Industrial relations reform; what works, what don't
Date: Tuesday, March 20, 2012
Author: Henry Thornton
Did WorkChoices or does Fair Work Australia make any discernable difference to Australia's macroeconomic outcomes?
Jeff Boreland is one of Australia's finest economists. In 2010 he was the Professor of Australian Studies at Harvard University and his regular job is Professor of Economics at Melbourne University, where he is a popular teacher and a highly respected researcher.
Professor Jeff Boreland
Last night he gave a public lecture at the university. Called 'Industrial relations reform: Chasing a pot of gold at the end of the rainbow'.
The bottom line? Australia's labor market performed far better in the 2000s than in the 19980s or 19990s, but there is no discernable differences between the WorkChoices (WC) regime or the Fair Work Australia (FWA) regime.
This is because the big labor market reform in Australia was due to Paul Keating and the introduction of enterprise bargaining, which occurred in the late 1980s and during the 1990s.
Professor Boreland's talk was based on a scholarly paper presented to a recent RBA conference, and linked here.
Boreland says in his introduction, writing about the labor market in the the decade of the 2000s: 'Lack of newspaper headlines and attention from policy-makers and researchers does not, however, mean that the Australian labour market was not an interesting place. The fact that the decade was quiet is itself of interest. That a mining boom was accommodated without a breakout in wage inflation or a worsening in matching efficiency, and that the global financial crisis (GFC) was navigated without a large increase in the rate of unemployment, can be considered considerable achievements. More generally, wellbeing in the Australian labour market improved during the decade as the incidence of long-term unemployment and jobless families declined, and there were increases in real earnings for workers throughout the earnings distribution'.
How did this happen? ' ...in the late 1980s and early 1990s ... [a] series of reforms (including the Industrial Relations Amendment Act 1992 and 1994, and the Industrial Relations Reform Act 1993) encouraged the spread of enterprise bargaining, allowing a collective agreement for an individual enterprise registered with the Industrial Relations Commission to replace the award that would otherwise apply to those workers, provided a no-disadvantage test was met. Awards were defined to constitute a ‘safety net’. New unfair dismissal provisions were also introduced.
'The Workplace Relations and Other Legislation Amendment Act 1996 introduced further reform: scope for agreements with individual workers; restrictions on the role of unions and multi-employer agreements; a reduced role for the award system, with the IRC restricted to setting minimum wages and conditions regarding 20 allowable matters, and no scope to arbitrate on matters above the minimum safety net; outlawing of union preference clauses, and discrimination in favour of union members; and limits on the right to strike.
'As the reforms to the IR system were spread throughout the 1990s, and during that period were not ‘tested’ by a major downturn or by a booming sector in the economy, the 2000s take on significance as a period where any effects of these reforms might be revealed'.
Professor Boreland examines various aspects of the labor market, and its relationship to various other macroeconomic indicators.
As an old 'Phillips curve' exponant, his work in this area is of particular interest. The 'Phillips curve' is a two dimensional relationship between a rate of inflation (goods and services inflation or wage inflation) and some measure of capacity utilisation, such as the rate of unemployment. While regression equations can attempt to measure the 'trade off' between capacity utilisation and inflation in several dimensions, there is much to be gleaned from the two dimensional picture that is a 'Phillips curve'.
Almost 50 years ago, with the onset of global inflation, the 'Phillips curve' was moving outwards as inflation built. In the 2000s, the Phillips curve moved inward, possibly reflecting the reduction of inflation with the introduction of an 'independent' central bank with a mandate to restrain (goods and services) inflation, possibly the spread of enterprise bargaining.
Jeff Boreland's Phillips curve
Professor Boreland sees this matter in a more general framework: 'The Phillips curve provides a more general way to study wage inflation. A first look at this relation gives an impression of a shift in the nature of wage-setting from the late 1990s onwards, with the Phillips curve moving inward and showing a decreased responsiveness of inflation to demand pressure. This impression turns out to partly reflect the measure of labour demand used.
'Including a broader measure of labour demand, that incorporates the increasing importance of underemployment as a component of labour underutilisation, shows less evidence of a shift. Nevertheless, it seems reasonable to conclude that some shift in the Phillips curve has occurred.
'This shift may reflect changes to macroeconomic policy [the inflation targeting central bank], to the industrial relations system, or possibly increasing exposure of the Australian economy to international trade [or possibly all three factors working together]. A weakened relation between inflation and labour demand from the late 1990s onwards is consistent with the mining boom having had a minimal effect on wage inflation in Australia'. [Words in square brackets added by Henry.]
As with many other measures, however, there is no obvious change in the Phillips curve 'trade off' as between the WorkChoices regime and the Fair Work Australia regime.
Of course, this may reflect the shortness of the time available under each regime.
Certainly, some authors are still fighting for the WorkChoices regime, witness Judith Sloan in the Australian today and the Australian's editorialist.
Sloan: 'The combined operation of the unfair dismissal and adverse action provisions sends a chill through the business community, crimping its willingness to take on new workers, particularly ones who could pose a risk. Strong employment protection laws and strong employment growth are infrequent bedfellows. It is time to reconsider these provisions and to debate the case for exempting small business'.
Editorialist: 'THE Fair Work industrial relations system is facing yet another test as a protracted dispute on the waterfront between Asciano and the Maritime Union of Australia reaches breaking point. As reported in The Australian yesterday, Asciano says the union is not bargaining in good faith under the provisions of the Fair Work Act and is refusing to finalise a new workplace agreement that was agreed in-principle last year'.
Jeff Boreland ended his lecture on a different note. With 'no discernable [macroeconomic] effect' of the two industrial relations policies tried during the 2000s, we should be more careful in introducing changes, which are inevitably costly, even if the costs are buried in the activities of Human Resource managers.
Professor Boreland said that policy reform can be subject to the 'Ikea effect'.
One sees and buys a shiny new piece of furniture. Once the costs of assembling the furniture at home have been allowed for, the purchase is likely to look not nearly so enciting.
In fact, once one allows for the costs of navigating through a complex maze of options when calling a 'service provider' (including within an enterprise the HR department) and waiting for a person (often to be found in some offshore location with limited English), one can make the same point that the Ikea effect applies to a whole range of modern administrative tasks.
Could this help explain the decline in Australia's productivity in recent years?
This is a matter for another day.
Wages growth slows; consumer confidence rises. Que?
Date: Thursday, November 15, 2012
Author: Henry Thornton
Following yesterday's report of sagging business confidence, today we are told that household confidence has risen.
The Westpac-Melbourne Institute Consumer Confidence jumped in November, up by 5.2 % to 104.3, the highest reading since April 2011. The NAB said: 'This came as a bit of a surprise, after the RBA went against expectations in November and left interest rates on hold'.
'A plausible explanation is that the 150 basis points of rate cuts since October is having a positive effect on consumer sentiment, augmented by the uptrend in house prices which has been evident over the past three months'.
Wages growth in the September quarter came in with a rise of 0.7 %, slowing from 1 % in June quarter for an annual rate of growth of 3.7 % (this measure is hourly rates of pay ex bonuses). Private wages slowed to 0.8 % from 0.9 % or 3.7 % in the year to September quarter.
Government sector wages growth slowed from 1 % in June quarter to 0.7 % in September quarter or 3.4 % in the year to September. The NAB speculates, plausibly enough, that this reflects the fiscal tightening which is underway across the country.
This is good news for the inflation outlook. Annualising the private sector component gives 3.2 %, a modest rate of growth and consistent with core inflation running within the RBA target band ahead.
The NAB's economics team says: 'This will give the RBA confidence in the inflation outlook they published last Friday, where they anticipated moderating wages pressures, because of the soft labour market'.
There is no simple message for economic prospects or the outlook for interest rate. A soft NAB business survey was reported yesterday, and today we get slower wages growth and a surprise bounce in consumer confidence. The team at NAB asks: 'But how do we reconcile perkier consumers and gloomier businesses?
Possibly the consumer confidence survey is a rogue reading, as the Roy Morgan measure of consumer confidence did not change.
Henry observes that conflicting signals from normally reliable economic indicators are a classic sign of a turning point.
Australian economy - wobbling on the edge
Date: Wednesday, November 14, 2012
Author: Henry Thornton
National Australia Bank's regular survey of its business customers make gloomy reading.
The summary is: 'Business conditions stumble to weakest level in more than three years, with wholesale and manufacturing conditions especially subdued. Capex index points to further softening in business investment, credit demand fell to record levels, while forward looking indicators suggest Q4 clearly below trend. Confidence also edges lower. Activity forecasts unchanged but 25bp February rate cut on the cards, providing modest Q4 CPI.
Further comment also interesting.
'Consistent with fairly uninspiring activity readings, indicators of future demand (forward orders, capital expenditure and capacity utilisation) were poor and point to continued soft near-term demand. The survey’s capital expenditure index fell to its lowest level since August 2009, suggesting the brakes may be tightening on the business investment boom – especially mining. Overall, the survey implies a pronounced slowing in underlying demand and GDP growth in December quarter 2012, to around 2¾% and 2-2¼% respectively – clearly below trend.
'Labour costs growth eased again in October, consistent with a softening in employment conditions. Product prices growth remained subdued, while purchase costs pressures rose a touch. Retail prices growth was weak'.
Henry suggests that you reread the RBA statement on Melbourne Cup Day, linked here.
While there is nothing totally contradicting the NAB's report, RBA's tone is distinctly cheerier.
It is not just the global economy that is edgy and uncertain.
Greek economy - and Spain's, Italy, Portugal and Ireland - sometimes called the PIIGS
Did anyone else see the ABC's wonderful feature overnight on what some enterprising Greeks are doing to stave off the effects of the crisis - now at Great Depression when 20 % of key working age people are unemployed and 58 % of young people. 'Going back to the land' is the answer, where in a worst case veges can be grown to feed the family.
At the highest level, 'Divisions over Greece burst into the open on Monday night when Christine Lagarde, the IMF chief, publicly contradicted Jean-Claude Juncker, chair of the eurogroup of finance ministers, over whether they had agreed to give Greece two more years to get its burgeoning debt levels down to 120 per cent of economic output'. More here.
The only viable solution, for Greece, Spain, perhaps Italy, probably Portugal and Ireland, involves two radical policy changes: repudiate debt (or have at least half of it forgiven); and devalue the local currency.
These are both actions that could only be achieved if the relevant nations left the constraint of the Eurozone, and there would be major adverse consequences for the Eurozone banks.
The suffering nations and their failed economies, must be given the relief that these radical policies demand, or their peoples will demand political solutions that few of us would relish.
Australian politics
Paul Kelly today compares Obama's campaign against Romney with Gillard's campaign against Abbott.
Certainly worth a read, and some careful thought if you are a member of the coalition leadership group.
Global economy `edgy and uncertain`
Date: Tuesday, November 13, 2012
Author: Henry Thornton
Today we update the global economy, first noting the chief concerns expressed last week about each major country or block, adding the further bad news from Japan plus subsequent journalistic commentary on the other areas of dire straits. My summary was 'The global situation remains uncertain and edgy'.
Henry: The US economy is estimated to be growing at around 2 per cent annually, which is about half its usual rate. Unemployment has fallen but so has the American ‘participation rate’, and the prospect is for a long, slow recovery even if there are no further shocks.
The shock everybody is worrying about, of course, concerns America's 'fiscal cliff'. The ever amiable and constructive Economist magazine, says this week.
'In less than two months’ time, unless a deal is struck, America will fall off a “fiscal cliff” that will, through a combination of automatic tax rises and spending cuts, subtract as much as 5% from GDP in a year. That would be a disaster for an economy growing at an annual rate of barely 2%. But behind this immediate crisis is the deeper one: America taxes itself like a small-state economy, and spends like a big-state one. Add in an ageing population, and it is going broke. ...
'In his first term, Mr Obama broadly got the economics right, but his White House waged a destructive war of words against business. If he wants to help America’s poor, he would do better to embrace a truly progressive agenda, based on competition, reforming government so that it targets spending on the most needy, and reforming taxes. ...
'All this is plainly in Mr Obama’s interest—and that of his country, too. ...
'Plenty of independent voters, and this newspaper, yearn for a more pragmatic Republican Party. Doing a deal on the deficit with Mr Obama would signal its rebirth.
'Above all, though, a bipartisan deal over the budget would be good for America—and the world. It would encourage business to invest, thus strengthening America’s economy and raising the country’s standing, and indeed the standing of market capitalism'.
Henry: The Eurozone leaders are far from united, and we all know that disunity is death. Germany and other ‘northern’ Eurozone nations are preaching austerity but this may change as their own economies begin to sink under the pressure of retrenchment and austerity elsewhere. The ‘southern’ Eurozone nations are attempting to impose austerity but finding their people, ie voters, are fighting back.
Ambrose Evans-Pritchard wonders who will stop the Sado-monetarists of Europe: 'I agree with the IFO Institute’s Hans-Werner Sinn that upholding euro membership has by now become an act of cruelty. It not being done in the interests of Greeks. It is being done for the Project, by enforcers of the Project. Only by breaking free can Greece restore a minimum of economic vibrancy and national dignity.
'Everything we know from labour studies is that the early twenties are crucial years, shaping lifelong career paths and earnings ten to fifteen years beyond. The worst economic crime you cannot commit is to leave 58pc of youth grinding away their days in frustration in cafés, if they can afford the coffee'.
Henry: China's State Owned Enterprises have been operating in a system that values job creation over making profits, and many have racked up debts that have been financed by China’s banks. The transition to a world of largely profitable enterprises and banks with only small and predictable bad debts will not be easy.
'Nomura's early warning signal for the Chinese financial system – the China Stress Index – is flashing amber again', says Ambrose Evans-Pritchard.
'Its case against China: "overinvestment and excessive credit; a rudimentary monetary policy architecture; too many privileges for state-owned enterprises; unintended consequences of financial liberalisation; the Lewis turning point; and growing pains from worsening demographics and increasing strains on natural resources."
'Could matters get worse? Of course, if the shadow banking system is as unsafe as critics fear.
'The long-term story may come off the rails if the Politburo shrinks from real reform at this week's Party Congress and condemns the country to the middle income trap'.
And today we must add a big fall in Japanese GDP to the list of major concerns.
'Japan’s economy shrank an annualised 3.5 per cent between July and September, the steepest decline since the earthquake-hit first quarter of 2011, as exporters suffered big falls in shipments to key markets such as China and Europe.
'Prime Minister Yoshihiko Noda described the gross domestic product figures as “severe”, while Seiji Maehara, economy minister, said Japan had possibly entered a “recessionary phase”.' More here.
In conclusion ...
The world's free press can see the problems, and are saying that the current approach of 'the powers' is dangerously out of touch with the views of the free press.
We must not forget that in most parts of the world the people who produced the crisis, or other similar people who failed to protest about the trends that produced the crisis, are in charge.
The various issues discussed here can with credibility be described as making the global economic scene 'edgy and uncertain'. Vigilance, gentle readers!
Saturday Sanity Break, 10 November 2012
Date: Saturday, November 10, 2012
Author: Henry Thornton
Lest we forget.
No chance of that is you read the long account by Paul Kelly and Patrick Walters of the great victory at Al Aaemein and Australia's magnificent role, and heavy losses, in that victory.
'Churchill's message to prime minister John Curtin after the 9th Division's return ... reflected the recognition among British elites that, at the fulcrum of the war in the Western Desert, the Australians had done something special.
'In his March 6, 1943, cable, Churchill said: "As I told General Morshead in a letter I gave him before his departure from Cairo, this division has left behind it a record of energy, courage, enterprise and daring which will be an imperishable memory among all the nations of the British Empire who fought in true comradeship in the Western Desert".'
Courtesy The Oz
RBA predictions and the next rate cut.
The RBA released its monetary policy review yesterday while Henry was watching the cricket and feeling increasingly despondant about the summer's sporting disctractions.
Here is the link, and it is a 'must read' for anyone interested in Australia's economic future. Terry McCrann has done a fine forensic job, showing the deep uncertainty surrounding (any) economic forecasts at present and the critical importance of the key labor market data, including jobs growth and wage increases.
'... the mix of jobs and wages data has become ... critical to the RBA's rate decisions, in the context of a still-strong dollar and projections of slowing resources investment. Just as that highish 0.75 per cent underlying inflation number eliminated any possibility of a Melbourne Cup day rate cut, a high wages number (around 1 per cent) would -- other things being equal -- do the same for December.
'A lowish wages number (0.7 or 0.8 per cent), with a continuing strong dollar, would make a December cut very possible'.
Treasury leaks and other political games
Henry's immediate outrage about the Treasurer's leaking of a Treasury review of some coalition policies has been repeated to varying degrees by several of the more conservative commentators.
He concludes: 'The person who has been damaged most by this week's events, however, is the innocent bureaucrat who has been mixed up in the government's gamesmanship: Parkinson. Because Labor attempted to pit him against Hockey, cries for Parkinson's removal if the Coalition wins the next election have got louder within the partyroom.
'Hockey might hold on to Parkinson until his contract expires because he is competent and such people can be few and far between at the upper echelons of the public service. But no one should expect him to be around for long after that.
'If Parkinson was the individual loser from the costings debate this week, the public is the collective loser. There is now no way that the Coalition will submit its suite of policies to the Treasury for costing in the lead-up to next year's election. That means it will instead use its own accountants - hopefully this time not ones who are fined for breaching professional standards in their work on the costings, as occurred at the 2010 election'.
Image of the week
Courtesy The Oz
Economic and political round-up, 9 November 2012
Date: Friday, November 09, 2012
Author: Henry Thornton
The Economist said: 'So Barack Obama won—and by a larger margin than many expected. In our cover leader we argue that he must now swallow his pride and work with the Republicans. A budget deal would help the president, his opponents, his country and the world'.
On the jobs data which may have helped Mr. Obama to win, the venerable mag said: 'NEVER has higher unemployment seemed so good. America's jobless rate edged up to 7.9% in October from 7.8% in September. For a change, that is not a reason for despair, because it rose for the right reason—more people are looking for work—and because it reinforces other signs of healing in the labour market, including last month's sharp and unexpected fall in unemployment'.
The looming 'fiscal cliff' will be much in the news, but Henry confesses that going over it may be no bad thing. Such a result would provide a big wake-up call for Americans, and the resulting recession would remind them all that it is hard work and thrift that are the bedrock requirements for a strong economy. Might even provide some lessons for other profligate governments, although too late for Ms Gillard and Mr Swan.
Serious riots in Athens followed passing of a fresh round of austerity legislation by the oldest (if not the most continuous) democratic parliament in the world. The Eurozone remains in an unsustainable state with rising tension between debt reducers/ austerity imposers and anti-debt reducers. Latest reports suggest that 'Northen' Eurozone populations are getting restive as they get their own taste of austerity as exports to 'southern' Eurozone nations dry up.
China's week long process of appointing new leaders begins. No vicious debates, no offensive and intrusive television ads and no idiots door-knocking and leaflet stuffing. Just the occasional show-trial of leading candidates and (no doubt) quiet resort to the garrotte.
'Corruption may be Chinese Communist Party's death knell', Hu Jintao warns as he passes on his farewell message to the comrades.
Australia's economic news included another jobs report showing modest net new jobs growth and official (ABS) unemployment at 5.4 %.
We remain of the view that the RBA economists, even (gasp!) Glenn Stevens himself, are far too committed to the rosy picture shown by official statistics. And also have ignored the news from surveys by banks showing a widespread fear of rising unemployment among households (Westpac) or business conditions declining during the September quarter (NAB). More here.
It was good to hear Treasury Secretary Martin Parkinson say Treasury did not leak its advice to Wayne Swan about costs of coalition policies. But we were gobsmacked to hear that Treasury feels bound to provide such costings after a referral from the Treasurer. Surely this is inappropriate, and it is inappropriate even if Treasury once accepted such a referral from Treasurer Costello.
Speaking of politics, did anyone else feel, like Henry, that Governor Romney's concession speech, and President Obama's acceptance speech, both set standards for political rhetoric that can only be dreamed about in Australia. What about a bi-partisan agreement to behave like American politicians until after the next election, Julia and Tony?
At last, a replacement for the disappointing (for Henry, a Caaaarlton! supporter) footy season. 'Openers as green as the pitch' says the Oz, burning as it is with patriotic fever.
Congratulations President Obama
Date: Thursday, November 08, 2012
Author: Henry Thornton
The US president has been re-elected and is immediately faced with the so-called 'fiscal cliff'.
The cliff concerned is a set of automatic tax hikes and spending cuts that over the best part of a decade would fix America's budget woes at the cost, so the Keynesians, even some of the monetarists, say of creating an almost immediate severe recession.
Henry is not so sure. Remember Paul Volcker's supposed 'change of operating procdures' for US monetary policy, actually a 'short sharp shock' that restored sense to American monetary policy. To be sure, there was a short sharp recession, but non-inflationary growth resumed within a year or so.
The benefit of a 'short sharp shock' for America now would be to capture everyone's attention and drive home a point made by Mr. Obama in his magnificent acceptance speech. The answer to America's woes lies with households and businesses. The challenge is to abandon the creeping sense of entitlement and the reliance on bailouts on both a large and a small scale, and to reemphasise the need for innovation and entrepreneurial go-getting as the core values in American business.
The Economist said: 'So Barack Obama won—and by a larger margin than many expected. In our cover leader we argue that he must now swallow his pride and work with the Republicans. A budget deal would help the president, his opponents, his country and the world'.
The fact of the leak, of the financial impact of several coalition policies, seems not to be in dispute.
But other questions remain - who referred the policies to Treasury; who within Treasury authorised the analysis; what is the standing policy with respect to actions that obviously seem to serve the interests of the Treasury?
People who live and work in Canberra seem, almost by definition, to support the left-leaning side of politics. Left-leaning Treasury officials naturally favour the government of a party, like the Australian Labor Party, that favours increased government spending and increased taxes to pay for the increased spending.
In Australia. the ALP when in government, takes every opportunity to appoint its own supporters, ar at least sympathisers, to key positions.
Traditionally, the Coalition when in power has adhered more strongly to the 'Westminster' tradition in which high government officials appointed by Labor are retained in office, thereby supporting the natural tendency for 'pro-government' officials to serve governments of both varieties.
Australia currently has a compromised 'Washminster' system of public service. If the Coalition wants a fair go in matters like support for government it needs to endorse in government a move to the Washington system, where key officials change when government changes. No more 'I'm not going to follow orders by some dick-headed minister', the phrase so memorably used by RBA Chief, ex Treasury chief, Bernie Fraser.
On 9/11 we added: 'It was good to hear Treasury Secretary Martin Parkinson say Treasury did not leak its advice to Wayne Swan about costs of coalition policies. But we were gobsmacked to hear that Treasury feels bound to provide such costings after a referral from the Treasurer. Surely this is inappropriate, and it is inappropriate even if Treasury once accepted such a referral from Treasurer Costello.
Later ...
Henry's immediate outrage about the Treasurer's leaking of a Treasury review of some coalition policies has been repeated to varying degrees by several of the more conservative commentators.
He concludes: 'The person who has been damaged most by this week's events, however, is the innocent bureaucrat who has been mixed up in the government's gamesmanship: Parkinson. Because Labor attempted to pit him against Hockey, cries for Parkinson's removal if the Coalition wins the next election have got louder within the partyroom.
'Hockey might hold on to Parkinson until his contract expires because he is competent and such people can be few and far between at the upper echelons of the public service. But no one should expect him to be around for long after that.
'If Parkinson was the individual loser from the costings debate this week, the public is the collective loser. There is now no way that the Coalition will submit its suite of policies to the Treasury for costing in the lead-up to next year's election. That means it will instead use its own accountants - hopefully this time not ones who are fined for breaching professional standards in their work on the costings, as occurred at the 2010 election'.
Courtesy Lobbecke, The Oz
Is the RBA biassed?
Is the RBA similarly biassed? It certainly reflects the natural tendency for people in favour of government action to join irs ranks and remain there throughout a career. It also benefits from the tendency for Labor governments to appoint their own (think Bernie Fraser), and for conservative governments to appoint insiders such as Ian Macfarlane who spent all of his working life as a government employee.
That said, the RBA has a far clearer focus than Treasury, meaning it is far easier for critics to judge whether or not it is acting within the strict terms of its brief.
I do not regard yesterday's decision to leave monetary policy unchanged as influenced by political bias. It is more a mtter of how connected is the bank and its board to the reality of the economy. My hypothesis is that the answer is that the board and the staff of the bank is insufficiently aware of the situation with two groups. The first is 'small business', a group it is awfully hard to be closely aware of, but which in present-day Australia is doing it hard.
The second overlooked group is households, esapecially battler households. RBA officials these days are paid well, have strong job security and receive the benefit of large housing loans that, with their high salaries, enable them to live in securely middle class suburbs in considerable comfort.
RBA Chief, Glenn Stevens said after his board's 'no rate cut' decision: 'Further effects of actions already taken to ease monetary policy can be expected over time. The Board will continue to monitor those effects, together with information about the various other factors affecting the outlook for growth and inflation'.
One wonders if the board even stopped to consider the three points pulled out of the mass of economic data released in the past month:
* Westpac survey of consumer sentiment: ' The vast majority of consumers have been expecting and continue to expect unemployment to rise’.
* NAB survey of business customers: '‘Based on a comparison with monthly survey results, conditions appear to have deteriorated through the [September] quarter’.
* Roy Morgan survey of unemployment and underemployment, showing a far worse labor market than official (ABS) data.
These reports were key input to Henry's call for a further rate cut and may be of little significance to the grand picture surveyed from the commanding heights of Martin Place. But how embarrassing for Glenn Stevens and his merry men and women if they turn out to have been prescient warnings that were ignored.
Trifecta opportunity
Date: Tuesday, November 06, 2012
Author: Henry Thornton
If you are a punter, there are three pretty good opportunities around today.
Like a blue moon, such an opportunity rarely comes around, and we feel honour bound to try our hand.
Here are the thoughts of Henry's man on the ground in DC/Virginia, Harsh Voruganti, who says Obama will win.
And for your next punt
If you get all these punts right, you may wish to put your winnings on Caaaarlton! for the AFL premiership next year.
Supercoach Mick Malthouse started work yesterday and his death stare was well to the fore.
IMAGE OF THE DAY
Australia`s small business - dire straits
Date: Monday, November 05, 2012
Author: Henry Thornton
Australia's small businesses are failing, and households are worrying, while the goverment crows about its economic expertise.
There are two unlargely overlooked indicators of extreme stress, from the latest surveys conducted by Westpac and National Australia bank.
Westpac survey of consumer sentiment: ' The vast majority of consumers have been expecting and continue to expect unemployment to rise’.
NAB survey of business customers: '‘Based on a comparison with monthly survey results, conditions appear to have deteriorated through the [September] quarter’.
The mid-term budget revised tax receipts down and saved a wafer thin (projected) surplus only by assuming large companies would be required to pay tax monthly in future, along with a number of other fanciful changes. Practically no-one Henry respects believes that the government will actually deliver a surplus, and the weasel words are beginning to enter the government’s lexicon. Memo Wayne Swan – these word games destroy confidence rather than enhancing it.
Now Access Economics have confirmed that a more sensible budget projection would see around four billion added to the deficit.
The ‘official’ (ABS) measure of unemployment jumped from 5.1 per cent to 5.4 per cent in September. This is a tiny move in the direction of reality, as revealed for years by Roy Morgan surveys. This is another disconnect that ordinary Australians are aware of that destroys confidence rather than improving it.
Productivity remains low, and there is no plan to improve the situation, and in particular no plan to address features of the ‘Fair Work’ legislation that hamper productivity. The hard times now facing many Australians will enforce productivity improvement, but the real economic reforms that would help lift productivity more decisively, are conspicuously absent.
Most of our Saturday Sanity Break this week was devoted to Paul Kelly's account of retiring Productivity Commission Chairman, Gary Banks', considered advice on what needs to be done to improve Australia's dismal productivity performance.
Read Chairman Banks' speech for yourself here. If you fail to detect any correspondance between the advice of Australia's leading expert on productivity and government policy, you've grasped the core of Henry's concerns.
Saturday Sanity Break, 3 November, 2012
Date: Saturday, November 03, 2012
Author: Henry Thornton
U.S. job growth accelerated in October while the unemployment rate ticked higher as more Americans sought work, offering signs of a steady but slow recovery as candidates make a final push before Tuesday's presidential election.
U.S. nonfarm payrolls increased by a seasonally adjusted 171,000 jobs last month, the Labor Department said Friday. The politically important unemployment rate, obtained by a separate survey of U.S. households, rose one-tenth of a percentage point to 7.9%.
'A bigger-than-expected increase in October non-farm payrolls was offset by sharp declines in the Dow Jones Industrial Average, which was down 139.46 points on Friday night, or 1.1 per cent, to 13,093.16.
The drop reversed the gains Dow Jones had made over the week for an overall loss of 0.1 per cent, its second consecutive weekly loss.
The presidential election still looks too close to call, although President Obama's sterling efforts to look in charge and deeply sympathetic during the worst of the storm crisis are believed to have ended Governor Romney's previously strong momentum. Obama is said to be ahead in a majority of the key swing states.
'Deluded nation' fails to raise productivity.
The Melbourne Institute-Australian talkfest has provided plenty of copy. Paul Kelly provides a masterful summary today. Of most interest are his comments on retiring Productivity Chairman, Gary Banks', farewell oration.
'"There have been important omissions and 'blind spots'," Banks said of our productivity efforts.
'He produces a long list of failures that reflect badly on Labor but also the Howard government. He attacks remaining tariffs and huge industry subsidies "that cannot deliver demonstrable net social benefits" but cost taxpayers $9bn annually. He targets "green technology" scams worth more than $3bn, government procurement preferences to favour local suppliers, pharmacy ownership restrictions, taxi licence quotas, Labor's shipping protectionist policies, its ban on parallel book imports and calls for another round of competition reforms.
'Banks advocates reform and privatisation of public utilities. He wants transparent cost-benefit analysis before major infrastructure projects (think NBN among others) and proper pricing policy in water and electricity utilities.
'His most lethal critique, unsurprisingly, comes on industrial relations. This is the great ALP denial. Banks now sees the labour market reforms of the 1980s and 90s as "no brainers" addressing "obvious anti-productivity" aspects of a centralised, adversarial system (yet he overlooks the intensity of these reform battles).
'He said the commission's recent work on education, retail and electricity industries highlighted the need for reform. Addressing ALP and trade support for re-regulation of the IR system, Banks said: "Recently I found myself being condemned by union leaders for suggesting that such regulations should be treated no differently to other areas of social regulation that have potentially adverse economic impact." This is the entire point.
'For Banks, proponents of such policies "should be required to demonstrate that there are public interest benefits that exceed the economic costs." Indeed, Banks says the hostility provoked by his "unexceptional proposal" in the public interest merely reveals the need to have IR reform on the list.
'He warns of areas where regulation may inhibit productivity: native vegetation, heritage regulations, renewable energy targets, stamp duties, planning and zoning controls, rural water and waste management.
'Taking Labor's favoured arena of productivity enhancement, education and human capital, Banks says early education should be re-focused on the disadvantaged, salary differentials must play a greater role in getting the best teachers, school principals need more genuine authority, and the industrial system in schools and colleges must be more flexible.
'Why has Australia not done more on productivity? For Banks, the answer is many proposals are unpopular and strike vested interests. Take tax reform: fewer taxes with broader bases and lower rates. This would assist productivity but the outstanding items are "the hardest political nuts to crack".' More here.
Read Chairman Banks' speech for yourself here. If you fail to detect any correspondance between the advice of Australia's leading expert on productivity and government policy, you've grasped the core of Henry's concerns about the Australian economy.
Professor Jeff Boreland
Courtesy The Oz
Courtesy Lobbecke, The Oz
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