NEW DIRECTIONS IN ECONOMY POLICY

Talk to the Economic Society evening seminar, Sydney, Tuesday February 26, 2008

It occurs to me that, as the journalist of the panel, the most useful thing I could do is to give you a reporting job on the new policy directions the Rudd Government actually is heading in before giving you some of my opinions about the directions it should be heading in. Ill start with macro management and move to micro-economic reform.

Macro management directions

Here the story should be familiar to you. The Government is genuinely anxious to end the period when fiscal policy was held in neutral and bring it back into the game, using it to assist monetary policy. It wants to allow the automatic stabilisers to work. To that end it has announced its intention to plan for a budget surplus of at least 1.5 per cent of GDP and to allow any further upward revision of revenue estimates to add to the surplus. The expenditure review committee is engaged in a protracted round of spending cuts – although well see how much it has the courage to come up with. Wayne Swan has warned the budget will be unpopular, but well see how unpopular. At one level Labor is just engaged in the now traditional practice of incoming governments slashing away at the pet programs of their predecessors, but I do think it is genuine in its desire to reactivate fiscal policy.

As youve probably seen me write, I believe Labor will be crazy if it goes ahead with its promise to deliver $7 billion in tax cuts in the May budget. Rudd seems genuinely committed to keeping his promises, and to renege would invite invidious comparisons with Keatings L-A-W tax cuts but, even so, I havent completely given up hope that Labor will postpone them. Im surprised to see business economists of the wisdom of Saul Eslake accepting the tax cuts as inevitable. We dont do the politicians any favours when we knuckle under to the boys-will-be-boys logic of political expediency rather than staying a staunch advocate of good policy. If they are to break irresponsibly-given promises they need to do so against a background in which all the top commentators and experts are urging them to. I also think that, when we keep banging on about the tax cuts, we at least increase the likelihood that they will be diverted into superannuation. Another compromise would be to continue the cuts aimed at improving work incentives for part-timers and other low income-earners, but to postpone raising the thresholds of the two top tax rates ($75k to $80k and $150k to $200k). The efficiency, supply-side case for the latter cuts is weak – much as I, like you, would enjoy receiving them.

I havent yet given up preaching against the tax cuts because I know that, if they are to be abandoned or modified, such a decision wouldnt be announced now, at a time when the Treasurer and Finance minister are intent on putting maximum pressure on the spending ministers. Revenue-side decisions always come last.

A point of information: its a generally accepted rule of thumb in Canberra (but not necessarily in Martin Place) that the trade-off between fiscal policy and monetary policy is that each increase in the budget outcome over last years outcome of $3 to $4 billion has the same effect on demand as a 25 basis point increase in the cash rate. Note, however, that the forecasts announced on budget night often bear little relation to final outcomes. Thats true even of the estimate of the old years surplus.

Having reported what I believe are the facts of the macro story, let me add a few of my own opinions. The first is that, if the new government is to budget for an ever-growing surplus – a politically difficult prospect – it will need to come up with emotionally satisfying things to do with the surplus. The best suggestion Ive heard comes from Saul Eslake, who suggests the surpluses be allocated to buckets, to be drawn down over subsequent years, as economic conditions allow, in order to meet long-term goals that had previously been put in the too hard or too expensive basket. Saul suggests seven different attractive labels for buckets.

Second, let me make the obvious point that any efforts by the Rudd Government to allow the automatic stabilisers to work – as measured by an increase in the surplus – could be offset by opposite changes in the states cash budget balances. Its surprising weve heard nothing about this from the Government. Maybe, again, its too soon in the budget cycle.

Third, the whole area of the role of fiscal policy needs a big rethink – perhaps a report by Vince FitzGerald – to a) return some rigor to the medium-term fiscal strategy of balancing the budget over the cycle, b) get the Government off the hook of past me-too statements about eternal budget surpluses and the demonising of all deficits and debt, c) re-establish the legitimacy of government borrowing for capital works and adopt a medium-term strategy that distinguishes between capital and recurrent spending, and d) elucidate the latest thinking about how best fiscal policy can share with monetary policy the burden of achieving internal balance.

Fourth, on a quite different tack, the whole world needs to keep working on the problem that monetary policy seems good at controlling inflation, but not credit-fuelled asset booms, the unhappy aftermaths of which seem to be playing an increase role in the amplitude of the cycle and in the onset and severity of recessions. Perhaps part of the answer is for fiscal policy to play a bigger role.

Micro reform directions

Again lets start by reporting the facts. The Rudd Government has put a strong emphasis on – and made early steps towards – achieving further micro reform through the COAG process – that is, through greater federal-state co-operation. It is seeking state co-operation with the implementation of many of its key election promises covering hospitals, vocational training, schools, climate change, housing and indigenous affairs. More importantly, it is seeking to revive interest in and make progress on the National Reform Agenda. This is the replacement to Keatings National Competition Policy. It was developed and pushed largely by the Victorians, and was officially adopted two years ago, but little has happened since – a measure of the Howard governments lack of interest in micro reform. A major reason for the lack of progress was Howards decision not to repeat the NCPs incentive payments to the states.

The NRA pursues reform under three heads: competition, reduced regulation and human capital. The competition head covers Rod Simss unfinished business on infrastructure reform; the reduced regulation head covers reducing red tape in 10 cross-jurisdictional hot spots; the more novel human capital head covers measures to raise labour force participation via improvements in health (including preventive health) and early childhood development, child care, education standards, school retention rates and so forth.

The COAG process has been beefed up, with new participation by federal and state treasurers alongside the prime minister and premiers. Four meeting are planned this year and many new working groups have been established. And Rudd seems likely to come to the party on incentive payments. Hes starting with the reform of special purpose payments, which are to be rationalised from several hundred separate schemes to just a handful of broad categories. This must surely involve a significant reduction in federal attempts to micro-manage the states. In any case, the focus of the conditions attached will be changed from inputs to outputs and outcomes. The newly rationalised collection of SPPs will be indexed, with the feds offering incentive payments on the top. Under NPC it was almost impossible politically to deny payments to states that had performed poorly. This time its indented to establish outcome targets and give states that achieve 90 per cent of their target 90 per cent of the incentive payment.

In addition to being finance minister, Lindsay Tanner is minister for deregulation. He will be ably assisted in this by the minister for small business, Dr Craig Emerson (the only qualified economist in the ministry). It seems to me, however, that so far Tanner has been too pre-occupied with ERC to have given deregulation much attention.

Of course, policy decisions relevant to micro reform are being made continuously by other ministers, such as Kim Il Carrs efforts to establish a new industry policy for motor vehicles and the much-trumpeted deal on open skies with America, which continues to keep the skies clear of competition from Singapore Airlines.

Thats the reporting job. Let me just add a few comments. First, any reform of education will need to involve significant increases in government spending. The back-door privatisation of the universities weve seen has created many problems and inefficiencies. Second, the one big area within the public sector thats crying out for major reform is health care. The plethora of federal and state intergenerational reports all make that crystal clear. In health the goal is not to raise efficiency so as to reduce spending – the pressure for greater spending is unceasing and irresistible – but to ensure the public gets value for money and also ensure not too much of the increased spending ends up fattening the incomes of medical specialists.

Finally, I agree with all the sensible people saying that climate change represents Australias (and the worlds) greatest economic as well as environmental challenge. The challenge is, as Ross Garnaut put it so starkly in last weeks report, to end the linkage between economic growth and emissions of greenhouse gases. Thats an extraordinarily tall order that will require an enormous degree of leadership and economic pain. So far, weve had a lot of grand gestures from our pollies, but not one really tough decision. But if we dont meet that challenge to break the link between growth and emissions, we – and the world – will have hit the limits to growth. If so, all our other reform efforts will count for little.

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WRITING A COLUMN

Talk to Fairfax trainees
February 19, 2008

Neroli has asked me to talk to you about writing a column, but also to say something about my career path and how I got into journalism, so I’ll start with that.

Thirty-five years ago I decided to take a break from my career as a chartered accountant, spend a year doing something interesting and then resume my accounting career. I spent the time doing the first year of what’s now the BA (Communications) at what’s now UTS. During that year I became the inaugural co-editor of the student newspaper at UTS, then called Newswit. As the year came to an end my journalism lecturer, Terry Mohan, asked me if I’d thought about making a career in journalism rather than accounting. I hadn’t, but on his prompting, I did. I applied to the ABC and the Fin Review and got nowhere, but Terry said he knew the cadet counsellor at the Herald and would get me an interview. It’s obvious to me now that he also put in a good word for me. I got the job and, at what was then considered to be the terribly mature age of 26, as a qualified chartered accountant, I started as a graduate cadet on a fraction of my former salary.

That was in 1974, the year following the first OPEC oil shock which ended the post-war Golden Age, the year our economy fell apart under the Whitlam government and the year newspapers discovered that politics was mainly about economics and decided they’d better start finding people who could write about economics. I was an accountant, not an economist, but the Herald decided that was near enough. I had a fair bit of economics in my commerce degree, of course. I soon realised the Herald was making quite extensive use of my professional qualifications, so I suggested it start paying me more appropriately and after about four months my cadetship was cut short and I was made a graded journalist on the equivalent of what I guess today would be a J4. After less than a year I was sent to Canberra as the Herald’s economics correspondent. After a bit over a year I was brought back to Sydney as economics writer, replacing my mentor, Alan Wood, who had resigned as economics editor. About two years later - that is, about four years after I’d joined the Herald - I was promoted to economics editor. That was 30 years ago this year and I’ve been economics editor ever since. In those days the main thing the economics editor did was write leaders - unsigned editorials - but within two years or so Alan Mitchell - who’s now economics editor of the Fin - took over the economics leaders so I could concentrate on writing columns. Since 1980 I’ve written three columns a week (plus a few odds and ends) - the same columns on the same days and in the same parts of the paper.

I should warn you that journalistic careers today aren’t as meteoric as mine was then. I just had the immense good fortune to be in the right place at the right time. But think of it another way: I’ve been doing almost exactly the same job for the best part of 30 years. I haven’t gone anywhere, haven’t had a promotion in 30 years. My one ambition in journalism was to be the Herald’s economics editor; I achieved that ambition in four years - far sooner than I ever imagined I would - and in all the time since I haven’t been able to think of any job I wanted to do more or any paper I wanted to work for more than what I had. The one big advance I’ve had in that time was when, a long time ago, The Age started running my columns. In terms of combined circulation and quality, newspapers can’t offer any bigger or better platform that the Herald plus The Age.

Now let’s talk about writing a column. It’ll probably be a long time before any of you get invited to write a column - it’s a job reserved for senior journalists - but there’s no reason you can’t aspire to that goal and take an interest in what it involves. I should warn you, however, that only good writers get invited to write columns (or be feature writers).

One question is the subject matter of the column - politics, economics, business, sport, whatever - but another is the style of column. There’s a range of partly overlapping styles to pick from. You could write a controversialist or contrarian column, where you’re always aiming to provoke the reader and say the opposite of what most people think. Paul Sheehan’s column in the Herald would be an example. You could write a populist column, where you sought to reflect back to the reader what most people could be expected to think about any issue. This is the stance taken by radio shock jocks. You could write a partisan column, aimed at gratifying just one side of the ideological divide and annoying the other side. For the Herald, Miranda Devine and Gerard Henderson write such columns on the Right and Adele Horan on the Left. The nature of such columns is such that you soon alienate readers on the other side, who stop reading you. Young journos often wonder why the editor persists with columnists they - the young journos - disapprove of. He does so because he’s trying to cater to the range of political views among his readers. Sensible editors of soft-left papers such as the Herald and The Age will want to run a few right-wing columnists to run cover for all the lefties and avoid alienating too many conservative readers. Another style of column that’s sprung up lately is the Gen Y or Young Things column, of which Lisa Prior’s column is a good example. Newspapers worry that they’re not attracting a new generation of readers, that the paper’s dominated by ageing baby boomers like me, and want to run a few columns that stop the paper looking so old and that express the attitudes of the younger generation. There’s scope for more Young Things columns in papers, which may provide an opening for some of you. But perhaps the best way you could talk someone into giving you a column would be to think up some style or subject matter than had never been tried before. There’s a lot of emphasis on encouraging young journalists to learn the way things are always done; there ought to be more emphasis on encouraging them to think up new ways to do things and things to do we’ve never done. I think that, in a modest way, I did a bit of innovating in my youth - and I don’t think it did my career any harm.

That brings me to my style as a columnist, which is to write informative, explanatory columns. Many readers are interested in the economy, but don’t know much economics and find a lot of what they see on the topic hard to understand or boring. My life’s mission is to explain to readers how the economy, economics and economic management work. From the very beginning I’ve put an enormous amount of effort into trying to offer clear and seemingly simple explanations. I’ve also put a lot of effort into trying to do that in a readable, reasonably entertaining way. I commend the notion of ‘explanation journalism’ to you. It’s not fashionable or widely practiced, but it should be - and, I suspect, will be. The world becomes ever more specialised and complex and the people in it become ever more specialised in their own narrow areas of expertise. So the need for popularisers who can explain important aspects of life to people who’ve specialised in something else keeps growing. As the blizzard of news engulfing us grows ever worse, many people’s approach to information overload will be to find the one commentator they trust and can understand, and ignore the rest. As the internet feeds the public’s craving for ‘breaking news’ - news that’s indiscriminate, undigested and often wrong or misleading - the off-line Herald that lobs up to 24 hours later has to have something quite different to justify its existence, and it strikes me that explanation - explaining how and why whatever happened happened - is the obvious way to go.

That covers the basic question of the style of column you choose. The next big question is who you’re writing the column for. People who paint pictures often claim that they do it only to please themselves, but mere journos don’t enjoy that luxury. They write to impress or please someone else. You can write to impress other journos (including your boss), to impress your contacts if you’re in a specialised round, or to please the readers. I think it’s always an indulgence to write to impress your contacts, but it’s just as bad to write to impress other journalists. That’s wrong, it’s bad journalism - but I suspect a lot of people do it. They write for their mates or to impress their competitors.

I want to suggest to you that, right at the start of your journalistic careers, you adopt as your ethic or credo or raison d’etre the simple motto: Serve the Reader (or listener or viewer). Everyone needs an ideal that’s greater than themselves to give meaning and purpose and even a touch of nobility to what they do, and I can’t think of any better one for a journalist. Stay focused on the reader and it will help you resolve a lot of ethical issues as you go about your work. Sometimes serving the reader involves giving them the light-weight froth and bubble you know they’ll lap up, but often it involves giving them what they should want - and busting a gut to convince them it’s both important and interesting. Let the readers dictate the question - but not the answer to it.

There’s loads more I could say about writing columns, but I want to finish with something that’s much more general to your career as a journalist. In journalism, as in all aspects of life, we often face choices between equally desirable, but conflicting, objectives. We can write about stuff that’s important, or about stuff that’s interesting. We can focus on being commercially successful, or we can focus on maintaining high journalistic standards. We can beat stories up, or we can stick strictly to the facts and be boring. The point I want to make is simple: don’t let yourself think, and don’t let anyone convince you, that you face such either/or, black or white, good or bad choices. When you face a choice between equally desirable but conflicting objectives, you don’t opt for one or the other, you pick some combination of both. In the jargon of economics, you find the best trade-off between the two. And it’s getting to the best available trade-off - where you’re getting a fair bit of both - that’s the hard part and usually requires a lot more effort on your part. You want to write about things that are important - and bust a gut to make them interesting. You want to be commercially successful - to get promotions; to do you bit to help sell papers - and be true to journalistic ideals. You want to avoid beating stories up and avoid being boring. All these combinations are possible - but not without extra effort and ingenuity.

Other points

I don’t just assert my opinion, I try to argue a case, quoting lots of facts and acknowledging both sides of the argument (eg It’s true that X, but Y). Sometimes your role is to remind the reader of why they disagree with you. That’s fine by me. But no matter how judicious you are, you must, as a matter of artistry, come to a conclusion and state an opinion. Only during an election campaign would I limit myself to on the one hand, but on the other.

You have to combine information with entertainment. Well written and an easy, enjoyable read eg Ian Verrender. An informal, chatty style goes down well.

Should inject some of your own personality.

Predictability is the great enemy of all columnists. Try to avoid having obvious, run-of-the-mill opinions on a particular subject. That doesn’t mean always having a contrarian view, tho if you view happens to be opposite to everyone else, that’s a plus. No, you have to have a more thoughtful, better-informed and thus novel view, which you achieve by giving the subject more thought and research than the reader has.

But you also need to avoid being too predictable over time. ‘I stopped reading Paddy because I always knew what he was going to say about any subject’ is the kiss of death for a columnist. Good to have views that are complex - that acknowledge differing shades of grey - and that evolve over time as you learn more from your experience but also your reading.

Criticise from a fixed viewpoint - a fixed model or view of the way the world works or should work - don’t keep changing your vantage point until you’ve got something to criticise. That’s the mark of an amateur.

I sometimes write what you might call primativist columns (like primitive art) - columns intended to connect with the unsophisticated view ordinary readers might adopt towards some development and move them forward, not columns that simply contribute to a debate being conducted at the sophisticated level by my expert contacts. That is, I act as a populariser and a bridge between punter and expert.

My ambitions are horizontal, not vertical. Pyramid or star system.

Readers are more interested in stories about people than about ideas. And they like stories to be stories.

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