Posted by: graemebird | November 24, 2009

Welfare Reform: Stripped Down Version.

This is a truncated version of an earlier post I made whose title begins “Raiding the sick …”. In the earlier version I went into some detail to show what conditions need to be met, or nearly met, for unrestricted immigration, even of unskilled workers, to be beneficial to incumbent Australians. This is actually theoretically possible. And we ought to be working towards these conditions and working for a better way to treat refugees. Not only to treat them better but for us to gain from their stay as temporary guest workers. Clearly Rudd is not up to the task of fashioning such a policy. It means for one thing, pulling out of a lot his beloved treaty burdens. The upshot of the long technical explanation is this:

Recruiting the labour hours from our current welfare recipients requires no pre-requisites as in the case of migrants, to make the extra labour hours be advantageous to the rest of us. We are leaving our brother and sister Australians in squalor, when the situation is such, that we can have a billion extra labour hours injected into this economy, and at the same time we can enrich and enhance the lives of our mates.

Here is the truncated version:

Not long ago on a talkback show, a fellow called Brian rang up and talked about the sort of abuse, assaults on his dignity, and generally how hard a time he is having as a sickness beneficiary. I think his problems with the hated Centrelink probably came when he dobbed some other beneficiaries in for abusing the system. This is a transgression which Centrelink folks may not be willing to abide by people within the orbit of their power. These people started putting Brian through the griller. Even at one stage asking him about the way he wiped his bottom. A satisfying outcome would be to have Centrelink burnt to the ground and salt put about the place so that nothing could ever grow there again and in fact have any mention of this hateful institution removed from the historical record of the Australian scene. But things are seldom so perfect in this world.

The hatefulness of powerless Australians being hassled by these creeps is why I cannot abide any notions of “mutual obligation” that Saunders is putting about. Or of “work-for-the-dole.” The horror. The horror. If we feel we need to hassle these people in such a demeaning fashion try dropping the benefit by $50 a fortnight and then see if this sick impulse to abuse these people is still evident.

Brian has severe diabetes. He had to get his teeth removed. He went to the hospital to get his teeth removed and perversely they took out all but ten of his teeth. So he was unable to eat normal stuff for a year because he couldn’t put together any dentures. So what he had to do then is borrow off his flatmates, get the rest of his teeth removed and get his dentures off his own back as for some reason this all didn’t fit in with the plans of bureaucrats. All your luck runs out when you no longer have independent means and things that start bad don’t get any better and people treat you like shit. But apparently Brian has very kind and helpful flatmates and he is able to pay off the $1000 dollars one fortnight at a time.

Brian has severe problems and I for one don’t want to be forcing this guy to work a full week. I just want to make it easier for him to work two days a week or three days a week to give him the extra income to help him look after his health. But the thing about the welfare its always enough to keep you alive. Its never enough for you to launch a job-hunting campaign. From Brians position every interview or phone call is a grave cost and a hateful humiliation. We can do better.

Some media attention came to a 27 year old who had been on the sickness benefit these last 11 years. Apparently he only ever worked for about 7 months when he was 16. His dad is on the sickness benefit. Some sheila that he has 4 kids to is on the Solo Mums benefit. Its likely that they are not a couple for welfare purposes which is a common rort. His disadvantage is that he has ADHD. Hardly a sickness. But with the labour market and work scene being the way it is why would anybody want to employ him?

Normal improvements apply. We want to get rid of the minimum wage, reduce the company tax, increase the income tax threshold, deregulate more and all that. But this fellow isn’t going to haul his white trash ass around to one employer after another only to be rejected. And we don’t want Brian having to go through all that. We want the employers to come to them. If the 27 year old gets work in a small business we want things to be such that the employer might even give the lazy bastard a wake-up-call. And then send someone round to his place and give him a lift to work.

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Rio Tinto cannot get enough workers for its various mining activities during this current extraction industries boom. So they’ve developed a program where they go around to these isolated aboriginal settlements. They find the most likely prospects, train them up to use various capital goods (the boss reckons women make the best truck drivers) and then set them to work in the mining towns. Astonishingly the minimum starting earnings are $90 000 a year. I don’t know about you but I don’t make $90 000 a year and am unlikely to anytime soon. Well what can you say about Rio Tinto but BRAVO!!!

What we want though is a situation where many firms greedily descend on these settlements and get all these guys employed. And its probably the case where a lot of these people really aren’t up to working a full week or leastways not right away. But we ought to have almost everyone working at least two 8 hour days a week and preferably three. Or 2 12 hour shifts a week or every 8 days.

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The solution I propose is prosaic and dull and boring but the reasoning why this solution ought to work needed going over. If the explanation is old than perhaps it is old “wine” rather than old hat as one Misean explained.

We want to allow the double-expensing, for tax purposes, of labour costs, for some of these people. This need not be considered to be a forever thing. We need not see this as a general and eternal solution. In the wider scope of economic theory there are negatives to this. I don’t deny these theoretical negatives. But assert that there are many real world considerations that mean that this measure will be a fantastic medium-term patch-up in what afterall are very hard times.

A sort of psychic lower bar has been set in our labour markets. A sort of minimum hurdle has been set.It has been set by every imaginable bad policy in the economy. By every measure that subtly predjudices in favour of big business. By every measure that forces people to have a qualification to do certain jobs (whether or not such restrictions have validity) by every measure that tries to push earnings up. We might judge economic policy on the basis of the theoretical capitalist economy. But we need to take account of how things are on the ground.

Imagine Brian having to traipse around to one employer after another. There he is with no teeth and bad clobber. Under the capitalist economy theory comparative advantage would come into play and he would be employed on some appropriate level. Under our real world he would be wasting his precious income and only humiliating himself. We cannot hope politically to get all the changes together needed to fix this scenario in some theoretically perfect way. We can however patch the situation with the double expensing for tax purposes of labour costs for these people.

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VARIOUS THEORIES OF THE FIRM.

Theories of the way companies behave are a prism which we can use to judge the situation. But they can hide as much as they reveal. For my part I suspect the firm in 2008 is most characterized by inertia. There are only so many hours in the day and already overworked executives, when taken together, may not produce the outcomes that are expected in theoretical economics where the firm is treated as if it were a single rational being.

I have my own theory of the firm which deals with the man and his intray. The man and his intray. And if you want to get anything done in a hurry you must make sure that the problem you want him to deal with winds up at the top of his intray and stays there. And when the other things cover it the word from the top is you keep on flipping the most important thing to the top of the intray.

We want to move quickly on something like this. We want this on the top of everyones intray all the time until people are likely to say “Hey you know this work we are doing here? Some of this could easily be done by a blind person.”. When such a discovery happens that a blind person could rightly do some sort of work we want that to be the top of everyones intray and we want the company to actually go out hunting down blind people to offer this work to them.

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THE PROBLEM OF THE EXPANDING WELFARE PROGRAM.

A reduction to absurdity may be offered here. If there is so much advantage to be had by doing this why not double expense all income? Why not maintain the hated company tax for the purpose of arm-twisting businessmen to set more people to work on the basis of double expensing all employee income. The person making such a critique would likely say that if the policy were not merely neutral, and therefore useless, it would be harmful as it would predjudice in favour of labour costs and against new capital investment.

But I make no claims for this policy insofar as long-term theoretical considerations in a capitalist economy are concerned. I only make claims for it as an expedient patch in our own interventionist economy. We need not let this squalor, indolence and humiliation continue. We would want our employers to solve these problems for us.

But what about the danger that the extra cheap labour will work against investment in increases in productivity? Well we need to follow up with measures that increase productive expenditure as a proportion of GDR and increase new capital investment generally. But we need to do that anyway. And when we have maxed out on such measures only then might we need to look at winding back this employment scheme.

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SPECIFICS OF THE SCHEME.

Supposing the a person works for $16 per hour for 24 hours a week. If anyone could earn more than that we would have to assume that he was not within the orbit of the disadvantaged. So we might set the double-expensing, for the sake of argument, at $384 per week at the upper limit.

Such an upper limit does not preclude some otherwise disadvantaged person working for 38 hours a week at ten dollars an hour and the employer double expensing that amount. The tendency then is for the program to expand, and for more people to slime their way onto it. For this reason we must analyze what might happen if almost everyone could take advantage of this program.

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PARTIAL REDUCTION TO ABSURDITY.

Well for one thing, as stated before I don’t propose this strategy as a forever thing. Its just to help our mates out in hard times. But supposing the program expanded and it was felt that there ought be no means test. That the pretense of people being sick only sickened people into pretense and that we ought open the program to all comers.

So we then have a situation where the first $384 (or lets say $400) of labour or salary cost for any one employee can be double expensed by the employer. IS THAT SUCH A BAD THING? No way. Its fine. Not nearly enough of us are working and a lot more of us could be working part-time. Older people, students, housewives or housewife wannabes, entrepreneurs in “pre-production”, struggling artists and under future harsh conditions, even child labour might advantage such tax incentives. All sorts of people could be better off even if this measure were expanded to its greatest degree. Just so long as we studiously worked to cut government spending and any other interventions and taxes that predjudiced against investment and capital formation.

If the program expanded so that it no longer proved a strong enough incentive to business to employ the harder cases than you might have the first $100 dollars every week triple-expensed and the next $200 double expensed and perhaps that would be enough to get the harder cases through the door.

WHAT IF THE DISTORTIONS GREW TOO LARGE?

We could go two ways on this. We could sunset any such scheme. Or we could say we are not going to sunset this business but we are going to work hard to reduce the company tax rate to zero over time. Hopefully by the time the company tax is reduced to zero good habits will be instilled in our companies and the fact of no company tax will in itself make capital so plentiful that we will have a sellers market for labour of all categories.

COUPLING WITH THE NEGATIVE INCOME TAX.

I’m no believer in the negative income tax except as an expedient to dissolve most welfare without hurting people. If the negative income tax is granted it will tend to expand. Supposing we couple the negative income tax with this double-expensing business? We want to do this in such a way as almost no-one is actually taking a subsidy. We want to make it that they COULD take the subsidy IN THEORY if they were starving but almost no-one is taking the subsidy in practice. Really we want all such measures to come with their own built-in phase-out.

MITIGATING AN ALREADY EXISTING DISTORTION.

The company tax is already a distortion. Matters tax deductible are not subsidies. But they can act like subsidies as far as decision-making is concerned. Companies under the influence of the company tax will have less attention to cost-cutting than otherwise. Agency effects will be stronger. The company will borrow more since the interest is a tax deduction. All aspects involved with the determination to run a higher rather than a lower profit will be blunted. The general competitiveness of business is lessened. And reinvestment being less capital accumulation and the rate of capital update is less.

The double-expensing of these costs may be a distortion in itself. But it will lead to the grave distortion due to company tax being eliminated. Since most companies will run a loss for tax purposes and a profit in reality. Hence the company tax as a consideration is eliminated just so long as profitable companies can work hard to figure out how to get a proportion of their work performed by these disadvantaged types. To employ these people might be a great big hassle at first. But it will likely get to be less of a hassle as time goes on.

Well I’ll round it off here. But the main point of the story is that some evils are made less evil if they are 95% only theoretical considerations.

The evil of welfare dependence is not so evil if the welfare is there in backup and almost no-one is relying on it. The evil of the company tax on profits is not quite so evil if almost no-one ever has to pay this tax. That Centrelink has not been burnt to the ground would not be that intolerable an evil if almost no-one had to deal with Centrelink.
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POST-SCRIPT NOVEMBER 2009. A DIFFERENT TYPE OF “MUTUAL OBLIGATION”. MUTUAL OBLIGATION THAT FALLS ON THE HEADS OF THE BIG-SHOTS.

MORE LATER.

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Responses

  1. what do you think of Humphreys’ speech on this?

    http://blog.libertarian.org.au/2009/10/18/the-old-should-pay-for-themselves/

    I’M ABSOLUTELY DISGUSTED. NO TALK OF MASS-SACKINGS OR CLOSING DOWN DOZENS OF BUREAUCRACIES. NO TALK OF SPECIAL TAX DEDUCTIONS FOR EMPLOYING THE OLD GUYS. NO TALK OF TAKING AWAY THE 15% CONTRIBUTION TAX TO THE VOLUNTARY SUPER. NO EVIDENCE THAT HE’S BROKEN OUT OF THE TREASURY TRASH-TALK OF REVENUE-NEUTRALITY. NO TALK OF RAISING THE AGE PENSION ONE DAY IN TWO SO AS TO WEAN OFF THE PENSION OVER 40 YEARS. NO TALK OF THE IMPORTANCE OF 100%-BACKING/GROWTH-DEFLATION TO HAVE BEEN IN PLACE FOR DECADES BEFORE THE DISADVANTAGED CAN REALLY LOOK AFTER THEMSELVES.

    WITH HUMPHREYS WE ARE TALKING ABOUT THE ANTI-THESIS OF POLICY SOPHISTICATION. REFORM MUST BE RAPID-BUT-KIND. SO ANY REFORM HAS TO TALK ABOUT MASS-SACKINGS IN THE PUBLIC SECTOR UP-FRONT. AND THE CONSTANT REMINDER DRUMBEAT THAT MASS-SACKINGS ARE ABSOLUTELY ESSENTIAL TO ANY KIND-YET-FAST REFORM.

  2. I would never expect Ergas to be on the same signatory page as Quiggin but there you go

    http://petermartin.blogspot.com/2009/11/what-could-possibly-unite-henry-ergas.html

    QUIGGIN IS OCCASIONALLY RIGHT AND PERCEPTIVE AND OUGHT TO BE LISTENED TO WHEN THAT IS THE CASE. BUT READERS WILL GET A 95% HIT RATE WITH ME AND MUCH LESS OF A SOUND TRACK RECORD WITH QUIGGIN.

  3. “Why is Henry against the privatization? Is it because they haven’t done a C?A?”

    You are just wasting your breath with this moron Cambria. I’ve gone over and over this issue in great times to the point of repetition to the nth degree.

    Why is this un-nuanced stupid wop jumping to the conclusion that Henry is against privatisation???? What a fucking dope Cambria is. I would sign the petition too. But that doesn’t mean that private business isn’t the idea when done right.

    You cannot call selling off all the gear to crony-town and not reforming the industry more generally “privatisation” in any positive sense. The idea of privatisation, as originally validly conceived, wasn’t a steal and splurge deal as Cambria would have it. Rather it was to wind up with a proper, functioning market at the end of the process.

    Now with privatisation we have taxeating bloodsuckers selling stuff THAT THEY DON’T OWN, in order to get money to waste on rubbish. The end result being utter failure to reform the market.

    Any privatisation that requires a public-private-partnership at the end of the process needs to be halted immediately. Any privatisation that winds up needing heavy regulation at the end of the process to keep crony-town in line must be stopped as a matter of urgency.

    In fact, in the final analysis there is no great urgency to privatise anything more. Rather the urgency is to have reform that builds up the private sector around the government stuff. Crowding it out and making the government stuff less relevant in the long run.

    In hindsight we didn’t need to sell off Telstra. Rather we needed to split it into its underground and overland properties and its operational entity. Then we needed to set up the rules and tax-exemptions that would have other small competitors grow up around the two companies.

    The iron law of enlightened privatisation is that big business needs to come from small business success. No exception ever.


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