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Testing the means-testing debate

This article forms part of an ongoing series looking at economic issues as Australia heads into the Federal Election. More coverage can be found on the Election 2013 page of ESSA’s website.

One of the greatest accomplishments of the 20th century was undoubtedly the conceptualisation and implementation of what has become known as the ‘welfare state’. The term is generally not used in any exact way, rather in a vague and imprecise manner with an overarching theme of the government having a degree of responsibility for the health and social well-being of the population.

Broadly speaking, the two extremes of the potential function of the welfare state are universalism and selectivism. Universalism, as the name suggests, refers to universal access to welfare programs regardless of an individual’s wealth. Selectivism is the opposite, with welfare ‘means-tested’ and distributed based on an individual’s needs.

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Planning for a Soft Landing

Like most debates that enter the political sphere, the discussion around the demise of the Australian car manufacturing industry is plagued by emotionally charged falsehoods, meaningless rhetoric and ideological blinkers. A more impartial analysis suggests that while there is a case to be made for the free market to take its course, the human cost of the broader structural shift demands attention.

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The Economic Cost of Child Abuse

It is often said that an affluent society is best judged by how it treats its most vulnerable citizens. This honourable barometer tends to bring to mind notions of charity and generosity rather than a contemplation of the broader social benefits of investing in the underprivileged. When in fact, expenditure directed towards the disadvantaged has far-reaching economic and social returns that often go unconsidered.

Funding for addressing disadvantage is too often placed in the basket of ‘social programs’, which gives the community the erroneous impression that it has nothing to do with the economy. However, as proponents of the proposed National Disability Insurance Scheme will tell you: it’s not about philanthropy, it’s about investing in people through empowerment and participation.

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Gold Class Animal Spirits

In his 1936 book ‘The General Theory of Employment Interest and Money’ John Maynard Keynes outlined how rather than being independently rational, investors were often prone to erratic herd-like behaviour. He argued that macroeconomic stability is inherently vulnerable to the ‘animal spirits’ of speculators. The recent deflation of the post Global Financial Crisis (GFC) gold price bubble is a prime example of this phenomenon.

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The Perverse Incentive of the AFL Draft: Rationally Uncompetitive

On February 19th, the Australian Football League (AFL) handed down the third biggest fine in its history of $500,000 to the Melbourne Football Club. The fine was the result of a seven  month investigation into allegations the club took deliberate action to lose matches toward the end of the 2009 season. This was done to guarantee priority draft picks under the draft arrangement that favours poorly-performing teams. Two coaches found to have been complicit were also handed down lengthy suspensions. Deliberately losing games is colloquially called ‘tanking’, and has been a subject of discussion for AFL pundits for nearly a decade. The football community has reacted to these sanctions with bemusement, and rightly so. The club is being heavily penalised for what is ultimately a rational response to the perverse incentive the AFL unwittingly designed.

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