Returning to Surplus, Investing in the Future

I've spoken twice in parliament this week about the economics of the budget and the opposition's problematic costings.
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The Pro-Growth Progressive

In the latest issue of Labor Voice, I argue that progressives should like economic growth. Full text over the fold.
The Pro-Growth Progressive: How Economic Reform Can Make Us Happier, Labor Voice, Issue 3, 2012
Andrew Leigh


As Australians, we’re used to economic growth [1]. It’s the benchmark by which governments are often judged. Yet it is easy to forget how unusual growth is in human history.

Go back a few centuries to the Victorian era and the average person was no better off than the average caveman [2]. There were a lucky few who enjoyed tea in china cups, but the true living standards of 1800 were better captured by Charles Dickens than Jane Austen.

Indeed, economic historian Greg Clark makes the point that on some measures, the vast mass of the world’s population were worse off in 1800 than their ancestors of 100,000BC. For example, Britons in the Victorian era were shorter – reflecting their poor diet and exposure to disease in childhood.

In 1800, life expectancy was around 30-35 years, pretty much what it was on the savannah. Citizens of 1800 probably worked longer hours than cavemen. From the Stone Age to the Renaissance, most people ate around 2000 calories a day, compared to the 3000 calories a day that we consume.

In fact, most of us would find it difficult to get by on 2000 calories a day, because our bodies are significantly bigger than those of our ancestors.

There’s something slightly shocking about the thought that our ancestors – just seven generations ago – experienced stone-age living conditions. For them, it was normal to go to bed hungry. Everyone knew someone who had lost a baby in childbirth – sometimes with the loss of the mother too. Illness was normal and uncontrollable.

There was simplicity in a world without economic growth. An artisan would engrave his prices on the stone wall of his workshop, knowing that his son would be charging the same. Life for most was, as Thomas Hobbes famously put it, ‘nasty, brutish and short’.

Then – beginning in a little island off the coast of Europe – something changed. With the industrial revolution, people began to experience rising living standards. Average income tripled from 70 cents
per person per day in 1800 to $2.30 by 1900. In the 20th century, average incomes worldwide rose tenfold to $22 per person per day [3].

That transformation had immediate effects on people’s health. A person born in 1900 could expect to live to 40. By 2000, babies born in a developed nation could expect to live until their 70s.

People aren’t just living longer – we’re living healthier. A survey of elderly veterans in the US found that in 1910, nearly all were suffering from digestive disorders. By the end of the 20th century, just one-fifth suffered from digestive disorders.

Underpining economic growth has been a massive rise in productivity. Workers today create more value in an hour than their predecessors. A century ago, it took 1700 hours of work to buy a year’s food supply for a family. Working a typical week, that’s 10 months’ labour. Today, a family’s food supply takes a month and a half of work.

That’s true of other products too. Since the late 19th century, the number of working hours to buy various products has dropped dramatically. It used to take 260 hours of work to buy a bicycle – now it takes seven hours. It used to take two hours of work to buy a dozen oranges – now it takes six minutes. Not surprisingly, that’s meant an increase in the number of leisure hours: from two hours a day in the late 19th century to six hours a day now.

The Easterlin Paradox

If you had to name one central fact to characterise the past two centuries, it would be income growth. It has made us healthier and allowed us to enjoy more leisure. It has lengthened our lives and allowed us to
be more generous.

Yet some now argue that economic growth has gone too far. In Growth Fetish, Clive Hamilton argued that once a society has developed to the point at which the majority of people live reasonably comfortably, the pursuit of growth is pointless and should be curtailed. Internationally, books like Tim Jackson’s Prosperity Without Growth became bestsellers.

“If anything, money seems to buy more satisfaction as you get richer.”

At the core of many of the anti-growth arguments was the contention that once incomes reach a certain threshold, more money doesn’t buy more happiness. The person most closely associated with this idea is Richard Easterlin, who wrote a famous article in 1974 that looked at the relationship between Gross Domestic Product (GDP) and happiness across nine countries. Easterlin found that there was no statistically significant relationship, and concluded that across countries, money didn’t buy happiness. The relationship became known as the ‘Easterlin Paradox’. His article has since been cited over 2000 times, and has become one of the most famous ideas in the social sciences.

A few years ago, a pair of economists at the University of Pennsylvania – Betsey Stevenson and Justin Wolfers – decided to revisit the Easterlin Paradox [4]. But rather than using data for just nine countries, they exploited the fact that we now have more happiness surveys. A lot more.

The centrepiece of Stevenson and Wolfers’ analysis is a massive 2006 survey, in which Gallup asked nearly 140,000 people in 131 countries about their life satisfaction. Across those countries, the relationship between satisfaction and GDP is almost perfectly linear. There is no evidence of satiation. If anything, money seems to buy more satisfaction as you get richer. When we move from nine countries to 131 countries, the Easterlin Paradox simply doesn’t hold up.

Interestingly, money doesn’t just buy more happiness. In countries with higher levels of GDP per capita, people are more likely to say they experienced enjoyment, and more likely to say they were pleased at having accomplished something. People in affluent nations are less likely to have experienced physical pain, loneliness depression and boredom. Indeed, people in richer countries are more likely to tell an interviewer that they experienced love in the previous day. That’s right, Paul McCartney, money can buy you love.

Environmental Concerns

A popular belief is that economic growth and environmental damage go hand in hand. This concern comes in two forms – some people argue that we will use too many inputs (like natural resources), while others argue that we will produce too many outputs (like pollution).

The view that our economy will eventually use up all the stuff in the world is based on a static view about where our GDP comes from. If it were the case that all workers produced goods requiring non-renewables and if we never became any more efficient at producing those goods, then rising incomes and population would eventually use up all the world’s resources.

But it turns out that neither of these things are true. Most workers don’t produce goods from nonrenewables. In fact, three-quarters of Australians work in the service sector. For detectives and doctors, barristers and baristas, the product of their jobs doesn’t weigh much, leading some to dub the phenomenon ‘the weightless world’ of work. In fact, the entire output of the United States weighs only marginally more today than it did a century ago [5]. There are more Americans, and they’re much better off than their great-grandparents – but the product of the country isn’t getting much weightier.

Productivity too, is always increasing. Today’s cars use less fuel. Our computers use less electricity. And, thanks to recycling, our paper uses fewer trees. Our economy is also shifting from one resource base to another, a phenomenon that economist Paul Collier characterises (not very reassuringly) as ‘running across ice floes’ [6]. In the nineteenth century, the British government worried that it was going to run out of tall trees for the masts of ships. We will probably look back at arguments about ‘peak oil’ in the same way [7].

The other environmental concern about growth is that people say it leads to more pollution. Here, the best example is urban air pollution. In the 1950s and 1960s, people became concerned that growth would inexorably choke cities like London and New York. Yet through cleaner cars, cleaner factories, and by shifting industrial pollution away from the largest urban areas, we have managed to reduce urban air pollution while still enjoying economic growth [8].

Today, our major environmental challenge is climate change. Here again, I am optimistic that we can decouple growth from carbon pollution, in the same way as we successfully did with urban air pollution and with the CFCs that were damaging the ozone layer. I do not believe that the best way to deal with climate change is by abandoning economic growth. Indeed, I think that growth will help us address dangerous climate change, since higher incomes will provide more resources to assist with the transition.

An Imperfect Measure

One of the curious things about economic growth is that while it closely tracks many of the things that we care about – such as health, longevity and love – it is far from being a perfect measure of wellbeing. Indeed, growth in Australia’s GDP (or our Gross National Income or Gross National Product, if you prefer) captures some things that we would think of as bad, and fails to capture other things that most of us would regard as good.

Robert Kennedy put this best in a speech at the University of Kansas, less than three months before he was tragically shot [9]:

‘Our Gross National Product … counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.’

More recently, Australian economist John Quiggin has argued that there are three things wrong with GDP as a measure of a nation’s economic wellbeing: ‘it’s Gross (doesn’t net out depreciation of physical or natural capital), Domestic (doesn’t net out income paid overseas) and a Product (takes no account of labour input)’ [10].

GDP per person also has the problem that it’s just an average. To see this, let’s suppose that you’re having a drink at your favourite pub, with another eight of your friends. Now, let’s imagine that Australia’s richest person, Gina Rinehart, pops by in her fluoro vest for a drink. According to the most recent BRW Rich List, Rinehart is worth over $10 billion. So if we just look at averages, the average wealth per person in the pub is $1 billion. But, alas, that doesn’t make you a billionaire.

The same problem occurs if economic growth goes only to the richest. In Australia, recent decades have seen an increase in inequality, but that doesn’t change the fact that incomes have risen across the distribution. According the OECD, the past quarter-century has seen incomes for the richest tenth grow by an average of 4.5 percent per year [11]. For the poorest tenth of Australian households, incomes grew at 3 percent per year. Australia’s experience contrasts with the United States, where incomes for the bottom tenth have barely budged in a generation. But it does highlight the importance of talking about both growth and inequality.

Boosting Growth

By now, you’ve probably guessed my secret: I think growth is good. As Winston Churchill said of democracy, it’s not perfect – merely better than all the alternatives. The challenge now is to find the set of policies that are best for promoting economic growth.

In the long-run, the key to boosting growth is raising productivity – producing more with the same set of inputs. During the 1980s and 1990s, tariff cuts, competition policy and enterprise bargaining were among the underpinnings of productivity growth, but what is the answer to the modern productivity puzzle?

In my view, the best productivity policy we can pursue today is to improve our education system. Raising the skill level of the workforce is essential if we are to adapt to changes in the labour market.

We need to raise the quantity of education – boosting the average number of years of schooling that each person receives. That means encouraging young people to complete high school, undertake vocational training and go to university.

We also need raise the quality of Australian education. Reforming schools is contentious, but the evidence points clearly towards the benefits of school accountability. The MySchool 2.0 website – which includes value-added data and school financial information – will play a significant role in driving change. Another reform that will improve educational outcomes and boost productivity is improving the salary structure of teachers. We need a salary structure that encourages the most talented young people to become teachers, and creates incentives for high-performing teachers to be recognised for their achievements.

Getting education right isn’t just good for our economy, it’s also great social policy. A first-rate education is the best anti-poverty vaccine we’ve yet devised.

Education is also good for civic activism. A bit more school, some vocational education or a few years at university are all factors that help make you more likely to join organisations, volunteer at the local sports club, or donate money to a worthy cause. This is music to the ears of someone like me, who cares passionately about strengthening community life.

Another crucial element to the productivity puzzle is technology. As recently as the early-1900s, American jurist Oliver Wendell Holmes quipped that if all the medicines in the world were dumped into the ocean, it would be better for humanity and worse for the fish [12]. A century on, medical advances have vanquished diseases like smallpox, polio and tuberculosis from the developed world. Our emergency departments are considerably better at saving critically injured patients. And in mental health, we are steadily doing better at diagnosing and treating mental illness as soon as it appears.

Maintaining the rate of technological growth in Australia is vital to improving our living standards. That means we need to continue to innovate here, but it also means we need to take up the best ideas from overseas. As a small open economy, it will always be the case that most of the new technologies that boost our productivity are invented overseas. In that sense, open markets are the best innovation policy we can devise.

No place for complacency

There’s an old joke that goes:
Q: How many conservative economists does it take to change a light bulb?
A: None. The darkness will cause the light bulb to change by itself.

While economic growth tends to benefit all Australians, you should not mistake my belief in the benefits of growth with complacency about the need for government to help build a better Australia. Unlike the conservative economist in the joke, I do not believe that markets can solve all problems. Government has an important role to play in providing public investments and managing risks. But it should also promote pro-growth policies, since growth tends to raise wellbeing.

Economic growth makes us happier, and it need not leave us with a dirtier environment. Indeed, the example of the past shows that we can use the resources from growth to improve our natural surroundings. Sometimes the changes come in unexpected ways. In the early 20th century, some Londoners worried that there would soon be so many horses plying the streets that the manure would become unmanageable. With the advent of the motor car, worries about exhaust fumes quickly replaced concerns about horse manure.

Australia today is in a far better position than most developed nations. Many have double-digit unemployment. Some have debt loads that exceed their annual incomes, and are heavily constrained in their policy choices by the absolute priority of paying off debt. By contrast, Australia has the ability to easily satisfy our creditors and make long-term investments.

Globally, Australia’s geographic position could hardly be better. At the start of the Asian Century, our proximity to fast-growing nations such as China, Malaysia, Vietnam and Korea will prove vital not only for goods trade, but also because it will allow us to plug in to global growth in other ways as well. Thousands of foreign-born students now study in our universities, while many Australianborn students take the chance to complete all or part of their education in an Asian university.

Great fundamentals place the onus on us to do something special. With the right policies and effective leadership, we can lay the foundations for continued productivity growth, ensuring that future generations enjoy steady improvements in living standards. We can make schools and hospitals work even better, providing the building blocks of a happy and healthy life. We can improve trust in politics, engaging with voters about the tradeoffs that are at the heart of decision-making. We can continue to close the gaps between Indigenous and non-Indigenous Australians, applying hard-headed analysis to find out what works, and what does not. Through trade, aid and diplomacy, we can help improve the lives of many in our region.

Ours is an optimistic future, and I am confident that economic growth will be part of Australia’s continued success.

Notes

[1] This article draws on a speech delivered at one of my community forums, held at Ginninderra Labor Club, Charnwood on 18 May 2011. The first half of my title is shamelessly stolen from Gene Sperling, The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity, Simon & Schuster, New York, 2006. I am grateful to Nick Terrell for valuable comments on an earlier draft.

[2] Gregory Clark, A Farewell to Alms: A Brief Economic History of the World, Princeton University Press, Princeton, 2007

[3] Arnold Kling and Nick Schultz, From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph Over Scarcity, Encounter Books, New York, 2009, p.26

[4] Betsey Stevenson and Justin Wolfers (2008) “Economic Growth and Happiness: Reassessing the Easterlin Paradox”, Brookings Papers on Economic Activity. See also work by Angus Deaton and Alan Krueger, which reaches the same conclusion.

[5] Arnold Kling and Nick Schultz, From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph Over Scarcity, Encounter Books, New York, 2009

[6] Paul Collier, The Plundered Planet: Why We Must – and How We Can – Manage Nature for Global Prosperity, Oxford University Press, Oxford, 2010, p.98. Our ethical obligation with natural resources, Collier argues, is to bequeath future generations assets of equal value to the natural resources we use. We are not obliged to preserve the world as a museum, but we are ‘custodians of their value’. In the mid-nineteenth century, a generation of prospectors who mined Victoria’s gold and left us with Melbourne’s wide streets and magnificent buildings. We look upon them more fondly than if they had sold the gold and left our generation nothing in return.

[7] On peak oil, see Michael Lynch, ‘Peak Oil Is a Waste of Energy’, New York Times, 24 August 2009.

[8] Economists refer to this tendency of environmental outcomes to worsen and then improve as the ‘environmental Kuznets curve’.

[9] Remarks of Robert F. Kennedy at the University of Kansas, March 18, 1968

[10] John Quiggin, ‘Is Happiness Gross?’, 7 August 2006, http://johnquiggin.com/2006/08/07/is-happiness-gross/

[11] OECD, Growing Income Inequality in OECD Countries: What Drives it and How Can Policy Tackle it? Forum, Paris, 2 May 2011

[12] Quoted in Robert Guest, The Shackled Continent: Power, Corruption, and African Lives, Smithsonian Books, Washington, 2004, p.200
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Sky AM Agenda - 10 May 2012

On Sky AM Agenda today, I spoke with host Kieran Gilbert and Liberal MP Kelly O'Dwyer about the return to surplus, the need for the Opposition budget reply to put forward some real policy, Peter Costello's mooted comeback, and same-sex marriage.
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Healthy Workers, Productive Firms

With Chief Minister Katy Gallagher, I launched the ACT Healthier Work service today. Here's our joint press release.
Healthy workers make healthy businesses
7 May 2012


ACT Chief Minister and Minister for Health Katy Gallagher MLA, together with Federal Member for Fraser Andrew Leigh MP, today launched a new one-stop shop for workplaces wanting advice on developing and implementing health and wellbeing programs.

Commenting on the launch of the new WorkSafe ACT Healthier Work service, the Chief Minister said healthier workplaces made good business and health sense.

“Given the amount of time most adults spend working, it makes sense to focus on promoting health and wellbeing in the workplace,” the Chief Minister said.

“The ACT is not alone in witnessing a significant increase in the burden of chronic disease. Tobacco smoking, the misuse of alcohol, poor nutrition, physical inactivity and obesity are the main risk factors.

“It also makes good business sense for workplaces to invest in the health and wellbeing of their employees, with research indicating that unhealthy workers have up to nine times the annual sickness absence of healthy workers.

“Healthier employees are likely to be more productive, more engaged in their work, take less sick leave, and have higher energy and concentration levels.

“Healthier Work will assist all ACT workplaces to implement health and wellbeing programs through a range of supportive resources including a website, case studies, tools, a ‘how to guide’, training and employer support mechanisms, as well as advice for workers,” the Chief Minister concluded.

Healthier Work forms part of a joint Australian and Territory government initiative under the National Partnership Agreement on Preventive Health, Healthy Workers Initiative, which is committed to reducing the risk of chronic disease.

“The Australian Government supports this partnership because we know that making our workplaces healthier is an important part of the fight against chronic disease,” Mr Leigh said.

Information about Healthier Work can be found at www.healthierwork.act.gov.au
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National Volunteer Week

My Chronicle column this month is on some of the extraordinary volunteers in the Canberra community.
Volunteers Appreciated, The Chronicle, 1 May 2012


Last year, a friend of mine was in Canberra Hospital for cancer treatment. When I asked him how it was going, his first response was to talk about the Hand and Foot massage volunteers that came to see him. ‘It’s not just that they massage my smelly feet’, he quipped. ‘But they stand there telling jokes too. It makes my treatment more bearable.’

Peter passed away in January, aged just 27. His description of volunteering stays with me. As the federal MP for the northside of Canberra, barely a day goes by when I don’t meet another inspiring group of volunteers.

In my own suburb of Hackett, the Holy Cross church just celebrated the anniversary of their ‘Tuckerbox’, where volunteers now provide discounted groceries to over 300 families every week. Reverend Erica Mathieson described to me how the church community established the Tuckerbox because they saw it as an unmet need in the community; a way of helping others.

In Page, the Vietnam Veterans & Veterans Federation ACT are helping returned veterans with their claims, operating a food van at community events, and even running classes on how to cook healthy food. When I visited for their graduation, 66 year-old Danny Burton told the story of how the classes had given him the self-confidence in the kitchen to take over cooking for his partner, who has fallen ill.

Another organisation that only survives thanks to volunteer efforts is the Girl Guides. At EPIC in Mitchell, the Guides last month held their national jamboree, with more than 550 Guides learning leadership and outdoor skills.  At a morning tea, youth leader Sam Chenney told a group of us that signing her up for the Guides was the best decision her mum ever made. Sam told the story of going on a trip with her boyfriend where they had to rope down 100 metres into a canyon. She said she couldn’t believe it when he said he’d never abseiled before; Sam had been abseiling for years in the Guides.

Volunteers also help with community arts. With Belconnen Arts Centre, I recently produced a map of Canberrans’ favourite northside places. ‘Mapping the Northside’ would not have been possible without the hard work of volunteer Alyssa Hardy, who worked alongside the Centre’s staff to uncover the many hidden gems of north Canberra.

Volunteering isn’t just good for the recipients. As Ralph Waldo Emerson once said, ‘The only reward of virtue is virtue; the only way to have a friend is to be a friend.’ In his book The Meaning of Friendship, philosopher Mark Vernon writes about civic friendship, the notion that democracy works best when we look out for others. By volunteering to help others, we’re building a stronger society.

This year, 14-20 May marks National Volunteer Week, to celebrate our existing volunteers and encourage new recruits. If you’d like to offer a helping hand, go to www.volunteeringact.org.au, where you can find the volunteering opportunity that’s right for you.

Andrew Leigh is the federal member for Fraser, and his website is www.andrewleigh.com.
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Talking public finance on Sky with Arthur Sinodinos



On Sky's Lunchtime Agenda program, I joined host David Lipson and Liberal Senator Arthur Sinodinos to discuss how a budget surplus puts downward pressure on interest rates, and why a National Disability Insurance Scheme is a higher priority than tax cuts for millionaires and billionaires.http://www.youtube.com/v/acmXLguMPQM?version=3&hl=en_GB
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Living Longer, Living Better

I wrote in today's Drum about the government's aged care reforms.
Choosing Life Over Money in Our Old Age, The Drum, 2 May 2012

Quiz time. Over the past 40 years, average real incomes in Australia have doubled and life expectancy has increased by a decade. If you could have only one of those developments, which would you pick? Would you prefer twice the income, or to live a decade longer?

I've asked the 'your money or your life?' question of dozens of people, and I'm yet to find anyone who would take the money. As an economist, that suggests to me that the longevity gains that have taken place in my lifetime are worth even more to Australians than the income gains.

But because Australians will live longer, policymakers need to spend more time thinking about issues that affect senior Australians. We need to boost minimum superannuation contribution rates. We must make sure our hospital system operates as efficiently as possible. And we need to fix our aged-care system.

When the Gillard Government asked the Productivity Commission to look into the care of older Australians, they reported back to us that the system was often inflexible and limited in supply, and had too many unmet needs.

Most Australians want to stay in their own homes as long as possible. But for those entering a nursing home, quality is variable and choices can be limited. The Productivity Commission pointed out that a viable solution to improving the quality of nursing homes would inevitably have to involve users paying more.

Improving the residential aged-care system involves removing some of the perverse incentives that currently exist. By significantly relaxing supply constraints on nursing home places, we are recognising the reality that more Australians will require an aged-care place in decades to come.

By requiring accommodation providers to publish their fees on a My Aged Care website (both as a daily rate and a bond), we're providing more information to consumers. And by introducing assets tests plus setting a lifetime limit on what people can be required to pay, we're making the system more equitable.

The assets tests won't apply until 2014, and if one partner is living in the family home, it will remain exempt.

Older Australians are also funding their retirement in different ways from previous generations. One of these is 'reverse mortgages'. Just as a regular mortgage allows families to live in a house while slowly paying money to the bank, a reverse mortgage lets people continue to live in a house while the bank pays them regular instalments.

A regular mortgage stops once you've paid off the house. A reverse mortgage typically ends when both members of a couple die.

At present, the market is small (a 2007 report counted just 31,000 reverse mortgages, compared with the 3 million regular mortgages). But as it grows, it's important to make sure that customers are protected. So we're improving disclosure provisions, to make sure that people who take out reverse mortgages know exactly what they're getting into. And we're placing limits on what lenders can recover, so banks cannot ask seniors to pay more than the value of their home.

It's hard to trace the origins of all the problems in our aged-care sector. Partly, they're a product of overlapping state and federal government responsibilities. There has also been plenty of political laziness, with Howard government aged-care ministers often preferring to tip a few more dollars into the system rather than consider whether the structures themselves were actually fit for purpose.

One of the big problems has been a lack of rigorous economic analysis. Sometimes, the proper role of government is to correct market failures. At other times, we need to think carefully about whether government is stifling the ability of markets to help us.

What's striking about the aged-care system is that the Productivity Commission identified both market failures and over-regulation. It's time to build a system that's more equitable, more efficient, and provides users with more choice and more control. Because as they say, living longer certainly beats the alternative.

Andrew Leigh is the federal member for Fraser.
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Why Inequality Matters, and What We Should Do About It



I spoke tonight at the Sydney Institute on the topic of inequality. The embedded video is a short version, and the long-play version of my speech is below.

(See also reports in the SMH and Canberra Times, and an op-ed version in the National Times.)

Why Inequality Matters, and What We Should Do About It*

Andrew Leigh MP
Federal Member for Fraser
www.andrewleigh.com

Sydney Institute
May Day 2012


Introduction

Imagine a ladder, in which each rung represents a million dollars of wealth.[1] Imagine the Australian population spread out along this ladder, with their distance from the ground reflecting their household wealth.

On this ladder, half of all households are closer to the ground than they are to the first rung.

The typical Australian household is halfway to the first rung.

Someone in the top 10 percent is at least 1½ rungs up.

A household in the top 1 percent is at least 5 rungs up.

Gina Rinehart is 5½ kilometres off the ground.

‘The rich are different from you and me’, wrote an awestruck F. Scott Fitzgerald.[2]

‘Yes’, wrote the laconic Hemingway. ‘they have more money.’

But why should we care about the gap between rich and poor? Shouldn’t we focus on raising the bottom, rather than how much wealthier the top are than the rest? Aren’t discussions of inequality merely – shudder - ‘the politics of envy’?

Certainly, there are eminent economists who have taken this position. The University of Chicago’s Robert Lucas has argued that ‘of all the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution’. Harvard’s Martin Feldstein says ‘there is nothing wrong with an increase in well-being of the wealthy or with an increase in inequality that results [solely] from a rise in high incomes’.[3]

Contrary to Lucas and Feldstein, I want to persuade you that inequality matters, that the gap between rich and poor really is an important public policy issue, even apart from the question of poverty. Inequality has costs and benefits, and policymakers need to think hard about the right level of inequality. This is an issue that Wayne Swan has put squarely on the national agenda, and I commend his article in The Monthly to you.[4]

To begin, let me take a moment to review what we know about inequality in Australia. There are many measures of inequality, but I’m going to focus on top income inequality, because it allows me to look at a much longer period, and because it’s very clear that when we’re talking about top incomes, the topic is inequality rather than poverty.[5]


Read more
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Talking Politics on ABC 666

I spoke yesterday on ABC 666 with Ross Solly about the events of recent days, and took calls from listeners. Here's a podcast.
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Free Computer & TV Recycling

From 15 May, Canberans will be able to drop off old computers and TVs free of charge at the Mugga Lane and Mitchell recycling stations. It's part of a joint ACT/Federal government scheme, funded by the computer and television industries. The ACT is the first jurisdiction to take it up. More details here.
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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.