In evaluating policy, the first question must always be: does the government have any business regulating in this area'? When it comes to immigration policy, it's clear the federal government has a duty to conduct security checks on individuals wanting to live in Australia. They are also justified in demanding a minimum level of physical health to ensure migrants don't become a liability to the taxpayer by abusing public healthcare. But where both Liberal and Labor have gone wrong is in limiting the number of economic migrants who can enter Australia.
Stringent controls on migration are said to be needed because many migrants are welfare abusers. However, there's scant evidence that welfare abuse by migrants is a problem. As one 2003 OECD report notes, "The rapid decline in average welfare recipient rates in the period after immigrants arrive, to levels below those for Australian-born, suggests there is no overall problem of welfare-dependency incentives among immigrants". Most migrants are decent hard working people who relocate to make use of the opportunities on offer in a developed country, not to take advantage of our generous social welfare system. Many go on to bravely serve in our armed forces, start successful companies or pioneer advances in science and technology. They bring experience and skills that generate prosperity in the long run. Immigrants bring with them money which they spend on Australian products. They pay money into the tax system, and so help fund the services Australians use. They also bring savings that contribute to overall investment levels in Australia. One need only look to America prior to World War I, when thousands of arrivals set up an economic backbone of small businesses. Even if some immigrants - such as refugees - aren't highly skilled upon arrival they are nevertheless a source of untapped human capital and can eventually make a valuable contribution to society. In the past 60 years, more than 660,000 refugees and displaced people have been resettled in Australia. But we can do more. It should be made easier to permanently reside in Australia. First, the present points system should be abolished. A better method might be to implement economist Gary Becker's suggestion of a one-off immigration tariff as the only barrier (apart from health and security checks) to permanent residency. The fee could be set at approximately $50,000. This fee would become a source of revenue and would fund any additional public expenses created by immigration inflow. Second, the current policy of mandatory detention must be reformed. Asylum seekers placed in detention should be allowed to be released into the community on bail. This is consistent with the principles of natural justice and is a more sensible way to deal with the problem of unauthorised arrivals. Sponsors within Australia should be allowed to put up bail money. The only catch' is that new migrants should be denied some welfare entitlements. This is a dynamic approach and asks refugee groups and businesses to essentially put their money where their mouth is'. If individuals or groups in Australia can pay the immigration fee and support self-reliant arrivals, they are welcome to sponsor as many permanent residents as they wish. There should be no absolute limit on intake numbers. Because labour is an important input into the production process, businesses need a reliable supply of workers. Enabling Australia to reach its economic potential necessarily involves enabling the freer movement of people. It's not the role of government to decide which professions are most needed in Australia; this should be left to businesses not bureaucrats. The global labour force should be opened up to business, so they can choose the most qualified employees without having to deal with arbitrary government quotas. For most looking to permanently migrate to Australia, this would be good news. Such a policy would be especially helpful to international students seeking permanent residency. The major losers are likely to be immigration lawyers, who will find less work as these proposed reforms would simplify the current system. No doubt there will be opposition from vested interests who will claim that freer immigration takes away local jobs. In reality, increased immigration would probably create jobs. A study by economists Richard Vedder, Lowell Galloway and Stephen Moore found that American states with the highest rates of immigration during the 1980s also had the highest rates of economic growth and lowest rates of unemployment. On net, after calculating costs and benefits, most studies suggest immigration is economically beneficial. Thus, freer immigration is a humane and economically sensible policy. What fools these economists must take us for! It must surely be obvious from the turmoil of recent months that economists are a notoriously unreliable bunch. Since economics is not a precise science, it is easily perverted by political biases. Most mainstream economists cannot even agree what caused the financial crisis - let alone what we should do to solve it.
Surveys have consistently shown that support for free trade is the only issue upon which economists are in near unanimous agreement. A majority of economists favour abolishing minimum wages, but the agreement on this is less strong than on international trade. On all other issues, there is much disagreement, even over the application of basic principles such as supply and demand to controversial issues (e.g. illicit drugs). This wide divergence of views makes it easy for governments to pick and choose economists who provide the advice that they want to hear. And so it is with the present economic troubles. Politicians all over the world have been promising to rescue us from another Great Depression, using Keynesian economists as apologists for pork-barrelling schemes that increase their influence. A crisis, of course, is the perfect time for elites to bamboozle the public. Politicians are able to trot out ways to spend taxpayer money that they had to discard as politically unfeasible during the good times. Prime Minister Kevin Rudd, for example, has been able to get away with a large number of new projects in marginal electorates. In the process, he has blown a massive budget surplus and turned it into an expected deficit. All the lavish appropriations have been justified by saying, it must be done to stimulate the economy and avert a recession'. Truly, it is in a crisis that the ruling class are in their prime. One might think that the large amount of mathematics that economists use means their discipline is well suited to forecasting events. To the contrary, not only were most economists unable to predict the present crisis, they are also regularly off the mark in more basic forecasts, especially in fiscal policy. It must be noted however, that there are some economists who have a good track record at forecasting. The Austrian economists', for example, had been arguing since 2003 that the Federal Reserve (America's central bank) was inadvertently creating the conditions for a severe recession. Their predictions were extremely specific, and have now been borne out. In addition the leading light of the Austrian school, the late Professor Ludwig von Mises, foresaw the Great Depression of the 1930s. Overall, however, the track record of economists at making projections into the future is not a good one. We should think twice before trusting economists to know what they are talking about in this regard. We should be sceptical of government economists, especially the central bankers. Governments usually shift the blame for their mistakes onto capitalism. Hence, we are unlikely to see politicians blame former Chairman of the Fed, Alan Greenspan, for his excessively loose monetary policy. Many believe that by keeping interest rates too low and encouraging artificial increases in wealth through speculative bubbles, Greenspan is guilty of contributing to the problem, especially in the housing sector. But you won't be seeing a push to reform monetary policy. That would be against the interests of our representatives, who must shift the blame to unfettered greed' and free-markets if they are to be re-elected. It should be evident by now from the lackluster performance of bailout packages and interest rate cuts that the economists who said these measures would prevent a recession were wrong. A recession is coming, whether we spend $1 billion or $1 trillion of taxpayer money. What politicians should be doing now is staying out of the way, instead of creating uncertainty in markets and thereby prolonging the agony. One of the important lessons from the 1930s is that regime uncertainty' can make matters worse, converting a recession into a depression. Robert Higgs in Depression, War and Cold War, observes that instead of allowing businesses and individuals to adjust to the changed economic environment of their own accord, political leaders inadvertently instilled a lack of confidence among private investors. In short, we have more to fear from the drastic measures taken in recent months than from the economic crisis itself. If we allow governments to seize even greater powers under the pretence of saving us from disaster, it is certain that future generations will live to regret what is being done now. What we need to do is take a deep breath and stop panicking. This is not the end of the world. [Highly educated and ambitious, yet unemployed: a whole generation of young is entering the labour market with little prospect of success. The implications go way beyond individual tragedies as economies with lasting high levels of youth unemployment risk social instability.]
In both the United States and Australia, there is a growing feeling that tertiary education is no longer worth investing in. The reason for skepticism on the part of parents and students is partly a matter of supply and demand; there are now far too many graduates as compared to the number of available jobs – and unemployed youth are lining up at Centrelink. In 2013 the Australian Bureau of Statistics (ABS) found that 25% of Australians aged 15 to 64 years had a bachelor’s degree or higher qualification. Yet only 68% of employed people aged 20 to 64 years were working in a field of relevance to their highest qualification, indicating the existence of a mismatch between tertiary qualifications and successful employment prospects in the field of one’s choice. The problem is not restricted to generalist degrees such as the Bachelor of Arts. Even graduates of professional degrees like law have in recent years struggled to obtain work in their field, with one recruiter suggesting that ‘it is the worst time in living history to be a law graduate’. According to media reports, 64% of recent Australian law graduates were not practicing law between 2010 and 2011. Although according to the ABS only 3% of graduates overall were unemployed, this doesn’t mean graduates are working in a field of their choice. The situation in the US is particularly bleak, with a report from the Center for College Affordability and Productivity claiming that half of America’s recent college graduates work in jobs that do not require a college degree. As an illustration of their findings, the authors report that 15% of taxi drivers had at least a bachelor’s degree in 2010, a dramatic increase since 1970 when the figure was 1%. The youth unemployment rate (that is, for those aged 15 to 24) in Australia for October 2013 was approximately 13%. In the US, the corresponding rate is nearly 20%. Nevertheless, politicians appear to have no hesitation in pushing more public funding for colleges and universities, and in encouraging education for its own sake without contemplating whether there will be a job at the end of the line. The previous Australian government under Prime Minister Julia Gillard, for instance, set an ambitious goal of having 40% of young Australians holding a bachelor’s degree by 2025. And US President Barack Obama wants the highest proportion of college graduates in the world by 2020. Young people, regardless of whether they are college educated, often have a common disadvantage when entering the job market: a lack of experience and skills as compared to those who are older. In economic terms, this makes younger workers worth less on the marketplace – they cannot demand high salaries when starting out because they have less bargaining power. And sometimes, their lack of experience and skills combined with average or mediocre grades is such that they will struggle to find any employer willing to hire them, for months and even years despite being willing to learn and improve. In addition to this proximate cause, there are underlying structural and government-imposed barriers that prevent young people from transitioning from study into employment. One important contributing factor is the rate of taxation in a society; the higher the rate of taxation, the higher the financial burden on businesses and the less likely they are to expand and create jobs. In Australia and the US, the rate of corporate taxation is significant enough to act as a disincentive for those companies faced with the prospect of paying it. The rate in Australia is a flat 30% while the highest nominal rate in the US is 35%. Excessive regulation can have a similar effect as taxation because it forces businesses to bear additional costs in order to comply with government policy; they may need to hire a lawyer or accountant just to navigate their obligations, for example. Regulations that dictate the circumstances in which employers can fire their employees are an added disincentive to hiring, because employers are reluctant to take on board employees when the law makes it difficult to fire them at a later stage without being exposed to costly claims for unfair dismissal by the employee. The lifting of millions of Indians out of poverty after the country’s economic reforms in 1991 should have delivered a decisive blow to those who argue that capitalism exploits the poor. Thanks to deregulation, there has been a significant rise in India’s standard of living during the past 15 years. Unfortunately, the same arguments against the free-market persist. Yet the problem is government, not the market. If governments faced the same discipline that private corporations face, the next election would result in all of India’s politicians being voted out. In spite of grandiose promises, hardly anyone doubts that India continues to remain near the top of the world in corruption and inefficiency. The sad reality is that India has fallen behind the East Asian nations. The subcontinent holds the dubious distinction of having the world’s largest number of poor people, despite the crores of rupees spent to “stimulate” development. The reforms of 1991 allowed many a chance at life in the middle-class. For the average person, the relaxation of investment laws has meant access to a wider variety of goods and services at cheaper prices. In the past Indians faced restrictions on the importation of foreign cars, and were forced to buy inferior local models such as the Ambassador. Now they have the freedom to choose a Toyota, a Honda or even a BMW, if they so desire. The influx of new brands has meant more productive jobs, as foreign companies have set up factories locally. Many people shrug their shoulders at the dismal living standards in India and resign themselves to thinking that’s “just the way things are”. This attitude, although understandable, is something to be discouraged. Especially now when the government-caused financial crisis has made Indians a great deal poorer, the urgent need is to examine why it is that – 60 years after independence – Bharat still remains a Third World nation. The answer boils down to this: petty bureaucrats and gangster politicians have ruined India. They are the reason why this diverse nation of 1 billion isn’t yet an “Asian tiger”. Only if we honestly confront the problems India faces can we devise the proper solutions. For sure, India’s economy is galloping along at about 8% per year. This is a significant improvement from the so-called “Hindu” rate of 3.5% before 1991. However, there is also much that the growth figures conceal. Consider, for instance, the fact that no government in India has been able to guarantee a reliable supply of electricity, water or gas. Roads (including many national highways) are in a pitiful state. Ports constantly experience bottlenecks, and train stations and airports are run-down. Underneath the statistics lies a hot-bed of infrastructure and governance problems. Although economic growth is progressing, it is hardly based on sound foundations. The train system is a good example. Indian Railways, a government company, owns and operates most of the rail network. Indian Railways holds a virtual monopoly, so there’s no incentive for it to improve the quality of its services. Competition is a wonderful thing: it can push businesses to serve the consumer better by lowering prices and improving quality. Yet when government restricts competition, as in the case of India’s railways, the result is inefficiency and a lack of concern for what the customer thinks. The story is much the same across a whole range of industries in India. Whereas developed nations have privatised some of their utilities (for example, electricity) and opened up markets to competition, the governments of India remain wedded to power and refuse to give up control. But instead of everything being owned by the government, it’d make a lot more sense to let the people of India run their own businesses. The mistake socialists make is to equate ownership by the government with ownership by “the people”. That is a fallacy. Government does not equal “the people”; to the contrary, it is made up of an elite group that often selfishly pursues its own interests. How many times have we heard of politicians lining their Swiss bank accounts with money illegally stolen from taxpayers? This pervasive corruption is an indictment on the theory that politicians care about those they govern – the reality is they couldn’t care less. Private businesses, not governments, are the most direct representation of the community. This is because anyone, including you and me, can set up a business. More importantly, private enterprise is voluntary. No business can force you to buy their products. But government, by stripping away alternatives, can take away your freedom of choice. Therefore, we should be encouraging more private enterprise and less government. The trajectory of economic development in India has not been smooth, nor has it been as rapid as some had hoped it would be. When Indians gained independence from British rule in 1947 they faced two choices as to the path they would take to unleash India’s potential and help the poorest among its people. On the one hand there was the road pursued by the Soviet Union – that of state socialism – and on the other was the United States, which at the time was pursuing a model approximating a market economy where government was kept relatively limited.
Jawaharlal Nehru, the country’s first prime minister and a close friend of Mahatma Gandhi, settled upon the ‘command economy’: the government was to play a leading role in running and managing business enterprises and private actors were to be strictly regulated. On the other side of Asia, the East Asian nations of Singapore and Hong Kong decided to abstain from Soviet-style socialism and became capitalist instead. Some fifty odd years later, in light of the disparate performance of the ‘East Asian tigers’ as compared to the Indian subcontinent on important indicators of poverty, social scientists have questioned which was the wiser choice. A growing body of literature has delved into the path that economic development in the Third World takes and has analysed the barriers that stand between the present state of affairs and achieving First World outcomes. To the extent that this research has produced any substantive conclusions it would seem that the following can safely be stated: · Market orientated reforms beginning with a major reforms package in 1991 can likely be credited for shifting India's rate of growth from the so-called Hindu rate of 3.5 percent per annum to a more rapid 6.1 percent. · Market orientated reforms can likely also be credited for the reduction in poverty during the course of the 1990s and beyond. There are some, such as Dani Rodrik, who have expressed scepticism at the extent to which the reforms of the 1990s were responsible for unleashing growth. J. Bradford DeLong argues that the conventional account of India is wrong in many ways. He documents that growth took off not in the 1990s, but in the 1980s. Other sceptics have gone further and entirely reject the idea that free-market reform brings about benefits at all – for them, neoliberal policies deregulating the economy are anathema and perceived as something to be resisted. There have also been inquiries into specific programs established by Indian governments. Given India’s high rates of poverty, welfare programs have been a focal point for many scholars interested in evaluating the effectiveness of these programs in helping lift low-income individuals to a better quality of life. The National Rural Employment Guarantee Scheme is one such initiative that has been closely scrutinised, and the results of numerous studies on the scheme have helped inform poverty alleviation policies more generally. The scheme started in 2006 with the promise of work when demanded for one member of each family for up to 100 days in a year – however the actual results have been somewhat less impressive, with about 50 million people getting an average of 50 days work in 2011. Problems with ineffective targeting, leakages, poor quality asset creation etc have beset the scheme but it continues to attract millions of dollars in funding. The India Policy Institute aims to provide an overview of policies established to tackle poverty in India, and secondly, to consider their effectiveness. I would highly recommend that readers browse the resources available at the Institute's website: indiapolicy.org. Victoria Law Foundation runs a grants program that provides funding to researchers interested in questions relevant to law and legal practice. One of the organisation's alleged objectives, as per the Victoria Law Foundation Act 2009, is to "to inform the people of Victoria about matters in relation to the law that are in the public interest".
I say "alleged objective" because it is abundantly clear that the VLA does not actually fund projects that are in the public interest; rather it funds fictional projects such as the 'Even Girls Play Footy' documentary or the Women's Crime Writing Convention that are targeted at niche markets and do not involve policy reform that affects a wide range of people. I proposed to the VLA a project that would, in fact, benefit a large number of people but it was rejected. Part of the reason might be that nobody at the VLA seemed to understand what the project was about as very few lawyers know anything about economics. However, even once I explained the project to them and pointed out that prominent members of the community - such as a former chairman of the Australian Competition and Consumer Commission - were supportive of the ideas I wanted to elaborate in a funded research project, they still didn't get it. My project was about breaking up the legal cartel. It sought to explore how professional regulations that limit who can be a lawyer push up prices, thus hurting consumers of legal services. It is not a big secret that lawyers overcharge for their services as compared to what would be the case in a free-market where barriers to entry into a profession are low. A 5000 word paper on the topic would have been an ideal step toward reform from a community point of view. For futher reading on this topic see: Milton Friedman, 'Occupational Licensure' in Capitalism and Freedom. Allan Fels, former Chairman of ACCC, Speech 13 July 2001. Here's an old article I wrote for the Interface anthology released by Vibewire.org: Peter Klein wrote a good article for anyone panicking over the lies propagated by eleced officials seeking to use the impending debt ceiling for political ends: In following the debates over raising the US debt ceiling, I’m struck by the Most Australians see the government as a vast public utility established to take care of us when we need it by providing a ‘safety net’ for the destitute. The logic is as follows: we’re a community, and it’s our responsibility to collectively provide for those who can’t provide for themselves.
There’s no doubt that it feels good to have people take care of us. When our girlfriends, wives, mothers, fathers or brothers buy us presents and show they care about us by hugging us and saying nice things, we feel a sense of connection to them. Similarly, Australians feel protected when government sets up paternalistic agencies like the Department of Human Services (responsible for Medicare, Centrelink, Child Support, Disability Services and Hearing Services). The welfare state is a necessary function of government, according to its proponents, because it shows that we’re part of a community that cares about each other. That’s the argument anyway. There are a few problems with this fairytale story (which is taught almost without question in schools and universities throughout Australia). First of all, caring and sharing is great – but only if you do it without hurting anyone else. If I steal $50 from my friend Peter and then use that $50 to pay Paul, I haven’t done anything commendable and don’t deserve to be treated like a saint. On the contrary, I’ve done a despicable thing. I’ve taken something that doesn’t belong to me. While it may be true that Paul needs the money more than Peter, that doesn’t in any way justify my actions, either legally or morally. The problem with a welfare state is that it relies on theft to finance its operations. I am speaking of course, of taxation. Libertarianism has been growing by leaps and bounds in Australia, at least in comparison to the level of activity back in 2006 when I first began meeting like-minded folks through the Australian Libertarian Society. There are now at least two annual conferences held each year: the Mises Seminar and the Friedman Conference. This is something that would have been unheard of just five years ago.
However the public's unreceptiveness to our ideas can at least partly be attributed to the shortcomings of those selling the message (the Australian Taxpayers Alliance excepted). In this post, I want to mention a few points about the Liberal Democratic Party (LDP). Briefly, the problem with the LDP is that they don't who know they are. Are they libertarian? Or a small government version of the Liberal Party? Recently a friend of mine complained to me about high taxes. Once she started working and saw her money disappear, she became concerned. Prior to this she was apolitical. In a perfect world, I'd present the LDP as a low-tax alternative to my friend, but it's hard to do this when the party's approach to cutting taxes is so timid. Their "30-30 policy" is flawed both from a strategic standpoint and an economic perspective. It's not good politics, because being more radical (not anarchist, but Ron Paul style) gets votes. Why try to be closer to the mainstream? Labor and the Liberals dominate the centre; it's important to carve out a niche. And it's not good economics, at least according to Murray Rothbard and Henry Hazlitt's criticism of the negative income tax. I told my friend about the LDP anyway, and I'll vote for them too. But it'd be nice if LDP understood that simple messages are better than complex policies that nobody has the time to read. Here's a simple message: abolish the income tax. Spending on essential services wouldn't be affected even if we abolished the income tax! With 'radical' policies, the LDP will also benefit from an energized membership and more donations. Update: The LDP has dropped the 30-30 policy and shifted to a policy with a $40,000 tax-free threshold. That's an improvement, but we still ought to look into abolishing the income tax. |
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