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Further reforms needed in China

Comments on Susan Shirk "Can China’s leaders harness support for change?", 25/10/2013, http://www.eastasiaforum.org/2013/10/23/can-chinas-leaders-harness-support-for-change/

My feel is that it should be fairly easy to have the support of the vast majority of the Chinese people for further and sensible economic reforms, perhaps easier than it was 3 decades ago, when it was so difficult for people to struggle between the planning system and a market system, so that Deng invented the phrase “cross rivers through touching stones” and used that gradual approach to carry out reforms.
Nowadays, the market system has been almost fully embraced by the nation (apart from perhaps some of the monopoly state owned firms) and many people are currently the victim of monopolies as well as some economic policies including macroeconomic policies that give preferential treatment of the state monopolies at the expense of the vast majority of the people, such as low deposit rate and high lending rate with state owned firms treated favourably, the restrictive household registration system, the monopolistic pricing by state owned firms, etc.
Given there are high ranking officials in or associate with some state owned firms under investigations or prosecutions for corruptions or bribery or some misbehaviours, the resistance from vested interests in state owned big firms may not be as strong as many people thought.

There should also be real decentralisation in fiscal powers from the central to local governments, and at the same time to move the ocal government away from excessively relying on revenue from land sales and the use of grey banking for their finance.
However, any further reforms must have a focus of economy wide benefits and national interests that may mean starting with lifting
any restrictions for domestic players as the first step.


Shanghai Free Trade Zone - Benefits likely outweighed by costs

Comments on  Bo Chen "Pilot free trade zone in Shanghai to build open economy", 20/10/2013, http://www.eastasiaforum.org/2013/10/19/pilot-free-trade-zone-in-shanghai-to-build-open-economy

While there may be some merits in experimenting a FTZ in China and Shanghai is certainly a good place to do it, many in China may equally feel whether it would create another venue of corruption for officials and people in power positions given the rampant and widespread corruption in China including many high level officials who are exposed and the likelihood more are on the way.

China needs not and should not be concerned by the TPP at any time soon. It is unlikely to achieve what the US has been trying to do, given the diversity of its members and the different ability to wear the shocks of the US approach. As a result, there is no need to be fearful of it.
There are better ways in China to further economic reforms than a free trade zone with special policies that are always inevitably taken advantage by people seeking rents to profit from it.
Internal banking and finance reforms to reflect the costs and benefit of finance, deposit and loans and to allow private banking and finance firms to compete and to bring the grey or semi grey banking into open and give those legitimate roles, for example, will go a long way for better resource allocation.
More than 3 decades of economic reforms and open door policies should be ripe enough to see the benefits of widespread and nation wide reforms as opposed to generating differences and fragmenting the national market.
A FTZ is now more likely to serve as a new source of resource misallocation rather than to improve it.

Australia is too small compared to the US

Comments on Robert Gottliebsen "Skinny returns sing a shameful tune", 22/10/2013, http://www.businessspectator.com.au/article/2013/10/22/markets/skinny-returns-sing-shameful-tune

Robert, there may be some more fundamental macro factors in play than what you analysed.

The Australian stock market and its investment market too is small and is at the mercy of international capital movement, while the US enjoys the benefit of being safe heaven status.

Further, QEs and its resultant low interest rates in the US has been conducive to its capital returns including both the real economy and the stock markets there.

Back in Australia here, while the interest is at historic lows, it has been and still is significantly higher than that in the US.

IMF regime needs rethinking and a redesign

Comments on Stephen Grenville "

In the line of rogue US firepower

", 22/10/2013, http://www.businessspectator.com.au/article/2013/10/22/economy/line-rogue-us-firepower

There is a fundamental inconsistency in macro economic policies between the flexible exchange rate that can overshoot for a significant period of time and affect the real economy and import and export prices and the monetary policy for price stability.
This reflects a failure in mainstream economics and a gap in logic economic thinking.
Of course, the inability or the limited ability of most countries to defend the value of their currencies can be a factor.

But this should not be an excuse for failures in economic thinking to design a capable international or world monetary regime that can have both the benefits of currency flexibility and the stability of prices including for both tradable goods and services.


Balanced and unbalanced growth again

Comments on Edward Oughton "Connecting China’s broadband ambitions to development",5/10/2013,http://www.eastasiaforum.org/2013/10/03/connecting-chinas-broadband-ambitions-to-development/

Balanced economic growth perhaps needs s clear definition. This is because it is not clear how the idea of balanced growth needs to be reconciled with comparative advantage theory in international trade.

To illustrate the point, if every country has the same economic structure, is that a balanced or unbalanced world economy?

Secondly, if comparative advantage theory has relevance (as I suppose it does), it means a country’s economic structure is to a large degree determined by its comparative advantage. Then it follows that the balanced growth must be consistent with this path of growth along the lines of changing comparative advantage.

PS: These comments seem to be at odd with the title, this is because the article started with the following: "Premier Li Keqiang recently stressed at the World Economic Forum that structural economic reform is pivotal if China is to achieve a sustainable economic growth trajectory.

China evidently needs to balance its economy to avoid overreliance on its manufacturing base. The government’s latest plan to invest $US323 billion in expanding fixed-line and wireless broadband connectivity will bring it one step closer to this goal by helping to spur the development of its service sector."

It seems people are so with balance and imbalance and it is very fashionable.


China's growth: how unbalanced is it?

Comments on Yukon Huang "Understanding China’s unbalanced growth", 1/10/2013, http://www.eastasiaforum.org/2013/09/30/understanding-chinas-unbalanced-growth/

Yukon Huang provides an interesting and fresh analysis of the causes of the Chinese aggregate economic composition and the link to the past transitional experiences of Japan and Korea is particular insightful.

It is difficult if not impossible to achieve fast rapid economic growth and rapid urbanisation for a long and sustained period in a huge country like China with high consumption and low investment, because urbanisation by nature requires huge investment in housing and infrastructure.
The notion of imbalance between investment and consumption in the China case is itself confused with the so called external balance particularly when major industrialised countries have been struggling in the wake of the GFC.
External balance, however, can be more easily understood because there is an external demand constraint.
The so called investment and consumption, however, is harder to understand in theory as Huang mentioned. That is because as long as investment is supported by savings particularly when there is demand for investment like housing and infrastructure associated with urbanisation, it is hard to call it imbalance.
People including economists should not simply apply the aggregate proportion norms in the mature and industrialised economies to rapidly industrialising and urbanising countries.
It is a wrong approach.


Can there be a China model?

Comments on Yu Keping "Search for balance in China: a quest for dynamic stability", 23/09/2013, http://www.eastasiaforum.org/2013/09/22/a-quest-for-dynamic-stability/

Given the current contradictory between what the CCP official line says and the difficulties to reconcile that with the affluent societies in the West democracy, it will be very difficult to advance the Chinese fairs without creative and innovative thinking, reforms and great leadership.

While it may seem an almost impossible task, somehow the CCP needs to find a way that guarantee its ruling party status and the long term and continued acceptance by the vast majority of the Chinese people.

That would require a new social contract to be written between the CCP and the Chinese people.

That contract must ensure that the CCP is a collective force and the best one for raising the living standards of the Chinese people and the CCP is not corrupt, democratically governed for all Chinese
people, respects the law and creates the condition in which everyone
who makes effort can succeed.

Is that a difficult task? Surely it is.

Is that an impossible task? It depends, but only time will tell.
What it implies is that the CCP should learn from its history including its past before the PRC and the reform era and the history of the world and to form a new framework and a strategy.

NBN should not be a monopoly

Comments on Alan Kohler "The NBN board has run away. Why?", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/information-technology/nbn-board-has-run-away-why

Alan, while your analysis has obvious merits, there are ways both to allow competition and to make the NBN profitable you have not considered.
Competition is to create a level playing field for all participants and not to create entry barriers. As long as NBN is not allowed to be a monopoly and treat it and other competitors equally, competition can be achieved.
While NBN profitability is dependent on the level of cross subsidies from urban to rural areas, this could arguably be achieved through, say, a national charge to all suppliers to urban areas including both the NBN and non-NBN ones. The income from this can be used to subsidise rural users or suppliers to rural areas.
The upshot that is most important is to allow competition for innovation and efficiency. Other policy objectives can be achieved through other means.

Under this framework the Coalition's NBN policy may not necessarily create a board problem for any NBN Co. Further, the Coalition government is unlikely to ask any board to do the impossible.

There are two dimesions in fiscal policy

Comments on Stephen Koukoulas "Sense should squib a surplus promise", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/economy/sense-should-squib-surplus-promise

The talks of whether the budget is in crisis or not come down to different perspectives and what you compare with. If one compares ours with those in deeper trouble as Stephen did, ours is in a much better shape and not in crisis. On the other hand, if one compares with prudent practices as the Coalition implies, ours was not good and the speed of the debt growth may be described as crisis.
Both have a point of their own logic and reasoning.
However, the right thing to do is to choose the better elements of each side and do a better job in both managing the budget (better than in the past years to avoid wastes and reduce unnecessary spendings and achieving surplus as early as possible) and keeps the economy growing (the traditional fiscal policy management for the economy).
To achieve that, the government needs structural reforms to government expenditures to achieve the same outcomes with less spending or achieve better outcomes with the same spending.
So, it is important to bear in mind that fiscal policy has two dimensions of both a aggregate size and its structural content and work on both aspects to achieve the most optimal outcomes.

A good economist pays attention to both dimensions when considering fiscal policy.


Change the GST or not?

Comments on LAUREN WILSON "Tony Abbott dismisses fresh push to re-examine the GST", 20/09/2013, http://www.theaustralian.com.au/national-affairs/tony-abbott-dismisses-fresh-push-to-re-examine-the-gst/story-fn59niix-1226723309057

The current government prior to the federal election said GST will be included in its planned tax review and also said earlier GST won't change in this term of government and any change will need to get a mandate from the next election, although latter on it was changed to GST will not change.

My reading of the government's approach is that it will continue to say GST won't change until the review report is publically available  with recommendations that the GST should be changed. There appears a case that the GST should be changed to either replace some of the inefficient state taxes, such as stamp duty on conveyances, or to reduce personal income taxes.

Any changes to the GST whether it is to broaden the base, or to increase the rate should be traded with a reduction in some taxes so to keep the level of overall taxation roughly unchanged. The aim is to increase the efficiency of taxation rather than to increase the level of taxation.

There are two other important issues related to potential changes in the GST. One is there should be a compensation to low income earners through tax reduction to minimise its impact on them and at the same time to increase the incentives to work.

Another is that if the GST is to be changed, it would present an opportunity to change the GST distribution system. Fundamentally, the federal government should consider to distribute the GST on population shares and should move the fiscal equlisation role through another general grants in a trade off with the states to support GST changes.

Since the introduction of the GST, fiscal equalisation is done through GST distribution. Given that GST is fully provided to the states and the federal government does not have any direct benefit from GST one way or another, it lacks interest in how it is distributed.

By moving fiscal equalisation into using another general grants from the federal general revenue pool, it would have an interest in the size of the redistribution, and hence how it is done. More importantly, it would provide a circuit breaker for the disagreement between the states on how GST should be distributed.

I see this as a practical way to move forward on the GST issue. And it is likely that a change to the GST will on the card in the next election.

PC inquiry on Australia's car industry

Comments on Sid Maher and John Ferguson "Coalition calls for 'urgent' report on car industry", 20/09/2013, http://www.theaustralian.com.au/national-affairs/coalition-calls-for-urgent-report-on-car-industry/story-fn59niix-1226723160050

The new government should let the PC conduct its inquiry into the car industry without any preconditions and should not preempty the PC inquiry and report on the future of the car industry in Australia, although politically it may continue the line that its supports the car industry until the report comes out.

More importantly, the government should fully respect the verdict from the independent economic body and accept rational and economically sensible recommendations on the future of the car industry without yielding to special interest groups.

It is too important for all Australians to be emotional rather than rationally making  difficult choice between the car industry and possibly better national wealth and welfare, particularly when the output of Australia's car industry has been declining and will decline more when Ford closes its production here. As a result, the costs of continuing government subsidies are likely to increase as car production falls.

My instinct feel is that it is very difficult for car manufacturing to survive in Australia for long. However, we should wait for the PC to report on this.

RBA, monetary policy and $A

Comments on Stephen Koukoulas "The sum of all our dollar fears...", 20/09/2013, http://www.businessspectator.com.au/article/2013/9/20/currency/sum-all-our-dollar-fears

The RBA and many economists and commentators have really adopted a very funny approach, namely when the dollar was really very high at about 1.05 they argued that the RBA is powerless in influencing the currency while now when the dollar is at 0.95 or even lower, they are saying the RBA could do something to make it lower.

Of course, the RBA now has probably understood it can play a role of influencing expectations, although the fall of the dollar in the past had little to do with the RBA policy on interest rates. Rather, it was because the global factor of the Fed on future QEs. But that has not limited the RBA from joining the force in making the noise that it thinks the dollar should be lower even when it was at 0.90 or lower.
The RBA should have known that it might have an influence on expectations when the dollar was really high and should have done better to play that role at those times!

Having argued that I fully understand that the RBA has its difficulties in targeting multi goals with only one policy tool that is interest rate.


Why are house prices in Australia so high?

Comments on Alan Kohler "A housing bubble? You bewdy!" 18/09/2013, http://www.businessspectator.com.au/article/2013/9/18/economy/housing-bubble-you-bewdy

Alan, you listed two reasons, "a lack of spending on infrastructure by state governments and planning restrictions by local councils", for "why is there a persistent shortage of housing in Australia when it’s the 3rd least densely populated nation on earth. (Mongolia and Western Sahara are less dense)."

While they are correct, there may be other more important reasons. For example, the relative price of building a house in Australia may be much higher, due to high labour and building materials costs here. This reflects a general pattern that non-traded goods and services have a much higher price relative to trade goods and services in Australia.

Capital costs are generally higher in Australia as, much higher than in the US. This is because it is an small, growing and capital importing country. For example, it is probably common for the official interest rates in Australia to be more than 2 percentage point higher than in the US.

Further, state and local governments rely on either land tax or rates as a source of revenue, so if land value is lower, their revenue may be lower too. From that point of view, they have incentives to keep land value high, contributing to higher housing prices. This is particularly true for local governments given that rates are one of the main sources of revenue for them.

On the demand side, Australia's geographical location close to Asia where there are billions of people with much higher population densities and relatively scarce land in conjunction with Australia's fairly open policy on foreign buyers of real estate properties, mean external demand can be a significant factor in driving the house price higher than it would otherwise be.

In fact, I would argue that this is a very important fact behind Australia's much higher ratio of house price to income and has been overlooked by many economists and analysts when they say that Australia's housing price is too high and there is a significant bubble in the housing market in Australia.

If using housing price to income ratio as a definition for house market bubble, then it is true that there is a housing market bubble in Australia and indeed a quite big one. However, it can be argued that such  bubble may not be as easily to burst as in other industrialised countries because of the external demand factor.

This is likely to be a unique feature of the Australia housing market.

Complexity demands more monetary policy tools

Comments on Stephen Koukoulas "House price bull heaven", 18/09/2013, http://www.businessspectator.com.au/article/2013/9/18/property/house-price-bull-heaven

Leaving how the housing market price in Australia will develop and how the RBA will deal with that aside, it should be acknowledged that the current monetary policy tool is not enough to deal with both the broad economy and the asset markets prices with only uniform official interest rates applied to all.

The RBNZ policy development regarding housing lending as Koukoulas mentioned (New Zealand’s bold move against the housing bubble)  partly mirrored China's approach and has some merits, though the approach of restricting the LVR is not an efficient economic policy because it lacks clear price signals for both lenders and borrowers. In another word, it is not really a market approach but a administrative approach.
A better policy approach is a market based on price, that is, by introducing and applying differential 'official' rates that could be applied when dealing with different situations such as the broad economy and the housing market.
That itself may raise some costs, but that may be a price that needs to be paid in dealing with complex situations. Otherwise, you may continue to have the sort of risks of the GFC to reoccur. Further, it is not too dissimilar to fiscal policies that have its own structural content.


China and central Asia

Comments on Laurie Pearcey "Xi Jinping’s New Silk Road: Chinese foreign policy, energy security and ideology", 17/09/2013, https://theconversation.com/xi-jinpings-new-silk-road-chinese-foreign-policy-energy-security-and-ideology-17994

Given the size and continued rapid growth of China's economy and the current and expected energy mix in the world economy, China will have stronger interests in the middle east for its energy security. This implies that it will not only increase its investment in many ways in the region, but also extend its strategic consideration for diversification of its energy sources, such as from Russia and possibly from some central Asian countries, as well as build alternative oil transport such as pipelines running through Pakistan and Burma.
As China increase its navy power, the importance of middle east oil to its energy and security means it will probably increase its military presence along its ocean oil transport including up to the middle east.
Central Asia plays an important economic as well as security role in China's new silk road strategy. As China expand its navy power to protect its ocean transports, it is essential to have a secure backyard in the west inland borders, particularly along its restive Xijiang region.

Reforming China's monetary system

Comments on Sara Hsu and Andrew Collier "China’s shadow banking tug of war", 17/09/2013, http://www.eastasiaforum.org/2013/09/16/chinas-shadow-banking-tug-of-war/

Shadow banking as well as the prevalence of ‘illegal fundraising’ in China reflects the severe deficiency of its monetary policy and management system. Given the role of money and credits in the economy, reforming the banking and finance system and its monetary management system in China should be a top priority.
From monetary policy point of view, a number of areas should be reformed. Firstly, monetary authority should not control both deposit and lending rates and should adopt the general practice of most central banks in the industralised countries.
Secondly, neither the government nor the central bank should force any banks to lend state owned entities at lower than the market rates to distort the banking system and monetary policy. This not will create a fair competition between the SOEs and other entities in the market place but also reduce the risks for banks.
Thirdly, China needs to transform the shadow banking into the formal banking and finance system and allow more entries of the private sector into the banking and finance system if they can meet regulation requirement.
Once the previous step is taken, it should strengthen its management of the banking and finance sector.

Reforming its banking and finance system will also have the added benefits of reducing corruption and organised crimes such as money laundering.
A better functioning banking system in China will also reduce the need for the Chinese people to physically store and carry a lot of cash.
The most important benefit is to allow much more efficient allocation of economic resources.


Pettis is wrong about China's growth for the next decade

Comments on  Pettis "Why China faces four per cent growth: Pt. 2", 14/09/2013, http://www.businessspectator.com.au/article/2013/9/13/china/why-china-faces-four-cent-growth-pt-2
I made a comment on Friday and now Pettis' second half is out so I would make a little more.

Firstly, are the two examples of painful adjustment that Pettis used, namely the US in the 1930s and Japan in the 1990s applicable to China at all? The 1930s was or was in the wake of the great depression world wide but particularly in the US following the stock market crash in 1929 and the 1990s for Japan were the first of Japan's two lost decades following the burst of its financial bubbles. Further, both countries at the respective times were at world economic frontier with one of the highest income in the world. Is China in those situations? No, any person with a common sense would understand China isn't. China is only probably about 20% of the per capita income of that of either the US or Japan. China may have some bubbles, but definitely not as severe as to hurt its real economy. There is plenty room for positive growth and the degree of uncertainties on its growth is not as high as those in the economic frontier given the room to further catch up. By any measure, China would not allow bubbles to burst to such a damage degree.

Secondly, as long as China's saving rate is high to sustain its investment and net export, there is no need to artificially to adjust its domestic consumption at a damaging speed. Its financial market and hosing market are unlikely to depress its economy, given its huge foreign reserves and high savings.
Thirdly, Pettis has a automatic adjustment factor, that is, the net export and government consumption. Contrary to Pettis assumption, this factor can accommodate a higher savings/low consumption and high investment if and when needed.
So, Pettis is wrong in his conclusion that China is facing a decade of 3-4% growth.
Further, Pettis got the cause effect wrong. The painful adjustments in the US in the 1930s and in Japan in the 1990s were the results of low economic growth. During the relevant periods, their investments fell and their consumptions didn't grow. It's not the adjustments that caused low growths. Rather, it's the low growth that caused painful adjustments.
China won't have that painful adjustment and as a result there won't be automatic low growth flowing from that painful adjustment. And if there is no low growth, there won't be painful adjustment in consumption and investment.
China's new leadership government has already stated that it will sustain reasonable growth in the process of economic adjustment. It seems its limit of low growth is likely to 7.5% and it is unlikely to allow growth below that for any long period.

The argument of a decade low growth of 3-4% for China is fanciful and delusional to the extreme.

All the scenarios Pettis listed in the table is real growth rate and no inflation is included. In all likelihood, inflation in China is likely to be between 3-4% a year on average for the next decade or so, as indicated by the current 3.6% target for a real GDP growth target of 7.5% for this year.

If inflation is included I would assume that China can maintain 8-9% real GDP growth that means nominal growth will be around 12-13% or more higher. For a nominal growth of 12% a year, according to the Pettis table (by extension, roughly 2% higher for all variables), the investment growth can be as high as 9-10.5% a year and consumption growth 16-18%.

Would be that healthy economically? I don't see a problem with that. Of course, there is no need to adjust between investment and saving/consumption as rapidly as Pettis argues and a longer adjustment, possibly 20 years or more is more likely given that consumption growth is that high and people would still have enough incentives to maintain high savings. Most people would be happy with that outcome.


Swan's long last legacy - a 3 D creation

Comments on John Daley "Surplus hopes pinned on heroic assumptions", 15/05/2013, http://theconversation.com/surplus-hopes-pinned-on-heroic-assumptions-14240
Leaving the budget measures details aside, Swan should and will be remembered for his three D creation to Federal public finance: deficits, debts and defeat.

The Labor Government inherited a budget surplus and a future fund showing a net government wealth/assets of tens of billions. He, however, has so successfully turned them into consecutive budget deficits - the first D creation. Through those deficits, he has created his second D - a huge debt a long lasting legacy of Swan's incompetent management of the Federal budget.

Of course, that is not all and through his management of the RSPT he created the downfall of Rudd prime ministership and his MRRT and carbon tax disasters that turned a projected surplus to a 12 fold budget deficit. Through this, Swan has completed his third D creation, that is, the guaranteed defeat of the Gillard government in September.
Swan and the government has developed and used a deceitful trick of saying revenue write down by inflating revenue estimates.
Of course, no one should forget his dishonest manipulation of the accounting standard by shifting spending and revenues across years just to create a projected budget surplus for 2012-13 that is not 1200% larger in the red.
What a treasurer! What an achievement! One has to marvel?!


Measure housing affordability in Australia

Comments on Gennadi Kazakevitc, Lionel Frost and Luc Borrowman "Just how stressed are we when it comes to housing affordability", 9/05/2013, http://theconversation.com/just-how-stressed-are-we-when-it-comes-to-housing-affordability-13937
Genadi, Lionel and Luc, the methodology you mentioned in this article is obviously a step n the right direction and you should all be congratulated for making and using it.
Another method could be simply use a ratio of average housing costs to household disposable income. Average housing costs can be defined by renting costs and/or by average mortgage payments, or a combination of them in some weights.

In answer to Gennadi's reply: "Lincoln, Many thanks for your comment. Unfortunately, using average housing costs in the ratio does not help avoiding the fundamental problem with the ratio approach - it does not allow for singling out the groups/types of households that are really in stress."

Thanks Gennadi. Is it possible to calculate the ratios by groups/types then compare and rank them to form an order of stress?
I've though such ratios would produce better measurements, i.e. irrespective rent of buying, different preferences in terms of voluntarily paying more or less and the differences in size of houses/properties, etc, as well as the stages of mortgage payments.
Anyway, it may be my thought bubbles is bubbling.

The ACT should adopt a new model of governing structure and model

Comments on Peter Jean "Assembly expansion plan hits a wall", 10/05/2013, http://www.canberratimes.com.au/act-news/assembly-expansion-plan-hits-a-wall-20130509-2jb4k.html
The ACT, as a small and compact city, should not simply follow the model of other state jurisdictions in administration. ACT government and the Legislation Assembly should think creatively and consider the most efficient and effective administration style and model to suit such a small city state/territory.

I would argue that one way is for the ACT to have a default or fallback position to use laws and policies in the NSW, and only to have a different one if there is a two third majority in both the assembly and the general ACT population. After all, the ACT is within NSW and a part of Australia and one would not expect there are so many different situations between it and NSW, apart from the ACT virtually does not have rural, agriculture, mining and is much simpler to administrate.
This means there would only be a need for front line services as opposed to duplication of unnecessarily so many central administrative agencies/politicians/bureaucrats staff for policy and central administration. The ACT government should effectively, largely and essentially be a city administration like a small council.

The two main sides of politics and the Greens should have the welfare of the ACT residents in mind and should endeavor to be more efficient in administration of the ACT affairs. It is not too dissimilar to the differences in business administration and management between large and small businesses.

In that context, the idea of further expansion reflects very poorly on the creativity of those proponents of such an bad idea.


Know what they say - economists may have positive and normative analyses

Comments and rejoinders on Phil Lewis "Howard’s End: how the coalition’s last budget created the ground for the current deficit", 8/05/2013, https://theconversation.com/howards-end-how-the-coalitions-last-budget-created-the-ground-for-the-current-deficits-13848

I probably don't need to read the article to point out the central argument is wrong and totally unconvincing to politically independent and competent analysts, economists and policy makers who are not mechanical and dogmatic in their thinking.
It has been nearly 6 years since the Howard and Costello government was voted out and the current ALP government came to power. SIX YEARS!
Budget policy can change every year and the current government has had FIVE YEARS and FIVE budgets to change the course.
What has happened?
We've got huge debts and every years there were budget deficits.
Yes, the government can use various excuses, but it is not right for economists to accept any of those.

In answer to Felix's question: "Lincoln, for a self-proclaimed 'economist' to speak of 'huge debts' is a bit unimpressive - tends to make me wonder about the objectivity of your entire post."

Felix, to answer your question, firstly, I am not a self-proclaimed 'economist', but with a PhD degree in economics from the ANU. So what is your definition of economists?
Secondly, my objective is to inject some sanity into the debate. If you understand basis macroeconomics you would know that government expenditure is a policy tool to get the economy to the most desirable state and can be changed to achieve that objective. The underlying assumption is to get the budget balanced over a economic cycle.
Now it has been 5 and a half years since the current government in being control, that is how many days that the course of G could have been changed to bring the budget into balance?
Neither Rudd or Gillard have been bound by Howard/Costello policies, have they? Then why blame Howard/Costello for the current deficits 5 and a half years later?
In terms of debts, they are huge, if you looked the rate of change and the magnitudes of yearly average, aren't they?
So let not be arguing according to whether one has benefited from either side of political side and be objective and independent. AND apply a little economics, if one can.

In answer to Ted's questions "Lincoln, can you elaborate on why debts denominated in the currency over which the government has sovereignty are ever an issue?
"And could you also please elaborate on why deficits are bad for an open economy with a current account deficit and a positive savings ratio?

Ted, firstly, government debts, like private debts, incur interest costs at least, irrespective which currency it is denominated in, not to mention situations may change in the future that even the principal of the government debts may be forced to pay or may need to pay. Currently due to very low interest rates due to the state of the international economies, the costs of interest payments for governments are relatively low compared to otherwise. Just think about the case where interest rates were as high as nearly 20% a year occurred before.
Secondly, there is an inter-generation fairness issue, not too different from leaving your children with debts or wealth. Current government debts if not paid, represent a liability for future generations, that is, our children and grand children.
Thirdly, there is a moral hazard issue here too. If everyone thinks and acts as if government debts don't matter, then what governments and politicians would do? And what are the limits to the levels of debts in that situation? And also, the current political arrangement, not only in Australia but in many countries, mean either one side of the main political streams or both have an incentive to spend beyond its means, because they don't face hard budget constraints and public debts are not their individual debts and often it is the case that a political party may get more votes if it spends more. That is not a good governing system, though there is little that we can do about it.
For the second question, it involves obviously more factors. However, the key situation in that case s the domestic savings are seems not to be enough for domestic investment needs in aggregate. Alternatively, there maybe international competitiveness issue involved, either shorter term or longer term.
In the former case, government deficits is a contributor to the imbalance between domestic savings and investment needs and competing with private investments for funds. While it is not always, but is generally the case that private investments are more efficient. Of course, there are some investments that are more suited for government to make their the private sector due to various equity considerations and administrative costs involved.

In answer to Peter's argument "Depends largely on what the debt is for surely, Lincoln.
"If we do what some European countries have done - like Greece - and use it to plug holes in the budget and to maintain unsustained living standards - then yeah Government debt puts you on the road to ruin - or the IMF which is essentially the same thing.
"But if the overwhelming bulk of debt is undertaken to invest in infrastructure - both human (schools) and physical (NBNs) and there is a reasonable prospect of these investments yielding a decent return in future then we are not simply saddling the future with our debts at all - we are providing the means of not only paying off those debts but also towards improving living standards.
"My point is that there are few absolutes in economics - few simple aphorisms or slogans - for example that surplusses are always good deficits always bad. Depends when and what for over the longer term. What the level of demand in the economy is doing. What the money is to be used for.
"And that's where governments have the inside running on the private sector - the long term. Private sector investors don't - can't - afford a long term view. Governments can and do if they have the courage. Sadly the Howard Governments didn't have this courage to invest in the future - which is why they have left nothing at all of lasting value."

Peter, you raised a good question, although the previous discussions have not gone to that far.
You are correct that there are different uses of government expenditures. However, even with your examples, one may find issues with governments debts in worthwhile causes.
For example, the school education revolution programs, one can argue that there were both design and implementation problems that some of the investments are not effective and productive, say even the state governments were trying to skip some fats out of those programs, not to mention some school halls and libraries are not necessarily what those school needed most.
From policy design the restriction of school halls and libraries was problematic. From implementation when it became clear that there were problems with those programs and that stimulus were no longer necessary, the government could have make some changes to increase the effectiveness of those spending.
For the NBN, leaving the politics aside, it is still open to debate to whether it is cost effective or not and whether it is the best course of action or not. Clearly, no CBA was done or publicly available.

Peter, for your last paragraph's mention of "the Howard government didn't have this courage to invest in the future - which is why they have left nothing at all of lasting value."
Although I am not a defender of either government, I think the future fund established by the Howard government may provide an example that does not support or is contrary to what is argued there.
I have to say that I don't know how many billions that was and whether that is significant as compared to the NBN amount, though.

In answer to Henry "Lincoln, please illustrate these huge debts by quoting figures and percentages of GNP etc rather than making unsubstantiated, emphatic comments. Comparative figures also are needed.
"My position is that of most economists: our debt is relatively small as a proportion of GNP."

Henry, yes you are correct if that is compared to other high debts countries in the current levels and that is clearly one way to argue it. But there are other aspects, such as rate of increase and the increased amount in a year.
Perhaps you can calculate that to substantiate I am "making unsubstantiated, emphatic comments" and to see for yourself?

In answer to Ngoc's second part "Lincoln
There are three issues in fiscal management; (i) the revenue constraint; (ii) economic efficiency of gov spending; and (iii) distributive efficiency of gov spending.
I think Prof Lewis' article focused on (ii) and (iii), that is, squandering excessive revenue in time of economic (mining) booms without paying much attention on how and where to spend, leaving bad budgetary problems in the long run, especially in downturns of the business cycle shows lack of vision. May I add here that if gov of the time reform the tax system at the beginning of the mining boom to keep a share of the excessive profits generated from minerals export sales for the people. Part of this additional revenue can be saved in income generating assets for future generations. Another part can be used to help non-mining industries where competitiveness and productivity are severely disadvantaged by the mining boom via its impacts on terms of trade, labour markets etc and to finance long awaited reforms of the education and health care systems as well as the protection of environment. The rest can be saved in gov coffer to help balance the budget when the economic downturn comes without incurring excessive debts. (That said, I think the debts you mentioned is a by-product of past budgeting practice the current gov has to bear.)
For your information, just go to ABARES statistics, get data on minerals export sales in the last 10 years and sum them up, use price elasticity also available from ABARES' various model adjust this sum, take a percentage of the adjusted sum, say between 5 and 10 per cent, then you can see how much opportunity has been missed in the last boom boom and how much harder to manage the economy in the coming years due to a faux pas in the past.
BTW, if you only use your posting name then innocent people (including me) can mistakenly say you are a 'self proclaimed economist', can't they? Anyhow, forget this and accept my thousand apologies if it is not true."

I really don't understand your logic and you really lost me in your arguments.
As I have mentioned earlier, I am not a defender of either government.
However, your arguments seem inconsistent and appear saying one thing is good but ignore the history. E.g. save for the future and save for downturns. Didn't the Howard government paid the debts and established the future fund with billions of dollars of money in it? Those are not save for the future and not save for the downturns? And those were done with no the new mining tax. And dare I say that money in the funds is better than money squandered in some government investments.
Those who argue that the Howard government should have far greater foresight and forecasting power than others so they could foresee things that others even couldn't see later than their time?
Is that a reasonable expectation? Isn't it saying we are not super rich because our ancestors didn't invent the computer thousands of years ago?


What is the basis for 'global macroeconomic balance'?

Comments on Hiro Ito, PSU, and Ulrich Volz “Correcting China’s macroeconomic imbalances”, 3/05/2013, http://www.eastasiaforum.org/2013/05/02/correcting-chinas-macroeconomic-imbalances-2/
As an economist, I may ask some questions in this area as follows.
First, how global macroeconomic imbalance and rebalancing are and should be defined? What is the theoretic foundation of global macroeconomic balancing?
Second, isn't or is it the case that imbalance and rebalancing has been used as some trade protection and an excuse of some countries poor macro and micro economic management that had laid the foundation for the GFC?
Third, the authors state the following: "China is one country with a long-standing current account surplus, and this surplus derives from microeconomic or sectorial distortions that have led to excessive saving. In particular, underdeveloped public social safety-net systems and a repressed financial sector are commonly blamed for excessive saving."
Many countries have even poor and more underdeveloped public social safety-net systems and a repressed financial sector than China has had and they don't necessarily have trade surplus. So why should China, a developing country, have the same gold plated social security as some developed countries have? Further, even developed countries have different standards of social security, and some countries with higher standard may have seen either some budgetary or economic growth/competitive issues that they will have to deal with sooner not later. Aren't current euro zone woes a lesson in too high social security? So why should China simply fall into those high social security traps that burdens economic growth, efficiency and productivity?
Fourth, while it is true that China's interest rate control depress deposit rate and is an effective tax on savings, liberalising financial market is likely to actually lead even more savings and how that can contribute to address the high savings that some people are attributing to a cause of global macroeconomic imbalance?
I think economists need to stand back from political debates and think rationally rather than simply follow some politicians' arguments.
Economists should recognise that people have different savings and consumption preferences and those may change cross countries, regions and families and vary according stages of economic development.
We need a “global model “ to show the benefits and costs of balance and imbalance. Without a transparent model, all the arguments can be very confusing and many arguments may sound ‘right’ but actually be wrong.
As long as there are those differences and people are divided into countries, it is irrational and wrong to demand every country should have current account balance.
Imbalance is normal and balance is and should be rare.
But globally, there is no imbalance - it is all balanced out.


Australia's car manufacturing cannot rely on continued heavy subsidies

Comments on Phillip Toner "A view on: Australia’s manufacturing industry", 2/05/2013, http://theconversation.com/a-view-on-australias-manufacturing-industry-13868

I agree with the view of one of the commentators that this sounds like a grants/subsidy application, or appeal.

I think whoever argues for continued subsidies to support some ailing manufacturing industries need to consider how Singaporean and Hong Kong economies that don't have a car manufacturing industry are in general more competitive than the Australian economy.

Neither economies have a car manufacturing industry, nor mining and agricultural industries. We are luck enough to have a very strong mining sector and a significant agricultural sector with abundant natural mineral reserves and vast land. At the same time, we are heavily subsidising an very uncompetitive car manufacturing industry. It is absurd, and stupid.

This is particularly so given the current stage of the world economy where software and creativity are increasingly taking a more important role in the economy, just think about smart phones (Iphone, Samsung and so one), Google, Facebook, Youtube, etc.
Those who argue for continued supports through very costly subsidies seem to be living in the past and have not caught up with the advances of the past 20 years or so.

Unless we keep the same pace as the rest of the world and be equally be innovative and creative, we will be going down the hill no matter how much the car manufacturing industry is subsidised.

Euro zone may benefit from reforming the system

Comments on Oliver Marc Hartwich "Is Germany edging towards the exit", 2/05/2013, http://www.businessspectator.com.au/article/2013/5/2/economy/germany-edging-towards-exit

While the euro zone has experienced significant difficulties in the wake of the GFC, there are some measures that could be taken to overcome or at least lessen the shortcomings of the current euro zone design.

For example, one measure is to create a fixed rate of dual euro currencies that can provide the flexibility for one or more euro members to effectively devalue within the dual euro currency zone. This is because the most significant shortcomings of current single currency is the lack of flexibility of members to devalue to adjust to a less competitive situation they may be caught in.

Another second more effective measure is to issue euro bonds but charge different countries different rates according to its economic situations and macro economic management outcomes, so there is some accountability to avoid the moral hazard from arisen. At the same time, the other members will have some return or security for their collective guarantee of the euro bonds.

The second measure would utilise the strengths of the euro group of countries to lower costs of government funding, but still have disciplines in place for any national governments.
Nevertheless, all remedy measures need the courage of reforming the current system design, as opposed to stubbornly and stupidly stick with a flawed system design.


Reappraisal of exchange rate regimes

Comments on He Fan “China must push ahead with exchange rate reforms”, 30/04/2013, http://www.eastasiaforum.org/2013/04/29/china-must-push-ahead-with-exchange-rate-reforms/

The real appreciation of the RMB is much more than the 30 per cent since the exchange rate reforms of 2005 as mentioned in the post, given that inflation in China has been far greater than that in the US.
Having an annual limit on the total movement of the exchange rate has merits, although the exact figure can be hard to determine and it is not necessarily asymmetry between the upper and lower bounds. It should ideally be linked to some measure of equilibrium level of exchange rate, based on relative inflation rates and trade situations.
In that sense, the 7.5% limits appear to be arbitrary, as the author seems to have acknowledged.
In terms of sequence of reforms, removing trade distortions, such as export subsidies and imports restrictions should probably take a higher priority than exchange rate reforms.
Further, it is not necessarily certain that free exchange rate regime is better than a fixed exchange rate regime if the effects of exchange rate bubbles on the real economy are taken into account.
The advantages of monetary policy freedom must be balanced with the distortionary effects on resource allocation in the real economy and potentially damaging adjustments.
So far, people take the easy way, that is, monetary policy freedom, but leave the blames of real damage to the markets to avoid accountability.
That is not necessarily optimal for the world economy or indeed any individual economies.
In my view there is a need for a reappraisal of exchange rate regimes with a new framework in which both the effects of both monetary policy and the effects of exchange rate on the real economy are taken into account, and consider whether there are any new policy design for the international system to work better.
There should be a system that has a set of well-designed rules to allow countries to choose a fixed or flexible exchange rate regime and should a fixed regime is selected how the system will adjust under a set of agreed rules.
Such a system can and should include provisions that will allow monetary flexibility for every country supported by a set of agreed international rules.


Set a revenue to GDP ratio to improve policy making and service delivery

Comments on John Freebairn "Federal Budget 2013: Why our unsustainable structural deficit must be tackled", 29/04/2013, https://theconversation.com/federal-budget-2013-why-our-unsustainable-structural-deficit-must-be-tackled-13723

I largely agree with the remark by the author that "The mix of tax increases and expenditure reductions require society to make judgements about the relative roles of government and the private sector, and about the relative merits of more or less limited income and resources allocated to government goods and services versus private sector provided goods and services."
Personally, I think there should be a ceiling of taxation revenue to GDP ratio to constrain any government irrespective to their political persuasions, otherwise, it is too easy for politicians to raise tax rates, increase new taxes and levies. Politicians' mandates should be set with a clear limit, so they can focus better on better policies and efficient service delivery.
I personally think that all government revenues to the GDP ratio should not exceed a third for the near future; that would leave two thirds to the private sector. In the longer term, 30% should be aimed for.
Within that broad parameter, the three levels of government should have an agreed shares of the different revenues according to their service responsibilities.

China dialogue - a further step in strengthening Sina Australia relations

Comments on Stephen Loosley "Time is right for China dialogue", 29/04/2013, http://www.theaustralian.com.au/national-affairs/opinion/time-is-right-for-china-dialogue/story-e6frgd0x-1226631142134

Stephen, it is an excellent idea.
The recent development in Australia-China relations and the wonderful achievements by the government and the prime minister in strengthening and upgrading the relations indicates Australia can play a much greater role in the Asia Pacific region in general and in potential bridging between the largest players in the region in particular.
How China conducts its international affairs is likely to affect not only the Asia Pacific region but also the world in this century. It is in everyone's interest that China is most productively integrated into the international system and plays a cooperative role.
Australia is uniquely and well positioned to play a role much bigger than its weight, so it is punching above its weight, due to its strong relations with both China and the US, as well as Japan.
Close relationships and frequent exchange and dialogues will be most conducive to mutual understanding not only between the two countries but also among the main players in the region.
As Chinese Australian who has studied, worked and lived in both China and Australia, I strongly and completely support your proposal and look forward to it being warmly embraced soon.


Reforming GST distribution requires creativity

Comments on David Uren "GST distribution needs a carrot for states", 18/04/2013, http://www.theaustralian.com.au/business/opinion/gst-distribution-needs-a-carrot-for-states/comments-e6frg9qo-1226622975731

The GST distribution in Australia reflects the extreme of Australian fiscal equalisation as currently practiced in the world and should be recognised as already past its used-by date. Unfortunately, the current arrangement for federal financial relations makes it impossible to reform the GST distribution system.

The federal government is generally uninterested in how the GST is distributed among the states because there is little relations for its own revenue or expenditures, so its attitude has been if all the states agree then it would agree. Because any meaningful reforms to the GST distribution system would undoubtedly result in some so called winner and loser states, how could it possible for them all to agree?

Maybe a practical way to change this impasse is to require the federal to contribute, from its own revenue, 50% of the amount that is required for the redistribution from the current calculation and the other half is from the GST pool. In this way the federal government would have some incentive to make the system more efficient and still keep its fiscal equalisation role.

Another way is to distribution the GST by population shares and let the federal government provide all the equalisation funding, so it would have an interest and say in having the system reformed for the better of the nation. But both political persuasions in Canberra are unlikely to be interested in such nation/federation building project. Maybe a worthwhile trade-off is to ask the states to implement some reforms of their inefficient taxes identified in the Henry Review report as a condition for the increased funding from Canberra. It seems another review would be needed, even though a number of reviews done previously ended in failures. 

There are entrenched "interest groups" that would like to maintain the current system devoid of any real reforms. This has been reflected even in the various reviews of the GST distribution, but all have failed as a result of that at least partially because of the divergence in any potential outcomes. It's an unfortunate tragedy for the nation.

The most recent one was commissioned by the PM and Treasurer and conducted by two former state premiers Mr Nick Greiner from NSW and Mr John Brumby from Victoria and a South Australian businessman Mr Bruce Carter, who were hand picked by Canberra. That review was first announced when the PM visited WA at a time there was strong tensions between Canberra and Pirth in terms of funding and hospital reform that the PM was keen to get it done.

The final report of that review was particularly disappointing because it represented a complete failure with virtually no meaningful reforms recommended except some face-saving wording, enormous waste of time and money and a huge retreat from its interim report which raised at least some hopes of reforms to the distribution system.

A potential reason for that failure is likely to be the lack of representation of people from WA and for that matter Queensland in the review panel. It was understandably difficult because any reforms would results in benefits to mining states at the time of mining boom when mining royalties can bring huge amount of revenue to mineral rich states particularly WA with Queensland ranked as the second.

The current GST distribution completely ignores the many changes in the past three and a half decades,such the many economic and tax reforms in Australia.


China is not an average country!

Comments on The Economist's Analects - China: "The post-industrial future is nigh", 17/04/2013, http://www.economist.com/blogs/analects/2013/02/services-sector

This argument in this piece relies heavily on the chart by Messrs Ghani and Kharas that is based on the so called world normal using econometric estimate.

The problem, or at least a potential problem with this kind of approach is that the average approach is itself problematic in a very diversified world and the huge differences between countries in many respects of their situations, including their primary productive factors endowment, their education level, their entrepreneurship, theirs sizes, land and so many factors.

Just ask a reverse question: should China follow the average approach how could it be able to achieve its extraordinary economic transformation with such a different speed from the average?

Once one understands this question and its implications, it will not be difficult for one to understand the problem with the average approach.

Federal should offer a better approach to Gonski

Comments on Paul Kelly “PM needs magic to get a Gonski”, 17/04/2013, http://www.theaustralian.com.au/opinion/columnists/pm-needs-magic-to-get-a-gonski/story-e6frg74x-1226622025078

While the offer of 2 for 1 is appealing to the states in general, it is not on an equitable basis between the states and some states like WA and the ACT are so much disadvantaged by such an offer. Besides, it is so much short of the Gonski recommended amount and who know in how many years the total amount will reach the Gonski amount.

Further, the government approach will create the undesirable effect of undue federal influence on state role and responsibility of school education.

Such a policy by the federal government, if implemented, is very undesirable and will not be a good public policy.

I think a better policy for any federal government on increasing school funding and to implement Gonski would be to offer an package of matching at least on a one to one basis in increased school funding with the states to a set amount in a future year with few strings attached by the federal government. The total amount should be divided among the states on a national Gonski formula basis based on student numbers and on those disadvantaged students numbers. When a state has already have a higher school funding, the matching should be higher by the federal government.

That should be the best policy for a federal government needs to follow in future in any areas where states have the responsibility to provide the services but the federal government wants to contribute to those services to achieve a better outcome.
The principle is to for the federal to help but with little interference in the running of those state services.


US and China need to understand each other for the common good

Comments on Yuhan Zhang and Lin Shi "Conflict between China and the US is not inevitable", 14/04/2013, http://www.eastasiaforum.org/2013/04/13/conflict-between-china-and-the-us-is-not-inevitable/
People should realise that the so called idea of American offensive realists are already proven unworkable by the Iraq and Afghanistan wars.
If the US, together with the support of NATO and other coalition partners, find it impossible to win those wars where the two countries are really very small in many aspects and at a time when interest rates have been super low, how can the US alone win a major win with China where it has the world’s largest population and second largest economy and when interest rates are unlikely to remain as favorable as in the first decade of the twenty first century? Further the Chinese economy is likely to grow at a much higher speed than that of the US’s?
China has always argued for its peaceful rise and there is no reason to believe peace is not in China’s own interests.
As a result, American offensive realists should realise that their ideas are unworkable and will be discreditable if they continue to push them.
The only realistic way forward in the US and China relations is for the two countries to understand that neither will be able to dominate the other without significant and unbearable costs to both sides.
Once this becomes clear, the two should engage in cooperation as well as economic competition as any two normal countries would do peacefully.


Gonski's moral needs to be rational

Comments on Julian Savulescu and William Isdale "An ethical education: why Gonski is a moral issue", 11/04/2013, https://theconversation.com/an-ethical-education-why-gonski-is-a-moral-issue-12849
While I totally agree with the importance of education and the importance of increasing equity in education, I was less than fully satisfied by the article due to its lack of comparative analysis of the cost and benefit of the investment in education between Australia and other countries which the author mentioned in the article.

More specifically, the article unquestionably endorsement of the Gonski recommendation of amount of increased funding by governments is questionable without those comparatives.

The question is: some other countries achieved better results, are they all the results of greater investment per student than Australia's or not? Such information would be helpful to proper judgement or analysis/evaluation of the increased amount recommended by Gonski.

Another question is the relative decline in performance of Australia's education compared with some others. What are the reasons? It is not the right approach if it is based on the model that there is a problem then there must be more investment.


Subsidies to the car industry - needing to compare with benefits

Comments on Remy Davison "Is supporting the car industry so expensive, compared to our heavily subsidised lives", 10/04/2013, https://theconversation.com/is-supporting-the-car-industry-so-expensive-compared-to-our-heavily-subsidised-lives-13386
In the article Professor Davison sates that "The Germans are also looking at electric car subsidies. The Germans also subsidize their car industry to the tune of about $US95 per capita. A far cry from Australia’s $AUD18. Not quite the $US260 the Americans pay per head."

While this may be true, what are the different contexts for each of them? For example, the $US260 in America, is it like this every year or just at times of GFC or a particular year of the GFC period?

Furthermore, even these figures were accepted as the general picture and the relative subsidies in these countries, what are the benefits per head in each of the countries?

Only compare the costs and benefits can the whole pictures be understood.

We need fuller and better information to be fully informed.


Superannuation and tax

Comments on Stephen King "Superannuation needs a sustainable framework", 6/04/2013, http://theconversation.com/superannuation-needs-a-sustainable-framework-13279

While the view and argument of Professor King may be regarded as "right" from a particular point of view or some particular economic theories, it is not necessarily right or correct.
King seems making no difference between one's own money/income with the money provided by other taxpayers.
Any conclusion based on such a view point is likely to be problematic when one take a different view.

The kind of view or thinking is too inducive to laziness and irreponsibility. The reflection in debates in Australia is that some people only talk about how much so called tax concessions that some higher income earners get or would get but not about how much they have paid or would pay tax.
This kind of thinking in terms of per capita entitlement of equal concessions is an extreme view, just as the other possible extreme that per capita tax liability, that is, each person pays the same amount of tax.
Just imagine that latter scenario and how extreme it is, one would understand how extreme and absurd the former is too!
PS: While it is commendable for the Treasurer Swan and the Superannuation Minister Shorten to announce the idea of establishing a semi independent superannuation guardian to consider future government policy on superannuation, it would have been better and more convincing should that had been equally applied to the announced measures, that is, no changes until such a body is set and has scrutinised those changes and got bipartisan support.

Future federation between Taiwan and China

Comments on Wen-Ti Sung "Taiwan’s strategic confusion", 5/04/2013, http://www.eastasiaforum.org/2013/04/04/taiwans-strategic-confusion/

It appears to be the case that as China gets stronger economically and militarily, the best future freedom of Taiwan is a federational style unification with China, with a new federal constitution to safeguard the freedom of Taiwan as long as it remains a part of the Greater Chinese federation.
The safeguard should go to more than that applied to Hong Kong and probably should allow the one country and two systems remain as long as the either side chooses to, and the internal security of Taiwan should remain its own and mainland troops won’t entre into Taiwan for a long period such as 100 years or more. The mainland won’t interfere the internal political governance of Taiwan as long as it maintains the new federal constitution.
Both sides should adopt a practical approach to the relations.


RBA needs to move with major international central banks

Comments on Shaun Vahey "RBA: rates should hold, with a gradual return to neutral", 2/04/2013, https://theconversation.com/rba-rates-should-hold-with-a-gradual-return-to-neutral-13174

While the consensus view of unchanged rate this month is reasonable, the view of a higher side risk for rate to move in the next 12 months may be problematic.
A couple of reasons for the opposite view of a lower side risk for rate. One is that the next budge is likely to be contractionary and that is more likely to be followed by a more severe cut of government spending after the next federal election with a change of government.
Another is that international loose monetary policies will continue with increased forces as Japan has now joined the two other major industrialised economies, the US and the Euro zone. This international competition for loose monetary policy or race to the bottom will enforce the save heaven status of or attractiveness of the $A and may force it up further in value, putting further pressure on the Australian economy.
When everyone else is using unconventional monetary policy, it is too naive or silly for Australian monetary authority to continue the conventional way of its monetary policy.
While there is a risk for housing market to be further inflated, but that should be addressed through feasible policies, as opposed to the failed monetary policy to address more than one targets with only one tool.
It appears that it is now a time to have a review of macro economic policies including both monetary and fiscal policies to introduce new policy tools to improve the effectiveness of macro economic policies.
One way is to empower the RBA to have the ability to introduce a measure that can target lendings used in housing assets.

Nuclear power has a role in power generation mix

Comments on Vlado Vivoda "After Fukushima: the future of nuclear power in Asia", 16/03/2013, http://www.eastasiaforum.org/2013/03/16/after-fukushima-the-future-of-nuclear-power-in-asia/

While it is a very sad accident with very serious environmental impact, the Japanese nuclear disaster should not be seen as a typical indication of nuclear power station safety.
Geographically, Japan is an earthquake prone country, with possible tsunami as a result.
From that point of view, many other countries should not be too unduly worried by the Japanese nuclear disaster, even though short term adverse reactions are inevitable.
Just imagine if the world had banned airplanes from flying following the 9/11 terrorist attack of the world trade centre. Would that be a rational response to such an event?
Secondly, reports indicate that newer generation of nuclear power technology are much safer than the earlier ones.
Thirdly, human beings learn from mistakes and history, and advance further in dealing with technologies.
Fourthly, climate change and emissions reduction represent a huge challenge to many countries, developed and developing alike. Limiting the use of nuclear power generation would make that task even harder.