Click here for the last in the series of Your Say columns.  See also the Goldmember posted material at the bottom of the column.

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Peter Coulson, 21/6, wrote:  "I have been reading your blog for some weeks now, prior to that reading only very occasionally.

I would like to express my satisfaction and enjoyment with the content and value of your work.

Please keep up the good work.

Henry says: Thanks Peter for your encouragement.

Chris Daly wrote, 21/6:  HT wrote "The thread that links these three stories is that union bosses care less than many other groups that kids live in poverty."

What a disgraceful statement Henry.  Your unbridled barracking for Howard really is becoming too much.

Just because union leaders may have a different view as to how poverty should be attacked does not mean that they care less.

I'd suggest that you re-visit the social benefits directly attributable to unionism that have been introduced over the last 100 years. You should then re-consider your statement and issue an apology.

Henry says: I agree Chris that 100 years ago, even 50 years ago, unions had a useful place and helped right some big wrongs.

Now however they mainly look after the supposed interests of current members and I see no evidence of serious concern for fixing poverty. 

Here is the crunch question.  Would you prefer a low-paid job to the theoretical hope of a highly paid job while you sit on your but collecting welfare?

A watcher, 15/6.  Henry, can you spell out in more detail how you think asset price inflation is created and what it means?

Henry says:  Excuse my tardiness in replying - I have been dealing with some personal asset inflation issues.

My simple view is China goods deflation, butressed by China low paid worker deflation, has kept global consumer inflation low.  This has led central banks to run very easy monetary policy - led by US Fed which dropped interest rates to 1 %, for reasons that escape Henry but which could be claimed by conspiracy theorists to include "to create asset inflation."

Whatever the causes, the effect was to create asset inflation, since the loose money had to show up somewhere, just as too much rain floods low-lying areas when the river banks are breached.

This article lays it out as best I can.

Julian wrote on 7/6 re: National Account Figures

Henry,

The GDP deflator came in at 4.5%. Is it true that Australia is the only developed nation that discounts nominal inflation by a GDP deflator to get Real GDP? Most countries I believe use the inflation rate (core I presume) to obtain Real GDP from nominal. If this is true (is it Henry?) then growth in Oz is well higher than published. This also has implications for things like productivity which I believe is often measured on real GDP per hour worked and if we discounted nominal GDP by core inflation our productivity numbers would be much more robust.

Any thoughts?

Henry says:  Henry's assistant has been beavering away on this for several days now but as yet has no clear answer - and this is the sort of difficult question Henry left public life to avoid answering.

Henry wishes your hypothesis was correct Julian as it would solve several issues like Australian growth of GDP and productivity.  We will contact you if or when Henry's assistanr has a clear answer!

Ivon on 7/6 wrote re: The return of the nirvana economy

Thank you for the enlightenment you have been able to pass on to me, just one thing that worries me, how many of these new workers are just doing a few hours. How many are under employed!

I live in a city where they boast of “more millionaires per capita than any where else in Australia” yet many are working for $17.00 for trades people and told “you know what to do if you don’t like it’. How can the government justify in saying what they say regarding un-employment?

Henry writes: We all agree that the level of underemployment is a considerable problem that is not picked up by the official ABS Labour Force survey.  We attempted to find answers to the problems, or at least a clear definition of the problem, in this article published last year.

One aspect of today’s ABS data is noteworthy: The jobs growth was all full-time (+66.8k) rather than part-time (-27.4k) made the overall outcome look even stronger.

Your last point is also important – perhaps labour cost data is being kept low because many of the new jobs are such low paid jobs.  However, Henry has always said, better to be in a low paid job than being unemployed.

With climate change, this is one of The big issues for the next Federal election.

Bluey N. Curley on 5/6 wrote re: Australian presence in Iraq

Dear Henry,

Would you please pass on my note below to the most excellent Sir Wellington Boot?

Reading Sir W (and your similarly excellent self), I experience an increase not only in my knowledge, but wonderfully, an improvement in my ability to think about things.

In this line, I would greatly appreciate Sir Wellington's favour if he would comment on the points below (and Henry, your views too if you are inclined):

Sir W speaks against Australian military presence in Iraq, and against the US invasion.

If I may pose a counter view, and ask for comments:

A bit like Vietnam, the Iraq action is actually an important one, if doomed to failure, or at least stalemate.

I have much criticized myself over the past 25 years for not volunteering for Vietnam service after my birthday failed to show up in the conscription lottery of 1970.

Easy after the event of course. But since the mid-80's, more and more, I see it as very important to have made proxy war against the Soviets and to have tried to save the Vietnamese from themselves.

Communism is bad, right? States and cultures that surrender themselves to communism are failed states and failed cultures, right?

It was right for Australia to fight against communism and with the Vietnamese who were also willing to fight, and to line with the USA in this fight.

Oh, the Yanks make a terrible mess of things in so many of their missions for sure. But really, it's better by far to align with the USA than to do an NZ or a Latham, and play lil' rebel, or a laughingstock independent.

Back to Iraq: Not a perfect parallel to Vietnam, but Iraq has some similar features.

There is a proxy enemy and the USA and the West, Oz included, does need a secure oil supply, and US military power close-by is a useful implement in this regard.

Sir Wellington Boot replies:

Henry ... you will have seen the useful and thoughtful letter from our old chum, Bluey N. Curley, a member of this parish. He raises some sharp points which require consideration.

Bluey's basic analysis is spot on in my view. However, I would urge more consideration and consultation among Our Side on where and when we fight. The reason for this is to keep in mind that fighting is only ever a prelude to winning. It is the winning which is vital in foreign affairs, not just the formal act of fighting. On Vietnam, the Americans could have won if they had nuked Haiphong and indicated that there was more where that came from. This was momentarily an option with McNamara but the moment faded and with it, the Americans blinked and thus lost.

Click here to read SWB's full reply.

Raf wrote on 5/6 re: Asset price bubble worry

Dear Henry,

My brother thoughtfully forwarded your article to me today. It’s good to read some sane economic commentary especially the irony of Greenspan’s comment on China. This from the man knighted for services to stable economies….surely a joke? Whoever decided that clearly didn’t know much about the financial markets in the 1990s.

Still back to the main point which is the split between asset and consumer inflation and how they have diverged. I’ve been pursuing this in NZ without much success but here are some recent numbers from the last 8 years to December 2006:

-          CPI +20.6%
-          House Prices +143%
-          M3 +100%

I put the last number in because you mentioned cheap money and easy policy but in fact it is not the interest rates that are the main driver it is the expansion of the money supply itself. The commercial banking system is in complete control of the money creation process. The setting of interest rates influences the price of borrowing but does not determine the availability of money.

Banks can create new money almost at will. Reserve asset ratios are at all time lows and banks can issue new bonds and book them as equity. It’s madness. I’m not sure how much you know about the fractional reserve system but that is the main problem here. We are guaranteed to have booms and busts just as sure as the sun comes up in the morning. Those Finance Ministers who think they miraculously cured economies of this problem were dreaming lost in their own glory. All they have done is transfer public debt to the private sector.

I’d like to point you towards a book I am currently reading called “Boom, Bust: House Prices, Banking and the Depression of 2010” by Fred Harrison

http://www.moneyweek.com/file/3075/housing-boom.html

He focuses on land as the main culprit and goes back 400 years for his evidence.

The real question is how can we change this? There are some ideas and reference sites here which you may find interesting

http://sustento.wordpress.com/2007/03/29/money-doesnt-grow-on-trees-or-so-they-say/

The sad thing for many people is that the eventual bust is likely to be very painful. As you note there is not much that can be done now except to keep rates firm and hope that people rein in their debt. Will the banks rein in their lending though?

Thanks for bringing this up in print. We need more media focus on this issue and in a more in depth way.

Henry says:  Great to see the data for New Zealand.  Someone - prpbably Milton Friedman - said "inflation is too much money chasing too few goods.  Now we can add "and assets".  This is a global issue, very hard for central banks to handle.  Certainly in this country they do not wish to debate this proposition - maybe we need to write to Glenn Stevens and ask him to comment?

Gavin wrote on 5/6 re: Cold day; hot debate

Dear Henry

The Pascal's Wager approach is completely logical, and should be bolstered by the thought that Australia has a brilliant opportunity to get ahead of the game by developing clean technologies to sell to the rest of the world.

Haven't these people heard of the Kuznets Curve????

Henry writes: Indeed, Gavin.  For those that don't know the Kuznet's Curve, here is a rough account of its claims in an environmental context: 

The Environmental Kuznets curve shows an inverted U shape, with pollution on the vertical axis and wealth on the horizontal.  As a country is developing, little regard is given to environmental concerns, such as water or air pollution (see China), but as wealth grows "quality of life" becomes more essential.  There is a threshhold (where the curve turns downward), that implies that as a country becomes more wealthy, people begin to care more and more about reducing pollution, and can afford to do more in any case.

Now Australia is benefiting from the commodity boom to end all commodity booms - there is more money than ever sloshing around is Government and corporate coffers. 

Therefore, if the Kuznet's curve hasn't began it's downward trend, it will never do so.  Now is the time for action.