The open letter to Kevin Rudd issued on Saturday by eight respected Australian economists cannot but raise concerns. The letter's motivations are as laudable as the clarity and strength with which its authors' views are presented. But its three key recommendations are unconvincing and, if implemented, are likely to make things worse rather than better.

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Beware_bold_economists.pdf

CHRIS Higgins, former director of economics at the Organisation for Economic Cooperation and Development and treasury secretary in 1989-90, once described the 1970s and 1980s as "the school of hard shocks". Increases in oil prices and spiralling inflation tested to the limit 264s' ability to manage economic policy. In the process, vital lessons were learned which deserve not to be forgotten. As 264s struggle with the global financial crisis, three of those lessons seem acutely relevant.

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Fiscal_lessons_from_the_school_of_hard_shocks_1.pdf

The word from Canberra was that the public sector can never be big enough, writes Henry Ergas.

THE 2020 Summit proposals form a very mixed bag. Some seem fanciful, and will doubtless be dispatched by the bureaucrats to that great resting place in the sky of ideas better forgotten. With others, tortured drafting, presumably reflecting the triumph of compromise over clarity of thought and expression, make it difficult to understand what, if anything, was intended. Yet others, such as the republic, a bill of rights and some form of treaty, have a degree of corrugated charm, recalling the old saw that there were plenty of good and new ideas, but the good ideas had little that was new, while the new ideas were far from good.

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Summit_s_verdict_is_bigger_264.pdf

Kevin Rudd's education and health reforms will founder if they focus only on improved central-planning initiatives without allowing users to vote with their feet, advises Henry Ergas.

IF there is one law of economics, it is that if you reward people to do more of something, they will. Assuming that is what you want, so far, so good. But there is a less pleasant corollary, which is this: if they do more of what you are rewarding them for, they will do less of those activities for which they are not rewarded or are rewarded less, with results that can eliminate the benefits you were seeking.

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PM_reforms_could_hit_target_and_miss_point.pdf

Although the costs of our federal system are often emphasized, less attention is paid to the benefits that federalism brings, and can, if allowed to, continue to bring. While there are some services, such as national defence, that – given economies of scale and public good characteristics – are best supplied centrally, most public services, including in core areas such as education, health, public transport and policing, can be efficiently supplied on a sub-national level. Moreover, allowing local supply can both enhance accountability and responsiveness to local characteristics, including the preferences of consumers of those services, and – and especially importantly – create scope for experimentation. Click the link below to view the paper.

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Federalism_Menzies_research__conference.pdf

Under Kevin Rudd, there's a quick fix to every problem, argues Henry Ergas.

THE Prime Minister stands at the mouth of the Murray and proclaims Australia must act now if we are to save our environmental heritage.

At the 2020 Summit, the best and brightest in the land demand bosses allow employees 30 minutes a day for exercise. Climate Change Minister Penny Wong and economist Ross Garnaut equate an emissions trading scheme with financial deregulation and tariff reform. Australian Competition and Consumer Commission chairman Graeme Samuel tells us a scheme based on far-reaching price regulation FuelWatch) is a good idea because the ACCC's 'rigorous assessment' of its effects found weekly average petrol prices in Perth fell by 1.9c a litre after itsimplementation.

The PM must stop confusing activity with progress and focus on real reform, advises Henry Ergas.

IF Australian public policy formulation is rarely a dignified process, the FuelWatch debate has plumbed new depths. Australian Competition and Consumer Commission chairman Graeme Samuel emerged as the white knight for the 264 from which he is seeking reappointment, brandishing an econometric study that claimed to find support for the scheme.

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Kevin_24-7_or_7-11.pdf

Variety in a free market is the key to efficiency, so why is Labor eroding it, asks Henry Ergas.

IF there is one lesson that emerges from experience with economic reform in Australia and internationally, it is that choice is the key to efficiency. At the end of the day, it is consumers who are best placed to evaluate the services offered to them by suppliers. And it is the threat of that choice being exercised that disciplines suppliers and ensures that they innovate, invest and provide consumers with enduring value.

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Swan_budget_signals_choice_under_threat.pdf

The tax system needs an overhaul, not more ad hoc tinkering, insists Henry Ergas.

ALL tax systems are imperfect, but some are more imperfect than others. And the more revenue a tax system has to raise, the worse its inherent imperfections become. Nowhere is this clearer than in Europe, where tax systems have been strained to breaking point by attempts to finance large-scale income redistribution through complex systems of progressive taxation. In Australia, the problems may seem less acute, but the underlying disease is no less chronic and no less in need of attention.

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Root__branch_or_tree.pdf

IS it possible to examine Future Directions for the Australian Economy without noting that we have just had 10 years of strong economic growth, low to moderate inflation and steeply declining unemployment? Is it possible to do so without mentioning the words industrial relations and the possible effects of abolishing Australian Workplace Agreements on wage determination? Yes, if you are the (unidentified) authors of the background papers for the Prime Minister's 2020 Summit.

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A_slanted_snapshot_to_take_to_the_future.pdf