Fraud and abuse in real time

Before the New Payments Platform, numerous safeguards were built into Australia’s payment system that limited fraud and abuse. For instance, if you were planning to buy a car, you would likely go into your bank and ask for a bank cheque. This cheque would be made out to the name of the dealership or person selling the car.

A number of protections are built in to this system. The money is guaranteed by your bank and will clear within three days once deposited. If someone with a different name tries to deposit the cheque, then the cheque will not be accepted and hence the payment will be revoked.

Under the terms and conditions issued by one of the participating banks, banks are not liable for losses that are a result of you giving the wrong account information. Furthermore, a transfer instruction given by you, once accepted by your bank, is irrevocable.

This also applies if you were fraudulently induced to make a transfer via the New Payments Platform. In this case your bank might be able to help you recover the funds, but the recipient of the funds (potentially a fraudster) will have to consent to repay your funds. So if you have a dispute with a recipient of your funds transfer, you will need to resolve the dispute directly with that person or organisation under the new scheme.

It is likely that similar terms and conditions will apply to all the institutions that are members of the New Payments Platform.

The problem will only get worse as the “cap” on transactions is lifted. This happened in the United Kingdom once the Faster Payments cap was raised to £250,000 in 2015.

According to the managing director of the UK Payment Systems Regulator, Hannah Nixon: “There is no silver bullet for [authorised push payment] scams and some people will still, unfortunately, lose out.” Nixon added that account holders also need to take “an appropriate level of care” in protecting themselves.

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The UK experience shows that the New Payment Platform is likely to speed up transactions. It took two years for Faster Payments to pass 500 million transactions, but it sped up and passed 5 billion transactions in just over seven years.

In June 2017, Faster Payments processed 135.7 million payments, which was a 15% increase on the previous June. These payments amounted to a total of £115 billion for that month.

But Faster Payments is still not the biggest payment platform in the United Kingdom. Although we don’t know exactly why, there are many possible reasons – including customers not wanting to switch from something they are used to and a fear of fraud.

It could also be that British financial institutions are not promoting Faster Payments to their customers as they can charge higher fees on the traditional payment platform.

The ConversationAbove all, the big concern is detecting fraudulent activity in real time – something that will concern banks’ risk management and which may have led to some choosing to hang back. Payments on the New Payments Platform may be faster and easier to make, but will they be safer? It could just make fraud faster and easier for fraudsters, and harder to undo for victims.

Steve Worthington, Adjunct Professor, Swinburne University of Technology

This article was originally published on The Conversation. Read the original article.

Australians support universal health care, so why not a universal basic income?

Brian Howe, University of Melbourne!e9abfe70744672039ef3317ba55fe8b709d8e0a8

In Australia, the idea of a universal basic income has floated in and out of our political arena for years, but remains only that, an idea.

The concept of a universal basic income has always been controversial. This notion – that the government should pay everyone a regular payment to meet their basic needs, despite their income – has been touted as a solution to inequality.

In the 1970s, the idea of a universal basic income looked as though it could become more.

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In 1972, the inaugural Director of the Melbourne Institute, Applied Economic and Social Research, professor Ronald Henderson, chaired the Australian government’s poverty inquiry. It was tasked by then Prime Minister Gough Whitlam, to investigate all aspects of poverty affecting Australians, including race, education, health and law.

Professor Henderson’s work led to what is now widely referred to as the Henderson Poverty Line, which measures the extent of poverty in Australia in terms of the income of families and individuals relative to their essential living costs; and he advocated a guaranteed minimum income scheme for Australia, similar to a universal basic income .

More than 40 years after professor Henderson began his report of the Commonwealth Commission of Inquiry into Poverty with the line:

“Poverty is not just a personal attribute: it arises out of the organisation of society.”

The suggestion of a guaranteed minimum income scheme

At the heart of the Henderson inquiry’s final recommendations was a guaranteed minimum income scheme, in which payments to pensioners (at a high rate) and payments to all other income units (at a lower rate) would be balanced by a proportional tax on all private income. The report states:

We believe that these reforms are the best way of reconciling the conflicting ends of policy on income support… They recognise that disabilities which hinder the earning of a private income warrant favoured treatment, but also provide support for people without disabilities in this sense, and who may still easily become poor – particularly the large family. Again, support is provided in a way which does not discredit those who claim it… so that income support may be seen as a right rather than a favour.

Professor Henderson was strongly in favour of universality in social policy – as exists in Medicare today in Australia. And that’s tangible in his idea of a universal minimum payment which would have ensured that incomes for individuals and families were in excess of the poverty line.

Instead of means testing – which he opposed as it creates a separate system for the disadvantaged that can be stigmatising – he wanted to use the tax system to withdraw income from higher earners, rather than means testing pensions and benefits.

But this didn’t happen.

Instead, the Whitlam government was dismissed in 1975 – around six months after the inquiry delivered its final report, and the new government, headed up by Malcolm Fraser, hardly considered its recommendations.

Far from universality

At the time of professor Henderson’s pivotal work, post-war Australia had pursued the creation of an industrial economy where male workers played the dominant role. For the most part, employment then meant permanent full-time jobs in industry regulated and protected against foreign competition.

But, since that time, the country has pursued a very different course.

The key challenge is how Australia can maintain its commitment to fair and equitable wealth generation and distribution, in a modern world.

The precarious nature of modern labour markets puts enormous pressures on families and households, making it important to create a system that works in the interests of the truly disadvantaged.

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Universal basic income: the dangerous idea of 2016

Professor Henderson distrusted a targeted social security system, and therefore recommended a basic income so that “income support may be seen as a right rather than a favour” for Australian citizens.

Since then, despite the example of universality in the key public institution of Medicare, to which all are entitled, the social security system has become more conditional, and arbitrary, with benefits now well below the poverty line.

There is growing evidence, for example, that social security payments for unemployed people, like Newstart, now barely meet the necessities of life – let alone cover expenses involved when people are looking for work.

In this country, we increasingly celebrate entrepreneurial self-reliance, but for disadvantaged people, the certainty of an adequate income is a fundamental foundation. It may not be sufficient, but it is necessary.

The ConversationAs professor Henderson said during a speech at a Remembrance Day rally in 1984 “we all have a right to a decent minimum income: to a fair share”.

Brian Howe, Professorial Associate in the Centre for Public Policy, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Consumers are biggest losers of Trump’s ongoing war on regulations

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Some worry Mick Mulvaney is putting banks before consumers as head of the CFPB.
Reuters/Yuri Gripas

Jeff Sovern, St. John’s University

President Donald Trump has been waging a war on regulation since he got into office on the ground that government red tape costs the economy billions of dollars a year.

Among the victors in this battle have been energy companies, banks and the president himself, who recently promised he’s “just getting started.” Perhaps the biggest losers, however, have been consumers.

The best illustration of this is the neutering of the Consumer Financial Protection Bureau, which began immediately after Mick Mulvaney stepped in as interim director in November.

So how much harm could he do in two short months? As someone who has written about consumer law for more than 30 years, let me count the ways.

Mick Mulvaney is governing the CFPB very differently than his predecessor.
AP Photo/Alex Brandon

‘Pushing the envelope’

The Consumer Financial Protection Bureau may be best known for levying a US$100 million fine against Wells Fargo in 2016 after the bank opened millions of unauthorized accounts.

But the bureau, originally conceived by Sen. Elizabeth Warren, has done so much more since Congress created the independent agency in 2010. Under Mulvaney’s predecessor, Richard Cordray, the bureau moved forcefully when it concluded companies had cheated consumers.

Through last summer, the bureau recovered nearly $12 billion for more than 29 million consumer victims of everything from illegal credit card fees to auto lenders that discriminated against people of color. In 2016 alone, the bureau announced 42 new enforcement actions, or nearly four new cases a month.

Mulvaney, who is also Trump’s budget director, argued his predecessor’s governing philosophy was to “push the envelope” in pursuing the bureau’s mission. Mulvaney, Trump and other Republicans argue that the CFPB director – who can’t be easily removed by the president – has too much power, making the bureau a prime target in their goal to eliminate regulation they believe puts a strain on the economy and small businesses.

While Cordray had previously never used the “push the envelope” language in describing his mission, he reacted to Mulvaney’s charge by embracing it, tweeting that he did “push hard to see that people are treated fairly by big banks, debt collectors and payday lenders.”


It seems unlikely that the bureau would take on a bank like Wells Fargo for similar fraudulent conduct or pursue many of Cordray’s other actions now that Mulvaney is in charge. His boss has even praised a bill passed by the House that would strip the CFPB of the authority to go after banks for doing what Wells Fargo did, while Mulvaney himself has co-sponsored legislation aimed at killing the bureau.

Former CFPB Director Richard Cordray, center, embraced the idea that he ‘pushed the envelope’ to protect consumers.
AP Photo/Steve Helber

A new governing mission

While Mulvaney agrees that the bureau’s job includes protecting consumers such as credit card users, he says it also works for credit card issuers – despite the fact that its very name states that it exists to protect consumers, not banks.

One reason Congress wanted an agency to protect consumers was because existing bank regulators in the run-up to the Great Recession had not only failed to prevent predatory lenders from taking advantage of consumers, thus contributing to the subprime fiasco, but at least one even protected them. I believe the U.S. already has enough bank protection agencies, from the Federal Reserve to the Office of the Comptroller of the Currency, without adding the bureau to the list.

In January, Mulvaney told his staff that the bureau’s actions should be guided by how many complaints it receives on a particular matter.

By that measure, the CFPB wouldn’t have gone after Wells Fargo because few consumers seem to have complained to the bureau about the unauthorized Wells accounts. That may be because consumers often don’t bother to complain when they have suffered only a small loss. And yet collectively the Wells customers had much at stake, as demonstrated by the fact that Wells has agreed to settle the case for $142 million, a number that may yet grow.

Sally Greenberg, with the National Consumers League, is among the groups that have voiced strong opposition to Mulvaney taking over the bureau.
AP Photo/Jacquelyn Martin

Enforcement – or lack thereof

So what has Mulvaney actually done since taking over?

While he pledged to be vigorous and consistent in enforcement of federal consumer financial law, he has also said that the bureau should bring cases reluctantly. As such, you might wonder how many he is actually filing.

The answer would be none.

The bureau has instead dropped a case, without explanation, against a group of payday lenders that charged consumers as much as 950 percent interest a year.

It also terminated at least one investigation, though we can’t know for sure how many it has ended because the bureau usually doesn’t publicly announce such actions.

That investigation was against a company that had made several campaign donations to Mulvaney. A ProPublica investigation previously reported that the installment lender, World Acceptance Corp., trapped consumers in a cycle of debt with deceptively expensive loans.

We can’t know whether Cordray himself would have eventually ended that investigation anyway and thus determine if its termination was the result of a lack of evidence. But we can be fairly certain that he wouldn’t have done what Mulvaney did around the same time: say, he may reconsider a rule intended to keep payday customers from falling into endless debt traps. That rule took the unremarkable step of requiring lenders, before extending some loans, to verify that borrowers can repay the debt.

Another noteworthy move by Mulvaney concerns the CFPB’s Fair Lending Office. The law that originally set up the bureau tasked this office with enforcing laws prohibiting discriminatory lending. He has revoked that power, suggesting that preventing discrimination on the basis of race and gender will now be less important at the bureau.

For the next five months – or until the Senate confirms a permanent director – the CFPB is led by someone who once called it a “sad, sick” joke.

The ConversationWhat is sad and sick, in my view, is that an agency established to protect consumers may be more eager to protect predatory lenders than consumers. And that is no joke.

Jeff Sovern, Professor of Law, St. John’s University

This article was originally published on The Conversation. Read the original article.

Turnbull and the Coalition begin the year on a positive polling note – but it’s still all about the economy

File 20180206 14078 q69fzo.jpg?ixlib=rb 1.1
Malcolm Turnbull makes a point in Question Time.
AAP/Mick Tsikas

Adrian Beaumont, University of Melbourne

The first Newspoll of 2018, conducted February 1-4 from a sample of 1,616, gave Labor a 52-48 lead, a one-point gain for the Coalition since the final Newspoll of 2017 in mid-December. Primary votes were 38% Coalition (up two), 37% Labor (steady), 10% Greens (steady) and 5% One Nation (down two).

While this Newspoll is Malcolm Turnbull’s 26th consecutive loss (four short of Tony Abbott’s streak), it is the Coalition’s best position since April 2017. This is the Coalition’s highest primary vote, and One Nation’s lowest Newspoll vote, since December 2016, before Newspoll started asking for One Nation as part of the party read-out.

As the Coalition’s primary vote gains have come at the expense of another right-wing party, the overall left/right balance is unchanged at 47-43. The two-party vote changes are exaggerated by Newspoll’s assumption, based on the 2016 election, that the Coalition will win only half of One Nation’s preferences.

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At the recent Queensland election, about 65% of One Nation preferences flowed to the LNP. It is likely that previous Newspolls, which had high One Nation votes, overstated Labor’s lead after preferences.

Turnbull’s approval rating bumped up to 37% (up five), and 50% were dissatisfied (down seven), for a net approval of -13, up 12 points. Bill Shorten’s net approval also improved six points to -18, and both leaders are at their highest net approval since August. Turnbull led Shorten by 45-31 as better prime minister (41-34 in December); this is Turnbull’s biggest margin since September.

Voters were given four options for best Liberal leader: Turnbull, Julie Bishop, Abbott and Peter Dutton. Turnbull had 30% support (up five since early December), Bishop 26% (down four), Abbott 13% (down three) and Dutton 7% (steady). Among Coalition voters, Turnbull had 48%, Bishop 19%, Abbott 16% and Dutton 6%. Abbott and Dutton performed best with One Nation voters.

Voters were given three choices for best Labor leader: Shorten, Tanya Plibersek and Anthony Albanese. Plibersek had 25% support, Albanese 24% and Shorten 22%. Among Labor voters, Shorten had 37%, Plibersek 27% and Albanese 23%. Plibersek was the clear favourite among Greens voters (43%).

Both leaders appear to have benefited from the lack of any major controversies over the summer holidays. Turnbull has done better, perhaps due to the absence of hard-right Coalition backbenchers from the media environment.

Shorten’s ratings as preferred Labor leader are so low because conservatives detest him for strongly opposing much that the Coalition is proposing or has done, while many on the left do not regard him as a genuine leftie. Turnbull is helped as best Liberal leader by Abbott and Dutton being more right-wing.

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The most important factor regarding the next federal election, due by early 2019, is likely to be the performance of the economy. Greg Jericho wrote in The Guardian recently that the strong employment growth in 2017 was consistent with the government being re-elected.

The government is inhibited by the continued low wages growth. If wages growth lifts this year, the Coalition would be far more likely to be re-elected. The strong US economy has benefited Donald Trump.

65% supported leaving Australia Day as it is, while just 29% supported referendums on Indigenous recognition and the republic proposed by Albanese.

The ConversationEssential will now appear fortnightly rather than weekly, so there was no Essential poll this week. You can read about last week’s Essential here.

Adrian Beaumont, Honorary Associate, School of Mathematics and Statistics, University of Melbourne

This article was originally published on The Conversation. Read the original article.

ASX and Wall Street fall: investors should start to worry when volatility seems low

Lee Smales, Curtin University

Rewind to last week and the volatility index, or VIX, actually predicted low levels of volatility in the share market over the coming 30 days. But the subsequent falls in the Australian and United States share markets should serve as a reminder of the risk of being complacent.

Prolonged periods of low volatility provide ample opportunity for investors to become complacent about risk, and increase the prospect of sharp market corrections. This is certainly what my research has discovered. I found buying stocks when investor fear is highest, and selling when it is lowest, can be a profitable trading strategy.

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Now the US S&P 500 index has fallen by over 6% since Thursday (wiping over US$1 trillion from stock values), the VIX index has more than doubled and now sits at 37.32. While this is the highest level since August 2015, it’s still well below the high of 80.06 we saw during the global financial crisis.

The trigger for this surge in investor fear in the US was Friday’s release of employment data there. Typically, this stronger than expected data would be good for stocks. However, this news follows indications from the Federal Reserve that further rate hikes are likely.

The market has taken strong wage growth as a signal of inflationary pressure, which may lead to more dramatic policy tightening. This is consistent with prior research that suggests the market response to economic news depends on the business cycle.

Unfortunately, owing to reliance on exports to fuel its economy, the Australian market is not immune to what happens in the US. The All-Ordinaries has fallen by 4% (equivalent to nearly A$90 billion of value) and the A-XVI (an Australian fear gauge) has jumped by 60% in two sessions.

Due for a correction

As of the end of January, the US S&P 500 were 320% higher than at the peak of the 2008 financial crisis, having increased 25% in the past year. While the Australian market has lagged, following the end of the commodity boom, the All-Ordinaries is still 98% higher than in 2008 and 8% higher than at this time last year.

Over the same time, the VIX index has been able to shrug off the affects of a rising geopolitical risk – such as President Trump’s tiff with North Korea.

Over the past year, VIX has averaged just 11.06. This indicates that in the next 30 days the market expects prices to rise or fall by 6.3% (on approximately 95 days out of 100). This is lower than the average of 14.9 for the prior year, and 18.8 over the past 15 years.

While the VIX has continued to predict low levels of volatility in the near-term (it ended Thursday at 13.47), researchers at the New York Federal Reserve pointed out that the term structure of implied volatility suggested volatility will not remain low forever. The term structure shows how implied volatility varies for different time periods, and prior to Thursday this was upward sloping – indicating volatility would rise over time.

It’s difficult to predict when the current market sell-off will end, and after the large increase in values over the past few years it could be said that the market is due a correction. While the futures market is predicting further falls in stock prices (and VIX increases) in the near-term, the term structure (which is now downward sloping) is not predicting a lengthy period of volatility.

One risk could be that ongoing gridlock within US Congress leads to another US government shutdown, and associated geopolitical risk finally starts to feed into investor fear.

The ConversationThe lesson remains: investors should be wary when investor fear is low.

Lee Smales, Associate Professor, Finance, Curtin Graduate School of Business, Curtin University

This article was originally published on The Conversation. Read the original article.

Tasmania can’t only rely on a growing population for an economic boost

Lisa Denny, University of Tasmania

While Tasmania is currently experiencing its highest rate of population growth since the global financial crisis, this won’t necessarily lead to an automatic economic windfall for the state.

Both the Liberal and Labor parties in Tasmania’s election campaign are supporting population targets as a means to boost the economy.

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Some say Tasmania’s smaller population is an asset to the state’s unique character, others believe it condemns the state to mediocrity and holds us back.

But what’s usually ignored in the typical BBQ conversation is that it’s actually the composition of the population that really matters.

It is unrealistic for these political parties to expect population growth rates to be maintained or increase by themselves as population growth is not linear. The drivers of population change in Tasmania are the population age structure and the state’s relative economic performance with the rest of the country. Tasmania needs the ability to retain and/or attract families to live and work there.

A long standing population policy

In March 2013, the then opposition leader for the Liberal Party, Will Hodgman, announced a population target of 650,000 Tasmanians by 2050. This was based on a population growth rate of 0.6% per annum, the average rate of growth over the previous decade.

Previous Labor governments had asserted that population growth would occur naturally alongside a strong economy and so a specific population strategy was not required.

When the Hodgman Liberal government took office in March 2014, it developed and released a population strategy aiming to reverse Tasmania’s projected population decline and put Tasmania on a population growth trajectory.

Population change occurs as a result of natural increase (more births than deaths) and migration (in Tasmania’s case both interstate and overseas migration).

Historically, around 60% of Tasmania’s population growth has occurred from natural increase. However, the state’s population continues to age and the number and proportion of women of reproductive age continues to decline. So the usual natural increase will wane as the gap between births and deaths reduces.

Migration will need to increase considerably to replace this projected slowing down and to achieve both the short term population targets desired by the Property Council and the longer term objectives of the Tasmanian Liberal government. Even with increased migration (interstate and overseas) of families, they will then need to have at least two children to ensure population replacement is possible.

However, historically Tasmania has always gained more older people (those aged 45 and over) and lost more younger, working and reproductive aged people (those aged 19 to 39). This is primarily due to a lack of employment opportunities..

This trend reduces the proportion of the population that is younger – and increases the proportion of the population that is older. In comparison with the rest of Australia, Tasmania is seeing this happen at a faster rate, even in times of stronger population growth.

Impact on Tasmania’s economy

Tasmania’s ageing population matters because as people get older they become more reliant on the services provided by governments (for example pensions, health and aged care). These services are funded by the taxpayer; however in ageing populations, taxpayers are diminishing in supply.

Of course this is not to say that older people are not valuable contributors to the community and economy, particularly those who are active, engaged and self-funded in their retirement.

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Older people can also contribute to the state’s economy as consumers in labour intensive sectors like retail and hospitality and the health and care services. These all create employment opportunities for Tasmanians. Over a third of all new jobs projected over the next five years in Tasmania are in the healthcare and social assistance sector (5,300 additional jobs).

These economic and employment opportunities will need to be carefully managed as the Tasmanian workforce becomes increasingly dominated by industry sectors that are largely publicly funded.

The Tasmanian Liberals’ three-pronged plan focuses on job creation and workforce development, supporting interstate and overseas migration, and promoting Tasmania’s liveability and lifestyle. Labor’s intent is to invest in essential services, build productive infrastructure and promote the creation of secure and stable jobs.

Both plans are laudable in achieving potential growth. However, to effectively change the age structure of the population (and longer term population growth), these policies will need to be targeted to those of working and reproductive age.

While targeted population growth is important for Tasmania in meeting the challenges of an ageing population and a growing economy, population change needs to be planned for. A stable age structure with a population balanced between the working age and non-working age will provide a platform for proactive and consistent economic development policy.

This in turn will provide greater confidence for the private sector to invest in the state over the longer term, increasing the propensity for growth and the potential prosperity for all Tasmanians.

The ConversationPopulation growth for growth’s sake (as a proxy for economic growth), without consideration for the economic and social implications this creates, might actually result in a type which puts at risk the longer term economic viability of the state.

Lisa Denny, Research Fellow – Institute for the Study of Social Change, University of Tasmania

This article was originally published on The Conversation. Read the original article.