Imagining Australia – the Economy

Today brings the penultimate tranche of Imagining Australia ideas – these ones on growth and the economy.

We envisage a dynamic and innovative Australia, with a sustainable economy to underpin the high standard of living enjoyed by all Australians.

We explain that economic growth is important, not because it is an end in itself, but because of the potential it has to help improve our lives. We detail how the reforms of the last twenty years have improved the standard of living in Australia and why it is important to continue to improve our economy.

We begin by addressing the problem that, while the reforms of the last two decades have improved the lives of most Australians, there is still great anxiety about economic change.
– We discuss why economic liberalisation was necessary, on the whole well-implemented, and has benefited Australians by raising living standards.
– We explain why critics of economic rationalism have got it wrong, and why their alternatives represent a false promise of prosperity.
– We emphasise the need for Australia’s policymakers and leaders to engage with the public and to clearly articulate the importance of continuing economic reform.

In the second section we present ideas for the ongoing economic reform agenda. These proposals are centred on a more open economy and new economic institutions and laws.
– We argue that Australia should pursue a multilateral reduction in trade barriers, and propose reinvigorating global trade negotiations by leveraging Australia’s trade relationships.
– We believe that Australia needs more foreign investment, and we suggest removing impediments to foreign investment, such as the Foreign Investment Review Board.
– We advocate creating an independent fiscal authority using adjustable taxation rates to help smooth the economic cycle.
– We propose amending corporate bankruptcy rules, and reorientating them towards director-led reorganisations of large firms.

Improving industry productivity and international competitiveness is especially important for our ongoing economic growth and we present initiatives to make industry policy harder and smarter and to strengthen Australia’s innovation system.
– We propose that industry assistance be transparent to ensure the greatest return from public investment in industry promotion.
– To improve innovation and productivity in industry, we suggest that government and business support the development of industry clusters.
– We propose strengthening Australia’s capacity to innovate by extending innovation funding, facilitating circular migration for expatriate researchers, and establishing overseas technology parks for Australian firms.
– We argue that a culture of innovation and entrepreneurship should pervade all levels of Australian society, and be encouraged by our national leaders.
– Finally, we present ideas to better prepare the next generation of business leaders to meet the challenges of business in the global economy.

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7 Responses to Imagining Australia – the Economy

  1. Kevin Cox says:

    Andrew,

    While these are all worthy ideas you have ignored the economic Mammoth in the room namely the utility of money as the economic measure.

    There has to be a problem with money as a unit of measurement when the way it is defined leads to the following.

    When we measure the wealth of a country we use the GDP expressed in dollar terms. That is, we add up all the money we spend and this becomes our GDP. We do not take into account why we spend the money nor do we take into account all those activities that do not involve money. What this leads to is the nonsense that money spent on cigarettes and alcohol increases the GDP as much as money spent on Renewable Energy Infrastructure. It means we do not measure volunteer work, nor home duties as worthy of inclusion in our GDP.

    We have the ludicrous situation where some financial institutions in a foreign country lent money that was not covered by assets and this causes people in Australia to lose their houses.

    We have the bizarre situation where we artificially change the cost of money and it causes investments in renewable energy projects to stop because the cost of capital goes up – notwithstanding the fact that renewable energy is half the running cost of fossil fuel burning energy sources.

    Money is a great invention but its utility has been eroded because it has not kept up with the times and it has been subverted so as to increase the disparity of wealth per person across the nation and the world and to entrench existing ways of doing things and so preventing innovation and choice.

    We need reform in the measure of money. Such things would be to include somehow what money was spent on as part of its utility, or putting a value on non paid effort, or preventing mistakes made in one area of the economy being paid for by innocent people, and facilitating equity in the distribution of assets rather than the opposite.

    While fixing the money measure will not do all these things it will help and it will enable us to better see where the problems exist.

    If we are going to continue to use money as the measure for deciding how we choose between alternatives then we should make sure it is a good measure. My contention is that it is far from being a good measure as evidenced by the world around us and it can be improved. There is no greater challenge facing Australia than fixing up our money measure.

    There are various ways we can reform money. The two big reforms are:

    Making sure we have zero inflation by making the supply of money match how much we need for trading and investment. (controlling the issuing of new money to match increased economic activity)

    Adding extra information onto individual pieces of money to influence its relative value to other money with different information. (tagging money)

  2. Kevin Cox says:

    Andrew,

    As you know I have been giving you lots of examples of what is possible if you add extra information to money. Here are a couple of more ideas.

    Why not pay parents to look after their children at home with child minding dollars. These dollars however, can only be spent on things to benefit the child like going into a Medisave account for health, or paid child care, or school fees, or …

    Why not keep the risk on loan money until the money is repaid. That is, you give people a loan and rather than charge extra interest let it be known that if the person defaults on the loan then the money will be cancelled by the current holder. Thus you do not have to charge people interest for loans but the money is worth less to the people who take it. In a system with zero inflation this then means we do not have to charge interest on loans. As the person pays off the loan so some of the money now becomes risk free.

    Why not simply issue some money to be spent on Renewable Energy Infrastructure and give it to the whole population to spend. The issued money will be paid back from taxes collected on the Renewable Energy when it starts to generate money.

    Now some (all of these:) may be bad ideas but they can all be done with no more cost than we now incur when we transfer money. All we are doing is adding information and rules to our measure of exchange and that is inexpensive to do with modern technologies. I am sure you can think of all sorts of ways you can use money as an incentive and as a way of implementing policy with this super money .

  3. Kevin Cox says:

    Andrew,

    Over the past few months I have been giving examples of how to use tagged money. Here are a few more way out ideas.

    Why not pay parents to look after their children at home with child minding dollars. These dollars however, can only be spent on things to benefit the child like going into a Medisave account for health, or paid child care, or school fees, or …

    Why not keep the risk on loan money until the money is repaid. That is, you give people a loan and rather than charge extra interest let it be known that if the person defaults on the loan then the money will be cancelled by the current holder. Thus you do not have to charge people interest for loans but the money is discounted to the people who take it because it has the risk of not being paid. In a system with zero inflation this then means we do not have to charge interest on loans but the loan money is discounted when it is used. As the person pays off the loan so the risk is reduced – or others can charge to take on the risk. This would have prevented the subprime crisis.

    Why not issue a few billion dollars to be spent on Renewable Energy Infrastructure and give it to the whole population to spend. The issued money will be paid back from taxes collected on the Renewable Energy Infrastructure when it starts to generate income. This is a simple way of getting investment in Renewables.

    Now some may be bad ideas but they can all be done with no more cost than we now incur when we transfer money and we can make them all enforceable. All we are doing is adding information and rules to our measure of value and that is inexpensive to do with modern technologies. I am sure you can think of all sorts of ways you can target the use of money as an incentive and as a way of implementing policy.

    I am not putting these forward as things to do but just showing the possibilities of tagging money.

  4. Patrick says:

    Kevin
    Why not just keep all the money and appoint central committees to choose how it will be spent? I know that there is a question of degree but I wonder if you appreciate that there is no more (than a matter of degree).

    Andrew
    Amen to the first four points!

    – We believe that Australia needs more foreign investment, and we suggest removing impediments to foreign investment, such as the Foreign Investment Review Board.

    Do you think is an impediment to much foreign investment? I don’t know, but I would expect that tax and regulation are much bigger factors.

    – We advocate creating an independent fiscal authority using adjustable taxation rates to help smooth the economic cycle.

    Agree but it should only be GST that is adjustable. Income tax is both too wide-ranging in its impact and too susceptible to planning.

    – We propose amending corporate bankruptcy rules, and reorientating them towards director-led reorganisations of large firms.

    They are already so oriented – eg voluntary administrations under Ch5A. These could be streamlined, but I doubt there is real benefit in going so far as Ch 11 – look at the US airlines as an example of Ch 11 drip-feeding!

    The last section is (perhaps inherently) somewhat wishy-washy. This takes the cake:

    – We argue that a culture of innovation and entrepreneurship should pervade all levels of Australian society, and be encouraged by our national leaders.

  5. Patrick says:

    I forgot the elephant – you haven’t mentioned cutting taxes!

  6. Kevin Cox says:

    Patrick,

    The point of the exercise is to stop central control be it committees or Federal Government bureaucrats. Giving many buyers the tagged money creates a market which is an efficient way of distributing resources. For most of our public expenditure we currently direct the expenditure through a budget process and distribution of money from the top down. Think public education, think health, think roads, think most infrastructure. I am presenting a way of getting away from directed expenditure through a command economy to a market driven economy which is exactly the opposite of what you say I am proposing.

    You and probably 99% of economists have this idea that all money has to be the same and follow the same rules. It doesn’t and distinguishing between different money gives us incredible flexibility and choices and allow innovation in how we organise and run our economic systems.

  7. Patrick says:

    I am presenting a way of getting away from directed expenditure through a command economy to a market driven economy which is exactly the opposite of what you say I am proposing.

    Look, I can see how you see it that way. But you aren’t really.

    Consider this:

    Why not pay parents to look after their children at home with child minding dollars. These dollars however, can only be spent on things to benefit the child like going into a Medisave account for health, or paid child care, or school fees, or …

    Implicit in that is that someone defines what is eligible expenditure and what is not. In additional someone defines what is an appropriate amount o expenditure, and you seem to be a commonsense enough person to appreciate the disproportionate power of defaults.

    Across the idea of tagged money, that seems to me to be a very large cost to deal with – both a direct one plus the indirect cost of the inefficiencies. Consider the entrepreneur (I know you like entrepreneurs). Not only does she have to jump through every other hoop and climb every other mountain as today, but in addition she will have to register as a provider of (eg) childcare services so as to be eligible for tagged dollars.

    I know you like your idea – but I think that it would probably work in specific situations such as a large company – different sections could be allowed to allocate their budgets differently, etc. I doubt it would work in society as a whole and strongly doubt it would work anywhere near well enough to justify the costs I strongly believe it would entail.

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