Lessons from the GFC
Date: Friday, November 06, 2009
Author: Henry Thornton
'The Road to Recovery' is the title of the conference organised by the Melbourne Institute and the Australian newspaper.
This is a conference etched into every serious economist's diary, and has been held every 18 months since 2002.
Yesterday four key players - Minister of Finance, Lindsay Tanner, ANU Professor Warwick McKibbin, Shadow Treasurer Joe Hockey and peripatetic economist Henry Ergas debated the causes of the Great Crash of 2008 and the policy issues on the road to recovery. The session was chaired by The Australian's Michael Stutchbury and was, in a word, lively.
Stutchbury opened the discussion by pointing out that, eighteen months ago, the cracks were first becoming visible.
There had been a major 'labour supply shock' from China which produced deep imbalances in the global economy. At the same time there was a lot of greed in the Western nations. Were these the major factors?
Lindsay Tanner agreed that the rise of China and the failure of the developed world to adapt well to this was a major issue. But there was serious regulatory failure on top of that. 'Greed is always with us' and was discounted as a major contributor by all speakers - wrongly so in my case, though I would say 'unrestrained greed' was the problem.
On the regulatory issue, 'Basle II' had encouraged banks to put more money into residential mortgages, which required lending to less credit-worthy borrowers, leading directly to the sub-prime crisis in America.
The Great Crash was however, like an aviation disaster - with a number of contributing factors perhaps impossible to disentangle.
But there are two clear consequences.
'Exceptionalism' is now dead and globalisation cannot be ignored - for example, it is now impossible to argue for 'light touch' regulation in London, and other standards elsewhere.
It is also impossible to argue that 'Financial Services are different' to other industries. Finance has to serve other industries rather than being 'parasitic.'
Henry Ergas agreed with Tanner that it was difficult to disentangle the causes of the crash. But a banking crisis could not exist without other problems in an economy.
The expansion of China was interesting but not sufficient to explain the crisis. Neither were the global imbalances, nor a model with an asset bubble followed by a collapse.
A trade model with two countries, one (China) with a vast supply of unskilled workers, and the other (USA) which suffered downward pressure on wages of skilled labour with trade, and therefore a 'wealth shock,' provided part of the story.
At this point, Henry (Thornton, not Ergas) began mentally to plead for the Keynesian notion of 'animal spirits' to be introduced into the debate.
Warwick McKibbin came to the rescue, emphasising that his comments were personal, not delivered as a member of the board of the Reserve Bank of Australia (RBA).
As the most qualified model builder on the panel, he confirmed that his real-life models agreed that the story was complex and that the individual factors already introduced could not explain the size of the crisis.
McKibbin said there were two shocks. The first was the 'inevitable' collapse of US housing. The second was the dramatic effect of the collapse of Lehman Brothers, which 'showed how bad things were in the USA.' Risk premia rocketed up and there was an enormous rise in pessimism and global 'transmission of pessimism.'
Australia had no financial crisis, considerable fiscal stimulus (McKibbin reminded us he had opposed the size of the second round of stimulus) and rapid cuts to interest rates.
Australia's long series of economic reforms, introducing flexibility into all our markets, meant that we avoided the worst consequences of the global meltdown.
Joe Hockey pointed out that the US, UK and Spain all experienced massive falls in house prices. Australia avoided this, which meant we avoided the massive shock to confidence experienced elsewhere.
By March 2008, Hockey asserted, there was clear signs of global 'calcification of credit,' which is why the Coalition had been critical of the RBA's final interest rate hikes. Later Joe Hockey heaped praise on the RBA for the speed and size of the rate cuts, so presumably, like others; he forgives it for mistakes in the boom and early crisis time.
Michael Stutchbury took the discussion in a more philosophical direction. He asked Lindsay Tanner to share with us his darkest thoughts during the crisis. (Earlier in the day Wayne Swan had said over lunch that the Cabinet had reflected on what the Scullin Government must have felt as it faced the reality of the Great Depression.)
'In September/October 08, it was very dramatic. We were in uncharted waters. Confidence was absolutely vital, more so even than we thought. The fiscal stimulus had two effects - one mechanical, dollars out and in, the other was the effects on confidence.'
Tanner ruminated on the effects of the 24 hour news cycle and whether this made the world now 'fundamentally different.' He also discussed the effects of the 1990/91 recession, when fiscal response was very delayed, in helping create a proper sense of urgency in the government's response to the crisis.
He admitted that the scale and content of the fiscal response will be debated, and mistakes were unavoidable. But the atmosphere was one of 'grim determination' and the only certainty the need to act.
There followed a discussion of whether Australia was locked into an excessive and inflexible fiscal package, aspects of which I discussed here earlier this week.
Lindsay Tanner raised another theme with his observation of how hard it was just now to predict economic and budget outcomes. Warwick McKibbin retaliated by asserting, correctly in my view, that it is safer to rely on a flexible response to changing circumstances than accuracy of forecasting - 'like climate change.'
The discussion ended with a discussion of how Australia should cope with a renewal of the mining boom, if this indeed is what is going to happen. Lindsay Tanner clearly did not want us to get too far ahead of the facts, and reminded us all that all mining booms end and this presented some agonisingly difficult adjustment problems.
Opinion differed as to whether it would be best to create an offshore sovereign fund, financed (I assume) by some sort of resource rent tax or whether to spend excess revenues to ease transitions or whether to look for other, more innovative, solutions such as building people's superannuation balances.
This summary, I hope, illustrates the vigorous and democratic nature of Australia's policy debate as practiced at these regular Melbourne Institute conferences.
We look forward to the new policy institute to be directed at the Australian National University (ANU) by Professor Warwick McKibbin for a more permanent version of this conference.
Bailout bubbles
Date: Wednesday, August 25, 2010
Author: Henry Thornton
A far worse than expected US housing market has produced another poor result on Wall Street. Commodities were also hit, meaning it should be a dismal day in Asia, unless the mad 'decoupling' optimists are right. With the painful attempt to count votes and form a government expected to take weeks, there is little reason for Australia's 'miracle economy' to create new wealth.
Henry was the person to tag Alan Greenspan as 'Bubbles' Greenspan, and to warn that Ben Bernanke may well morph into 'Bubbles' Bernanke.
Now Four Corners has gotten the message and devoted the whole of Monday night's program to the subject. Three (American) gurus were featured, including the colorful bloke who warned of the myriad of 'bailout bubbles'.
Even more persuasive was the German economist who bewailed the current state of the world economy, 'with bubbles everywhere'.
Also the former American econocrat who said 'we can do it' [avoid catastrophe] but who also warned that it will be a damned close run thing and our whole approach needs to change.
(If you have Adobe flash Player 10.1 you may be able to see the relevant episode here. Henry's PC says the software is downloaded, but the ABC site says it isn't. Sigh!)
On Australia's extraordinary election outcome, Tiresias of Canberra concludes: 'If the election of 2010 means anything, it is that the Australian people are so frightened of change and so keen to avoid acknowledging that the era of easily-won mass prosperity is over, that aspirants for government have to pretend that we are at peace and face no imminent dangers to our way of life and welfare. During the campaign there was a general consensus that the Magic Pudding (the minerals of the Pilbara etc) would suffice no matter what. Neither major party sought any kind of mandate for dealing with the inevitable danger of a second round of the global financial crisis. No one mentioned trade policy. No one identified any new industries that they wished to see established. Discussion of economic reform was almost wholly confined to the question of `the ill-fated Work Choices'.
A good starting point for individuals, corporations or nations in these dangerous times is to reduce leverage, which means repaying debt. Debt free is the ideal, and Australia is not yet too far from that ideal, at least as far as government debt is concerned. Our banks required the bailout of deposit guarentees and the loan of the government's AAA rating for their extensive overseas borrowings. Private debt owed by Australians is large and still growing, which puts our banks at risk if there is a second gloval financial freeze.
Most other 'developed' nations, or at least their governments, are heavily indebted and still borrowing. Therein lies the risk facing all of us, because Australia's mix of low government debt and high private debt will not save us if other nations, more heavily indebted overall, solve their problems by debt default or inflation, which are the traditional methods.
Whether (or when) individuals should reduce exposure to equities is a harder question. While Four Corners did not say so in explicit terms, that is the next question for those concerned to protect their wealth.
Rather than selling equities, another approach is to hedge against the possibility of a large negative correction. It seems that Nassim Nicholas Taleb, of Black Swan fame, has been hedging his equity portfolios, and also buying olive groves in his native Lebanon. In a dangerous and overcrowded world, food (and clean water will be valued highly. The put options that provide downside protection are presumably now very expensive, so we may all have missed our opportunity.
The Bailout bubbles will burst just as previous bubbles have burst - maybe this is already happening. Far better to have sold some equities when the bubbles burst, but timing is the issue.
The country men ride in
Date: Tuesday, August 24, 2010
Author: David Jonson
The federal election has come and gone, Australia now has a hung parliament and I’m still shocked I predicted the result last Thursday.
As of writing this blog on Monday night, Labor has 72 seats, the Coalition has 70 and there are three independents and one Green in the House of Representatives.
The experts are predicting Labor and the Coalition will end up tied with 73 seats and there will be another independent. This would leave the major parties on 73 seats each, four independents and one Green.
So what are my conclusions from the election and what will happen next?
First, the election itself.
I think the election results show that there are now two fundamentally different Australias. We have gone the way of America and now have our own red/blue state divide.
The first Australia, that I’ll call Blue Australia, is concentrated in the south-eastern cities and overwhelmingly votes for the ALP and Greens.
Centralism is the overriding political philosophy in Blue Australia. Blue Australia supports the mining tax because it socialises the wealth from mining in Red Australia (I’ll move onto Red Australia in a minute). Blue Australia also believes in global warming and wants the government to do something about it with other people’s money.
Blue Australia defied a national swing against federal Labor and returned most of its members and elected the first Green to the House of Representatives.
In contrast to Blue Australia, there is Red Australia.
Red Australia comprises Queensland, West Australia and most country seats in Blue Australia. Red Australia is conservative and votes for the Coalition parties and independents. Red Australia opposes the mining tax and is sceptical of global warming hysteria.
The national swing against Labor was greatest in Red Australia and the ALP now only has three seats in all of West Australia.
If you don’t believe my Red/Blue Australia observation, just look at The Australian’s electoral map. It is proof that two fundamentally different Australias emerged from the election.
So my general conclusion is that the election split our country into two different Australias – one Blue and one Red.
Now onto my prediction for who will form the next federal government.
On this question I am fairly confident we will have a Coalition government.
Three of the Independents are former National Party members and I just can’t see them siding with Labor on issues like global warming and the mining tax.
However, the Coalition cannot afford to take the Independents for granted.
The country independents strongly disagree with the Coalition on some crucial issues and will seek some promises before allying with them.
Bob Katter, in particular, has criticised the Nationals for blindly following the Liberal Party’s “economic rationalism”. This “economic rationalism” refers to the federal government’s support of free trade policies that have crippled the economy of country Australia.
Free trade is a nice theory when taught by economics departments at Australian universities (I can testify to this), but it does not apply to the real world where every national government retains barriers to trade.
With minimal tariffs, Australian farmers compete in a world economy where the average agricultural tariff is above 40%.
In light of the real world situation, free trade is nothing short of economic suicide.
I hope Bob Katter secures an agreement from Tony Abbott to end the “economic rationalism” and put the Australian economy, rather than the free trading world economy, first.
The independents also point out the obvious reality that Australia is not suffering from overpopulation.
They correctly argue the population “debate” has been framed from a city perspective to scare swing voters in Brisbane, Sydney and Melbourne. 99% of Australia is uninhabited and yet politicians argue there is overpopulation.
Egypt has a population of 90 million and is a desert country smaller than West Australia.
These two issues – “economic rationalism” and population – show the major parties either don’t grasp or are just ignorant of the major issues in country Australia.
They will have to change their attitudes if they have any hope of governing Australia.
*On a lighter note, click here for a fantastic Bob Katter commercial.*
Economy and defence key priorities
Date: Monday, August 23, 2010
Author: Henry Thornton
The people have spoken, but it is not yet clear what they said.
Excuse me for disagreeing, but it seems clear enough to me.
The big swing against Labor in Queensland and WA strongly suggests Australians do not like the big new mining tax.
The bigger swing in Queensland than elsewhere strongly suggests people do not like the axing of Prime Minister Rudd. A second reason is that the Queensland State government is on the nose.
The swing against Labor in Western Sydney is presumably also a vote against a dreadful State government. But the overall neutral result in NSW is the biggest puzzle of this election - perhaps NSW is where all the factors more or less cancelled out.
The swing to Labor in Victoria is partly because Victoria is home to the Labor Prime Minister. The fact that the three most senior leaders of the Liberal Party are from NSW (X2) or WA is another reason for the Liberals doing well in NSW and WA and not so well in Victoria. The massive transfer of wealth to Victoria discussed by Paul Sheehan below - see final link - is a concrete token of Labor shoring up its heartland. Tasmania, as always, marches to its own drum.
A set of swings big enough to give a clear lead to the Coalition was a bridge too far, and for the Coalition to do as well as it did was a tribute to Labor's self-destructive behaviour as well as Tony Abbott's fine leadership. Abbott started the campaign widely regarded as unelectable but ended looking distinctly prime ministerial.
To be fair - why, I hear you cry - Julia Gillard also enhanced her leadership credentials by looking calm and competent on top of ruthless, having sacked an elected Prime Minister. The leaks in week two destroyed her campaign, and showed Labor's deep disunity, but she soldiered on with some style.
One obvious interpretation of the close but not close enough performance of the Coalition is its demonstrated lack of interest in and focus on the economy, which every successful politician in the world believes to be of primary importance. Labor's enthusiastic adopting of Keynesian stimulus gave it the edge in this vital area, no matter that the stimulus program was too big and bedevilled by waste and mismanagment. The big swing against Wayne Swan is a puzzle which may indicate Labor's performance on the economy is not so great as relevant polls suggest. Perhaps also he is regarded as the plotter-in-chief against Mr. Rudd, action especially unacceptable as it was against a fellow banana bender.
Australia is in for a period of political uncertainty after which one of the major parties will form a minority government. With the equity, commodity and currency markets already struggling with fears of global slowdown, the fresh political instability will make matters worse.
There are two big policy areas that are likely to reward whichever major party grasps the necessary nettles - the economy and defence, including defence against queue-jumping immigrants. The Coalition has the better chance of prevailing, in part because it will not be torn asunder by anger and recrimination.
To improve its economic reputation, Labor must take a deep breath and promise to eliminate waste and mismanagement. It needs to put someone of unimpeachable integrity in charge of finding and expunging unnecessary spending so that the need to run up more debt is minimised. Why not create a deficit busting post and fill it with someone of integrity and tough anti-waste credentials? Lindsay Tanner's name springs to mind.
In seeking to improve their reputations in defence, both major parties need to overcome a certain naivety, real or confected. Australia is alone and ultimately friendless in a volatile and dangerous world. A far more focussed evaluation of threats and how best to deal with them is needed. Our model for how to do this should be Israel - any potential aggressor needs to know we will inflict great damage on them before we surrender any ground.
If Labor forms a government one hopes that John Faulkner could be convinced to remain as Minister for Defence as there is no obvious alternative. The Coalition needs to appoint someone of substance and I will confess I did not know the shadow minister's name until I looked it up.
On the economy, the Coalition has established that it is against waste and mismanagement in spending and government borrowing in debt management. It needs a more positive message and what could be better than a commitment to serious tax reform. It should promise to reform income tax as soon as Labor's debt is paid off with an initial target of a top rate of income tax of 40 %, and ultimately 30 %. A really brave Coalition would commit to a broader GST, with no exemptions, and to consider a higher rate. If New Zealand can do it, why not Australia?
I am unsure that Joe Hockey has sufficient gravitas and real interest in economic policy to be a great Treasurer. Of elected Liberals, Malcolm Turnbull would be my choice, with Joe Hockey given Industrial Relations with a mandate to find reforms that most union and business leaders would agree to. Andrew Robb has the mindset and ability to do a good deficit busting job for the Coalition as Finance Minister.
Both major parties would be wise to spend a lot of time and effort on the economy and defence of the realm.
The global economic crisis is far from over, and the world could still experience great economic disruption. Australia is a small, wealthy nation with no natural allies in its corner of the world. The key to both challenges is higher productivity, and this requires serious economic reform.
Saturday Sanity Break, 21 August 2010.
Date: Saturday, August 21, 2010
Author: Henry Thornton
Let God decide - if He cares. We refer, of course, to the game between Geelong and Caaaarlton! in which the Supreme Being helped the Cats to an impressive victory, with son of booting four goals. At least Caaaarlton! had a red hot go, as they say..
But to get back to the main game - Abbott verses Gillard.
It is, or should be, a no brainer - an atheist verses a true believer.
But from all accounts, except that of Tiresais of Canberra - it is far too close to call.
So why not let the Master of the Universe have the casting vote?
Surely, GOD would support God-fearing Tony Abbott over the atheistic Julia Gillard.
Last night the Roy Morgan recontacted 187 ‘undecided’ and Green voters from the 7News Morgan Poll of 1,872 electors conducted on the evenings of Wednesday and Thursday August 18/19, 2010. Just over half the ‘undecided’ voters gave a preference marginally favouring the L-NP on a Two-Party preferred basis. Of Green voters, more than 80% confirmed their intention to vote Green, the others split 2:1 in favour of the L-NP on a Two-Party preferred basis. Taking these factors into account the primary voting intention is recalculated as ALP 39%, L-NP 42.5%; Greens 11.5% and Independents/ Others 7%. However the Two-Party preferred vote is unchanged at 51% cf. 49% according to the Morgan Poll update conducted last night (August 20, 2010).
Moving forward with Hawke, Keating and Howard
Date: Friday, August 20, 2010
Author: Henry Thornton
Australia must return to the economic policy reform agenda of Prime ministers Hawke, Keating and Howard.
Paul Krugman, America's most 'Keynesian' economist, at the start of this month said in the New York Times: 'I’m starting to have a sick feeling about prospects for American workers ...'.
With growth slowing, Krugman said the odds are that unemployment will rise, not fall, in the months ahead. 'That’s bad. But what’s worse is the growing evidence that our governing elite just doesn’t care — that a once-unthinkable level of economic distress is in the process of becoming the new normal.
'And I worry that those in power, rather than taking responsibility for job creation, will soon declare that high unemployment is “structural,” a permanent part of the economic landscape — and that by condemning large numbers of Americans to long-term joblessness, they’ll turn that excuse into dismal reality.
'Not long ago, anyone predicting that one in six American workers would soon be unemployed or underemployed, and that the average unemployed worker would have been jobless for 35 weeks, would have been dismissed as outlandishly pessimistic — in part because if anything like that happened, policy makers would surely be pulling out all the stops on behalf of job creation'.
US stocks closed sharply lower overnight as recessionary fears returned with a weaker jobs picture. Suddenly it seems, a wide range of economists and other commentators are seeing the rate of unemployment stalled just below double digit levels.
'An unexpected surge in jobless claims startled investors, eclipsing excitement over Intel's announcement that it will acquire McAfee.
'The latest jobs report, as well as a report from the Philadelphia Fed, confirms that "we're only halfway through a secular bear market right now," said Doug Roberts, chief investment strategist at Channel Capital Research.
Mr Roberts predicted joblessness would continue for some time as companies outsource work and invest in technology that will ultimately obviate the need for workers. The danger, Mr Roberts added, was that "we're at 10 per cent unemployment, with plenty of capacity out there".'
With China slowing, Henry was interrogated overnight by friends concerned that Australia's 'miracle economy' status might not survive a 'double dip' recession in the USA and a new stumble by China.
This possibility is why Henry has been emphasising the need for Australians to save more, work harder and shake off the shackles of the Rudd-Gillard 'big government-small Australia' mindset.
Recently Henry's newest stirrer Tiresias of Canberra suggested, not for the first time, that 10,000 places per annum in Australia's immigration intake be reserved for US ex-military families with heads of families under 50. Huge number of bets retire each year in America, with 30 or so more years left in the workforce. We could get all manner of technical skills that way from a culturally and politically compatible country. Most Australians would rather take American ex-military as immigrants than veterans of the Taliban or the Tamil Tigers – it would be easy to sell to the public.
Sir Wellington Boote responds to the new pessimism in the USA with enthusiasm. This is wonderful news!!!! For those of us who are starting to see the good old USA as a goldmine for Australian migration this news is heaven sent. Americans faced with permanent unemployment and a ruling group that couldn't give a rats arse about them, their families or their future (until some war emerges) will leap at the opportunity to move to a first world, English speaking, democratic nation with a proper public health system, regular elections, potable water and 'no race issue' (ye gods doesn't THAT song and dance make you sick!!).
A hundred thousand Americans a year spread across WA, the Territory and Queensland will have a great impact on our need for skilled workers, assimilated migrants and a super 'get and go' work ethic.
Hurrah for the American ruling class!!! May they ever be greedy self centred pigs and disinterested in the suffering of their own fellow tribesmen and women ... their loss is very much our gain!!!
Only the latter outcomer would be inconsistent with the final opinion polls.
While Henry hopes for a win by Mr Abbott, he fears Ms Gillard may fall over the line, or worse, that the Greens hold the balance of power in a hung parliament.
While the Coalition is weak on economics, Henry is confident that Treasury and the Reserve Bank will provide a crash course in economics and that Mr Abbott's ministers would listen and learn quickly.
The big issue is the necessity to return to the economic policy reform agenda of Prime ministers Hawke, Keating and Howard.
Second in Henry's priorities is development of a serious defence capability, and Tiresias' suggestion that we recruit unemployed American vets would be a useful part of this plan.
Australia's aspiration should be to cement its place as a mid-level power in the western Pacific, a power with a seriously dynamic economy and real teeth, sufficient that no other power can hope to take control of our nation without a very costly campaign indeed.
Hung parliament
Date: Thursday, August 19, 2010
Author: David Jonson
In two days, Australia will have voted for a new government.
Either the Labor Party will be returned for a second term in office, or the Coalition will kick it out in humiliating fashion.
However, there is one other possibility.
My own prediction, and hope, is that the election ends in a hung parliament.
"Why would you ever want a hung parliament?" I hear you say. "Hung parliaments are obstructive and don't get anything done."
But this is exactly why I want a hung parliament, because it is obstructive and limits the government's ability to do anything.
Divided government is the best kind of government, and I think recent American political history supports this argument. It's better to have a Democratic President and Republican Congress than one party controlling both.
George Bush and the Republicans lost any conservative principles they may have had when they won the 2004 election. Similarly, Barack Obama and the Democrats have done irreparable damage to America since winning power in 2008. In fact, they've done a worse job than Bush and the Republican majority - and that really says something.
If I have learnt one thing from the election it is this: I don't want either party in control of the federal government.
This election really is a smoke and mirrors contest between two sides of the same coin. Let's just look at one issue to prove this proposition - economic policy.
Both parties have promised new taxes, spending and an unbelievably fast return to surplus. Labor wants to siphon the wealth from West Australia through its mining profits to buy marginal votes in the socialist regimes of New South Wales and Victoria. Similarly, the Liberals will tax business to subsidise people who can't afford to have children themselves. In both cases, these taxes are unconstitutional and unnecessary.
Now let's consider their new spending promises. On top of the $1000 handouts, Building the Education Revolution and home insulation disaster, Labor will federalize health care and build a $42 billion broadband network. It says it can meet these promises and return the budget to surplus by 2013. Of course, those smart people at Treasury have checked this and it's okay. They know what they're talking about, don't they?
On the other hand, the Libs will make maternity leave an extremely expensive right and spend several billion dollars on a problem Tony Abbott doesn't believe exists (and neither do I). Like Labor, it says this feat can be done without forcing Australia deeper into debt.
Neither party has specified any spending cuts to balance the budget - and why would they? "Spending cuts" sounds mean, conservative and not-so-progressive. Australia "needs" to pay for foreign wars, foreign aid and federal bureaucracies that add another level of government to state responsibilities.
Federal Independents Bob Katter and Tony Windsor summed up this election for what it is on Monday night Lateline. Both parties are controlled by lawyers who want to scare us into voting for them just so they can centralize more power in Canberra.
So forget Labor, the Liberals and Greens. I'm voting for the Shooters Party.
Ed: While this is a bit extreme, perhaps satiric, The Oz today presents the thinking person's version of the same thought bubble.
'A government's ability to address a debacle like the global financial crisis is important, but so, too, is a willingness to risk political capital in making structural changes to shore up the economy against future shocks. Both our leaders need a lesson in courage, as well as economics'.
Britain`s bold experiment
Date: Wednesday, August 18, 2010
Author: Henry Thornton
The global debate on economic policy is surreal.
Two years ago, 'fiscal stimulus' was all the rage.
Every national finance minister was being egged by his Prime minister or President to spend up big to minimise recession.
National finance ministers were being supported by the alphabet soup of international economic agencies, especially the OECD and the IMF. As Henry remembers it, only the BIS showed any prudent restraint. (If any reader remembers it differently, please contact Henry here to put him right.)
No the headless chooks are running around spurting if not squarking about debt burdens and the need to cut budget deficits, in the worst cases from double digits as ratios to GDP.
The UK has a new Conservative- Lib Dem government and the surprise is that it is doing something decisie about it. As The Economist puts it, 'Britain has embarked on a great gamble. Sooner or later, many other rich-world countries will have to take it too '.
'For the first time since Margaret Thatcher handbagged the world in 1979, Britain looks like the West’s test-tube. It is daring again—not always in a good way but in one that is likely to be instructive to more timid souls, not least Mr Obama and his Republican foes'.
To balance the books, Chancellor of the Exchecker, George Osborne, raised some taxes, notably VAT, but three-quarters of the savings will come from spending cuts. Most government departments will shrink by a quarter, that's right, one quarter, though Mr Osborne excluded the National Health Service from his slashing.
Keynesian economists, who worry that a weak world economy needs more government spending, are having conniptions.
Fiscal fiends (who believe deficits must be tackled now to stave off Grecian disaster), say 'Britain is the prime exhibit for tough love'.
Britain has become one of the world's great nanny states, thanks especially to Gordon Brown. On OECD figures, public spending made up 51% of GDP in 2009, 'putting Britain into the same league as continental countries that deplore Anglo-Saxon (alleged) laissez-faire'.
More of its public spending now comes from central government than in any OECD country bar New Zealand says The Economist - a nice blow that. Its local government is weaker than nearly any comparable country, including France. The state finances and provides most health care - a warning for Australia there. It bossily decrees where schools can be opened, and how they must be run.
Britain intends to cut spending faster than anyone expected and to make sure that whatever government activity that is left is more local, flexible and responsive to the people who pay for it.
Britain's recession was deeper than most, and on top of Gordon Brown's 'Great Society' spending, drove the budget deficit to an unsustainable 11 % of GDP.
Labor planned to return the cyclically-adjusted current budget to balance in 2016-17. Labour’s fiscal consolidation would have amounted to 4% of GDP by 2014-15; Mr Osborne is aiming at 6.3 %.
This fiscal retrenchment is far faster also than planned in the USA or Japan.
The other part of the coalition's plans involves decentralisation. Britain centralised when it was fighting for survival in World War II, and successive governments, including even the Thatcher government, continued the process.
'Mr Cameron was able to forge a coalition with the Lib Dems precisely because both parties saw the state as overcentralised and overbearing. When they hammered out a joint programme for government, the main theme other than austerity was decentralisation'.
There are three main areas for this bold action. The government aims to provide parents more choice in their children’s education. Existing schools are encouraged to switch to academy status, and newly created “free schools”, set up and run by not-for-profit businesses, charities, faith groups, universities, private schools or parents themselves, will be in operation. These will be able to set pay and conditions for staff, deviate from the national curriculum, decide the length of school days and terms, and so forth. The state will pay for premises and provide funding per pupil; poorer children will attract more, so that schools are keen to take them on.
The police are heavily centralised and, long suffering taxpayers say, unresponsive to the public who pays their salaries. The government plans directly elected “police and crime commissioners” for every constabulary in England and Wales (bar London, where an elected mayor effectively exercises democratic oversight already). Starting in 2012 they will determine priorities for their local force, appoint and remove chief constables and set the budget.
Then there is health, with aging populations and vast progress in medical science, a big money sink everywhere. Mr Cameron promised obliquely to “trust the professionals”. 'This has turned out to mean something profound'. General practitioners (GPs), grouped in consortia, are to commission most secondary care. Strategic health authorities and primary-care trusts, which currently do that job, will be ditched, and patients will have greater freedom to choose their GP. The aim is efficiency as well as flexibility: GPs will be given incentives to keep their patients away from costly and unnecessary hospital care.
Welfare reform is also on the agenda, if less well articulated at this early time. Paying firms and charities to help the unemployed into work will continue, and a fundamental benefits reform is mooted. There will be more elected mayors, fewer MPs and more citizen initiatives. The government will help to train and fund community organisers. 'And, in a glasnost to complement the perestroika of decentralisation, more data is being put online'.
In conclusion, the venerable mag says: '... the new government’s vision of a looser state, and its determination to reform virtually all the public services at once, is boldly outlined. Add in the even more daring plan to cut the fiscal deficit, and Britain is in for a breathless and convulsive few years. Now and then, British elections are epochal, setting the tone for other countries, too. One such took place in 1945, when the modern welfare state got going. Another, in 1979, loosed Margaret Thatcher on a waiting world. By producing a ruling coalition that is as radical in redefining government as it is in cutting it, the election of 2010 may prove another turning point'.
Peter Wilson presents a longer and more philosophical account of the Coalition government.
'WHOEVER emerges from this weekend as Australia's prime minister can learn one powerful lesson from their British counterpart, David Cameron.
'The first 100 days of Cameron's government should encourage any new government leader to get stuck straight into the big challenges and to do it quickly'.
Its the coalition ... says Tiresias
Date: Tuesday, August 17, 2010
Author: Tiresias of Canberra
A Canberra man calls election for Abbott.
Tiresias of Canberra says: The Coalition will win, possibly win very big with lots of gains in Qld and NSW, but without necessarily gaining control of the Senate. Whatever reservations people may have about work-choices can easily be alleviated by denying Abbott control over the Senate and he is on a winner in emphasising concerns over debt/spending and the boat-people. If I were a professional political campaign manager, I’d pick Abbott as my preferred candidate over Julia any day. At the very worst he is only three quarters of a generation behind the trendies on most social issues...as is most of Australia. No one who isn’t a card carrying feminist or a Womens’ Electoral Lobby member feels threatened by Abbott’s ‘conservatism’. The snide jibes at his Catholicism are simply weird and anachronistic – just about no one young enough to be sexually active can make head or tale of the old style sectarianism which is the stuff of history books and family mythology.
Julia is a poster girl for upward social mobility Australia style and is in many ways quite agreeable (certainly a vast improvement on Rudd), but the coup d’etat against Rudd has clearly offended many people who think that it is the people’s prerogative to get rid of unpopular leaders and since becoming PM her TV appearances are so contrived it is not funny. I have no idea why MPs put so much faith in media advisers – media spin is very 20th century. Nowadays people see spin a mile off and they start to run. The push for reality TV shows and cooking shows with real people should have taught the geniuses on the Hill that the dominant mood now is for sincerity, authenticity and the straight-shooter.
The mood in Canberra is instructive: at work all-most everyone in the public service thinks that Julia is wonderful and that the ALP will win. But the last few weeks it has been a lot easier than usual to get a table at a restaurant in Civic whenever you like...so I expect that people secretly believe that that the Coalition will get elected and abolish their jobs.
Galaxy Poll shows Coalition in winning position.
Professional opinion has it that the election is too close to call, but the latest Galaxy Poll put the Coalition in a winning position just one week out from the federal election. The Australian reports the Coalition would win the 17 seats it needs to oust the Labor government if replicated on Saturday.
On a two-party preferred basis, this poll has the Coalition is ahead of the ALP 51.4 per cent to 48.6 per cent.
The poll of 4000 voters in 20 marginal electorates in five states predicts devastation for Labor in Queensland, where a potential swing of 5.4 per cent against the government could cost it 10 seats.
In NSW, polling in Eden-Monaro, Gilmore, Macarthur and Macquarie found a swing of 2.4 per cent against the government, while the coalition was likely to win all the seats polled, plus three others if the swing was statewide.
The coalition is also in front in Swan and Hasluck in Western Australia according to the poll.
Anyone with such an authoritative view as that of Tiresias may Contact Henry Here and we shall share your thoughts with our readers. Only on advertorial per party will be accepted to limit the pollyspeak.
Global warming is crap ... or is it?
Date: Monday, August 16, 2010
Author: Henry Thornton
Melbourne, possibly most of Australia, is having its coldest winter for decades. More and more of Henry's friends and relatives are making this observation as our aching bones remind us of ice on the puddles and frozen fingers and toes as we walked barefoot through the snow to school.
(Ed: 'Barefoot to school through the snow' is crap, a slight overstatement.)
Late last week it snowed in Boggabri, a small town in northern NSW. Henry's 88-year-old Father-in-Law has lived there for 60 years and can recall only one similar occurrance.
But in the northern hemisphere it has been unusually warm.
The New York Times reports: 'The floods battered New England, then Nashville, then Arkansas, then Oklahoma — and were followed by a deluge in Pakistan that has upended the lives of 20 million people.
'The summer’s heat waves baked the eastern United States, parts of Africa and eastern Asia, and above all Russia, which lost millions of acres of wheat and thousands of lives in a drought worse than any other in the historical record.
'Seemingly disconnected, these far-flung disasters are reviving the question of whether global warming is causing more weather extremes.
'The collective answer of the scientific community can be boiled down to a single word: probably'.
Henry is a climate change agnostic who thinks we should act to limit greenhouse gas emissions just in case. 'Let's give the planet the benefit of the doubt'.
Henry's attempt to achieve pre-selection for the local Federal electorate failed, he was told by a voter, because 'you are too old, too fat and too grumpy, and because you are also soft on climate change'. 'How many reasons do you need?' was Henry's rather lame response.
Henry's friends include a number of mining magnates and workers, who to a man are climate change skeptics. They occasionally tell Henry he is a deluded fool, in their blunt Australian way of describing a spade as a bloody shovel. As recently as last night, at a family party to celebrate the coming-of-age of Henry's oldest son - himself a climate change skeptic - another friend sneered visibly when Henry raised the question of the Russian drought and the Pakistan floods and asked if these great human catastrophes might be connected to global warming.
Part of the case of the climate change skeptic is that the case for ameliorating action is part of a global socialist conspiracy to take over the world.
So it might be thought of little use quoting the President of Russia on this subject, or for that matter the New York Times. But bear with me. “Everyone is talking about climate change now,” President Dmitri A. Medvedev told the Russian Security Council this month. “Unfortunately, what is happening now in our central regions is evidence of this global climate change, because we have never in our history faced such weather conditions in the past.”
Please note, skeptical readers (if you are still following my logic trail), Russia actually is conflicted on this issue, with the same self-interest as the mining magnates. This is because the Siberian wilderness will be warmer if climate change is real, and Russia is likely to be be able to grow wheat in its previously frozen tundra. Of course, the unfreezing of the tundra may, probably will, release large volumes of methane, a far more noxious greenhouse gas than CO2. If - I emphasise if - additional greenhouse gas is driving global warming, release of a lot of methane will be one of the 'positive feedback loops', accelerating the onset of all the changes created by a warmer planet.
Recently Henry has discovered fresh energy for the battle with the climate change skeptics, as he worries about geopolitical risks facing Australia. 'What of other geopolitical risks? At Copenhagen the world dodged, or postponed, the challenge of getting serious about limiting greenhouse gas emissions. Global warming skeptics took great delight in this outcome and if they are right the world will owe them a great deal. If they are wrong, of course, they will be reviled as the world battles to adapt to a warmer climate, rising sea levels, accelerated loss of entire species and the fiscal burdens of amelioration.
'Great movements of people are another real and present threat. War, irredeemable poverty, natural disaster and (possibly) the unnatural disaster of rising sea levels all have the potential to manufacture millions of refugees – indeed, this is a constant feature of the modern world'.
Irredeemable poverty and natural disaster have newly afflicted millions of people in Pakistan. If the 'warmists' are right we shall see much more of the same, and we shall know exactly who to blame.
Saturday Sanity Break, 14 August 2010
Date: Saturday, August 14, 2010
Author: Henry Thornton
Despite a negative lead from Wall Street, the Australian share market finished over one per cent higher Friday, led by gains in the mining and energy sectors. It seems investors took the previous day's decline as a buying opportunity.
At 1610 AEST, the benchmark S&P/ASX200 index closed up 58.7 points, or 1.33 per cent, at 4,459.6 points, while the broader All Ordinaries index gained 58.5 points, or 1.32 per cent, to 4,480.9 points.
On the Sydney Futures Exchange, the September share price index contract was 72 points higher at 4,429 points, with 34,574 contracts traded.
We need about six weeks of such 'decoupling' to see Australian markets correctly reproduce Australia's decisive economic outperformance of the American economy. Here is a contribution to debate.
A balance sheet of Australia's history
An item from the archives, but just as relevant as when it was written in 1993.
'Most young Australians, irrespective of their background, are quietly proud to be Australian. We deprive them of their inheritance if we claim that they have inherited little to be proud of''.
Australia's housing market.
'In January 1836 the young Charles Darwin sailed through Sydney Heads on the Royal Navy brig HMS Beagle. Feeling rather jaded after four years on the southern seas, the natural philosopher’s first impression of the fledgling colony was distinctly unfavourable. In contrast to the riotous natural abundance of South America and Tahiti, the land around Port Jackson was, Darwin noted, “covered by woods of thin scrubby trees that bespoke useless sterility.”
'Once ashore, the English gentleman appears to have found Sydney dinner party conversation similarly barren. Although “full of admiration” for a settlement that in less than fifty years had evolved from a place of exile into a bustling commercial town, the scion of two of Britain’s grandest families seems to have been a little taken aback by the colony’s property obsession. “Every one,” he commented in his diary, “complains of the high rents & difficulty in procuring a house.”
We are delighted to introduce Tiresias of Canberra.
In Greek mythology, the original Tiresias was the blind prophet of Thebes, famous for clairvoyance and for being transformed into a woman for seven years.
The new Tiresias was born in Sydney in 1967. Educated at the University of Sydney and the University of New South Wales, he worked as a casual tutor in politics before joining the Australian Public Service in Canberra.
A former teenage neo-liberal and Thatcherite, he has also been a workplace delegate in the Community and Public Sector Union, where has he has done a little bit of good assisting individual members dealing with bullying and harassment. In his opinion the central task facing Australia is how to have the best of all possible worlds: a market economy embedded within a stable, bourgeois society, which offers its members the widest possible variety of meaningful and worthwhile life-choices and that maintains a Western culture under the protection of a government resistant to social engineers within and the UN, NGOs etc without.
Tiresias studies classical Greek in his spare time and is about to publish a PhD thesis on an early Enlightenment political philosopher.
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