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Tougher test for Gillard next year

Comments on Paul Kelly “Broadband is Prime Minister's first win”, 27/11/2010, http://www.theaustralian.com.au/news/opinion/broadband-is-prime-ministers-first-win/story-e6frg6zo-1225961716620
Firstly, the passage of the NBN related bills is a win for Gillard and her government and opportunistic independents and the greens, but a loss for the nation and good public policy, as well as the integrity of Labor government.

Secondly, as time passes by, the shortcomings and deficiencies of the NBN and its implementation are likely to be exposed and hence the credibility of Gillard and her government will suffer as a result.

Thirdly, the changes in state governments from Labor to the coalition in Victoria now and in NSW early next year are likely to make the Gillard government's health and other agreements with the states more difficult to implement.

Next year will be tougher for Gillard. If she can survive the test next year, she will be an invincible Prime Minister. Whether that will be for better or worse for the nation is another matter altogether.

Don't over centralise powers to Canberra

Comments on Peter Garrett “More mobile students need a national curriculum”, 29/11/2010, http://www.theaustralian.com.au/national-affairs/more-mobile-students-need-a-national-curriculum/story-fn59niix-1225962379374

I am not necessarily against a national curriculum for schools. But we have got to strike a balance between federal views and state views within the federation.

It appears that there is a tendance of over centralisation of power unnecessarily by the federal government at the expense of advantages of a well functioning federation.

How much is the share of 80,000 in total Australian students? Further How different the State education system and curriculum?

Garret says that 10% of teacher changed states in the past. For how many years in the past?

How about curriculums in other countries?

Australia often tend to think the US as an example to learn from.

Does the US have a national curriculum for schools? How uniform they are there?

The US should not try to corner China

Comments on Aileen S.P. Baviera “Territorial disputes in East Asia: Proxies for China-US strategic competition?” 29/11/2010, http://www.eastasiaforum.org/2010/11/27/territorial-disputes-in-east-asia-proxies-for-china-us-strategic-competition/
It appears two relevant and important points may require consideration and analysis.

First, many commentators tend to conveniently adopt the lines of argument that used in this post, namely, "China’s growing territorial assertiveness may also be a consequence of pressure politics from nationalists within the PLA-Navy. Other compounding factors that could lead to an increase in Chinese territorial activism in the coming years include leadership succession in the Communist Party by 2012, and improving cross-Straits relations under a KMT government in Taiwan."

However, it may ignore the mass sentiment in China that it has been seriously bullied and insulted by the US and some of its allies, like the spying planes near China's border and coastlines, the bombing of Chinese embassy in Serbia and harassments of its ships in open seas. Many Chinese may think China has often been humiliated by the US.

The public assurance of the Diaoyu Islands by the US is unlikely to dampen but further fan that sentiment. Neither is the US intention to be involved in some disputed territories where China is a part.

The second point is how China will respond in near, mediate and longer terms to the US resistance and hostilities to the rise of China perceived by the Chinese public and some of its allies trying to take short term advantages from that.

It could be that China may show its strengths by firstly resolving issues with a hot and weak spot.

Gillard's danger is too opposite to Rudd in vision

Comments on David Burchell “Let grandiose plans wither on the vine”, 29/11/2010, http://www.theaustralian.com.au/national-affairs/let-grandiose-plans-wither-on-the-vine/story-fn59niix-1225962381497
Burchell says: "The worst mistake would be to seek emancipation from Rudd by emulating him. We have no more call for high-flown self-kiddery and flamboyant insincerity. We can live without the grandiose self-puffery and fantastical self-conceptions. Least of all do we need any more prime ministerial philosophy lectures."

That is unlikely to be the case with Gillard. To the contrary, Gillard is in danger of being too far to the other extreme: lack of vision.

That is itself a serious problem for her and the government – no policy but poor ones.

With such a government as Gillard as the PM and its core, as well as the Rudd legacy to reflect, the nation will pay a hefty price!


Mining tax rights and the Australian federation

Comments on Dennis Shanahan “Facing a new mining war”, http://www.theaustralian.com.au/news/opinion/facing-a-new-mining-war/comments-e6frg6zo-1225961149433
There are bigger issues involved in the MRRT. The first one is in the current federation who do resources belong to constitutionally, the states or the federal?

The second issue is should the states have the right to tax the rent of those resources, what can/should the federal do in terms of resources rent taxes? Should that simply grab the tax revenue, or should it respect the states' rights and work with the states to make the royalties or resources rent tax more efficient.

Third, how should the royalties/tax of resources be distributed between the states and the Commonwealth if any should be given to the latter, and how should that tax be used or be kept for future generations?

Fourthly, are the constant threats by the federal government to the states productive and conducive to cooperative federation and to the wellbeing of all Australians? There should be a clearer definition what the Commonwealth can and cannot do in terms of federal relations.

It is a myth to believe that Canberra can do better than the state governments in terms of servicing the people, no matter how poor state governments have shown in some areas.

Just ask the question: if all state governments from all the major political parties cannot do a service well, how can a government of any political persuasion from Canberra can do it better?

The fundamental issues of poor state government services may lie in the poor resources and unclear responsibilities of revenue and services between the two levels of government in Australia. Unless those issues are resolved, any faith on federal government for better services is likely to be badly misplaced.


Final goals and processes to achieve them

Comments on Gary Johns “Flatter tax will work for Labor”, 25/11/2010, http://www.theaustralian.com.au/news/opinion/flatter-tax-will-work-for-labor/story-e6frg6zo-1225960448670
Flatter tax can be introduced and phased in stages.

It generally is not a choice between the most ideal and the current one. Rather, it should be an optimising process.

The flat tax in the Henry review may provide a long term goal, but that does not necessarily mean a one-step process.

It could be implemented through a two stage process, first to a flatter tax and when the benefits of that is clearly demonstrated then move to the second stage, that is, the Henry recommended structure.

Sheridan confused logic

Comments on Greg Sheridan “Attack dog again crosses red line”, 25/11/2010, http://www.theaustralian.com.au/news/opinion/attack-dog-again-crosses-red-line/story-e6frg6zo-1225960447172
Greg Sheridan often has some interesting but strange views on foreign affairs. For example, his second point (of realities) states "Two, China bears a great deal of responsibility for what is happening."

He elaborated later on the reasons as: "Second conclusion: China's responsibility. Rudd has focused on the need for Beijing to exercise maximum influence and restraint on North Korea. It would be unreasonable to hold Beijing responsible for every act of murder and insanity that Pyongyang undertakes. But it was instructive that Beijing prevented the UN from officially concluding that North Korea sank the Cheonan."

From this Sheridan was using the Cheonan as the basis, although he started with Rudd's call "for Beijing to exercise maximum influence and restraint on North Korea".

But I am afraid that Sheridan is having a confused logic here. Does Sheridan mean that had China adopted a different stance for the Cheonan incident North Korea would have not shelled the recent round?

It is interesting to see that the foreign affairs editor of The Australian has so little knowledge on regional international affairs and employ false and confused logic.

His biased and misleading views on foreign affairs appear to reflect an outdated mentality of the cold war era.

Cold war has long gone, but some legacies still linger on with some people. One reason may be that some people find it hard to learn new skills for the changed time, so they have to use what they have had.


Sourabh Gupta's conceptual confusion

Comments on Sourabh Gupta “Obama visit to India: East Asia’s emerging security multilateralism”, 24/11/2010, http://www.eastasiaforum.org/2010/11/24/obama-visit-to-india-east-asia%e2%80%99s-emerging-security-multilateralism/
With great respect, there appear some conceptual confusions in this post.

For example, the following statement obvious was mistaken the US as an Asian economy that is not only confusing but clearly wrong:
"Third, with Asia likely to play host in the not-too-distant future to six of the dozen largest economies in the world – US, China, Japan, India, Russia and Korea, it is not altogether clear that the Asian equilibrium is about to greatly disturbed … let alone submit to a new geo-political hegemony bearing dragon-like features."

While some Asians might be delighted that the inclusion of the US as an Asian economy could increase the weight and importance of Asia, a false self delusion may actually cause even greater disappointment.

Has anyone, or any international organisation apart from the author of this post classified the US as an Asian economy? What is the basis for doing that?

Of course, it is noted that the topic is about the US and India that may provide a clue to this confusion. However, that should not be the excuse for the confusion to occur in the first place.

What should be important to consider on immigration by government?

Comments on Ross Gittins “Punters well aware of economic case against more immigration”, 24/11/2010, http://www.smh.com.au/opinion/politics/punters-well-aware-of-economic-case-against-more-immigration-20101123-185ij.html?posted=error
This is a good article with a balanced view on the issue of immigration from an economist – it is the per capita wellbeing of the local people/workers/labour that should be the first order issue to be considered by government and policy makers.

Most economists only talk about wage and its impact inflation but ignoring the political economy of impact on local wage earners of immigration and the required extra infrastructure.

Of course, the political economy of higher immigration benefits businesses, due to lower wages resulting from more labour supply.

A side issue is the view of taxation of mobile capital and labour and consumption. Business should be made to contribute to building infrastructure, as opposed to taxing less on capital, with consumption tax that is not too different from taxing labour more heavily in a different guise.

Managing prosperity requires new thinking and a new approach

Comments on Paul Kelly “Mission is to manage politics of prosperity”, 24/11/2010, http://www.theaustralian.com.au/news/opinion/mission-is-to-manage-politics-of-prosperity/story-e6frg6zo-1225959731099
How should the government of any political persuasions manage the resources boom?

Well, it is both hard and easy.

It will be hard if government and bureaucrats continue to engage in conventional thinking and approaches.

It will be easy if the sources of the resources boom benefits more, but the rest also share some of the benefits in an acceptable way to both the booming states and the rest along the way.

This will have to involve a new approach to federation and to taxation reforms that is not necessarily benefiting every state uniformly.

It also means having the most appropriate monetary and fiscal policy settings that aim at neutralising the differential impacts of the resources boom on different sectors as much as possible without undue distortions in the long run or from the long term perspective for the nation and the economy.

The key is appropriate balance between the booming states and the rest, as well as long term design of policies and optimisation of the nation's wellbeing.

By this standard, Henry's approach and recommendations might be half right at best! He also needs to reconsider what will be best policies.

PM, defeat the Greens without saying blowing apart them

Comments on Janet Albrechtsen “PM, blow apart the Greens”, 24/11/2010, http://www.theaustralian.com.au/news/opinion/pm-blow-apart-the-greens/story-e6frg6zo-1225959731430
The PM and Labor are unlikely to blow apart the Greens. They cannot afford of doing it.

However, what they could do is to develop its own good policies to 'compete' with the Greens. In this way they can distinguish itself from the Greens and defeat then without saying they are blowing them apart.

It is a matter of real leadership and independence as well as cooperation and competition among the loose coalition that is the basis of its minority government.

Gillard and Labor can only marginalise the Greens by having good policies of its own.

If Labor cannot do that, it should ask the nation for another election to seek a new mandate, rather than for short term power at the expenses of longer term viability.

At the moment, Labor is in danger of being eaten away by the Greens. It should and must respond effectively with good policies. Only substance matters now and Labor and Gilalrd must grab it.

Minority government a threat not only to economy but to governance!

Comments on Peter van Onselen “Minority government a threat to economy”, 24/11/2010, http://www.theaustralian.com.au/business/opinion/business-likes-certainty-but-it-is-in-short-supply-in-our-hung-parliament/story-e6frg9if-1225959693965
How long will the government and commentators continue to use the minority government as an excuse for policy inaction by the government?

The government should get on with governing and developing good policies irrespective whether it is a minority or majority government, as the PM claimed earlier. It is a shame that has not happened to date.

If a minority government means that it cannot govern effectively, then it should go to an election to ask for a new mandate for it or another party to govern effectively, rather than clinging to power for the sake of being in government.

Compromising its integrity for key policies is not the right way to govern. It is not good for Gillard, Labor and the nation.

Gillard and Labor should have the courage to govern for the nation, or to go for a new election, for its sake and for the nation’s sake!

Gillard and the government have already compromised so much to their integrity and done enough damage to our democracy.

It offered the independents access to materials and departments who normally do not have the right to in the negotiation stage to form the government. It excluded the opposition from the parliamentary committee for climate change earlier. It offered the cross benches private briefing of the NBN business case report by the NBN Co.

It has also defied senate order to release the NBN Co. documents.

Such discriminatory approaches to elected parliamentarians are a sign of desperation and should not be practised by any party for the purpose of its holding to power.

That is contempt of democracy and the electorates and that is a disgrace!


Interesting inconsisitency by Peter Hartcher

Comments on Peter Hartcher “India prospers in spite of scandals”, 23/11/2010, http://www.smh.com.au/opinion/politics/india-prospers-in-spite-of-scandals-20101122-1843u.html?posted=successful

It is interesting to see the inconsistency Peter Hartcher has shown in his approach to India and China.

He made a few summary points in his concluding remarks with the last one contrasting India with China.

Peter Hartcher can accept corruptions and economic growth with democratic India, but has great difficulties with China.

China has had a longer term rapid economic growth than India has so far and has a higher income and living standard.

But Peter Hartcher should also know that China also exposes corruptions and imposes severe punishment including death sentencing!

As in every country including India, the exposed corruption cases may be only a fraction of the real cases going on and China is no exception.

Yes, PM needs to smarten up - and it's not too difficult to do!

Comments on Niki Savva “Smarten up, PM, and do not wear green”, 23/11/2010, http://www.theaustralian.com.au/news/opinion/smarten-up-pm-and-do-not-wear-green/story-e6frg6zo-1225958810181

While the issues raised by Savva are interesting, they are issues of secondary or even lower orders as compared to real policies.

The key tests to Gillard include climate change policy, border protection, the NBN and federal relations, as well as water policies.

Guy marriage bill is nothing but a distraction to the really important policy issues the government needs to deal with, urgently.

The government can defeat the greens by developing sound as opposed to seemingly attractive policies. It should be progressive based with equity and efficiency in mind. It should have middle classes as the core of consideration, encourage working and competition and provide reasonable safety net to the struggling disadvantaged.

Unless Labor keeps pace with the aspirations of the majority of Australians, it will continue to struggle.

PS: summary of policies:
Climate change - a low and flexible carbon tax to start with that is revenue and trade neutral and its proceeds distributed to everyone on equal per capita basis that will have the support of the public and use the most efficient means to achieve policy goals.
Border protection - consider using Nauru as a intermediate step and develop a better regional policy.
NBN - a difficult issue, but better make significant changes and put ideology aside to make it more economic and competitive.
Water - need a balanced as opposed to being hijacked by extreme environmentalists.


International relations - what is appropriate and what isn't?

Comments on Vikas Kumar “China: Condemned to repeat the mistakes of the United States?”, 20/11/2010, http://www.eastasiaforum.org/2010/11/20/china-condemned-to-repeat-the-mistakes-of-the-united-states/
There should be a discussion on and distinction between what is reasonable international influence and what is undue interference of sovereignty of a country.

A good example but bordered on the extreme is the invasion of Iraq by the willing of coalition.

There is a view that China's foreign policy may still be based on the five principles of non-interference and etc., that some argue is outdated.

But there should be a limit in terms of both sovereignty and external intervention, otherwise things could easily get out of hands and everything and anything may be justified in terms of either sovereignty centric or intervention centric.

Japan's lost decades and those of economists'

Comments on Hugh Patrick “The Japanese economy’s recovery”, http://www.eastasiaforum.org/2010/11/20/the-japanese-economys-recovery/
With the recent serious in major industrialised economies and the difficulties in putting it behind in terms of constraints from macro economic policies, it is much clearer that Japan's lost decade of the 1990s should have been a serious area of economists to provide a good answer several years since it first occurred in the early 1990s.

But mainstream economists were not in Japan and Japan's problems and concerns were no their focuses.

Now many economists in the world should probably be awaken and attempt to find a good solution world wide but maybe first focused on the US and Europe with their own different economic issues.

For the US, one of the main questions is how to overcome monetary ineffectiveness and the difficulties in rationalising further increases of budget deficits politically.

For the EU, one of the main questions is how to resolve the common currency euro and more or less independent and sovereign fiscal policy and their implications for some weak economies within the euro zone.

In a sense, Japan's lost decades may be regarded as economists' lost decades in terms of missed opportunities.

The question the US is facing is akin to Koo's so called balance sheet recession.

It may be the case that the authorities need to manage the processes of both bubble formation and bursting, so irrespective what the bubbles are, they should not be let to burst in such a speed and process to affect the balance sheets so severely.

When a severe bursting did occur, the question is how to improve the balance sheets simultaneously without serious further distortion.


NBN will bury Labor at the next election - sooner or later

Comments on Paul Kelly “NBN heat is on and it'll keep rising”, 20/11/2010, http://www.theaustralian.com.au/news/opinion/nbn-heat-is-on-and-itll-keep-rising/story-e6frg6zo-1225956812030
The NBN is likely to sink Labor at the next election, no matter when it will be, early or late.

The opposition underestimated Labor's ability to use the NBN to its advantage in the last election and was ill prepared to attack it most effectively both during the election and post election negotiations with the independents.

That was the best Labor could get and from now on the flaws of the NBN will be increasingly exposed. On the other hand, the coalition has probably learned the lesson and will be much more focused on and sharpen its attacks on the NBN.

There may also be the likelihood of legal challenges to the forced decommission of copper network and forced closure of choices to consumers in the future. If that occurs, the government is likely to lose the legal case.

In all likelihood, the NBN will be stopped by a change of government in Canberra.

It will be a half completed project, unfortunately for Labor or fortunately for taxpayers to get the best among the worst from Labor.


China's road to prosperity

Comments on Jane Golley “China’s rocky road to prosperity”, 18/11/2010, http://www.eastasiaforum.org/2010/11/18/chinas-rocky-road-to-prosperity/
As an economist, I have often been puzzled by a number of economic issues concerning economic development and management in both the industrialised and developing economies.

One is the so called international imbalances and related closely to that is China's heavy reliance on exports and investment for growth in the past up to now.

Just consider the issue of a country's growth as an optimisation issue. If there are international markets the country can export to fully utilise its domestic resources as much as possible, why should it not be an optimal choice? Japan did that before, Korea did that before and Taiwan did that before. When it became China's turn, now it's regarded as a problem that caused global imbalances! What a puzzle and what a joke!

So is my puzzle with investment. Let’s analyse the main differences between the industrialised and developing economies in traditional economics of the Solow growth model. The key difference is capital per capita or per worker. What and how can developing countries mitigate or eliminate that difference? It is investment. Is there any other way to increase capital without investment? I doubt it.

Another fundamental issue is how to manage the economy. China used to be a planned economy but has become largely a market economy. Traditional and orthodox economics tells us that it is macroeconomic policies, namely monetary and fiscal policies to get full employment and low inflation. Apart from that it is difficult to talk about economic structure because that becomes an autonomous by-product of good macroeconomic policy and private entrepreneurs. However, we are now confronted with China’s economic structural issues. What can we say about it?

Then we are confounded with political reforms, democracy or the lack of it. I remember that in the past there were the terms of Japan Inc, its industry policy and certain organisational characteristics, as well as some for Korea's. While I am not saying they were not democracy, those terms must have meant something, maybe that were not fully consistent with the orthodox western democracy and a liberal economy.

Japan’s road to prosperity in the second half of the last century had its uniqueness, so had Korea’s and Taiwan’s. China has and will have its own, even if it means it is at a much larger scale.

While I agree with Jane Golley’s point that ‘be prepared that some of our predictions may well turn out to be wrong’, I am not sure it is upside or downside biased.

For another issue altogether, the transitional or turning point in the Chinese economy in terms of the end of surplus labour means the argument that China’s currency is under-valued is low currency itself. It will be disastrous for China to bow to the US pressure to appreciate its currency prematurely. The rising labour costs will reduce current account surplus.

The argument for low carbon economy, while not irrelevant itself, is not unique to China and China's growth.

Frequent flier Gillard upto NATO!

Comments on Dennis Shanahan “Frequent flier Gillard down to earth on war”, 19/11/2010, http://www.theaustralian.com.au/news/opinion/frequent-flier-gillard-down-to-earth-on-war/story-e6frg6zo-1225955948878

One has to ask why at this time "THE PM is taking a stronger position on Afghanistan than her two predecessors did."

It may be the case the PM does not have any other policies or is unable to have any other initiatives, so she is using this to show she has got something after all!

Don't forget the strong contrast that the Obama administration has been talking about withdrawal from next year and that our PM is talking about what?

It is a shame for the PM and a shame for the nation she is fooling.

PS: Note further the contrast between her willing trip to the NATO meeting and her government's refusal for releasing the information or business plan of the NBN and refusal for a cost benefit analysis.
They may get away with such irresponsibility, but they cannot escape from being judged by the taxpayers.

NBN and Labor's claim of economic responsibility - such a joke!

Comments on Katie Lahey “Lack of policy won't stop NBN”, 19/11/2010, http://www.theaustralian.com.au/news/opinion/lack-of-policy-wont-stop-nbn/story-e6frg6zo-1225955937158
Only the most irresponsible or dumbest government does not want a cost benefit analysis of such a large project for the nation.

The government claims it is economically responsible. Is this what it means?

From the initial plan of a few billion to a sudden announcement of the $43 billion to the continuing insistence of no cost benefit study and reluctance in releasing related information for the project, every step has showed how responsible Labor is!

It is a pity that there is no other way for the taxpayers to stop this insane action by the government.

There should be federal anti corruption watch dog to scrutinise the federal government.


Health reforms and the 30% GST hand over by the states and territories

Comments on Sue Dunlevy “GST row threatens health reforms”, 18/11/2010, http://www.theaustralian.com.au/national-affairs/gst-row-threatens-health-reforms/story-fn59niix-1225955231264
The strangest thing was why those states and territories that will hand over more than 30% of their GST had agreed to the deal in the first place.

According to the revelation of this report, the ACT will hand over back between 48 and 50 per cent of its GST, that is very different from 30%.

I remember that the ACT chief minister Stanhope said it was a good deal for the ACT.

One has to wonder what can be a worse deal for the ACT!

PS: the information on how much a state or territory has to hand over its GST is contained in the federal budget paper no. 3, 2010-11, that has been available since the budget night early this year.

Urban, CGC and PC

Comments on Peter Urban “Simplified GST sharing formula is simply wrong”, 18/11/2010, http://www.theaustralian.com.au/news/opinion/simplified-gst-sharing-formula-is-simply-wrong/story-e6frg6zo-1225955199371
While I am not in the position to comment on the validity of Urban's arguments on the issues of the CGC assessments, his recommendation of splitting the CGC and having the productivity commission to do the main reviews assumes that the PC is good at everything and is better positioned than the CGC to do those.

Unfortunately, that is a big, critical yet untested assumption.

It is interesting to note but difficult to understand why the PC could be good at everything and better than others that are engaged in their specialties.

It would be a much better approach to specify clearly what the governments want in the terms of reference given to the CGC for its reviews.

Get rid of the two-party preferred voting system

Comments on Greg Sheridan “Baillieu shows guts on Greens”, 18/11/2010, http://www.theaustralian.com.au/news/opinion/baillieu-shows-guts-on-greens/story-e6frg6zo-1225955203217
The issues associated with preferences reflect the shortcoming of the current voting system.

There should not be a two-party preferred voting outcome. It should be left with the most voted party to be given the right to govern, as opposed the one based on a strange two party preferred winner.

To prevent the system to be too fragmented, there should be some rules on what party or independent can enter into an election based on certain minimum numbers.

If in the end, some extreme left or right are elected on their own rights but not on preferences, so be it. That is what our democracy is about and we should not complain it whether we like it or not.

Marginal stagflation in China

I was asked the following question: 有人说中国将进入高通胀,低增长时代,老百姓要吃苦几年了,您怎么看?
The following is my reply:

I am at work and have to use English.

I think it is possible, given the amount of money in the system and the slow recovery of the west economies.

China will have to adjust its economic structure to use both trade and domestic demand as the combined source of growth for the future, say the next decade or so, then to move to rely mostly on domestic demand as the main source.

In such a period of transformation, growth may not be as fast as that in the past which had the world demand as the key source of growth until China can manage the growth of its domestic demand. It requires a fine balance of the relationship between capital and labour on the one hand, and the economic structure to meet the domestic demand.

But, China should encourage its citizens and firms to look at overseas to acquire assets as a tool to manage its domestic demand to release its demand pressure and to increase their wealth, which will make the management of the economy easier than otherwise.

There are many overseas assets market depressed and they represent opportunities. But it needs well managed as well.

To answer your second point, it will depend. The government should encourage labour are paid appropriately. Instead of appreciating the RMB to balance external trade that may damage employment, it should look at the export price side as a result of better paid labour. If labour wages increase, then it should not be too bad as long as inflation is under reasonable control.

But in terms of exchange rate regime, I think it is better to peg to a basket of key currencies, including $US, euro, Yen and others, based on trade relations.

There is a question of what to do with the $US assets.

PS: Yiping Huang has a post on marginal stagflation in China:

The US QE2

Comments on Suman Bery “India and global monetary disorder”, 16/11/2010, http://www.eastasiaforum.org/2010/11/16/india-and-global-monetary-disorder/
In terms of QE2, is it because there is not enough cash in the US system? There are reports that there is money hoarding in the US, so what more cash can do to its economy, apart from lowering the $US?

In that case, is the exchange rate market determined or not, or is it market mechanism? Who is manipulating currency? No wonder it has been condemned!

The US complains other countries’ currency policies for its economic problems, but conveniently ignores its own currency policy on exchange rates and the reserves held by others.

PS: the following is an open letter from some economists in the US to Ben Bernanke opposing QE2:

North-East Asian economic integration

Comments on Andrew Elek “North-East Asian economic integration: APEC or FTA games?” 17/11/2010, http://www.eastasiaforum.org/2010/11/17/north-east-asian-economic-integration-apec-or-fta-games/
While many of Andrew's arguments are undoubtedly valid in an ideal world, he only mentioned but ignored the implications of NAFTA on other regional preferential agreements.

Further, it is difficult to understand why the three governments could not see the advantages and disadvantages of a North-East Asian FTA that Andrew has in mind.

It is a question of who failed to understand what.

New dawn in the east and the US

Comments on Geoffrey Garrett “US looks to new dawn in the east”, 18/11/2010, http://www.theaustralian.com.au/news/opinion/us-looks-to-new-dawn-in-the-east/story-e6frg6zo-1225955152493
For the US new Asia Pacific strategy to succeed, it must be in its long term interest and the US needs to show a long term determination to pursue it. It also depends how China will react and how successful China's economy can be and how it can transform into a viable alternative model.

There are uncertainties on both sides and the long term outcome is far from deterministic.

Any current predictions are likely to be premature, no matter how they might appear to be reasonable or ideal at present.

Gillard should lead as opposed to follow

Comments on Arthur Sinodinos “Gillard must develop ideas worth fighting for”, 18/11/2010, http://www.theaustralian.com.au/news/opinion/gillard-must-develop-ideas-worth-fighting-for/story-e6frg6zo-1225955200804
Relatively speaking, education is one of the least problematic areas among the nation's priorities.

Federal taking over of education, including TAFE, is likely to be a bad idea. State government must retain some lever over the skills of their labour force and TAFE is an important means to achieve it.

The federal government should focus on macro policy areas that affect the whole nation.

It should find ways to enhance federal-state cooperation in achieving better outcomes, as opposed to short term politics to compete with the state governments.

While climate change is in danger of being hijacked by the Greens, it is a key area that Gillard should fight for, because the public are likely to use it to measure Gillard’s success or otherwise.

Given that Gillard has already been seen having changed her stance on carbon tax, she should pursue a carbon tax that is revenue and trade neutral to be her initiative and policy.

Tax reforms are another key area where Gillard could leave a mark. The government could design a staged approach to the flat tax in the Henry review report: first to raise the tax free threshold to $15000 and then in another X years to $25000, for example. Accordingly, the associated expenditure side reforms or simplification would also be phased in by two stages. This staged approach has another advantage: it gives the government a chance to improve in the second stage based on the first stage results.

But in the longer term, the division of national tax revenue between federal and states should be a key area of reform based on the optimal division of services and policy management between the two levels of government.

These reforms to tax and federal relations should be aimed at bipartisan.


Gillard needs real actions not constant rhetoric

Comments on Julia Gillard “Carbon price now or we'll pay later”, 17/11/2010, http://www.smh.com.au/opinion/politics/carbon-price-now-or-well-pay-later-20101116-17vti.html?posted=successful
The Prime Minister keeps saying carbon price, but people are confused by what she means because she is constantly changing her stance.

Also, it is not necessarily true that businesses don't invest because of uncertainties on carbon price in Australia. Businesses should be able to price future electricity price/costs out of these uncertainties.

Further, only talking about carbon price without seeking the most efficient way to achieve it is no different from spin.

Besides, talking about spiralling power price without addressing how the consumers/people should be entitled to the carbon proceeds is no different from hypocrites. It is scare tactics.

We need a prime minister of action. We don't need a prime minister for power grabbing.

A prime minister in action should go for a revenue neutral and trade neutral carbon tax complemented by additional measures to encourage other carbon offsets.


How the PM can deal with the crisis of authority

Comments on Paul Kelly “Prime Minister's crisis of authority”, 6/11/2010, http://www.theaustralian.com.au/news/opinion/prime-ministers-crisis-of-authority/story-e6frg6zo-1225948547720
While those issues “arising from the resources boom, the finance sector, federal-state relations, climate change and boat arrivals” as Kelly put it, are challenging, they are not insoluble.

The two issues related to resources boom and federal-state relations can be dealt with by allowing resources booming states to retain a reasonable portion of their resources rent/tax with no redistribution among the states, similar to what Canada does.

Climate change can be dealt with by introducing a low carbon tax that is revenue neutral and trade neutral, with the provision to raise/change the tax rate consistent with international actions on climate change. This should be politically possible.

In terms of the finance sector, much stronger competition should be introduced with strong enforcing measures. It is interesting to note that when superannuation funds are concerned, there has been talk about default low fee funds. Why isn’t it possible to consider a similar mechanism for mortgages? It is more complex, but there is considerable scope in this field.

The issue with boat arrivals can be more difficult, mainly because of Labor’s refusal to use Nauru as the solution. But it could use it as an intermediate step until a new regional agreement is reached. Australia has provided aid to Nauru in relation to the detention/processing centre there. Why could Australia re-use it temporarily?

Asia needs a new paradigm

Comments on K. Kesavapany “Asia risks sabotaging its own rise”, 5/11/2010, http://www.eastasiaforum.org/2010/11/05/asia-risks-sabotaging-its-own-rise/comment-page-1/#comment-229361
Asian countries, like European countries earlier on, have historical issues between some of the members.

While Western European countries have united through the European Union in the middle of the last century and some of the Eastern European countries joined that in the past two decades, Asian countries have not gone through such a process.

Asian countries are more diverse politically and economically.

Now some historical territorial disputes flash up from time to time and countries involved have not found a framework or paradigm to deal with and resolve them.

A potentially difficult issue is that China is big and increasingly more powerful on the one hand, and some others may feel to rely on the support of external powers to deal with China, but China may not like it.

That mentality, however, may further escalate regional tensions from time to time.

What all countries need to realise is that is likely to result a lose-lose outcome to all, possibly spread well over the disputed areas and outweigh the potential benefits from any territorial gains.

What every country should consider is how to achieve a win-win outcome for every country directly involved. And that is a challenge and requires a new approach from all sides.

PS: The fundamental issues are that China is here to stay and will become more and more powerful, but how China manages its rise and other regional players deal with China's rise will determine Asia's collective welfare, including China's.
Given China will be the single most powerful country in the region, it should take proactive initiatives to set examples for peacefully resolving regional disputes, by devising a fair rule with acceptable outcomes to every side with a open and fair mind.