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2010-12-14

Banks' sole criterion of policy reform too bare!

Comments on Michael Stutchbury “Lucky country can't bank on populist reforms”, 14/12/2010, http://www.theaustralian.com.au/business/opinion/lucky-country-cant-bank-on-populist-reforms/story-e6frg9p6-1225970526451
Michael, while I agree with you the Swan banking reforms are not real reforms but popular political treatments that will worsen consumer welfare in total, I do have some issues with the following criterion of reforms put forward by the Productivity Commission Chairman (to quote from your article):

'Last week, Productivity Commission chairman Gary Banks suggested that policy changes should only count as "reform" if backed by compelling evidence that they were the best option for improving productivity.'

Productivity is and should be only a part of overall consideration. Even though it could be an important consideration, it should not be the sole criterion for reforms.

For example, if the productivity effects remain the same and there are other significant benefits (say social distribution) under a policy change, it would be an important and worthwhile reform.

One has to understand that there are trade-offs between different policy objectives and productivity is but one of those objectives.

In that sense, what Banks argued was a partial approach and could be argued as an unhelpful argument or lobby by and from a special interest group, although I do not mean that Banks really had that intention. He might have been either in a different context or misunderstood.

What do you think?

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