Government Insulation Program an Exercise in Fraud, Waste and Incompetence

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On that subject of the insulation scheme, we have refrained from saying on a word on it out of respect of the many people who have lost their homes due, apparently, to faulty installation of the insulation. And of course, there is the far more serious and tragic fact that four young electricians died installing insulation in the government-generated boom.

Most government programs are laden with fraud and waste and incompetence. But most are not generally lethal, at least not directly. You could argue the Welfare State has been killing hope and real economic change for years.

But it is truly stunning that a $2.5 billion program designed to put insulation in people’s homes (a dubious program to begin with) actually killed four young Australians…and no one has had the courage to link the bad policy with the tragic result.

Think about that again – the death of four young people is directly linked to government policy – and no one has been fired, lost a job, or held accountable for it at all. If, for example, four diggers were killed in Afghanistan after being sent on poorly planned mission, what do you think the coverage in the media would be like?

We’re not having a go at the current government here. We’re having a go at complacency about the costs of an expansive and intrusive and meddling know-it-all Nanny State. Not just this Labour government either but ALL government. The idea that make-work programs to spend money in a Keynesian fashion are cost-free and benign is a fraud. They are not.

In fact, these ambitious and modest “government initiatives” alike, from healthcare to insulation are always and everywhere prone to just this kind of result. Policy makers might feel smart and morally superior spending other people’s money to produce “outcomes.” But the outcome is never what you expect, and usually worse.

Economically, when the government pours money into a market, it distorts all the incentives and leads precisely to this sort of hazard. In this case, the fact that it offered a rebate to install insulation attracted a lot of new installers. Whatever happened next – who knew what and when – is still unclear. But how it all started couldn’t be clearer – the government decided to blow $2.5 billion because it thought it ought to do something about the economy and this was a casual, victim-less way to do it.

It did something alright. And four people died. That’s a fact. And hundreds of Australian houses may now have electrified roofs. Millions and perhaps billions more will have to be spent to remedy the problem.

If you believe that government spending creates prosperity, then you could rationally argue the faulty program is actually a net economic benefit (despite the death toll) and a huge success. You could argue that it’s making more work for uninstallers and electricians who will have to go back and fix things. And then there are all the extra man hours for inspectors to make sure it’s all proper.

This is perfectly rational under the logic that spending money is good to stimulate aggregate demand. As long as people are busy, no distinction is made in the GDP figures between production and destruction. It’s all work all the same.

And to follow it through to its logical conclusion, we suggest the government hire an army of unemployed Australians, pay them money to bake bricks, and then march through the streets of every CBD in every capital city in Australia breaking as many windows as possible. Think about how much prosperity that would create!

Just remember, the government can never create wealth. It can only take money from one person and give it to another. You can argue, and many on both sides of the political spectrum do, that government ought to redistribute wealth in order to achieve “desired social outcomes”. Elections are held to put these propositions to the people for a vote. But even if the result is democratic, it certainly doesn’t result in wealth creation.

More on Australia’s production possibilities frontiers and how to save the country from a gradual decline into a Statist nightmare in tomorrow’s report. We’re off to Perth to see the boom first hand speak to a room of libertarians about why they should all be institutionalised. Until then!

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. So you blame the social program not the profiteers and general shysters.

    Now that is political dogma not rational argument.

    The merits of the plan were egalitarian and a practical attempt at injecting money into a sector of our economy at a time of deminishing demand.

    Kensian by all measure.

    That some took the opportunity to misuse and abuse this ‘industry safety net’ does not mean that the whole project was duff.
    The solution now is to improve society further by prosecuting those not meeting safety standards and making them significantly poorer than before they started their scamming, and to utilise those trustworthy providers, to remedy the mess they have left.

    Surely this is a simple concept to appreciate Dan. Both pragrmatic and non-dogmatic.

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  2. The Commonwealth Government will be sending electricians to check out the safety of insulation installations in regard to possible electrical faults causing more fires or injuries/deaths. Homeowners going through this inspection may find the electrician involved being obliged (to preserve his licence) to note the integrity of their electrical wiring and may report it as being faulty altogether. End result is some pensioner thinks he’s getting “free insulation” but ends up with having to get his house re-wired costing $10,000 plus.

    Would have been cheaper to send everyone in Australia a wool jumper which would keep them warm and at the same time help the wool industry. They could have also put a “KR” or “ALP” monogram on each jumper just so we would remain accordingly obliged whilst enjoying that warm, fuzzy feeling that comes from enjoying other people’s/generation’s money.

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  3. The fact that you look only at the supplier’s problems and not the governments also means you aren’t approaching the topic openly Joe. Garrett was sent warning messages numerous times by people in the industry that the way they were installed was wrong, and that sending people with minimal training into these scenarios was likely to result in deaths. By right, he should be charged with criminal negligence resulting in death and grievous bodily harm (to those “lucky” ones that merely became severely dehydrated).

    The government has also stuffed up with the education revolution. There was extensive evidence of rorts there. My father works at a school at the Gold Coast, $1000 job was invoiced for over $3000. Months later, similar incidents hit the news. If the government creates the situation where the profiteers and shysters (as you put them) can charge far more than what the job should cost with a low chance of detection and punishment, why do you hold they should not be accountable?

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  4. I have a read for DD and fellow travellers if they have the time when travelling.

    http://www.aph.gov.au/house/committee/scin/pathways/subs/sub76.pdf

    It is worth the comparison with an article in today Business Spectator titled “The ‘postmodern economy’ was a con” by OLIVER MARC HARTWICH

    ie: The UK’s ‘creative economy’ looked great while a thriving finance industry propped it up.

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  5. Very interesting reading, Ross… especially the appendices.
    Explained a lot I’d wondered about. :)

    Biker Pete
    April 8, 2010
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  6. Could be yet another insulation incident – two dead from house fire:
    http://www.news.com.au/breaking-news/national/house-which-caught-fire-killing-two-had-government-insulation/story-e6frfku9-1225851568791

    It is being hyped up as an insulation story at the moment.

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  7. I sympathise with your anger at the deaths of young workers in a poorly executed programme, but your generalised damnation of Government is itself a fraud.

    The US health system, run by, and for the benefit of corporations is not just a fraud it is a criminal conspiracy. But even closer to home. The NZ government some years ago accepted industry assurances that they, not it, knew best how houses should be built and that then current regulations were intrusive and over-protective.

    Since then we have built thousands of homes and commercial buildings using “monolithic” wall construction using untreated timber.

    The net result is what we are pleased to call “Leaky Building Syndrome” which has seen thousands of families damaged, finances ruined, a few suicides and almost guaranteeably poorer health among those forced to live in these monstrosities.

    Aside from that, the repair bill will come in around 11 Billion dollars and possibly affect our credit rating for years to come. Of course the lawyers and those responsible for this fiasco, the building products companies, have done very well out of all those houses whose construction was designed to improve profits rather than adequately house their owners. said companies will also do very well out of the billions needed to fix the problem, much of it at government expense, either through direct subsidy or through loss of productivity, wealth and life among the general population.

    Not to mention the many deregulated finance companies that have gone broke, taking the savings of many more New Zealanders with them, almost certainly among them people who might have been able to afford to repair their leaky homes with the money now burned on Ferraris, Bling and grandiose “developments” by the entrepreneurs now still very comfortable in their family-trust-owned homes.

    We need risk takers, we need governance to limit the damage risk takers do. That means we need government which is, if nothing else, the insurer of last resort with effectively unlimited liabilities.

    Unless we understand that, we get to about where we are now. Screwed.

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  8. I had my two br flat insulated three years ago for about $650.

    My brother had his three br villa insulated around the same time for about $800.

    I was very tempted to got a quote to see how much would cost under this rebate programme.

    I work for a company that supplies furnitures to BER builders. Very high prices. I would not use them if I were doing my own houses.

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  9. Does anyone think the Government carefully planned anything before they started to toss money around? I continue to be a critic of the governments spend-a-thon and the pink batts debacle highlights how bad things are. Anyway I have already ranted on this subject back in February: http://www.shareswatch.com.au/blog/opinion/pink-batts-a-revived-federal-opposition-and-an-election-year/ a company executive who carried in like

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  10. Greg: “Does anyone think the Government carefully planned anything before they started to toss money around?”

    Well, there certainly was a knee-jerk reaction to impending chaos, Greg. Remember that we had prophets-of-doom barking Armageddon; the northern-hemisphere imploding financially; even our own foolish shire councils bleating major losses because their incredibly stupid CEOs bought professionally-packaged AAA-approved parcels of toxic debt.

    Despite the F-ups, the deaths caused by fly-by-night insulators, the school covered-area debacle and other screw-ups, most respondents here: a.) still have a job; b.) have savings accounts intact; c.) are in far, far better financial shape than their counterparts in the NH. Best of all, our property markets escaped relatively unscathed. :)

    Mine dew, if your life choices _demand_ that you live in Melbourne or Sydney, your future is probably a little dicey at the moment. ;)

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  11. Rudd said he acted ‘decisively’, I think ‘panic’ would be more accurate.
    He had no idea what he was doing, a total wally.

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  12. Joe: “That some took the opportunity to misuse and abuse this ‘industry safety net’ does not mean that the whole project was duff.”

    You know you’re right, when you score eleven Thumbs Down here, Joe. :)
    It was a well-meant, but rushed plan, administered by a rock musician who who should never have been trusted with it; a plan which fools and shysters hijacked in numerous instances.

    And, if as Rob suggests above, fly-by-night electricians were also complicit, earlier, they also need their a$$e$ kicking. :(

    Biker Pete
    April 10, 2010
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  13. John I reckon the demand for our commodities mainly from Asia is the main reason things have held up well in Oz although the government spending/handouts also kept the economy ticking over that is for sure. I guess what we need to ask ourselves is: are we are willing to accept waste as part of the price we have to pay to keep our GDP numbers looking pretty?

    But back in 2008 most people seemed to be overcome by panic as you pointed out. According to this site we were heading for another Great Depression, paper money would be worthless and capitalism was on the brink of collapse. So I guess you cannot blame poll driven politicians from trying to keep the masses happy..at almost any cost.

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  14. Maybe Rudds a smart fella Bertie. Wit the perfect excuse (the GFC) he supercharged our “ticket clipping unrealistic levels of consumption”(plagiarising from a Ross post) style economy with 100B plus in debt to date with gravy galore for everyone now which is maybe why hes always grinning. Since the rest of the world is in so much more deficit spending type trouble than here Im sure we’ll see plenty more spending, grinning and claims of still doing better than everyone else.

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  15. And he got to do it very soon after taking office for maximum advantage. Dream run for Kev.

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  16. And it just gets better and better….These doggy insulation installers are now contracting electricians to inspect “their” doggy installations (they have the list of clients that need the inspection obviously) and getting the $400 inspection fee courtesy of the Government (me and you) and then (after reforming as a new company) carrying out the removal and re insulation.

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  17. @ Earl: The point made in the article is that the government doesn’t make money, it takes money from us, the taxpayers, then blows it on projects which seem to be more for them to show they’re doing something rather than something which will really benefit us in the long run, or to paraphrase Marcus Aurelius, they’re confusing activity with industry. That ties into Dan’s point, that GDP isn’t an indicator of industry, it’s one of action. The action may be constructive or destructive, doesn’t matter. So to waste money and energy purely on rising the GDP is detrimental, as money better spent elsewhere is blown purely to rise the GDP. In the long run, that clearly can’t be the best way to use taxpayer’s funds.

    To respond to the issue you raised, the answer in both situations is the same: Those who omitted or commited acts, and in so doing are likely to have harmed another should be charged and face the court. As I said, Garrett ignored advice which led to deaths. In your case, the government omitted to properly oversee the industry. So as well as the “shysters and profiteers”, those bumblers at the top should face the music, not be exempt because they are part of the government.

    @ John: Australia’s property market is a bubble only held up by continued government interference. Just because our time hasn’t come doesn’t mean it won’t. Does this mean our compatriots up north can crow at us when we crash? Or will it simply be a case of misery loving company? Yes, we got lucky, but luck doesn’t last forever.

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  18. “…simply a case of misery loving company…”

    Says it all!~ :)

    Biker Pete
    April 11, 2010
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  19. Gary,

    I have not avoided blame where it is due. I understand that warnings were given regarding this program and the risks being exposed. I understand that government accountability is warranted due to the failure of over-sight. Garrett subsequently should have resigned, not be demoted, sacked if he didn’t go, but, that is shifting the blame away from the absolute source of this dangerous situation.

    Irrespective of the good intent of the policy, or the failures to anticipate the worst in human nature tainted by human greed, the fault lies with the installers. They willfully profiteered at the expense of peoples lives, either their own employees, or their customers.

    There was a legal framework within which these companies and organisations were required to operate in. That they chose not to for profits sake, is not the fault of socialist dogma, but of capitalist have one over the little man greed. Pure and simple.

    Dan is being domatically intransigent if he sees this as a government failure issue only. This surely compares with the latest mining disaster in the U.S. Warnings were given, and yet the corporation running the mine paid scant regard to their duty of care for their employees because it was more profitable and less cost intensive to do so. A failure of over-sight did occur but, all previous attempts to enforce safety compliance had been blocked by using the statute books to delay any actions. These are recorded details coming to light as the conduct of this mine operator is finally explored post accident. The operators and managers should feel the full weight of law land on them. Their careers and economic futures should be price they pay for their greed. As I said in my original post, they did this to persue undue profit, so, the only fitting and truly worthy punishment is to strip them of their wealth.
    Live by the sword, die by the sword.

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  20. This will be a problem for the boat people that have inherited Australia following Rudd’s official surrender.

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  21. to Rob CA…great idea.

    unless they decided to have the wool jumper manufacture overseas as well.

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  22. I know it’s somewhat off topic but I want to tell you about the Federal governments “Building the education revolution” from an inside school perspective. I’m a senior adminstrator in a state school in Sydney.
    From the start the process was effectively “find something to spend some money on and do it fast” The projects had incredibly tight deadlines and schools were told that the school would be responsible for any costs if the project was managed by the school and not completed within the deadlines. As a result most schools opted to have another layer of bureaucracy through the state education department manage the process thus allowing the state access to the trough.
    I remember commenting to others that I had never seen federal money handed out without effective accountability in my 25 years of teaching and that corruption would be rife as greedy contractors and their cronies sought to cash in.

    The result at my school ? $200k spent on work that realistically could have been funded for 75k in a normal maintenance situation.
    Julia Gillard claims there have been “a few problems” which is a sick joke, most schools across Australia would had a similar outcome to my school and the problems would be endemic simply because of the incredible panic and lack of planning and accountability that this government created when setting up the program. The waste on a national scale would be mind boggling.

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  23. “that is shifting the blame away from the absolute source of this dangerous situation.” Do you remember that particular little psychiatric experiment done long ago with a bunch of students, the one where they randomly assigned them to be either guards or prisoners? Let me refresh your mind then:

    http://en.wikipedia.org/wiki/Stanford_prison_experiment

    The government set up the situation where people were pushed to buy insulation they otherwise wouldn’t have, people were pushed into jobs that otherwise wouldn’t have existed, and the government told the suppliers to get out and get as much done as fast as possible, and it’s only because of criminals joining the fray that rorting happened? It’s only because they chose to disregard health and safety in search of profit? No, it’s not. The government set up the situation, and the “absolute” blame is not only with the “shysters and profiteers”. The similarities with the BER is amazing, more and more rorts coming out:

    http://www.theage.com.au/national/the-900000-library–bookshelves-an-optional-extra-20100412-s485.html

    http://www.theage.com.au/national/education/gillard-caves-in-will-probe-school-building-rorts-20100412-s47o.html

    And of course, hivno’s story, which I agree is likely not so rare as our precious education minister would like to have us believe.

    So woohoo, on top of the billions already wasted we now have a $14 million task force headed by an investment banker of all the damn things to piss away more money on trying to figure out where the money’s gone.

    To comment on your case, company executives are just as likely to play up if they think they can get away with it. They used whatever means they had to them to try to keep the sham alive and escape with their hides intact, in their case running around in legal circles. In politician’s case, lie, deny, and then establish a comittee. In both cases, both deserve punishment, which seems to be the point we both agree on. Where we differ is who is at the source of it, and I suspect this will end as agreeing to disagree. That’s the whole point of comments though isn’t it, to look at differing viewpoints?

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  24. While insulation has had its problems and they are well documented by now, not much has been said about the problems in the Solar Industry as a result of, yet again, the Minister responsible, Peter Garrett.

    Not only did he stop the rebate program three weeks before the scheduled termination date, his deaprtment lacked the personnel and mail control systems to process and record the applications that they received.

    Due to this ‘snafu’ they resorted to a ‘deemed mailing date’ for when the applications were sent in as they didn’t actually record the mailing dates.

    This resulted in numerous applications being rejected by the government and some are still under appeal. Remember that these applications were due back on 9 June 2009 and at this date some have still not been resolved – a period of 10 months.

    Furthemore direct appeals to the then Minister Garrett about this matter were never answered and when the new Minister, Penny Wong, took over this was handed over to her. Again nothing was heard from the new minister responsible.

    It appears that Kevin’s right hand people just ignore the tough problems and pass the buck when something is too hard to handle.

    Reply

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