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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
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.

Sunday Sanity Break, 10 April 2016
Date: Sunday, April 10, 2016
Author: Henry Thornton

Treasurer and Treasury are beavering away trying to produce a saleable budget with little of substance to play with. No major spending cuts, as Paul Keating extracted from a Labor expenditure review Committee during the Banana Republic crisis of 1986 - discussed here last week

Judging by occasional comment, there is to be no GST increase, not much relief from bracket creep in the income tax schedule, at best delayed cuts to company tax, perhaps some fiddling to Superannuation contribution tax.

The problem of course is 'Australia has a wonderful future, its a great time to be an Occer', a belated message about living within our means when debt and deficits rock on, as in Julia's time in Wonderland, illustrated below.

Several important articles in the Weekend Oz yesterday.  Paul Kelly discusses the unaffordable and unfunded Disability pension scheme. One could add the unaffordable write-offs of dud loans for people to enroll in dud educational establishments and therefore fail to get a job and their dud loans get written off.  And unemployment relief for people who can't or won't pick fruit or find other hard jobs that no-one wants to do.  Joe Hockey's short time as Treasurer had one fine contribution, to draw attention to the nation's widespread culture of entitlement.  Can the current generation of econocrats and pollies not repeat Paul Keating's brave expenditure cuts?

Then there is the story by Grace Collier on the attempt by trucker's union and big trucker's companies to end the futures of independent, self-employed truckers.  Allegedly on grounds that safety on the roads will be enhanced.

'Stand with the people or stand with the mob' Ms Collier advises Malcolm Turnbull. 'The Turnbull government is concerned ... very concerned, just not enough to do what is required'. Sigh.

Then there is a man who I take to be new to the hallowed pages of the Weekend Oz. With the engaging name of Jack Marx. Mr Marx attacks the wowsers among medical and policy circles who try to stop us drinking alcohol on grounds of public safety and costs of repair to injured bodies, or premature death.

When benefit cost analysis is carried out, the wowsers allegedly leave out the pleasures of drinking with one's mates, convincing inebriated women to sleep (ahem!) with one and thereby have babies with one, and so on.  If Mr Marx is going to continue in this vein the weekly press scan will be even more entertaining than it is now.

If you want some old-time politics, when politicians were fair dinkum, David Kemp is about to publish a book called Menzies. A politician who argued for realism about what governments can do. Below is a link to an extract from the AFR, and here is an extract.

'For Menzies, "liberal thought" centred on the equal rights, the capacities and the entitlement of respect and dignity, of each individual person. He later spoke of "the supreme importance of the individual", and argued that "[t]he test of civilisation is freedom, freedom of the spirit and of the mind and of the body".'  But not, apparently, for the followers of the Mighty Ming freedom to work as a self-employed truckie, or to drink oneself into an early grave.


Fiona Prior: 'The reason I keep returning to the more classical iterations of Swan Lake is to witness that flock of exquisite white swans glistening and gliding on a moon-lit lake. Sublime. With eyes open to the beauty of the ensemble ‒ in this instance the Australian Ballet performing Stephen Baynes’ take on this iconic work – and ears open to the haunting Tchaikovsky score, every experience of Swan Lake is the chance to re-enter Tchaikovsky’s world on ‘unreal beauty’. More here

Footy and other extravagances

Henry apologises for the lateness of this weekly missive, but he was awaiting the Saturday night game between Caaaarlton! and the Gold coast Suns.  Then the internet was not working at Balnarring.

The game followed the 2016 usual pattern of a mighty Caaaarlton! effort to stay in the game followed by a gradual pulling away by the opposition who eventually won handsomly.  The good news is that the Blues are delivering a red hot effort and Levi Casboult kicked at least one goal and crashed a couple of marking packs to great good effect. And Messrs Cripps and Weitering showed consistent brilliance under great pressure.

Henry's editor has been invited to show his art at a nice gallery on the Mornington Peninsular.  This will include most of the landscapes still in his posession, including one dated 1969. Here is a link to our lad's Econart, his attempt to create a new genre.  The latest in this series features the Bubble Meister, Alan Greenspan, blowing bubbles in his bath, page down to the third image.

Image of the week - Julia in Wonderland


The CAD, the same old CAD
Date: Thursday, April 07, 2016
Author: PD Jonson

At last, someone gets it. Terry McCrann writes about 'The other deficit time bomb'. He starts with a trip down memory lane. 'ON TUESDAY, the Australian Bureau of Statistics released figures showing the country running a huge and threatening multi-billion-dollar deficit and hardly anyone noticed. And if they did, they essentially yawned.'

In my memory it was the April 1986 current account deficit (CAD) that jolted the universe's greatest Treasurer (UGT), Paul Keating, into action advised by me but previously said by UGT to be 'impossible', the product of someone (me) who 'did not understand his government's policy'.

McCrann continues with the story. '30 years ago it was precisely this deficit that prompted then-treasurer Paul Keating to make one of his extravagant — in my judgment at the time, arguably his most infamous of — comments: that it signalled Australia was at risk of sliding into becoming a “third-rate economy, a banana republic”.'

'The figures on Tuesday showed that Australia had racked up a deficit of $3.4 billion on its basic trade in goods and services for a single month, that of February.'

Adding the interest payments to the trade balance gave Australia a CAD of (McCrann again) 'a thumping $75 billion of national red ink for the 2015 calendar year. Another number which elicited at most a big yawn, if anyone noticed.'

'Why don’t [these numbers] seem to matter? Essentially, because the policy perception — and it is a perception which is drenched deep into both Treasury and the Reserve Bank — is that ‘the market’ will sort it all out.'

A large part of the 'market solution' to such a problem in economic theory is a fall in the exchange rate.  But the horrendous CAD has prompted no major sell-off by the Aussie dollar - indeed it has recently been rising.  This increase has had the trusties among Australia's leading journos - receiving the Treasury/RBA so-called 'quality  information drip' - are calling for further cuts to interest rates.  I will return to this point shortly.

In 1986, the UGT accepted my advice to cut spending to an extent that would turn the budget deficit into a surplus, to get 'old Silver' (AKA Prime minister Hawke) to persuade the unions to cop a wage cut and allow the RBA to raise interest rates.  The exchange rate plunged, a text-book response to an announced economic crisis.

Given the recent policy shenanigans - the Turnbull government ruling out just about every tax solution, and the Senate's refusal to accept most of the Abbott government's spending cuts - can you imagine a rapid switch from budget deficit to surplus now?  Or any voluntary cut to real wages? Or an increase in interest rates? The Aussie dollar may eventually drop, following perhaps a cut in Australia's aaa credit rating, or public recognition that there is indeed a problem, in Sydney if not this week in Houston. This possibility is despite the PM's cheery and repeated comments about what fun it is to be alive and an Australian. (One can of course acknowledge that it is better than being dead or a live citizen of most other nations.)

The UGT's bold actions quickly quelled the crisis in 1986, and similar action now would go a long way to fix our very similar problem.

But just as Treasury and the RBA are hung up now on the idea that 'the market will fix things', there was a serious misdiagnosis about the effects of monetary policy in the late 1980s.  While in the wake of the Banana Republic crisis I continued to advise the board of the RBA that monetary policy should be tightened, that is, interest rates should be raised, and the board apparently accepting this advice, interest rates fell instead of rising.  Clearly someone above my pay grade devised the argument that a rising exchange rate was in a sense tightening monetary policy and so interest rates falling was no great problem.

As we now know, this lead to an unstoppable, inflationary boom and then the 'recession we had to have'.  In 1990, when I was no longer advising the board of the RBA, or the UGT, I published a paper that outlined the many costs of goods and services inflation.  I called for an independent central bank that focussed as its main aim on containing goods and services inflation. It is available here.

I have been told by a former Secretary of the Treasury that a very senior RBA man snorted 'ridiculous' when this idea was later suggested by an international econocrat, but in 1996 the same high official meekly agreed to such a proposal as a condition of signing a job contract.

If you think this is all fanciful, the RBA's official historian has confirmed that my account of the late 1980s and early 1990s is essentially correct.  We await the publication of his opus to see just how much official guidance has been applied to his account.

But my main point is the same as that made by Terry McCrann in today's Sun Herald.  The enormous CAD is a very bad sign of an economy out of joint, or in 'severe disequilibrium' as an economist might put it.  It needs urgent and bold action to restore balance.  Turning the budget deficit into a surplus, restoring Australia's international competitiveness and, when recovery begins, keeping the recovery from exploding into a crisis like that in 1990-91 by a firm monetary policy, meaning rising interest rates.

The missing link is some way to achieve a competitive economy.  Wage growth is already low. Talking the currency down will do little good, except perhaps when announcing a national crisis, as the UGT did in 1986. A far lower exchange rate, achieved by a tax on capital inflow, is the policy no-one will ever discuss.  Here is my go at explaining why we need such a tax, published in The Australian several years ago.

Saturday Sanity Break, 2 April 2016
Date: Saturday, April 02, 2016
Author: Henry Thornton

Malcolm Turnbull's bold attempt to offload some financial responsibility for revenue collection has been well and truly dismissed by the state premiers. The idea is best described as a 'thought bubble'. It is theoretically fine - 'let the states compete' - but horrendously impractical.  How does the central government answer Tasmania's plea of relative poverty, a plea that would be taken up by at least 3 or 4 of the other states and proto-states? Surely it would lead to more tax overall, although Australians had better get used to that idea as current spending aspirations  are impossible to fund without extra tax.

Income is already taxed well past the point of optimality, and this will get worse as middle income earners enter higher tax bands due to so-called 'bracket creep'. Company tax is higher than in major competing nations. Even in a world where spending could be reined in, Australia's economy would be in better shape if income and company tax rates could be reduced thanks to a GST at a higher rate with a wider base.

If I am right that even with a double dissolution election that removed fringe Senate members spending will be impossible to rein in, a wider and higher GST is the most obvious way to achieve budget balance whilst allowing some reduction (relative to what will be the case for income tax with bracket creep with tax rules unchanged) in taxes on income.

Malcolm Turnbull is obviously clever. There are those who say he will finally go back to the GST solution having demonstrated that there is no other acceptable solution. More likely he will find himself up the proverbial creek without a paddle. While floating on the incoming tide of decisions not to do that, or that, or that the PM has failed to provide a plausible narrative about Australia's economic situation, with a sensible answer or set of answers.

Australia's AAA credit rating is looking increasingly likely to be downgraded, and this would provide a massive stick with which to beat the government.  How about AA+ arriving in the middle of a Double Dissolution election?  Or that option being abandoned despite the union reform bill not being passed?  'No ticker' would be the obvious judgment, and falling popularity the likely reward.


Fiscal gridlock is Australia's chief economic problem. Continuing deficits will make Australia's debt position quickly worse, and a credit downgrade would add to the deficits. Rising global interest rates would have the same effect and, combined with a credit downgrade. would be double trouble.

A second problem is the renewal of upward pressure on the exchange rate. Journos are to a man are saying the only solution to that problem is for the RBA to cut cash rates. That was a solution attempted by New Zealand but after an immediate kneejerk fall in the NZ dollar it quickly became 3 cents higher that before the rate cut. Taxing capital inflow is the logical alternative, but all the journos seem incapable of even asking why that solution is unacceptable.

A newly rising exchange rate plus fiscal gridlock is a recipe for 'Banana Republic #2'.  That would fix the overvalued currency and might even convince members of parliament that the deficit must be fixed, but surely that is not the PM's plan?

Bloody hell, comrades, what is to be done?


Fiona Prior sees Tom Stoppard’s Arcadia and is suitably impressed by the playwright. More here.

Henry and Mrs T saw Sherpa recently. Great viewing if you like rocks and snowy mountain peaks and enjoy ethical debates and attempts to get wage justice for poorly paid workers facing unavoidable dangers. Here is a trailer, with a proper review to come in due course.


The men's T20 team was knocked out of the World cup by India, plausibly by bowling unimpressive quicks at a key time rather that a young leg spinner who had previously: (a) been belted out of the park, and the game; and (b) had bowled very tightly in two later games. Looks like a risk mitigation policy gone wrong by Steve Smith.  Henry's cricket experience did not extend much past captain of the Mitcham U16s in the long-ago era when men were men and the sheep were nervous, but he rarely played safe when there was a more exciting option.

The Aussie sheilas did far better, making the final and being favourites to win for the forth time in a row. We wish them well, and will be cheering for the West Indies to flog England in the men's final. (Regular readers will be aware that Henry would support ANY team playing England due largely to Jardine's monstering our brave boys in the Bodyline debacle.)

Caaarlton! gave their fans something to be cheerful about in nearly beating Richmond in the first game at the 'G'. The young players gave their all, and the imports fought hard also. The Blues were beaten only in the last ten minutes of the game due to sheer exhaustion, and will deliver far in advance of pre-season expectations this year. But surely have no hope against the Swans on Sunday afternoon.

Henry is blogging while watching Adelaide crushing Port Adelaide. Latest Adelaide goal came from a lovely pass from Eddie Betts to Sam Jacobs, both players Caaarlton! 'let go'. More evidence that Mick Malthouse was sent to Caaaarlton! by Eddie McGuire in order to bury them for at least a decade!

Image of the week

Courtesy The Oz

The currency wars and us
Date: Wednesday, March 30, 2016
Author: PD Jonson

The US Fed has issued a timely warning that it will not rush to raise interest rates.  Compared to the 3 or 4 rate increases expected for 2016 several months ago, signs of a slowing economy and unhappy response to the Fed's first rate hike for almost a decade has changed the outlook. At the same time, the ECB, Japan and New Zealand have recently cuts rates, in the first two cases to a point where a customer has to pay the bank to hold their cash. Such 'negative interest rates' are a policy innovation that has little or no sense, as Alan Kohler points out in today's Oz.

This has produced a 'currency war' as nations or blocs compete to get their exchange rate down. Australia's central bank is more conservative than most others (thank goodness) but its policy of holding cash rates at an already low 2% has resulted in the Aussie dollar rising, breaking through 76 cents US and headed, some traders say, for 80 cents.  This presents a familiar dilemma for the RBA. This has not so far been handled well, and represents an unnecessary blot on an otherwise excellent copybook.

Australia's jobs market has been suprising by its apparent strength.  Of course, a rising dollar and (dare I suggest) lack of a coherent economic 'narrative' from the Federal government is not helping confidence (or 'Animal spirits' as some economists like to call this elusive concept.) Now we learn, thanks to the Business Insider's David Scutt at 4.30 am today, that expectations of job losses have been rising.

As David says, this puts pressure on the RBA to join the currency wars by cutting interest rates.  But there is a serious problem with this approach. This I wrote about in early 2013, when the Aussie dollar was above parity and strangling the trade exposed industries.  I pointed out the problem of trying to use interest rates (aka 'monetary policy') to both maintain overall economic stability, including low goods and services inflation, AND influence the currency markets in an helpful direction, had been tried in the late 1980s.  Failure lead to 'the recession we had to have'.

Now the first casualties of the newly misplaced approach are being felt and well-informed Australian workers are beginning to fear for their jobs.

My conclusion in 2013 was as follows: 'Our floating exchange rate with an independent, inflation fighting central bank has generally served Australia well, supported by helpful international conditions.  The policy now needs the support of a direct, non-discriminatory control over capital inflow. If not resolved, this problem with cause great damage to Australian industry, as it did in the late eighties, when the correct conclusions were not drawn.  A similar problem [in the late 1920s] helped lead America, and then the world, into a Great Depression'.  Read on here.

The currency wars are here to stay. The revival of upward pressure on the Aussie dollar and  worsening of expectations about job stability are closely linked. Prime Minister John Howard famously said that ‘we will decide who comes to this country and the circumstances in which they come,’ and this is now a clear and politically bipartisan policy. It is equally clear that we have the right to discourage the excess capital inflow that is creating a rising exchange rate and renewed pressure on many Australian industries.  This is the best way to resolve the current dilemma for monetary policy.  The problem of uncompetitive industry cannot be solved by monetary policy in its current setting or by further rate cuts.

There has to be a better way, and there is.  Contact your local member and suggest he or she looks into this matter.

Saturday Sanity Break, 26 March 2016
Date: Saturday, March 26, 2016
Author: Henry Thornton

The atrocities in Belgium continue, and thank goodness the Belgium government and security forces appear to be finally getting their acts together. With Europe's porous borders, generous immigrations policies and generally welcoming attitude to people from other cultures, especially cultures inherently hostile to modern secular (largely lapsed) Christianity, the rash of terror attacks is sadly inevitable.  While big claims are being made for progress in getting the baddies, one fears for the disruption still to come.  Victims have coped with horrific attacks with great courage, but must surely begin to demand stronger anti-terror actions.

Tony Abbott has spoken out on this matter in a long article in The weekend Oz which is an edited version of another in his Quadrant series.  'At home and abroad, the Abbott government strengthened our national security arrangements and reinforced our international reputation as a reliable partner.'  Read on here.

Paul Kelly reminds us all that Tony Abbott is a 'potential loose cannon' in Australian politics. It is Malcolm's bold risk-taking that is his main focus today, and one has to recognise that Richo's 'no ticker' claim about our PM is been well and truly dead, buried and cremated.

One can however bewail the lack of ticker in matters economic.  The nation was prepped for a 15 % GST, which is the most obvious way to fix the debt and deficit trap while allowing vital tax reform - cutting company tax and protecting us all from the ravages of bracket creep in the income tax scales.

I must say Henry strongly believes that a tax mix away from income tax and toward consumption tax would improve incentives to save, invest and work, contrary to assertions made when the GST approach was dropped like a hot spud. Also that Australia simply cannot afford all the spending plans now in the pipeline without additional revenues beyond what increased sin taxes and soaking the alleged rick folk may create.

The Abbott government was slammed in the parliament for its 2014 attempt to fix the debt and deficit  trap by cutting spending.  Of course a more sensible Senate may emerge from the mooted Double Dissolution election. The propensity of soft headed people to deny problems and refuse to face the remedies is a big handicap to a nation's progress.

Jared Owens reports that Liberal senator Cory Bernardi has laid the groundwork to launch a new political force, the Australian Conservatives.  This could well  be the beginning of Mrs Thornton's suggested restructure of Australian politics. Conservative Libs with the Nats. Greens with Leftie Labor. 'Progressive' Libs with Right leaning Labor.


Fiona Prior reads Pride and Prejudice and Zombies, written by Jane Austen and Seth Grahame Smith and judges it better than chocolate! Introduced as “the classic regency romance with ultraviolet zombie mayhem” we enter the novel with the following: “It is a truth universally acknowledged that a zombie in possession of brains must be in want of more  ... brains(!) More here. 


The Aussie blokes remain in contention in the T20 World cup notwithstanding New Zealand's fine victory in the opening round. Pity to hear of Shane Watson's planned retirement as he is a favourite of Henry's despite, perhaps because of, his apparent unpopularity with Australia's cricketing establishment.  Still untold riches await him in the IPL, so go for it mate.

Caaarlton! brought tears to Henry's old eyes on Thursday night at the 'G'. The young team attacked Richmond like maddened dogs from the getgo, and gifted the shaken Tigers with two easy goals for what can only be described as soft (for Richmond) 50 metre penalties in the first quarter. Despite this, if Mr Casbolt had been able to kick goals they would have almost certainly caused the upset of the opening round, if not of the season. Even so they still could have won the game if the young players were not falling over from sheer exhaustion in the last ten minutes of the game.

Well done Coach Bolton and well done team!

'Stuff' this week concerns the alarming reports of off-season drug use by many AFL players, with Collingwood singled out for special condemnation.  If our footballers cannot engage in some relaxing smoking or injecting in the offseason, how can we expect them to behave sensibly when the season begins? The mighty AFL has in the past taken the drug problem in a demonstrably  relaxed manner, and current attempts to clean up the problem may explain the current carry-on.  See Luke Griffith's long past campaign on this site.

Image of the week

Courtesy Herald Sun

Saturday Sanity Break, 19 March 2016
Date: Saturday, March 19, 2016
Author: Henry Thornton

The most interesting, and worrying, economic news is that the currency wars are again driving the Aussie dollar into realms that will seriously damage Australian competitiveness, prosperity and jobs. 

The youngsters in key jobs at the RBA say silly things like 'what doesn't kill ya makes ya stronger', and I'll warrant that none of those youngsters have personally had to fight his way back from a life threatening illness or corporate disaster.  What about a tax on capital inflows, boys?  (References available in last Saturday's Sanity Break.)

In recent weeks, Japan and the Eurozone have thrown more logs on the fire of monetary expansion.  This week, the US Fed announced that its program to begin to return cash rates to normality was slowed if not yet put on hold.  As someone said, near zero interest rates and 'quantitative easing' is distorting capital markets. Worse still, it is building piles of logs that will eventually catch fire and create goods and services inflation.  In the short term, the burning logs will create more asset inflation, and global share markets responded to the Fed's announcement with a grateful salute that raised share prices.

The coming global economic crisis

Former governor of the Bank of England, Mervyn King, has written an important book, The End of Alchemy.  'As governor of the Bank of England, Mervyn King was at the heart of the policy response to the last financial crisis. Now he sets out his ideas on how to prevent another one'.  (Which is inevitable with the current approach to economic and banking policies, according to Mr King, otherwise known as Baron King of Lothbury.)

Despite this, so far as I can find via the mighty machine that is google, it has not been reviewed in an Australian newspaper. Gor Blimey, comrades, surely we should care about such a topic from such a man?

From all the reviews I have discovered that by the Financial Times' John Plender seems the most interesting and thorough.  It is linked here.

And in conclusion: 'The former governor of the Bank of England is entitled to say that we have been warned. Those who do not agree with his recommendations will still have to concede that his book is an outstandingly lucid account of postwar economic policymaking and the dilemmas we now face'.


The US Republicans are finally showing signs of getting together to prevent Donald Trump for becoming the grand old party's official nominee for the presidential election later this year. Mr Trump has responded by saying 'there will be riots' if he is denied the nomination. That is pretty feeble by Mr Trump's normal standards. What about armed insurrection, Mr Trump?  After all the weapons are out there, and Mr Trump's key supporter base look as if they'd enjoy using them in a good cause.

Locally, increasing numbers of media people are speculating about Malcolm Turnbull's alleged lack of ticker. After a long day's and night's work in the Senate, legislation that is designed to squeeze out the cross-bench 'nutters' has passed the Senate, providing the (assumed) means to do so in a Double Dissolution election. So now Malcolm T has to: (a) produce a plausible deficit reducing budget without cutting spending or raising taxes; (b) get the Senate to reject the legislation designed to smash union power in the building industry; and (c) hope that the Australian electorate is smart enough to re-elect the Lib-Nat coalition.

Australian politics has reached a point that Henry seriously considered creating a satiric column on the subject. Instead, the redoubtable Des Moore has graciously allowed Henry to post his hard-hitting email comments. Please see the first edition, available here. If anyone from the other side wishes to contribute an equally classy column, Henry shall post it, provided it does not contain libellous or obscene content.

A previous provider of hard-hitting (global) comment of the type envisaged, the late Sir Wellington Boote, did so here to great good effect. Read his wonderful, still relevant, posts here.  


Fiona Prior reports on the Sydney Theatre Company's presentation of Golem: "Golem is a little like a life-size graphic novel. Its political content, focuses on a society where corporate consumerism, energy saving technologies and a ratings-driven, B-grade market-place have all lined up to produce a dystopia capable of making Donald Trump President of the United States. Oops! That’s actually not quite how it goes but I’m sure you get my drift ... More here


The AFL season gets closer, and begins next Thursday with Caaarlton! vrs Richmond at the 'G'. The pundits see Richmond as a gun team for 2016 and Henry's mob as a bunch of old has-beens and young-may-never-bes so Henry shall go to the game with low expectations and bottled joy to release with every goal from the Blues, assuming there are some.

An upset would threaten Henry's health, by generating  cartwheels in the stand.  Punters should not forget that the Tigers were more like Pussycats in the last NAB Cup when their coach wanted the game called off because of injuries to his supposed warriors.  What was wrong with parking the injured deep in the forward line, Mr Hardwick, as we used do at Nunawading all those years ago? And stayed true to the code by starting a fight when we were losing a game?

The press have already began to speculate about the chances of a Hawthorn Four-peat.  'Not likely' is one influential view, as the Weagles are coming hard, with other interstate clubs.

The classy Aussie T20 team looked more than a bit overconfident in their game last night against New Zealand.  Henry feared the worst when Cap'n Smith danced yards down the pitch only to be stumped by a wicket keeper despite an initial fumble. Other famous batters also went cheaply, making it easy to switch to the footy show.

Image of the week

Courtesy The Oz

Saturday Sanity Break, 12 March 2016
Date: Saturday, March 12, 2016
Author: Henry Thornton

Niki Savva hits the bigtime with a runaway best seller. Is it history? Is it a 'political memoir'. Or just  a high class gossip column?  Impossible to know, of course, as the Thornton household had failed to order a copy in advance and is still on a waiting list for the second or third reprint. The residue of the Australian's promotion is not the alleged affair, which seems highly improbable, but the number of folk coming out to tell us they had warned Mr Abbott  his chief of staff and his Treasurer had to go.  Most weighty was Mr Howard's admission that he was one of those who had made that suggestion, and if you choose not to take the advice of such a master politician you are either a genius or too loyal for your own good.

In the meantime, all talk of tax reform seems to have evaporated. If a GST increase is impossible, and spending cuts will be blocked by the Senate, Australia's debt seems fated to get to the point that we ('the punters') can reasonably described as stealing from our children. And when, as seems inevitable, the entire middle income earners hit the second highest income tax bracket, the government will reasonably be accused of stealing from the current generation.

Following our image of the week last Saturday, revealing a massive debt total of $5.6 trillion, the Oz reported that Australia is 'In hock to the world as debt tops $1 trillion'.  One of the linking facts is world record household debt to income ratio held by Australian households.  What happens when global interest rates begin to rise, as they must, hardly bears thinking about.

And to add to the concerns, the Aussie dollar has crept back up to US$ 0.75.  The IMF keeps reducing its global growth forecasts,  New Zealand has cut cash rates and the European Central bank says it has announced a further tranche of 'Quantitative easing'. One watcher said  'the real fear is that this will not work' and the ECB may have reached a point once called 'pushing on a string'. With appropriate modesty, Henry reminds readers that in the distant past, he recommended a tax on capital inflow.  We are caught in the crossfire of global 'currency wars'.  If we reserve the right to decide on who comes here and on what terms, why do we not provide the same approach to investment from abroad? As we also predicted in 2013, Australia was recession bound.

“We’re going through the most serious recession in 80 years if we look at real income,” says Bob Gregory, professor of economics at Australian National University. “The mining boom was a gift that has now been taken away,” he adds. Over the past two years the commodity prices that matter to Australia, and the flow of mining investment itself, have fallen 40 per cent.  Read on here.

Also: 'Collapsing house prices would almost certainly tip Australia into an output recession', though Adam Creighton is confident house prices will at worse decline slowly. Perhaps so, but there seems no way to avoid a big drop in prices of apartments in Sydney and Melbourne, where there has been massive overbuilding in that sector with more to come.


Fiona Prior sees Sydney Dance Company’s CounterMove, an exhilarating double bill that will make you yearn to be as lithe as the SDC dancers. Once over the envy you will marvel at the choreography of Alexander Eckman and Rafael Bonacheta as they bring their works – one humorous and cynical, the other elegant and serious – to an appreciative audience. More here.

Pete Jonson presents two new paintings in his Econart venture. Contact Henry here if you would like to discuss an exhibition.


Caaaarlton! fought hard against the Swans Friday night, with Henry cheering them on from his couch, with a brief break to visit the current family favourite Japanese restaurant. Glenferrie Road was hopping and all the restaurants were chokka, and we were grateful to be given a table at the back of the establishment. Buddy was awesome for the Swans but the Blues seem to have recruited well and developed A METHOD of delivering the ball to the goals.

The Matildas drew with China and both teams progress to the Olympics. How those Aussie sheilas remained unbeaten while playing five games in 10 days is a mystery, but we wish them well as they again illustrate that, at least in sport, Australia's gals are given a lot of encouragement.  Roll on equal pay for sporting wimmin, Malcolm.

The T20 cricket team won its third game against the rampaging South Efricans and goes to the world cup with high hopes. The footy season will be on full throttle by then, so please excuse lack of reportage, dear readers.

Maria Sharapova  has been pinged with 98 others for taking a newly banned drug that in healthy persons supposedly makes them able to perform stronger for longer. Here is an article that makes the case that WADA should have provided more notice and greater publicity about the newly implemented ban drug. But if Essendon players got a year off for unknowingly allowing themselves to be injected by the club's substance guru, Maria must be headed for the high jump, at least 2 and possibly 4 years in the cooler.

Image of the week.

Courtesy The Oz

Saturday Sanity Break, 5 March 2016
Date: Sunday, March 06, 2016
Author: Henry Thornton

This was the week in which the Catholic Church was put on trial for failing to stop the rot of paedophilia in the Diocese of Ballarat thirty years ago. It was Cardinal George Pell in the box at the Australian Royal Commission. He was grilled for four long (four-hour) sessions by video link from Rome by interrogators from the Royal Commission in what Henry - raised as a Presbyterian - was inclined to describe as a witch hunt. 

It is agreed that Father Pell as a young priest 'could have done more' to ask questions of his Bishop and perhaps to try to have paedophile priests sacked or reported to the police.  What is also beyond dispute is that when, as Archbishop of Melbourne, George Pell had the authority to clean up the mess he moved promptly to do so.

Henry believes that Cardinal Pell answered the barrage of (some times hostile) questions with unflappable dignity, clarity and honesty. His current job is cleaning up the finances of the Vatican and he is by general report doing this in the same considered, measured way that he sorted out the sexual misbehaviour in the church in Victoria.

The evidence is that such sexual misconduct was a problem for many organisations in Australia all those years ago, and in some pockets still is.  We trust that the Royal Commission publicises this matter and the need for constant scrutiny wherever adults are in charge of children, especially when there is lack of normal scrutiny in cultures far more alien that the Catholic Church then or now. 

What about such abuse in settlements in remote bush locations or in quiet pockets of suburbia? Or genital mutilation, lack of education and forced marriage of young girls in cultures remote from the Australian mainstream? Even the drug trade that ruins so many young lives is another form of abuse society needs to contain if not entirely eliminate.


The Australian government is ruling out, indeed has ruled out, just about every tax and welfare reform that could fix the budget deficit. Government spending remains extraordinarily robust and even with a reformed Senate will remain so - after all, as Joe Hockey tried to tell us, we live in an entrenched Age of Entitlement. The Commonwealth government deficit has blown out from zero under Messrs Howard and Costello to discomfort now and worse to come while-ever the budget remains in deficit, which on current estimates is 'as far as the imagination can show'.

At the same time, household debt is described variously as 120 % to 150% of household income.  The latest national accounts data showed strong growth of spending by both households (mostly debt-financed) and governments while national income continues to fall.

Current debt levels are only possible because global interest rates are at record lows. Soon global rates will need to rise, and readers are encouraged to consider the cost of debt service for both government and households when normal interest rates are re-established.

The image of the week below comes from a fine Australian economist who has also been a successful business leader.


Fiona Prior see the Coen Brothers Hail, Caesar! 'If you are looking for a Coen brothers’ movie like Fargo, The Big Lebowski or No Country for Old Men, don’t even think of seeing Hail, Caesar!, as you will be disappointed. If you want a little fun however go buy your tickets now. More here:


What can we do to change the Age of Entitlement? Apparently a high proportion - 75 % of seniors on one estimate - receive a full or part pension.  Henry's parents regarded accepting a pension from government as shameful, preferring to live in genuine poverty, alleviated to some extent by help from their children, who were battlers themselves when their parents needed such help.


After showing a flicker of form against Hawthorn two weeks ago, Caaarlton! were flogged by Essendon's team of raw recruits and players out of retirement last week. One brave tipster said the Blues will not finish last but clearly the journey will be long and hard.

The Matildas, as Australia's soccer ('futball') sheilas are called, are battling brilliantly so far in the intense attempt to win a place in the Olympics at Rio.  Its just about a game every second day, a task Aussie elite males would not take on.

As footy winds up, cricket winds down, with a World T20 Cup on the line. Our lads are number 1 in C1 (tests), C2 (ODI) and number 8 in C3 (T20). Do your best lads, but keep your focus on those number 1 places.

Davis Cup is underway, with Mr Tomic back in the tent (and winning on Day 1 to keep us in the contest). Non-playing Captain, Mr Hewitt, may be going to front up for the doubles, but we sincerely hope Mr Kyrgious can arise from his bed if the tie is at 2-1 (or even 1-2) by Sunday.

Image of the week

Gliding toward global crisis
Date: Wednesday, March 02, 2016
Author: Henry Thornton

Last week's G20 meeting was reportedly a gloomy affair.  The IMF has been revising its forecasts down for some time, and has reached global growth below 3 %, some think 'recession' territory. Value of world trade fell in 2015 by 13.8 %, and 'Baltic Dry' index of shipping costs is  at a very low level. (See graph below.) Ed Conway of The Times says: 'At worst, we are sliding towards a global slump.  At best, this has become a limp, lifeless recovery ...'.  (Available on P10 of The Australian today.)

At the G20 meeting the central bankers 'hinted' that monetary policy could do no more, and the Germans rejected the idea that the world could spend its way out of trouble. Ed Conway reprises the cause of the crisis: 'A financial crisis that began in the US spread to Europe, where it caused a secondary banking and economic crisis before fanning out across the globe. Mass unemployment, especially in Europe, collapsing trade volumes, competitive devaluations, rising extremism and growing dissatisfaction with the ruling classes, who meant well but couldn't find a way out'.  If you are of an historical set of mind, all this should remind you of the 1930s.

 I said in the final chapter of Great Crises of Capitalism, written in 2010: 'The biggest threat to modern capitalism in my view is the possibility of instability caused by policy swings: expansion; recovery; asset inflation; goods inflation; policy tightens; economy falls back; recession starting the whole process anew. Such outcomes would destabilise the beliefs of the econocrats in major countries, as well as their political masters. It would also present a severe blow to the confidence of households and firms, and confidence is a vital part of the capitalist way'.

Ed Conway now sees a real possibility of a 'lurch back into depression', as in the late 1930s. He observes that the world total global indebtedness 'has never been as high as it is now'. At some point, a large chunk of this debt will need to be written off. But debt is so high because of sustained near-zero interest rates, which is a deeper reason for current woes. So is the divergence of ownership of debt - China and other 'new economy' nations financing the debt of profligate Western nations.

Former Bank of England chief, Mervyn King, has written a book called The End of Alchemy. Ed Conway reports that Mr King says the cocktail of low interest rate, high debt levels and its gross misallocation 'makes another crisis inevitable'. The solution, if a solution is possible, lies in greater international cooperation.  China and Germany need to spend more, the USA and UK need to invest more.  There needs to be international agreement to reshape debt burdens and a new international deal to reshape the global monetary system.

'But even as we glide towards another crisis, the impetus for multilateral deals is dying'.

Saturday Sanity Break, 27 February 2016.
Date: Saturday, February 27, 2016
Author: Henry Thornton

What a weekend.  John Howard comes out to play, regretting the lack of an economic policy that promotes serious tax and IR reform.  As we all do, dear sir, but it is comforting to have your support.  And on Friday, KPMG boss, Peter Nash, regretted the Turnbull government’s ‘debacle’ on tax reform.  The report, in Friday’s AFR, says: ‘Tax experts say changes that raise the rate of the GST to pay for company tax and income tax cuts would deliver the biggest boost to growth but are unpopular …’.  

And Tony Abbott joins the debate. While this is an acceptable defence of his government’s failed attempts to fix massive economic problems, he provides a key judgment about fiscal policy that I have rarely been said by politician or economist, but is almost certainly correct: ‘Nearly two years on from the 2014 budget, getting spending down remains the critical issue. Contrary to Keynesian orthodoxy, as recent UK experience suggests, reducing deficits is the key to increasing private sector confidence and unlocking more prosperity. It’s also the key to tax reform because, without lower spending, any tax changes must either increase the overall tax burden or increase the budget deficit.’  Read on here, or here if you do not subscribe to the Australian.

Friends and colleagues are uniformly appalled by the approach of the Turnbull government to the issues canvassed by Tony Abbott.  Clearly the party is deeply divided and the carnage will be unprecedented if Mr Turnbull loses the coming election.
One assumes the idea is to win with relatively benign tax and welfare policies and if he wins, go for it in the first budget after that.  But in the meantime, the GST increase having been ruled out, the spending cuts necessary to avoid the horrible anti-growth income tax increases due to bracket creep will be just impossible to achieve.

Is has sometimes said that the Fraser government was policy-shy because of the unorthodox manner of its win over the Whitlam government.  Could we be seeing a strange version of guilt blockage again?

Global warming

‘The global average temperature is likely to remain unchanged by the end of the century, contrary to predictions of climate scientists that they could rise by more than 4C’ says a leading statistician, Professor Terence Mills of Loughborough University.

Professor Mills ‘used simple statistical methods, normally used to predict economic trends, to forecast future temperatures’. (His data base started in 1850, whereas ‘Climate Scientists ‘tend to focus on the period from 1975 – 98, when temperatures rose by 0.5C.)
Read on here.  And here is a report of a more cosmic approach.


Fiona Prior sees Oscar nominee for Best Film Tom McCarthy’s Spotlight: 'I believe everyone knows that Spotlight centres on the Boston Globe’s landmark 2002 exposure of widespread child sexual abuse by Catholic priests in the Boston area. The Globe won the 2003 Pulitzer Prize for the story...'  More here


Are other readers as angry as Henry and Mrs T over the proliferation of adds for gambling on the boxes of Australia?  While gambling can be seen as a precuser of entrepreneurial activity, surely in all seriousness encouraging gambling is just stupid.  Like Bill Shorten’s plans to massively increase tax on smoking, let’s greatly add to the government’s coffers by slapping a GST of 50 % on gambling turnover.


The extended cricket season is over after a gritty win against McCallum’s Black Caps. The gutsy NZers always fight hard, as we learned first at Gallipoli but have seen many times since.  Even their 15 % GST was introduced a nary a grumble and the NZ economy is doing at least as well as ours despite lacking massive resource bases and other benefits of life as a ‘lucky country’.
Now the footy season can begin.  Sunday’s NAB Cup game against the downtrodden Essendon looms as a danger game for Caaaarlton!  Last year’s best and fairest player, Patrick Cripps is out with a bruised knee and aging stars Walker and Murphy have not yet fully recovered from shoulder surgery.  

Australia’s defence white paper has finally emerged and is reported to have left China ‘dissatisfied’. Costs will be a massive $145 billion over ten years.  Still small voices around Australia bewail the emphasis on large boats and submarines, which according to some are very easy to find and destroy. Henry hopes that the mighty CSIRO is researching some sort of dread disease, which Australians can be inoculated against, that attacks with devastating effect anyone who steps on out sacred soil without the necessary jab at an official immigration post.

Image of the week

Courtesy Herald Sun

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