Pearls and Irritations

Australia has just completed major reviews of two of its largest public expenditures – the NDIS and Employment Services. Each program manifests problems predicted by two lesser-known economic theories: the Jevons Paradox in the case of the NDIS and Goodhart’s Law in the case of employment services. Neither were mentioned in either review.

Today I will discuss the Jevons Paradox in relation to the National Disability Insurance Scheme (NDIS) and tomorrow, Goodhart’s Law in relation to employment services. These theories provide insights into the non-linear and often unintended nature of policy impacts, underscoring the need for nuanced, well-thought-out policy design and implementation. In public policy, simplicity and good intentions are no substitutes for thorough analysis and adaptive, comprehensive strategies. Unfortunately, there seems to be a persistent gap in acknowledging these subtleties, leading to oversimplified and misguided policy initiatives.

The Jevons Paradox is an economic theory originally about coal consumption that suggests that as technological improvements increase the efficiency with which a resource is used, the total consumption of that resource may increase instead of decrease. This counterintuitive outcome occurs because the efficiency improvement makes the use of the resource more attractive, leading to an increase in its demand. Freeways are a well-known example of the Paradox, as explained in the Australian documentary series Utopia.

When applying the paradox to the NDIS, it’s crucial to adjust the context. The NDIS aims to support people with disabilities, enhancing their access to essential services and resources. In this scenario, the “resource” is the support and services offered by the NDIS and “effectiveness” is a more apt term than “efficiency,” as it underscores the significance of meaningful outcomes and quality-of-life improvements, rather than merely increased service usage or provision.

The Jevons Paradox suggests that making these services more effective has resulted in their increased overall use. This is evident in several ways:

1. Increased Access and Demand: As the NDIS became more effective, its accessibility broadened, leading to higher demand for services from a more diverse group of people with disabilities.
   2. Expansion of Services: The improved effectiveness also led to the inclusion of previously unfeasible services, expanding the scope of what the NDIS offers.
   3. Awareness and Utilisation: The NDIS’s greater effectiveness raised awareness about its benefits, encouraged more people to utilise its services leading to higher overall consumption of resources.
   4. Quality of Care: Importantly, an increase in service use doesn’t necessarily lead to a decline in quality. More effective systems result in better outcomes for users.

While the concept should not need explaining, more people with disabilities receiving more of the services they need is a good thing. If you don’t understand that, the best I can do is pray for your soul. I do not know a single person with a disability who wants to return to the days before the NDIS, despite its many shortcomings.

The application of the Jevons Paradox to the NDIS highlights a critical oversight in policy planning and execution. The scale of the increase in demand for NDIS services, a direct consequence of improved accessibility and effectiveness, was seemingly unanticipated, pointing to a lack of foresight and understanding of first principles by those in charge.

Furthermore, there is a worrying tendency among politicians to misrepresent or oversimplify complex issues for political gain. The recent review of the NDIS, has been described by some as an example of the Tragedy of the Commons, rather than the Jevons Paradox.

The Tragedy of the Commons typically refers to a situation where individual users, acting independently according to their own self-interest, behave contrary to the common good of all users by depleting or spoiling a shared resource. This is not applicable to the NDIS, as the resources are not being depleted by overuse in a shared environment, but rather are being utilised more due to improved accessibility and efficiency. This misrepresentation serves multiple political agendas:

1. Budgetary Constraints and Resource Allocation: Politicians often use the Tragedy of the Commons narrative to justify cuts in funding, under the guise of preventing resource overuse.
   2. Shifting Responsibility: By blaming users and providers for overusing services, politicians conveniently deflect attention from systemic issues and their own failures in program design and management.
   3. Simplifying Complex Issues: The Tragedy of the Commons, a concept easier to grasp for the general public, is often employed to reduce multifaceted issues like those surrounding the NDIS to a simplistic narrative of scarcity and overuse.
   4. Justifying Policy Changes: Politicians exploit the perceived overuse of services to impose stringent policies, often without considering the real needs of the affected populations.

This approach reflects a lack of genuine engagement with the intricacies of policy implications and a preference for politically expedient narratives over thorough, effective policy design. Such a stance not only undermines the effectiveness of significant programs like the NDIS but also demonstrates a disconcerting disregard for the complexities of managing public resources and services.

The neglect of in-depth analysis and the propensity to opt for politically convenient narratives over substantial policy understanding are significant shortcomings in the current political landscape. This not only hampers the development of effective public policy but also raises serious questions about the commitment of politicians and public servants to genuinely serving the needs and interests of their constituents.

Read the second part of this series:

Goodhart’s Law and the overlooked complexities in Australia’s employment services sector

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