Garnaut on interests groups

Distinguished economist Professor Ross Garnaut has joined the current debate of the government's resource super profit tax.

Garnaut is one of the most respected economists in Australia and has my highest respect both personally and professionally.

His argument that it is now dangerous time including a danger of powerful interest groups dominating and influence public policy making, though has merits, raises some questions.

In abstract and theory, public policy should not be influenced by special interest groups and should be made in the national interests as opposed to special interests of some groups.

However, the problem is that how one defines special interest groups that are most fascinating.

For example, Garnaut appears to imply that the voices from current mining companies represent voices from special powerful interest groups, and Treasury does not.

One may ask Garnaut some questions in relation to this:

1. is the Treasurer not a special interest group?

2. is the prime minister a special interest group?

3. why is Treasury not a special interest group?

4. is he not a special interest group, given that he was the author of the PRRT and the chairman of a mining company whose assets are overseas and is to benefit from a higher Australian tax on mining in Australia?

5. what about the wastes in the build education revolution programs and some other programs that the current government has got them seriously wrong and had been particularly reluctant to acknowledge and to correct until it become absolutely untenable?

6. what if the Treasury has got the theory, modeling and parameters wrong?

7. what if the mining companies are correct in their arguments?

The upshot is: while it is easy for people to argue a case using a theoretical concept and construct, it is not always clear that argument is relevant or correct or not in particular circumstances, such as the current RSPT.

Rudd needs to heed warning from Garnaut

Comments on Michael Stutchbury “Garnaut warns PM on stimulus”, 9/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/garnaut_warns_pm_on_stimulus/

Garnaut is a highly reputable and respected economist with experiences in advising the highest office in the land. His view on the government stimulus is pretty much spot on.

Having said that, I personally think that some of Garnaut’s view may be questionable, like those about structural deficit and adjustments in Australia in the near future. That argument is convenient to put, but ignores the nature of the fact that government and consumers have imperfect information.

Now let’s get back to the government and Rudd. The main problem with the Rudd government is that the Prime Minister has a narrow and distorted view of the economic history of the past 30 years, as reflected in his essay in the Monthly in February 2009.

While the great financial crisis and the great recession shows some problems with ineffective regulations or supervisions in the US, especially the mal-practice of sub-mortgage lending and excessive gearing, it is far fetch to say it is the consequence of neoliberal economics in everywhere.

It is unclear whether Rudd really interpreted the economic history incorrectly or merely uses the crisis as an excuse to implement big government and strong government interventions. Different causes may have different consequences.

If he wrongly interpreted the history, then there is a chance that he may realise it one day and correct it.

If strong government interventions are his belief, then there is little hope that he will get the government’s economic policies and some other public policies right. And that would be a pity.