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The Euro Trap by Krugman

"The Euro Trap", Paul Krugman, 29/04/2010, http://www.nytimes.com/2010/04/30/opinion/30krugman.html?hp

A short but interesting article on issues of monetary union without fiscal union.

System of social governance in China

Comments on Tom Cliff “China’s partnership of stability in Xinjiang”, 23/04/2010, http://www.eastasiaforum.org/2010/04/23/chinas-partnership-of-stability-in-xinjiang/

I would say that social governance in China is likely to somewhere in between the social contract and Confucius system.

That applies to both family and government.

The view of social contract is probably leaning on the too ideal side to be the reality, while the Confucius system has been clearly out of date since a long time ago.

An issue in the allocation of GST revenue in Australia

Comments on Henry Ergas "Europe's Greek tragedy has a lesson for Aussies", 30/04/2010, http://www.theaustralian.com.au/news/opinion/europes-greek-tragedy-has-a-lesson-for-aussies/story-e6frg6zo-1225860365007

While the article relates to wider issues, the allocation of the GST revenue to the States by the formula decided by the Commonwealth Grants Commission (CGC) is one of those.

The article argues an equal per capita allocation is better than the CGC's. Although it has some merits, it over simplified the issue.

The CGC formula does not consider incentives or disincentives and that is both good and bad. There are reasons that the CGC should recommend a non equal per capita allocation of the GST. However, there are also reasons that it should also take incentives into its consideration of the allocation formula, that is to encourage efficiency in cost reduction and provide incentives for revenue retention.

In essence, both Henry Ergas and the CGC are on the extremes. An optimal formula should be somewhere in between.


Savings, consumption and investment, as well as external balance

Comments on Mohamed Ariff “Asia’s obligations in the new order”, 28/04/2010, http://www.eastasiaforum.org/2010/04/28/asias-obligations-in-the-new-order/

Statements like the following are misleading and unhelpful, because they ignore the role investment in the saving equation:
"East Asia needs to consume more and save less, just as the US needs to consume less and save more, which means that the US and East Asia need to export more and import more, respectively."

It is highly questionable and likely to be illogic and pointless to force any person to consume more and save less, if that person has pursued his own welfare and be optimal in terms of decisions on saving, consumption AS WELL AS investment.

The so called external imbalances are not necessarily caused by savings, or consumption, because investment can play a balancing role, in another word, can "rebalance" the external "imbalance", without affecting internal savings and consumption.

It is a simple matter of analysis, isn't it?


The causes of GFC and way forward

Comment on Stephen Grenville “An Asian perspective on financial crises”, 24/04/2010, http://www.eastasiaforum.org/2010/04/24/an-asian-perspective-on-financial-crises/

While "the list of GFC causes is long," the real underlying causes are simply governance in nature.

It is firstly the governance of authorities. They, especially those in the US, have let the public down, as represented by the malpractice by financial institutions on the sub-prime mortgage issues. They also let people down by bailing out some of the financial institutions without imposing adequate and severe penalties.

It was under that environment, financial institutions began malpractice, including some too clever financial engineering.

What should be done? I agree that "simplicity should replace complexity ".

The Australian financial institutions have stood the GFC without too many troubles. In that respect, Australia has provided a model.

Any over reactions are unlikely to be helpful and counterproductive to the detriments of the economy and consumers.

Don't believe the IMF, the basal, or whatever international organisations. They are interest groups and simply trying to cover themselves by appearing to do something in the wake of the GFC.

There will not be a need of any new "concensus" but just commonsense.


Northeast Asia, East Asia and Asia

Comments on Donald Emmerson “ASEAN and American engagement in East Asia”, http://www.eastasiaforum.org/2010/04/25/asean-and-american-engagement-in-east-asia/

An important element in the East Asia region is north East Asia including China, Japan and Korea, though it has been dragged by some historical issues.

Once the three nations sort out their issues, they are likely to have much stronger influences in East Asia and Asia.

How long it will take for the three to become a more effective regional body depends on how quickly their leaders and governments will be mature enough to look into and focus on the future of their common interests as opposed to looking back at historical and being unforgiving for the past.

I think both economic and political development over the past two years are likely to promote them being embarking on a new path for much closer cooperation among themselves and then being an effective leader in Asia for Asian affairs.

North East Asia is likely to become the core of a closer and fast Asia integration and that day may come sooner than expected.

Asian integration is likely to be different from both America and Europe. It is likely to be more equal than the America model but with no monetary union as the Euro zone for a long time, given the current Greece fiscal problems.


Resource rent tax not to be on top of State royalties

Comment on Dennis Shanahan “Miners face billions in new taxes”, 24//04/2010, http://www.theaustralian.com.au/business/miners-face-billions-in-new-taxes/story-e6frg8zx-1225857648944

It is likely that the sources misinformed the reporter, or the reporter has not fully understood the sources.

It is inconceivable to apply the 40% on top of the State royalties.

It is likely that the effect is a 40% rent tax that includes the effects of State existing royalties, as indicated by "It is possible the government will lower the tax rate from the expected 40 per cent to compensate for the retention of the state royalties, although the double collection is a less efficient tax method."

The problem is that States may actually increase their royalties, so leave little of the 40% to the federal to collect.

So in the end the federal intention to increase it revenue from mining may be dwarfed by the States.

Asian open regionalism and strengthening regional institutions

Comment on Amitendu Palit “Should Asia begin to look within?” 24/04/2010, http://www.eastasiaforum.org/2010/04/24/should-asia-begin-to-look-within/

To me, it is not a question of should or not, it is natural and optimal.

It is only a rational response to changed world economic situations but not a change to open regionalism per se.

With policies of open to every opportunity, Asian countries will of course also look at intra regional trade to enhance mutual growth and prosperity.

Further, the Greece debt problems and its implications also mean a need to further strengthen regional institutions to complement other international organisations such as the IMF, because the latter may not necessarily be able to work best to suit all regional needs for one reason or another, as history has demonstrated.


Health reform agreement and GST implications

Comments on Sue Cato “Post-COAG triage”, 23/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/COAG-health-reform-Kristina-Keneally-Rudd-pd20100422-4R2QT?OpenDocument&src=blb

Many people may be puzzled why the Western Australia Premier Colin Barnett has been alone in not accepting the health agreement deal, including some policy makers and analysts.

It would be interesting to know if Sue Cato understands the GST implications for WA and other States when she judged that Barnett was a loser in not accepting the agreement at its current form.

Had Barnett accepted the deal on Tuesday, WA would or could be a big loser out of GST allocation.

As Barnett said WA now gets only 68 cents in a dollar. If the Commonwealth Grants Commission does not change its assessments and only the GST pool is reduced by a third, then WA is likely to get 46 cents in a dollar, while some other States get more.

While it is likely that Barnett will hand over 1/3 of WA's GST revenue to the Commonwealth in the end, he will make sure that all these changes will not further disadvantage WA in GST allocation by the Commonwealth Grants Commission.

So, it is premature to declare that Barnett is a loser. Barnett is much more clever than many commentators are on this GST issue.

Reform federal relations and strengthen states revenue power

Comments on Dennis Shanahan “PM on the run from policy failures”, 23/04/2010, http://www.theaustralian.com.au/news/opinion/pm-on-the-run-from-policy-failures/story-e6frg6zo-1225857147540

This is exactly why Australia should have state governments as opposed to abolish them. A federal government along can cause much more severe damages to the nation than a system where government powers are limited and there are natural competition between States in terms of policies.

This, however, does not mean that there should be duplication between the federal and state governments. There should be clear clarity between areas of responsibilities between the two levels of government.

The federal should be focused on national defence and security, foreign affairs and trade, immigration and border protection, national economic policies such as fiscal and monetary policies and very limited national infrastructure, national social security system, and play only a coordinating role in other areas of services with only one department as opposed to so many existed currently.

The states should be responsible for education, health, police and justice, housing and social welfares, roads, and etc.

Taxations revenue should be allocated in a way that reflects services responsibilities, removing the ridiculous situation like health and public hospitals where states are projected to not have the financial capacities to meet the future needs.


Speculative and cooperative

Comments on Ming Hwa Ting “The new Spice War: China, Japan and rare metals”, 22/04/2010, http://www.eastasiaforum.org/2010/04/21/the-new-spice-war-china-japan-and-rare-metals/

Good observations or speculations.

People, firms and countries are all rational and intelligent enough to maximise their interests in a given environment or even change that environment to do it if they can.

Whenever there is market power, they will use it to their advantages.

Why not and who will not. Haven't we seen that happens in oil, or other raw materials like iron ore in the international market?

But they are also rational enough to develop reasonably cooperative arrangements to maximise the interests of the greater whole.

While it is interesting for some parties to speculate on what may happen, it is more important for relevant parties to cooperate to achieve better outcomes for all, based on the Plato efficiency principle.

New health agreement/reform is structural reforms

Comments on Arthur Sinodinos “Captain Rudd still hasn't set course for reform”, 22/04/2010, http://www.theaustralian.com.au/news/opinion/captain-rudd-still-hasnt-set-course-for-reform/story-e6frg6zo-1225856600217

Although the health reform agreement is not perfect especially all healthcares are not quite integrated, it should have significant structural reform components in it if the activity based funding and local hospital board are well implemented.

They will increase efficiency and productivity as well as effectiveness.

Of course, further reforms will be needed once the local hospital boards are working well. They may provide a step towards an integrated local health boards to integrate all health.

There will also be a need to consider how small hospitals can be integrated into a whole health system, so the regional distribution of hospitals are optimised to best serve the nation’s and regional health.

Further, there should be some formula to encourage efficiency quasi-activity based funding for small hospitals, taking into account their scale and local population.

Of course, Arthur has a point that the health reform agreement now is quite different from Rudd’s original plan. The agreement, however, is better than Rudd’s original. The argument that States are still involved is misinformed and misconception. States, albeit their shortcomings, are still better positioned to manage hospitals than the Commonwealth from Canberra – more remote from the public and patients needs with no or little complex services experience.

What the change in the plan means is that the original plan was not as good as it could and should have been – a reflection of a gap in its original development and the government’s limitations in its capacity in developing best policies.


Advice on WA GST issue

WA should and can ask to guarantee its GST allocation will not be affected by health reforms especially the Commonwealth retaining 1/3 of GST revenue.

It can be done by a Federal Treasurer guarantee, through instructions to CGC in its assessments of GST sharing relativities. This can be written in the agreement.

That is perfectly logical, reasonable and realistic.Many things have been done that way, including senate political bargaining for particular states SPP in the past.

WA's case is much stronger, given that this is Commonwealth request, a change to intergovernmental agreement, and the PM has publically said no States will be financially worse off.

So, the WA Premier should be strong, firm and go for it. He will get it.

WA Treasury should be able to advise the WA Treasurer and the Premier on how this can be done.

Colin Barnett has a strong point on GST

Comments on CHALPAT SONTI “WA left out of national hospitals deal as negotiations break down”, 20/04/2010, http://www.watoday.com.au/wa-news/wa-left-out-of-national-hospitals-deal-as-negotiations-break-down-20100420-sr9d.html?posted=sucessful

The WA Premier has a strong point on GST for two reasons.

It is State revenue and should generally be left to the States unless there are solid reasons not to do so.

WA's GST allocation would be impacted significantly if no considerations on future GST allocation by the CGC are done.

Obviously, it is difficult to not to give up WA's 1/3 GST revenue given that all other States and territories have agreed to do so.

However, WA can and should ask the Commonwealth Treasurer to make sure WA is not disadvantaged financially by doing that. That is to say, the CGC assessments should make sure changes in health and the Commonwealth retaining 30% of GST should not affect future GST distributions.

The PM has said that publically that no States will be disadvantaged financially by health reform. So it is perfectly reasonable and realistic for WA Premier to achieve his goal.

Abbott's young dole idea worth further explore

Comments on Andrew Burrell “No more dole, Tony Abbott warns the under-30s”, 21/04/2010, http://www.theaustralian.com.au/politics/no-more-dole-tony-abbott-warns-the-under-30s/story-e6frgczf-1225856154348

It is not a too bad idea, but it can be politically difficult to be a national policy.

However, it could be more realistic to use both sticks and carrots.

That is, to reduce dole payments if an identified person does not have a work and does not move to areas where there is labour shortage, with additional supports and financial incentives to encourage that person to move, or to get a local job.

The idea is worth further considerations. Some sorts of personal obligations are not too unreasonable for able recipients of young dole. But the obligations also need to be reasonable.

The health deal is a good one

Comments on Dennis Shanahan “It's a 'deal', except not everyone agreed”, 21/04/2020, http://www.theaustralian.com.au/news/opinion/its-a-deal-except-not-everyone-agreed/story-e6frg6zo-1225856147849

Rudd must be commended and congratulated for the achievement of such an agreement, even though with significant compromises.

There are significant reforms that will benefit from improved funding mechanism, hospital management and State health management, as well as significant integration in healthcares.

Many sides have compromised to achieve that.

The compromises are sensible, meaning real cooperative federation with the States. The Commonwealth is not necessarily better positioned to run public hospitals anyway.

He should be able to get WA on side, with some additional financial guarantee in exchange for a third of GST.

It represents real progress and excellent reforms.

It is closer to what I have porposed, even though it is not perfect.


Rudd should be congratulated for historical health reform deal

News reports that a historical deal on health reform has been reached between the Commonwealth and the States and Territories governments except the Western Australian government.

There will be a national pool of health (public hospitals) funding with the commonwealth as the dominant funder of 60% to start with and the States have agreed to have 30% of the GST to be put into the pool as part of the Fed's 60%.

The States will be administering the pool of health funding and large and urban hospitals will be funded based on activities. Small rural hospitals will be block funded.

The Commonwealth also become the exclusive funder for primary cares and other cares.

There are a range of improvement targets to be achieved over a period of specified time.

While WA has concerns on the impact on its GST allocation and hard negotiations are still needed to get it on board, the achievement over the past two days is significant.

It is likely to drive hospital efficiency and achieve efficiency dividends to fund ever increasing health public expenses.

State governments are likely to be more efficient in managing health.

Together with other further reforms and improvement, it can be expected that the nation's health will be further integrated and more effective over time.

Even though it is by no means to be perfect, but it has been not easy to come to this point.

Prime Minster Rudd should be applauded and congratulated for his determination and leadership.

States premiers and chief ministers have also played positive roles in the process and their efforts and inputs should be highly acknowledged and commended.

It is likely to have an impact on the relativities assessed by the Commonwealth Grants Commission, through the reduction of the GST pool and the arrangements for the hospitals and other healthcares.

GST and federal financial relations

Comments on Alan Kohler “Rudd's tax Trojan Horse”, 20/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/COAG-Kevin-Rudd-GST-health-reform-economy-pd20100420-4NSGE?OpenDocument&src=sph

Alan, with due respect, I find your view on the GST for States is problematic and conceptually flawed.

In Australia, there is vertical fiscal imbalance: States have more services responsibilities and too little own revenue raising capacities and in the end there are fiscal transfers from the Commonwealth to the States. GST is now part of that fiscal transfer.

To say that giving the GST to States was a mistake reflects a lack of understanding of the federal financial relations and what a properly functioning federation should be financially.

If the States have failed in some service areas, then the correct question should be how to improve State governance to make State governments more accountable, as opposed to continue the path of vertical fiscal imbalance.

By the way, who can be sure that the federal government will be able to provide better services, if the recent wasteful spending and financial rorts, which resulted in the ineffectiveness of federal government programs, are a guide?

Further centralisation is not the way to go for Australia. Your argument is highly misguided, unfortunately.

Your argument would be correct if and only if from a very narrow point of view of the “them versus us” selfish federal political approach.

Important to get the health reform right

Comments on John Dwyer “States shouldn't sell out for pennies from Kevin”, 20/04/2010, http://www.theaustralian.com.au/news/opinion/states-shouldnt-sell-out-for-pennies-from-kevin/story-e6frg6zo-1225855687239

Absolutely right.

The current plans are all focused on public hospitals only, including the proposed local hospital networks.

They will continue to be segmented from primary cares and other cares. The costs shifts will continue and even those local networks are likely to engage in "rent seeking" and compete with other healthcares.

The Rudd proposal and approach are not the right way to reform the nation's health. It is not the right approach to health policy. It is likely to achieve little.

It is indeed better to use this COAG meeting to kick start serious national debate and discussions, especially among the political leaders for an effective health reform.

It does not matter if it is a few months later, but it is paramount and absolutely important to have the right reform being undertaking.

Worsening terms of trade for China

Second comments on Yiping Huang “China needs to adjust its monetary policy now”, 18/04/2010, http://www.eastasiaforum.org/2010/04/18/china-needs-to-adjust-its-monetary-policy-now/comment-page-1/#comment-112078

Further to my comments yesterday, it seems that so far we all have ignored an important point that is the change in terms of trade detrimental to China, in addition to the volume effects on its current account balance.

As Asian economies including China and India expand, commodity and oil prices are moving up and fast. We have heard reports that iron ore prices have doubled for major Australian miners, that means possibly a new record, given that the last year’s fall in price was about a third from its record high. Oil prices have been above $US80 and are trending up.

The sluggish demand from most industrialised countries mean falling or steady prices for their imports of labour intensive and manufactured goods that are the main exports from China.

This means a sharp deterioration in China's terms of trade is appearing, which will have serious effects on Chinese businesses and its economy including increasingly large current account deficits over the coming months and possibly years to come.

That indicates that it will be economic suicide to appreciate the Chinese currency now.


Conventional static economic theories and practical policies

Comments on Peter Drysdale “China’s economic policy strategies – Weekly editorial”, 19/04/2010, http://www.eastasiaforum.org/2010/04/19/chinas-economic-policy-strategies-weekly-editorial/

The argument that "contraction engineered by higher interest rates alone, without the benefit of the deflationary effect of an appreciation of the currency would need sharper contraction and would cut imports more drastically, also worsening the current account surplus", can be well understood, because it is what one would expect from economics textbooks.

However, if one look at what is beyond the theories for a static expansion and contraction case and work in the real dynamic world where a "contraction" may mean a fairly soft or moderate landing as opposed to an absolute reduction in output, the above argument may look a bit shaky.

What does a contraction in China mean by all intent and purpose? It should ideally be a growth from 12 to 10%. Nevertheless it is still a 10% growth, and as a result, China still will increase imports much more.

At the same time, the external demand is not necessarily growth in pace of the 10% economic growth in China, means external demand for China's exports may actually grow much slower than its imports, even in that scenario of a contraction.

The upshot is that it is not convincing to use the simple and conventional static thinking on current account to the exchange rate policy indiscreetly. One has to consider the specific case at hand here.

Best strategy for China's monetary policies now

Comments on Yiping Huang “China needs to adjust its monetary policy now”, 18/04/2010, http://www.eastasiaforum.org/2010/04/18/china-needs-to-adjust-its-monetary-policy-now/comment-page-1/#comment-111907

While it is conceivable to move both monetary policy in terms of rate hikes and the exchange rate in terms of moving back to linking to a basket of currencies simultaneously, it would be much more prudent to move monetary policy first and observe what the current account will move before considering a move in the exchange rate policy.

This is largely due to the following:

1. China's housing market is worryingly highly priced. Together with inflation pressure, it is warranted to require higher interest rate to have a serious effect on housing demand and speculations.

2. The current account is showing a quite different picture and we have already seen a deficit in recent report. The question is: is that deficit an abnormality or a trend formation? Obviously, current account situation is a key factor in terms of exchange rate movement by policy makers, including external pressures. If current deficits continues or even gets big, what is the point to revalue the RMB?

3. Thirdly, there is no resolution to China's official $US assets yet. It would be highly imprudent to revalue the RMB without a convincing resolution to those assets, both from public policy point of view or from social stability point of view.

4. The question of what exchange regime is good for China, or for different economic circumstances, especially when taking into account policy instruments available to authorities. It is doubtful that a flexible exchange rate regime will be good for China, and for the rest of the world as far as China's currency is concerned. Excessive fluctuations in exchange rate are most likely to completely outweigh the benefits of monetary autonomy. Just imagine that a 50% or more move in the exchange rate, often seen in the real world exchange rate movement. What does that means to businesses? That is a 50% price hike, up or down. Is that a good thing?

5. Even from the most recent international experience, most leading industrialised economies have been under flexible exchange rates. Did that help them avoid or dampen the GFC?

So it is time to revisit the issue of exchange rate regimes.

Unhealthy low politics by a health commentator

Comments on Adam Cresswell “Premiers must put policy before politics”, 19/04/2010, http://www.theaustralian.com.au/news/opinion/premiers-must-put-policy-before-politics/story-e6frg6zo-1225855240872

Unfortunately Adam Cresswell's argument is not only politically driven, but also factionally motivated. And, it is never what Adam Cresswell claims to be policy driven.

How can a 60-40 funding model with 30% GST from the States end any existing problems, as opposed to 40-60 with States use their GST?

Essentially, there is not much difference between the 50-50 and 60-40 funding model, if purely from funding point of view. Anyone has to wonder how Adam Cresswell derived his own incredible conclusion.

Further, how can Adam Cresswell conclude that the Commonwealth will be any better if not much worse than the States to administer health? From lessons learnt from the pink batts home insulation experience? Or from the wasteful experience in the BER projects?

It appears that Adam Cresswell is defying logic to have his argument.

I have read many good opinion articles from the Australian, but some on health are unfortunately not among them, I am afraid to say. Ones like this one have no analysis, little knowledge and information, just full of nonsensical political biases.


Health reform - the way farward

The federal and state leaders are going to meet on Monday on health reforms, especially the Rudd health plan. But it does not appear they are likely to reach an agreement based on current state of play.

Both Rudd and Brumby plans only covers public hospital mainly. Health needs to be integrated.

The nation needs health reforms badly and it will be a pity if they can’t achieve agreement on a reform plan.

I think a health reform plan should have the following:

Principle: national cooperative approach to health, with clear funding mechanism, administrative, and service delivery responsibilities and resolution mechanisms

Ministerial Council on health - National health board in charge of national health and national and bilateral health issues

National and State pool of all health funding – including public hospitals, primary and other cares, the Commonwealth will have dominant funding role

Secretariats for State health – up to eight groups, one for each state and territory, including Commonwealth representatives to replace State departments of health, with much fewer personnel

State in charge of administration of health through the secretariat

Local health boards – responsible for local/regional health delivery, secretariat determines how they should be setup

National agreement on:
Size of health funding pool and Commonwealth and State shares - basic formula to link to their perspective revenue shares, a default mechanism for each party to vary its contribution and the other party to respond by a certain proportion if agreement can’t be reached.

A default mechanism individual State obligation if it fails to deliver agreed health outcomes

A default mechanism for resolving situation if an individual local network fails to deliver agreed outcome, or agreement can’t be reached between State secretariat and the local network


A way out for Rudd's national health reform impasse

Comments on Paul Kelly, “Showdown in emergency room”, 17/04/2010, http://www.theaustralian.com.au/news/opinion/showdown-in-emergency-room/story-e6frg6zo-1225854720604

There is a way out for Rudd and Brumby as well as for WA and NSW, which is to move to a 100% pool of the nation's total health funding pool.

Given that the Commonwealth funds a lot of primary cares, its total funding is likely to be more than 50%, so it will make it much easier to achieve a 60-40 formula Rudd is asking with no change to the GST funding.

A national health board can be set up to oversee the allocation of the health funding pool.

Local health networks, as opposed to hospital networks can be charged to consider local allocation between hospital and primary cares as well as aged care and etc.

Case mix funding can be part of the national allocation to local health networks to adjust their total health funding.

The Commonwealth and the States can sign a agreement on their contributions to the national health funding pool, based on the current situation and perspective future revenue.

Funding and administrative model for nation's health

Comments on Michael Stutchbury “Odds are Rudd's funding model won't work”, 17/04/2010, http://www.theaustralian.com.au/news/opinion/odds-are-rudds-funding-model-wont-work/story-e6frg6zo-1225854720830

Why don't the federal and the states take a stock now how much each spend on health, and then decides how much each should pay in proportionate terms for future health expenses? They can even determine a path that links health expenditure with their respective revenue.

All contributions should be paid to a joint health fund. A national health boards consisting federal and states can be set up to oversee how the fund should be spent.

There can be up to eight groups under this national health board, one for each state or territory.

Under the national health board, local health networks should consider all healthcare, not just public hospitals.

Such a model will be better than the current Rudd or Brumby models and should be pursued as priority for national health reforms.

Strategy of war versus precesion missle in battle

Comment on Peter van Onselen “Rudd's hospitals sell a precision-guided missile”, 17/04/2010, http://www.theaustralian.com.au/news/opinion/rudds-hospitals-sell-a-precision-guided-missile/story-e6frg6zo-1225854728629

I can’t see how that precision will work if Rudd loses strategically in the war.

Rudd is good at micro managing issues, but this time he appears to have lost the big strategy.

The health issue is becoming a very serious test of Rudd's judgement, character and leadership.

But the COAG will not be the end of the test, even assuming Rudd gets what he wants - a big assumption.

The coalition can find big holes with the Rudd plan after it releases its own health plan and once the federal election officially starts.

Abbott is likely to keep a low profile in the current federal - state debate on health and get ready for a second, more decisive and possibly a fatal kill on the Rudd plan.


Time to test Rudd's leadership

Comments on Joe Kelly “NSW Premier Kristina Keneally rejects Rudd's GST clawback to fund health reforms”, http://www.theaustralian.com.au/politics/nsw-premier-kristina-kenneally-rejects-rudds-gst-clawback-to-fund-health-reforms/story-e6frgczf-1225854563961

It is a real test of Rudd's leadership skills so far he has not demonstrated in dealing with other people.

Now it is the state premiers at the negotiation table and he has been asking them to give him 30% of their GST.

If Rudd is a true national leader, he should have a plan C, in additional to his plan B that is going for a referendum.

He should seriously consider a compromise between his and the Brumby plans and leave rooms for everyone including him.

There is not much time left, but if he either is capable or has got good people surrounding him he should be able to do a compromised and good deal on health reform.

It is a really seriourly testing time and is all up to Rudd himself now.

A case for independent, competitive and public institutions

Comments on David Alexander “Be prepared for a fatter, big-taxing government”, 16/04/2010, http://www.theaustralian.com.au/news/opinion/be-prepared-for-a-fatter-big-taxing-government/story-e6frg6zo-1225854277773

That is one of the reasons that I think there should be independent, competitive and public institutions that are not influenced by the government of the day to provide the public with independent analysis, views and opinions.

Treasury, while generally has been good, cannot be relied upon to be completely independent, given that it has to serve the government of the day and the government’s role in appointing and sacking its key personnel. For example, it is difficult for a Treasury Secretary to contradict the government’s view or policies, because it means the secretary may have to go if that occurs often.

The public and taxpayers will be better served by funding some independent institutions.

How to manage assets bubbles?

Comments on Alan Kohler “China's bubble to build on”, 16/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/China-property-bubble-GDP-interest-rates-pd20100416-4JSW4?OpenDocument&src=sph

The most important matter when facing an asset including properties bubble is what is the best to do.

To burst the bubble completely may not necessarily be the best course of action, because of its effects on other parts of the economy, including financial health, consumption and etc.

It may be that the best course of action is to manage the bubbles if it can be done, so to prevent them from becoming worse, but at the same time minimise their negative effects.

Given the existence of inflation and increases in assets values over time, keeping the bubbles static may prove to be a better policy option after all.

This is no different from when you have inflation, the best policy should be to keep price stable that is to prevent further inflation, as opposed to having deflation.

Of course, it has some political economy effects, that is, different people will be affected differently, no matter what course of actions is taken.


Modern business management - Telstra needs to be more strategic

Comments on Paul Budde “COMMUNICATION BREAKDOWN - Telstra's home phone hopes”, 15/04/2010, http://www.businessspectator.com.au/bs.nsf/article/will-t-hub-be-able-to-make-a-difference-pd20100414-4h8hd?opendocument&src=blb&is=non-industry&blog=communication%20breakdown

While it is important for Telstra to be innovative in its products and overall strategy for communications in Australia, it should be more strategic than that.

It should consider going beyond communication and take the advantage of its stable revenue to invest in other sectors. An option is to partner with an investment advisor or bank to seek and optimise capital return opportunities.

It has obviously lost opportunities last year when the financial market was highly depressed. For example, it could invest in Rio when the latter desperately needed capital injections. It could have avoided the unnecessary Rio Chinalco drama last year.

Instead of just negotiating with the federal government on communications and the NBN issue, it could look at other opportunities, so leave the NBN exposed to its bone.

It is a pity that some corporate Australia are so rigid and not flexible and strategic enough.

If I were a part of a corporate Australia, I would try to eliminate the existing sector “silos” to seek and maximise any strategic cross sector synergies.

Modern business management should have this mindset.

Rudd and some media people need to be honest with the public

Comments on Joe Kelly “Rudd questions Victorian premier's claims over health reform”, 15/04/2010, http://www.theaustralian.com.au/politics/rudd-questions-victorian-premiers-claims-over-health-reform/story-e6frgczf-1225853963661

Rudd is not only "not entirely true in his remarks on the Victoria public hospitals, but also completely false in his claim that What Premier Brumby is saying that that is ‘just give us another blank cheque, to the states, and we’ll see you in the morning,’ and that “Well frankly that’s a system that’s operated for a long time. It hasn’t worked. Our approach is quite different, which is the current system is working. We need to fix it.”

How could he be talking nonsense to the public under the day light like that? What the Brumby plan has quite a number of commonalities to Rudd's own plan, such as a clearer funding mechanism and a clearer responsibilities. It is not a perfect plan for sure, nor is Rudd's. But the Brumby plan is superior to Rudd's.

Further, to say that Victoria's public hospitals are not the best in the nation in some areas is hypocritical and misleading. It does not need to be the best in every area, but as long as in totality, it is the best. That is the end of the story, period.
Adam Creswell the health editor of the Australian is clearly confusing the public and mudding the water. His articles are unhelpful and it will be interesting to see what his real motives are.

Let’s, including the media, the PM, and everyone, be honest!

The US can and should lead in achieving a nuclear weapons free world

Comments on Ralph A. Cossa “The 2010 NPR: Toward a nuclear weapons free world”, 14/04/2010, http://www.eastasiaforum.org/2010/04/14/the-2010-npr-toward-a-nuclear-weapons-free-world/

The NPR represents a significant progress on the nuclear weapons issue from the US and should be applauded and supported by all nations.

However, there are some issues that are equally important and should ideally be progressed further as quickly as possible.

For example, it is confusing or at least unclear what the fourth objective really means. This is especially when considering "‘strengthening regional deterrence and reassurance of US allies and partners.’ Again dashing some hopes, the NPR states that forward-deployed nuclear weapons will remain in Europe and that US extended deterrence in Asia will remain ‘credible and effective.’ The bottom line: ‘As long as regional nuclear threats to our forces, allies, and partners remain, deterrence will require a nuclear component.’"

Given that the US has so many advanced nuclear weapons and the means to launch them from the US that can achieve deterrence and security for its allies, what is the purpose to have them deployed in other parts of the world for deterrence?

More importantly, while it has a long term goal to eliminate all nuclear weapons, it lacks an ambitious, effective and practical strategy to do it.

Why can't the US, together with Russia as well as other nuclear powers, make that step faster and more tangible? For example, one option is to have the UN to control a small and limited nuclear weapons and a mechanism to deter any nuclear threat from any state and then eliminate all other weapons in all countries?

I think if the US is serious in eliminating all nuclear weapons, it can and should take big steps to do so. It has the ability to get the world behind it if it really wishes to do so.

Let's all work together to have a effectively nuclear weapons free world as early as possible!

What is the best mining royalty regime?

Comments on Mitchell Hooke “Just a case of hypochondria”, 15/04/2010, http://www.theaustralian.com.au/news/opinion/just-a-case-of-hypochondria/story-e6frg6zo-1225853793603

Most of Hooke's arguments are correct.

There is, however, an issue of how mining royalties should be levied, that is, should be based on value of mining production, or should it be based on profit or value added. It seems that the latter may be more preferred.

Even under a royalty regime based on profit or value added, then there is also an issue whether it should be flat or progressive based on rate of profitability measured by capital.

It is reasonable to argue that the latter is superior given the dramatic changes in the prices of mineral products and oil.

However, the nation should guard against unnecessary jealous of mining companies’ profitability when mining boom is going on. Boom and bust are much more significant for mining than many other sectors.

What Rudd should concentrate on?

Comments on Gary Johns “Brumby stands up to PM on health”, 15/04/2010, http://www.theaustralian.com.au/news/opinion/brumby-stands-up-to-pm-on-health/story-e6frg6zo-1225853793468

I concur with Johns completely on this issue.

Rudd has shown in full that he is not strategic, but micro managing, control freak, by slow and dripping style release of his package, but in the end still a incomplete, half cocked and incoherent plan.

While he wishes to present to the public that he is very much focused on health and spending time on this issue by visiting hospitals and giving seminars, much of his time and the federal health minister’s could have been spent on making their health reform plan much better and much more effective.

It is just superficial and low quality politics to hide their incompetence.

It is good that the public have got an alternative plan from a State premier to compare and consider. The dissatisfaction for the current state of public hospitals of the public should not mean that any change will be better or the Commonwealth government can do better in health.

So far its service deliveries have been extremely poor. Look no further than the home insulation program, the wastes in the BER.

It will be in the nation’s interest to have a good health reform plan. Definitely the current Rudd Roxon plan is far from good enough.

Instead of having an empty political show by visiting more hospitals and having more photos for the media, he and Roxon should concentrate on how to get a good health reform plan.


Reform Australia's health system

It is clear now that the Rudd health reform plan is not good enough and inferior to the Brumby plan.

However, the Brumby plan can be and should be further progressed.

There are some common grounds among the two plans. They include

  • to streamline funding
  • to streamline the management of the nation's health system
  • to have local participation
  • use benchmarking
An important missing element in both is how to deal with any non-performing parts in the system.

It seems that there should be a mechanism to deal with that situation, be it a state, a local health network, or the Commonwealth.

It seems also that the Brumby plan can be used as the starting point for further progress, to include such a mechanism.

Another issue is that how to make changes to the funding level under the Brumby or the Rudd plan.

A mechanism may be for either party, a state or the Commonwealth to initiate a change based on real evidence, then followed by the other party to change its funding accordingly by a agreed proportion.

The third missing element is that any plan should also streamline and consolidate the whole health from preventative care to primary care, hospital, rehabilitation and aged care. It should also consider the role of private health providers.

Any local health network should have such a broad task and responsibilities and the funding should also be based on the whole healthcare system.

To conclude, the Brumby plan is superior to the Rudd plan and there is no point for Rudd to insist on accepting his plan and put Commonwealth funding contingent on that acceptance. The two levels of government should work cooperatively for the wellbeing of all Australians, rather than for their own personal ego.

They should further progress the Brumby plan, taking into account the above extra elements. The funding arrangement can have a phase in stage, say 3-5 years.

Have a correct perspective on levels of government

Comments on Jack the Insider Blog “The states still rate”, 14/04/2010, http://blogs.theaustralian.news.com.au/jacktheinsider/index.php/theaustralian/comments/the_states_still_rate/

People are seldom always satisfied with government services, so it is expected that the State governments bear the main blame for the public dissatisfaction.

Had the federal government been providing services, the situation could be even worse. The home insulation, the BER, the NBN, etc, are all relevant example. The question is: what has the federal government done well, especially the Rudd government?

An important benchmark is international comparison with similar countries, how our government services compare to theirs'.

In that respect, Australia may not be necessarily worse than them and is likely to be better.

So one has to be realistic and have the correct perspective.

A backflip is not necessarily always a bad idea

Comments on Matthew Denholm “Premier backflips on power-sharing”, 14/04/2010, http://www.theaustralian.com.au/news/opinion/premier-backflips-on-power-sharing/story-e6frg6zo-1225853389798

A backflip by Tasmania Premier Bartlett as it is, but a sensible and good one for the better.

If the Greens are prepared for compromises and be moving to the centre more, why shouldn't the Labour include them in the Cabinet to improve stability and governance?

A more inclusive government should be welcomed.

Rann versus Brumby - who is better on health?

Comments on Joe Kelly “Don't stuff up Rudd's health deal for the states, Mike Rann warns John Brumby”, 14/04/2010, http://www.theaustralian.com.au/politics/dont-stuff-up-rudds-health-deal-for-the-states-mike-rann-warns-john-brumby/story-e6frgczf-1225853503734

Mr Rann is wrong to ask other States to do what he think it is best for South Australia.

He is wrong both politically and intellectually.

If he thought about and supported the 50-50 option earlier, he should rally behind it now, as opposed to the 60-40 model.

On intellectual and policy grounds, if Rann thinks the Australian people wanted to see Canberra take action on health reform, then he should think about what it means really.

Does it mean any actions, such as the pink batts insulation, or the wasteful BER?

Or do the Australian people want much better ones?

Mr Rann should not take political expedience as the solution to the nation's health issue!
That is just too lazy, too silly, too incompetent and too irresponsible, as a premier!

Raise politicians' pay to attract more talented people

Comments on Peter Costello “Exit Turnbull from a political stage littered with underachievers”, 14/04/2010, http://www.theage.com.au/opinion/politics/exit-turnbull-from-a-political-stage-littered-with-underachievers-20100413-s7dz.html?posted=sucessful

Costello has a good point on politicians pay and superannuation.

The last change to their superannuation was much too excessive, driven by political popularism when Howard felt threatened by Latham's.

However, an increase in the pay to politicians may attract more business minded people who may contribute to a better economy and make more common sense as compared to purely political driven people with little business experience.

Start with the Brumby health plan and progress further

Comments on Milanda Rout and Sid Maher “John Brumby dares PM Kevin Rudd on health”, 14/04/2010, http://www.theaustralian.com.au/politics/john-brumby-dares-pm-kevin-rudd-on-health/story-e6frgczf-1225853393039

If Rudd is serious on health reform and good governance and better health outcomes, he should be prepared to accept the Brumby plan as the base plan, with a provision that the federal will decide to take over a State's in public hospitals if it failed to meet agreed performance criteria.

That surely is better than his own plan and will produce a much better outcome, not only because Canberra is not better positioned for administering hospitals, but also to make the funding formula and responsibilities clear.

It is difficult to see or understand how a federal administered health can produce better outcomes. By all likelihood it will be inferior and worsen the nation's health.

Besides, the Brumby plan should also include a provision that on a bilateral funding arrangement any side (a state or the federal) wishes to increase its funding for health for that state the other side should match by at least a certain proportion (say, less than 100% but greater than 30%) to deal with particular needs.

Rudd must compromise on health plan

Comments on Paul Kelly “Brumby dare Rudd's biggest challenge”, http://www.theaustralian.com.au/news/opinion/brumby-dare-rudds-biggest-challenge/story-e6frg6zo-1225853370269

Paul's analysis seems all reasonable.

However, there is one point that is missing. What if the States at least some of them the big ones don't agree to hand over the 30% GST to Rudd? What will be Rudd's options then?

Rudd can't simply take back the GST from the States given that there is an intergovernmental agreement. It will need all States to agree to change that agreement.

I think the best chance is the Brumby 50-50 option, maybe 51-49 to give Rudd the symbolic majority funding, with no or little change to the GST arrangement. That will save faces for everyone.

More importantly, Rudd's plan for local hospital networks should be changed to local health networks to include all healthcare, primary and hospital, as well as agged care. The number of local networks should be reduced to be more effective and more efficient.


Rudd's own ego versus nation's interest of better health

Comments on Joe Kelly “Rudd urges premiers to act in national interest on health reform”, 13/04/2010, http://www.theaustralian.com.au/politics/roxon-rules-out-more-health-cash-for-states-to-secure-reform-deal/story-e6frgczf-1225853257234

If Rudd is proposing to use $18.6 billion to buy the States' agreement for his health plan, and if he is working in the interests of the nation's health, surely he should be prepared to consider alternative plans that may better use that money to achieve better outcomes than his own plan, assuming that can be done.

Why should Rudd insist that the money is contingent on the States agreeing to his plan, if that plan is inferior to other plans?

Is Rudd really working in the interest of the nation's health as he has been claiming?

It seems he is working in the interest of his own ego, as opposed to the interest of the nation's health!

China's emissions target and the lack of targets by others

Comments on Frank Jotzo “How might China achieve its 2020 emissions target?” 12/04/2010, http://www.eastasiaforum.org/2010/04/12/how-might-china-achieve-its-2020-emissions-target/

While I am not too concerned with whether China can achieve its 2020 emissions target, I am worried by the means it may employ to achieve it.

As most people are aware, the Chinese government has much more control over how businesses and people go about their businesses. That means they can direct with little consultation. That could potentially result in huge costs to the economy and affect people's living standards.

Another issue is that while parts of the international community are interested in the transparency of how China achieves its emissions target, it is more important to have the rest to have their own targets.

It would be highly hypocritical for other people to be keen talking about how to verify China's emission target without committing to reasonable targets for their own.

That is just not fair and good enough, is it?

No need to blame the dead and focus on the living

Comments on Alan Kohler “Don't waste the boom, Mr Rudd”, 13/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/GFC-budget-Australian-recovery-pd20100413-4FS9H?OpenDocument&src=sph

Further, while some people including you are saying in hindsight that Howard / Costello didn't do this or that with revenue, they set up the future fund, they reduced tax, as opposed to Rudd / Swan wasting taxpayers' money in house insulation, in BER, in NBN, and etc.

It is so easy to criticise the past, but why don't people focus on what is happening now?

Is it purely trying to please the current government and the people in charge now?

It is so low politics and not looking good for media commentators.

Reforming Australian federation

Comments on Michael Stutchbury “Devolve power to the people”, 13/04/2010, http://www.theaustralian.com.au/news/opinion/devolve-power-to-the-people/story-e6frg6zo-1225852925443

I think Josh Burnell's idea of clearer demarcation of responsibilities between the federal and State governments is excellent, with federal fewer service responsibilities.

To enable that, there should be inter-governmental agreement on how to divide tax revenue between federal and the States, so the States will have the financial capacities to provide services.

Such an agreement needs to be more than just the GST revenue. It should include all revenue sources.

In that case, there is little room for blame games between federal and the States, because most services are States' responsibility.

The current three levels of government in Australia is fine, but the main problem with the current state of Australian federation is that States lack control of revenue sources and there are overlapping of services responsibilities between the federal and the States.

So, reforms of the federation needs to focus on the clearer clarification between the federal and the States in both services responsibilities and revenue allocation.

Rudd final health plan not healthy enough

Comments on Adam Cresswell “Blueprint devil in lack of details”, 13/04/2010, http://www.theaustralian.com.au/news/opinion/blueprint-devil-in-lack-of-details/story-e6frg6zo-1225852946102

While I share most of the assessment on the poor political spin style release of the Rudd health plan, I am puzzled by the final statement "None of this means the Rudd plans will not, or should not, get up. Many experts remain broadly in favour of the proposals, but the government has sown confusion with its blizzard of releases."

With its revenue capacity, the Commonwealth is always in a position to increase its funding for health, and any increase in funding will be better than current situation and would be welcome by many. But that does not mean the health plan is a good plan.

Now that there is an alternative Brumby plan, at least the public will be in a position to make a more informed judgement, as opposed to the situation of a sole candidate, take it or nothing else as Rudd has threatened to do.

Although the Brumby plan also has its shortcomings, but it seems better than the Rudd plan at their face value, as long as the Commonwealth commit its promised funding in the Rudd plan or implied in it.

Of course, better plans are 100% funding by the Commonwealth by taking more GST revenue from the States and run all health by itself, or the Commonwealth commit a certain proportion of its revenue to health and give that to the States and let the States run all health.


Time for Gillard to be frank and truthful with the public

Comments on Joe Kelly “Gillard hires banker hired to unearth schools stimulus rorts”, 12/04/2010, http://www.theaustralian.com.au/in-depth/schools-watch/gillard-hires-banker-hired-to-unearth-schools-stimulus-rorts/story-fn56ulhe-1225852800384

The longer Gillard says the scale of the program means rorts are inevitable, the more she will lose with the public and taxpayers.

It is no longer tenable to continue to run that already being exposed to be a failed argument.

She should be truthful with the public to restore trust, given that she is possibly the only significant figure from the Rudd ministry who has not lost that trust completely.

She is the sole useful assets at this moment and the only hope of the ALP for the next election.

The earlier she is aware of that, the better off she will be. So will the Rudd ministry.

Complex issues in Chinese currency and exchange rates

Second comments on Yiping Huang “Misperceptions about the RMB and Chinese exchange rate policy”, 11/04/2010, http://www.eastasiaforum.org/2010/04/11/misperceptions-about-the-rmb-and-chinese-exchange-rate-policy/

There are a number of points relevant but missing in Yiping's analysis.

Firstly, the impact on employment of appreciation, especially on mobile workers from rural areas and associated social stability must be carefully analysed and considered. This, of course is what the authority has to consider when large scale closures of manufacturing plants as a consequence of currency appreciation are concerned.

It is not just an issue static versus dynamic adjustment issue, although it has some relevance. Any dynamic adjustment has to be realistic as opposed economists’ wishes for a sudden technical or management improvement. For economists, it is so easy to change the ratio of labour versus capital and adopt new technologies. But in reality, the story can be quite different. Managers and entrepreneurs are not as lazy as some economists think.

Secondly, the issue of China's official reserves and assets denominated in $US and its potential very damaging consequences in terms of social stability, given that now many Chinese are aware the effects of a yuan appreciation. It is obvious to so many Chinese, especially the so called elite what an appreciation means in terms of the values of those assets. It is, however, very difficult to judge the how the public will react to authority sanctioned appreciation and the losses in state assets values.

Thirdly, even China adopted a flexible exchange rate, there is no guarantee that the US or some others continue to pressure China. For example, they could and would argue that it is not flexible enough as long as they wish to use it as stick to achieve whatever purpose they may have. At some stage, a country has to stand up to powerful countries for its own interests, otherwise international bullies will repeat endlessly with no real prospect to be checked.

Fourthly, the argument of country can only achieve two out three goals of "monetary policy independence, the free flow of capital and exchange rate stability" is likely to be problematic, if bank credits can be controlled. It is more than likely that in China’s case, all three can be achieved, rather than the conventional view.

Fifthly, although Yiping used some of the key insights (the unholy trinity) from the Mundell-Fleming model of international trade, an important implication of the model is overlooked, that is, the differential growth in domestic income as compared to external income. That should mean a deterioration of the current account balance. The experience of the past months indicates that has been the case now and further and possibly increasing trade deficits are likely to occur.

It would be prudent for both China and the US and other players to wait and assess the development in recent months before making any unwise moves. The Chinese economy is at a critical stage of structural transformation and in the short term it is highly likely to experience current account deficits until the transformation is completed.

Yes, China may move back to pegging to a basket of currencies and allows reasonable flexibility, but it does not necessarily mean currency appreciation measured by trade weighting.

Now it leads to ma last point on the missing elements in Yiping’s article, that is, the issue of China’s official holdings of $US denominated assets, that so many analysts have either ignored or think difficult to deal with.

It should be abundantly clear that it is reasonable for the Chinese authority to negotiate with the US authority on the issue of Chinese holdings of the US Treasury bonds. In fact it would be negligent of duty if the Chinese authority does not deal with this issue. Some move on that front is necessary for the Chinese authority to be able to tell its domestic audience on any currency moves.

It is unreasonable and indeed irrational for the US to ask for China to appreciate its currency and make a direct loss by holding the US government bonds. That will make the Chinese authority look so stupid.

A reasonable compromise is to use a mixed currency denomination, e.g. denominated in a basket of currencies.

Understand the meaning of adaptive versus rational expectations

Most economics profession over the past three decades know the importance of the rational expectations (RE) revolution in macroeconomics.

While in reality the real challenge of RE to macroeconomic policies is much more limited than the policy ineffectiveness implies, the economics profession has embraced RE with much enthusiasm and the applications of RE in economic thinking, studies or modelling cannot be understated.

However, it appears incredibly strange that many economists still don't apply RE in their work when it is extremely relevant.

The most noticeable issue is that many economists know some economic theories are not working or are severely deficient in the wake of the GFC, but they still rely on them for their work, rather than seeking new and better theories.

That is not rational, rather it is very much adaptive.

It is possibly worse than being adaptive because they have not even adapted after the GFC!

Population size and economic growth

Comments on PAUL SHEEHAN “Less can be more, for people, pensions and government”, 12/04/2010, http://www.smh.com.au/opinion/politics/less-can-be-more-for-people-pensions-and-government-20100411-s0ov.html

While there is no really bearing of population size on per capita economic growth but on gross growth, the natural wealth effects in the Australia context is a significant one and should not be ignored.

Obviously, more population with diminishing natural resources means less per capita natural wealth for future Australians.

In terms of international politics and military strength, population size has an effect, but Australia can't expect to be militarily strong by an population to the size of 36 million in the geographical area of countries with population sizes of over hundreds of millions or billions.

It is a self delusion, or more accurately political popularism or opportunism of any politicians arguing for a big Australia.

They are wrong and are misleading the Australian public to benefit only themselves.

Wallace wrong on ethics and Christianity!

Comments on JIM WALLACE “You can't teach ethics without referring to Christianity”, 9/04/2010, http://www.smh.com.au/opinion/politics/you-cant-teach-ethics-without-referring-to-christianity-20100409-rxai.html

This is the most absurd article, at least from its heading.

It is so ignorant. Is every part of the world Christian? If not, how do those people teach ethics?

The author should know that even in Australia not everyone is Christian or really believes it.

Does the author understand what he is doing by stating such an obviously wrong claim?

It is so laughable, both in Australia and internationally.

Globalisation and cultural changes

Comments on PHILLIP COOREY “How the West was lost: a lack of faith in civilisation”, 12/04/2010, http://www.smh.com.au/opinion/politics/how-the-west-was-lost-a-lack-of-faith-in-civilisation-20100411-s0ow.html

It seems that many people have not catch up with globalisation, or don't understand what it means.

Every culture will change or be shaped and become more similar to each other.

There is no use to lament inevitable changes.

No change means no or not to progress.

Cultural elites need to wake up.

Abbott ponders a bad move in business tax

Comments on Dennis Shanahan “Abbott to woo small business with tax breaks”, http://www.theaustralian.com.au/business/small-business/abbott-to-woo-small-business/story-e6frg9hf-1225852508785

Abbott is moving to a dangerous territory here.

It will make the company tax more complex than necessary and will be inefficient.

He will benefit from waiting to see what is in the Henry Tax Review recommendations to see how tax reforms should be undertaken, as opposed to moving in the wrong direction.

Abbott is trying to match up with Rudd's populist approach, at the expense of integrity.

That is not good for Australia.

China's high or hidden rural unemployment can't be ignored

Comments on Yiping Huang “Misperceptions about the RMB and Chinese exchange rate policy”, http://www.eastasiaforum.org/2010/04/11/misperceptions-about-the-rmb-and-chinese-exchange-rate-policy/

Yiping has discussed a number of issues related to the Chinese exchange rate that may go beyond my capacity to comment.

However, I would like to raise an issue on one of the points that is the impact of an appreciation on China's huge unemployment or hidden unemployment.

As we all know, China's rural population share is high, or in another word, its urbanisation is low. As a result of its economic reforms, some rural labour has become mobile workforce. But addmittingly, there are still huge numbers of rural workers who are surplus to rural needs and are the hidden unemployed, due to the very limited and low land per capita and mechanisation in rural production.

That has always been why most mobile rural workers are not paid much and kept the Chinese products competitive internationally.

Further, it has been reported that there are seemingly shortage of mobile workers from rural areas in some big manufacturing areas. While seemingly contradictory to the hidden unemployment still existing in rural areas, it is a sign that the costs of labour will rise soon.

On top of that, the recent trade figures already show a trade deficit for China.

So it is difficult to understand why the Chinese currency should or would appreciate and its economic rationale.

It seems many analyses are based on political pressure. Alternatively, they may have been based on some prevailing views.

But the GFC has shown that some prevailing views or consensus are not necessarily always correct.

US may wake up to new reality soon

Comments on Wang Yong “Avoiding a US-China currency war: Need for rational calculation”, 11/04/2010, http://www.eastasiaforum.org/2010/04/11/avoiding-a-us-china-currency-war-need-for-rational-calculation/

Wang Yong assumes that the US will gain moderately from a trade and currency war between the US and China. It is puzzling how that would be the case.

Exports benefit an economy, so doe imports.

What will the US gain from a reduction in the availability of cheap goods?

What gains will Americans have if they have to pay higher prices for the same goods?

What if China also takes retaliatory measures to restrict exports from the US to China?

So it is difficult to understand the rationale of a possible US gain from a potential trade and currency war.

Wang Yong's presumption may have been based on the wrong premise that leads to the wrong conclusion.

Of course, the US political circles have been used to threat other nations if they don't follow its tune.

One day it will wake up to the new reality that its past practice will not work any more.

That day may be very near now.

Rudd threat of a referendum on health empty and destined his ETS DD one

Comments on Glenn Milne “No constitutional need for Dr Rudd's referendum”, 12/04/2010, http://www.theaustralian.com.au/news/opinion/no-constitutional-need-for-dr-rudds-referendum/story-e6frg75x-1225852475328

Rudd, politically clever as is, has not realised that even an unnecessary referendum on health is not a guaranteed yes result.

Just imagine that both the opposition and a number of big states' political parties both ALP and coalitions campaigning for a no or better still for an alternative plan, Rudd's plan is definitely doomed.

His threat is no more than an empty one.

He will back down on referendum, just as he did on ETS double dissolution.

Brumby, by releasing an alternative plan, has already set the scene for the complete failure of Rudd's plans including both Rudd health and referendum.


Two important issues in population debate

Comments on Paul Kelly “The biggest game in town”, 10/04/2010, http://www.theaustralian.com.au/news/opinion/the-biggest-game-in-town/story-e6frg6zo-1225852009335

Paul, while your beloved rational approach may seemingly appear to be reasonable, it is really based on false belief.

If you think it is impossible to plan population path or growth in advance, how can you plan the infrastructure for an uncertain population size or path? Isn't illogic at the extreme?

The Treasury argument on challenges from population aging in advanced countries is red herring! Old people, if they have enough assets, don't have increased burden to the economy or society at all, because they can have enough income from their productive and valuable assets.

Why the Treasury people can't see or understand that? It is beyond belief.

Further, while your suggested important missing element is not an issue at all, there is a really and extremely important missing element in the population debate. That is the emissions reduction or cap in the future.

For a given target of emissions level in the future based on current emissions (also population), the larger the future population the less the allowable per capita emissions, that means the lower per capita energy with the current energy mix, or much higher costs in reducing emissions.

I have not read Treasury's IGR, and don't know if they have ever considered it at all.
If they haven't, that means they are incompetent in their work! How can they miss such an important, so significant and urgent issue inevitably related to population in the future?

The whole premise on which the IGR has based on needs to be reconsidered, that is, both the population aging and emissions capping!


Potential pitfalls in the use of residual dummies

In its development of its 2010 Review methodologies for assessing State fiscal capacities, the Commonwealth Grants Commission (CGC) sought a consultancy study on the effects of government policy versus non-government policy on the enrolment of students.

The consultant used econometric methods to estimate those effects. The report is available from the CGC website: http://cgc.gov.au/method_review2/2010_review_documents2/2010_review_consultancy_report/2009_-_modeling_of_post-compulsory_enrolments

In its report the consultant identified and used a small number of non-policy variables and then used State dummy variables to estimate the enrolments, by a classification of statistical areas.
The consultant derived estimates and drew conclusions from those estimates:
It attributed the State dummies as to the policy effects
it claimed that the policy effects were 20% and non-policy effects to be 80%, by dividing the explained variances into that explained by the selected non-policy variables and that by the residual State dummies
There are some issues with that approach. Firstly, as with any econometric estimates, there are unexplained variances and explained variances. There is an issue of what the unexplained variances should be attributed to, that is, effects of policy or non-policy? Or both but by what proportion?

Secondly, even within the explained part, the use of State dummy variables means they are the residuals in the sense that they pick up the effects of the differences between the States after those explained by the identified and selective non-policy variables.

Intuitively, one would understand that in any econometric estimations, the variables used are only a part of the actual ones that affect the issue at question. Inevitably, there are some effects of those real variables or their effects are left out due to various reasons.

Under the current scenario, the residual State dummies actually include the effects of those variables left out of the estimation. So it is categorily incorrect to attribute the effects of the dummies to the effects of State policy variables.

In addition, the consultant acknowledge that the Census data used had an issue of under count. It assumed that the effects of under count to be the same across all States.

It is highly likely that the under count in the Census data may have a strong bias, in that it was more serious in remote areas as compared to city or urban areas. This means that the States with larger shares of remote population are likely to have higher enrolment in the Census than their actual enrolment, and vice versa.

The assumption of equal effects across the States was highly problematic and results derived under such a conclusion was wrong.

This was especially the case in the Asutralian context, where two small States have drastically and diagomatically different shares of remote population.

The ACT has almost 100% urban population, because it is largely a city. The Northern Territory, on the other hand, has the highest remote and very remote population because of its very large share of Indigenous population in its total population.

Reforming the APS and improving policies and services

This is still work in progress.

It has followed the release on 29 March 2010 of Ahead of the Game: Blueprint for the reform of Australian government administration, Commissioned by the Prime Minister Kevin Rudd and undertaken by the Advisory Group headed by PMC department secretary Terry Moran.

Key points:

  1. Centralise corporate and IT services of all APS
  2. Centralise the recruitment of most APS and done by APSC
  3. Reduce the number of departments and agencies, so the APS is not highly segmented and the whole of government approach can be more easily implemented
  4. Establish an APS economic policy committee, an APS community services committee and an security and foreign policy committee, under a public service board
  5. Establish a public service board
  • PM as the chair
  • PMC secretary as the deputy chair
  • consisting of a number of departmental secretaries and community representatives
  • the board coordinates all APS and determines priority and efficient services delivery
  • fixed quarterly meeting of board, augumented by ad hoc meetings proposed by two board memebers or the deputy chair
  • secretariat housed in APSC or PMC

Reforming Australian fiscal equalisation

This is still work in progress.

Key points:

  1. establish an equalisation fund: 50% from the GST and 50% from Commonwealth
  2. the rest of GST distributed EPC among the States
  3. have representatives from the States seconded to the Commission
  4. HFE should take account its impact on national resource allocation efficiency, productivity and economic growth
  5. HFE should encourage innovations in governance and services provision, e.g. governemnts in smaller states may consider outsource some of its functions or services to larger states, as opposed to do them by their own


  1. more transparent
  2. incentive for the Commonwealth interested in the process and outcome
  3. more incentives for low costs or efficient or revenue rich States, but still achieve equalisation
  4. due to increased transparence, expect CGC to develop better, more robust assessment methodologies
  5. increased understanding by the States conducive to improved incentive for better data
  6. inclusive of more States and Commonwealth inputs into the process

Meaning of being open and inclusive

Comments on Tommy Koh “Building fraternity amongst East Asian states”, 8/04/2010, http://www.eastasiaforum.org/2010/04/08/building-fraternity-amongst-east-asian-states/

Tommy Koh's idea of focusing on the future and letting go of the past is excellent.

The idea of open and inclusiveness is interesting and needs better definition.

Being open and inclusive does not equate to that the East Asian Community can be the United Nations.

One needs to be practical and work with a well defined concept, rather than being confused or attempting too much in the name of open and inclusiveness.

That is not the right approach.

Rudd's revolution, what is it?

Comments on Dennis Shanahan “Leader exposes the flaws in Rudd's revolution”, 9/10/2010, http://www.theaustralian.com.au/news/opinion/leader-exposes-the-flaws-in-rudds-revolution/story-e6frg6zo-1225851594386

It is good to have competition of ideas and plans from different governments, given that the national health issue is inter-governmental, especially due to the fact that the Rudd plan requires the States handing over 30% of their GST revenue to the Commonwealth to make it possible for the Commonwealth to have the capacity to fund 60%. Otherwise, it would not have that capacity.

It is no different from asking the States to give their money to Commonwealth for the Commonwealth to say it funds the national health services.

Rudd should have made more options available, e.g., give more money, say a proportion of Commonwealth revenue, to the States to have them as the sole funder and provider.

If Rudd is not prepared to do that, his current plan is hypocritical and cynical both politically and intellectually.

One cannot be the rule maker of a game and also the first to choose which side to play.

That is just not fair, and not right.

It is even more absurd for the prime minister not only to do that and to threaten the States with a referendum, especially in the wake of so many failures of his government’s short two years since came to power.

Business as usual is not too bad

Comments on Henry Ergas “After the GFC, it's business as usual”, 9/04/2010, http://www.theaustralian.com.au/news/opinion/after-the-gfc-its-business-as-usual/story-e6frg6zo-1225851577496

This is a good piece, though also with some shortcomings of its own, as most cases are - perfection rarely exists.

The criticism on "proposed global cures of high cost and dubious efficiency" is well and correctly made.

The argument of the Chinese currency ignored the fact that it is not just an issue of trade, but also an issue of assets values. That is additional complexity to the Chinese currency issue that most commentators and analysts have yet to properly and adequately take into their considerations.

While it is probably a step too far to criticise the role of government in managing the economy, Henry Ergas has got a good point that liberalisation, incentives and the market do play a far more significant and useful role than Rudd derided they had been in his economic essay last year.

Brumby health plan deserves careful analysis

Comments on Adam Cresswell “Self-interest rules in Premier's plan”, 9/04/2010, http://www.theaustralian.com.au/news/opinion/self-interest-rules-in-premiers-plan/story-e6frg6zo-1225851594480

It appears unfortunately that Adam Cresswell's short piece is so short of real analysis.

Obviously it appears that Adam Cresswell is for a big highly Centralised Canberra controlled health system which would be bond to fail if the experience of the past two years or so serves any purposes.

Adam Cresswell is so quick to criticise the Brumby plan organised in a month or so for lacking of detail, but is presumably much more comfortable to the fact of the incomplete disorganised Rudd plan after two years in the making.

The 50-50 model resolves the funding and costs issues altogether. It also makes it clear who is responsible for any issues in providing health services, that is squarely the States. It deserves much more analysis than Adam Cresswell has poorly done.

If Victoria is efficient in providing health services, why should it hand over to Commonwealth, a proven failed service provider? The Victoria health system is not broken. Most of the unmet needs can arguably attributed to the lack of adequate funding from the Commonwealth. So what is the case for Commonwealth to take an efficient provider?

It begs belief how Adam Cresswell can so casually dismiss an alternative health plan in such a short and empty piece devoid of any analysis?

Isn’t better that we have some competition on plans for reforming the health system? Isn’t better that the nation is not fall into hostage of Rudd’s confrontational threat to the States? Where is Rudd’s earlier claim for a cooperative federation?

Why is Adam Cresswell so undemocratic?

Adam Cresswell probably needs to go back to school to get some sense and sensibility.


Frequent fallacies of the imbalances argument

Second comments on Yang Yao "China’s growing pains, globalisation and adjustment", 7/04/2010, http://www.eastasiaforum.org/2010/04/07/chinas-growing-pains-globalisation-and-adjustment/

In addition to having more international financial assets for financing world development, I have some comments on a number of specific points in Yao's article.

While people often argue this or that and make statements on this or that, it is also fairly often that many arguments are incorrect even though they may be seemingly attractive to some particular audiences.

It is said that “the financial crisis demonstrates the unsustainability of the current pattern of global specialisation.”

But is that statement true or false? I would argue that it is not true but false. There are a number of reasons for my argument. Firstly, there is an issue on the real and fundamental cause of the financial crisis. While some people conveniently say it was the imbalances, most informed and rational people would think it was the malpractice lending by US banks associated with the sub-prime mortgages in the US prior to the crisis.

Then was the malpractice a necessary product of the imbalances, that is, low costs of finance prevailing in the US back then? The answer again is negative and no. It was irresponsibility and greed by some banks. It was their mistakes. It had very little to do with low costs finance available. Who on the earth wants to unnecessarily raise the costs of finance, given that the US also needed and still in need of investment in infrastructure projects? Alternatively they could have used low costs financing to investment overseas in other countries. There was nothing inevitable for that malpractice to happen.

Secondly, what is the problem with the current pattern of global specialisation? I can hardly see any and I think most people would not think it is a problem. Leaving the current practical and political issues aside, there are two points to argue for the positive of current global specialisation. One is that imbalances, whether it is domestic or international, households or regions or countries, are not necessarily a problem per se, as long as inter-temporal budget constraints are satisfied. It will be very counterproductive and welfare reducing one requires balance all the time for any unit. Why do people ignore this point when talking about imbalances just as if they are inherently a sin. They are not and are part of daily life and are good for everyone as long as they are responsible in their behaviour.

Leaving that aside, it should be abundantly clear that there are mechanisms that can resolve or reduce imbalances should that really be a problem without the need to significantly alter the global specialisation pattern.

I didn’t realise it is already so long in this comment, so I’d better take a rest on the case.

Create new international and secure financial asset classes

Comments on Yang Yao “China’s growing pains, globalisation and adjustment”, 7/04/2010, http://www.eastasiaforum.org/2010/04/07/chinas-growing-pains-globalisation-and-adjustment/comment-page-1/#comment-109532

There is clearly a need for more international assets classes for investors including sovereign funds and central banks.

In that context, IMS SDR might be a good candidate. Alternatively, the World Bank could issue WB bonds. But for liquidity purposes, the IMF or the World Bank must be ready to act as a market maker too in case there is not enough liquidity.

Leaving that aside, why can't China be more innovative to set up an international bank to provide loans in foreign currencies at reasonably favourable rates to sovereign countries? In that way it can also have security and reasonable returns for its international reserves.

Alternatively, why doesn’t China work together with the IMF or the World Bank to create some monetary facilities to create some new international financial asset classes.

Once the issues of assets in foreign currencies and current account trade needs are separated, it is easier for China and indeed other countries too to move more freely on exchange rate issues.

What is the ratinale for a big Australian population?

Comments on ABC report “Australians wary of 36m population target”, by Sabra Lane and staff, 8/04/2010, http://www.abc.net.au/news/stories/2010/04/08/2866842.htm?section=justin

The rationale for a big Australia has never been made clear to the public.

We all know that there is infrastructure and natural wealth in Australia that belong to all Australians, not just the politicians or big businesses.

When you have dilution in population, your per capita wealth diminishes.

Further, the argument that a bigger population if good for geopolitical and economic reasons is utterly untenable what difference does it make between 28 million and 35 million in terms of military strength in a region where countries have more than 100 millions or a billion people?

Poor Rudd a complete and intellectual dumb on this issue, like him with many other issues.

Strategy for funding nation's healthcare

Comments on Arthur Sinodinos “Health strategy at risk from political tactics”, 8/04/2010, http://www.theaustralian.com.au/news/opinion/health-strategy-at-risk-from-political-tactics/story-e6frg6zo-1225851108116

On population issue, it seems better to have any Treasury analysis as a feed and input to better and more informed debate among the public, rather than the basis for government policy making.

Besides, it also seems better to sponsor some independent research organisations to do the analysis, as opposed to or along side Treasury's. Treasury may be perceived as somewhat politically influenced, as opposed to independently done. That will not be very good for the nation.

Secondly on health, the first thing is to create an environment in which people can have longer working life as life expectancy increases, if they so choose. That will create more wealth available that people can use for retirement and health as well. Interestingly, it could be the case that while people are engaged in work, their health status might be better than otherwise that will reduce health costs.

As to the funding of healthcare, given the likely increase costs and the need to have good care but contain the costs, it will be much better if there is explicit link between the healthcare costs and a specific healthcare or medicare levy. The more transparent the link between the two is the better for the public to make the choice between the tradeoff of costs and care and contribute to the reduction of costs.

Further, the idea of individual accounts of healthcare charge is not a bad idea, but clearly there are alternatives that could be even better.

For example, if the explicit link between healthcare levy and total healthcare costs is made, the idea of healthcare rebate can be used to encourage unnecessary spending on health and contain the costs of total healthcare, if an entitled person has not spent. The rebate level can vary according to a number of factors, such as age.

Such a system has the advantage of being simpler and fairer or more equitable.

Understand poplation statistics and population issues

Comments on Bernard Salt “Making sense of population push”, 8/04/2010, http://www.theaustralian.com.au/business/property/making-sense-of-population-push/story-e6frg9gx-1225851117721

If Salt's reasoning and argument is true, then there is a case to distinguish between temporary and permanent residents in Australia from ABS population statistics.

If that information is clearly disseminated and understood, the public, bureaucrats and politicians can make a better debate on what is the optimal population level and how to plan and manage population growth in the future.

Further the argument of overseas students by Salt appears incomplete, because while there are more comings, there should generally be more leavings as well, leaving the net increase of overseas students not that high.

There must be something else that Salt either ignored or neglected. I guess it could be the increase in the graduates from overseas students in Australia to become permanent residents or at least allowed to stay temporarily longer.

In order for the public to make sense of population issues, we need the public to understand important information behind population statistics.


Hetherington sings praises for Rudd and Co

Comments on David Hetherington “Labor wins vote of confidence on economic management”, 7/04/2010, http://www.theaustralian.com.au/news/opinion/labor-wins-vote-of-confidence-on-economic-management/story-e6frg6zo-1225850657938

One must be wondering if Hetherington is doing an advertisement for the government or on the government's behalf!

He attempts to rationalise what the government has done and sugar coat them. He states that

"Labor has built its claim to economic competence on three pillars: first, its response to the global economic crisis; second, national infrastructure investment to lift productivity; and, third, the use of market mechanisms to deliver public goods and services."

He then used cash handouts for the first pillar, $16 billion for BER and $5 billion for social housing for the second and a number of policies for the last.

But do they hold any water? Firstly, cash handouts are inferior to a cash subsidy to consumption purchases, because people save part of them. Secondly, the Australian has exposed many rorts with the BER that suggests 20-30% of it may have been wasted. Social housing, look at what has happened to the NT Indigenous housing program. Lastly, market mechanism, where is it, apart from Rudd government's big government approach and big welfare spending?

Hetehrington must have forgotten what Rudd's essay in Feb 2009 was about, or he has conveniently hidden it under the carpet!

Then I realised that Hetherington is the executive director of Per Capita, a progressive think tank!

No wonder he is singing high praises!