Weekend Musing: The problem with democracy

It’s the weekend and I’m on my third Canadian Club. So to hell with it, I’m going to step outside my usual dry realm of equities analysis and get a little philosophical.

Tonight I want to have a chat about what I see as a major flaw in modern liberal democracies – namely, their tendency to overspend on services and under-tax.  A flaw which is made possible by voters choosing politicians who promise more services but do not increase taxation (or reduce expenditure) to pay for them.

This flaw manifests itself in continual national deficits, as almost all OECD countries in the last few decades have spent more than they’ve received in payments.  This is evident in the graph below, with only Australia and Canada bucking the trend compared to the G7 nations.

A Short History on Government Debt – the US Example

Examining a long-term history of the United States’ federal debt, the US government has been in net debt since the early to mid 1880s.  The massive spike is due to the debt required to fund WW2, whilst I believe the big increase after 1860 was the result of reconstruction following the civil war.  The last trough was at the end of the 1960s, with a continual increase since then.  I am not sure what year the data ends on, but I am pretty sure the current projections are for large increases into the future.

If debt has been a constant companion of the US government, why do I think we have a big problem now?  Because the makeup of modern government budgets is very different now compared to one hundred years ago.

Prior to the concept of the welfare state, governments were relied upon to fund basic government services (police, prisons, the courts, parliamentary assemblies), defence (army, air force etc), major public infrastructure (highways, telegraph/telephone systems, railroads) and public works.  This was also the case in Australia, as bonds issued in the London were used to fund infrastructure for the fledgling colony.  No matter what your economic take on government vs privately-funded infrastructure, the upshot is that major budget items in the early democracies were often spent on increasing capital stock, wars or the basic runnings of a guv’mnt.

However, since the advent of the modern welfare state in the 1960’s, the proportion of the government budget being spent on infrastructure has shrunk as welfare and heathlcare expenditure grew substantially.  The extent of the growth in healthcare expenditure for several countries can be seen in the following graph:

For some info a little closer to home, the breakdown of Australia’s FY12 budget is shown below:

Of the 366 billion dollars to be spent, just under 50% ($182 billion) is being spent on welfare and health (which come in at 33% and 16% resapectively).  While it’s hard to get long-term historical data on these two items, from every thing I’ve read both welfare and heatlhcare spending are growing at a rate faster than our GDP.  This is reinforced by the fact budget outlays on these two items 100 years ago would have been in the range of zero to bugger all.  The story is the same for most of the other industrialised nations.

Unsustainable Spending

Now whatever your belief in the good of public health and welfare spending, the simple fact is these two items cannot grow faster than GDP indefinitely.  If they do, they will consume all other items in the pie until the only thing the government does is employ nurses and fund a legion of Bob Hawke surf teams.  This obviosuly is not a viable scenario because New Zealand would have conquered us with 2 Hercules and a dozen boy scouts the day after we retrenched our last soldier.

So far countries have gotten around this fact by borrowing money to fund the gap between outlays and tax receipts.  However, borrowing to fund non-investment assets will always end badly – whether you’re a person or a nation state.  Economists often say that nations (unlike people) have infinite lives and can always tax their people to pay back the debt – but there are limits.  History (and the current Greek situation) shows that nations can borrow too much and that their creditors sometimes take bad haircuts.  If the developed world continues to borrow to fund services that increase in size beyond their rate of GDP growth, then Greece will soon have company at the debt crisis party.

How did it happen?

In short, I believe the massive increase in living standards expereinced during the early 20th century (even with the world wars) gave the developed world enough spare cash to indulge in the idea of the welfare state.  And to be honest, it could have worked if it stayed limited.  However, voters have shown that they have a habit of voting in the pollie that offers the most free stuff (welfare, healthcare, baby bonsues, tax cuts) whilst offering the least amount of pain (tax increases, removal of subsidies/benefits).  This has lead to a creep of government-provided services as politicians battle for the votes – services which were once paid for by the individual (like healthcare) or by community groups (charities providing welfare).

Given that this sort of bribery worked across many different countries with some very different cultures (think Japan and the UK) tells me that humans have a tendancy to vote poorly on matters that require long-term discounting.  As creatures we seem to be hard-wired to go for the short-term benefit despite the fact some initial pain (or even just a delay of pleasure) will provide better rewards in the long run.  How else can you explain the fact western governments have run ever-lasting deficits for over 30 years?  This fact is not hidden – it is talked about often, especially now with the Greek crisis and the ever-increasing pile of US debt.  But the political discourse has been almost entriely one of kicking the can down the road – never-ending projections of a turnaround in the economy to pay off today’s debts.  And it’s not the politicians fault!  Over such long-term time frames in democratic nations, the politicians will inevitably enact legislation that most people want.

Australia’s superannuation scheme is a real-world example of a rare and far-sighted government policy addressing this major flaw.  The government knows the average Joe Punchclock won’t save enough for his retirement.  Humans just don’t do it – some will, but most won’t.  So we have to be forced to put away 9% of our wage to ensure we aren’t penniless when we’re wearing diapers once more.

It is this fatal flaw which has lead to the Greek debt crisis.  It is this flaw which has lead to ballooning developed world government debt.  And ultimately, it is this fatal flaw which must be confronted if the developed world wants to avoid a calamitous economic future.

How do we fix it?

I honestly don’t think the problem will be solved until western governments face a Greek-style crisis – one where the market forces them to do something about their debt unless they want to go down the inflation route.  The voters just won’t allow anything to be done until the economic proverbial hits the fan.

I see three possible scenarios as this crisis point approaches

  1. Welfare and healthcare expenditure will be more tightly means-tested and recipient behaviour will be monitored, with non-compliance resulting in removal of benefits.  We are seeing this already with cigarette and alcopop taxes as well as welfare controls ensuring people spend x% of their dole checks on clothes or food.  This will be extended to routine checks on general health and lifestyle habits or your commitment to training or job seeking, with removal of medical or welfare benefits if you do not conform to government-approved guidelines.  Basically the nanny-state on steroids and an infantilised population.
  2. Economic evolution (or revolution in the case of a major economic crisis) of the liberal democratic state, with constitutional limits placed on the % of government spending, the content of that spending and the amount of debt governments can take on.  This has already happened culturally in Australia to a limited extend, with the citizens expecting surpluses from their federal governments.  To ensure it stays entrenched though, governments will need constitutional limits that cannot be violated.
  3. New technology will eliminate many of the lifestyle diseases that suck up healthcare dollars, thereby reducing health expenditure dramatically.  This will only delay the inevitable though as welfare spending expands to take up the budget vacuum

I’m a libertarian, so my preference is for scenario 2.  Scenario 3 is pie in the sky and a plan based on hope, whilst scenario 1 is far too Orwellian for my liking.  However, in a country like Australia with its love of governments that promise to fix everything, I think scenario 1 is the most likely.

What do the weekend musers think?  Am I completely off the mark with my concern about human’s bad long-term discounting?  Have I got my facts wrong about debt and the makeup of modern budgets?

If I’m on the money, then how is the developed world going to confront this growing problem?

Latest posts by __ADAM__ (see all)


    • I take it you got caught out with the rally on Friday? I measure in standard drinks – like how many it takes for me to stop worrying about the red in my portfolio summary.

  1. I’ve always thought Winston Churchill summed it up pretty well:

    “The best argument against democracy is a five minute conversation with the average voter.”

    Unfortunately he didn’t actually have the answer:

    “Indeed it has been said that democracy is the worst form of government, except all those other forms that have been tried from time to time.”

    • I’m with Winston on democracy – best form out there. However, I think time has shown some inherent flaws in the bosses of democracy – namely the voters. We’ll vote ourselves into penury or unjustly saddle future generations with debt to pay for services we didn’t earn. I believe this needs to be addressed somehow – maybe it’ll be the next wave of democratic evolution. Where once the patriots threw off the yokes of tyranny, maybe we need to throw off the yoke of debt.

    • Hi Lachlan and Q Continuum,

      With respect to the statement “As creatures we seem to be hard-wired to go for the short-term benefit despite the fact some initial pain (or even just a delay of pleasure) will provide better rewards in the long run.”

      In his book on Emotional Intelligence, Daniel Goleman describes the “Marshmallow test” and claims to be a better predictor for success than the IQ test.

      In the test a group of 4 year olds is offered two choices: 1 – to have one marshmallow right away; 2 – to wait until the tester comes back from an errand and have two marshmallows.

      14 years later the subjects are evaluated again and those who waited have better grades, are more popular, etc. In other words, they are “more successful”.

      Now, think about that. This is a choice made at a very early stage in life. Kids at this age learn by absorbing the behaviour around them (i.e. the behaviour of their parents at home). They do not filter any of the information they receive, their filters are not developed yet.

      I claim the choice is a response to environmental circumstances and not genetics. I claim that this choice depends on the teaching kids before the age of 4 receive at home.

      In conclusion, I claim the current paradigm of “pleasure now – pain later” has to do with education at an early stage.

      What do we do as a society to concentrate on the education of little people before the age of 4?



  2. Well actually, we don’t fix it
    To paraphrase an MB blogger last week ” the human race isn’t programed to future proof itself”.
    We survived the last 2 million years because we are competitive. But what served us so well in the Serangeti a million years ago is the seed of our destruction now. If your money isn’t on the cockroaches you haven’t been well enough informed.
    Try telling a hugely overweight Australian (about 60% of the adult population)that the incipient cost of their healthcare will prevent a child getting timely treatment. Try suing McDonalds.
    Evolution tells us that survival is competitive. Lean, mean, and adaptive. Australia? give us a break……

    • I think the fix is inevitable Rob – it’ll either be at the hands of the bond market or via inflation. Either way, the governments that emerge from that crisis will probably enact legislation to prevent it happening again. I do give humans some credit when it comes to learning from mistakes – particularly when they are very, very painful. If they didn’t, then we wouldn’t be able to look behind us to see 10,000 years of continual improvement by mankind.

      • You might be right Q
        Trouble is, The more severe the problem, the harsher the medicine….

      • This is true, we are also extremely good at solving problems, which is why we evolved to complain so much. We see problems everywhere and obsess about them until they are solved.

        We wouldn’t build roads if we didn’t complain about walking over rough ground. We wouldn’t build bridges if walking through rivers wasn’t such a pain, etc…

        Once debt is considered a major problem, we will solve it. I’d bet on it.

  3. Nice post. As you’ve identified, rising health care costs are a very large part of the problem, especially in the US. And nobody has proposed a workable solution.

    The Democrats health care plan merely funnels more money into the hand of rapacious private insurers, while the Republican plan is basically just to make people pay for it themselves. Well great if that helps reduce the deficit but it isn’t much consolation if your medical bills are going to send you bankrupt…

    • Thx RA. The US seems to have the worst of both worlds on health funding. Extremely expensive private health costs and large (higher than Aus as % of GDP) public expenditure on health. They seem like a textbook case of how not to set up a healthcare system.

      • A lot of their health care problems stem from the threat of litigation. Over there you can sue your doctor for millions of dollars if they stuff up, which you can’t do here. Correct me if I am wrong, but in Australia you can only sue for financial loss.

        The vast majority of US healthcare costs go to the insurance companies to cover for litigation. Their people have kicked an own goal, I’m afraid.

  4. no – i don’t think you’re wrong about humanity’s capacity to discount the future for the immediate… i mean 15%+ of the population still smoke daily.

    Re: healthcare – this is the big problem, a lot of health expenditure goes on the rise in ‘lifestyle’ diseases, which are also caused by discounting the future for the present.

    Australia’s big problem is the ‘framing’ of healthcare through the doctor’s lobby (AMA), and through hospitalisation. By making our system so heavily doctor/hosptial-based, and then rationing the pool of doctors, we are guaranteeing long-term increases.

    The majority of life-style disease management does not need to be conducted in a doctor’s consult/ hospital. Unofrtunately the Fed-State issue got in the way of systemic reform, and the current proposals on the table are not as ideal.

    So there is possibility for a reformist program to make change and reduce costs without transformative technologies.

    However, public health initiatives, such as the alcopops tax and smoking still have a roll to play.

  5. Funnily enough I have an experienced nurse at my house right now (friend of wife) who has just written a paper on health care expenditure in Oz. Apparently 40% of public healthcare costs in Australia are spent on 7% of the patients – very unhealthy ones. Looks like it confirms the old 80/20 rule. Scenario 1 is definitely on the cards – punitive measures based on health metrics. We could have an 80% saving if we denied services to the 20% who are unhealthy.

    • I remember reading somewhere that obesity related diseases alone cost the US something like $150 billion a year. Not surprising when you see what they feed the kids in school…

    • “We could have an 80% saving if we denied services to the 20% who are unhealthy.”



      i understand the pragmatism, but that is a nasty culture indeed….

      my 2c

        • Agreed on fiscal realities.

          Agreed on it “going that way”.

          But disagree that is “has to”, or even that it’s the thing that ought to be done, even economically, morally, ethically.

          But also agree that high lifestyle disease-related costs are good for no one (especially those with the diseases!!)…I hear that a deep recession is good for lifestyle diseases, especially obesity, if you get my drift (ie. need for cutting back on excess!)

          Else, i’ll call “Straw Man” on options 😉

          My 2c

          • The whole user-pays/denial of benefits to the “unhealthy” is really just a public service attempt to impose some form of risk cost on the end user. Much the same way I’d pay more to insure my car if it was garaged in Inala vs Ascot. Why don’t the government just get the hell out of the way and allow health insurers to charge differing rates based on their clients health? That’s what insurance is about after all – risk vs premium. Eitherways, health spending is only one problem – welfare spending is an even bigger gorilla.
            Scenario 1 is the only moral solution and the one I want to see happen. Limits on current generations saddling future generations with debt – especially debt which is used to fund services and not capital goods.

    • and i think you’ll find that most of that spend is in the last 18 months of a person’s lifespan as well. As ever-more expensive treatments are used to try and squeeze just a bit more life for the patient.

      if we wanted to re-frame the debate from length of lifespan to quality of lifespan, this spend might not be necessary.

      but, of course, this is a slippery slope to start down.

  6. A fair slab of that pie chart is ‘general government services’ looking at all the other components….makes me wonder what those general government services are?

    • I wondered that too. I presume it;s the costs to actually run the government. Pollies wages, maintenance of Parliament house, propaganda/advertising, electoral commission etc. Anyone else know?

  7. Democracy? I see a transfer of economic policy from elected governments to financial oligarchs who use public borrowings to create an enormous risk-free “market” for interest-bearing loans – QE1 & QE2. This is how financial oligarchies replace democracy.

    Their ideology represents a self-perpetuating system, like a spider’s web of interlocked financial, geopolitical and economic interests who manage this planet, through the creation of a global network of giant cartels, more powerful than any nation on Earth, and through their minions in government, destined to control the necessities of life of the individual.

    The problem with today’s system is that the world is run by monetary systems and not by national credit systems.

    A hidden role of the European Central Bank, IMF, the World Bank, Bank of International Settlement, the Federal Reserve and other financial oversight agencies has been to make sure that the banksters get paid – period.

    An insolvency crisis has been engineered. The consolidation process is underway.

    The endgame is to bring about a single globalised marketplace, controlled by a One World Company structure, financially regulated by a World Bank, and populated by a dumbed down population whose life’s needs will be stripped down to materialism and survival – produce, consume, fornicate and sleep.

    And all to be connected to a global computer system that tracks and records everyone’s move – George Orwell’s 1984 on steroids.

    Depressing huh? I think I’ll have another scotch…

    • Damn Nod, what have you been drinking? Must be gin for that sort of depressing rant. Is your tin foil hat pointy or tri-corn? 😛
      Nah, j/k. But, do you really think the people will let that happen? Look at the middle east – humans may be slow moving but it looks like the concept of ever-lasting tyranny or oppression is not one we like. And when the mob moves, they move quickly.

      • Johnny Walker – Black.

        My take on the middle east is that its being managed. Sure, there was genuine unreast at grassroots level, but let’s see who is allowed/chosen/anointed to step into the vacuum.

        Q, it’s late and I’m nodding off – so I’ll see if I have time tomorrow to write something up about the muslim brotherhood – going from the frying pan into the fire IMHO.

      • upstream from the herd

        Yes just look at the Middle East, black swan event yes indeed, although how Israel did not anticipate it is a worry . Will it end in western style democracy may-be, will Iran’s Mullahs have some new friends on the block may-be. Perhaps some thing in between? Also what sort of time frame?. And finally what of the Saudi populous.
        A long road ahead. Perhaps Q Continuum you are feeling just as Francis Fukuyama did with the fall of the Berlin Wall………….how things don’t turn out as first thought


  8. I have a different perspective – a major part of the responsibility lies with the creditors – Why are they lending money to the government, so that it can spend on populist, non-productive schemes? If you lend, they will spend.
    So, maybe we have a dysfunctional bond market (a “free” market) which isn’t pricing in the risk of a future default, rather than a dysfunctional democracy. Looking from my perspective, those Greek creditors probably deserve the haircut coming their way.

    • Very good point Mav. Maybe the creditors need to go through a painful lesson too. The budgetary makeup of a debtor nation may actually have an impact non the rates demanded. Much like non-conforming loans from the banks carrier higher rates due to the higher risk.

    • it doesn’t help much at all that everyone learns that they will probably just get bailed out – be it by further borrowing (kick the can), austerity or money printing

        • Look, the US already has a debt limit mandated by the Congress – but they have also given themselves the power to keep extending it 🙂

          • And that’s the problem – the politicians will always vote to extend the debt party. If it was a constitutional limit with a very high vote required to amend it, then it wouldn’t be an issue.
            For situations where large amounts of debt are actually required – particularly national emergencies like a war – then a super majority of parliament (say 85%) would be required to declare a national emergency and they could then issue bonds for a set period (say 3 years). Once this period expires it could be rolled over with another majority vote if the emergency was ongoing, otherwise the issuance stops and all future government surplus would go into paying the debt back.

          • But who is going to bell the cat – who needs to enforce a limit on govt debt – it can’t be the pollies themselves – the signal should come from the bond market ( I.e. creditors themselves).
            But the bond market is dysfunctional because it has become a ponzi scheme – the creditors are happy, as long as the government can borrow more and pay back their interest. They are also aware that some supra-national entity or the central bank of the sovereign nation will bail them out, by buying back their bonds and redistributing it via monetization/inflation.

  9. You are right to be asking why things have run off the rails.

    In the developed world, at least, we are all better-educated and better-informed than we have ever been. We have more wealth, more mobility, we live longer and have more choices than any preceding generation. We have better technologies and far more advanced scientific understanding of ourselves and of nature generally.

    Indeed, from a technical perspective, we should be confident that nearly all the problems that confront humanity could be solved within a few decades….illness, disease, pollution, famine, plagues, the afflictions of poverty and deprivation….all these things can be tackled and eventually eradicated.

    We also understand how market systems work, and have all the mathematical and data-handling competencies needed to be able to maintain healthy financial structures.

    And yet, in spite of the many advantages of market-based systems and of large corporate organs, they clearly do not – by themselves – deliver optimal outcomes. We experience a complex of dynamically interacting systems in constant tension, and which now seem to be buckling from the pressure.

    Looked at globally, there is a whole range of factors that contribute to this, from mismanagement and incompetence to corruption and criminality. Consider the gross mis-allocation of private and public capital, speculative risk-taking, over-production, monopolization, price-fixing, gouging, collusion, deception, fraud, tax-evasion, political manipulation and special dealing that we can observe.

    These things speak to the subordination of the public interest – the common good – to the gratification of personal interests. They apply to the private sector as well as to the public sector.

    From my perspective, this goes to the heart of the problem, which is not that we have too much democracy, though it does relate to the vote-buying methods of the major parties.

    In part, we have come to perceive and respond to government in the same way that we respond to other “goods and services” offered to us as consumers. We are conditioned to respond to “best value” messages, and these appeals are shaped to attract us at a basic individual level.

    But this kind of “best value” dealing leaves out the most important element of government, which is to protect and advance the common interest. Individuals are very capable of looking after their own interests, but the sum of private interests is not the same as the public interest.

    We need to re-think politics, and define it as the process by which our common, public and shared interests are defined, supported and managed within a market economy.

    To this extent I am not a libertarian. I have no confidence at all that, left to themselves, the liberation of private interests will lead to anything but gross speculative disorder, exploitation and systemic collapse.

    • Interesting thoughts Dave, especially your first points on how we still screw up despite our advances. Seems to confirm my opinion that humans are just not good at some things (like long term discounting), despite our obvious skills with other endeavors.

      • Yes, humans are hopeless at choosing between the immediate and the longer-term…at discounting for time. I have a suspicion this relates to brain chemistry, memory function and the perception of time. If our problems have a neurological dimension, and can be better understood by research, then we should get on with it.

        We have so many issues to deal with that are essentially to do with compounding values over time…..debt and retirement incomes, urban planning and population policies, pollution and environmental plasticity….we should all get better at understanding and applying logic to these problems.

        • I think it’s to do with our evolutionary origins. When the average life span was 30 years and sourcing food was always a struggle, chasing short-term benefits (i.e. eating when you can and often) would have been the best survival method.
          Totally agree on the education aspect – its the only way we as a species will adapt and improve.

          • Thanks for the link Sidamo. I couldn’t agree more – very, very few people will ever solve an equation with an unknown variable in their day to day lives. However, almost everyone is bombarded with statistics on a day to day basis (GPD growth, odds of a rate rise in August, mortgage rate comparisons, AUD/USD ratios etc). And very few people have the mathematical tools to draw meaningful conclusions from all the stats.

          • I agree, we are animal who have really yet to control our primal urges. Just head to your local sizzler buffet to see it in action.

            But some of this is cultural as well, Australians, like americans, believe very strongly in their rights to freedom and don’t like being told what to do. They have no real cultural perspective on the “greater good” in the way other cultures do.

            This is why we will take short term wins over long term ones. That is why I agree with david when he says

            > To this extent I am not a libertarian. I have no confidence at all that, left to themselves, the liberation of private interests will lead to anything but gross speculative disorder, exploitation and systemic collapse.

            If you become a public servant or politician you don’t suddenly cut out the part of your brain that drives self-interest and the same is true for private industry.

            In fact the big problem politics is that is takes very driven people to survive to get to the top.

            I think that people would like to believe that we could get rid of the government tomorrow and this would somehow solve these problems. But this is simply a strawman argument that neglects the real issue that we are individuals who are hard-wired ( by nature and then culture ) to believe that we are more important than the next person and therefore deserve more. If we were ants, or had a culture that endowed us with “shared vision” we would not have this problem, but we do not.

            Medicine and the medical industry is a example of “self-interest” and person-greed over the greater good. Just look at medical patents, equipment costs, the protectionism around who can dispense drugs, the massive amount of insurance involved. All of these things came about because governments were lobbied not legislate to control them, when they had the power to do so.

    • David,

      “To this extent I am not a libertarian. I have no confidence at all that, left to themselves, the liberation of private interests will lead to anything but gross speculative disorder, exploitation and systemic collapse.”

      People run governments, if you can’t trust people them to look after themselves, then how can you trust them to run government ?

      • Well I think the world has come up with two ways.

        1. By using culture to instil the belief that there is value and reward in providing services for the greater good and that is what government is for. Social democracies of northern europe and japan are good examples of this

        2. Use legislation to protect legislators against themselves when making decisions for others. This is what the rest of us try to do, but as we all know this has slowly been corrupted.

        • The same social democracies, and Japan, that are also heavily in debt and no better off than the rest of the world? Culture doesnt create good government, in fact it creates ‘moral’ imperatives that are the epitome of bad government. Taking the moral high-ground when a nation ‘feels’ like it is wealthy is a major driver of big govt and unsustainable policy.

          Legislative protection only works for a certain timeframe, as you say it becomes slowly corrupted. Look at the current US govt compared to what was envisaged by those who penned the US Constitution. That document may as well be used as toilet paper now.

          IMO one possible solution to healthcare costs is to allow health insurance to be purchased through super funds. If we allow life insurance why not health care?

      • democracy??? were 80% idiots can vote for stupid ideas and 20% who see the light go against and lose, please.

        The Gov. should only concern itself with protecting its borders from invasion and to enforce justice for murder and serous crime. The rest should be all civil and trade between people, and when the big corps FAIL they FAIL everything else is smoke and mirrors. You dont save for retirement or meds then you beg or die. Nothing like knowing no 1 will steal for you to kick you into gear, survival of the fittest. The women wont like it though, they wont be able use politics to get their jobs over men, there alimony payments etc etc.
        Collapse will only be the way forward.

  10. Here’s a suggestion that is probably heresy to your libertarian soul. Give more power to bureaucrats. The Reserve Bank seems to have done a reasonable job. Better than the pollies.

    This means being very clear on what the job of the bureaucrats should be. Eg the Reserve Bank seems to have done fine managing the economy but the pollies have done a rotten one on redistribution.

    An alternative is probably music to your soul. Give voters input into the budget. There are some (extremely limited) experiments in doing this. Workers do run extremely successful enterprises so this suggests that can manage in the long-term. If people saw that their behaviour had direct impact on their lives then their behaviour would probably be more in their long-term interest. (The professionalisation of politics has all sorts of pernicious consequences.)

    • The RBA may be ok (relative to the current crop of political leaders), but they’re not accountable to the voters. And what if we get a string of RBA guv’nors that aren’t terribly good?
      I really do like the idea of giving voters input into how their tax dollars are spent – at least from a moral point of view. It gives some form of legitimacy to the forceful removal of your income if you get to chose where its spent. I would love to see what the makeup of “the peoples” budget would be.

      • I am no expert on monetary systems Peter, but I’ve always wondered why we need the reserve bank to set rates. Why can’t individual banks set their own lending rates, thereby allowing the market to sort out risk premiums.

        • This seems to be one of the problems so called experts forgetting that 1 + 1 = 2, Also Q Continuum you call yourself a libertarian, but I ask what’s the name for someone who believes that the earth is round ? No can’t think of one ? thats because its a reasonably easy to prove fact, and so are the foundations that libertarianism is built on, labels/names can give one the impression that there is no substance to your position just a belief/theory.

          Now some might call that arrogant, but who do you know that would call you arrogant if you insisted that the earth is round ?

          • I know someone who believes in a flat earth used to be called a Zetetic 🙂 I guess political labels are just used to differentiate one persons beliefs from another. When I watch this youtube clip and finds myself agreeing with everything in it – not just pragmatically but morally – I call myself a libertarian.


            If I read the communist manifesto and felt the same way, I’d probably call myself a communist.

          • Q Continuum,

            “If I read the communist manifesto and felt the same way, I’d probably call myself a communist.”

            The ultimate end it would seem to that argument is that there are no absolutes, which is simply not true, at the very least basic truths can be discovered with rational & logical reasoning.

    • Cause & effect, it might seem that the RBA does something useful , but the realty is individuals & businesses can get along quite fine pricing risk without the RBA holding their hand.

      • This statement ignores historical reality. In my (now dilapidated memory) I can recall many instances in Australia where financial institutions have failed to measure and price risk and protect their borrowers, creditors, shareholders and employees against the consequences of managerial greed, arrogance and incompetence. To name just a few:

        Bank of Adelaide
        State Bank of Victoria
        Pyramid Building Society

        Westpac nearly failed in 1987. Bankwest also nearly failed. The State Bank of NSW had to be absorbed by the Commonwealth Bank during the Depression. The history of banking is the story of sailing close to the wind.

        In more recent times, think no further than the sub-prime implosion and the trillions lost because financiers mis-priced and on-sold dubious assets in one vast, swirling game of pass the parcel.

        It is just absurd to say the market will always price things correctly. This is nowhere more obvious than when a panic is sweeping markets.

        In a financial panic, when counter-party risks cannot be known with certainty, when it is not possible to evaluate performance risks, the logical course of action for individual firms is to withhold credit from others. This is a necessary step for self-preservation. But if all firms refuse to accept each others creditworthiness at the same time, the market will literally cease to operate. Defaults will ensue almost immediately and widespread collapse will be irresistible.

        We know this from repeated events going back many centuries in many places and involving many players. The logic is always the same.

        And because the State is the only party that can act “from above and from outside” to intervene during panics and restore stability, it is absolutely in the public interest that State agencies regulate the supply of liquidity and, therefore, are involved in pricing risk.

        The relevant agencies are central banks. They supply credit and underwrite order in the markets with public assets, performing functions that no privately-owned entities acting in a competitive market could ever duplicate.

        For example, in 2008, when the overnight credit markets in Europe almost ceased to function, a similar set of events unfolded in the foreign exchange markets. For a few hours in September 2008, the forex market came close to disappearing entirely because the market participants were refusing to accept each others’ promises on settlement, even on the most short-term (daily or overnight) obligations.

        Only the actions of central banks and Governments – supplying liquidity and driving down risk premia, using guarantees of taxpayer-funded capital support – averted a complete catastrophe.

        These events are so recent that we are still feeling their aftershocks. It is totally extraordinary that tax-payers, who for many years will have to deal with the costs of these events, now think the problem was with “too much” government.

        The problem was not enough prudential control – not enough attention to greed, incompetence, criminal deception, negligence, corruption and outright theft.

        Even this country, which was essentially debt-free, now has debts that we have to pay off because the financial markets were permitted to initiate a chaotic circus of speculative asset-creation.

        We need to get a lot tougher on the private players in financial markets and act to protect the interests of ordinary taxpayers.

        • Alex Heyworth

          An excellent and perceptive contribution, david. It is easy to forget just how close we were to a complete meltdown. Easy also to criticize central bankers for being too easy on their profligate colleagues in the merchant banks, while forgetting how little time they had to decide what to do. Decisive and immediate action was necessary, even if it sometimes went too far.

          Agree also on the need to get tougher on the private players, although perhaps it is time to revisit the separation of banking into the vanilla and high finance strands again.

        • …at the same time, all of this comes within a paradigm of Central Banks dictating the price of money…

          So, “interference” is also at the heart of the system itself.

          Hence, one has a good case to assert that, sure, private entities will (and do) make mistakes, but that they are heightened when the private entities cannot even influence the very economic “stuff” they fundamentally deal with: money.

          Personally, i think boom and bust would still happen in a more “free” system (eg. where a single Central Bank does not dictate the price of “money”), but i do think they would be shorter and sharper.

          My 2c

        • “Only the actions of central banks and Governments – supplying liquidity and driving down risk premia, using guarantees of taxpayer-funded capital support – averted a complete catastrophe.” it hasn’t stopped the catastrophe just postponed it, the financial institutions you mentioned should all have been consigned to the dust bin of history, in the real world failure of that sort means bankruptcy allowing competent businesses to arise from the ashes.

          The governments of the world are hell bent of selling the illusion that life is risk free, i.e if they just make right laws everything will be a OK.

          • “……governments of the world are hell bent of selling the illusion that life is risk free….”

            I don’t know that this is the case, in fact. Rather, what I see happening is an assault on the idea of government itself. The argument is advanced that government is “too big”, that it is “wasteful”, that it is itself the source of instability.

            These assertions are throw-away lines – ideologically comforting nostrums, dispensed at a time of very deep uncertainty and anxiety. Sad to say, we all have reason to feel worried about our situation.

            We have very real problems to face….not so bad here, perhaps, but when looked at systemically, there are real problems which should (and do) trouble people.

            Governments all around the world now find themselves with unexpected and intractable fiscal problems at a time when they most need policy flexibility.

            Taxpayers have to accept they will have to work for longer and pay more tax for longer, even as the expected demand for retirement incomes and age-related services are growing.

            The interplay of technological change, demographic trends, trade liberalization, shocks to the financial system, rises in both public and private savings and the collapse of the global property bubble are driving down consumption and employment creation across the industrial world. The return of high unemployment that we have observed looks likely to become entrenched and prolonged, and is a really terrible thing for those who will be affected by it.

            The problems of environmental destruction, pollution and resource scarcity are now very real and getting worse year-by-year.

            We have run up against some real very obstinate system constraints and people are reacting in a variety of ways….with public violence (in Greece), protest (in Spain and Britain), revolution (in Africa and the Middle East), taxpayer revolt (the USA) and talk-back radio lament (Australia).

            In Australia, people have clearly lost confidence in the current Government, and, in a sense, with the public policy process more generally. This is disconcerting, because the problems we have really can only be dealt with by the applying our collective energy, intelligence and wisdom.

            At the end of the day, I think we are still all experiencing after-shock. We have had a tumultuous few years….9/11, war in Iraq and Afghanistan, the GFC….and people are afraid of the future.

            It is no wonder people latch on to populist, ideologically convenient ready-to-wear slogans handed down from both the left and the right.

            They just do not go very far towards guiding us out of the really difficult situation in which we now find ourselves.

          • Yep David – Agree with RA – some really good points.

            There does appear to be a generalised assault on the very idea of government, brought about by all you mention and indeed actions of governments themselves.

            Flawed yes, overly bureaucratized certainly, nanny statist unfortunately – but I haven’t seen a better system yet!

        • What is wrong with allowing problem institutions to fail? It is the risk and reward paradigm which allows markets and private companies to function well.

          Creating a govt sponsored backstop in the form of a central bank simply removes the incentives for private institutions to correctly price risk, and properly manage risk. This moral hazard is a serious issue in the financial sector and is largely there as a result of central bank intervention in the financial markets.

          The too big to fail paradigm has now been entrenched through the additional levies in Basel 3, those entities now know that they will be bailed out if they get into difficulty. They also know that they will remain in business afterwards, given what has happened to other TBTF entities following bailouts.

          You point to 2008, yet you fail to recognise that the entities that were in trouble in 2008 would likely have failed long before they became systemically important if prior govt bailouts of companies had not occurred. It is govt intervention which has allowed the TBTF companies to grow to their present size and become a danger to the global economy.

          Central bank and govt intervention is only necessary because of the ‘markets’ they have created.

          The system that we now have is not the system that we must have.

  11. We get the government we deserve.

    “I will reduced the deficit by cutting taxes, and your entitlement will be safe because it’ll all come out of government spending”. For anyone with a rudimentary grasp of mathematics, the numbers does not add up. Most voters however prefer to vote for ‘wishful thinking’.

    • I agree Ronin – democracies in the long run always end up with what they deserve or vote for. Trouble is, a rudimentary grasp of mathematics ain’t all that common and peoples short term nature will probably override their rational choices even if they did have that grasp. I am not down on humans – I am a humanist by any measure – I just think we need to acknowledge the common trait and modify our system of government to account for it. Much the same way we have created representative democracies, knowing that majority/mob rule would inevitably lead to persecution/disadvantages for the minority. The next step is an evolution away from generational economic rule disadvantaging the future.

  12. Nod it is not Orwell’s 1984. It is Aldous Huxleys ‘Brave New World’ It’s worth a read!

    • Flawse, I’ve read both and yes there are also many elements of Brave New World.

      Both George Orwell and Aldous Huxley were privy to the future world that was being shaped.

    • There is nothing “modern” about that, been that way since man first put the first dodgy leaf in his mouth …

  13. The US has one of the highest debt levels but one of the smallest public health and social welfare schemes, whereas as you pointed out both CAnada and Australia are bucking the debt trend whilst both of those countries have significant ‘socialised’ health and social welfare support. To me this contradicts your argument completely.

    Also, would you include the significant amounts of corporate welfare in your argument? Ie the subsidies paid to coal, mining, car production etc, not to mention the recent bank bailouts. Seems to me it’s not just ‘the people’ with their snouts in the trough…

    • Hi Many

      Australia and Canada do buck the trend, as I pointed out in the article. I find it very interesting and in Australia I believe it’s a result of a cultural expectation that governments will run balanced budgets. Why this has occurred here and not in, say, the US I do not know.
      I am not trying to label humans as pigs at the trough – just highlighting what seems to be a common trait that we need to acknowledge and account for. And I am not passing judgement on public vs private expenditure on health – just pointing out that having it grow quicker than your economy is not a sustainable situation.

  14. My view is that big government consumes excessive resources, creates uncertainty, increases compliance, and generally reduces liberties (look at Canberra and see how’s it’s grown in public servants alone – the housing sector there rarely has a large downturn). Most of the outcomes are not in the best interest of the citizens. Regarding health, the cost of drugs plays a large part, and the cost factor to some degree is due to the economic system we have. A friend of mine says the drug companies invent the poisen, and then sell you the cure.

    If politiians were paid on the productivity of their policies, and their pensions depended on it, things might change.

    I don’t know the answer, but I think politics is broken, and our monetary system allows the bankers, and politicians to benefit at the expense of most of us.

    I agree that nothing will be done until we see a massive crisis which might not be that far off. INET has been setup to look at a new monetary system, but it’s been driven by th same people who profit from this one, so I have no faith in that. Likewise the IMF/G20 are looking at a SDR based system, and probably a similar outcome reading the IMF study papers.

  15. Wow
    Only three Canadian Clubs

    The solution to your problem is simple!

    Take a trip to Malawi, or Algeria, or Burma.

    Try some of the local booze.

    You’ll be straight back on your Canadian Clubs
    But seriously we have it pretty good here. Sure the Government is a bit nutty and the RBA has stuffed things in the past I remember well.

    But we are travelling well overall.

    Maybe Bob Brown will solve all. ie less economic growth, more tax, less population growth (like that one!)

    Ah well have another club

  16. “…..big government consumes excessive resources, creates uncertainty, increases compliance, and generally reduces liberties ….Most of the outcomes are not in the best interest of the citizens….’

    This View just ignores the fact that the dominant players in our economy are very large corporations that usually form part of oligopolies – that is, large private players that can and do influence prices and act to secure their own commercial advantage, to the detriment of small enterprises and consumers alike.

    Think of retailing (Woolworths, Metcash and Wesfarmers), banking (the 4 pillars), insurance (just 2), resources (3 mega players), energy production (a few only), chemical manufacturing (2 or 3 only), retail property (a couple)…to name just some.

    If anything, we need to break down the market power of the corporates. The only means to this is an activist government. Unfortunately, we have a weak, populist, unstable and talent-free Parliament and a feeble, under-confident and shallow Government.

    • Alex Heyworth

      The counter view to your concern about oligopolies is that first, a small number of players in each of the markets you mention is more efficient and second, that these days we are all part owners of the oligopolies and hence benefit when they profit.

      It is possible to see the effects of this in the ways large corporates are governed – for example, the idea of a triple bottom line, the emphasis many of them place on green energy, and the encouragement of staff involvement in charities. To be sure, this is to some extent just PR, but the fact remains that they think it is necessary to be seen, at least, as good corporate citizens.

      • Think of tobacco products. Were it not for the exercise of legislative power in the interests of consumers and taxpayers, and contrary to the private commercial interests of a handful of tobacco companies, it would still be legal to actively promote and market a lethal product to the general community, including to unsuspecting and vulnerable young people.

        I think it is easy to find examples of public waste, mismanagement, partiality and ineptitude. They are, sadly, common enough. And yet, there is still plenty of work carried out by public agencies that benefit the community at large. In health, education, science, transport and communications, public safety and order, banking and finance, environmental protection, the protection of private property, the provision of judicial processes….the list is very long….it is easy to find state-sponsored activities that serve our wider economic and social interests.

        It is certainly true to say that a modern state cannot function without these constructs. The problem is that while we all benefit from the supply of these (essentially non-marketable) goods and services, nearly everyone would like to exempt themselves from contributing to the cost of supplying them.

        We have a culture that thrives on finding, obtaining and defending personal economic advantage….even if that means becoming a free-rider.

    • David I agree, but I didn’t go into the many aspect that are wrong so thank you for expanding on it. Look to where the politicians go when they retire, and it’s like you say to the corporations, and a few nice directorships based of the help they gave them while in power.

      There is lots of regulation, but it does not seem to be directed to help the SME’s or citizens, so I still think the politicians have a lot to answer for. Look at the Future Fund and the reason for it’s existence and that is another one for the public servants, and politicians; what about the public?

      In my life time I don’t remember a government with so little talent. I don’t believe there is any care or responsibility by the politicians so that’s my gripe.

      • I’m with you, Adrian.

        The current government is just deplorably short of elementary political and administrative talent. They even make the Opposition look electable.

        No wonder consumer confidence is down!!

    • Your view here is that people are powerless in the face of oligopolies. This is a consequence of people that have grown up assuming that someone else will protect them and look out for their best interests.

      Thats simply not true. the Woolworths and Coles duopoly comes to a grinding halt if they piss enough people off to boycott those stores (look at Israel, a 3 week boycott saw a 70% dominant player forced to reduce prices…the people still have the collective power, not the corporations).

      The 4 pillars exist because they are protected by the government (directly through the 4 pillars policy, the deposit guarantees and indirectly due to the barriers of entry into the banking industry for new competitors). Without govt policy, a pillar bank could collapse tomorrow if they piss enough people off to force a run on the bank.

      Energy production is heavily govt regulated, the same goes for pretty much any industry you care to name that has dominant large players. When you investigate you see that those industries are often dominates by large players because govt policy encourages that to occur.

      The supposedly massive corporate power that these companies enjoy is generally a myth in any consumer facing industry. It does NOT take govt intervention to “break down the market power of the corporates”. Consumers that organise and act render a monopoly, duopoly or oligopoly powerless pretty damn quickly.

  17. Alex Heyworth

    @Adrien, although government frequently does function as a tragedy of the commons, with those in power lining the pockets of their supporters at the expense of society as a whole, occasionally we get a change of power which results in a wholesale cleanout of the stables, such as occurred following the election of the Howard government in 1996. In Australia, at least, these occasional cleansings have tended to keep the excesses of big government in check.

    • In a democracy with 3-year terms it seems sensible to give a new government time to develop and implement new policy….it seems to be difficult to develop comprehensive policies from opposition without support from the govt bureaucracy.
      Two terms should be enough for a govt to do something…useful or otherwise.
      But no govt should be retained past 3 terms, because by the third term all sorts of powerful vested interests have learned how to lobby/influence/bribe/extort what they want from govt and have set up the personal networks necessary. Breaking those linkages periodically is good for democracy. As someone once remarked…..politicians are like babies nappies, they should be changed often, and for the same reasons.

      • Well I suppose so, but how do know if the new politician doesn’t already have a soiled nappy on ?

    • Thanks Alex. I hope we have one soon as this government are in the process of infliction severe economic conditions on the country. It will be too late when China/India etc. source their minerals from Indonesia, West Africa, Brazil, etc.. I can tell you it’s happening now. Yet they continue to spend money like the boom is here for good.

  18. Thanks Q,

    Interesting article but I disagree with your hypothesis on one of the possible scenarios
    ” 3. New technology will eliminate many of the lifestyle diseases that suck up healthcare dollars, thereby reducing health expenditure dramatically. This will only delay the inevitable though as welfare spending expands to take up the budget vacuum”

    In a ideal world where businesses don’t make money from new technologies, perhaps. However the problem is that these new technologies are very expensive to develop and to purchase for health care providers hence significantly increasing the cost of health care in the long run. There is no cheap magic pill or contraption to fix health care woes.

    Secondly, with the advent of new technologies they become the “norm” and people begin to expect them. No longer does the old piece of equipment, which was relied on for decades seem to do the trick. People “need” the new and improved fandagled gadget. Hell I always want the latest and greatest. But this comes with a very expensive price tag. Catch 22.

    • Also, reduced healthcare expenditure won’t matter in the long run. The welfare budget is twice the size, so it’ll just take up the slack.

      • We could make a dent in the welfare budget, but not until people abandon the illusion that the minimum wage laws are economically sound.

        • That depends on how much of that “welfare” budget would go to unemployed people, surely? what about the baby bonus, family tax benefits etc???

          Plus the pensioners. A bit simplistic to blame the increasing welfare budget on unemployment..?

          • Well I did say a “dent in the welfare budget”, but your right plenty of other things to reduce or get rid of completely.

          • You could remove the baby bonus and the family tax benefit then replace them with tax deductible child expenses and you could put a huge dent in the welfare budget.

            It would also lower revenues but it would make sure any tax benefit of having children is spent on children alone.

          • Why have any tax breaks for children, that is something i have never understood, apart from it is the majority position so an easy target for pollies …

          • Frankly, I agree. Children, for love surely, not money. No doubt somewhere in recent times is comes back to that other glorious saying “no child shall live in poverty”…what can you expect in “the Clever Country”?

            The ideal is worthy, the execution ad hoc and largely ineffectual in regard to the target group i.e. children.

        • Minimum wage laws economically unsound.. LOL

          The most sound feature of an economy is the median aggregate demand over the business cycle.

          Countries that are still economiaclly sound, Germany, the Scandanavian countries, Australia, still have rather high minimum wages.

  19. > The endgame is to bring about a single
    > globalised marketplace, controlled by a
    > One World Company structure, financially
    > regulated by a World Bank, and populated
    > by a dumbed down population whose life’s
    > needs will be stripped down to
    > materialism and survival – produce,
    > consume, fornicate and sleep.

    Yes, that’s the name of the game that has been played for over half a century. Check out this very well researched paper

  20. If you drink CC, you need to get yourself a bottle of Crown Royal, a glass, 3 ice cubes and hide the mixers.

    Also, once the bottle is a memory the velvet bag comes in handy for storing the 1Oz AU coins.

  21. Democracy is a pathetic belief in the collective wisdom of individual ignorance.

    Democracy is also a form of worship. It is the worship of Jackals by Jackasses.

    Democracy is only a dream: it should be put in the same category as Arcadia, Santa Claus, and Heaven.

    Democracy is the art and science of running the circus from the monkey cage.

    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

    A good politician is quite as unthinkable as an honest burglar.
    H.L.Mencken (all of the above).

    H.L. Mencken: “The only way to look at a politician is down.”

    For every complex problem there is an answer that is clear, simple, and wrong.

    And last but not least:
    Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.

    • Sean, what knowledge or foundation do you use to judge who is normal ?

      “Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.”

    • Sounds like a Mr H.L Mencken is quite the authoritarian, with the belief that none are better suited for demonstration than he.

  22. Interesting post Q. Has made me realise my thinking on these issues is (and remains) muddled, at best. I would rather live in a country with an adequate medical and welfare system but believe both require some incentive to adopt personal responsibility – exactly how I’m not so sure.

    Two personal anecdotes: Elderly relative, diagnosed at 80 with NHLymphona, given three years as a quide – should be relatively pain-free until final 3-6 months, any pain issues would then be managed. However, encouraged by oncology specialist to undergo chemo to possibly ‘extend’ life. Result, died 83, seriously ill for bulk of the three years – pneumonia, cross infections, blood transfusions etc, numerous emergency ambulance trips, intensive care several times, long periods of hospitalisation – you get the idea. All for nothing. He still died within the three years and completely lost quality of life. Of great concern to me was that this treatment was recommended by the relative specialists and taxpayers footed the entire bill. Every penny. No questions asked.

    Some are making a very handsome income out of this type of thing. But what am I saying, restrict treatment to certain individuals, unless they can pay for it themselves? Not really. It is very difficult to arbitrarily dictate a position. I don’t want a society in which only the wealthy can afford medical treatment.

    The second, at a recent family function, a cousin mentions that her ‘pay’ is hard to get by on, I listen with interest as this young woman has never worked in paid employment but does have five children (single parent, no fathers around). She receives close to $60,000 a year – Parenting Payment, Family Part A&B, Carers Allowance, Rent Assistance (plus Health Care Card) – not a bad income for an uneducated never employed person – of course equates to somewhat more in terms of a taxpaying person. Again, what is the fix. The children concerned are delightful and deserve no financial penalty, but surely a welfare system should be weighted toward encouraging responsibility and not dependence. I do think our current welfare system errs on the side of generosity, not incentive. But how to fix?

    Having lived in countries in the developing world with no health or welfare apparatus to speak of, Australia does have a system worth preserving (but perhaps not extending) and refining with an eye to future obligations on coming generations. Ensure the welfare system provides some safety net but does not become a permanent alternative to work. Provide an adequate health system but all ‘extras’ (physio, psychiatric and psychological, speech pathology, a whole raft of disciplines) are required to be insured against.

    Paying a fair level of tax seems to be entirely appropriate to provide an adequate level of support to both these areas, but the proclivity for endless growth must be addressed.

    If this is your ATM receipt, none of these issues matter!

    • Hi 3D. The whole palliative care/life extending treatments issue is a whole other can of worms, let alone what levels of welfare are appropriate in society and in what forms. I guess that debate will be played out on a national scale as the election years role by. Maybe in next weekend’s musings I’ll ask what people would want to see their tax dollars spent on – should be an interesting exercise.

      • Sounds like a good exercise Q. Looking forward to that one if you get around to it.

    • >Maybe in next weekend’s musings I’ll ask what people would want to see their tax dollars spent on

      Well they could cut the defence budget in half and it wouldn’t do much damage. I think we spend far too much on defence and too little on real security: education and energy independence.

      But that’s for another musing too hey QC?

    • Montgomery Burns

      …but surely a welfare system should be weighted toward encouraging responsibility and not dependence…

      er, nope. Governments of all flavours cultivate a culture of dependence as a policy objective.

  23. Another massive problem with our political system here is that each minister does not require experience or knowledge in their respective portfolios.


    The word “unqualified” comes to mind.

    No wonder politicians are often described as incompetent, liars, wasters, delusional, stupid, etc, and are so easily influenced by “analysts” reports! What chance have they got!?

    I believe our democratic system would work so much better if policies were debated on their factual merits by informed people in a scientific manner (proven facts), instead of the misinformed/bs opinions & spin doctor rubbish we have had for far too long.

    • Agreed, and I much prefer the Cabinet system used in the US, but its nowhere near perfect.

      It worked better in the 1800’s when US government ran somewhat like China….

      Something to be said for that.

      • Ministers were never meant to be practitioners, the only requiement to date in the attorney general. They are meant to be people’s representatives making inquiries to nominated experts.

        It is why we created government departments, of expert practitioners.

        As far as the U.S in the 1800’s, pfft, what are you basing that on.

        I am currently reading a book on the civil war, the 2 weeks prior to that I read a biography of Andrew Carnegie. Both have insights to the wrking of 19th century American politics and I wouldn’t paint them in a bright light.

        The best idea of cabinet from the information I can recall would be Bismarckian Germany.

        With the vacuuous ability of Wayne Swan, we now have the RBA exercising some considerable degree of independence, probably unparalleled in Australian history, of a NFP bureacracy. The answer perhaps may be found here.

      • My position is that a cabinet must be able to satisfy a ‘skills matrix’ type requirement whereby the cabinet ministers collectively have the skills and experience to manage the country, and below that any minister must have some relevant skills and experience that demonstrate a capability for running his/her portfolio.

        if its good enough for boards and executive management it must be good enough for the govt. Or are we happy to have unqualified morons telling us what to do?

        • Are you of the opinion the vast majority of boards are based on skills matricies of the candidates?

          • It can depend on the industry. Within finance (ie banking, insurance) a board certainly would be using a skills matrix to ensure that they collectively have the required skills and experience.

            I’d expect large companies in other industries to do something similar.

            for super funds, i wouldnt expect it to be the case esp where you have representation rules.

  24. In Scenario 1 you mention nanny state forcing people to be healthier, but will this reduce health care costs?

    The evidence on smoking seems to indicate no (http://www.ncbi.nlm.nih.gov/pubmed/9117967). Smokers (and I’ve never smoked in my life) contribute 3 times in extra smoking taxes than they ever receive back in extra health care that they need in their shorter lives.

    • I think the large reduction in the number of smokers has helped reduced smoking relating healthcare costs though – unless someone has some stats to show otherwise. And that’s come about through a massive government-lead drive to stop people from smoking or helping them to quit.

      • And that illustrates the difficulty in defining the role of government – I dislike the nanny statist tendencies but welcoming the reduction (if proven) in healthcare costs. It is incredibly entangled.

        • Especially when they start picking on your chosen poison … canadian club for example …

  25. Democracy is about assigning rights to ourselves (through laws) for which there is no basis in reality, and these rights are over other peoples property (money), in the beginning it all sounds good, defence, law enforcement, basic welfare etc, until finally we run out of other people to take from and we end up with …….. Greece !

    The solution then is to severely restrict our ability to pick someone else’s pockets. There is a word in the english language its called Charity, and Australians have shown many times that when they see a need such the recent floods, bush fires, tsunamis that they can still give generously despite our crippling high tax’s.

    • Taxation is the price of civilization, without which ‘private property’ cannot exists. Greece is an example of what happens when everyone in the country deicde to not pay their tax. The people being ‘hit’ are the foreign lenders to the Greece government rather than the Greek taxpayers. Tax avoidance is the national sport there.

      Australia have a very low rate of charity donation as a percentage of GDP compared to the rest of the world. For events lke the recent flooding, Australians raised about 270 millions. The cost of recovery is abour 5.6 billion. It is nowhere near enough.

      • Ronin, I didn’t say no taxation, this is a quote from 3d1k above –

        “The second, at a recent family function, a cousin mentions that her ‘pay’ is hard to get by on, I listen with interest as this young woman has never worked in paid employment but does have five children (single parent, no fathers around). She receives close to $60,000 a year – Parenting Payment, Family Part A&B, Carers Allowance, Rent Assistance (plus Health Care Card) – not a bad income for an uneducated never employed person”

        to me that’s outrageous, after tax and working long hours I would be lucky to make that much, to me it’s legalised theft.

        • Care for a solution?

          No welfare means children suffer whilst in her care.

          Do you perhaps advocate removal of children from her care?

  26. Sally Periwinkle

    Don’t know if this has been mentioned above, however Australia’s supposedly “trend-bucking” public debt should also include 1.5T+ private mortgage/bank debt – ie well in excess of 150% GDP. As was made clear in October 2008, this supposedly private debt will become government debt in an instant.

    • Hi Sally

      Actually, I was only looking at government debt and expenditure in the budget. The fact is most of the other countries in the OECD also have big private debt issues (the US and UK being prime examples). So Australia still retains it’s relatively superior position debt-wise because we have only one sector (private) in big debt whilst other nations have both (private and public).

      • Sally Periwinkle

        OK, so “relatively” superior – but given the problems elsewhere, “relative” strength is not exactly a comforting assessment. Also, looking at the falling quality of infrastructure and public services in Australia, I’d argue Australia’s “trend-bucking” debt has come with a very real cost that is not reflected in the official stats.

  27. Governments at all levels using debt to finance recurrent expenditure, should be outlawed. Its absolutely outrageous that they are allowed to get away with it. Wake up voters

    • LOL, sorry dude, economics FAIL.

      Revenues of all types, let alone government revenues are not consistent.

      Government has automatic stabilisers that offset anything in the short term, and if one was to approach government eh same as a private company, not having debt would be a lazy balance sheet.

  28. ‘until western governments face a Greek-style crisis’

    that’s the advantage of floating exchange rates isn’t it?

    Party hard on the the borrowings then renege on the debts and drop the value of the currency.

  29. > Damn Nod, what have you been drinking? Must be
    > gin for that sort of depressing rant. Is your
    > tin foil hat pointy or tri-corn?

    Well, it’s easy to dismiss claims like the ones above from the Nod but do some serious research and read about Social Psychology (e.g. E. Aronson), social system modelling (e.g. Lotka-Volterra models), modern propaganda (E. Bernays) and other social engineering tools. It’s a subtle long term and sneaky game that goes well beyond blunt fraud perpetrated by Milkens, Maxwells and Madoffs of this world and usually it’s all legal. The fact that the very institutions that caused the GFC have come out of it strengthened should really make us ask some serious questions.

    At a 1991 meeting of the Bilderberg group, David Rockefeller was quoted as saying:

    “We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost 40 years. It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But the world is more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.”

    Source: Gordon Laxer, “Radical Transformative Nationalisms Confront the US Empire,” Current Sociology (Vol. 51, Issue 2: March 2003), page 141.

      • It’s not a problem when they say it. The problem is when they use their fortunes and influence to implement what they say. Even if their intentions are not explicitly evil the unintended consequences are and a lot of people living in the US, Europe, Middle East are the victims and we will likely join their ranks in not so distant future.

        • so they’re the modern day kings/queens. big whopty-do. Tell me one place on the earth that is without this type of influence in a civilization???

          • There’s probably none but it doesn’t mean that you should not be fighting for your rights and at least trying to keep things in check. That’s what democracy is supposed to be about.

          • but that’s what this article is about. How democracy isn’t working.. so you’re saying we should keep fighting for our rights that ultimately don’t work?

  30. What about discussing Democracy where I believe a purer workable form does exist. Switzerland

    Mind you their is the large cultural difference of people working together for the common good.