Welcome to Dr Lincoln's blog

Welcome for visiting my blog. Hope you enjoy the visit and always welcome back again. Have a nice day!


Gini coefficients and growth effect

comments on Cao Xin "China: The question of income distribution", 28/08/2011, http://www.eastasiaforum.org/2011/08/27/the-question-of-income-distribution/
I need to state that I am not an expert on income distribution both on time series and on cross countries. I was wondering, however, whether economic/income growth should be taken into account to judge income distribution in terms of Gini coefficients.
When two economies are having very different growths, the same level or change in their Gini coefficients may have different implications for the disadvantaged in their respective nations/peoples.
This could be a very interesting empirical research topic to see if growth has an impact or not.


China's gradual evolutionary approach has been very constructive

Comments on Christine Wong “China: How far across the river?” 26/08/2011, http://www.eastasiaforum.org/2011/08/20/china-how-far-across-the-river/

I think the article by Zhao Boying, China's Road, is revealing in terms of China's gradual evolutionary reforms and development, in many areas.
While there was a broad consensus for reforms in the early days of reforms, China did not have a big bang design of reforms. It was one step at a time and some times there were back and forth, reflecting the fundamental guiding line of "touching stones to cross the river".
Inevitably, there were many unexpected results and outcomes that needed fixing. Government finance and services have not been exceptions.
Also, to get the whole system reformed/changed, the idea of allowing some to get rich first, seemed to also have a regional dimension as well as people dimension
China's reforming process is far from over and will be a long one. The gradual evolutionary approach has had its shortcomings, but has also achieved huge successes, especially compared to the former USSR and many eastern European countries.
If China can continue this evolutionary approach, but at the same time recognise the fact that as reforms proceed further and further, more experiences are accumulated and also where and how to get to the end point is becoming clearer and clearer, more systematic designs may be possible and could be implemented.


An election sooner would be better

Comments on Rob Burgess “Labor can't wash off the stench of vice”, 25/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Labor-Craig-Thomson-government-Julia-Gillard-NSW-H-pd20110825-L2TR9?OpenDocument&src=rot

An election is due for good reasons. It will end an incompetent government that is further compromised by its alliance with the Greens and also heavily influenced by the independents so one person can have hugely disproportionate influence to make the system very poorly governed.

While the opposition has not outlined a comprehensive policy setting, the current government has shown its wasteful character and poor policy making and governing.

So, one is known to be poor and the other is potentially unknown poor but also potentially better.

In such circumstances, I think the majority of voters are likely to see a change of government.

There might be some tears in the minority of voters, but it will be good for the nation should an election be had sooner rather than later.

It is not a perfect world and it is unreasonable to expect the opposition be perfect.

One has to choose the lesser between two devils. On balance, the opposition seems a better bet.


Many of Government's problems are largely Swan's

Comments on Paul Kelly “Labor turns the boom into a crisis”, 24/08/2011, http://www.theaustralian.com.au/news/opinion/labor-turns-the-boom-into-a-crisis/story-e6frg6zo-1226120742007

Yes, it is the government's misjudgement and mismanagement that exacerbate the current manufacturing problems. However, I would attribute the bulk of the government's problems to the Treasurer Mr Swan.

Many of the government's problems are economic problems that are inherently Treasurer's main responsibility.
Rudd's mining tax problem, and the corporate tax relief problem and Gillard's carbon tax problem, they can all be related to Swan's poor judgements and poor management of economic policies.

Needless to say, Swan played a very poor role in Rudd's disposal.

Deeble is wrong on PHI

Comments on John Deeble “Health insurance rebate changes won't hurt”, 24/08/2011, http://www.theaustralian.com.au/news/opinion/health-insurance-rebate-changes-wont-hurt/story-e6frg6zo-1226120746949
John Deeble, though architect of Medicare, is using arguments that are out of date and out of appropriate context.
The argument of the "capacity to pay principle" is misleading at best. One should not ignore the fact that the private health insurance has been forced to many people by government and is not their own voluntary choices.
Even taking the point of Deeble's equity argument, there should be at most a ceiling of subsidy to a family, adjusted by the number of people in a household covered by the insurance.
On the contrary, Deeble simply spreads and propagates the government' point of view and argument that is neither equitable nor fair by any reasonable standard.
His thinking of Medicare principle should have moved on to beyond simple equity measurement and realise and acknowledge the fact that higher income people contribute to a higher share of Medicare contribution per person and in return to receive the same medical services from public hospitals.
The proposed reform by the government masks its out of date ideology and targets many people unfairly just like the payments related to its proposed carbon tax that ignores the fundamental rights of everyone equally to a better environment and is used by the government for income redistribution purpose that is appalling and should not be passed to law.

A mechanism for a transfer union, the euro zone

Comments on KarenMaley "Will Merkel snap the olive branch?" 24/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Angela-Merkel-Greek-bailout-eurozone-debt-crisis-m-pd20110824-KZU3L?OpenDocument&emcontent_Maley&src=rot

Well, there should be some risk premium to be paid by higher risk members to lower risk members to reflect different levels of sovereign risks among the euro members, and as a measure of discipline for any careless and or imprudent policies by certain members.

It would also alleviate the concerns of lower risk and more prudent members, and as a reward or as a guarantee to them so that they will not completely sacrifice themselves for any imprudent members.

Of course, the premium paid by any member should be smaller than what it could get from capital markets for the mechanism to work effectively and in every member's interests.


A struggling government unlikely to survive

Comments on Ben Packham and James Massola “Julia Gillard links carbon price to a 'bright future' for manufacturing”, 23/08/2011, http://www.theaustralian.com.au/national-affairs/steel-push-to-secure-local-jobs-as-julia-gillard-resists-protectionism/comments-fn59niix-1226120243132

What Gillard said might work in the very long run, but she and her government have not demonstrated how to make up for short to medium runs of their strategy to work.

The problem is that the short to medium runs are crucial for the nation and for a government, particularly so when it has been struggling enormously already.

Inevitably Gillard and her government are going to fail in designing a workable strategy and a set of policies to survive long enough of the short to medium runs.

Her alliance with the Greens means it is impossible for her to be flexible enough on the carbon tax to make it work effectively and to the best of our national interests.

Gillard has also swung the IR system too much into the area of inflexibility.

The political need for her government to show it is able to produce a budget surplus means there will not enough investment in productivity and critical infrastructure, especially in the context of the huge investment used for the NBN.

Low productivity growth will make impossible to deal with the adverse impact of the mining boom on most other sectors effectively.

Unfortunately for her, Australians on longer have any patience with Gillard and her government. And that will be fatal for her government.

It is political impossibility. What she is saying is likely to be perceived as stubbornness and silly political rhetoric of a person out of touch and with ignorance.


Are the much mentioned euro bonds feasible?

Comments on Martin Sandbu "Shaking off Europe's German bonds", 18/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Eurozone-debt-crisis-eurobonds-markets-yields-Germ-pd20110817-KT3T8?OpenDocument&src=rot

While the argument that size matters is reasonable enough, the use of the US and Japan as example needs some caution, because each has its own advantages that are not just limited to their sizes.
Japan first. How much of the Japanese government bonds is has been bought and held by funds and people outside Japan? My answer is likely to be: not much and its share is small. If that answer is correct, then it shows the Japanese are different in some key aspects in terms of their portfolio investments in Japan and abroad, as opposed to most other people in the west. It is the Japanese they themselves buy their low yield government bonds.
Now the US. It is true that it has been the largest economy and also a very large government bonds market - that is, its size is large. However, its political influences and its role as the leader of the west world also have a significant effect beyond the size of its government bonds market.
Ignoring these characteristics of Japan and the US is likely to make the argument and conclusion questionable.

Of course, another consideration is whether the individual states of the USA need to issue their own bonds or can they use the federal government bonds to finance their own debts.

One needs also recognise the further difficulty that the euro zone or EU have a looser structure than the USA. Would the key members that are in a better state be willing to subsidise other members so explicitly?

Costs of carbon tax and modelling work

Comments on Gary Johns "Convoy a revolt of working people" 18/08/2011, http://www.theaustralian.com.au/national-affairs/commentary/convoy-a-revolt-of-working-people/story-e6frgd0x-1226116943715

While what Johns argues may seem reasonable, the same line of argument could/would put the costs of no action on carbon equally large, or they might be even higher.

There are many variables, factors and scenarios that are very difficult to model, as most modellers or people close to modelling works are aware. This may be a double edged sword, and could be used either in favour of the Treasury modelling or against it.

The real issues are whether actions should be taken to mitigate emissions of carbon dioxide, and if the answer is positive, how actions should be taken.

Another disappointing piece from Sheridan

Comments on Greg Sheridan "Kowtowing to the Chinese on human rights won't earn their respect", 18/08/2011, http://www.theaustralian.com.au/news/opinion/kowtowing-to-the-chinese-on-human-rights-wont-earn-their-respect/story-e6frg6zo-1226116945864

This piece from Greg Sheridan is disappointing, as usually the case when he wrote about China or the US.

He does not appear to have moved a bit from his cold war era mentality and thinking. Nor does he appear to have recognised the rapidly changing strategic equation between the US and China.

More disappointingly is his black and white reasoning and comments on people in Australia in particular and in the west in general regarding to their analysis on China.

In his mind, any people who are a bit hawks to speak about China are the best mind in diplomatic field, and those who are more realistic are problematic.

It is disappointing of the Australian Newspaper to have not employ a better mind in its foreign affairs editor, although in the paper is generally very good in many fields it covers.


The carbon tax and governance

Comments on Dennis Shanahan “Credibility joins carbon crusade”, 17/08/2011, http://www.theaustralian.com.au/national-affairs/commentary/credibility-joins-carbon-crusade/story-e6frgd0x-1226116270286
The government would sound more credible if it hasn't used the carbon tax as a way for wealth/income redistribution as it has proposed in its carbon tax package, and it got a border carbon adjustment to not distort and reduce Australians' comparative advantage in trade of goods and services with other nations.

These fatal shortcomings of the government's carbon tax bill are related to ALP Robin Hood ideology and its cowardice to confront other powerful nations in terms of equal treatment.
Of course, the compensations for businesses should not be as generous to recognise that businesses can pass the higher costs due to carbon tax either fully or at least partially as they are proposed in the bill, and more compensations should be for households on an equal per capita basis to remove the income distribution effects.

Further, it is hard to understand why it will be necessary to move from a carbon tax system to an ETS, given that the former is more efficient and involves fewer transaction costs. Of course, some financial market participants would like to have an ETS for the addition financial opportunities created by that to benefit from it. Further, bureaucrats would like it to create more government jobs and powers for them.

Taken together, it shows the government is incompetent, out of date and out of touch. This is another reason that it would be better for the government to seek a mandate for its carbon tax and ETS at an election. I should say I am not politically biased and is not pro or against any of the major political parties and I just would like to see fairness in politics and in governance.

Households real income and housing costs

Comments on Christopher Joye "The house that pocket change built", 17/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/RBA-house-prices-mortgage-rates-disposable-income-pd20110816-KS3L5?OpenDocument&src=rot

It is an interesting article and useful information.
However, could the auther do some further anlaysis, removing some of the changing factors like the increase in 'empoyment' per household, and possibly a scenario of adjusting for interest rate change to see a case if interest rate moves higher?

Doing those would provide a more comparable comparison and is likely to singificantly qualify the conclusion the author derived. It would also provide some sensitivity analysis for affordaility when interest rate moves unexpectedly.


Rethink and redesign economic policies

While the suggestions in the post are obviously rational economic thinking, they may encounter stiff political headwind at the current political and government deficits and debt environment.

I think any rational economic arguments must take into account the current environment and constraints to be feasible and practical.

The US obviously needs to increase tax, or reduce expenditure to be fiscally sustainable. But at the same time, fiscal policy should have a real expansionary effect to stimulate the economy and get it back to normal growth and to reduce unemployment.

The two may apparently appear to be contradictory ad unreconcilable. However, the right fiscal policy can still be designed and implemented.

What the US, and indeed many other west economies which are having similar problems, need is to shift from the pure quantitative fiscal thinking in economics to designing the a better structural fiscal policy to increase the real effectiveness of fiscal policy.

For example, the practice of work for the dole program that has been seen in Australia could be supplemented by directing the "workers" to work for government public work, or for private enterprises to have a win-win-win situation for both the government, private enterprises and the unemployed.

In fact, many policies could be redesigned to make the same quantity of fiscal expenditure to have a much greater effect, so to increase the effectiveness or productivity of fiscal spendings.

In terms of increasing taxes or ending the tax cuts, a more politically feasible option is to end or reduce the tax cuts for all, both rich and poor, by the same proportion, at the same time, the US government could make those reductions a low or no interest 'loan' available to the same people. In that way, the fiscal sustainability can be achieved while the impact on real consumption is minimised.

So, if economists and government policy makers are innovative and creative enough, the current economic problems can be resolved.


Scared they've been on the run

Comments on Dennis Shanahan "erils for PM in hanging on to surplus", 12/08/2011, http://www.theaustralian.com.au/national-affairs/commentary/perils-for-pm-in-hanging-on-to-surplus/story-e6frgd0x-1226113362948
Gillard and Swan and their government has been particularly stubbon in promoting the budget surplus line of argument, so much so that they have greatly damaged their images and lost touch with the public. the flood levy, for example, was completely unnecessary, especially in the context that they had also pledged a carbon tax to come and the public were uncertain and concerned about the impact of the carbon tax in the coming years. Consumer confidence as well as business confidence have further eroded by the persistence of the surplus pledge at the expense of prudent economic and budget management.
Of course, Gillard and her coleagues have been aware of their broken promises, particularly the one on carbon tax, and the potential damage of further broken promises. But one has to weigh the benefits and costs of each policy and the totality of all policies and make the best choices and choose the lesser evils.
Unfortunately, Gillard and her colleagues have been scared and have not been able to show they are able to do the best and right things. they have tended to make policy on the run and rush to announcements without fully consider ttheir effects, for the nation and for themselves.

What all these show that Gillard and her colleagues in government have been unable to show true leadership. And that is not good particuarly for Gillard.

PS: see also: Alan Kohler "A surplus of political stupidity", 12/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Wayne-Swan-budget-Julia-Gillard-economic-crisis-ma-pd20110812-KMSTR?OpenDocument&src=rot.


Huge growth differential between Aussie's and the US' housing markets

Comments on Chirstopher Joye "Australian housing's hidden US affinity", 4/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/property-US-Australia-home-sales-house-prices-pd20110804-KE3WV?OpenDocument&src=sph&src=rotIs Australians' housing really in the affinity of the US's? The data Joye presented do not support that.

Although the differential growth between the two markets in real terms is small, they are always small as opposed to large anyway in reality. However, the whole period actually shows a really remarkable differential of 2 percentge points.

In another word, the US growth during the period is only about 1/5 of  that of Australian's. Looking from this point of view, one would not find it difficult to conclude that either the US is significantly undervalued, or the Australians' is overvalued. Alternatively, the starting points might be not comparable. But this can be checked from the current house income ratio.

To conclude, Australians' housing market is likely to be highly over valued, if the data presented by Joye is reliable and comparable.