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Will Rudd budge on the refugees on board of the Oceanic Viking?

Comments on Paul Kelly “Rudd can't budge on asylum-seekers”, 31/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26282995-12250,00.html

While what Rudd and Smith said are true, the problem now is that the matter is largely out of their control and will be mainly dependent on the Indonesians and the Sri Lankans on board of the Australian ship.

If neither of them budges, then Rudd and Smith's patience will not work. The ship cannot stay in the Indonesian water forever and has to return to Australia sooner or later.

While the president may have agreed Rudd’s request, not every Indonesian is happy with Australia, not to mention their perception of Australia’s dumping the refugees to them. They will try to protest in their unique way and expose Australia’s problems in a very funny manner.

That is the problem that Rudd is in. Unfortunately Rudd does not have any choice of his own and is at the mercy of others.

Can Rudd budge? He can’t.

Will Rudd budge? It depends.


World stock markets to decouple as real economies do

Comments on Alan Kohler “Going for broke”, 30/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/GDP-US-economy-government-debt-pd20091030-XARNZ?OpenDocument&src=sph

Alan, while I partly agree with you that "the worst is over and this is not a secular bear market", I think the world stock markets is very likely to be decoupled as the real world economies do.

By that I mean the US market is likely to be in an extended period of stagnation while some other markets most notably those in Asia, are likely to be showing a strong upward trend.

Australia's stock market may ride the booming trains in Asia.

Europe may be somewhere in between the US and Asia's.

Part of the reason why the US market will be stagnant is the adjustments that the US economy has to have over the next decade or longer, including its government debts and private savings.

As you said, the US government is broke! It needs life transfusion.

Government should increase transparency

Comments on two reports in the Asutralian website today on a related topic, potential irresponsible government spendings.

The first one is by Michael Stutchbury "Brazen panel reveals truths", 30/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/brazen_panel_reveals_truths/. It relates to the productivity commission (PC) annual report's attachment which comments on Australian government's economic policy making.

What Michael finds two points. One is that the PC's "annual report is impertinent enough to suggest that “increasing flexibility” in labour markets has become even more important in helping the economy exit the global crisis. " The other is that "the commission commends the government for its orthodox commitment to open decision-making and rigorous cost-benefit analysis in determining infrastructure priorities. But it then insolently notes that “these guidelines have not been universally applied to date, however”. "

My comments on this article is:

"Where is Rudd’s economic conservatism? It is economic recklessness, isn’t it? It is appalling that taxpayers’ money can be wasted by government like the Rudd’s.

There should be a law that government can be sued for its economic mismanagement, just like corporate executives who did the wrong things."

The second one is by Henry Ergas "Cronyism on the sly", 30/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26277992-5013479,00.html. It is about how governments in Australia, both federal and state ones, use excuses of confidential contracts to shield some of their large spending decisions from public scrutiny. It starts with:

"EARLY this year, Victorian Transport Minister Lynne Kosky locked away until 2058 all the documents surrounding the troubled construction of Melbourne's $700 million Southern Cross Station. Were transparency and accountability thereby eliminated? No, merely deferred, though if you want to see those contracts, you'll need to keep pretty fit."

My comments for this article are the following:

"There should be law to govern the spending of public money. any government should make the relevant documents except those are classified available within 3-5 years.

Further government ministers and bureaucrats who are responsible can be sued for mismanagement of public money, just as business executives."


Rudd - a man of big mouth and small deed

Comments on Cathy Alexander “Kevin Rudd flags takeover of cities”, 28/10/2009, http://www.news.com.au/story/0,23599,26271035-2,00.html?from=igoogle+gadget+compact+news_rss

Rudd government wants to control everything and intervene in many things, far beyond its capacity.

Rudd said about hospital takeover by mid of this year if not improved before the last election.

Now it’s the end of October and there are reports that the public hospitals are worse than they were before the last election.

What happened to Rudd's hospital takeover? Nothing, because it does not have both the financial capacity and the management expertise. It has been deferred to after next election.

Never believe Rudd when he says he wants this and that, or national leadership in this and that. It is purely empty words for publicity and popularism.

Rudd has shown he is a man of big mouth and small deed.

His essay on the Monthly in Feb 2009 shows an example of how big he wants his mouth to be.

Building infrastructure effectively and efficiently

Comments on Paul Kelly “Building from the base”, 28/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26268751-12250,00.html

Rudd government has shown a poor attitude toward being responsibly building infrastructure projects and avoiding cost benefit analysis is a key manifestation of that attitude.

The approach by the Rudd government to infrastructure will cause a lot of damage to Australians’ welfare by building uneconomic projects and cost blowout and loss of opportunities.

There is no question that government needs to manage Australia’s infrastructure. But the key is how to manage it and build it in the most cost effective way.

It does not necessarily mean that all investment must come from the government. It means the government should ensure there is adequate infrastructure in place and create enough incentives for the private sector to be involved in building it.

Whether the Productivity Commission is suited for cost and benefit analysis is a question. But there needs an independent agency or organisation to do that. It does not have to a fixed organisation for all projects.

Further independent cost benefit analysis must be made public for the public to scrutinise it, so the government cannot cheery picking projects.

Albrechtsen wrong on Copenhagen

Comments on Janet Albrechtsen “Beware the UN’s Copenhagen plot”, 28/10/2009, http://blogs.theaustralian.news.com.au/janetalbrechtsen/index.php/theaustralian/comments/beware_the_uns_copenhagen_plot/

Janet, I did not read your full article, but the heading and the introduction to the article on the web stuck me.

It is incorrect to say that it is to take money from the rich countries and give that to poor countries.

In fact it should be said that the rich countries have exploited the poor countries over the many decades by emitting global warming gases that will harm everyone, rich and poor.

Further a fair international treat would tax emissions globally and distribute that equally among all people in the world, based on equal rights to the sky for everyone.

Have you ever considered that?

This is just a couple of lines for you to consider, so you don't need to spend too much time to cite from sceptics and spread rumours and scare people.

As a journalist, one should do some basic work and apply some logical thinking.
There is no need to be hysterical.


No need for Aussies to panic and learn to live with prosperity

Comments on Alan Kohler “Australian dollar disaster”, 27/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Australian-dollar-disaster-pd20091027-X7R9U?OpenDocument&src=sph

Alan, there is no need to be so alarming about the rise of the Aussie dollar.

While the so called Dutch disease may present a problem, it can also present some opportunities to Australia.

One is that it will force manufacturing and construction to upgrade their structure to a higher level, through enhanced productivity and better entrepreneurship and management.

A second opportunity is that it may afford the RBA to be a little more relaxed on inflation and hence on its interest rate. A more relaxed inflation target will make the interest rate differential between Australia’s and the international ones smaller and reduce capital inflow for portfolio capitals. It also benefits Australians with low mortgage rates.

The third one is that Australian’s can use the higher purchasing power of the Australian dollar to either enhance their lifestyle, or invest overseas to reap more reward.

So, I am not as pessimistic as some of the commentators or some policy advisors are. One should learn to live with prosperity.

At the same time, I am appalled by the panic some people have shown regarding the rise of the Aussie dollar.


Sensible suggestions for monetary policy vs bubbles

Comments on Wolfgang Munchau, Financial Times “How to prick bubbles”, 26/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/How-to-prick-bubbles-pd20091026-X6SZL?OpenDocument&src=sph

Munchau has some excellent suggestions to offer to central banks on how to use monetary policy to prick bubbles.

The most important point is that monetary authorities should not just focus on the stability of price, but also assets prices.

Once such thinking is held by central banks, they need to develop new tools to best to do that. Munchau did not touch this point, though.

His suggestions are so innovative so that I quote them in full:

“Remember the debate about whether central banks should prick bubbles? It was not too long ago that simply asking the question incited abuse. While pricking bubbles is now considered a suitable subject for polite conversion, there is still no agreement on what to do or how to do it. Since bubbles are already building up in several segments of the financial markets, it is time to think about this question in detail.

As I argued last week, there are some deep-rooted causes of the proliferation of bubbles – among them the size of the financial sector; the too-big-to-fail problem; and the banks’ renewed lust for risk. Governments have not been addressing these causes. Central banks will not provide the cure either, but they can address some of the symptoms. Symptoms matter.

Some economists, reluctant to let go of the comforting world of rational expectations, still tell us it is impossible for a central bank – or anyone else, for that matter – to call a bubble. This is baloney. When looking at house prices, just look at price-to-rent and the price-to-income ratios, sales volumes and credit statistics, and you know everything you need to know. Almost everything else central bankers do is more difficult than calling a housing bubble.

The most persistent argument against pricking bubbles is that monetary policy cannot target consumer and asset prices with a single instrument – the short-term interest rate. This statement is both trivially true and misleading. One can use existing instruments more flexibly, and one can also add new ones. Based on these principles, I have four proposals.

The first is the use of alternative regulatory instruments if available. This is not always possible but, where it is, such instruments could be deployed in the housing market, for example, where one could vary the ceiling on the loan-to-value ratio according to market conditions. Since housing bubbles are almost always credit-driven, an anti-cyclical LTV could encourage or discourage risky mortgage lending. Such a tool could be deployed by local central bank branches – or national central banks in the eurozone – since many housing bubbles are regional: east and west coast in the US, Spain and Ireland in the eurozone.

Second, central banks should use existing leeway in their monetary policy. In an ideal world, a single policy instrument should focus on a single target, but this is not an ideal world. Central banks will have to master the art of targeting some measure of price stability, as well as including asset prices in their consideration. In practice this would mean that a central bank should, by reflex, not always choose the lowest interest rate consistent with its definition of price stability. It should choose a higher rate in the presence of a bubble. With hindsight, if central banks had not cut interest rates quite so aggressively in 2003-04, we would probably still have had a bubble, but perhaps a smaller one.

Third, central banks should accompany their model-based economic forecasts with an analysis of monetary and financial conditions. The workhorse economic forecasting models used by central banks are built in such a way that they cannot capture financial shocks and bubbles. This makes them worse than useless in a world characterised by persistent financial instability. An analysis of monetary conditions and financial flows can provide at least a useful complement to now defunct models.

Finally, central banks must coordinate with one another. While each has the tools to establish price stability in its own jurisdiction, many asset prices – equity prices and housing prices in particular – tend to correlate globally. It makes no sense for the central bank of a small or medium-sized country to try pricking a domestic equity bubble. But if central banks act jointly, they could send out a strong signal. Just imagine what would happen if the world’s three leading central banks shorted Intel, BMW and Toyota.

I am aware that these measures are not going to solve the problem of financial instability. In the absence of deeper reforms in the financial sector, nothing will. But they might still be useful firefighting tools. It may be better to try out at least some of them than to pretend that the problem will simply go away.

I suspect strongly that we are already in another bubble in the global equity and bonds markets, and also in sections of the commodity markets. These may burst well before the world economy recovers from the most recent bubble. Central banks should eventually prick them before they cause calamity.

It may not be the time yet to deploy an anti-bubble strategy. But we sure need to put one together.

Copyright The Financial Times Limited 2009


RBA should continue to raise rate

Comments on MARTIN COLLINS: John Durie “RBA should rethink its strategy: recovery is patchy”, 23/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26247024-5013407,00.html

The RBA should not pause on raising interest rate. Its main role is to fight inflation and inflation is still above its target zone.

Given that the economic emergency is over, there is no excuse for the RBA to keep interest rate at emergency levels and having inflation above target zone.

Unless the RBA is not independent and a puppet of the government, it should not deliberately miss its target zone for long.

Carbon tax should not be dead. What other countries, especially EU, do is their businesses, why should Australia follow their inefficiency in doing the same?

The two strike rule is just two impractical. It is interesting to see that the Productivity Commission was so silly to have recommended such a poor idea!

Tax refrom limited not by GST but by lacking imagination

Comments on Neil Warren “With GST ruled out tax reform limited”, 23/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26246830-5017272,00.html

The Henry Review is constrained by being unable to touch the GST.

However, that does not necessarily mean that constraint is really restricting the Review's capacity to have a far-reaching design of a new tax system.

For example, the Review could introduce a national VAT to businesses and abolish other inefficient transaction taxes such as stamp duty on conveyances, as well as the different State payroll taxs.

Having said that, I must it does not seem the Review has ever considered a VAT.

So I think the Review does not have enough creative thinking and that is a pity.

Although I share Warren’s view that this tax reform will be limited, but differ from him in terms of the causes. It is not the constraint on the GST, it is the lack of creative thinking.


Alan Wood is correct on this

Comments on Alan Wood “Good times will be harder to manage”, 22/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26242325-5013578,00.html

I share Alan Wood's comments on Garnaut's view on Australian current account deficit and structural deficit.

I voiced my view in comments on Paul Kelly “Painful adjustment for spendthrifts”, 21/10/2009.

Australia is high immigration country and has always been in need of foreign capitals. This is largely reflected in current account deficit.

The structural deficit argument does not hold water. It is irrational to argue that people or government should be super rational and intelligent. The Treasury is also wrong on this.

If Treasury argues that Howard/Costello caused structural deficit when they repaid debts and set up the future fund, why it didn't even do anything in Rudd/Swan first and second budgets, instead they continued their high spending?

It is all so easy to blame others for one's own problems!


Ways to deal with Dutch disease

Comments on Alan Kohler “Brazilian whacks”, 21/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Brazilian-whacks-pd20091021-WZRHV?OpenDocument&src=sph

There are indeed better ways to deal with Dutch disease.

One way is for the RBA to buy foreign currency and use that currency to buy suitable overseas investments like various securities with high liquidity.

Another way is to use that currency to provide loans to borrowers who need that currency.

Carr wrong on RBA rate

Comments on Adam Carr “SCOREBOARD: Easy on the hikes”, 21/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/US-dollar-Australian-dollar-RBA-hikes-interest-rat-pd20091021-WZSN7?OpenDocument&src=sph

I think Carr is wrong on RBA interest rate this time.

The reasons include that the global economic meltdown is clearly over; there is no financial and economic emergency in Australia anymore; inflation is still above RBA's policy zone; and the current rate are clearly at emergency levels; changes in economic conditions mean the fiscal stimulus will have an upward pressure on inflation; so is a booming Chinese and Asian economies.

The concern over effects on currency is reasonable, but there is greater concern over the hosing bubbles re-emerging.

So RBA should move rapidly to lift the interest rate out of current emergency levels to normality. Any other actions will be irresponsible and wrong.

Carr should realise that.

No long a need for emergency stimulus policies in Australia

Comments on Michael Stutchbury “Treasury must reassess policy”, 21/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/treasury_must_reassess_policy/

The dangerous global economic meltdown is over and the Australian economy is rapidly returning to normality due to sound pre-crisis conditions and the China boom now.

There is no justification for the official interest rate to be at emergency levels for any longer. The RBA has realised that and it has returned to its traditional role of fighting inflation. Given that inflation is still above its target zone, it should and will tighten rates rapidly, though with some caution.

Equally, the justification for fiscal stimulus is no longer there and Treasury and government must be honest and acknowledge it and starts to wind down stimulus, but implement a long term strategy for productivity growth.

Failing to do that is purely irresponsible.

It will be a test for the independence of Treasury and the competence of the Treasurer and Rudd in economic management.

Garnaut's view on crisis and Aussie economy

Comments on Paul Kelly “Painful adjustment for spendthrifts”, 21/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26237570-12250,00.html

Garnaut is an experienced and knowledgeable economist and policy adviser, so his views on the economy must be listened to carefully by the government and policy advisers including bureaucrats.

Garnaut is most likely right that Australia needs to adjust to its living standards in the wake of the crisis.

His point on what the Rudd government can deliver is probably correct, given that the budget deficits and rising community expectations.

His view on the tendance of government to increase interventions in the economy to the detriments of the economy following the crisis is correct. The Rudd government is a good example.

However, such adjustment does not necessarily mean lowering the standards immediately and drastically. Adjustment can be undertaken over a period of time and over that period of time the living standards may not grow as much as their trend growths, as opposed to an absolute fall.

The second point that we may need some caution in interpreting Garnaut's view is about the current account deficit. He may be half correct but is unlikely to be completely correct. A country with significant immigration may sustain current account deficit over a very long period without serious problems to its economy.

Further, even current account deficit adjustment can take a very long time without serious problems. As long as intertemperary budget constraint can be satisfied, there is no need to require the constant current account balance.

The last point is that while Australians' living standards may need an adjustment, it will be far smaller than the adjustment in the US, due to vastly different pre-crisis conditions between the two countries, as well as the quite differential impact on China and Asian economies on the two countries.

On this point, the much better pre-crisis condition of the Australian economy and government balance sheet were important factors and that should be attributed to the Howard/Costello government.

The deterioration in the terms of trade effect may not be as big as was originally thought, and there may be some significant recover in the terms of trade in Australia’s favour.


Rudd - nothing more than a political chameleon

Comments on Malcolm Colless “Behold a tough new PM”, 20/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26232383-5015019,00.html

Rudd has shown already and will be recorded in history as a political chameleon, pursuing short term popularity and wanting to project himself as a true statesman but having no ability to be one.

His essay just shows he does not have the judgement and analytical ability of a statesman to deal with hard issues, unfortunately.

The sad thing for Australians is that the longer this guy stays in the national scene, the more damages he will do to the nation because of his inability to deal with real and hard issues.

Public hospitals are mentioned as an example. Education revolution is another. There is also the whole NBN drama of $43 billion without a business case.

You name it, what has his government really achieved? Probably there is none.


Luke Nottage has some good points on APC

Comments on Luke Nottage comments on “An Asia Pacific Community: an idea whose time is coming” by Richard Woolcott, 18/10/2009, http://www.eastasiaforum.org/2009/10/18/an-asia-pacific-community-an-idea-whose-time-is-coming/

Luke Nottage's 5 points, except the third one for possibly a very long time, seem a sensible approach. Such an approach seems mainly to be focused on economic and business side.

APEC seems also to be a very good forum to realise this approach.

It is different from Rudd's APC concept, but may evolve to be the basis for some type of APC in the long run.

This scenario may be the most likely one in the Asia Pacific region in the foreseeable future.

Rudd may need to realise this so to focus and target better on what is realistically achievable in the next decade or possibly longer.

Improve employment contract in wake of crisis

Comments on Ken Phillips “The core of the company is rotten”, 19/2009, http://www.businessspectator.com.au/bs.nsf/Article/Nobel-prize-Alan-Greenspan-pd20091019-WXQK3?OpenDocument&src=sph

It is unlikely in practical terms to have employment contract worked out as nicely as commercial contract.

However, it is entirely possible to have employment contract especially those for executives made to take account reasonably longer term effects on those executives on firm outcomes.

This would simply requires a delayed payments dependent on not just the outcomes when an executive is in charge, but also an independent, objective and fair evaluation sometime after the employment is over.

If the employment contract for executives is made in such terms and there are independent and objective evaluations, then there should not be any problem with for it to provide the most appropriate incentives to executives and fair pays.

Further, criminal charges can be laid to executives who are later shown as fraudulent during their employment.

This will ensure firms are as efficient and fair as possible.

A source from BS site: "DISTILLERY: U-shaped recovery"

A good and humoured DISTILLERY of some commentators comments: David Llewellyn-Smith "DISTILLERY: U-shaped recovery", 19/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/DISTILLERY-U-shaped-recovery-pd20091019-WXU83?OpenDocument&src=sph

On a different note, Ken Phillips has some commentary on company governance and this year's Nobel Prize laureate for economics Oliver Williamson and his work in this field: "The core of the company is rotten", 19/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Nobel-prize-Alan-Greenspan-pd20091019-WXQK3?OpenDocument&src=sph

Wolfgang Münchau on bubble to burst sooner

I have come to this article and it is an interesting perspective to view the current status of the equity and housing markets. See for yourself: Wolfgang Münchau "This bubble won't last long", 19/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/A-new-crisis-on-the-horizon-pd20091019-WXUVM?OpenDocument&src=sph

Wolfgang Münchau uses his two favourite metrics of stock market valuation are Cape, which stands for the cyclically adjusted price/earnings ratio, and 'Q', to value the market bubble. He concludes that:

"Cape and Q measure different things. Yet they both tend to agree on relative market mispricing most of the time. In mid-September both measures concluded that the US stock market was overvalued by some 35 to 40 per cent. The markets have since gone up a lot more than the moving average of earnings. You can do the maths. "

He argues that "The single reason for this renewed bubble is the extremely low level of nominal interest rates, which has induced people to move into all kinds of risky assets. Even house prices are rising again. They never fell to the levels consistent with long-term price-to-rent and price-to-income ratios, which are reliable metrics of the property markets’ relative under- or over-valuation."

He remarks:

"In other words, there is danger no matter how the central banks react. Successful monetary policy could be like walking along a perilous ridge, on either side of which lies a precipice of instability.

For all we know, there may not be a safe way down. "

What about the economics of Rudd and Wong's ETS?

Comments on Glenn Milne “Wong's ETS unites foes on Left, Right”, 19/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26226982-33435,00.html

Milne’s article quotes the executive director Richard Denniss of the Australian Institute saying that Treasury modelling buttressing the CPRS shows it will in fact have little or no impact on one of the key offenders -- the coal-fired electricity generation industry -- in our lifetime.

More specifically, Denniss states: "What she (Wong) doesn't tell us is that her CPRS, complex and impenetrable as it is, does not actually result in the reduction of greenhouse gas emissions from our coal-fired power stations."

While I am not questioning Denniss' findings from Treasury modelling, I am curious to know where the reduction in emissions will come from, say 5-25% by 2020?

If the total emissions are to be reduced and the coal power stations will contribute to the reduction, then a big reduction must come from somewhere else.

Why will that be cheaper to reduce emissions from other areas than the coal fired power stations?

Or is the whole ETS design very bad in economic terms, because it avoids to reduce emissions in areas where the costs of doing so are low?


Stephen Kotkin: why the Berlin Wall fell

This is a very brief introduction to Stephen Kotkin's book on the reasons why the Berlin Wall fell.
Such topic inevitably involves a lot of speculations. But the book may be worth reading. See:
Laura Miller "Why the Berlin Wall fell", 16/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Why-the-Berlin-Wall-fell-pd20091015-WU5YU?OpenDocument&src=sph

A strong $A is good for Australian economy

Comments on Michael Stutchbury “Dollar’s push to parity”, 17/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/dollars_push_to_parity/

Michael, I like a muscular Assie dollar!
While it has a positive effect to insulate the economy from overheating (of course through a negative effect on exporting and a positive cheaper imports), it also has an effect to upgrade the Australian economic structure to a higher and internationally more competitive level, as well as for the corresponding skills of labour force.
That is a long term issue and important for the future.
Forced structural changes by a strong dollar is a good thing.
That will bypass a lot of political interferences by incompetent politicians and bureaucrats.

Rudd no friend to refugees

Comments on Paul Kelly “Rudd's softer stance mugged by reality”, 17/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26220271-12250,00.html

Essentially Rudd is no different from Howard on refugees, isn't it?
Howard was pacific solution and Rudd is Indonesia solution.
Howard offered money to Nauru and Rudd to Indonesia.
What about any refugees caught in the middle? Their fate is not a bit different - one is in Nauru the other is in Indonesia. Both are bribes, only the target countries are different.
Of course Rudd is showing something different, but purely in form and to be seen as different. No difference in substance.
Will the result be any different? It will probably be not much.
So is Rudd better or softer towards refugees? Unfortunately, the answer is no.

An incredible but insane supporter of the Rudd government

Comments on Mike Steketee “Howard's legacy was money for the stimulus we had to have”, 17/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26216016-5013457,00.html

Mike Steketee, you sound like a government agent, don't you?

You only acknowledge a part of the legacy of the Howard government left for the Rudd government, that is, the government could afford to spend more money due to no debt and the projected surplus, but you ignore the key fact that the Australian economy had been in an excellent shape and much sounder than any other industrialised economies. Why did you do that, just to side with the Rudd government to show your loyalty, or allegiance? That is appalling.

Secondly, few people have argued that the government should not have put stimulus to the economy, but many decent people argue how the stimulus was put and how it has been implemented.

It has been shown that at least part the cash handouts were saved instead of being spent to stimulate the economy. Is using borrowed money to hand out for people to save a sound fiscal measure by any sane people or government?

Further, it has been shown the huge waste and ineffectiveness of the building school hall projects. Is that a proper way to spend taxpayers' money? Or is that a sound fiscal policy?

If you want to support the government for whatever it is doing, just say that and that will be better than you waste readers' time and the Australian's space.

You are no difference from the government of waste. You have shown that you are doing just the same.

That is the better word I would give you, just for courtesy.

Megalogenis' article on tax reform disappointing

Comments on George Megalogenis “The breakthrough”, 17/10/2009, http://blogs.theaustralian.news.com.au/meganomics/index.php/theaustralian/comments/the_breakthrough/

George, a few comments.

Firstly, your argument about equity of tax on superannuation means you would take Australia back many years and show no vision for the future.

It is a distorted and very biased and incomplete argument. For example, you used Bowen's line: “Tax concessions for low and middle-income earners to save through super are less than those for high-income earners,” Bowen said. “The fact that the top 5 per cent of contributors make around a quarter of all concessional contributions to superannuation - while 1.2 million people do not receive an income tax benefit on their concessional contributions - is a compelling one.”

What about the earnings of the same top 5% contributors? Is that less or more than the 25% that they take in the total of concessions? Have you attempted to examine that or do you have any figures on that? Unless you can demonstrate that their earnings are less than 25% of the total earnings, your argument and for that reason Bowen's line is nonsensical.

Even their earnings are less than 25%, the argument is not necessarily correct either. By encouraging more people to contribute more to their supers, the future burden to government and taxpayers will be lowered, that will make more public money available to provide aged pensions for those who have not contributed enough, whether they had the ability to contribute or not. This must be taken into account when talking about superannuation because super is a very long term social project; especially there is a coming potential crisis of population aging.

On this, Bowen has totally failed, so your argument based on his line is very problematic indeed.

Secondly, you don't have any comments on top personal tax rate and its relation with company tax rate, as indicated by "There is no appetite, either in the review or in the government, for a re-run of the argument on the top personal tax rate. Henry wants the company tax rate cut reduced, but the top personal tax rate will not be following it down. Any long-term changes to the income tax scales, and to the payments system, will focus on middle and lower-income earners."

It is disappointing for a review of tax reform not to consider this point in the age of increasing globalisation and tax competition not only in company tax but also in personal tax, and the fact that many countries have lower personal tax or introducing a personal flat tax.

What tax reform is that? Why should you concur with it by endorsing it or not commenting on it?

Thirdly, the argument on federal financial relations is incorrect at the best or wrong completely. You simply take the federal government's line. You need at least to present any simple fact to demonstrate that the share of state's growing tax was falling to support that the states was push tax responsibility to the federal government. Unless you do that, one cannot take your argument seriously.

On the other hand, what about the share of state expenditure on services relative to all government services? Was that falling or increasing?

So when one talks about federal financial relations, one cannot take side and simply follow the line of one side against the other. Unfortunately, you just did that.

I am afraid to say that I started with some issues, but by now I have realised your understanding of a good tax system is problematic and your article is disturbing.


Carbon tax is much better than ETS

Comments on Peter Walsh “Tax carbon to stop corruption”, 16/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26215154-5015664,00.html

It is surprising that few people from the government to businesses to economists are advocating the most efficient instrument to reduce carbon emissions using a carbon tax.

It is puzzling why an ETS is needed within a country.

The costs of emissions reduction have to be borne by some.

If so many rent seeking exist, who are the ones who will have to bear more than their fair shares of the costs, due to those free riders or even profit from the rents they will get?

Ergas too hard on government?

Comments on Henry Ergas “Squandering the crisis”, 16/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26215153-5013480,00.html

Henry Ergas is ruthless in ripping out the heart of our popular prime minister.
Yes his essay may not show that he has a sensible mind, but it presents a pretentious heart.
What Henry Ergas has demonstrated is that he does not even have a heart by wasting the opportunity for sustained growth. That is to waste future prosperity, isn't it? Does anyone who takes people’s prosperity away have a heart?
Let's assume Henry Ergas is not correct, and our popular prime minister still has a heart.We should show some respect to a popular PM, at least! Otherwise, he might do something bad to us.


Australia's gang of asymmetry

Comments on Michael Stutchbury “Make stimulus tweakable”, 15/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/make_stimulus_tweakable/

I have used the word asymmetry to describe the Rudd/Swan/Henry economic stimulus.
It was rushed and ill implemented to begin with, but Rudd/Swan/Henry has been slow in adjusting it to responding either the much reported waste or the changed economic reality.
An excessive dose of medicine is the wrong dose of medicine.
The stimulus was designed based on certain assumptions, and when those assumptions prove to be incorrect, and then it is reasonable to change the stimulus.
Further, when it is no longer in emergence, it is also reasonable to adjust the implementation to improve its effectiveness and efficiency.
So, yes, the stimulus should be tweakable.
This asymmetry reflects Rudd/Swan/Henry big government approach. The crisis just provided them with a good excuse and disguise to implement their agenda.
The trio should be called “the gang of asymmetry”.

an unbelievable article on climate change from Bjorn Lomborg

Comments on Bjorn Lomborg “Emissions blame game has started”, 15/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26210623-5013480,00.html

I can't believe the following by the author:

"Instead, the panel recommended focusing investment on research into climate engineering as a short-term response, and on non-carbon-based energy as a longer-term response.
Some suggested climate engineering technologies - in particular, marine cloud-whitening technology - could be cheap, fast, and effective. (Boats would spray seawater droplets into clouds above the oceans to make them reflect more sunlight back into space, reducing warming). Remarkably, the research says that a total of about $US9 billion spent implementing marine cloud-whitening technology might be able to offset this entire century's global warming. Even if one approaches this technology with concerns - as many of us do - we should aim to identify its limitations and risks sooner rather than later."

Is it believable that just $9 billion can do that much?
Using boats to spread sea water to reflect more sunlight can achieve that?
Is anyone who does this kind of research sane?
That simply defies the logic!When people are talking this kind of nonsense, it is no wonder why it is not easy to convince people on climate change.

Strange but a rare and strong censorship in Australia

I can't believe it is happening in Australia.
This is what is happening at http://www.eastasiaforum.org/ recently.
A number of my comments were removed from the respective articles' pages.
Maybe that is its host's skilful diplomacy.
But it suffocates useful debate.It is not as helpful as its host thinks.

Two Smiths, one tact

Comments on Warwick Smith “Mr Smith goes to China”, 14/10/2009, http://www.eastasiaforum.org/2009/10/14/mr-smith-goes-to-china/

Smith says the following:

"The six principles announced by Treasurer Wayne Swan were widely viewed by the Chinese investors as directed against them. The principle that requires approval by the Foreign Investment Review Board (FIRB) of incoming investment by state entities seems to be targeted against inbound Chinese investment, although it is not the case at all."

It is hard to see how that principle is not targeted against inbound Chinese investment. Does Mr Smith have any facts to indicate it is not?

Was that really just a coincidence that those principles were introduced in the process of the Chinalco bid or shortly after its bid announcement? Are there many so called state entities that also invest internationally?

It seems Smith is defying not only the logic, but also the fact.

We should acknowledge the fact as it is. If it is right we stick with it. If it is wrong we correct it.

The argument is incomprehensible.

But I stand ready to be corrected by Smith.

How China's stimulus is going

China's stimulus leakage

I have not read it in full yet, but think it might be of some interest to some views, so provide a link here.
May provide some comments later on.
"China's stimulus leakage", an Interview with Andy Xie by Business Spectator's Isabelle Oderberg, 15/10/2009: http://www.businessspectator.com.au/bs.nsf/Article/Andy-Xie-China-economy-US-Bubble-pd20091014-WT3KN?OpenDocument&src=sph
The article starts with the following introduction and summary:
Andy Xie, formerly Morgan Stanley's chief Asia-Pacific economist, is now an independent economist based in China. He tells Business Spectator's Isabelle Oderberg:
The China bubble is being driven by its property sector, which has been over-inflated by the removal of restrictions on multiple mortgage lending
As much as $US300 billion of China's economic stimulus may have flowed into its stockmarkets
China's key challenge is to find a balance between consumption and investment
The dollar's future will be dependent on what the Fed does with interest rates, but it has probably devalued enough
The Fed will raise interest rates in the first quarter of next year and is envisaging a 5 per cent inflation rate.

Dollar's role to be seen

Comments on "Dollar’s death is exaggerated" by Martin Wolf, Financial Times, FT.com, 14/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/US-dollar-economy-policymakers-currency-pd20091014-WSVX4?OpenDocument&src=sph

Will coment on this later on.


Who will benefit from regional leadership rivalries?

Comments on Aurelia George-Mulgan “Hatoyama’s East Asia Community and regional leadership rivalries”, 13/10/2009, http://www.eastasiaforum.org/2009/10/13/hatoyamas-east-asia-community/

A couple of comments.
First, it is interesting that why an East Asian community should include non-East Asian nations to begin with. If it is open regionalism, why should it be called East Asian as opposed to Asian community?
Second, from a strategic point of view, it would be interesting to see which, Japan or China, will benefit from delaying an East Asian Community. This is especially pertinent in the context of the so called G2 potentially. In that context, there is no middle powers represented.

ALP's bizarre energy policy

Comments on Robert Gottliebsen “Our energy through Chinese eyes”, 14/10/2009, http://www.businessspectator.com.au//bs.nsf/Article/Climate-Change-Beijing-Penny-Wong-Carbon-Conferenc-pd20091014-WSRGZ?OpenDocument

It is so interesting to see that the ALP's stubbornness and ignorance on nuclear power.

It shows that the ALP is not really interested how to successfully managing the Australian economy and enhance the nation’s welfare.

Unfortunately for Rudd, it also shows his lack of leadership and narrowness in his thinking and mind.

They put ideology above rationality to such an extreme!

Does anyone believe them to be rational?

Whatever they say in terms of economic conservatism, it is hypocrisy.

China should improve press freedom

I personally don't know the real situation behind the report. But if it is true, then it is disturbing news. See: Isabelle Oderberg, "China's faltering free press", 14/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Chinas-faltering-free-press-pd20091014-WSRFU?OpenDocument&src=sph

China should increase press freedom to further reforms to make it the world's most powerful country.

Press freedom can make the country better, reduce corruptions and improve the governance and welfare of the nation. It will strengthen the rule of law.

It should be part of the constraints to some unruly behaviour by some powerful people.

It is consistent with a harmonious nation.China should encourage more press freedom but not reduce it.


I am optimistic about an East Asia Community

Comments on Joel Rathus “East Asia Community: Little chance of a breakthrough at the Trilateral Summit”, 11/10/2009, http://www.eastasiaforum.org/2009/10/11/east-asia-community-little-chance-of-a-breakthrough-at-the-trilateral-summit/comment-page-1/#comment-66931

From the article one gets a sense that although the processes are slow, it is progressing and it will not be surprising that East Asia Community comes to shape in the not too distant future, although the author appears to be pessimistic and dismissive.

Let's look at the three reasons Rathus used for the pessimism.

"Firstly, at the global level, movement towards an EAC must be understood as game played between the great powers, China and the US. Japan and Korea are better understood as middle powers, allied with the US but with an option to exit in favour of a China-led regional order under the EAC. With the US demonstrating a greater desire to take Asia seriously and on its own terms (signing of the TAC), it seems unlikely that Japan and Korea will do any more than explore with China the ‘exit’ option."

It is noted that China is half of the G2 and is more willing to endorse the EAC. So the picture is really different from what Rathus sees.

"Secondly, at the regional level, the Trilateral Summit looks inward, rather than outward, focusing on coordination and cooperation amongst themselves rather than joint-leadership of a wider East Asia, and, even here, successes have been shallow. Agreements reached at the Summit thus far have been in the fields of environmental protection, health and cultural exchange – i.e. of a ‘low-hanging fruit’ variety. Whereas agreement on substantive matters such as deeper economic integration has so far been elusive, with the three-party Free Trade Agreement proposed, studied (then studied again) but resulting in no further action."

It is a natural process for the big three among the potential EAC members to be in sync themselves before they can launch a bigger community, isn't it? That is not necessarily "inward looking". So the implications are also different from what Rathus got.

"Thirdly, domestic forces within at least two of the three parties still conspire against a ‘European moment in East Asia’."

Let's talk about Japan first. Rathus sees A FTA with China may present a problem at the moment. But the question is that is a Japan-China FTA a precondition for an EAC? It is likely to be not. Second, an EAC is broader than the three themselves, and EAC integration does not necessarily mean an immediate FTA. So there is no implication of FTA for the EAC, at least at the moment if that is what Rathus is concerned with. What Rathus sees as obstacles is in fact no obstacle at all.

Now let's turn to Korea, the other member that Rathus mention. Rathus says: "In fact, despite its own rhetoric, Korea’s position is very similar to Japan – regional community is a limited interest at best." We have shown that it is not a problem for Japan, so naturally it will not be a problem for Korea either.

To conclude, the same facts, there are quite different implications that can be drawn. I have derived quite different implications based on Rathus' argued reasons.I won't cast a judgement whose are correct, for now.

Respect consumers' preferences

Comments on Peter A. Petri “Let growth engines drive the recovery”, 12/10/2009, http://www.eastasiaforum.org/2009/10/12/let-growth-engines-drive-the-recovery/

While the new engines of growth sound nice, there might be some significant risks in government policy generated products that so not match consumers' preferences and demand.

If the two go out of steps, there will be potential for huge waste.

Economists, businesses and governments need to study consumer preferences. Unless there are market failures, governments should refrain from intervention.

For example, in terms of savings and consumptions, as long as intertemporal budget constraints are satisfied, consumers’ preferences should be respected.

That is just one point in the current debate of international imbalances many people have got it wrong, or attributed to the wrong causes. Many arguments are simply red herring.

Pragmatic measures required for reducing emissions

Comments on Giles Parkinson “Head-in-the-sand economics”, 13/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/CPRS-Greens-Steve-Fielding-Garnaut-Copenhagen-pd20091013-WRREF?OpenDocument&src=sph

Is the International Energy Agency god and are its projections convincing and why?

How can it represent the international community?

One has got to be realistic in the degree and the path of emissions reduction. Start with practical goals and send the correct signals to businesses and consumers. Then technical innovations and technological breakthroughs will follow and the next appropriate steps can be taken at that time.

Neither the race to bottom nor to the top is the right thing to do. Neither of them is a responsible way to resolving global warming issues.

More often than not, the Greens are environmental extremists and economic vandals. Is there any question about that?

Jim Wallace is correct

Comments on Jim Wallace "Rights overkill isn't majority view", 13/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26200400-5013480,00.html

Wallace shows the real reasons of that report's "finding" and its recommendations.

That report completely misrepresent what is needed in Australia and what Australians want.

There is no need for a bill of rights in Australia at all.

If any of the recommendations in that report is accepted, it will make Australia a worse place to live and lower the welfare of Australians.


East Asian arrangements need clarity

Comments on Peter Drysdale “Japan in the spotlight in the lead-up to APEC”, 11/10/2009, http://www.eastasiaforum.org/2009/10/11/japan-in-the-spotlight-in-the-lead-up-to-apec/

It is understandable the idea to include India in either APEC or APC, for the reason that it is an Asian country.
It is a little bit puzzling why India should be included in any East Asian arrangements, though.
It does not sound right. Either the name should be changed to reflect its real content, or it should not be included.
Why are people doing some things as such, incoherent and self contradictory?

"Two strike rule" on executive pay incomprehensive and onworkable

Comments on news “Directors slam Productivity Commission's 'two strike' rule”, 12/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Directors-slam-Productivity-Commissions-two-strike-pd20091012-WQQTU?OpenDocument

It is unclear why the Productivity Commission has chosen 25% of shareholders as the deciding factor.

Why did the PC use that as opposed to the rule of majority of over 50%?

Requiring just a quarter of shareholders vote will be potentially very destabilising and will work against the interest of shareholders in the long run, because it will make the board less talented and profit driven to maximise shareholders' interest with less incentives to competent directors.

PC' recommendation is really strange and incomprehensive.

Equity markets, RMBS and super funds now

Comments on Alan Kohler “The big four's fabulous crisis”, 12/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/The-big-fours-fabulous-crisis-pd20091012-WQRRS?OpenDocument&src=sph

Alan, it may be a bad time for super funds to switch from equities to RMBS now.

Super funds had invested in the equity markets before it went down. Equities have not fully recovered to its highs and are still recovering. So super funds should stay in the equity markets for their anticipated recovery to recover funds' values.

By switching to RMBS now from equities, super funds' paper loss would be realised and will lose the opportunity to recoup their values, because RMBS will not offer the same opportunities as equities in the near future.

So the argument for super funds to invest in RMBS now is wrong for portfolio management.

That would not be prudent.

Wolfgang Münchau and Fred Bergsten wrong on imbalances

Comments on Wolfgang Münchau, Financial Times “The case for a weaker dollar”, 12/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Making-the-case-for-a-weaker-dollar-pd20091012-WQTFV?OpenDocument&src=sph

The idea "that the world will ultimately have to move to maximum targets for current account imbalances" is crazy, wrong, unrealistic and impractical, unless the maximum is extremely large.

It will be dead before its birth.

It is the same as to saying that a person must keep borrowing or saving to a faction of his or her income.

Isn't that argument ridiculous?

They should have a concept of permanent income over a life time and the income constraint should be based on that.

They should understand the principle of banking and finance, loans and savings.

They should learn better economics, including international economics and economic history.

It is a case of extreme overreaction.

It is also a case of disguising incompetent economic management and blaming anything for such incompetency by the US.

It is a case of economists' failure in dealing with this crisis and finding an easy excuse.

It is a case of a voluntary conspiracy to an extreme extent and scale by so many.

It is a case of disgrace for so many.

Treasury partisan and incompetent

Comments on Glenn Milne “Mandarin's partiality”, 12/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26195542-7583,00.html

Some of the Treasury recent views are suspicious, to say the least. They either indicate they are incompetent, or very biased.

The budget economic forecast for out years as a sustained above trend growth following this severe great global recession, is a prime example.

Another example is the argument about the so called structural budget deficit that had been caused by the previous government. It was completely ludicrous. To argue that the previous government caused it a few years earlier when there was no sign of economic trouble and did not say anything about the Rudd government's first budget spending and still implementing the tax cuts in its second budget is so blindly partisan.

The third one is about the asymmetry in the advice by treasury about the economic stimulus: before it introduction it was “go early, go hard and go households”; but when every sign had already indicated that Australia had not had a recession and the economy was doing well, then they say withdrawal the stimulus will cause 100000 jobs.

There is no question that the top economic bureaucrat has become partisan and that Treasury has lost its economic competency.


Government asemmetry to stimulus

Comments on Michael Stutchbury “Timing the stimulus exit”, 10/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/timing_the_stimulus_exit/

The government has whown asemmetry approaches to the stimulus processes: a very swift and somewhat hasty to its introduction and a aluggish and very unwilling to its adjustment or unwinding, even in the wake of wasteful spendings being exposed and strong signs of a strong economy with no recession and rapid recovery from lows.

It shows the combination of three factors.

The first is that the Treasurer is incompetent in managing the economy and budget. When the Treasurer is of no opiniens of economic management, he would listen to every thing and follow others, mainly his master and bureaucracts.

The second is that Rudd the Prime Minister is a strong government interventionist in order to show his role in history. It appears that to him, the more the government involves in the economy the better the government will be perceived to be doing better and contribute more. That is likely to be his obcession with history and his role in it.

The third is that some of the bureaucratic agencies or their key managers are politicised and are keen to go with what the government wants as opposed to what is the best for the nation. They will do what the government asks them to do and will design policy reponsise with the government’s preference as the key objectives.

When there is such a combination of three factors, what Austealia has got has been exaggeration of the economic situation in Australia by the prime minister and the treasurer, the “go early, go hard, go household” advice from the Treasury, the wasteful government spending at all costs at the expenses of all current and future taxpayers.

It is not too late for both the government and the bureaucrats to make reponsive and responsible changes to the stimulus package. It is not a case of having passed the point of no return.

But the problem is that the Treasurer can’t lift his game in a short while, the prime minister is only interested in government interventions using every excuse available, and some of the bureaucrats are only interested in ways of sucuring and extending their tenure.

So the likelihood of a change in the quality of public policies especially economic policies is extremely slim.

However, there is no real alternative government available and the current government under the jelm of Rudd is very skillful in spins.

Now you have an interesting Australian government and federal politics.

Argument against a bill of rights by Paul Kelly

I commented yesterday or the day before on a report of the release of the government commissioned report on a bill of rights and argued against the idea.

Today Paul Kelly has two articles, including one with another person, that show problems with the report and its recommended approaches. See:

Paul Kelly: "Human rights report poisoned chalice", 10/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26188812-12250,00.html

Paul Kelly and Chris Merritt: "Human rights charter a recipe for chaos as Frank Brennan cites 'enormous problems'", 10/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26189707-601,00.html

Kelly is an experienced political commentator and the editor at large of the Australian.

Cities, state and federal policies

Comments on George Megalogenis “Property chip may cripple the country”, 10/10/2009, http://blogs.theaustralian.news.com.au/meganomics/index.php/theaustralian/comments/property_chip_may_cripple_the_country/

George, it is an interesting article touching some profound issues.

However, I have a few comments or questions.

First, the stories of Sydney relative to Melbourne and Brisbane do have an element of reversion to average or mean, as Phil H suggested.

No individual city could monopoly the leader status forever, and sooner or later there would be changes in relativity.

Secondly, the stories of the three cities or states can have a couple of implications in terms of policies.

One is that if it was purely a shift or switch from one to another without any effect on the totality, that is, a zero sum game, then there are virtually no implications for national policies.

However, if the game was a non-zero sum, as it was probably the case, then there are implications not just for national policies but also for individual states as well.

Carr's policy towards immigration was a cause for Sydney's relative decline. If he had implemented a better policy, then the relative decline might have been smaller, that would have had an effect on not only Sydney and NSW but also the total welfare of Australia.

So effectively it was an issue of the quality of policies by a State government on the welfare of that state and the nation.

Thirdly, while Carr and his government's policies were obviously a reason to that case, it is far fetch to link any of the stories to Howard and the federal government back then. On this, you are incorrect that reflects your bias towards the previous government and blaming it for everything even for this completely unrelated issue. Few would think that Howard was involved in particular local issues, especially one state relative to another.

Fourthly, your story of the relative virtues of the Howard and Rudd governments is a bit bordering nonsense. Again you have strong bias - it is your way of seeing through the telescope through the wrong end, not the public.

Don't get me wrong, you may have a better knowledge in economics than the average. But yours is still very limited, it seems.

As one of the commentators argued that the Howard government cut taxes when they could afford to and at the same time reduced the national public debt to zero, while the Rudd government spent the money it did not have and increased the national public debt.

There is no defence of the Rudd government's fiscal recklessness. Yes, no one would argue against fiscal stimulus when the economy needs it. However, it is a completely different story when the money was wasted, as the Australian has exposed in many articles of the wastes in the school spending program, not to mention whether the magnitude of the stimulus was appropriate.

Your argument of the so called structural budget deficit is a recycling of what some others say for convenience without own critical analysis at the best. Why should a government keep taxpayers money when it does not need?

If you have an issue with Howard government's spending or bribes as you like to put it, why don't you blame the Rudd government when it had the opportunities to reduce spending and to stop some tax cuts but it chose not to do so in their first and second budgets?

The structural arguments is no different from arguing that the inventions of electricity, engines, cars etc were responsible for the global warming now we have and they should have not been invented.

Isn't that argument extremely ridiculers and completely nonsensical?


Rudd needs to heed warning from Garnaut

Comments on Michael Stutchbury “Garnaut warns PM on stimulus”, 9/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/garnaut_warns_pm_on_stimulus/

Garnaut is a highly reputable and respected economist with experiences in advising the highest office in the land. His view on the government stimulus is pretty much spot on.

Having said that, I personally think that some of Garnaut’s view may be questionable, like those about structural deficit and adjustments in Australia in the near future. That argument is convenient to put, but ignores the nature of the fact that government and consumers have imperfect information.

Now let’s get back to the government and Rudd. The main problem with the Rudd government is that the Prime Minister has a narrow and distorted view of the economic history of the past 30 years, as reflected in his essay in the Monthly in February 2009.

While the great financial crisis and the great recession shows some problems with ineffective regulations or supervisions in the US, especially the mal-practice of sub-mortgage lending and excessive gearing, it is far fetch to say it is the consequence of neoliberal economics in everywhere.

It is unclear whether Rudd really interpreted the economic history incorrectly or merely uses the crisis as an excuse to implement big government and strong government interventions. Different causes may have different consequences.

If he wrongly interpreted the history, then there is a chance that he may realise it one day and correct it.

If strong government interventions are his belief, then there is little hope that he will get the government’s economic policies and some other public policies right. And that would be a pity.

No need for a bill of rights in Australia

Comments on Frank Brennan “A fairer go for all”, 9/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26183726-5013480,00.html

Are human rights really issues in Australia? The answer is very likely to be no. Then why is the fuss about a bill of rights?

It is likely the fuss about a bill of rights is due to some extreme leftists to push their own agenda at the expenses of the freedoms of all people. They want people’s freedom taken away and dictated by judges. They want people live in fear.

There is no need for a bill of rights to shackle people in Australia. If there is any problem, then the elected people in government and parliament can deal with them through legislations.

A fair go can be created within the existing legal framework without resort to a bill of rights. To the contrary, such a bill is more likely to create inequality by taking away people’s freedom unnecessarily. As a result, such a bill will suffocate innovations. It will reduce Australians’ well fair.

All Australians are better off without a bill of rights. Any attempts to have one should be opposed by Australians.


Population aging - Australia should not be too selfish

Comments on Bernard Salt “Levers available to make up for exit of boomers”, 8/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26179529-5016345,00.html

Salt’s argument sounds good from purely Australia and Australians point of view: to us immigration to solve population aging in Australia. There is no doubt about that logic and policy makers, bureaucrats and even the ABS have been using that argument explicitly or implicitly.

But what are the implications of this Australian story for the rest of the world, especially those countries where the migrations might come from? Would the Australian immigration help them solve their demographic changes?

If the answer is yes, the Australian immigration story is well and good. However, if the answer is no, then the Australian story is a selfish one: it would grab useful workforces from other countries to serve Australians only.

Of course, Salt argued that “Targeted migration aimed at fit young workers is a good deal for Australia, and in many cases for origin nations as well. Migrant workers pay tax and they also send money back to family groups. Total remittances paid from Australia over the last financial year were $816m. Our total foreign aid budget is just $3.8bn.”

Not bad, it sounds. However, it is questionable the $816m figure was really from migrated young workers and I doubt the statistics will be able to show that it was.

The second problem with this remittance story is the more significant problems of “brain drain” in those countries. Even the $816m was credible as the remittances from migrated young workers, it is unclear whether that could outweigh the losses those countries incurred due to the loss of those young worker to Australia.

To conclude, demographic changes and population aging is a wider issue than Australia’s alone and need to be considered in that wider context. Australia should not be too selfish and just consider enhancing only its interest at the expenses of other nations especially developing nations.

Maybe we are not used to this thinking yet. But it is time we approach the population issue holistically than we were used to. We need to consider a win-win outcome for all nations involved.

Why pardon the intrusion?

Comments on Arthur Sinodinos “Pardon the intrusion”, 8/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26179436-5013479,00.html

I think Sinodinos has got some important facts incorrect or wrong in linking Rudd to Menzies, if the following introduction by the Australian correctly reflects his view although I suspect it may not:
“KEVIN Rudd would do well to emulate Robert Menzies and balance pragmatism with ideology, writes Arthur Sinodinos.”

Firstly, while I don't know much of the situations in Australia back to the days of Chiefly and Menzies, the situation in Australia now is very different from the great recession since the great depression many advanced countries in the West have been experiencing. In fact, there has been no recession in Australia so far in this global turmoil.

The implication of that is that Australia has performed so well economically in the recent global financial and economic turmoils its economic system and regulations have been vindicated as one of the best in the world and the best in the advanced world. As such there is no imperative to change.

So the conditions for government intrusion are not there. What Rudd has done so far is to use the unfounded fear of a hit by a great recession that never came. So Rudd’s intrusion is more likely to fail or unworkable once people realise its fallacy.

The second point is that while Rudd may be good at disguise his real political ideology by micromanaging the media in terms of 24/7, his government has already displayed significant problems in managing the economy and the budget even though it has been luck due to the inheritance of an economy in excellent shape it has got from the previous government.

Given that this has already been occurring, it is not like a situation that a political party is not in power and it can use empty rhetoric to cheat its way to power. The only way for the Rudd government is to be recognised completely by the public or voters as it really is, not more and not less. However, in that way the future of the Rudd government does not look good from its deed.

The only thing in Australia federal politics is we have an ineffectual and disunity opposition that has made no alternatives to the current incompetent Rudd government. Once the opposition can get its house in order, the days of the Rudd government will be numbered.

Australians do not have appetite for a more intrusive and bigger government. No matter what Rudd’s skill in balancing pragmatism with ideology, its ideology does not accord well with the public and will fail.


Differing situations and imbalances

Comments on Mohamed Ariff “World economy not quite out of the woods yet”, 6/10/2009, http://www.eastasiaforum.org/2009/10/06/world-economy-not-quite-out-of-the-woods-yet/

It is likely that the story of decoupling of developing economies at least some major Asian ones from developed economies in terms of recovery may be holding.

So as the author argued that "it is unsafe to make sweeping generalisations, as conditions vary from country to country", that argument applies equally to cautions for being too optimistic and being pessimistic.

In light of that, it could be argued that the G20 statement that it is too early to withdraw stimulus is problematic, because of the differences between the member economies in terms of their recovering status. It has given some activist governments the excuse to indulge in their unnecessary delays in prudently managing their economies that will leave future problems to those economies.

Another point is that the so called international imbalances seem to be red herring. It is more an issue of a blaming game to find a scapegoat for the financial and economic crisis that had a fundamental cause of mismanagement of the economy by irresponsible lending practices and the inability of the authorities to manage asset markets and government finance using the traditional macroeconomic policy instruments such as monetary and fiscal policies.

To argue that international imbalances were the causes is no different to arguing that everyone or at least every household should run a balanced income and expenses every year or more extremely every day. Isn’t that ridiculous? Or are there any differences between the two?

One of the main roles of financial and capital markets are to bridge the different situations between different participants, so that people can run “deficits” or “surplus” over a sufficiently long period as long as the longer term budget constraints can be satisfied.

The argument of imbalances ignores this simple financial principle or function and is illogical.

Swan - a true swan or goose?

Comments on, Michael Stutchbury “Swan must not turn out a goose”, 7/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/swan_must_not_turn_out_a_goose/

Michael, I agree with you completely that the government has become locked into activist recession-busting and its stimulus spending has become a political entitlement and re-election strategy.

This is an opportunistic Labour government that disguised itself before the last election by saying it was economically conservative.

It got an excuse to get rid of that excuse from the financial and economic crisis and now it is showing the full swing of its big spending approach, more than a pure activist approach.

But they will be surprised by the inadequacy of their approach sooner than later and will be forced to abandon it in the course from now to the end of next year, due to Australia's economic strength.

That will expose the government an awkward economic manager once again just as it did to it when the crisis hit to show its outlook of the economy in its first budget was so out of steps with what was to come by over estimating its revenue.

Of course, they may argue that it isn’t and wasn’t their problems but the Treasury’s. That is half true. Treasury is the government’s economic advising agent and does the forecasts or estimates. But it is the government and its ministers’ responsibility to accept their or not.

It is ultimately the government’s responsibility to get the forecast and estimates right. Treasury is only part of the government’s apparatus.

The government can’t use that excuse to its political advantage. It should live up to its responsibility.

No death of either capitalism or socialism now

Comments on Irwin Stelzer “Death of capitalism exaggerated”, 7/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26174260-5013479,00.html

The argument of the death of capitalism of course is exaggerated, because that argument is silly and hysterical. However, it does not mean capitalism is completely health and is also equally silly and hysterical to argue that capitalism does not have problems.

Yes it is true that capitalism is adaptive and is evolving generally in the direction to the better. That itself shows that now there is no pure capitalism as such it existed when Karl Marx confidently did his work on capitalism. It has incorporated many elements or goals of the communism or socialism.

Only in this way that capitalism has survived to date, although it still has suffered serious and almost fatal problems from time to time that require more and more communism elements.

Indeed, what the Keynesian economics or macroeconomic policy for government to use taxes and spending to manage the economy could be argued as an offspring of socialism.

On the other side, socialism is no longer as pure as what Karl Marx had in mind. China is a prime example that incorporated market economy into its socialism.

So while it was premature to celebrate the death of capitalism by a handful extreme leftists, it is equally premature to declare a victory of capitalism over other types of social and economic systems.

Every system can be adaptive and it is now too early to predict the long fate of each of them capitalism and socialism included.

Everyone, leftists or rightists, extremes or moderates, should and needs to bear that in mind.


RBA's move wise not gamble

Comments on Isabelle Oderberg “Australia's rates gamble”, 6/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Rate-rise-rates-reserve-bank-pd20091006-WK7D9?OpenDocument&src=sph

The RBA’s move to raise interest rate is wise and completely justifiable. It is a pre-emptive move in the context of a potential bubbling housing market and the most rapidly recovering economy in the industrialised world.
It is wrong to assume and argue that the RBA is wrong in raising the interest rate today.
It is irrational to say that because a large part of the world is still in difficult the Australian economy is also in difficulty.
While international economies are important in an integrated world, it is also important which of those international economies are impacting us the most right now and in the near future.
It is irrational to reason that because some people representing special interest groups have said that “this could also derail progress made in the building sector and mortgage market” then it will do that.
The RBA’s symbolic move is sending a useful signal to consumers and business alike that interest rates cannot and will not stay for too long at the abnormally low, emergency levels. Any decisions on long term asset purchase should take a long term view on the impact of interest rates.
That is important to prevent another rapid overheating of the housing market in Australia or at least to minimise the chance of that happening.
Oderberg should read the article “Realism from the RBA”, by your colleague Stephen Bartholomeusz today on the same website.

This shows how unwise the Rudd/Conroy Telstra policy is

Comments on "DEALS TV: Dead ringers", 6/10/2009, http://www.businessspectator.com.au/bs.nsf/DealsTV?ReadForm&vid=1628133&vidkey=08f9b61c9750d8596b57&

From the introduction one immediately realises how the small minded Australian government and its regulatory body the ACCC have done to damage the well beings of Australians by unwisely restrict Telstra's hand and strategies.

The Australian government should catch up with the modern economic and business reality and learn how to live with monopolies and supersized multinational firms, including Australia's own ones. The key is how to regulate their activities and prices and behaviours, as opposed to heir structure from an outdated view in the past.

It is a video doc and its introduction reads as:

Telstra Corp, News Corp, Shanghai Media Group, Telenor, BSNL, Zain, Myer, AIA, Volvo

Media and telco deals in Asia, Europe and the US are a painful reminder of the upside Telstra will miss out on by structurally separating. Elsewhere, Myer, AIA and Volvo are in the news.

How should Europe be represented at international bodies?

Comments on Gideon Rachman “Europe’s plot to take over the world”, 6/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Europes-plot-to-take-over-the-world-pd20091006-WK2CN?OpenDocument&src=sph

While the current structure and membership of the G20 can be regarded as a transitional arrangement to bridge the G8 and a new permanent G20, it is a bit unfair to have so many European representatives from both its individual member countries and from its unity bodies.

Europe should be represented either as a group or as individual countries, but not by both. It is up to them to decide how they would like to be represented.

While others are polite enough not to raise this issue openly and directly with the Europeans, they should have self awareness and be wise enough not to be unreasonable in their representation at the G20.

They should act without the urge of others. The earlier they do that, the better for both them and the rest.

Use mining boom wisely

Comments on Michael Stutchbury “Save some prosperity”, 6/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/save_some_prosperity/

While the idea of a national wealth fund is not too bad in itself in theory, but it is unlikely to be so good in Australia in practice.

There are both revealed historical reasons and political ideological reasons.

Australia’s history shows that Labour governments have traditionally been a big spending government and a generator of national debts while the Liberals have generally been a smaller government and a source of government savings.

Ideologically, Labour has unsaturated want to spend as long as there is any inequality. Problems with Labour’s economic and budgetary management do not end there because many of its spending can be wasteful and inefficient as well as ineffective to achieve its intended policy outcomes.

So as long as the government has the power to spend, there is no guarantee that any national wealth funds will be safe when Labour is in government.

While Labour has shown its tendance and inclination to spend more than they possibly have, there is no guarantee that the Liberals will not learn from that and follow the suit.

The logic is not dissimilar to the reasons for an independent central bank even though both fiscal and monetary policies are government policy instruments to manage the economy and in theory should be considered and implemented as a package or a whole.

Why does an independent central bank have more merit? It is because only its independence from the government political party can save it from the influence of the government of the day and guarantee its policy disciplines to fight inflation.

A better alternative to a national wealth fund is to have the taxpayers be the real and tangible shareholders of any such funds with a management board independent from the government.

A taxpayer has a definitive entitlement to a certain share of the fund but cannot withdraw and use it until he or she is retired from the workforce and reached the retirement age. His/her shares can be passed on and inherited, just as any private superannuation or wealth.

The parliament can pass a legislation to specify how such a fund should and can be funded through booming mining activities and mining profits.

The initial entitlement can be determined as a combination of an equal per capita of a certain proportion of the windfall income and a proportionate allocation of the rest to every taxpayer.

The government can borrow from such fund when its revenue is below the trend, possibly with interest rates below the prevailing market rates.

So the essence of the idea can be implemented, but government cannot be trusted for managing the fund when it is available and can be spent by it when it has financial difficulties, or even at good times. A government can spend it and also bribe voters.

Politics and economics - shorter VS longer term

Comment on Alan Kohler “Power to which people?” 6/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/RBA-interest-rates-ETS-NBN-Telstra-Conroy-pd20091006-WJRUW?OpenDocument&src=sph

Rudd ministry has done superbly well in politics using dubious economics, hasn't it?

This is what the Rudd ministry is good at. It may benefit from such a combination in the shorter term, but it will not register in history in the longer term.

And that is a pity for them and the nation.

A government’s true duty is to enhance the well beings of the nation.


Changes in China and the region - forces of action and reaction?

Comments on William O’Chee “Will China change the region or end up changing itself?” 1/10/2009, http://www.eastasiaforum.org/2009/10/01/will-china-change-the-region-or-end-up-changing-itself/

It is more likely to be a relationship of "action and reaction" and mutual change, although there is a question of which will change the most from its original state.

In physical laws, the actions and reactions have something to do with the relative mass of the objects involved. Similar thing may also have some truth.

China's history has shown that it can be surprisingly stable in terms of culture. It may provide a pointer to the future, although there is no guarantee that will remain so as the current globalisation is concerned. The world China is facing now is a lot bigger than the Mongolians or the Manchurians in the past.

Nevertheless, any changes this time are likely to be for the better of both as opposed to any side being forced to change by the other.

Factor markets in China

Comments on Yiping Huang “China: A sixty-year experiment with free markets”, 4/10/2009, http://www.eastasiaforum.org/2009/10/04/china-a-sixty-year-experiment-with-free-markets/

Yiping concluded the article by stating the following:
"China spent the first thirty years banning all free markets. It then spent the next thirty years freeing up the goods markets. Let us hope that the liberalization of factor markets will take less than thirty years."

It seems that the labour market has already undergone considerable liberalisation or deregulation. Although the household registration system is still in place, the huge number of people who are from rural areas have been employed in urban areas indicates that the constraint of that system is relaxing in terms of people's mobility and employment.

That is a very significant thing and reflects that the rapid urbanisation and industrialisation has allowed and afforded the opportunity to relax that system and possibly for its eventual abolition. Its tole in the Chinese society has substantially diminished.

The "regulation" of the capital market may also not be as severe as many people expected, especially when one considers the fact that the financial deregulations in some industrialised countries were done not long ago as compared to the long history of the existence of "free market".

One can probably reasonably expect that the development of capital market or the further deregulations of that market in China will not take too long to realise, given the extensive exchanges between China and the rest of the world and world integration and globalisation.

China has benefited greatly from its economic reforms in the past 30 years. It will not be too difficult for it to establish an efficient factor market for both labour and capital to facilitate its further economic transformation into a world class economy.

Politics and economics don't always mix well

Comments on Stephen Bartholomeusz “NBN profits could be a fiction”, 2/10/2009, http://www.businessspectator.com.au//bs.nsf/Article/nbn-stephen-conroy-telstra-optus-nbnco-sol-trujill-pd20091002-WF58M?OpenDocument

This just shows how unreasonable for a government to ask a private firm to subsidise customers in its operations.

It is the government's responsibility to provide subsidise and account for any such decisions and be transparent about them.

Both government and regulators got it wrong to force Telstra to do unreasonable businesses.

Now let's see how its NBN fairs in this regard and exposes how government's approach is irrational economics for businesses.

Experience and knowledge - Clinton Dines on China

Comments on “Nursing old wounds”, interview with Clinton Dines by Business Spectator's Isabelle Oderberg, 5/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Clinton-Dines-China-BHP-Billiton-pd20091002-WF39D?OpenDocument&src=sph

The report starts with the following:

“Clinton Dines was BHP Billiton's man in China for 21 years and has lived there since the late 1970s. He talks with Business Spectator's Isabelle Oderberg to explain:
· How the Stern Hu case dredged up existing anxieties on both sides of the China/Australia divide
· The Chinese economy has in many ways decoupled itself from the rest of the world
· There will be mistakes, or even disasters, as the Chinese ramp up investment activity overseas and seek to secure supply through M&A
· There is an assumption that the Chinese want to be like westerners – they don't, they want to be Chinese
· You can argue that political progress has been slow, but it has been vast

It shows Clinton Dines’ experience, understanding and knowledge of China.

He’s got remarkable understanding and insights of China.

On Corin McCarthy's social democrat

Comments on Corin McCarthy “Markets bring mobility”, 1/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26147805-5015664,00.html

Corin McCarthy has some wishful thinking.

Everyone should realise and acknowledge that in modern society, everyone has a responsibility for him/herself and it is not enough just relying on the government or others.

Government policies should encourage that one takes up his/her responsibility with a safety net.

If a particular person does not live up to his/her responsibility, then it is his/her choice not to do it and we all should not bother with him/her for that choice.

High tax, big government and intruding into people's private lives as opposed to encouraging self-responsibility are what Corin McCarthy's new social democrat. But such new social democrat will not be able to get support of the public as a whole.

So their wishful thinking will be withered by the cool responses of the society, unfortunately for them.