The future of economics: Reimagining economic reform

1. The future of economics: • Reimagining economic reform • Australian Fabians National Policy Conference: Economics, equity and trust in the twenty first century • Nicholas Gruen

2. Background • Australia’s experience is unique. • ALP has been the party of economic reform • Results have exceeded New Zealand, US, UK • economic growth • equity • ALP drove reform, not the right • ALP’s reform was in the spirit of Adam Smith • systematically sympathetic towards the poor • suspicious of privilege • persuasion rather than power

3. Background • Reform gradually morphed into deregulatory formula • Now encountering diminishing returns. • Further areas of reform • rats and mice • taxis, post, newsagents, pharmacies • reforming the tax - welfare interface • health, education and federalism • A new canvass

4. Traditional ideas of the economy

5. New frontiers: New themes for reform

6. Information • Major theme of economics • since Hayek, Arrow, Stigliz and Akerlof • Yet little attention to improving information flows. • In workplaces workers compensation premiums are a good proxy for OHS performance • should be disclosed to all prospective employees • Job satisfaction could be measured and published by workplace • producing a market in job satisfaction

7. Information • Information can drive improvements in health and educational performance. • We should audit the Report on Government Services • Generate and publish information on • objective performance of • investment advisors • real estate agents • customer satisfaction and error rates of selected other areas

8. Public information on past performance

9. ‘Gruen Tenders’

10. Risk • Approaches to government risk are primitive • Government balance sheets are a residual • Privatisation, fiscal consolidation and retirement incomes policy has improved productivity but worsened risk bearing • foisting risk on private sector is costly • Sydney’s cross-city tunnel may be a turning point • Governments should borrow to invest • Like families and firms

11. Risk • Large risk management agenda sketched out by Shiller which governments should help foster risk markets in such things as • GDP growth • House prices by suburb • Employment prospects - by skills

12. Law • We only really have a legal system for the rich and those with access to legal aid • Otherwise you risk your life savings • We need a legal system which is • independent • timely • cost effective • Legal procedure must ensure legal resources are commensurate with the magnitude of disputes • Right to pre-emptively forsake appeal • subject to opponents’ right to appeal on bearing all costs

13. Complexity, defaults and simplification • Complexity is a major economic issue • What happens ‘by default’ becomes increasingly important. • We should simplify life and improve outcomes for ‘default’ behaviour • superannuation and investment • presumption that complex contracts are reasonable • a duty to disclose unreasonable provisions • End tax returns for most employees

14. Regulation • Regulation is hugely important • Debate still bogged down in left-right sloganeering • No country has done it well • Some ideas • Regulation is an interface in a complex system • between government and persons (actual and legal) • Responsiveness to new ideas, information and needs is crucial • Rghts to alternative compliance • We need new institutions to mediate the ‘politics of detail’.

15. Macro governance • Rule of law requires independent institutions that cohere through political changes in government. • Judiciary • Monetary policy • And obligations to obtain independent advice • Industry assistance • If we believe in the power of government to manage the economy we must develop its independence • begin with obligations to receive independent fiscal advice like Victorian Government Auditor General

16. Tax • Tax pollution • greenhouse gases • congestion • Difficult to establish the debate from Opposition

17. Oppositions can initiate change ! The more complex our society the less powerful is, central ‘command and control’ • the more powerful are attitudes and decentralised decisions Achieving reform from Opposition would be good for • Australia • the Opposition, which would be actively building its vision, rather than just carping from the sidelines. Areas where one can start from outside government • Job safety and satisfaction ratings • Investment advisors keeping public sample portfolios • Default superannuation And health and education are with the State Governments!

18. What’s reform for? • These ideas can not just help us become richer • Not just help us manage ‘the economy’ and minimise government expenditure - as worthwhile as those aims are • They can make important contributions to • the quality, • security and • fairness of our lives • And the fitness of our institutions for their purpose