$60b in The Age

I don’t know about you but when I sit down for breakfast and look at the front page of the newspaper I don’t expect to see some ‘economics professor’ telling me in 100 on or so words what to spend $60b on. But that is just what I saw in The Age this morning [reproduced over the fold].

Actually, I can’t complain about an opinion piece making it to the front page. But the thought did occur to me that I might have spent a little more time on it had I known where it would end up. I wrote those thoughts in spare moments taking care of three kids this weekend.

It was originally, three hundred words. These two opening paragraphs were cut:

This election has a unique combination of good economic times plus an incumbent government in peril. So, usually, there isn’t much money to dole out in promises or no need to because the incumbent is safe, no such restraint exists today. Consequently, the next government has committed to at least $60 billion has been promised in tax cuts and new spending. Given the unique political environment this time around, there is good reason to believe that this amount may not have been wisely spent.

That said, chances are that two thirds of it are on stuff governments would have done anyway. So that means about $20 billion is money that we have committed to spend in the next five years rather than leave it to future generations. Now it could be that people don’t care too much about those generations. But if we weight them more evenly, as I think we should, then any money we spend should be an ‘investment’ of some kind.

Also, cut was the reference to my 2004 book with Stephen King, Finishing the Job, that outlined the policies in more detail.


What’s the best way to spend $60 billion?

Joshua Gans, Economics professor, Melbourne Business School

The Age, 21st November, 2007, p.1.

THE best investment we could make would be to tackle the reforms that would be most challenging politically. These are reforms that generate large efficiencies but which also create significant losers. For instance, water conservation: we have to price water appropriately, but that means a significant group, the farmers, will be hit hard. We should spend money on compensating the farmers for their losses.

Money should be best spent “greasing the wheels” of reform. To address housing affordability we need to recognise the many people – home owners – who don’t want house prices to fall. To cut traffic congestion by a congestion levy, we need to recognise the effect on those with longer trips to work and low incomes.

And to allow governments to spend on public education and public health care, without blowing out budgets as people move out of the private and into the public system, we need to align funding for such services with consumers’ freedom to choose.

These are all areas where there are big economic pay-offs, small but significant losing constituents and where some free-flowing cash might just save the day.