Perceptions are everything


Those who know me are aware that I do a fair bit of travel around my home state for my employer. As my home state is Queensland, a considerable component of that is air travel as, for example, Brisbane to Cairns or Mt Isa is around the same flight time and distance as Brisbane to Melbourne in a 737. (As a side note – it’s actually a bit sad when you and your colleagues at work sit around at lunch time and knowledgably discuss which Queensland airports have the best cafes, or the smaller hire car queues!)

Sitting in yet another regional airport terminal recently waiting for yet another delayed plane got me to thinking about perceptions. Don’t get me wrong, I would much prefer a plane to be late so the ‘issue’ can be fixed. If nothing else, it increases the chances of me as a passenger falling to the ground in a controlled manner at the hoped-for destination where there are things like stairs to get me out of the metal tube, as well as amenities, somewhere to buy a coffee, connections with ground transport and so on. I’m equally happy when the pilot tells me that the landing is going to be delayed due to fog or other aircraft in the area – I’d much rather the pilot being able to see the runway they are planning to use and not hit another plane on the way down.

The other day, the plane was delayed about one and a half hours with no real explanation why the plane was late except ‘an engineering issue’ and ‘late arrival of the operating aircraft’ (after a half hour delay on the way there the previous morning was due to fog) and while most of those waiting had a conversation with someone on the other end of a mobile phone about delays, there was no real anger or adverse comment made by or to those around me in the airport waiting area.

The next morning, I went into the office on the local bus service. The bus was a few minutes late, which caused considerably more adverse comment than the plane delays I had encountered the previous few days. Obviously, there are certainly more buses on the roads in Brisbane than planes owned by both Virgin Australia and Qantas. As a result, there is a greater chance that the bus will be late than the plane. But the perception is that airline delays are forgivable (if not expected) while your local commuter transport service; be it a bus, train or ferry, has to be there on time every time.

Admittedly, keeping a plane in the air probably requires greater technical skill than keeping a bus on the road (although with the state of some Brisbane roads you would wonder how a bus wouldn’t shake itself apart), but in the case of the bus, the delay was only a couple of minutes and even in the worst case, there would have been another bus trundling past sometime in the next 15 to 30 minutes.

Drawing the relative perceptions out a bit more, most public transport delays are in reality safety issues. The service providers don’t make money if their vehicles are sitting in the depot, regardless of the vehicle being a 737, a suburban train or a commuter bus. Yet, if an airline service runs late or is cancelled there is little real concern as there is clearly a safety issue. If a bus or train is cancelled or doesn’t run, it is a competence issue. Just as I would prefer to fall out of the sky in a controlled manner at the pre-planned arrival point, I would prefer not to be on a bus that loses a wheel on the highway at 100kph or a commuter train where the external doors won’t open and shut on command.

It’s the same with Treasurer Morrison’s ‘good’ debt and ‘bad’ debt. It’s a perception thing. At least the Abbott era ‘all debt is bad’ argument seems to have been taken down a dark alley and quietly disposed of, but the current framing of the discussion is not much better.

While Morrison and others call funding welfare payments through debt as ‘bad’, if you were the recipient of a welfare payment funded through debt, you would probably consider it to be ‘good’, as at least you would have some funding to keep body and soul together. If you don’t need welfare payments and have little regard for those who do, you could argue that welfare payments shouldn’t be funded by borrowings (if indeed they are).

By the same token, those who believe that any government funding of infrastructure is a ‘good’ thing will support the government borrowing money to build a 400km (or thereabouts) rail line from the Galilee Basin to Abbott Point in Queensland so that Adani can ship it’s coal out of the country (assuming the mine is ever built). Those who believe that the proposed Galilee Basin mine is too big, greenhouse intense and supporting a dying industry would tell you that the proposed funding of the rail line is ‘bad’ as the money could be better used to fund renewable energy investments or other income producing infrastructure.

As Jessica Irvine points out in the article linked above,
the idea of distinguishing between "good" debt and "bad" debt is silly for several reasons, the primary one being that it's impossible.

If you think for even a moment about how taxes are collected and spent in this country, it's immediately apparent that all taxes get poured into the same bucket, from which they are spend [sic] on different things.

No taxpayer is given the option, when filling out their tax return, to assign a particular dollar of tax to a particular purpose, be it welfare to support fellow Australians or building railways.

It all goes into the same pot.
Irvine goes on to give her perception of ‘good’ and ‘bad’ debt
In reality, whether infrastructure spending is good or bad depends entirely on whether it's spent on productivity-enhancing investments, like a much-needed railway which relieves congestion on roads, or wasted on pork barrelling in marginal electorates.

Similarly, spending on education can be either good or bad, depending on whether it goes on things that genuinely enhance learning outcomes, or things that don't, like reducing class sizes beyond a certain point.
If there is a shortfall in the funds available for such work, clearly the government is not charging enough tax, the mechanism it uses to gain money from its citizens.

However, Modern Monetary Theory (MMT) would suggest the Australian Government has no debt anyway as it can issue as much money as it needs to pay for all goods and services it consumes. Before celebrating the potential for no taxes should MMT be introduced, The Washington Post (link at the beginning of this paragraph) suggests
This doesn’t mean that taxes are unnecessary. Taxes, in fact, are key to making the whole system work. The need to pay taxes compels people to use the currency printed by the government. Taxes are also sometimes necessary to prevent the economy from overheating. If consumer demand outpaces the supply of available goods, prices will jump, resulting in inflation (where prices rise even as buying power falls). In this case, taxes can tamp down spending and keep prices low.

But if the theory is correct, there is no reason the amount of money the government takes in needs to match up with the amount it spends. Indeed, its followers call for massive tax cuts and deficit spending during recessions.
While a currency issuing government (in our case the federal government – not state or local governments) can issue more currency to fund the difference between income and expenditure, households and business cannot. Households have all their financial eggs in one basket, have beliefs, wants, needs and cultural norms, and make decisions on spending and borrowing according to those criteria. While you may consider borrowing money to go on a holiday is a ‘bad’ choice, your neighbour may decide it is a ‘good’ choice that warrants adding to their debt. Neither you or your neighbour are necessarily right or wrong, you just have different perceptions. However, if a household or business continually spends more than it earns, sooner or later they will face bankruptcy as households and businesses cannot issue currency (unless they want to be convicted of fraud).

Treasurers back to Costello have played with people’s perceptions to make the claim that the government bank account is just like a household bank account claiming that the federal government also needs to be spending less than it earns while conversely offering tax cuts to various groups of people.

Morrison’s claim that there is ‘good’ and ‘bad’ debt is just another attempt to justify social engineering to benefit the LNP’s core constituency while penalising the less well off. It is perception management, pure and simple. And, as we are talking about perceptions, your value judgement of the government’s ‘good’ debt expenditure is probably different to mine, despite the expenditure coming out of the same ‘bucket of money’ as the ‘bad’ debt we are continually conditioned to despise.

What do you think?
Let us know in comments below.

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Comments (3) -

  • lawrence winder

    5/14/2017 10:52:26 AM |

    last para... it would be interesting to push this ruling rabble to actually explain why they do the things they do and then compare the results with their rhetoric and then ask them to explain their failure....

  • totaram

    5/15/2017 5:43:17 PM |

    "Treasurers back to Costello have played with people’s perceptions to make the claim that the government bank account is just like a household bank account claiming that the federal government also needs to be spending less than it earns".

    Actually, Keating also believed it, which is why we had the "recession we had to have".  He didn't really understand that floating the AUD and having the RBA in place meant we now had a fiat currency. You can't blame him much because it was all too new at the time. But Howard/Costello, with their "debt truck" and "surplus budgets showing fiscal responsibility" carried on the charade. And Wayne Swan still believes it no doubt, after promising to "bring the budget back to surplus", only to look a fool.

    The coalition will continue to prop up the lie, because it serves their masters' interests.  Unfortunately, most of Labor have failed to grasp that this can be their winning strategy.  Of course, they need to go softly, in case the coalition with the aid of the MSM make them look like "loonies". I still feel that using the simple arithmetic of the 3 sectors financial identity to deflect attention from the govt. debt and focus on private debt is the way to go. But who am I to know?

  • 2353NM

    5/16/2017 7:33:47 AM |

    Thanks for the comments folks.

    The 'loonies' argument works well - look how the Greens have been treated over the years.  I would like to think that somehow, politicians will be held to account but I can't see it happening any time soon.

Comments are closed