No matter where you go or who you talk to these days, you are bound to run into a planner. Whether they are a private developer, private consultant (read: government consultant), a state officer or a local council worker, they are everywhere. Each and every one of them is armed with a seemingly endless list of buzzwords and hollow rhetoric such as the inappropriate use of words like “sustainability”, something David Friedman aptly described as “…an argument against whatever policies one disapproves of, in favour of whatever policies one approves of, and adds nothing beyond a rhetorical club with which partisans can beat on those who disagree with them”.

Planners are not bad people; in fact, I count many amongst my friends and generally feel that their views on “planning issues” are the result largely of an unfortunate monopoly that the government holds both on education and the career prospects of anyone who wants to get into development of any kind, especially urban and transport development.

This unfortunate fact means that we are almost certain to keep repeating the mistakes of the past. Decades of relying on government central planning for infrastructure provision – while I cannot speak for other States, Western Australia has operated with centrally directed, top-down detailed land-use and transport plans (the latest of which is Directions 2031) for decades, all of which bear a striking similarity to the 5, 10, 20 and 40 year plans once envisioned by the 20th century socialists – has created countless dilemmas that are being resolved with yet more intervention and top-down planning.

The favourite way to achieve these “smart growth” plans is through zoning. The Economist recently reminded its readers of one of the most fundamental of economic laws in response to a typical ‘planner’ comment expressing concerns about “allowing unlimited rapid development”:

…no one disputes that there is a value to preservation. Yet when private firms and individuals transact voluntarily, we understand that there is value creation, too. This value creation plays an important role in economic growth, and our presumption should be in favour of allowing such transactions to take place…The burden of proof should be on those who would intervene to prevent voluntary, mutually beneficial transactions and disrupt private spillovers. Otherwise—and empirical evidence supports this view—society will tend to get too few value-creating transactions and positive spillovers.

I know by now I may sound like a broken record, but the “problems” that are everywhere and will continue to be everywhere cannot be solved with more of the same “planning”. Today it is encouraging density or so-called ‘smart growth’, yesterday it was all about keeping business and residential districts apart. The only thing in common is that it is the same organisation – government – calling the shots. The “problems” are then institutional; people are acting within the rules to which they must abide (today’s planners) and are repeatedly producing poor outcomes because the payoffs for good outcomes are simply not there.

My theory is that it is because (primarily) the institution of private property has been eroded by decades of zoning and other restrictions on land use. The price system in most scenarios has been either completely distorted or is not existent (e.g., transport). People are no longer allowed to cooperate with each other to achieve efficient outcomes and instead must resort to constant bickering and political lobbying as they try to force their own subjective values onto others’ – something that, aside from their time, they do not have to PAY for. The result is that the local government, planning commission or politician is used to enforce subjective views at no cost to the individual or group lobbying for change but at massive cost to unseen people (e.g., people who want to move into an area but cannot afford to because of onerous zoning regulations driving up land prices).

My thoughts are that a lot of the “problems” that need to be “solved” would be taken care of spontaneously if prices were allowed to convey the knowledge needed to make ever-changing trade-offs. If we get the institutions right, a lot of work that today’s planners do – they are generally smart, articulate people – could be better used adding value in the private sector creating things that people actually want. A continuation of the policy of solving government-created problems with government regulation will simply further restrict important market coordinative information and will result in decisions that will always appear to be poor in any ex-post analysis.

As someone once said, it is always easier to believe narratives about heroic leaders than about complex self-reinforcing political and economic systems. Instead of repeatedly calling for someone with the right “vision” or “leadership” and consequently a further erosion of property rights and the coordinating function of the market (“leaders” will always need more power to enact their “vision”), the focus should be on getting the institutions right. Until that happens, any ad-hoc attempts to “solve” society’s “problems” with new commissions, new powers, better plans or bigger budgets will be like “groping in the dark”.

If you have been unfortunate enough to catch the daily news on one of the mainstream media networks you will no doubt at some point have seen a snippet of our country’s parliamentary proceedings. Parliament is currently preoccupied with the issue of the Medicare rebate – a 30% discount on the price of private health insurance. The government wants to – and, now that they have bribed the Greens and independents with a sufficiently large amount of your money, will – remove the rebate for so-called¹ high income earners.

The justification is one we must suffer every day from those on the left (and those on the right seem almost afraid to challenge the notion): removing the discount for so-called high income earners will create a “fairer” distribution of income. For example, Health Minister Tanya Plibersek went to pains in one session to remind MPs that their health insurance is subsidised by lowly-paid workers like those who clean the parliamentary chamber at night².

First of all: is it? Are lowly-paid workers, such as the chamber cleaners, actually subsidising highly-paid workers? Given that the entire public health system is financed through tax dollars and that the rebate is also financed with tax dollars, then clearly the people subsidising it are, you guessed it, the so-called high income earners. These people pay significantly more tax than so-called low income earners and when government transfer payments are factored in then the so-called lowly-paid workers actually pay negative taxes (Figure 1; Figure 2).

Figure 1: Estimated taxes as a percentage of gross income, by quintile of household-weighted weekly gross household income, 1996-97 (Source)

Figure 2: % Share of Australian Taxes Paid (Source)

Transfer payments are one of the worst kinds of economic inefficiencies. Arthur Okun noted that “…the money must be carried from the rich to the poor in a leaky bucket. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich”.

I certainly do not support the rebate in its current form but I would also be reluctant to call for its abolishment. We have a tricky situation created by the government’s guarantee of public health care – a guarantee it clearly cannot back up (unless you think rationing, i.e., queues, are a good way to distribute healthcare) – that, it would seem, has created a very real need for some incentive for people to voluntarily opt out of that Ponzi scheme (even though they still have to pay for it). The rebate therefore goes some way to alleviating a problem caused by the initial regulation by keeping people on the margin out of the public healthcare system.

A better solution than the 30% rebate would be to reverse the trend of more government to solve problems created by government, reduce the tax burden of public healthcare and get the government out of healthcare altogether. Government is the reason why healthcare is so expensive and why the so-called poor cannot afford insurance. It is the reason why there is a need for tax rebates to keep people out of the public system in the first place.  

Unfortunately, if we are being realistic the chance of removing government control of health in a modern social democracy is virtually nil and therefore the rebate should stay less we want longer healthcare queues and poorer service for the chamber cleaners. I leave you with Robert Lucas on the issue of “fairness”³ as defined by the Labor party:

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution…But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.

[1] I use the term ‘so-called’ because I disapprove of segregating society into two arbitrary classes of people.

[2] I believe the logic behind this apparent ‘subsidy’ is that because the chamber cleaners likely do not have private health insurance, they are missing out on, ahem, “subsidising” the 30% rebate that the ‘rich’ enjoy. Let us just conveniently forget that the subsidy is paid for by taxes anyway (of which the ‘poor’ pay very little if any) and that the entire public health system – that the ‘rich’ do no use much of – is paid for out of the same taxes.

[3] I would of course opt for a different definition of what is ‘fair’: equality of opportunity (equality before the law) rather than the current definition of equality of outcomes.