Growth exceeding predictions = inflation
Date: Thursday, April 15, 2010
Author: Henry Thornton
State treasurers have reportedly warned that Kevin Rudd's health reform plan will provide a precedent for the federal government to raid their GST revenue for future policy reforms in areas of state responsibility.
There is of course the question of credibility, one that the State Premiers would mostly prefer not to ask, for the obvious reason. This is a question increasingly being asked by sensible commentators.
The best compilation of the Rudd government's waste and mismanagement Henry has seen is by Andrew Bolt in yesterday's Herald Sun.
Waste and mismanagement is inflationary, as it boosts demand more than supply.This applies especially to Australia’s spending on ceiling batts and school refurbishment. Glenn Stevens has declined to criticise the Rudd government's fiscal stimulus, and is unlikely to do so as he can claim to be apolitical.
It seems that the Reserve Bank's run of interest rate rises has done little to dent consumer confidence, which is not far short of the peak level reached before the global financial crisis.
The survey of consumer sentiment by the Melbourne Institute and Westpac found only a 1 per cent dip in confidence in the past month, despite last week's increase in the official cash rate to 4.25 per cent, which the banks immediately added on to mortgage rates.
"This is a surprisingly strong result," Westpac chief economist Bill Evans said, noting that from 2003 to 2007, increases in official interest rates were followed by much larger falls in consumer confidence of between 5 and 15 per cent
Why people, even competent economists, keep being surprised by stronger than expected growth is a mystery that flies in theface of the facts.
'The most persistent tendency has been to underestimate the strength of demand in the Australian economy. The process of structural reform on which the government is now embarked is likely to intensify this tendency. The problem of how to cope with it needs more attention from the Bank, the Government and outside commentators.
'My conjecture is that the Australian economy is likely to show a continued tendency to grow too strongly for comfort. Fiscal policy is now in good shape and there are reasonable prospects of continued wage restraint. Reform of the tax system, improvements to work practices and the orderly reduction of protectionism is likely to give a further impetus to growth. Of course commodity prices will again turn down, there could be outbreaks of old-fashioned industrial strife, and so on. If adverse developments were sufficiently important to risk serious recession in the Australian economy then monetary policy might need to be eased. But in the circumstances most likely to be facing Australia the main question for monetary policy is likely to be the appropriate degree of firmness'.
The Asian 'Tiger' economies have an even greater tendency to achieve stronger than expected growth.
'Singapore's trade-dominated economy grew 32 % in the first quarter on a seasonally adjusted annual basis, boosted by a 139 % jump in manufacturing, much of it electronic goods destined for the U.S. and China. While GDP data from this city-state's relatively small economy are volatile, both figures were the fastest rates of growth since the data series began in 1975'.
"This is not only a Singapore story," said Endre Pedersen, Executive Director of Fixed Income at MFC Global Investment Management. "It's an affirmation of Asia's strength compared with the rest of the world."
Inflation is the inevitable consequence of growth exceeding predictions. This is because the necessary tightening of monetary policy is too little, too late.
Inflation is the biggest risk to recovery in the global economy.
Sunday Sanity Break, 21 August 2016
Date: Sunday, August 21, 2016
Author: Henry Thornton
Another big week of private sector economists and businesspersons pleading with the Turnbull government to behave like a serious government. Paul Keating’s heroic effort to turn the budget deficit into a surplus to head off ‘Banana Republic #1’ cannot be overemphasised. Now we are definitively heading to ‘Banana Republic #2’ and this means our children and grandchildren will be left with a pile of debt they cannot repay. So sad, especially as the next generation and the generation after that will also struggle to buy houses as well as paying off their parent’s household debt, now the highest in the world as a ratio to household income. And still rising.
'Spend up, folks' is the message of our government.
Do wake up Malcolm. The outlook is bleak. As Paul Kelly says this weekend: ‘Australia seems a case study in a Western society losing its consensus about core values and what constitutes virtue in its public space. The government is buffeted by eruptions over free speech, offshore detention, foreign investment, juvenile protection conditions and big banks in a myriad culture wars and contested struggles over values.
‘Australians cannot even agree on the laws that govern how they should talk to each other, pathetic proof of contemporary dysfunction and mounting trouble over minority politics. It is tempting to think a nation unable to agree on such mundane essentials has little hope of agreeing on how to run its budget’.
Do not miss Grace Collier’s expose of the genius organisation that is being credited with the Superannuation tax fiasco in the latest budget. As Mrs Thornton said: ‘I’d support the Superannuation policy if there was a serious attempt to balance the budget. Using our taxes to spend more is simply unacceptable’.
Henry Thornton’s sabbatical is about to start but the news is good. With help from a young bloke, New Henry will be set up on the wix.com system. There will be very little history on New Henry, but it will be available courtesy of the Australia's splendid National Library, which has been collecting downloads since August 2003. Here is a link.
Henry’s editor’s Art exhibition has been renewed for three weeks at Sapori Di Casa in Dromana. Here is a link to the original notice, but please note the gallery is open this weekend and for the next two long weekends, ending on Sunday 4 September. More here.
In a thrilling arm wrestle, Hawthorn was beaten in Perth by the West Coast Eagles. Sydney disposed of the Shinbowners in Hobart. Caaaaaarlton! won a thriller at the ‘G’ over Melbourne on Sunday.
The former number one test cricket team was thrashed 3 zip in Sri Lanka amid allegations of pitch fixing (by shaving), practice pitch fixing (by watering) and lack of application when it mattered, like when batting. Also sad to see an apparently disinterested Captain Smith missing 2 catches he’d normally swallow in the last test. If Shaun Marsh is dropped again after making a century, we shall have to give up on Aussie cricket.
Feature of the Ollys has been the disappointment of highly fancied Aussies. Our winners were usually athlete’s flying under the radar, especially modest females with no PR machine to over-promise and therefore no great risk of underperforming. Most recently, the ‘Boomers’ surrendered tamely to Serbia after beating then in the pool matches. Henry’s guess is that the talk of the Boomer’s ‘mongrel’, rough house tactics that would give them a shot at gold really fired the Serbs, who produced their own rough house. Humility combined with focussed determination would do better, comrades.
The powers of course are considering what went wrong. Let’s forget the aim of a ‘top 5’ finish and stop the big spending. We have far more useful things to do with scarce money than support athletes with mighty PR machines. Lots of asggobeteween the maim powers, reminding us again that disunity is death, or at the very least underperformance.
Usain Bolt is Henry’s hero of Rio 2016, with Michael Phelps a close second for what seems like lifetime excellence. Both men should be safely retired by 2020, though one half expects Baby ‘Boomer’ will reinstate the Phelp’s family name by 2028 or 2032.
Image of the week
From Pete Jonson's Exhibition
Two Rocks at Uluru, 2013 Oil on canvas 36x48 inches (Approx 91x122 cm)
Art Exhibition by Pete Jonson
Date: Saturday, August 20, 2016
Author: Henry Thornton
Henry's editor, Pete Jonson, has recently decisively wound back his corporate involvement. He is now fulfilling the promise he made to himself as a young part-time landscape painter that he would, later in life, spend more time painting. This time has arrived; and Pete has been painting seriously for several years now, gradually devoting more and more time to this most pleasurable activity.
Pete recently opened his first exhibition, an eight week solo showing at Whitehill Gallery & Sapori Di Casa Restaurant, a small slice of Tuscany on the Mornington Peninsula.
The exhibition has just been extended until September 4. Henry urges Pete's friends to go along, have a great Italian meal and buy a painting. They are of high quality and priced to sell. Each painting comes with a conversation with Pete about his views on global economic prospects in the puzzling (to many) age of deflation and what should be the policy of Australia's government after the current election.
The address is Whitehill Road, (near the corner of Old Whitehill Road), Dromana, Mornington Peninsula. This is about 1 hour and 10 minutes by car from most parts of Melbourne, using the M1 and M3 and then the M11 (new Peninsula Link freeway).
The Gallery is open each Friday to Sunday from 11am to 5pm. And the Restaurant is open each Friday to Sunday for lunch (phone 03 5931 0146 to book, if you would like to enjoy the paintings with home-made Italian food and superb local and Italian wines). The exhibition will close on September 4.
Pete Jonson: Perspectives features Pete's landscape paintings from 1988 to 2014. His goal was to capture on canvas both the physical reality and the soul of each vista.
In Henry's impartial opinion, viewers of the works will see that Pete has achieved both; with inspiration, subtlety, technical ability and, above all, a deep love of our natural environment.
Below is an example, The Spirit of the Rock (Uluru) (2013):
The Spirit of the Rock (Uluru) Oil on Canvas 4' x 3'.
SOLD in week 1 of the Exhibition
This is the first time the paintings have been publicly shown; and each is very modestly priced (from $1,000 to $3,000 with one especial favourite of the artist at $4,750).
Enjoy! And please pass on to your friends if you are moved to do so.
Pete's new Econart images may be viewed here and will be offered For Sale at a later exhibition.
Sunday Sanity Break 14 August 2016
Date: Sunday, August 14, 2016
Author: Henry Thornton
Crocodile tears are being shed for Australia's too buoyant exchange rate, which keeps trying to creep upwards despite interest rates being cut to levels that threaten economic stability.
Henry regrets that the RBA did not take seriously his early 2013 call for a tax on capital inflow, available here.
Such a tax would have meant that a lower exchange rate could have been achieved without cutting interest rates by a level that threatens to keep asset inflation bubbling and which leaves little room for rate cuts if and when this is needed.
Of course, this is precisely the global position, and in that sense Australian monetary policy is merely repeating the mistakes of the USA, Japan, the Eurozone and the United Kingdom.
So Australia shall be in good company but we could have been in better, or even best company.
(Like the water carriers of old, our motto is, or should be:
Good, better best, We shall never rest, until our good is better, And our better best.
(*Thanks to RA (Bob) Johnston for reminding Henry of this motto many years ago.)
This problem aside, Glenn Stevens has had an exemplary time as governor of the RBA. We wish him a long and happy retirement.
Henry is facing a challenge to switch HenryThornton.com to another server.
As Henry has no idea how to do this, it may take some time and that may mean the screen goes black for a while.
Please excuse this temporary disappearence and take an occasional check to see if the old boy has reemerged. We hope this will be with a smarter appearence and with a small burden of past material.
The historical material is available at Australia's National Library, where this august institution has been downloading the HT site for more than a decade.
Fiona Prior visits World Press Photos 16. These images will haunt you. More here.
Image of the Week
image: Warren Richardson, Hope for a new Life, 28 August, Serbia/Hungary border from the exhibition World Press Photos 16 reviewed by Fiona Prior
Saturday Sanity Break, 6 August, 2016
Date: Saturday, August 06, 2016
Author: Henry Thornton
Some nice economic/politicio analysis today, gentle readers, though not from the government. Alan Kohler says: 'banks are going to have to return interest rates to normal without having declared victory in their fight against low inflation and falling investment. It will be one of the greatest failures of public policy in history.
'Only when they release capitalism from the distortions of negative real interest rates and printing money to buy government bonds, and thus driving up their prices, will business get back to normal'. Read on here.
Another useful point is made by Terry McCrann. Malcolm Turnbull is skating on thin ice, and the only plausible successor is Scott Morrison. He must greatly modify the idiotic Superannuations plans (I would say abandon them) if he hopes to get his shot at the top job.
And it will not cost the budget a row of beans. As McCrann says: [sensible changes to superannuation] '...will make four-fifths of very little real difference to the budget bottom line in the short term. But they would seriously damage it in the long term by encouraging even more investment in both negatively geared property and the family home, and by encouraging otherwise self-funded retirees to “retire” instead to the old-age pension'.
Lots of laughs, but section below the cartoon, about Donald Trump as president, is some of the best black humour I have seen.
Do note image of the week. Truth must be told, gentle readers.
A modest windfall persuades the Jonson/Thorntons to go travelling, interspersed by a conference in Rome (for PJ) and teaching in Prato, near Florence (EWPJ).
Includes vsits to New York, Norway, Naples, Tanzania and Kenya. (If the government is going to take it, might as well spend it.) Read on here.
The Ollys are underway and the opening parade was all one could wish for. Now let the games begin, and may the Ozzie swimmers beat the wonderful expectations fuelled by the spin meisters.
Hawthon and the Swans look wonderful, with many other fine teams filling the eight. Caaaarlton!'s fine early season form sputtered out while Henry was away, but I have been told by a good judge that their spirit hardly flagged. Roll on 2017.
Image of the week
Courtesy The Oz
Sunday Sanity Break, 31 July 2016
Date: Sunday, July 31, 2016
Author: Henry Thornton
Sunday Sanity Break, 31 July 2016
Now Grace Collier has joined the battle to kill the Turnbull/Morrison/O’Dwyer attempt to tax superannuation of well-to-do Australians. Her most powerful point is to quote Kelly O’Dwyer and Scott Morrison asserting superannuation earnings would never be taxed by a Liberal. For example: “We on this side have given an undertaking not to muck around with superannuation … We understand the importance of certainty when people are sacrificing and saving for their retirement. We understand the importance of good and responsible economic management so that the government does not have to put its hand in the pockets of the retirement savings of Australians. It is quite, quite wrong. That is why we will stand up for all Australians who want to work hard … and be rewarded for their efforts. They should not be penalised.”
And here is the final paragraph of the article, hinting at an expose to come. ‘It defies belief that a Coalition government would act so foolishly. The question is this: exactly who came up with this stupid idea? The hunt is on, a team of insiders is collecting evidence and the answer is expected in the near future’.
Coming severe recession?
In 2013, Henry said Australia was headed for recession. We had an income recession but not a spending recession. The question is whether actions to shore up spending have (successfully) avoided a spending recession and maintained sluggish employment growth.
Now we have an answer, from an economist far more chronically pessimistic than Henry. Professor Steve Keen of Kingston University in London.
The lead in: ‘Australia's credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70 per cent and unemployment to rise sharply, Professor Steve Keen says’.
“Many believe the Reserve Bank has been a steady guiding hand to the Australian economy in the years since the GFC, but Professor Keen believes it has guided the economy "straight toward the shoals" by encouraging households to borrow with low rates which has led to asset bubbles.
"They don't know what they're doing," he said.
"Our debt level according to the Bank of International Settlements, private debt level, has gone from 150 per cent of GDP to 210 per cent of GDP."
‘He argued that means a large part of the growth that Australia has enjoyed since the GFC, while many other countries plunged into recession, has been fuelled by a 60 per cent rise in household debt’.
"Ireland did the same thing when they called themselves the Celtic Tiger and they don't call themselves that anymore," he said.
"Spain was doing the same thing during its housing bubble and we've replicated the same mistakes".
Henry tomorrow gets on an aeroplane from Nairobi to Doha, then another from Doha to Melbourne. We look forward to catching up with all the news missed while we were seeing wild animals on safari.
Fiona Prior sees Sydney Theatre Company's latest production, Angela Betzien's The Hanging. Have you ever wondered what really happened to those school girls at Hanging Rock? More here.
Sunday Sanity Break, 24 July 2016
Date: Sunday, July 24, 2016
Author: Henry Thornton
Sunday Sanity Break, 24 July 2016
What does Malcolm Turnbull stand for? Persuading Australians it is an exciting time to be alive. Or to become entrepreneurs? Adding to Malcolm’s personal satisfaction, adding laurels to his already successful career? Making Australian a better place? Helping the battlers? Malcolm might claim all five aims, perhaps in a different order. But Paul Kelly in the past week suggests he hasn’t got clear aims, or perhaps has failed to articulate them. Successful Prime Ministers articulate their aims clearly. If Malcolm fails to do this soon’ish, he will become a failed Prime Minister. Read Paul Kelly’s views here.
Janet Albrechtsen, good on you girl. Your article on the superannuation fiasco is first rate, and should be read here, especially by Malcolm Turnbull, Scott Morrison and other senior officials.
My own objections to the approach, largely covered by Janet, are as follows: • Retrospectivity. I do not accept that changing the rules, without grandfathering those already in retirement – including Henry – is not effectively retrospective - ie it breaks a long standing agreed principle. • Impact on future policy. If these out-of-the-blue changes are allowed to stand, the precedent is set to change rules on a whim in future. Not a sensible way to run a country, and grossly unfair to those who played by the rules in superannuation; not borrowing to buy assets, etc., etc. • One particular aspect of fairness is especially egregious. Self-funded retirees are to be allowed $1.6 M in tax-free super. If the market crashes, and we are experiencing an especially fragile state where a big crash cannot be ruled out, or indeed is likely in my view, self-funded retirees will need to dip into their taxed superannuation funds to maintain their lifestyle. Politicians and senior public servants, as I understand it, still have very generous defined benefit superannuation funds. If the market crashes, will such people face any comparable penalty?
Henry is a man of the people, and is not deaf to claims that ‘the rich’, or actually the ‘merely well off’, have been treated too well by the Keating-Costello superannuation model. Most of Henry’s friends, and Mr and Mrs T, would cop a better designed set of reforms IF, and only IF, other supposed Fat Cats shared the pain. What about corrupt unionists? What about high-flyers in the cash economy? What about people who have milked the housing market for all its worth thanks to a nuttily over-generous negative-gearing scheme? Give me a day and I would add substantially to this list.
Malcolm Turnbull, as well as deciding what you stand for, you have to figure out how to fix the debt and deficit mess we are wallowing in, propose fair changes to various entitlements as part of the repair job, and persuade a large majority of Australians the changes are both necessary and fair. Arusha and beyond.
Henry’s editor presents another chapter of his career retirement celebration, a career not perfect but called ‘bloody effective’ by many.
On our free day in Arusha we were determined to be out and about. The hotel staff were anxious that we not venture too far out and about, and indeed strongly advised we not stray too far from the hotel and its immediate precincts, taking a bodyguard not matter how insignificant a distance our jaunt. (This advice did not look so silly in the light of the several armed guards in the hotel lobby and guarding the front door and entry and exits to the hotel grounds.) We finally persuaded the staff to allow us to go unaccompanied to a market about 200 metres from the hotel. ‘Ignore the flycatchers’ a young woman advised as we sallied forth.
As we were mainly interested in adding to our collection of ‘Street Art’ we went to a market that was advised by the hotel staff. The market concerned had many, many small stalls packed with paintings, almost all of which looked like prints on canvas. Other stores featured colourful trinkets and traditional carvings, some of which had been knocked about and rolled in dust to make them seem old and venerable. The isles were narrow, and we were invited in, occasionally pulled in. ‘Is this your own work’ was our standard question about the ‘paintings’. ‘Yes’ was the most common answer, ‘my brother’ sometimes and occasionally ‘a friend’.
We decided on two images we could live with, despite suspicion that they were merely prints. We told the likeable store holder we wanted to think about our decision and might be back later in the day.
We returned to the hotel and did some more research. This mentioned a more established shop, also close to our hotel, so we again sallied forth. This time, location being slightly more complicated, we agreed on someone to accompany us. This fellow attempted to persuade us to go to a store other that the one that both the internet and the hotel staff had recommended. When we refused his advice he became quite angry and we went back to the hotel to say we were not happy with him and that we would go ourselves.
In our preferred store we immediately liked what was on offer and the store keeper was older and more used to selling to tourists. His paintings were clearly of higher quality than those in the market and were clearly paintings, as one could the rough surface and brush strokes. The artist was a brother of a famous artist, now sadly deceased. The price was fixed, and not much more than our favourite paintings from the market. While we could have bargained in the market, we settled for a higher price for a better product and the safety of a properly organised business.
Fiona Prior sees Love and Friendship, a film based on the novella Lady Susan written by a 19-year-old Jane Austen. More here
Sunday Sanity Break, 17 July 2016
Date: Sunday, July 17, 2016
Author: Henry Thornton
Safari 2016 #1 – getting there.
What should you do with someone else’s briefcase in a major airport? This was our dilemma at Rome Fuimicino airport as we were leaving recently. Our driver, Eric from Taxi Transfers, an excellent business run from London, drove well, pointing out major features as we travelled. Eric emptied the boot of the car, demonstrated with a flourish that the boot was completely empty, and drove off at speed.
We loaded our luggage onto an airport trolley and discovered an extra item. The extra item was an open briefcase so we looked to see if it looked dangerous – just paper, with lists of clients, perhaps an earlier customer’s, or Eric’s administrative notes. (‘Make sure all luggage is unloaded’.)
So what to do? We went to our check-in, which fortunately was for business class with virtually no queue. There we checked our bags and explained our dilemma. A very helpful check-in lady suggested we call Taxi Transfers, which she agreed to do, and after a couple of tries spoke to someone in London. ‘We have no man called Eric working in Rome’ London explained unhelpfully. Was Eric filling in for a friend? Clearly the airline felt unable to take possession, especially as Eric had been disowned. I was reluctant to simply put the bag in a bin. After discussion I suggested that I’d explain our problem at security, which the check-in lady endorsed with some enthusiasm. I emailed London to say that is what I would try to do.
We were lucky to have a fast track pass. The young bloke in charge of sending us for screening was somewhat panicked about Eric’s briefcase, and higher authority was consulted. I suggested security take the bag, as what else could I do with it. “You should have just left it outside the airport,’ suggested my young friend. “That would not be responsible,’ I responded, ‘think of the chaos that could have resulted’. ‘I suppose you are right’ the young bloke conceded, and sent me on my way without further palaver.
Business class on Qatar Air from Rome to Doha was like First Class on Qantas from Melbourne to LA. Doha was hot – very hot – and its airport is simply enormous with lots of workers apparently hanging about not doing much. We managed a few hours sleep in the airport hotel then joined the 8.30 am flight to Kilimanjaro Airport. The airplane was pretty old, but not noticeably older than the Qantas plane on which we were taken from LA to Washington several weeks ago.
As we approached the airport the famous mountain peeped out from the cloud. At the airport there was a fair bit of chaos, and despite having purchased visas in advance we were required to fill in forms before we could approach the customs men. Those people quickly stamped both the form and the passport and we were there, in Tanzania. Our baggage arrived quickly and while we were waiting we watched tasteful scenes of lions attacking small buffalos only to be tossed in the air by large buffalos and a crocodile being attacked by a large spotted feline, and carried off by the feline, despite the feline being the smaller animal.
The trip to Arusha hotel took about 40 minutes. We saw kids walking home from school, small shops that suggested real poverty, very dry fields, the rains being late or not happening this year, and a vast attempt to turn the main road into Arusha into a double highway. This was a project by a Chinese company, who had been working on it for 2 years and looked about 25% finished. Our highly intelligent driver said there was a lot of Chinese influence but the Chinese were greatly disliked. Michael also gave us a briefing on many matters including tribal and language structures, Tanzanian diets (amid widespread poverty), politics from colonial times, the unique Tanzanite gems and many other interesting matters.
Michael’s English and general knowledge was impeccable and if I were a recruiting officer for Australia I’d have tried to sign him up on the spot. Tonight we rest in the Arusha hotel and tomorrow we head off on The Safari. Readers if so inclined may wish us luck. We are advised in advance that Leopard Tours (whose safari we are to join) has no responsibility for illness or injury and we should be very careful. It is especially important not to wander around camp sites at night as the animals are both genuinely wild and often hungry.
Fiona Prior saw Sydney Film Festival's opening film Goldstone. '(Goldstone) has a heartfelt dignity that feels very Australian ...' along with all the adrenalin rushes you would expect of a thriller set in the Australian outbook. More here
Sunday Sanity Break, 3 July 2016
Date: Sunday, July 03, 2016
Author: Henry Thornton
Sunday Sanity Break, 3 July 2016
It is a weekend of shocks. Collingwood beat Carlton by 2 goals after what (given the low scores of both teams) must have been an old fashioned arm wrestle. Iceland (we hope) beats France in the Euro cup quarter final being held tomorrow. And the Australian election is one of the best ever with the result not known when we all went to bed at midnight and no more counting ‘til Tuesday. (Did I hear Malcolm say that late in the proceedings?) Seems there are only three plausible outcomes – a narrow absolute majority for Turnbull, a hung parliament with a minority Turnbull government or a hung parliament with a minority Shorten government. But the government, if it is any option, will not have a majority in the joint sitting of parliament.
The Thornton entourage in Prato – Henry, Mrs T, daughter and daughter’s friend – sat down to watch the coverage by the Sky News team, shown internationally on The Australia Channel. The regular Sky News Team were scattered around Australia. Visitors included Michael Kroger, George Brandis, Peta Credlin, Kristina Keneally , two Labor men whose names Henry missed, and a couple of brief but welcome appearances by Richo, chirpy as ever but in a wheelchair. David Spears officiated, although toward the end was having trouble maintaining discipline as his high-powered panel began shouting at each other. In distant Australia Bert Thornton was maintaining a 30 year tradition with a Thornton election party.
The result was too close to call from the getgo. The fact that the polls got it right in predicting a very close result was the first surprise. The fact that Labor did better than anyone but Bill Shorten predicted, and then only in his wilder dreams, was another surprise.
Reasons for these surprises were discussed at length as the coverage continued. Michael Kroger was, as he often is, crisper than others: From September to May the promised plan to provide coherent economic leadership was missing – ‘too much drift’; the government’s attempt to tax people’s superannuation ‘enraged’ many more Liberal supporters than expected; and thirdly ‘Labor’s big lie’ about the plan to privatise Medicare. The Labor men whose names I forgot to write down became progressively more cheerful as it became clearer that Bill Shorten’s campaign was doing far better that most pundits had expected. The ‘big lie’ allegation was ‘answered’ by presentation of counter allegations about alleged past Coalition misbehaviour.
Peta Credlin was in Henry’s view the star of the show. The young ladies present were impressed; ‘she’s really scary’ was their initial offering but the older people were more impressed by her obvious competence, loyalty to her previous boss (while maintaining the party line that Malcolm was the current best hope of the side) and endorsing the idea that September to May’s drift was unhelpful. She added that ‘The Double Dissolution was a grave mistake’ and ‘Malcolm should have gone early’.
Kristina Keneally was another star. Always on message but hard-edged comment in a measured manner. One wishes she had gone to Canberra. There was general agreement that the result meant that ‘Malcolm has no mandate’, reinforced by the fact that very little had been put on the table anyway. People were puzzled why the building union atrocity matter (ABCC) had hardly been mentioned. Peta Credlin noted that ‘Bill ran a cracker of a campaign’.
When Bill arrived he was given a hero’s welcome by the Labor faithful, your humble scribe thinks deservedly so. He spoke well, effectively claiming a victory while thanking his whole team and presenting an humble persona. His final claim was that whatever happens to the parliament, Labor would prevent Medicare from being privatised. He was applauded to the rafters and looked and acted like the winner.
Malcolm was late to arrive, and left for his CBD headquarters from his Eastern Suburbs fortress with Lucy well after Bill’s rapturous reception. He then spent another 30 minutes consulting with his team (Peta advised) before being welcomed by his supporters. Both the leader and the supporters were obviously surprised and shaken, though Malcolm managed a smile and a few optimistic opening words. The key narrative had changed significantly, and crucially, if it is not too late. Still, he asserted, it was a wonderful time to be alive, but there were many challenges if we were to take advantages of the opportunities. At last, a recognition that there was serious work to be done, though no hint that sacrifices might be needed, labour reform was essential and there was a massive budgetary problem that remained to be addressed.
There was also more than the usual handwaving, hands almost continuously in motion being moved up and down, and sometimes from side to side, at a speed that made them appear blurred, reflecting perhaps the attempt to refashion the narrative in only 30 minutes late at night after a very hard day. Clearly stressed and shocked.
Lots of fun to come, and whomever is leader when the votes are counted will need to get better advice, and indeed to listen to better advice, than the current leadership team of both parties. Both Labor and the Coalition have a massive job to do to craft a viable recovery and booming plan for the Australian economy. If possible there should be some negotiating and horse trading to preserve the sacred icons of both main parties. ‘You’re dreaming now Henry’, Mrs T asserted when she perused these comments.
Global currents – two excellent articles The latest Economist contains an article ‘The consensus crumbles’. A concluding comment is important: ‘The benefits of [economic] openness are massive. It is increasingly clear, however, that supporters of economic integration underestimated the risks both that big slices of society would feel left behind and that nationalism would continue to provide an alluring alternative. Either error alone might have undercut support for globalisation – and the six decades of relative peace and prosperity it has brought. In combination, they threaten to reverse it’.
David Brooks in the International NYT this weekend discusses ‘The coming political realignment’. ‘Donald Trump has done something politically smart and substantively revolutionary. He is a Republican presidential candidate running against free trade and, effectively, free markets’.
And in conclusion: ‘The prophets of closedness will argue that the problem is trade. The prophets of openness will argue that need the dynamism that free trade brings. We just need to be more aggressive in equipping people to thrive in that dynamic landscape. If facts matter in this debate – and I am not sure they do – the proponents of openness are massively right’.
Of course, what is the plan to ‘equip people to thrive in that dynamic landscape’. Malcolm, Bill, that is a big question you might try to reach a sensible agreement on.
Kulture All roads leading to Canberra this week; at least on the domestic front. Fiona Prior revisits the work of star Australian artist Fiona Hall, presently on exhibition at Canberra's National Gallery of Australia (NGA). FP first saw Fiona Hall's exhibition Wrong Way Time as Australia's official entry in the Venice Biennale 2015. More here.
image: Wrong Way Time (detail) by Fiona Hall
Image of the week
Sunday Sanity Break, 26 June 2016
Date: Sunday, June 26, 2016
Author: Henry Thornton
Sunday Sanity Break, 26 June 2016
‘This is a thunderbolt’ exclaimed some senior Eurocrat. This was an referendum – ‘Remain or Leave’ – that the great and the good said should, and would, produce a clear ‘remain’ verdict until the result left many stunned pollies. The polls got closer when they it said was too close to call. But the punters, apparently including George Soros, got it right and again won billions punting against sterling. Was it the president of the EU when asked if others would leave, snarled ‘No’ and stormed away from the press conference. Clearly no great democrat.
In contrast to the stunned mullets in senior political jobs, the governor of the Bank of England, Mark Carney, appeared to offer a calm sense of purpose. With the U K Treasury and the European Central Bank and other agencies, he has been working an action plan to quell financial volatility and keep the global financial system from imploding. In Henry’s view it is significant that UK shares fell less than German and French shares and the big falls in sterling and some other currencies were partly reversed by Friday evening. Anyway, with politicians looking shocked, it was good to see the key independent central banker calming the situation.
Friday morning the world discovered that ‘The British had rebelled’. This was proclaimed in an article about ‘populist anger’, as the International New York Times put it. ‘Their stunning vote to leave the European Union presents a political, economic and existential crisis for a bloc already reeling from entrenched problems’. The support for Donald Trump in America and unpopularity of the EU hierarchy represents the same popular ‘thumb in the eye’. Even in distant Australia, the low ratings for the Turnbull government and the Labor opposition, with offsetting support for amateurs and splinter groups, may well be driven by similar characteristic.
Mrs Thornton believes many people in the developed world are deeply unhappy with a number of economic trends. Many jobs are navigating to less developed nations, famously of course China and the fast growing, low wage nations of South East Asia. Once the jobs drought was largely about blue collar workers but now the drought has spread to the more influential middle classes. Middle class kids work hard to gain one or two degrees but find it desperately hard to get jobs that use their newly acquired skills.
Where these trends will go is a common discussion. Elites in business and the public service are paid what seem extraordinary amounts to come to work, producing a widening distribution of income and wealth with little ‘trickle down’ to justify elite rewards. In some nations, especially the USA where real wages have stagnated for decades, people ask themselves what are the benefits of the new age of freer trade. And there is populist anger at the apparent inability of governments to curb terrorist atrocities or to find ways to stop waves of refugees fleeing mayhem of terror groups in places such as Syria, Iraq and Afghanistan.
The sharper pundits have observed that Britain has form in the matter of independence from continental Europe. Henry the Eighth cut loose from the Catholic Church in the sixteenth century. Perhaps this was to free Henry (the Eighth) from the strictures of that church for personal reasons but there has been no popular move to reinstate the Catholic Pope as head of the main religious organisation in the United Kingdom. A more cynical interpretation was offered by Yes Minister in 1980. http://www.smh.com.au/entertainment/tv-and-radio/how-yes-minister-predicted-brexit-20160626-gps1pj.html
Fiona Prior visits the Frida Kahlo and Diego Rivera exhibition at the AGNSW. More here
Image of the week – The Brexit, courtesy Giorgio Vasari, 1543
image: The Brexit courtesy Giorgio Vasari, 1543
Sunday Sanity Break, 5 June 2016
Date: Sunday, June 05, 2016
Author: Henry Thornton
Sunday Sanity Break, 5 June 2016
Growth of Australia's debt is unsustainable. Thanks to LF economics for preparing some startling new statistics of Government debt and Household Debt from 1850 and to Adam Creighton for publicising LF's paper on the subject.
As a percentage of GDP, Australia's government debt is 'only' 34 %. But budget deficits are predicted to persist as long as the eye can see AND borrowing costs are at record lows.
The government debt ratio will keep rising unless and until the government deficit turns into a surplus. The task of producing a surplus will at least double when global interest rates return to normal.
Current trends in government debt are very similar to those predicted by RBA research in 1986. These trends alarmed Treasurer Paul Keating and he persuaded the nation and cabinet to cop serious fiscal tighting with his 'Banana Republic'.
The current Turnbull government has hardly discussed the threat of continued growth of debt and deficits, so the public can be excused for believing it is not a problem and that even Labor's deficits can be funded.
But the other series is in the LF graph we regard as the image of the week, and also the image of 2016.
Household debt is an utterly unsustainable 160 percent of household income and has all the problems of national debt multiplied by approximately six. When interest rates return to normal, many Australian households will be in deep financial trouble.
Should house prices and/or share prices fall, the trouble will be multiplied further.
Secretary to Treasury is going to retire after the election. It would be better for his reputation, and much better for Australia's future if he decided to stay and gave the post election Treasurer a briefing that laid out the issues summarised here in all their potential horror.
Perhaps the retiring Secretary knows the task is impossible so it may be best if his body is dragged off the field and a successor is found who is bright enough to construct the briefing I think is needed and brave enough to present it.
Of course, the incoming Treasurer may not want brains and courage. 'Let's muddle along, Prime Minister, something will turn up. Blogs (the incoming Treasurer's choice) won't cause any trouble and the RBA thinks we'll muddle through.'
Poor old Blogs, his reputation will be in tatters, and a future serious conservative government will need to sort out Australia's love of debt and persuade us all to cop a decade of austerity. The austerity will be the greater the longer the current unsustainable game is allowed to go on
Fiona Prior visits the very different sartorial styles of Isabella Blow and Collette Dinnigan at Sydney's Powerhouse Museum. More here.