Home » The dangers in using the wrong policy tools for the jobs

The dangers in using the wrong policy tools for the jobs

Take social media. In his terrific new book, The Anxious Generation, US social psychologist Jonathan Haidt makes a compelling case that phones and phone-like devices such as video-game consoles and computers have led to a range of harms to adolescents, ranging from the loss of physical play and “attention fragmentation” to sleep deprivation and self-harm.

It isn’t just some academic curiosity. It has tangible costs and can be downright dangerous.

These are serious issues that deserve our attention.

But even distinguished commentators have conflated harm to our kids from phone-like devices to the Australian media bargaining code and forcing Facebook to both operate in Australia and pay to do so.

Worried about kids being depressed? Answer: shake-down Silicon Valley tech companies and send a cheque to Rupert Murdoch.

It would be comical were it not for the fact that senior politicians nod their heads in approval.

In banking, Morrison may have fired the starter’s pistol on the Slick Willie Sutton era of bank taxation, but not only is the levy still in effect, there are calls to increase it.

Treasurer Scott Morrison explains his bank levy at the National Press Club in Canberra in May 2017. Stefan Postles

The dangers of bad policy

Setting aside the specious claims by smaller banks, the best argument for the levy is that government provides an implicit guarantee to banks in the event of financial distress.

There’s truth to that – our banks are too big and too interconnected to be allowed to fail.

But the right way to address the implicit subsidy is to require banks to hold more capital and to place limits on the kinds of proprietary trading that led to the 2008 financial crisis in the United States.

And, of course, we already do these things.

A special bank tax either weakens bank balance sheets by sucking money out of those capital buffers, or it gets passed on to customers, making home loans and other products more expensive for ordinary Australians.

Using the wrong policy instrument isn’t just some academic curiosity. It has tangible costs and, in the case of banks, can be downright dangerous.

Making a fetish of manufacturing

Speaking of dangerous, there’s AUKUS.

There’s some dispute about the strategic rationale for nuclear-powered submarines – made most forcefully by former prime minister Paul Keating.

But let’s stipulate, for the sake of argument, that the military rationale is sound.

Why does that inextricably lead to Australian manufacturing of the submarines – in which we have zero experience, expertise or comparative advantage?

The answer appears to be that this government makes a fetish of manufacturing – especially in swing states like South Australia.

Labor even bemoans the loss of the profoundly uncompetitive domestic motor vehicle industry, loudly proclaiming that the Liberals goaded the car industry to leave.

It’s closer to the truth to say somebody finally got fed up with throwing good money after bad.

Prime Minister Anthony Albanese’s central argument for his “made in Australia” industrial policy is a subtle variation on an eight-year-old’s standard defence for bad behaviour: “But they did it first.”

Inflated blame on supermarkets

And then there’s the supermarkets. Against the backdrop of a cost-of-living crisis brought on by high inflation, people have been looking for a scapegoat.

Ignoring the role of our economic geography, and with largely evidence-free assertions of so-called “greedflation”, calls to break up Coles and Woolworths have emerged from both sides of politics.

This would destroy economies of scale and almost surely drive up prices for consumers.

A more sensible position is being progressed by Craig Emerson, but even he wants to mandate a code of conduct that involves vague concepts of “fairness” in bargaining with suppliers.

Yet the most compelling recent evidence on how supermarkets hurt consumers comes from a somewhat overlooked part of a report produced by former ACCC head Allan Fels, which points to the use of techniques from the poker-machine industry to confuse customers and manipulate their purchasing habits.

The best remedy is arguably more vigilant enforcement of misleading and deceptive conduct, rather than trying to determine what a “fair” price for blueberries is.

Policy tools matter

In all of these instances, we would do well to remember that the reasons our leaders give for doing things matter.

We shouldn’t tax or regulate this company or that industry based on popularity, but rather when there is a sound economic rationale for so doing.

Similarly, the policy tools we use matter. When we use the wrong policy tool we can’t expect to achieve the stated goal, but we can expect something to go awry.

I know politicians need to have a narrative. Tony Abbott had his three-word slogans – “axe the tax”, “repay the debt”, and “stop the boats”.

Albanese has “a future made in Australia” and “we want people to earn more – and keep more of what they earn”.


But details matter. Public reasons matter. And using the right policy tool for the job matters.

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