News & Views, No 11, ‘Balancing economics and politics.’ April 2-3 to April 8.

The Oz, April 2-3, P 15, Paul Kelly, ‘The economic and emotional battle lines are drawn for election 2022.’ …

‘The real contest is jobs verses the zeitgeist. Frydenberg offers the most dramatic upsurge in labor market history – with unemployment falling to 3.75 per cent, while Albanese offers an economy based on compassion, feminisation, more active government and a repudiation of Scott Morrison’s character’. …

And in conclusion: ‘This brings into focus the optimism in Treasury’s budget forecasts – that the deficit will more than halve over the next four years and halve again so that by 2032-33 the deficit will be down to 0.7 per cent of GDP. Yet private sector economists warn budget savings of $40bn annually will be needed to reconcile the books. Neither side of politics displays the ability at this point to tackle such hard decisions. This is the unannounced story of the

election.’

Also P 15, Greg Sheridan, ‘Ukraine and China concerns expose our laziness in defence.’

‘Australia’s security outlook got much bleaker this week. First, it became clear that Vladimir Putin’s invasion will result in at least a great chunk of Ukraine’s territory falling permanently under Russia’s control, even as Ukraine’s President Zelensky delivered a stirring and magnificent speech to the Australian parliament.’

I must confess that I cannot believe that Mr Sheridan’s comments about Australia’s defence program is as bad as he says. Anyone who cares for Australia’s policies for defence and has good friends in Canberra, must read this article PLEASE and if you believe that the article is even 50 % accurate, demand reform.

Here are some snippets. Mr Dutton, if you are still Minister for Defence in two months time PLEASE reform your department. Ditto whoever takes your place if Labor win the election.

Snippets

China’s Solomon Island’s plans look like they are echoing Japan’s WWII.

In the recent budget ‘We got a complacent, lazy, negligent, mainly hollow defence budget which delivered just one new relevant capability, funding only 10 years of $10bn for new cyber capabilities in the Australian Signals Directorate.’

‘The existing, gravely inadequate capabilities are mostly wearing out. And in some several key areas, they are not being replaced’.

Mr Sheridan quotes a list with 30 major defence projects. Our allegedly forth project is the French submarines. What?

‘There is so little urgency, so little energy, in Defence when we should be racing to produce capability’.

Despite being told that Defence spending will soon be well above 2 % of GNP. I believe 5 % of GNP should be the aim, but it is not yet even 2 %.

‘Our two closest allies, both far more secure than we are, both spend a far higher percentage of their GNP on defence.’

‘Scott Morrison and Peter Dutton relentlessly and truthfully alert us to the worst strategic environment since World War II.

‘But we are doing absolutely nothing about it.’ HOW CAN THIS BE?

The defence organisation has overruled and outwitted the Abbott, Turnbull and Morrison governments. It proceeds in its stately, almost Gilbert-and-Sullivan fashion to produce the Duke of Plaza-Toro defence force it was always going to produce.

Do not miss this outstanding missive. Never before have I read such a wonderful rubbishing of a government agency.

AFR, P 40, Chanticleer, ‘Albo’s got it right on aged care’

I agreed with most of this missive, and watched Albo say it all in his speech on Thursday, with one crucial caveat. The amount of money needed to produce excellent aged care is far greater than Albo has claimed.

Great Aged Care is obviously needed but how can it be afforded?

Financially, this will become like other similar welfare programs.

Many welfare programs get rorted. We know, for example, children ‘on the spectrum’ who are quite able to go to schools like other kids who are not ‘on the spectrum’.

Here is a bold proposal. To afford Great Aged Care, find a team that can seek out the welfare rorts and save much money. This can be applied to looking after the frail elderly population. Creating such a team will require hard work and a lot of unhappiness when welfare 'rorters' are found and dismissed.

A similar approach required, with a team to find waste and unneeded government activity in non-welfare government programs. Apply the savings to fixing defence spending, which clearly needs powerful reform. Think Israel or Switzerland.

The Australian, April 4, P1, ‘India free-trade deal boosts nation’s economic lifeblood’.

‘At a time when diversification of Australian exports markets has never been as crucial to prosperity and employment, especially in rural and regional areas, the Morrison government’s interim free-trade pact with India, the world’s largest democracy, is a valuable breakthrough.’

Good governance verses fuzzy feel-good ideology’.

But, ‘mid-2020s pose our gravest risk since WW II’ advises Peter Jennings.

‘In the new cold war, South-East Asia is becoming a contested zone where China increaes its access and influence, (while) the US and its allies are fighting to sustain their access and influence.’

Tony Abbott says: ‘West must do more to help heroic Ukraine.’

‘There can only be one satisfactory ending to Putin’s war of aggression against Ukraine and that’s its comprehensive failure. The challenge is to bring this about without providing him with the excuse he may be seeking to wreak further mayhem.’

And in other news it is said that Australia will send around one hundred Bushmasters.

AFR, P1, Phillip Coorey, ‘PM starts from well behind’.

This is true but with six weeks to go, the PM has opportunity to achieve another ‘miracle' win.

Phil Coorey says ‘Mr Morrison [is] expected to call the election within a week, the poll finds the Prime Minister and his government are on the nose, but voters have yet to flock en masse to Labor or Mr Albanese.’

The Editorial says; ‘PM cannot can’t rely on budget for second coming’.

Mr Albanese’s biggest bit of excitement is reform of the old people’s system. Great idea, Albo, but the amount you claim to spend is far less that all the new stuff you plan to offer. Proper management of qualified nurses spending 3 x 8 hours = 24 hours in every Old Folks places of rest and eventual death would require far more than Albanese suggests.

Make a real judgment: Again, banish welfare rorting and use the money to really fix Aged Care spending. Just getting this sorted out would tax any PM, and there is Defence and other non-welfare things to sort out also.

The Oz, April 5, P1 Ben Packham, ‘New strike force on fast track’.

‘Australian fighter jets and navel vessels will be armed sooner with new long-range strike missiles to hold enemies at bay at ranges of 900km, under a $3.5bn commitment to fast-track key guided weapons purchases’.

At last, some apparent hurry up. Perhaps in response to Mr Sheridan’s lovely recent rant. Two questions - when do we get some missiles and how many do we get? Experts say missiles are perhaps the best defence weapon BUT one needs a lot if they are to keep enemies at bay.

Now I hope we get a series of new weapons. 80 jet fighters might last 3 days, so that number needs to be multiplied by at least 10, with promises by friendly nations to quickly send more.

Troy Bramston has found a nice story of a difficult situation after a dead-set finish in a federal election in 1922.

‘Echoes of 1922 if independents play kingmakers’, P 11.

‘A century ago, after the Spanish influenza pandemic, the Nationalist government, led by Billy Hughes, lost its parliamentary majority at an election. The price for remaining in power demanded by crossbench MPs was a new prime minister….

‘Hughes resigned and Stanley Bruce was sworn in to lead the government in 1923.’

Find the article, gentle readers, you may see a replay.

AFR, P 38, ‘Australia’s frontier economy needs a reform mandate’.

Amen to that. The two main worries are that wages and productivity are too low. I am unsure about these worries, except to note that big changes take time. And time is a-ticking.

Wages. ‘There is a big new issue here, and I believe the wage issue will soon by fixed. Unions are calling for increases of 5 %. That would quickly stir people up. But there is a far bigger thing that I have not seen in the press but my sons have talked about with their friends. ‘The only way to get a decent income rise is to change jobs. The ask is an increase of 30-35 %, which is usually agreed.

‘Nothing silly here. As we know, two years with no new people from ashore make the rate of unemployment the equivalent to 50 years ago. ‘A serious entrepreneur who wants good workers pays the required amount.

‘Does the preparer of wages data allow for new jobs, new, greatly increased wages’. Whoopy do!’

Productivity. ‘This is a more difficult issue. My starting point is that workers who have started with a 30 % pay increase will work bloody hard to avoid getting the sack. But entrepreneurs who have paid large new wages are also likely to think hard about new ideas to pay for the more expensive workforce. Thirdly, it is becoming a new era of more innovative ideas, and that will likely to increase productivity.

Conclusion. ‘We are entering an era when current matters worried about are likely to solve them by new work practices. Higher wages and important new work practices. Think about it gentle readers.

The Oz, Wednesday April 6, P 20. Richard Gluyos, ‘Lowe keeps powder dry’.

Too little, well none, too late. This is the most usual RBA mistake. The world economy is experiencing inflation and the main countries are tightening monetary policy. But Dr Lowe is hanging tough and it is likely he will end up as a reluctant central banker, perhaps without ever raising cash interest rates. Time will tell.

I must, however, congratulate whoever chose Ms Bullock to be the new Deputy Governor. I presume the board had their say and Dr Lowe agreed. Ms Bullock from my knowledge will be a fine deputy and presumably an excellent Governor. A few of Australia’s best economists would greatly improve the board also. Time will tell.

AFR, Wednesday April 6, P1. Ronald Mizen and Cecile Lefort, ‘RBA loses ‘patience’ on rate rise.

‘The Reserve Bank of Australia has abandoned its language of patience and signalled it could begin raising its record low 0.01 per cent cash rate in June if upcoming data show accelerating inflation and wages growth.’

Many economists believe there is likely to be the first 0.25 % increase in June and probably 2x0.25, or one by 0.5 %, which I think is the smallest increase that can safely be made by the end of 2022. If, as I think, inflation, wage inflation and productivity increases (please see article in Tuesday report above) will be on the way to catching up to the big central banks.

The Oz, April 7, P1, Geoff Chambers, ‘Labor guru fears Albanese void’.’

‘A key ALP strategist has warned Anthony Albanese that his small-target approach could lead the party to “the very edge of another election loss’ and allow the Coalition to expose Labor over fear of the unknown’.

I am amazed at the uncosted nature of Labor’s budget reply. The only explicit number was a cost of $2.5bn for three nurses each day for proper nursing of elderly people. Surely at least a quarter of a real number. One is forced to believe Labor’s budget is way over the top.

On the ‘Commentory’ page (P 11) Peta Credlin explains why ‘Independents must come clean with voters’.

A John Rothwell discusses ‘Holding Putin to account for war crimes’.

AFR, April 7, P 42, Richard Holden, ‘Two truths to higher incomes’.

‘Between 1995 to 2010 labor product averaged 2.2 per cent a year. Since then it has averaged 1.5 per cent. …

‘Yet productivity is the one essential thing that determines our living standards. As Paul Krugman put it a quarter-century: ‘Productivity isn’t everything, but in the long run it is almost everything….

‘There are two basic truths …

‘ The first is at the maco level – that one of the key drivers of economic growth in modern economies is ideas. This is the big lesson of “endogenous growth theory”, The second is at the micro level – that people in the private sector basically basically get paid for their skill.’

Lovely summary. Please look back to my analysis of productivity, and the increasing demands for substantially higher wages in Australia.

Jim O’Neill pops up again on P 43 with ‘The end of the savings-glut theory of low interest rates’.

‘Monetary policy. The only way central banks can ensure inflation is temporary is by tightening their policies, instead of clinging to old theories to justify their persisting with ultra-cheap money.’

Remind you of Phillip (0.1 %) Lowe of the top of Martin Place?

I read somewhere that the USA may end up with cash interest rate of 16 or 17 %. Did I imagine?But if I did not, the mighty RBA will be in a funny place with cash rates of 2.5 % or not much more.

KULTURE

Fiona Prior is charmed by the gentle true story ‘The Duke’. More here.