Peter Martin

RBA free to move. It may not move, but it is now free to move

noreply@blogger.com (freshpost) — Wed, 25 Jan 2012 21:25:00 +0000

A dramatic drop in inflation means there’s now nothing to stop the Reserve Bank cutting interest rates when it meets for the first time this year Tuesday week..

Australia’s official rate of inflation fell to 3.1 per cent for the year to December and to zero for the December quarter itself. It’s the first time Australia has recorded no inflation in a quarter since December 2008.

Offsetting increases in the prices of telecommunications, rents and domestic holidays were big falls in the price of fruit; led down by a 46 per cent slide in the price of bananas, and prescription drugs led down the end of the year cut-in of the Pharmaceutical Benefits Scheme safety net.

But even the seasonally-adjusted rate of inflation was low, coming in at just 0.2 per cent for the quarter.

The Reserve Bank’s preferred measures of underlying inflation came in at 0.5 and 0.6 per cent, suggesting price pressure is well within the Bank’s target band.

“Inflation is a dead duck. The Reserve is all but certain to deliver an interest rate cut on February 7,” said Stephen Koukoulas, until last year economic advisor to prime minister Julia Gillard.

“Inflation is simply not a concern, the Bank’s decision in February need pay no heed to the consequences for prices,” said BT Financial Group economist Chris Caton...

But futures traders marked wound back their bets on a February interest rate cut, cutting the implied probability from 84 per cent to 66 per cent. “The underlying inflation figure came in just above the market’s expectations,’’ explained NAB currency strategist Emma Lawson. “That allowed some pricing of the expected cut to be taken out of the market.”

The Reserve Bank itself believes price pressure is firmly in the middle of its 2 to 3 per cent target band - low enough to enable it to cut rates once more but not low enough to compel it to cut.

Tuesday week’s decision will be heavily influenced by developments in Europe and the Bank’s assessment of their implications for the rest of the world.

Treasurer Wayne Swan spoke by telephone to International Monetary Fund chief Christine Lagarde yesterday telling her Australia understood the danger of a new global downturn and pledging support for the her efforts to fight one.

Australia is expected to announce a decision about whether to pledge more money to the IMF at a Group of 20 Finance Ministers’ meeting in February.

Darwin recorded the biggest December quarter fall in the prices of 0.7 per cent. Perth recorded the biggest increase; 0.3 per cent. Sydney prices fell 0.1 per cent, Melbourne prices climbed 0.1 per cent.

Supermarket price wars saw bread prices fall 2.3 per cent over the year to December and milk prices 10.1.

Vegetable prices slipped 3.6 per cent over the year, while fruit prices climbed 24.4 per cent.

Insurance premiums climbed 7.2 per cent, child care charges 8.5 per cent, water and sewerage charges 8.6 per cent and electricity prices 12.2 per cent.

Treasury modelling says water, gas and electricity costs will climb a further 7.9 per cent as a result of the carbon tax to be introduced in July. The Reserve Bank has promised to “look through” such increases in setting rates, acting only on what it believes are other reasons for price increases.

Published in today's SMH and Age

INFLATION STALLS

Year to December: 3.1%
December quarter: 0.0%

HEADING DOWN:

Bread prices down 2.3%
Major appliances down 4.6%
Electronic goods down 9.8%
Milk prices down 10.1%
Computer software down 18.8%

HEADING UP:

Insurance premiums 7.2%
Child care charges up 8.5%
Water & sewerage up 8.6%
Electricity prices up 12.2%
Petrol prices up 12.4%

Year to December, ABS 6401.0

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6401.0

CPI at 11.30 AEDT. How will the market take it?

noreply@blogger.com (freshpost) — Tue, 24 Jan 2012 23:07:00 +0000

ANZ:

An outcome for underlying inflation of 0.8% q/q or more would be a genuine surprise. It would likely cause the RBA to revise up its inflation forecasts (after they cut them in November) and would lift the hurdle for a February rate cut considerably.

Underlying inflation of 0.4% q/q or lower would be a genuinely low outcome.
This would probably see the RBA revise its forecasts downwards, and would suggest that momentum in the non-mining economy is weaker than the (mixed) activity data is suggesting. Whilst we doubt such a low result would trigger a 50bps cut at the RBA's February meeting, it would certainly provide scope for the RBA to deliver back-to-back 25bps rate cuts in February and March, should other domestic and global conditions warrant such easing.

An outcome of between 0.5% and 0.7% q/q would be consistent with the RBA's current forecast, and thus not particularly inconsistent with current market pricing. A result of 0.7% q/q, while 0.2ppts above the market median forecast, would still see the six month annualised underlying inflation rate fall slightly, provided there are no revisions to the historical data. Hence, any initial market reaction that perceived 0.7% as a high result could be quickly reversed.

Don't treat fiscal policy as a morality play. This could be 1930 - IMF

noreply@blogger.com (freshpost) — Tue, 24 Jan 2012 20:50:00 +0000

Gee, how did The Australian report her pleas about fiscal policy?

The world will face a “1930s moment” of the kind that brought on the great depression unless money can quickly be found to support nations such as Italy and Spain, the International Monetary Fund says.

Ahead of releasing dramatically downgraded forecasts early this morning Australian time IMF chief Christine Lagarde told an audience in Berlin $1 trillion would be needed to support ailing governments and stave off a deeper crisis - half of which would have to come from Fund backers such as Australia.

Australian Treasurer Wayne Swan backed Ms Lagarde saying without “larger firewalls” to protect embattled European nations the global economy was a risk.

But Shadow Treasurer Joe Hockey questioned whether such payments were in Australia's national interest.

The IMF has shaved three quarters of one per cent off its previous global global growth forecast issued in September. It expects the world economy to grow by 3.25 per cent in 2012 and advanced economies 1.2 per cent. China would grow 8.2 per cent, down from 9.2 per cent. The so-called Eurozone would shrink 0.5 per cent before growing weakly in 2013.

But Ms Lagarde warned the world was facing something much worse - “a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand”...

“I understand the frustrations of the rest of the world. Just as they were picking up the pieces after the 2008 crisis they watch their recovery being blown off course by trouble in Europe. I also understand the feelings in countries that have been thrifty, asked to help those who could have managed their economies more prudently,” she said.

“But must all understand is that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral.”

The IMF economic update released overnight (WED 2.00AM) warns of “adverse feedback loops” in which countries that have trouble paying debts cut spending further, depressing their economies further, making it even harder to repay their debts and imperiling financial institutions worldwide.

In Berlin Ms Legard attacked the “worrisome tendency to view fiscal policy as a morality play between profligacy and responsibility.”

Spending cutbacks were no longer a black or white issue. While governments should commit to cutting spending in the medium term, the US in particular should avoid cutting further at the moment. Countries such as Australia which could readily finance higher deficits should allow them to climb rather than cut back if the world turned down.

Mr Swan endorsed the IMF analysis saying no country can expect to be immune from the global threats it identified.

Coalition Treasury spokesman Joe Hockey said should the IMF ask Australia for more money “the government must explain to taxpayers whether it would be in Australia's national interest to contribute, and from where it plans to fund any such contribution."

A spokesman for Mr Swan responded “Mr Hockey would be better off working out how he will pay for the $70 billion budget crater that he announced on breakfast television, rather than undermining half a century of Australian governments meeting their responsibilities”.

Published in today's Canberra Times, SMH and Age

Global Challenges in 2012

By Christine Lagarde
Managing Director, International Monetary Fund

Berlin, January 23, 2012

Good afternoon. It’s a great honor for me to be here, in Germany, in this great city of Berlin. Germany plays a vital role in Europe, in the global economy, and on the global stage. There can be no resolution to the crisis without Germany, and a lack of resolution will in turn hurt Germany, the euro area’s economic linchpin. I can think of no more suitable place to make this point than the German Council on Foreign Relations, which has been at the forefront of the debate on Germany’s role in the world for the past fifty years.

Before going any further, I would like to pay tribute to the tireless efforts of my good and highly-respected friends Chancellor Merkel and Minister Schäuble in seeking solutions to this crisis.

As we turn the page on a turbulent year, a year in which so much of what could go wrong did go wrong, many look to the future with trepidation and foreboding. They worry about uncertain economic prospects, dwindling job opportunities, and rising inequality. About what kind of future awaits their children.

Indeed, in the economic outlook that the IMF will release tomorrow, we will lower growth forecasts for most parts of the world. Even these lower forecasts assume a constructive policy path that is by no means assured.

In too many places, uncertainty is holding back demand and the willingness to lend. A legacy of high public and private debt is hurting economic prospects. The global financial system remains fragile.

In an interconnected world like ours, these forces are feeding each other across borders. Capital flows to emerging markets have already dropped off, and growth is expected to slow even in the most vibrant parts of the world economy. Low-income countries are especially vulnerable.
Yet before we indulge in yet another bout of collective pessimism, which is becoming something of a global sport, let me ask a simple question—why did 2011 turn out so badly?

I would argue that it was not because of any fresh wound to the global economy. No, it was driven instead by a lack of a collective determination to reach a cooperative solution. We saw many false starts and half measures in 2011—in Europe, but also, for instance, in the United States with its debt ceiling debacle.

Put simply, policymakers let an old wound fester, and in doing so made the situation worse.
Looking at it from this perspective, 2012 must be a year of healing. But as Hippocrates put it long ago: “Healing is a matter of time, but it is sometimes also a matter of opportunity”.

And today, it has to be an opportunity of our making. Otherwise, we could easily slide into a “1930s moment”. A moment where trust and cooperation break down and countries turn inward. A moment, ultimately, leading to a downward spiral that could engulf the entire world.

I remain ever hopeful. I believe we can avoid such a scenario. I say this for a simple reason: we know what must be done. That is my core message to you today—although the economic outlook remains deeply worrisome, there is a way out. Now the world must find the political will to do what it knows must be done.

I would like to lay out the core elements of a policy path forward, in three broad aspects:

First, the path for the euro zone.

Second, the role of the rest of the world.

Third, the particular role and responsibility of the IMF.

Policies in the euro zone

I will start with Europe, which is at the center of concerns—not only because of the historical project it represents but, more pointedly, because of the extensive trade and financial linkages that bind everyone else to it.

In coming to grips with Europe’s crisis, I want to acknowledge up front just how far the euro zone has come in addressing the new realities it faces.

Eurozone countries have established their cross-border safety net with the European Financial Stability Facility (the EFSF) and outlined a permanent version of it with the European Stability Mechanism (the ESM)—only two years ago, this was heresy. They have taken a harmonized approach to recapitalizing banks, and set up a systemic risk board. Governance reforms to enforce stronger and more effective fiscal discipline are in train and individual countries are taking tough decisions to rein in fiscal deficits. In addition, the European Central Bank has unleashed impressive resources to make long-term liquidity available to banks.

These major steps must be recognized. Yet I would not be the first to argue that these moves form pieces, but pieces only, of a comprehensive solution. Many within Europe are themselves making this point with increasing forcefulness.

Let me therefore offer my perspective on what remains to be done. There are three imperatives—stronger growth, larger firewalls, and deeper integration.

First, stronger growth. This has a number of dimensions.

With the euro area economy slowing sharply, inflation is already declining and we see a sizable risk that it will fall well below target next year, raising debt burdens and further hurting growth. Additional and timely monetary easing will be important to reduce such risks.

Stronger growth also means preventing banks from going into reverse gear, contracting credit in the face of market pressure. Solutions should focus on raising capital levels—rather than cutting back lending—as the way to boost capital ratios. Maintaining orderly funding conditions is also imperative.

On fiscal policy, resorting to across-the-board, across-the continent, budgetary cuts will only add to recessionary pressures. Yes, several countries have no choice but to tighten public finances, sharply and quickly. But this is not true everywhere. There is a large core where fiscal adjustment can be more gradual. Automatic stabilizers, which let tax revenues fall and spending rise as the economy weakens, should certainly be allowed to operate. And those with fiscal space should support the common effort by reconsidering the pace of adjustment planned for this year.

Some countries still have much to do to boost their competitiveness and growth potential. For this, structural reforms are critical, however medium or long-term their impact might be. As experience tells us, fiscal sustainability depends, ultimately, on generating long-term growth.

Second, we need a larger firewall. Without it, countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs. This would have disastrous implications for systemic stability. Adding substantial real resources to what is currently available by folding the EFSF into the ESM, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly. Action by the ECB to provide the necessary liquidity support to stabilize bank funding and sovereign debt markets would also be essential.

We must also break the vicious cycle of banks hurting sovereigns and sovereigns hurting banks. This works both ways. Making banks stronger, including by restoring adequate capital levels, stops banks from hurting sovereigns through higher debt or contingent liabilities. And restoring confidence in sovereign debt helps banks, which are important holders of such debt and typically benefit from explicit or implicit guarantees from sovereigns.

This brings me to my third point—deeper integration. In a sense, the crisis is a crisis of incomplete integration. At the euro-area level, the fundamentals look good—the current account is balanced and inflation and the fiscal deficit are both low. But the euro area does not handle internal imbalances well. In addition, a single financial market cannot rely on legal and institutional frameworks that operate on an asymmetric national basis.

To break the feedback loop between sovereigns and banks, we need more risk sharing across borders in the banking system. In the near term, a pan-euro area facility that has the capacity to take direct stakes in banks will help break this link. Looking further ahead, monetary union needs to be supported by financial integration in the form of unified supervision, a single bank resolution authority with a common backstop, and a single deposit insurance fund.

The euro area also needs greater fiscal integration—it is not tenable for seventeen completely independent fiscal policies to sit alongside one monetary policy. To complement its “fiscal compact”, the area needs some form of fiscal risk-sharing, which would allow for common support before economic dislocation in one country develops into a costly fiscal and financial crisis for the entire euro area.

A number of financing options are available to support such risk sharing, including the creation of euro area bonds or bills or, as proposed by the German Council of Economic Advisors, a debt redemption fund. Political agreement on a joint bond to underpin risk sharing would help convince markets of the future viability of European economic and monetary union.

Policies in the rest of the world

Let me now turn to my second broad area—policies in the rest of the world. I have dwelt on Europe only because it is at the epicenter of the current crisis and thus key to the global outlook. But other economies have at least as important a role in getting to a better outcome.
The United States, as the world’s largest economy and the center of the global financial system, has a special responsibility. Yes, it is recovering, but at a timid pace, and unemployment—while declining—remains unacceptably high.

The key policy priorities must be to relieve the burden of household debt and to deal decisively with the issue of public debt.

On housing, we have been calling for ways to make mortgage debt sustainable, including programs to facilitate write-downs. I understand the legal and political complexities but the current strategy is not working satisfactorily, and we need a rethink.

On public debt, American policymakers need to find a way past the partisan impasse, grasping all reasonable means of bringing down tomorrow’s deficits—including by reforming entitlements and raising revenue—without bringing down today’s economy.

This brings me to another worrisome tendency in many quarters—to view fiscal policy as a morality play between profligacy and responsibility. Political and market commentary is too often cast in these terms. Yet markets themselves have been schizophrenic about fiscal tightening, at times rewarding it with lower interest rates, and at other times recoiling at the implied growth slowdown and pushing up interest rates.

To reiterate our advice: credible measures that deliver and anchor savings in the medium term will help create space for accommodating growth today—by allowing a slower pace of consolidation.

What about other countries and regions?

In Japan, there is no way to avoid a credible consolidation plan that brings down public debt in the years ahead. Japan also needs reforms to raise long-term growth.

Countries with current account surpluses, whether advanced or emerging, also have a role to play—primarily by shifting to domestic demand to support global growth. After all, global deficits will shrink only if surpluses shrink too.

Here, China can help itself and the global economy by continuing to shift growth away from exports and investment, toward consumption. To get there, I’m thinking of such measures as fiscal support to household consumption and expanding social safety nets, and liberalizing the financial system. These are all reforms that the Chinese government itself has embraced.

One more point: We must not let financial regulation slip off the policy agenda. We simply cannot carry on with the financial sector that gave us the global financial crisis. We need a safer and more stable financial system, one that serves rather than destabilizes the real economy. While policymakers have made a lot of progress, they still need to complete the reform agenda and ensure that the new standards are implemented in a way that is consistent across countries.

The role of the IMF

Let me now turn to the role of the IMF, my third and final issue.

Clearly, a cooperative path means that all countries must work together with a common diagnosis toward a common solution.

A key role of the IMF is to lay out the inter-dependencies between countries and push for a cooperative outcome.

But the IMF can provide much more than analysis, advice and exhortation.

It can also provide financing when needed. I am convinced that we must step up the Fund’s lending capacity. The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of “innocent bystanders” infected by contagion, anywhere in the world. A global world needs global firewalls.

In the coming years, we estimate a global potential financing need of $1 trillion. To play its part, the IMF would aim to raise up to $500 billion in additional lending resources. Right now, we are exploring options and consulting the membership.

In addition to resources, the IMF can also provide a “commitment mechanism” to lock in good policies when funding is not needed. Italy’s request for IMF monitoring of its policies is a good example of this.

Finally, because there has been so much loose talk about special “European bailouts”, let me reiterate a few points. Our financing is for all members, euro area or otherwise. We only lend to individual countries that request support and make strong policy commitments. That said, any support we provide to euro area countries must be anchored in a clear policy framework for the entire euro area. To safeguard our members’ resources, we have a responsibility to lend into sustainable debt positions. Our role is to catalyze, not indefinitely replace, private financing.

Conclusion

Let me wrap up. Although we all know what must be done, I realize that none of this will be easy. I understand the great political challenges facing policymakers.

I understand the frustration of the Europeans, who have built such a remarkable project out of the ruins of World War II. No, monetary union did not get everything right, but the global financial crisis that started across the Atlantic exposed its vulnerabilities more starkly. I also understand why Europeans feel that the difficult decisions they have taken are not being sufficiently recognized.

I also understand the frustrations of the rest of the world. Just as they were picking up the pieces after the 2008 crisis, they watch their recovery being blown off course by trouble in Europe. They wait for a resolution to this crisis that never seems to come, on a continent they feel is rich enough to resolve its problems on its own.

I understand the pain felt in those European countries that need to adjust, and the difficulty of sharing the burden in a way that is socially fair. But I also understand the feelings in countries that have been thrifty, asked to help those who could have managed their economies more prudently.

But what we must all understand is that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral. It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand.

The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it.

More than most, Germany understands the virtues of determined solidarity. Through its experiences with its Soziale Marktwirtschaft and unification, it showed what can be accomplished by bringing everybody together in service of the common good. The world needs a strong leadership role from Germany today, and it is Germany’s core interest to provide such a role.

Let me end with a quote from Goethe: “It is not enough to know, we must apply. It is not enough to will, we must do.” (Es ist nicht genug, zu wissen, man muß auch anwenden; es ist nicht genug, zu wollen, man muß auch tun). This is the challenge of our year ahead.

Thank you very much.

Fiscal Monitor Update

World Economic Outlook Update

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Stimulus programs work. We need them ready - Access

noreply@blogger.com (freshpost) — Sun, 22 Jan 2012 22:40:00 +0000

Australia needs to be ready with a new economic stimulus program the moment Europe “blows” a leading economist says.

Deloitte Access director Chris Richardson uses this morning’s quarterly Business Outlook to implore political leaders not to let “talkback radio swamp smart policy,” should Europe take a turn for the worst.

“Australia’s fiscal stimulus last time was a striking success,” he writes. “It simply wasn't seen as that in the court of public opinion. That gap between reality and perception threatens a poor reaction by the punters if a new stimulus is needed in 2012.”

Access says its central scenario is that Europe's leaders “muddle through in a way that doesn’t stop Europe having a recession, but does avoid a deep recession and bank failures.”

But it says the risk is “almost as high” that Europe could ‘blow’ sparking bank busts and a new global financial crisis.

If that happens Australia should abandon its commitment to a small budget surplus in 2012-13 and instead embrace a “huge” budget deficit.

“We should be willing to do what worked last time,” he told The Age. “We shouldn’t let talkback radio decide what worked and what did not.”

The cash handouts worked very well... The school building programs worked less well, but not for the reason many people think.

“The problem wasn’t waste. The real waste occurs in a recession when people lose their jobs. Someone who is out of work for two years might not ever return to the workforce. That’s waste. The problem with the Building the Education Revolution program was it took too long. It was stimulating the economy beyond the point it was needed. Speed is essential.”

If Mr Richardson had his way interest rates would play a bigger role in fighting the next financial crisis and fiscal stimulus a smaller role. “But that doesn’t mean fiscal programs should have no role,” he said. Infrastructure projects should be “shovel ready.”

While the $15,000 First Home Owner Bonus was effective, Mr Richardson would be cautious about offering it again.

“First home owner programs are the crack cocaine of fiscal stimulus. They usually work a treat. But they make young couples spend too much on their first home, making their lives miserable down the track.”

Should the world avoid a new crisis Deloitte Access forecasts improved Australian economic growth of 3.2 per cent this financial year concentrated in the mining states. Victoria’s economy would grow 2.1 per cent, the NSW economy 2.3 per cent. A separate Commonwealth Securities State of the Statesreport released this morning puts Victoria in the second rung of economic performers along with the Australian Capital Territory. Western Australia is on the top rung, and all the other states in third place.

Published in today's Age

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You work in the finance sector. You've felt secure...

noreply@blogger.com (freshpost) — Sun, 22 Jan 2012 22:10:00 +0000

NSW is facing the worst year for its financial sector since the global crisis. Even without an escalation of the problems in Europe thousands of CBD jobs are at risk.

“Sydney’s finance sector businesses grew fat and lazy during many years of double digit credit growth through to 2007,” Deloitte Access Economics says in a report released this morning.

Although banks and finance sector firms rebuilt their workforces after the global financial crisis, many were “now reassessing their cost base — they think they have too many employees.”

“They thought we would return to double digit credit growth,” said report author Chris Richardson. “It couldn’t have gone on forever. Borrowing had been climbing 10 to 12 per cent per year while national income had been climbing 5 to 6 per cent per year. Instead we are saving. The party is over, and the realisation has only really dawned in the last six to nine months"...

Already Westpac is preparing to axe 1000 middle management positions and the ANZ has sacked 130 back office staff.

Mr Richardson said the damage would be felt most keenly in Sydney.

“Sydney is home to half the finance sector businesses in Australia. The sector accounts one in three Sydney CBD jobs,” he said.

“If Europe blows up, the finance sector cutbacks will be even deeper.”

Deloitte Access Economics is forecasting NSW employment growth of just 0.5 per cent this financial year, half the national average. The economy would grow at 2.3 per cent, well down on the national rate of 3.2 per cent.

This morning’s [MON] CommSec State of the States report places NSW in the bottom rung of economic performers along with South Australia, Tasmania, and Queensland. Western Australia is alone on the top rung. Victoria and the Australian Capital Territory share second place.

Mr Richardson said at the same time as the financial sector cut back the public sector would shrink as a result of Commonwealth cutbacks and a state government decision to “tread water”.

Retail was “not doing much,” and the manufacturing sector - vital to Western Sydney - was winding back.

The big plus for NSW was that its residents were heavily mortgaged, and so extremely sensitive to interest rates. “The lower rates will help in NSW more than anywhere else,” Mr Richardson said. “The overall outcome might not be too bad. But the finance sector will go from being a support to being a drag.”

Published in today's SMH

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Get teary again. Celebrate Peter Veness

noreply@blogger.com (freshpost) — Fri, 20 Jan 2012 04:25:00 +0000

In today's Canberra Times:

Press Gallery journalist 'much loved'

BY CHRIS JOHNSON

Most journalists are aware that theirs is a privileged role. To witness first-hand events of importance and to be entrusted with accurately reporting them to the wider community is a position both envious and accountable.

Political journalists in particular are cognisant of the fact that their audiences rely on them to impart true accounts about those who would lead the nation.

No reporter was more aware of that responsibility than was Peter Veness, a highly respected and much-loved member of the Canberra Press Gallery, who died on Sunday night after battling a rare form of brain cancer, diagnosed in 2009.

He didn't quite reach his 28th birthday, yet he was vastly wise beyond his years.

Veness - Pete - was a good friend of mine and I can only write this obituary from that perspective.

This cannot be a dispassionate piece of writing, because Veness was not a dispassionate person.

A larrikins' larrikin by any reckoning. Loud and boisterous, yet with a heart as big as his cheeky grin.

And a sensitivity that could make you weep.

He loved to sledge his mates, but he would do anything for them. He taught all his blokey friends that it was okay to say ''I love you brother'' and really mean it.

Veness arrived at the national capital in 2006 after having earned his stripes as so many young journalists do, in regional Australia.

Proud of his innings at Bathurst's Western Advocate newspaper, the young Veness subsequently joined wire service Australian Associated Press and was assigned to the Canberra bureau in Parliament House.

''You know what a big deal it is for me to be in the gallery?'' he would often confide. ''I'd better not stuff it up.'' Far from stuffing things up, Veness filled his role with professionalism and enthusiasm.

Possessing a keen news sense, he could always be relied on to dig up the quirky and uncover the newsworthy in almost any situation.

During the 2007 election campaign, while covering the John Howard trail, he was one morning the only reporter to rise before 4am to join the then prime minister on one of his famous walks.

The journalists were housed for the night at a resort in the Adelaide hills because there were no rooms left in the city's CBD hotels.

Howard was in the city more than an hour's drive away and if any reporter wanted to join him on the optional early constitutional, it would mean a very early rise.

Most decided to pass, but not Veness.

As it turned out, he got to spend half an hour trying to keep up with Howard while enjoying a one-on-one conversation with him.

''I don't agree with everything he does politically,'' Veness said later in the day. ''But, you know, I kinda like the guy.''

The next week we were on the Kevin Rudd trail and after following him around for a few days, Veness sidled up to me one afternoon and whispered with a smile, ''I don't agree with everything he does politically. But, you know, I kinda like the guy.'' Always the even-handed reporter.

Everyone more than ''kinda'' liked Veness, which is why it hit the Press Gallery hard with the news of his diagnosis. His courageous battle was an inspiration to watch, not least because he insisted he was not the inspiring type.

Combining his loves of music and literature, Veness sometimes wrote album reviews and artist interviews using the pen name Sal Caulfield - mixing his favourite fictional characters Sal Paradise from On the Road and Holden Caulfield from The Catcher in the Rye.

Born in Canberra before moving to Batemans Bay, Veness had a close family.

After his high school days at Gilgandra, Veness and his family settled in Bathurst, where Veness studied journalism at Charles Sturt University. It was from where he sought out again the sweetheart he first met at Gilgandra, Bec Bignell.

Long-time partners, they married after his diagnosis.

He loved his work, he loved his sport, loved his books and his music. But what Veness loved the most was his wife, his family and his friends.

And yep, ''love you too brother''.

Chris Johnson is chief political correspondent for The Canberra Times

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Bleak Christmas? For job seekers it was the worst in 20 years

noreply@blogger.com (freshpost) — Thu, 19 Jan 2012 21:54:00 +0000

TECHNICAL NOTE: Why did the seasonally adjusted unemployment rate stay steady at 5.2 per cent in December while the seasonally adjusted number of people in work fell 30,000? The standard explanation is "more Australians are giving up on looking for employment". In this case it is wrong. The clue as to why lies in seasonal adjustment. Most Decembers the number of people looking work but not finding it jumps. In 2009 it jumped 26,000. In 2010 it jumped 2500. In the December just passed it jumped 23,700 - not shabby and certainly not more Australians "giving up on looking for employment". The jump was heavily seasonally adjusted down to a fall of 3600 most probably because of the unusual seasonal behaviour I describe below.

A surprise decision by retailers to shy away from the usual Christmas practice of hiring extra workers has given Australia the worst jobs performance in two decades, sparking talk of two more interest rate cuts within months.

Bureau of Statistics figures released yesterday show instead of the usual boost of 161,000 mainly-temporary workers in December, employment climbed just 115,000 at the end of the year.

The Bureau says women aged 15 to 24 bore the brunt of the cautious approach, making 2011 the worst Christmas for young people wanting part-time jobs in more than 20 years.

The poor end to the year meant employment grew not at all during 2011, falling slightly by 100 jobs over the year. Its the first time jobs have been lost over the course of a calender year since the aftermath of the last recession in 1992.

The outcome is dramatically at odds with the May budget forecast of 500,000 new jobs in two years and also at odds with the forecast in the December budget update of 114,000 new jobs during 2011-12... With the financial year half over employment has climbed 8100.

Acting treasurer Bill Shorten put a brave face on the figures saying they reflected global headwinds, the the high dollar and cautious consumers.

Australia was “not immune from developments in Europe”. A further deterioration in conditions overseas “would inevitably put pressure on the Australian labour market”.

Victoria and NSW bore the brunt of employer’s caution. Victoria has lost 11,300 jobs over three months, NSW 2000 jobs and South Australia 1600 jobs.

The mining states and territories continued to do well, Queensland putting on 5600 new workers, the Northern Territory 2500 more workers and Western Australia 1600. The ACT put on 800 and Tasmania 700.

Australia’s unemployment rate remained steady at 5.2 per cent. A statistical quirk pushed Victoria’s seasonally adjusted unemployment rate down from 5.5 to 5.2 per cent as the number of people saying they were looking for work fell faster than the number of people employed.

Deutsche Bank economist Adam Boyton said the real risk for employment was that sectors other than retail which have been hording labour while the dollar is high decide to follow retail and make do with less staff.

Opposition leader Tony Abbott said the state of the jobs market made it “crystal clear now is the worst possible time for the world’s biggest carbon tax”.

“The Australian economy, for all its comparative strength, created no net new jobs in calendar 2011. This is a very disappointing result.”

The figures show that although employers have been cautious about hiring new workers they have been asking their existing staff to put in more hours. Treasury estimates show that if instead they had put on more staff to work the extra hours employment would have climbed 96,000 during 2011.

The Reserve Bank board meets to vote on interest rates on February 7. The meeting will also have before it this week’s dismal World Bank forecasts, International Monetary Fund forecasts to be released next week, and inflation data out next Wednesday expected to show inflation falling. The futures market is pricing in two more rate cuts by May.

Published in today's SMH and Age

JOB LOST...

In the last three months

Victoria: 11,300 jobs lost
NSW: 2000 jobs lost
South Australia: 1600 jobs lost

...OUTWEIGHED JOB GAINED

Tasmania: 700 jobs gained
ACT: 800 jobs gained
Western Australia: 1600 jobs gained
Northern Territory: 2500 jobs gained
Queensland: 5600 jobs gained

Trend figures, three months to December ABS 6202.0

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6202.0

Peter Veness, the hidden parts

noreply@blogger.com (freshpost) — Wed, 18 Jan 2012 20:47:00 +0000

During his final days at Clare Holland House Kevin Rudd phoned and read him psalm after psalm.

Labor MP Andrew Leigh held his hand and stayed with him as if time had stood still. Bishop Stuart Robinson prayed and held his hand. The priests at St Johns came over to offer communion. Friends poured in from all over Australia.

In Peter's hands when he died were the blue teddy bear that had comforted him through three or four years of hospital visits fighting cancer, and a small wooden cross.

Peter Veness was - is - a truly wonderful human being. You can read tributes to him here and here.

He was frightened and brave.

What the tributes gloss over is that he was a Christian. He talked to God and wanted to know him.

He was Chair of St John's Parish Council. He was studying theology at St Mark's.

God made him strong for other people, for his wife Bec, and strong enough to stand up to the cancer that just weeks ago game back for one final attack.

To downplay his faith in Jesus in assessments of his life and his effect on people is to downplay an important part of who he was.

I love Peter. So many of us do.

He'll be remembered at 10.30 this morning at St Johns, and afterwards at the National Press Club.

Here is a feature Peter Veness wrote for his employer AAP in 2009:

I have cancer. I am 25 years old.

By Peter Veness

First it was in my brain and now it's spread to my spine.

I had brain surgery to remove the tumour from my head, which had been missed six months earlier; eight tumours then appeared on my spine.

The doctors give me little hope.

Stuff the doctors who have already killed me; they don't tell me when to die.

These are the same doctors who told me they would eat their hats if there were any tumours on my spine.

Well, get out your knives and forks, boys, and chow down on those Akubras. It's ridiculous that they talk like this but it's exactly what happened to a close friend who was told she almost certainly had cancer only to be diagnosed with a completely different disease that could almost certainly be fixed with antibiotics.

Yes, these diseases are no doubt difficult but surely doctors should not offer such certainty without first doing the science.

The other fun is monthly MRI scans of my brain and spine. An MRI is a small, loud tunnel the patient is fed into and then left there to wonder what is going on for as long as it takes.

At the last visit it took more than two hours and about 10 attempts at finding a vein before the nurse knocked the needle out anyway but at the end the news was good, the cancer hadn't grown.

Amidst all of this is the gut-ripping nausea, from chemotherapy, that keeps you on a constant feed of different drugs, none of which work too well most days.

These regular processes, the reminders that cancer is inside me, are my frustration and my necessary schedule amidst a lot of fear.

I am getting married to the woman of my dreams on September 5.

A few days after being diagnosed with brain cancer, I borrowed mum's sapphire ring and knelt down in the hospital's chapel. Bec thought I was falling over, my balance blown from surgery, but I begged her for patience.

"Will you marry me?"

"You already know the answer."

"Well can I hear it then?"

We were told to bring the wedding forward and are already planning to renew our vows on the day we initially planned to wed late next year.

Sometimes I am angry, other times sad but this I know.

Desperately; with hunger, determination and struggle, I am living a life of no regrets and most definitely our wedding is a part of that.

We've invited the long-lost aunty and the mates we haven't seen in years; having cancer hands an extra urgency to everything. It also seems to give you extra rights, extra legitimacy to do outrageous things.

I have recurring memories of being dunked by waves on the NSW south coast where I spent my childhood nearly drowning and spitting out sand.

Despite the pain in my back from a biopsy on my spine, I am going to drive down the mountains from Canberra to the sand and let one giant wave hit me, drag me under the white foam and bash me.

It's a silly memory, I know, but I would regret not doing it if it is to be for one last time. I don't want to jump out of a plane, sail around the world or climb Mount Everest but I fear spending my final months on the couch watching daytime TV through an inability to make decisions, a fear of moving.

My counsellor - a specialised cancer patient counsellor - must deal with the most harrowing stories every day, and encouraged my life of no regrets. She has had to harshly remind me the likely outcome of all of this is death.

Live a life of no regrets. Don't die wondering.

Even when life is consumed by thoughts of death, of leaving my most loved, of lying in a coffin, of being lowered six feet, there are ways of smiling.

Old, silly jokes still bring a smile to my face and the sight of just about any dog makes me joyous from a childhood spent spilling all my secrets to my loyal blue heeler Bert.

There is one final wish I haven't mentioned.

To live.

I pray at night, asking my God the seeming simplest of questions: "Will you save me?" I haven't heard back yet.

I often ask myself, what about those times when I'm not fulfilling a wish, not doing something on the bucket list?

There are times spent watching inane night-time TV and putting a load of washing on or, like last week, returning a broken vacuum cleaner for replacement.

These aren't things you dream of doing when your life is given a shortened deadline.

The mundaneness of life continues even when you're dying.

World Bank: We're on the edge of a new GFC

noreply@blogger.com (freshpost) — Wed, 18 Jan 2012 13:29:00 +0000

Australian authorities are taking seriously a World Bank warning of new financial crisis so severe it would eclipse the chaos that followed the collapse of Lehman Brothers in 2008.

World Bank lead economist Andrew Burns yesterday called on vulnerable nations to prepare for the worst and refinance loans now rather than waiting until funds dry up.

“If there are countries that have important amounts of financing coming due in the months and years ahead maybe now is the time to prefinance that debt, prepare the loans and get that money while financial markets are still relatively active,” he told reporters unveiling the Bank’s latest six-monthly assessment of global prospects in Beijing.

The World Bank has halved its previous 2012 forecast for economic growth in high-income countries and is forecasting negative growth for the collection of nations that use the euro as their currency.

It’s concern is that financial markets could stop working if lenders refuse to roll over European debts.

“A much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out,” the report says. “Should this happen the ensuing global downturn is likely to be deeper and longer-lasting than the recession of 2008/2009.”

“Countries do not have the fiscal and monetary space to stimulate the global economy or support the financial system to the same degree as they did in 2008/09... While developing countries are in better shape than high-income countries, they too have fewer resources available. No country and no region will escape.”

Australia, not specifically mentioned in the report, has a relatively good budget position and a better ability than most to ward off a downturn by interest rate cuts and increased government spending as it did in 2008.

But the Bank says commodity-exporting nations such as Australia will find their budgets hit by much lower prices.

Its central forecast is for oil prices to fall 5.5 per cent this year and non-oil commodity prices to slide 9 per cent. It has modelled worse scenarios - one for a 20 per cent slide in oil prices and a bigger slide in minerals and energy prices.

Each of its scenarios is worse than envisioned in the government’s December budget update, calling into question the government’s forecast of a 2012/13 budget surplus.

Acting Treasurer Bill Shorten said the budget would “obviously be hit”.

“The past year was difficult and disappointing for the global economy. The outlook for 2012 looks even more challenging,” he said responding to the World Bank report.

“But the Australian economy is now around 7 per cent larger than it was prior to the global financial crisis. By way of comparison, the United States is just back to – or above – where it was. We have a proven track record having fought off the global recession and the worst the world can throw at us.”

The Bank is forecasting worldwide economic growth of just 2.5 per cent this year, down from its previous forecast of 3.6 per cent. Anything less than 3 per cent is commonly defined as a global recession.

World trade would grow by only 4.7 per cent, down from 6.6 per cent in 2011.

China would continue to grow strongly, but by 8.4 per cent, down from 9.1 per cent. High income nations would grow by just 1.4 per cent half the previously forecast 2.7 per cent.

A separate Westpac consumer survey released yesterday found confidence still weaker than it was before the November and December rate cuts despite a slight uptick in January. Four in every ten consumers surveyed believed their family finance had worsened over the past year. Only two in every ten believed they had improved.

Specialty Fashion Group, which runs the women’s chains Katies, La Senza and Millers, reported worse than expected December half sales and said if current conditions continued it would have to close 120 of its stores over three years.

Published in today's SMH and Age

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If you share suspect files can you be arrested and whisked off to the United States?

noreply@blogger.com (freshpost) — Wed, 18 Jan 2012 00:10:00 +0000

Yes. But only if you are unlucky.

Convicted NSW file sharer Hew Griffiths is watching events in the United Kingdom with a sense of foreboding.

A judge has ruled that a 23-year old British student who built an online site for sharing TV programs can be extradited to the United States to face trial and up to 10 years in jail, even though he never been there.

It’s thought to be the first time in Britain, but Hew Griffiths knows it can happen. He was bundled on a plane to the US in 2007 in what he believes was a pointless show of power that did nothing to stem on-line piracy.

“No-one ever thought such a thing could happen back then. If I had been charged at home I might have got a six month suspended sentence and a $1000 fine, maximum,” he told the Herald form his central coast home.

What he got was six months in a US prison after three years in Sydney’s Silverwater jail attempting to fight extradition...

He says the US was much better than Silverwater. It was safe, quiet and well-run.

Although he made no money from helping distribute pirated software and games, under US law he was deemed to have traded in stolen software and liable
for ten years in jail.

He struck plea bargain because there was no choice.

“I would have been tried in the state of Virginia. It’s just a hop, skip and a jump from Washington, very conservative, and full of government employees. Federal prosecutors have a 90 per cent plus strike rate.”

“This guy’s best bet would be to give up and go there. He’s not going to win the case, but if he delays the prosecutors will throw the book at him. If he offers a deal there won’t be a problem. All they want are political brownie points. They don’t really want to tie up their prisons.”

Sheffield Hallam University computer science student Richard O’Dwyer plans to appeal the extradition ruling arguing that his website TVShack.net broke no British law because it merely enabled people to download TV programs rather than hosting them.

Mr Griffith believes US authorities know the prosecutions are pointless, but they want to be seen to be acting on behalf of firms such as Adobe, Microsoft and News Corporation.

“There’s more piracy than ever. Most people face no risk. It’s like a massive school of fish facing a shark. It’ll only ever eat a couple, there’s safety in numbers.”

“But if they go after you, you’re gone.”

Published in today's SMH and Age

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Coffee calculator. One cup per day will cost $2000 over the life of a uni degree

noreply@blogger.com (freshpost) — Tue, 17 Jan 2012 23:00:00 +0000

I'm about to talk about it on ABC Adelaide 891.

Here's the link.

Mortgages. Why we're fixing.

noreply@blogger.com (freshpost) — Tue, 17 Jan 2012 08:15:00 +0000

Financial markets are banking on at least three more rate cuts over the next six months, but an increasing proportion of home borrowers appear not to care.

The latest borrowing figures for November - compiled just after the first of the two end-of-year rate cuts - show a jump in the proportion of borrowers locking in their repayments at fixed rates for two or more years.

Fixed loans climbed from 10.6 per cent of new housing loans before the November cut to 11.1 per cent, the highest proportion since the financial crisis in 2008.

A separate count by mortgage broker AFG backs up the Bureau of Statistics finding and suggests the trend continued beyond November.

In December 19.2 per cent of AFG loans were issued at fixed rates, up from 8.2 per cent six months before.

UBS interest rate strategist Scott Haslem says the uptake of fixed loans isn’t as pessimistic as it might seem...

“It doesn’t mean people think rates will rise and it doesn’t even mean they don’t expect them to fall again,” he told the Herald. “It’s just that fixed rates have become better value - it’s becoming cheaper to grab the bird in the hand.”

As recently as June last year a typical fixed three-year mortgage charged 7.35 per cent. By November the rate had fallen to 6.4 per cent.

“The decision facing a borrower in November was whether to go for a fixed loan at 6.4 per cent or whether to take out a variable loan that had just fallen from 7.55 to 7.3 per cent and might fall further.”

“You would have to expect four more rate cuts over three years to make the variable rate look better than fixed, and even then you would have to expect the lower variable rates to hold for three years.”

Mr Haslem said the low fixed rates were not particularly expensive for banks to fund. The three-year bond yield has fallen to 3.1 per cent.

“Everybody seems to be cutting global interest rates because the global economy is going through problems. Banks are able to cut their two to three year loans because the cost of two to three year money has gone down.”

The number of new home loans to owner occupiers jumped 1.4 per cent in November. Excluding loans for refinancing new loans climbed 2.5 per cent. But the number of new loans for home construction fell for the third successive month, sliding a further 0.4 per cent.

“Real estate agents will love the fact that more people are interested in established properties,” said Commonwealth Securities chief economist Craig James. “But builders, tradespeople, building material suppliers and homemaker stores will be more concerned about the absence of those wishing to build.”

“Home buyers are actually pretty cautious. The proportion of loans approved but not taken up has climbed 11 per cent over the past year. Buyers are getting their finance in place then waiting.”

Much of the November bounce was in NSW spurred on by the stamp duty concession for first home buyers which expired in December. First home buyers made up 24 per cent of new NSW loan approvals compared to 20 per cent nationally.

Other figures released yesterday built the case for further rate cuts. The TD Securities inflation gauge climbed 0.5 per cent in December but recorded the weakest quarterly growth in three years. TD Securities is forecasting an underlying quarterly rate of just 0.2 per cent when the official figures are released next Wednesday.

Published in today's SMH and Age

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'We warn the Tzar': Gillard lectures Europe

noreply@blogger.com (freshpost) — Sun, 15 Jan 2012 21:41:00 +0000

Heaven knows why

Prime Minister Gillard has rubbed salt into the wounds of European nations reeling from weekend credit downgrades, declaring they had it coming to them for avoiding tough decisions.

Speaking after Standard and Poor’s stripped France and Austria of their prized triple-A ratings and downgraded Italy, Portugal, Spain, Cyprus, Malta, the Slovak Republic and Slovenia Ms Gillard said the moves were the “price to be paid” by governments who had put off reforms.

“For too many years, European governments have deferred the nation-building productivity-enhancing reforms which Australia has made the foundation of our dynamic and resilient economy,” she said in a Sunday statement.

“In stark contrast to Europe,” Australia had strict fiscal rules that would return it to surplus in 2012-13.

European leaders should “swiftly undertake structural reforms to boost their economic potential and lift growth”.

“They must implement credible medium-term plans to put their budgets on a sustainable footing, because taxpayers rightly expect governments to manage their money prudently,” Ms Gillard said.

But leading Australian economist Shane Oliver warned that swift action to repair European budgets could cut growth further...

‘‘Fiscal austerity leads to economic deterioration and budget deficits blown out. It has the effect of worsening the economic outlook,’’ the AMP economist told the Herald.

Shadow treasurer Joe Hockey lambasted Ms Gillard for the intervention saying it was “a little rich” for the prime minister to lecture Europe.

“She and her treasurer have presided over a massive blowout in Australia's debt and turned strong budget surpluses into record deficits. Voters won't forget pink batts, cash for clunkers, building the education revolution and $900 cheques to dead people,” he said.

The United States has had its credit rating cut from triple-A to double-A in August without an intervention by the prime minister.

The downgrades leave Germany the only major economy using the euro to maintain a triple-A rating. Portugal and Cyprus have had their ratings cut to junk status.

The decision endangers the triple-A rating used by the European Financial Stability Facility to borrow cheaply and lend to struggling eurozone members. France is the Fund’s second-biggest guarantor.

Ahead of the downgrade the head of the French central bank Christian Noyer appealed to Standard and Poor’s to strip Britain of its top rating before France.

"They should start by downgrading the United Kingdom, which has higher deficits, as much debt, more inflation, and less growth than we do, and whose credit is collapsing,” he said.

British Deputy Prime Minister Nick Clegg told French Prime Minister Francois Fillon the suggestion was "unacceptable" and asked him t "calm the rhetoric."

The UK has been spared the latest downgrade, not being part of the so-called eurozone that that uses the shared European currency.

The Australian dollar is at close to an all-time high against the euro after the downgrades, buying 81.41 euro cents.

Published in today's SMH and Age

FROM THE PRIME MINISTER:

The credit rating downgrades we've seen in Europe reflect the price to be paid by national governments who have put off the tough reforms needed to secure strong and sustainable long-term economic growth.

For too many years, European governments have deferred the nation-building productivity enhancing reforms which Australia has made the foundation of our dynamic and resilient economy.

European leaders must swiftly undertake structural reforms to boost their economic potential and lift growth.

They must implement credible medium-term plans to put their budgets on a sustainable footing, because taxpayers rightly expect governments to manage their money prudently and global financial markets demand responsible fiscal management.

That's precisely why when we put in place our recession beating stimulus, we also put in place the strict fiscal rules that have us on track to return to surplus in 2012-13.

This is in stark contrast to Europe which is facing deficits as far as the eye can see and net debt 10 times that of Australia.

In fact, Australia just recently achieved the coveted, gold plated AAA-rating from all three global ratings agencies - for the first time in our history - the contrast with Europe could not be more stark.

While global volatility will inevitably impact us here at home, Australians can take confidence in our rock-solid economic fundamentals: we’ve got strong growth, contained inflation, low unemployment and very low debt.

The Government will keep taking the tough decisions needed to secure a strong, productive and sustainable Australian economy for the future.

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Holiday Reading. Economics, "the most male of the social sciences"

noreply@blogger.com (freshpost) — Wed, 11 Jan 2012 19:53:00 +0000

"The knowledge that every problem has an answer, even and perhaps especially if that answer may be difficult to find, meets a deeply felt human need. For that reason, many people become obsessive about artificial worlds, such as computer games, in which they can see the connection between actions and outcomes. Many economists who pursue these approaches are similarly asocial. It is probably no accident that economics is by far the most male of the social sciences."

I agree with John Kay's description. I am less sure he has identified a fatal flaw. Yes, models are unrealistic - that's the point. A model that included everything wouldn't be a model, it would be reality. Simple models are good ones. But he is right, some people who use them have confused them with reality.

Kay begins:

The Map is Not the Territory: An Essay on the State of Economics

by JOHN KAY

The reputation of economics and economists, never high, has been a victim of the crash of 2008. The Queen was hardly alone in asking why no one had predicted it. An even more serious criticism is that the economic policy debate that followed seems only to replay the similar debate after 1929. The issue is budgetary austerity versus fiscal stimulus, and the positions of the protagonists are entirely predictable from their previous political allegiances.

The doyen of modern macroeconomics, Robert Lucas, responded to the Queen’s question in a guest article in The Economist in August 2009.[1] The crisis was not predicted, he explained, because economic theory predicts that such events cannot be predicted. Faced with such a response, a wise sovereign will seek counsel elsewhere.

But not from the principal associates of Lucas, who are even less apologetic. Edward Prescott, like Lucas, a Nobel Prize winner, began a recent address to a gathering of Laureates by announcing ‘this is a great time in aggregate economics’. Thomas Sargent, whose role in developing Lucas’s ideas has been decisive, is more robust still.[2] Sargent observes that criticisms such as Her Majesty’s ‘reflect either woeful ignorance or intentional disregard of what modern macroeconomics is about’. ‘Off with his head’, perhaps. But before dismissing such responses as ridiculous, consider why these economists thought them appropriate.

In his lecture on the award of the Nobel Prize for Economics in 1995,[3] Lucas described his seminal model. That model developed into the dominant approach to macroeconomics today, now called dynamic stochastic general equilibrium. In that paper, Lucas makes (among others) the following assumptions: everyone lives for two periods, of equal length, and works for one and spends in another; there is only one good, and no possibility of storage of that good, or of investment; there is only one homogenous kind of labour; there is no mechanism of family support between older and younger generations. And so on.

All science uses unrealistic simplifying assumptions. Physicists describe motion on frictionless plains, gravity in a world without air resistance. Not because anyone believes that the world is frictionless and airless, but because it is too difficult to study everything at once. A simplifying model eliminates confounding factors and focuses on a particular issue of interest. To put such models to practical use, you must be willing to bring back the excluded factors. You will probably find that this modification will be important for some problems, and not others – air resistance makes a big difference to a falling feather but not to a falling cannonball.

But Lucas and those who follow him were plainly engaged in a very different exercise, as the philosopher Nancy Cartwright has explained.[4] The distinguishing characteristic of their approach is that the list of unrealistic simplifying assumptions is extremely long. Lucas was explicit about his objective[5] – ‘the construction of a mechanical artificial world populated by interacting robots that economics typically studies’. An economic theory, he explains, is something that ‘can be put on a computer and run’. Lucas has called structures like these ‘analogue economies’, because they are, in a sense, complete economic systems. They loosely resemble the world, but a world so pared down that everything about them is either known, or can be made up. Such models are akin to Tolkien’s Middle Earth, or a computer game like Grand Theft Auto.

The knowledge that every problem has an answer, even and perhaps especially if that answer may be difficult to find, meets a deeply felt human need. For that reason, many people become obsessive about artificial worlds, such as computer games, in which they can see the connection between actions and outcomes. Many economists who pursue these approaches are similarly asocial. It is probably no accident that economics is by far the most male of the social sciences.

One might learn skills or acquire useful ideas through playing these games, and some users do. If the compilers are good at their job, as of course they are, the sound effects, events, and outcomes of a computer game resemble those we hear and see – they can, in a phrase that Lucas and his colleagues have popularised, be calibrated against the real world. But that correspondence does not, in any other sense, validate the model. The nature of such self-contained systems is that successful strategies are the product of the assumptions made by the authors. It obviously cannot be inferred that policies that work in Grand Theft Auto are appropriate policies for governments and businesses.

Yet this correspondence does seem to be what the proponents of this approach hope to achieve – and even claim they have achieved...

Read the full thing

While we are at it, here's an "anthropologist's view":

Life among the Econ

by Axel Leijonhufvud:

"The Econ tribe occupies a vast territory in the far North. Their land appears bleak and dismal to the outsider, and travelling through it makes for rough sledding; but the Econ, through a long period of adaptation, have learned to wrest a living of sorts from it. They are not without some genuine and sometimes even fierce attachment to their ancestral grounds, and their young are brought up to feel contempt for the softer living in the warmer lands of their neighbours. such as the Polscis and the Sociogs. Despite a common genetical heritage, relations with these tribes are strained-the distrust and contempt that the average Econ feels for these neighbours being heartily reciprocated by the latter-and social intercourse with them is inhibited by numerous taboos. The extreme clannishness, not to say xenophobia, of the Econ makes life among them difficult and perhaps even somewhat dangerous for the outsider. This probably accounts for the fact that the Econ have so far-not been systematically studied. Information about their social structure and ways of life is fragmentary and not well validated. More research on this interesting tribe is badly needed..."

Here's the pdf of the original 1973 journal article.

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What's inferior? Not much, according to the Reserve Bank

noreply@blogger.com (freshpost) — Mon, 09 Jan 2012 19:52:00 +0000

Wikipedia defines an inferior good as...

"...a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed."

Get it? The more your income, the less you want this good -- in absolute terms, not just proportional terms.

So which goods are inferior, in Australia?

The RBA has worked it out, using the ABS household expenditure and income surveys:

"Less than 1 per cent of total spending was on goods
and services that were estimated to be inferior
goods in 2009/10. Given that many of these have
elasticities only slightly less than zero, it is difficult to
be definitive.

However, based on the data from the
2003/04 and 2009/10 HES, examples of goods which
may be classified as inferior goods are powdered
milk, TV rental and tobacco other than cigarettes."

I can think of others: Cask wine, International Roast.

Are there others?

Insights From the Household Expenditure Survey

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How to... get to Mars

noreply@blogger.com (freshpost) — Sun, 08 Jan 2012 18:19:00 +0000

You really wanted to know

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I love our electrical sockets. I didn't realise they were (almost) unique

noreply@blogger.com (freshpost) — Thu, 05 Jan 2012 20:01:00 +0000

No joke. I was in the Buenos Aires airport en route back from Brazil and I found an Australian-style powerpoint to plug my laptop into.

I didn't realise how lucky I was.

We are really, really unusual:

"The ‘antipodean’ model (light blue), made up of three rectangles arranged to look like the mask from the Scream movies, is used in only four countries, all in the Southern Hemisphere: Argentina, Australia, New Zealand, and Papua New Guinea."

I wonder why. What were we thinking, going out (almost) on our own? *An answer below

Here's the Big Think worldwide map:

* Thanks to Charles and David E Burge, here's an answer:

"The original design of the Australian power plug originated in 1930, as a
“gentlemen’s agreement” between Fred Cook of Ring-Grip, Geoffrey Gerard of
Gerard Industries and Brian Harper Miller of the SECV. This occurred prior to
the formation of any standards body in Australia.

The design originally drew on a power connector in the USA at that time. The US
connector was also the basis of the Argentinean and Chilean connectors around the
same period. China adopted a variant of this connector some years later.

The key advantages of the Australian connector was its low price to manufacture,
utilised a fraction of the material of other power connectors. Oddly, the original US
connector which prompted this design has subsequently disappeared into obscurity.
The Australian power plug is similar in appearance [but not compatible] to the power
connector plugs used in Israel, Peoples Republic of China, Argentina and Chile."

More here.

Historical footnote: Geoffrey Gerard's son Robert later (briefly) served on the board of Australia's Reserve Bank.

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Greatest hits. My most clicked-on twelve in 2011

noreply@blogger.com (freshpost) — Tue, 03 Jan 2012 21:52:00 +0000

1 Why we need a carbon tax, by the Coalition's environment spokesman March 07, 2011

In 1990 Greg Hunt co-authored a university thesis entitled A Tax to Make the Polluter Pay. His conclusion: "Ultimately it is by harnessing the natural economic forces which drive society that the pollution tax offers us an opportunity to exert greater control over our environment."

2 Lib costings debacle - "auditors" fined December 01, 2011

The two Perth accountants who costed the Coalition’s 2010 election policies breached professional standards and will be fined, a disciplinary tribunal has ruled. The ruling is an embarrassment to the Coalition which claimed during the campaign the costing was “as good as you could get anywhere in the country, including in Treasury."

3 Super is a con, perpetrated by people who con themselves November 16, 2011

Whatever happens in Europe we can take comfort from the knowledge that our money is being handled by professionals - experts who’ll know what to do. They do, don’t they? It’s about to become more important. Wilful blindness by the government and spinelessness by the opposition have ensured the amount of compulsory super we are forced to hand over to money managers will climb from 9 per cent to 12 per cent of our salaries by the end of the decade. Many of us will have to take out larger mortgages than we would have and hold them for longer in order to feed the money management machine.

4 The carbon tax, the mining tax, they'll kill mining right? May 27, 2011

Neither the mining tax nor the prospect of a carbon tax has made a dent in mining expansion plans with the industry reporting plans that would double spending in the year ahead. Capital expenditure plans collated by the Bureau of Statistics show mining companies intend to lift spending from $35 billion in 2009-10 to $51 billion in 2010-11, an increase of 45 per cent. Plans for 2011-12 suggest a further boost of 63 per cent to a record $83 billion, a figure economists say is almost certainly an underestimate.

5 Abbott needs our help. We need to help him. February 09, 2011

Tony Abbott would make an awful CEO. If he put before a board the "budget cuts" he yesterday put before the public it would throw them back in his face. As a means of funding his determination to abandon the flood levy his cuts would increase the budget deficit in 2011-12 and scarcely change the budget outcome in 2012-13. He told the public his cuts were on top of $50 billion of savings and cuts outlined last year. His board might tell him the correct number is $11 billion, outlined to the public on election eve.

6 News Limited doesn't like ads made by millionaires May 30, 2011

If they are about climate change. Michael Caton is seething inside his two bedroom Sydney flat. “I have a gas heater and two fans - that is me,” he told the Herald after reading the pro carbon tax advertisement in which he features rubbished because it also features a multi-millionaire, the more famous actress Cate Blanchett. Like Blanchett, the star of the The Castle and Packed to the Rafters agreed to front the ads for free. They will air for a week as part of campaign that cost a coalition of groups including the Australian Conservation Foundation and the Council of Trades Unions around one million dollars.

7 Budget reality check. Is $150,000 typical? May 12, 2011

Anyone would think the budget had frozen the income limits for getting family tax benefits at $150,000. Talkback radio was alive with calls about it the day after the budget. Was a family income of $150,000 high or typical? Shadow Treasurer Joe Hockey thought it was typical. “$150,000 a year for a family is certainly not rich Australia, it is very much middle Australia,” he told the ABC. “Besides I want people to aspire to earn $150,000 or more.” What the budget doesn’t make clear - but should - is that these cut-offs are already frozen.

8 The Economist broadband survey is a disgrace February 10, 2011

On a few grounds. The graph below understates the present target speed by a factor of 10 and is presented as if the size of public expenditure on the project meant something. In terms of value for money it needn't matter whether the company that is building the thing is publicly or privately owned. What matters is that the project is not a dog.

9 Easy listening. Why power prices are really climbing March 09, 2011

10 We think the rich are too rich, but they're even richer August 29, 2011

When it comes to wealth even the richest among us think the rich have too much - but we’ve no idea of how skewed the distribution really is. A new study finds Australians of all incomes believe the richest 20 per cent of us have around 40 per cent of the wealth. We think that’s too high. The survey finds us oblivious to the far more skewed truth that the best-off 20 per cent have 60 per cent of the wealth and the worst-off 20 per cent a mere 1 per cent.

11 You think the summit's over? The good stuff is just beginning October 19, 2011

Wayne Swan may yet go down in history as the father of a monumental change to the tax system. Not merely the far-sighted, poorly-sold and now emaciated mining tax applying to just four of the originally planned twelve or so commodities, but a truly massive change with the potential to set up Australia for decades to come.

12 Abbott. Economists vote. July 13, 2011

Tony Abbott’s already low opinion of economists is about to sink. Asked a week ago why he thought it was that most economists supported a carbon tax or an emissions trading scheme rather than his own “direct action” plan to tackle climate change he replied: “maybe that's a comment on the quality of our economists rather than on the merits of argument”.

Thanx for reading.

Related Posts

. My most popular posts in 2009

. Where do I fit?

. So. You're reading this at work

Trends to watch in 2012

noreply@blogger.com (freshpost) — Sat, 31 Dec 2011 23:11:00 +0000

HT: Crooked Timber

2011. Goodbye to all that.

noreply@blogger.com (freshpost) — Fri, 30 Dec 2011 22:45:00 +0000

From Associated Press.

Enjoy, if that's the word:

Oh, and here are the 45 Most Powerful Images of 2011.

Age 2012 Economic Survey: We'll do okay, thanks to China

noreply@blogger.com (freshpost) — Thu, 29 Dec 2011 20:07:00 +0000

Read on

Interest rates are headed down, our stock market will climb, and we’ll survive whatever Europe throws at us.

That’s the consensus of the 20 economists polled for The Age end-of-year economic survey. Our terms of trade will slip in the year ahead, but not by enough to derail the Treasury’s and Reserve Bank’s pleasing forecast of economic growth close to trend.

China - the key to Australia’s prosperity - will be hit by a downturn in Europe, but not by as much as it would have been a few years earlier.

“Regional Asian growth is now much less dependent on strong external export markets,” Commonwealth Bank chief economist Michael Blythe told The Age. “Asia will be the stronger part of the global economy in the year ahead whatever the outcome elsewhere. A very high proportion of Australia’s exports to Asia are tied in with that domestic story.”

“Chinese planners have already announced an intention to de-emphasise capital formation and promote private consumption,” said Richard Gibbs of Macquarie Securities. “This should mean a less aggressive approach to maintaining resource stockpiles, but resilient underlying demand. Even in the event of a US and European recession, China’s demand for commodities would moderate, but would be unlikely to collapse.”

The panel expects Chinese economic growth of 8.1 per cent in 2012, not too far down on the most recent annualised reading of 9.1 per cent. World economic growth should slip to 3.3 per cent, lower than the most recent International Monetary Fund forecast issued in September ahead of renewed concerns about European debt, but above the 3 per cent benchmark it uses to define a global recession.

Several of our panel raised the possibility of the United States following Europe into recession...

“Europe is probably already in a mild recession, but if it deepens dragging the US into recession it will risk a sharper slowdown in Chinese demand for commodities and pose a real threat to Australia,” said the AMP’s Shane Oliver.

“Our assessment is that while Australia is not immune to a return to global recession, we do have plenty of ammo to fight it off – interest rates have a long way to go to zero, the $A will fall sharply if things really fall apart globally and there is more room for fiscal stimulus if absolutely needed.”

Ernst & Young’s David Cochrane said he expected a US recession.

“Our most recent forecast, prepared with Oxford Economics, predicts a Eurozone crisis that would result in 2012 European GDP sliding 1.1 per cent and United States growth slipping to 0.9 per cent. Both Europe and the US would have negative GDP in 2013. It would have a flow on impact on China, but we are confident about China’s long-term demand for commodities.”

The panel’s mean forecast has Australia’s terms of trade slipping 6.4 per cent as commodity prices slide, roughly in line with the projection in the government’s mid-year budget review, but the average disguises a wide range of forecasts - from zero change throughout the year to a collapse of 15 per cent. None of the panel expects the terms of trade to climb.

Interest rates will have to fall further to shield the economy from the weaker international environment, with the Reserve Bank likely to slice a further 0.45 points off its cash rate by June and 0.65 points by years’ end according to the average forecast. Significantly every one of the 20 economists on The Age panel expects at least one further cut before the middle of the year. Steven Keen of the University of Western Sydney has the most aggressive forecast - an entire 1.25 points worth of cuts, taking the cash rate down from 4.25 per cent to 3.0 per cent, all within the next six months. Richard Robinson of the consulting firm BIS Shrapnel is punting on the highest cash rate by year’s end - a jump to 4.5 per cent after a cut to 4.0 per cent by June.

None of our forecasting panel are particularly concerned about inflation in the year ahead with the 2 to 3.4 per cent forecast range closely matching the Reserve Bank’s 2 - 3 per cent target band.

The benign outlook for inflation gives the panel confidence that the Bank will be able to cut interest rates as needed should conditions sour more than expected.

“There is little doubt that the Reserve Bank would cut rates again if required,” said Michael Blythe. “More importantly, lower interest rates would work. Recent rate cuts have shifted the interest-rate sensitive parts of household sentiment.”

“The Bank can cushion any major slowdown emanating from Europe,” said BIS Shrapnel’s Richard Robinson. “It has considerable scope to cut rates, with lower underlying inflation now enhancing that likelihood. The government also has scope to cut taxes and boost spending, perhaps with a productivity-enhancing investment. And the dollar has plenty of scope to fall, perhaps even by 20 to 30 per cent, boosting internal Australian demand and helping exports.”

The Australian dollar will drift lower in the view of all but two of the panel, sliding from its present perch just above 100 US cents to perhaps as low as 90 US cents and more likely the mean forecast of 96 US cents. Only Richard Robinson and the ANZ’s Katie Dean are predicting a higher dollar at year’s end, opting for 102 and 105 US cents.

Australia’s Gross domestic product will grow a healthy 3 per cent over 2012 according to the mean forecast - close to its long-run trend, but well below the 4 per cent implied by the latest Treasury and Reserve Bank forecasts. The range of predictions is wide with former Reserve Bank economist Paul Bloxham of HSBC the most optimistic, sticking with the Bank’s forecast of 4 per cent and Neville Norman of the University of Melbourne and Steve Keen of the University of Western Sydney the most pessimistic, predicting 1.6 and 1.7 per cent.

There’s more unanimity about the unemployment rate, with none of the panel straying too far from the Treasury’s forecast of a climb from the present 5.2 per cent to 5.5 per cent by June where it would stay for the rest of the year.

The Australian share market will improve next year in the view of all but three of the panel. The mean forecast has the S&P/ASX 200 rebounding 10 per cent to 4494. But that won’t be enough to regain the losses of the past year, or even the losses since August. The index would climb to a mere two-thirds of its peak in 2007 before the global financial crisis.

Our panel’s central forecast is that good management in China and good management at home will help us dodge the next financial crisis as it did the last one, but anyone looking to claw back the enormous chunk taken from their super fund since 2007 will have to wait well beyond the year ahead.

Published in today's Age and SMH

About last year's forecasts. 'Twas the weather that did it.

Who’d have thought it? Certainly none of the 20-odd members of The Age economic forecasting panel this time last year.

The rate of inflation turned out to be higher than the highest of their predictions, the budget deficit bigger than the biggest, and the share market far lower than all but two thought likely.

It is trite to say it, but they didn’t know what was coming. Days after their forecasts were printed Queensland was hit by massive floods, and then a cyclone. Soon after, Christchurch faced an earthquake and Japan a tsunami.

The cyclone alone was enough to push inflation out of their ballpark. In the year to September it came in 3.5 per cent. Without sky high fruit and vegetable prices pushed up as the trees were torn down it would have been 2.9 per cent, which was exactly their average forecast. Underlying inflation is now very low and headed down and bananas are being picked again making this year’s average forecast of 2.8 per cent look pretty reasonable. Unless there’s a surprise.

The panel expected a hefty budget deficit 2010-11, but they reckoned without the cyclone, which help push it to $47.7 billion instead of the central forecast of $35.3. The panel thought the 2011-12 deficit would be $11.7 billion. Lower than expected coal income as mines are cleared of water, lower capital gains and higher than expected reconstruction spending are now projected to push it to $37.1 billion.

Don’t blame the government for failing to pick the share market malaise that stalled capital gains. Most of our forecasting panel had their heads in the clouds. The index began the year at 4970. The panel members who worked for stockbroking firms expected 5500 or more, among them Tim Toohey from Goldman Sachs, John Rothfield of Merrill Lynch, Annette Beacher of TD Securities and Shane Oliver of the AMP. The average forecast was 5169. In the event the market drifted down, not up as the panel had expected and then collapsed 200 points in August on renewed concerns about financial turmoil recurring. Only two members of the panel had expected the index to fall - Jakob Madsen of Monash University and Steve Keen of the University of Western Sydney, both academics. They had punted for 4000, more than one-thousand points south of the central forecast, which is about where it will end up.

By and large the panel overestimated the rate of economic growth and underestimated the rate of unemployment, which was to be expected given that they didn’t know about the natural disasters. Where they were too pessimistic was in their expectations about commodity prices. They expected terms of trade to fall rather than climb further, as did the Treasury, although they are slipping now.

It’s not fair to pick a winner out of last year’s panel. Those that were right about some things were right for reasons they couldn’t have imagined. Some of those that were wrong were wrong for the same reasons. No one could have got 2011 right. No one did.

Published in today's Age and SMH

Swan might make the surplus, he probably shouldn't:

It’ll be line-ball whether Wayne Swan gets his promised 2012-13 budget surplus, according to The Age economic panel.

Nine of our forecasters think he’ll get there, six think he won’t and one - Chris Caton of BT Financial Group - sits right on the fence, predicting a surplus or deficit of zero - a budget that is exactly balanced.

All think a return to surplus matters, although most think it is not crucial it happens in 2012-13.

“Whether its achieved in 2012-13 or a year or so later is neither here nor there given that Australia’s budget deficit is small by global standards and net public debt is trivial,” says Shane Oliver of the AMP. “What matters is going in the right direction over time.”

“Swan has put a lot of political capital into regularly announcing that a surplus is on the cards for 2012/13, especially on the global stage,” says Annette Beacher of TD Securities. “However, as we believe global growth is approaching stall speed, a slippage into 2013/14 should not be seen as a weakness, but as a platform for growth.”

Richard Robinson of BIS Shrapnel believes the economy will be much healthier in 2013-14 with unemployment heading below 4.5 per cent. “That’s the time for a surplus, it can be larger than has been budgeted,’ he told The Age.

One panel member supports Treasurer Wayne Swan in his apparent determination to achieve a surplus in 2012-13 no matter what.

Jakob Madsen of Monash University told The Age it was “vital that the government aims for a surplus regardless of the international and the domestic conditions”.

“Europe and the United States face deep recessions almost entirely because of their large foreign debts. Australia has excessive foreign debt due to excessive consumption and demand for private property. The only way to stay afloat in the long run is to run a significant surplus to make up for the excess spending in the private sector.”

“Financial markets react adversely to excessive debt through lower stock prices, lower willingness to lend and higher bond rates. These adverse effects overrule the positive effects of government demand.”

Professor Madsen isn’t too confident his advice will be heeded. He is predicting a $10 billion deficit in 2012-13, the year Wayne Swan has promised a small surplus.

But the weight of numbers is with Mr Swan. The median (middle) forecast is for a small surplus of between $100 million and $1 billion. The average forecast is for a deficit of $3.6 billion, but it is weighed down by three very big deficit forecasts; those of Professor Madsen and Melbourne University’s Neville Norman and Western Sydney University’s Steve Keen. Professor Norman foresees a deficit of $20 billion; Professor Keen, $30 billion.

Published in today's Age

Past surveys

. A normal year ahead? The July 2011 survey

. Before the flood. The December 2010 survey

. The July 2010 Age Economic Survey

. "Happy New Year" - the December 2009 Age economic survey

"Terrible" - Gittins on the Gillard government's first first full year

noreply@blogger.com (freshpost) — Tue, 27 Dec 2011 19:54:00 +0000

Looking forward, looking back.

Here's his annual talk to the business economists forecasting conference.

Ross Gittins:

"Taken as a whole, the first full year of the Gillard government has been terrible.

Julia Gillard has hardly taken a trick all year and her present standing in the polls is worse - much worse, consistently worse - than it was at last year’s election, when she failed to attract enough votes to form government in her own right. Her present primary vote in the low 30s would give her zero hope of winning an election. Only if she could get it up to at least 40 per cent would she be in the hunt. This time last year - three years out from the next election, assuming the government runs full term - I fearlessly predicted Labor would lose it, because ‘this generation of Labor is terminally incompetent’.

Having made that call, I’m sticking to it. I’m doing so even though I know full well how easily the political outlook can change over a period as long as a year, let alone two years. After all, who would have predicted in October 2009 that the election would be months early and fought not between Kevin Rudd and Malcolm Turnbull, but between Gillard and Tony Abbott, that Abbott would come within a whisker of winning and that Labor would be forced into an alliance with the Greens and rag-tag independents?

But I have to add that, at the end of her first year, Gillard and her government are looking in better shape than they did half way through it. The first point to acknowledge is that she’s held her minority government and its alliances together for a year - longer than many people expected - and it’s never seriously looked in trouble. The second is that it’s been a year of great achievement. The opposition has frequently criticised Labor for being unable to actually do anything but, as was always Gillard’s intention, this has been a year of ticking off items on the to-do list - in particular, the various items inherited from Rudd. Of the three big problems he left her, the carbon tax has been put to bed, the mining tax is well on the way and only the asylum-seeker issue remains chronically unresolved. Along with Gillard’s opportunity to be seen looking like a leader on the international stage with other leaders, these runs on the board do much to explain her recent slow improvement in the polls, in the two-party preferred and, particularly, as preferred prime minister.

While the polls continue moving in the right direction - however slowly and with however far to go - Rudd is unlikely to mount a challenge. There’s no reason to doubt his desire to return, and should the poll recovery falter, we’re likely to hear from him. Would the caucus ever turn back to him? There is so much continuing dislike of him they’d have to be terribly desperate, but it’s not impossible. Would it help? No. His grass-is-greener popularity in the polls would soon evaporate as voters were repulsed by this ultimate proof of Labor’s disloyalty, ruthlessness and lack of principle...

Read On...

Next year should be a year of consolidation and less frenetic policy making, with the government needing to be sure the introduction of the carbon price arrangements goes smoothly. Should the world economy stay on track, the government will press on with its priority of returning the budget to surplus - as, in all the circumstances, it should. Should things go really bad in Europe, the primary response will be from the Reserve Bank, but the government will at least have to reverse its rhetoric and allow the budget’s automatic stabilisers to widen the budget deficit, and may need to consider a new round of fiscal stimulus. For Abbott and the opposition it will need to be a year where, finally, they make their contribution more constructive, outlining their own plans for improvement - even if, as ever, they leave the revelation of their detailed policies until much closer to the election. The longer Abbott continues with his relentless negativity, the more he risks trying the patience of voters.

Can we be sure the minority government arrangement will hold together for another year? No. But the grubby deal to install the former-Liberal Peter Slipper as speaker means it now would take two by-election losses to bring Labor undone. It also reduces Labor’s dependence on any particular independent. And by now it ought to be clear to all that the independents on whose votes Gillard relies have much to gain by continuing to prop her up and much to lose by deserting her. It should also be clear that achieving continued co-operation from the people whose votes she needs is one of the things Gillard is good at.

Why Labor is so bad at it

I have no problem putting the boot into politicians who are flying high, but I don’t enjoy kicking people when they’re down. If for no other reason than that I prefer to be ahead of the conventional wisdom. But I can’t take a look at the political scene and not address the obvious challenge for political analysts: why exactly is this version of Labor so bad at governing?

A host of explanations has been offered, many of which have only some degree of truth and some of which are more in the nature of excuses. One we can dispense with is that it’s all down to the personal failings of Rudd. He had many failings and he left Gillard with a terrible inheritance of a far too long agenda of half-finished policy projects, but we’ve seen enough to know things didn’t immediately look up after his departure.

A favourite excuse of Labor and its supporters is that it’s been turned on by the Murdoch press. It’s true The Australian has turned from being a newspaper to a product aimed at gratifying the prejudices of a particular segment of the audience, but it is - by commercial design - preaching to the already converted. Its influence is limited to those silly people in Canberra who continue to take it seriously, imagining it still to be a newspaper. As for the depredations of Sydney’s Daily Telegraph, it was ever thus. That organ has been a vehicle for foisting the bosses’ views on workers since it was owned by Frank Packer. It’s true the radio shock jocks often take their line from those two outlets, but were they not available the jocks would just have to work harder to find their sources of daily indignation. So, sorry, but I think the Murdoch excuse is greatly overdone. It falls into a class of argument politicians trot out to sustain the faith of the party faithful, not because they believe it or expect the uncommitted to believe it.

I think part of the problem attaches to Gillard herself. The brutal circumstances in which she came to power count against her in the mind of many voters. I don’t doubt there’s an element of misogyny in the electorate’s failure to warm to her and that many people find her voice grates. But her deeper problem is her inability to come over on television as a warm and likable person. Some pollies have that ability, others don’t. Other politicians manage to substitute an air of paternal authority - don’t worry, father is in charge - for likeability (eg Malcolm Fraser, Maggie Thatcher), but Gillard can’t manage that, either.

Lack of an air of authority - leaders who look like leaders and hence command respect and compliance; leaders who seem legitimate - has plagued the Rudd-Gillard government. I’ve come to the conclusion that - at the federal level, at least - the Liberals really are the natural party of government. That’s what the electorate thinks, what business thinks, what the media think, what the Libs themselves think and what, deep down, even Labor thinks. On the central polling question of which party is best to handle the economy, the Libs always win. The Hawke-Keating government managed to out-poll the Libs for a while, but Rudd and Gillard never have. This is not a question of track record, but of long-held and deeply held stereotypes. The party of the bosses will always be better at managing the economy than the party of the workers.

This is what allows Abbott to turn opposition to outright obstruction without attracting criticism. It’s what allows Abbott to take the support of business for granted, while Labor knows it must always be seeking business’s approval. It’s what has allowed business to conclude Labor is anti-business even while Labor modifies its policies - including Fair Work - to avoid offending business. It’s what, in the battle over the mining tax before Rudd’s overthrow, allowed the public to believe the foreign mining giants’ ads claiming the tax would destroy the economy over their own government’s ads assuring them the tax wouldn’t be a problem.

It’s what explains the Libs’ ability to wind up the electorate over Labor’s mountainous deficits and debt and why few economists intervened to dispel the nonsense. It explains why the opposition has had an excessive influence over the government’s fiscal policy and why Labor is obsessed by returning the budget to surplus in 2012-13. It also explains why only at this point have economists entered the debate to attack the government’s deficit mania.

Labor’s universally assumed inferiority - combined with journalism’s highly selective approach to quoting evidence - explains the success of The Australian in convincing almost everyone - punters, gallery journalists and even Labor politicians - that most of the money spent on Building the Education Revolution was wasted.

Associated with Labor’s lack of apparent authority is the phenomenon of the slippery slope. When you’re in power and on top you get a lot of co-operation, compliance and tacit support from interest groups and the public generally - all of which help you stay on top. These benefits of incumbency give you the strength to stand up to particular vested interests and tide you through the ups and downs of the polls. But when your weakness in the polls becomes sustained, you hit the slippery-slope part of the curve where it becomes a lot easier to fall further than to claw your way back up. Where things start to unravel as people who formerly accepted the reality of your continuing authority begin to wonder how long you’ll survive, whether they should give you a push on your way and whether they should start cosying up to your likely vanquisher.

Though she seems to have made a little progress back up the greasy pole in recent days, Gillard has spent most of her time as PM sliding down the slippery slope. It’s a situation that emboldens your critics and opponents while making your supporters more cautious. So things have been unravelling. The denizens of the House with the Flag on Top - pollies on both sides, staffers and journalists - revere success, fear the successful and despise failure. Lindsay Tanner says the press gallery is either at your feet or at your throat. It shifts when it sees you languishing in the polls, emboldened to be a lot more probing and critical and take a lot less on trust. The denizens take the polls so seriously that everyone starts expecting anything you do will fail, and their expectations tend to be self-fulfilling.

One interest group that’s particularly susceptible to this behaviour is business. Business will live with a housetrained Labor government with a steady grip on power. But it does so against its natural preferences. Big business people expect Labor to court them, while quietly accepting it when the Libs choose to ignore or pressure them. Business is very unhappy with Labor and I have no doubt its disenchantment and its increasing willingness to make its unhappiness known is magnified by its perception the Gillard government is not long for this world. It’s willingness to accept the carbon tax has been diminished by Abbott’s success in turning public opinion against the tax. Its complaints against Fair Work - which don’t seem to have great substance - are directed mainly at persuading the next government to shift the balance back in favour of employers. If this does collateral damage to Labor between now and the election, so much the better.

Both the Rudd and Gillard governments seem remarkably inexperienced. This shouldn’t be an excuse because it’s unusual for incoming federal cabinets to have many members with previous ministerial experience. Labor doesn’t seem to realise that maintaining good relations with business isn’t just a matter of senior ministers trying to fit in as many boardroom lunches as possible, or even keeping in touch with the business lobby groups. It means having big business chiefs feel they can ring the PM about a problem and their being on the receiving end of calls from the PM to inquire about their views on relevant matters. The main union leaders would have such a relationship with the PM, but I doubt the business chiefs do. They’d know this and would feel alienated from Labor, especially because Howard was such a great private phoner of power-holders.

Similarly, Labor’s failure to make sure the big miners knew what to expect well before the unveiling of the resource super profits tax is a sign of inexperience. The name of that tax - chosen by Labor’s spin doctors - did much to convince the rest of the business community Labor was anti-profit and anti-business, without doing much to arouse the punters’ resentment of foreign mining giants. Labor’s PR people have been far too young, lacking much journalistic experience, let alone political experience. It should have recruited some old hands. Rudd treated his staff so badly he burnt through a generation of good advisers.

But Labor’s chronic inability to sell its policies to the electorate can’t be explained simply in terms of the inexperience of its spin doctors. It isn’t primarily about spin doctors. I think the root of this generation of Labor politicians’ problem - the key reason they’re so bad at governing - is their background. Unlike earlier generations, almost all of them are apparatchiks; they come from Labor’s professional political class: people who start working for ministers or unions straight from university and climb the Labor career path, never making a success of a career in the outside world or even spending a lot of time as an on-the-ground union official dealing with ordinary workers and disparate employers.

The trouble with this system is that it seems to be breeding a generation of politicians who don’t have a good feel for human nature and, above all, don’t give up their profession and enter parliament with a burning desire to make the world a better place. Their burning desire is to make cabinet minister. Their entry to parliament is a promotion and a pay rise, not any sacrifice. These guys don’t have deeply held values and convictions they’re prepared to fight for and run risks for. Their lack of conviction robs them of the ability to explain policies that arise from their framework of belief. They can’t fashion a compelling narrative of what drives them and where the government wants to take us. They lack the missionary zeal of someone like Paul Keating; they have no desire to convert. They think ‘selling’ policies is a matter for spin doctors and advertising agencies, not of working tirelessly to help people understand the vision and see why it’s so important. When you’re not passionate about explaining your policies, when you’re just a political player, you do what Labor has done from the moment it took office: focus on attacking your opponents, thus conferring them and their criticisms a status they wouldn’t otherwise have. When you’re not a passionate explainer, you avoid answering questions and merely repeat prepared lines.

The problem with all this isn’t just that you fail win public support for your policies, it’s also that the public can sense your lack of commitment and conviction, your preference for self-preservation over leadership, your interests over theirs. You lose authority and respect in the eyes of voters. Courage comes from convictions; public confidence in governments comes from people’s perceptions of your courage and conviction. As John Howard demonstrated with the GST, voters are perfectly capable of giving you grudging respect for pursuing a policy they don’t like the sound of.

Minority government may be the making of Gillard

But having said all that, I now have to highlight a qualification. At the end of its fourth year, Labor has now amassed an impressive list of achievements. Leaving aside its remarkably effective response to the global financial crisis, we have: paid parental leave, equal pay for community workers, plain packaging for cigarettes, the foundations for a national disability insurance scheme, a price on carbon, the likely passage of the minerals resource rent tax, and the continuing pursuit of compulsory pre-commitment on poker machines. (Admittedly, the mining tax was butchered and Labor’s health and hospital changes fell far short of their billing.)

Some of the items on that list may not greatly appeal to you, but they would to the Labor heartland. And it’s noteworthy that some of the items wouldn’t have been there had it not been for the insistence of those whose votes Labor has depended on to stay in government. On the carbon price, in particularly, Gillard had no choice but to press on with its early introduction. See what’s happened? The circumstances of minority government and the ferocious opposition of Abbott have left Gillard with no option but to take principled positions and stick to them through thick and thin. If her improvement in the polls proves lasting, it will be because her failure to win a majority has forced her to exhibit all the impressive qualities she seemed not to possess. Her steadfastness and ultimate achievement may be we winning her the grudging respect of the electorate.

Provided she can hold the numbers in the House for another two years, Gillard should benefit from the effluxion of time. It will give people more time to get used to her idiosyncrasies and more time to tire of Abbott’s. And there’d be something very wrong if more than a year of living under the carbon tax didn’t cause people to lose their fear of it.

It’s interesting to observe the way conservatives have transferred the mantle of bogyman from the ALP to the Greens. Labor’s greatest crime is not being typically wrongheaded Labor, but falling under the spell of the demonic Greens. Exhibit A would have to be the carbon scheme. But, apart from its higher levels of compensation to industry, it was little different from Rudd’s carbon pollution reduction scheme, which the Greens rejected out of hand. It’s not politic to say so but, in the end, it was the Greens who changed their tune, much more than Labor did.

The prospect of Abbott

Abbott has been far more effective as opposition leader than I and other smarties expected. He quickly learnt to keep disciplined and avoid putting his foot in his mouth, and quickly displayed his greatest, most enviable strength as a politician: an ability to ‘cut through’ - to have the things he says noticed and broadcast by the media.

His policy of blanket opposition to all the government’s policies has served him well. Many expected the electorate to tire of his relentless negativity, but it hasn’t happened yet. Even so, some strains are beginning to show. His autocratic style has put noses out of joint within the party and, should his standing in the polls ever slip, we will hear from his detractors. There is much discontent within the party and in business over his refusal to criticise Fair Work and propose any changes that could reawaken the spectre of Work Choices.

Despite the opposition’s remarkably strong standing in the polls, Abbott is not personally popular. He has a 55 per cent disapproval rating for his job as opposition leader. And the authoritative Australian Election Study, in which ANU political scientists surveyed voters soon after the last election, found that Abbott’s unpopularity was the main reason he failed to win enough seats. Though Gillard’s popularity rating was low, Abbott’s was a lot lower - lower even than Keating’s in the 1996 election.

Abbott has little interest in economics and no commitment to economic rationalism. His policy positions reek of populism, protection and direct controls. His solemn promises to roll back the carbon and mining taxes, but not reverse the goodies they will be paying for, leave him with a funding gap of many tens of billions he has, as yet, made no attempt to fill. How such a man could bring himself to outline the sweeping spending cuts needed to make good his promise to return the budget to surplus without delay is hard to imagine. He has, however, taken the precaution of refusing to use the services of the new Parliamentary Budget Office to cost his promises. There is no precedent for parties promising to abolish major new taxes already in operation, nor for governments actually doing it. I find it very hard to believe it would happen.

Should Abbott be elected, we face either a monumental breaking of promises or a government totally consumed by the effort needed to turn back the clock. Why the part of the electorate that cares most about good macro management and micro reform has had so little to say about Abbott’s incredible performance I don’t know. Perhaps they’ll have more to say as the reality of an Abbott-led government draws closer.

Observations on monetary policy

I normally begin this section observing that the market and the business economists have had another bad year in their efforts the second-guess the Reserve Bank’s moves in the cash rate, but this year I have to declare the second-guessers to be ahead on points. The notion that the Reserve might cut rates entered the futures market’s head a lot earlier than it entered the Reserve’s head, so the market has to get credit for that. I’m not sure the market was particularly prescient on size and timing - suggesting it might have been right for the wrong reason. I suspect the market was dominated by foreign players who merely projected North Atlantic conditions onto the Antipodes, making insufficient allowance for local conditions. But, as all of us in the prediction business know full well, a win’s a win. I wouldn’t make those criticisms of the other great hero of this episode, Bill Evans. He stuck his neck out ahead of all of us, we marvelled at his folly, but he turned out to be right and he deserves all the accolades he got.

From where I sit it’s clear to me that to make a legendary call like Bill’s you have to get well ahead of the game, well ahead of the data - and you have to be right. When I saw Bill make his call I thought, that’s not in the Reserve’s plan, so he’ll only be right if he foresees developments the Reserve doesn’t foresee and those developments are big enough to change the plan. He did and they were.

The Reserve begins each year with a view of how the year’s going to pan out and a rough idea of the policy adjustments the outworking of that view will necessitate. It must have such a view because it has an on-the-record forecast, and that forecast is its view. The trick for you guys is to work out what its forecast tells you about the policy adjustments needed to bring the inflation forecast about, given the growth forecast.

This year the Reserve was expecting growth to accelerate as the effects of the resources boom spread through the economy, adding to inflation pressures at a time when we were already close to full employment. It was therefore expecting to have to tighten a few times as the year progressed. But here’s the point: it’s continuously testing its forecasts and its expectations against the data as they roll in. And it makes its judgments about whether policy needs to be adjusted one board meeting at a time. As events unfolded, the economy didn’t accelerate in the way it had been expecting, and so the Reserve never reached a point where saw the need to act on its ‘bias to tighten’. At first there was the temporary setback of the Queensland floods - which proved less temporary than first thought - and then there was the backwash from the growing sovereign debt problems in Europe, mainly on business and consumer confidence. By November it was clear the economy wasn’t taking off the way the Reserve had expected - mainly because of the confidence backwash from Europe - so the Reserve wasn’t going to have the trouble keeping inflation within the target range it had expected to have, thus allowing it to make what it expects to be a once-off reduction in the cash rate to get it back to neutral. It’s worth noting that part of the scope for this move came not from the effects of Europe but from the past and future revisions to the underlying inflation figures arising from the Bureau’s reweighting of the index.

I don’t think the Reserve has very firm ideas about where the stance of policy goes from here. The economy is pretty much in equilibrium, policy is set at neutral, so the rate will stay where it is until developments occur that knock the economy off its equilibrium path - and off the Reserve’s forecast - in one direction or the other and require a policy response. Clearly, the balance of risks is very much to the downside.

But Bill has made another call and, as I understand it, is predicting another three cuts -presumably 25-basis-point cuts - next year. Here again you see him getting well ahead of the game; well ahead of the Reserve’s thinking, as expressed in its forecast. He can see something coming down the pike the econocrats can’t, and he may again prove himself to be more prescient than them. What would fit Bill’s call of three further cuts over the course of 2012 would be for the economy to slow down rather than speed up as forecast - for it to run out of gas, presumably because of growing caution and uncertainty on the part of business and consumers in response to continued turmoil in Europe. This would be manifest in a continuing rise in unemployment and an inflation outlook that was even more benign, thus allowing the rate to be lowered another click. Of course, were Europe to turn into the full catastrophe, we all know from the events of late 2008 how the Reserve would react. In that case I wouldn’t be surprised to see three cuts next year, but they’d probably come thick and fast, and each be nearer 100 points than 25.

I remarked in my column in November that when the news is full of stories about some economic issue and the authorities pop with a policy change, all the instincts of the media and the punters are to assume that A caused B. In this case, we hear all this bad stuff from Europe, which makes us think the European economy is stuffed, therefore we must be stuffed and that must be what caused the Reserve to slash its forecast and cut the rate. I think all humans have a tendency to string together chains of cause and effect in this way and for our thinking to be unduly influenced by those events that have ‘salience’ (prominence in our consciousness) because they are so dramatic, so highly publicised or so recent.

My point is that this defective reasoning may be very human, but economists need to do better. Because the markets and business economists spend so much time studying developments overseas - usually the US, but these days, Europe - and they do that because national financial markets are so highly integrated - these developments have great salience in their minds, which can tempt business economists to over-weight them when forming views about likely developments in our economy - our real economy.

We need to remember that overseas events may be very exciting and very important, but they’re only relevant to us, our forecasts and our policy stance to the extent that, by some clearly identified channel, they have an effect on our real economy. They may be big in Europe, but are they still big by the time they reach us? Our real economy isn’t nearly as well integrated with the world as our financial markets are. Our domestic demand (GNE) accounts for almost all of our aggregate demand, sometimes more than all. As I keep reminding my readers, roughly 80 per cent of what Australians produce they sell to other Australians and roughly 80 per cent of what they purchase they buy from other Australians. Of course, the sharemarket is a more important channel than it used to be, and so - thanks to an ever-more globally integrated media - are confidence effects. I say all this simply because I keep hearing business economists making predictions about what the Reserve will do, and explaining why it’s done what it’s done, much more in terms of overseas development than I see in all the Reserve’s detailed exposition of why it did what it did. You’ve got to get your direction of causation right. The Reserve is managing our economy, it’s responsible for our inflation rate. Its highest consideration will be what’s happening in our economy and its interest in what’s happening in other people’s economies is limited to assessing the extent to which those events impinge on our economy. That’s obvious, but people who know a lot about what’s happening in other economies seem to keep forgetting it. Sometimes I think the traditional order in which the econocrats set out their analysis - start with the world, then move on to the domestic - may confuse people as to which is the more important.

Last year I advanced my theory that the timing of rate changes is influenced by ‘bureaucratic neatness’. At the time I said:

Over the past five years the Reserve has changed rates 20 times. Since there are 11 meetings a year, if decisions to change rates occurred at random, each month would have a 9 per cent chance of being chosen for a rate change. The four meetings a year that are preceded by the release of the CPI and followed immediately by the release of the statement on monetary policy, would account for just over 36 per cent of random chances. But, in fact, the SoMP months - February, May, August and November - accounted for 65 per cent of rate changes, with November alone accounting for 25 per cent. The point is that the Reserve has set up a pattern in which the SoMPs come soon after the meeting that comes soon after the CPI release, and two of the SoMPs come not long before the Reserve’s twice-yearly appearance before the parliamentary committee. Remember, too, that the release of the CPI is a key influence on the revision of the Reserve’s inflation forecasts, which are published in the SoMP and which heavily influence decisions about rate changes. The SoMP serves as the main vehicle the Reserve uses to explain and defend its rate decisions. Is it surprising that, having carefully set up the timing of its key publication and parliamentary appearances, the Reserve is more inclined to fit its decisions into that timetable? But why in the past five years has the November pre-SoMP meeting had more than twice the hits that the other three pre-SoMP meetings have had? Perhaps because of an unconscious desire to get the books straight before the end of the year and the knowledge that what you’ve done has to tide the economy over until February.

That was a year ago. What’s happened since then? We’ve had just one rate move and it happened on . . . Melbourne Cup Day, making it the sixth cup day move in a row. Still think it’s mere coincidence? Last year when I advanced my crazy, utterly economics-free theory, my mate Rory Robertson was the first to express his scepticism. So I asked some relevant econocrats what they thought of it. They thought it had some validity. Provided the Reserve hasn’t got behind the curve, and thus needs to catch up ASAP, it will be more inclined to move in those months that fit its carefully constructed reporting cycle.

Related Posts

. Looking forward, looking back 2010

. Looking forward, looking back 2009

. Looking forward, looking back 2008

. Looking forward, looking back 2007

Cover versions. Time to get out the LPs

noreply@blogger.com (freshpost) — Sun, 25 Dec 2011 19:55:00 +0000

Controversial Christmas music

noreply@blogger.com (freshpost) — Sat, 24 Dec 2011 18:57:00 +0000

Sounds of Silence: John Cage’s 4’33″ Performed by the BBC Symphony Orchestra.

Enjoy:

OpenCulture: The American experimental composer John Cage (1912–1992) composed 4′33,″ a three-movement composition for any instrument, in 1952. It was Cage’s most famous and controversial piece, a four-and-a-half minute reflection on the sound of silence, on the sounds you hear when the music goes silent and the attention shifts to the audience in the concert hall. The cough at the 4:44 mark is deafening.

Last minute gift? Here are the 5 best toys of all time - you'll be surprised

noreply@blogger.com (freshpost) — Thu, 22 Dec 2011 19:52:00 +0000

From GeekDad

1. Stick

What’s brown and sticky? A Stick.

This versatile toy is a real classic — chances are your great-great-grandparents played with one, and your kids have probably discovered it for themselves as well. It’s a required ingredient for Stickball, of course, but it’s so much more. Stick works really well as a poker, digger and reach-extender. It can also be combined with many other toys (both from this list and otherwise) to perform even more functions...

Read on, please.