News + Views, May-June 2017
US Fed's policies, June 2017
John Maudlin reports from America in a long essay: ‘Right now we have a Fed that is arguably letting its own parochial political concerns seep into its policy decisions. By raising rates when inflation is nowhere near problematic, they risk tipping the economy into recession. We’re overdue for a recession anyway, and I get that they want to have room to cut rates if necessary. But that will be cold comfort if their own actions trigger the recession. But it even goes further than that …
Division on the FOMC is a microcosm of a much broader problem: the increasingly bitter division within American society. I know many people blame the split on Donald Trump, but it was already well underway before he ran for office. I think Trump is a symptom, not a cause.
The survey data is stark and horrifying. This is from a June 15 New York Times story titled “How We Became Bitter Political Enemies.”
“If you go back to the days of the Civil War, one can find cases in American political history where there was far more rancor and violence,” said Shanto Iyengar, a Stanford political scientist. “But in the modern era, there are no ‘ifs’ and ‘buts’ – partisan animus is at an all-time high.”
Political cynicism, 11 June
Is it likely that we the voters ('punters' to politicians) are heartily sick and tired of the political establishment? Brexit was a surprise. Trump was a shock, though Mrs Clinton was much disliked and many Americans did not like the choice the political establishment presented. The near demise of Mrs May was less of a shock because she had very few policies of interest, she is not much of a people person and the polls were forecasting it. But her government nearly got thrown out and is hanging on courtesy of ten Irish conservatives who are against abortion (gasp!) and gay marriage (double gasp!).
Setbacks and headwinds, 4 June
'Better times to come' says Treasurer Morrison three weeks ago. Now he has realised 'There are risks' despite his Secretary John Fraser's reliance on the so-called 'Trade cycle'. It never was a cycle, Secretary Fraser, just ups and downs of variable size as befits the chaotic systems that are the international and domestic economies. Due to the various 'Headwinds' illustrated below, economies are in a subdued growth era. Look to Japan, Secretary Fraser. After a great crash in asset prices in late 1989, it has experienced nearly three decades of subdued growth. Look to the US and global economies in the 1930s, Secretary Fraser, after the great crash in asset prices in late 1929.
Why real wages are falling, 28 May
This is a global issue. For decades new workers have entered global labor markets, in China, India, South East Asia and other developing nations. In developed nations, this already brings competitive pressures on developed nation workers. Slow growth since the Global Financial Crisis has weakened recovery and bargaining power of workers. 'Headwinds' abound and stall growth - high and rising debt levels, aging populations, experienced 'discouraged workers' dropping out of the workforce, mismatch of education and available jobs, generous welfare and reluctance of many to take work that is perceived to be too hard or too unpleasant.
Problems with Macroeconomics, 21 May
My emerging view about Macroeconomics is that there are two big problems not being properly confronted. For fiscal policy, increased government spending may boost output for a time and to some degree. But extra spending is likely at some stage to create obstacles to expansion, if only because of higher interest costs as government debt grows. And in the broader economy 'headwinds' includes household debt, growing inequality - currently due to low wage growth - rising unemployment and especially underemployment and especially low productivity growth.
End of economic reform, 14 May
Paul Kelly tells us how it is. 'Australia is undergoing a decisive change in its political values — Malcolm Turnbull has reinvented his government as a pragmatic, populist, public investment vehicle and Bill Shorten in reply has taken Labor even further to the populist, ideological left.
'The edifices of Australia’s aspirational politics and market-based reforms are being torched in an end-of-generation bonfire. Occasionally in a nation’s history you can identify a point of transformation and it is likely that this week is such a marker'.
Budget 2017, 9 May
* Plan B - 'A Labor budget'.
* 'Ruthless pragmatism'.
* 'Tax'n'spend budget'.
These are the summaries. But what else could a Coalition government do when Labor opposes everything it does, sneers at Gonski-Lite, when the nation cannot afford the full Gonski, and when the Senate will not allow spending to be reined in?
ScoMo, as Treasurer Morrison is called by some, has bowed to the inevitable and professes to see better times ahead. Naturally we hope he is right, but has he (or John Fraser) read Robert Gordon's book The Rise and Fall of American Growth? American growth rose from around 1870 boosted by a mass of innovation that continued until around 1970. (Manufacturing innovation in WWII was applied to business production after the war to provide a special boost.)
America, says Robert Gordon, now faces many 'headwinds', including rising debt, that will limit growth of productivity greatly in the foreseeable future. Can Australian growth increase according to the optimistic budget forecasts if Robert Gordon is correct? This is the biggest economic question around, and I am prepared to bet that key politicians and officials have not even sighted Robert Gordon's book.
There is another issue of importance to Australia. P17 of today's Australia reports that in 2015-16 overseas investors poured $248 billion into Australia. A disproportionate amount was spent on houses, boosting the overheated East-coast markets. We are also selling of the farms and other assets. A major effect is to hold up the Aussie dollar, hindering Australian industry along with restrictive labor laws, high energy costs and restrictive laws generally.
Here is a 2013 answer - tax capital inflow to tame the $A.
There is plenty to like in the budget if only we could afford it. I shall leave the detail to people more expert than Henry. (Except almost total failure to do anything useful about housing affordability.) I assert that the budget predictions are too optimistic - continuing a well worn decade-long track that is one reason sensible spending policies are not followed. Also, even if some unexpected good news meant there is a budget surplus achieved by 2020-21, there is no plan for surpluses large enough to remove headwinds represented by sizeable government debts. 'Tax to increase the surplus?'
Gimme a break!
Economic outlook and risks, 6 May
In Australia, business confidence is high and the latest RBA economic report provides a cheery outlook. Read it for yourself here. Key predictions have inflation rising into the preferred zone of 2 to 3 % and growth reaching 2.75 to 3.75 by early 2018. It must be noted that a review by Adrian Pagan concluded that RBA forecasts have been excessively optimistic for the previous decade 0 how worrying, comrades.
Despite official optimism, Treasurer Scott Morrison fails to look cheery or act like a winner, and many experienced Australians are deeply concerned at the real state of Australia's economy, especially its overheated housing markets and distinctly underheated labor markets.
Read on here, including Henry's editor's suggestion of Plan B for Superannuation 'reform'.