ADDRESS TO THE AUSTRALIA INSTITUTE
STATE LIBRARY OF QUEENSLAND
WEDNESDAY, 19 FEBRUARY 2020
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Let me begin by acknowledging the elders and traditions of the Yugura and Turrbal people. And by thanking Ben Oquist and the Australia Institute for the opportunity to provide some warm-up perspectives before we hear from Richard Denniss on ‘why economics is broken’.
This state library where we meet tonight is a special place and I’m a bit nostalgic about it. From time to time I’d catch a couple of buses here from Logan as a youngster to read books they didn’t have at our local council library. And now we bring our three kids here for craft, to learn and play and explore, and to read books we don’t have at home.
It’s a wonderful, wondrous place.
124 years ago it was housed across the river on William Street, and it cost about 11,000 pounds to build. Around the time of World Expo 88 it moved here to Southbank and now it’s a key part of this cultural precinct.
Now, I want you to consider how economics – traditionally at least – measures the contribution of this library.
If we take Gross Domestic Product and do a back of the envelope calculation, the construction of the Cultural Centre precinct would have made up something like 0.006 per cent of GDP growth in the first quarter of 1988 when it was nearing completion – a negligible amount.
Even since then, the cost of books, lighting and librarian wages would have only added in meagre ways to GDP.
But GDP doesn’t capture the thirty years of social capital which stems from this incredible building or the museum or the theatre.
It doesn’t capture the inspiration or education these buildings around us have given to young minds for over thirty years or the curiosity and imagination it spurred.
My point is we don’t measure some of the things we value most, as well as we could.
For well over half a century we’ve become familiar with this critique.
Many of you know Robert Kennedy told a Kansas audience in 1968 that GDP measures everything ‘except that which makes life worthwhile’.
In more recent times we see GDP’s shortcomings in this horrific fire season which has cost 33 lives and thousands of homes, before we get to all the other personal, social, environmental and economic costs.
While some of these costs are direct, and others indirect, they’re notoriously difficult to quantify properly.
Many aren’t captured by Gross Domestic Product alone. GDP doesn’t measure the destruction of wealth and wellbeing from disasters, only the loss of income, production or spending that flows from them and the positive impact of the rebuild.
That’s how the Prime Minister justifies saying the fires might be good for the economy – possibly true in narrow, technical, GDP accounting terms but news to thousands of Australians still picking through the rubble of businesses and livelihoods.
Now, that’s not to say GDP is useless – it isn’t.
It does still provide a powerful insight into the current state of the economy, and is useful for historical comparisons. It helps measure the gap between the current Government’s rhetoric and the reality of their economic mismanagement.
More broadly, growth matters to the jobs and opportunities created in our society. A healthy, growing economy can make people more comfortable with farsighted social and economic policy changes as well.
But growth has slowed since the last Budget, since the last election, and it’s almost halved since Morrison and Frydenberg took over.
GDP matters and not for a moment do I think we should ditch it.
But I do want you to consider how we could supplement it.
Traditional measures have a place, but don’t paint the whole picture.
We can do more to measure what matters.
If we do, we’ll give ourselves a better chance to make the right calls on economic policy, for the right reasons.
As Joseph Stiglitz says, “If we measure the wrong thing, we will do the wrong thing.”
Angel Gurría, the Secretary General of the OECD, said something similar: “It is only by having better metrics that truly reflect people’s lives and aspirations that we will be able to design and implement ‘better policies for better lives’.”
Big data and all the other relevant technological advances mean we have never had a better opportunity to bolster and buttress traditional economic data with faster, more accurate, more tailored information.
That allows us to identify challenges earlier and intervene in a more targeted way – putting fences at the top of cliffs not just ambulances at the bottom, as others have put it.
I’m conscious you’re primarily here to hear Richard talk about why economics is broken, and I’m looking forward to it too.
But I suspect what he means is a kind of economics is broken.
By which I mean neoliberalism is broken – and I agree.
We need to find coherence and conviction in what replaces it.
That’s why measuring what matters is crucial.
So before we hear from Richard let me put some ideas on the table in my Treasury portfolio which could help put things right.
We could look at a version of New Zealand’s Wellbeing Budget, which redefines what “success” means in terms of economic outcomes.
The Finance Minister there, my friend Grant Robertson, reports against specific measures under four headings: financial & physical capital; human capital; natural capital; and social capital.
All geared towards meeting goals like improving mental health; reducing child poverty; addressing the inequalities faced by indigenous people; thriving in a digital age; and transitioning to a low-emission economy.
This has quite significantly reshaped the conversation in New Zealand about the budget and the economy.
That’s the first idea; the second is to resuscitate the Intergenerational Report which began in 2002 and is released every five years.
The IGR has become hopelessly (and needlessly) politicised.
The last one in 2015 was a shocking political document.
Because of that, there are low expectations for the next one, which is such a second-order priority that it has already been delayed to July this year.
Turning the IGR into another opportunistic political rant will do nothing to help us measure what matters.
We need to refocus the IGR.
Perhaps release it in the middle of each parliamentary term on an agreed consistent template, supplemented by more topical analysis.
A permanent focus should be intergenerational disadvantage and agreed measures of economic mobility. Climate change too.
There’s a similar opportunity to revitalise the Tax Expenditures Statement as well, so Australians can better understand the cost of tax loopholes to the Budget over time and judge that against other priorities.
We also need to better evaluate which policies work over time and which don’t. There’s too little of this.
Andrew Leigh and Chris Bowen took to the last election a terrific policy for an Evaluator General to do this analysis, and I’m keen to try and work something up along these lines too.
So while we look at the NZ model, seek to revamp the Intergenerational Report and work out the best way to evaluate value for money – in tax, in existing policies, and in terms of early investments to tackle disadvantage – we need to strengthen the institutions which underpin these efforts.
We have a Parliamentary Budget Office, which is excellent. And last term in response to the politicisation of the IGR and forecasting we talked about taking some of the Treasury functions and giving them to the PBO.
I think there might be a better opportunity instead, to actually bolster the role of Treasury by bringing together the ideas I’ve just floated and giving them a permanent home there.
A Treasury which advises on and reports on the traditional economic measures, broader measures of wellbeing, an IGR more focused on the most important intergenerational issues, and an Evaluator General.
None of this is decided yet, there’s a lot of policy development work to do in the lead-up to the next election.
But these are some ways we could better measure what matters, know where policy is working and where it’s failing, and fix the damage done to economics by a Morrison Government which doesn’t know whether it is Hanson or Hayek, neoliberal or populist, trickle-down or turn-back-the-clock.
And which is failing to deliver the economic outcomes and opportunities our society needs and deserves.
I’ll finish there so we can hear from Richard and then I’m looking forward to the discussion after that.