Dutch Disease can be managed to minimise ill effects

Comments on Ken Henry "

Ken Henry: why Australia’snon-mining sector will continue to struggle", 12/07/2012,  https://theconversation.edu.au/ken-henry-why-australias-non-mining-sector-will-continue-to-struggle-8224 

This is where many economists and government officials have been lacking in creativity and in bringing a whole practical package together to deal with challenges, although the current challenges from mining boom is a good one.
Dr Henry should realise that the Henry Taxation Review's recommendation on the mining tax is a good economic theory but is not very applicable in practice and it was this combination together with bungles by politicians and bureaucrats that have resulted the current poor state of the MRRT.
Undoubtedly, the initial design of a mining tax by the Henry Review was very ambitious and elegant in theory. But the problem was it is too theoretical but not practical. An alternative one could be as simple as a pure addition to the company tax with an link to either terms of trade using mineral exports and all imports or the relative prices of mineral exports.
Of course, that additional tax should be mostly given to the states where the additional profits are generated, with some left the to the commonwealth for national adjustment to the mining boom.
States, of course, would be part of the adjustment process using that additional profit tax revenue from mining companies.
This can limit the rise of the Australian dollar and a lower dollar is conducive to lessen the impact of the mining boom, that is, the Dutch Disease.
The so called Dutch Disease can be managed with a good national policy.
Only purely relying on the market that gives to the rise of Dutch Disease.
The main viewpoint and argument in this article belongs to the latter.

Economic ideology and reality

Comments on TONY MAKIN “Fiscal stimulus, not Europe, to blame for economy”, 30/12/2011, http://www.theaustralian.com.au/national-affairs/opinion/fiscal-stimulus-not-europe-to-blame-for-economy/story-e6frgd0x-1226232857308

While it is ideally good that governments run balanced budgets, is there a point of process optimisation that may give rise to budget deficits and surplus in some years?

While monetary policy has been argued by many economists to be used as the macroeconomic policy tool to regulate the economy, haven't we already seen that monetary policy has its limitation as well, especially during the GFC 1, where interest rates were at or near 0 and economies were still struggling even with strong fiscal stimulus in the US and Europe?

Why do some economists only think along a particular line of thought with little regard to the reality and to whether it is working or not?

Besides, how can the traditional monetary policy along to deal with the two speed or patch work economy as Australia has witnessed with mining booms?

Public services and independent public institutions

Comments on Heather Ridout “Fixing our public service”, 4/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/Fixing-our-public-service-pd20100401-43UQL?OpenDocument&src=is&is=Manufacturing&blog=Inside Industry

While the call for fixing public services has some merits, it misses the really most important point in Australia.

Public services are servants, not the master.

Consider what has happened in Australia since the Rudd government's election victory.

There have been so many public policy blunders, either in concept or in implementations.

The $43 billion NBN. The pink batts. The $16 billion BER. The Indigenous housing program. The ETS bill and Copenhagen. The much delayed and incomplete health reforms. And the wasteful cash handouts of over $20 billion (in terms of economic effects and impact on budget).

What has been a good one, can you name it?

The AI should be first one to understand it is not the public services that was the most important factor to those failures.

It is the Rudd government.

What does that mean?

We need better institutions that will guarantee good public policies.

Public services are a minor part of that.

But the most important institution is some publically funded independent institutions that can provide the best public advices, as opposed to just the government controlled public services as its slaves.

There should be a couple of independent institutions that are much more independent than the productivity commission that account only to the Australian parliament with guaranteed funding but not under the control of the government of the day.

Such independent institutions can provide independent, timely and high quality policy analysis and evaluations, and can be a serious and important check to the government and bureaucrats.

The RBA is independent, but it is not in a position to analyse and evaluate fiscal policies and other policies except monetary policy.

Australia's trade deficits: terms of trade, productivity and macroeconomic policy

Comments on Adam Carr “SCOREBOARD: Import binge”, 1/03/2010, http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-Import-binge-pd20100301-355KJ?OpenDocument&src=sph

While Carr sees a rosy short term picture from trade, especially imports, the authorities need to think about policy issues on how to balance trade over the longer term.

It is not so rosy if looking at the fact that Australia's trade advantage in terms of terms of trade is probably above the historical average and its resources exports are good, but there are still fairly large trade deficits.

Both macro and micro economic policies need to pay attention to this situation.

We need to raise our productivity and international competitiveness.

That is where hard work has to be done.

There are implications for both monetary and fiscal policies.

Judging effects of fiscal policy needs carefulness

Comments on Alan Kohler “Big Brother is managing you”, 17/12/2009, http://www.businessspectator.com.au/bs.nsf/Article/Big-Brother-is-managing-you-pd20091217-YSS7E?OpenDocument&src=sph

Alan, with all respect, I think there is a logical problem in some of the argument here.

Yes, there is no question that the Australian has been performing the best in the wake of the crisis and the Rudd government did spent the second largest stimulus in the world after China.

But that does not necessarily mean that it follows that the Australia's best performance was the result of the Rudd stimulus or in another word the success of the Rudd stimulus resulted in the best economic performance among the western economies.

In your line of argument, you implicitly assumed away the baseline scenario and the different external impacts on different western economies of the Asian economies especially China's.

So blindly singing praises to the Rudd stimulus is simply spurious, illogical and irrational.

It is obviously problematic.

We need objective and rational analysis of the role the fiscal stimulus played, not to understate it, not to overstate it.

That will require rigorous discipline, not superficial and empty statements, or political spins.

A sound analysis will be useful to future use of fiscal policies.

Back to the future - manage prosperity

Comments on Glenn Stevens “Prosperity isn’t easy”, 6/11/2009, http://www.theaustralian.com.au/news/opinion/prosperity-isnt-easy/story-e6frg6zo-1225794833992

Glenn Stevens is the governor of the Reserve Bank of Australia. He starts with:
“THE issue before us is not how to get on to the road to recovery; we are already on it. The question, rather, is how to make sure that the road to recovery will connect to the road to prosperity.
Unless we are prepared to accept it has all been an incredible coincidence, we have to ask why things turned out that way.
It wasn't just that China returned quickly to growth. Equally important were other factors, including the relative strength of the financial sector, the economy's flexibility and the willingness and scope to change macro-economic policy.
Those things were not accidents. Financial resilience resulted from sensible management by financial institutions and careful regulation on the part of the prudential supervisor.”

This is by far the most objective and balanced economic analysis that I have seen in Australian "officials" and economic advisors.

I agree totally with Stevens' analysis.

The only thing that I would like to add is that beyond the normal macroeconomic policies needed to manage the next boom in our prosperity, Australia needs to pay attention to how to channel the proceeds from the prosperity to further enhance productivity and economic returns in other sectors beyond mining as well.

Only in that way, the boom in prosperity associated with mining will be long lasting and sustainable into the future.

By the way, what Stevens' first paragraph says just makes a mockery of the organisers of the meeting in Melbourne called "The road to recovery" where Stevens delivered his speech.

It is silly to think in terms of the road to recovery now in Australia. It simply ignores the reality.

Guess what? The Federal Treasurer also gave a speech at that meeting!

What a contrast!

Another high profile speaker is the chairman of the Productivity Commission. I might read his speech and might provide some comments on that too.

Building infrastructure effectively and efficiently

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

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

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

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

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

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

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

Carr wrong on RBA rate

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

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

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

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

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

Carr should realise that.

No long a need for emergency stimulus policies in Australia

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

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

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

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

Failing to do that is purely irresponsible.

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

Garnaut's view on crisis and Aussie economy

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

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

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

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

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

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

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

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

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

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

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

A strong $A is good for Australian economy

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

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

Treasury partisan and incompetent

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

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

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

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

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

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

Government asemmetry to stimulus

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

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

It shows the combination of three factors.

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

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

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

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

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

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

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

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

Now you have an interesting Australian government and federal politics.

Rudd needs to heed warning from Garnaut

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

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

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

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

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

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

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

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

Swan - a true swan or goose?

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

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

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

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

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

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

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

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

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

This shows how unwise the Rudd/Conroy Telstra policy is

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

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

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

It is a video doc and its introduction reads as:

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

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

Swan shoots at his foot by relying on what G20 says generally

Comments on Michael Stutchbury “Will Wayne plan pass the IMF test?”, 28/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26133477-5017771,00.html

It will be interesting to see how much those countries will adhere to their pledges to let the IMF to prescribe economic policies for those individual countries. But I doubt that will ever work for any of the large countries in the group.

Swan and Rudd may backfire if they rely too much on what the G20 is prescribing now as a matter of principle for the group as a whole but not necessarily applicable to every individual country.

Australia is very different from all other developed countries in the group. As a result, the policy positions should naturally be different too. But the government does not admit this on political grounds.

It appears that both are choosing what is good for them at the moment, but there will be a day of reckoning ahead when they will have to contradict what is prescribed as the medicine for a general situation.

I personally don’t place too much trust on Swan’s reliance on what the G20 is saying now, although I stand ready for correction if I am proven to be wrong.

Electrical Trades Union hypocritical to oppose free trade agreement with China

Comments on Malcolm Colless “Hansonite protest out of left field”, 22/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26105680-7583,00.html

The secretary of the Electrical Trades Union (ETU) is hypocritical and seeks to scare people.

The campaign against Australia signing a free trade agreement with China by the ETU is an attempt to lower the living standard of all Australians and slow the progress of Australia economy to move to an internationally more competitive one.

It is an attempt by a handful special interest group for their own short term interest at the expense of all other Australians. They want to protect the so called employment of theirs in the current form without realising that the world is changing very rapidly and the structure of employment in the economy has to keep pace with it.

This is old trade protectionism in a different disguise.

The report says that the ETU campaign argues against concluding the FTA and savagely attacks China's employment standards and its record on human rights.

China is different from Australia in many aspects including employment standards. But it reflects mainly the different living standards between the two countries other than otherthing else. Many Chinese still live in very poor conditions and the very survival of prople is a question.

Why doesn’t the secretary of the ETU care about the living standards of those people when talking about their employment standards?

This shows how shallow, hypocritical and double standards the secretary is!

Miserable Swan that cannot fly, nor swim in economic fields

Comments on Wayne Swan “Rollback is part of the plan”, 10/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26050760-5017272,00.html

The Treasurer seems never to be able to grow up to a normal person, but unfortunately he is in charge of what he cannot manage nor understand, that is the economy and budget.

To just using one point in his little article, he said the stimulus has been designed to withdraw automatically. Let's assume what he said was correct with the original design for the moment. But the economy has already proved that the Treasury forecast was out of order with what has been happening, so why the original design based on that earlier forecast is still correct? Isn't it a common sense that when things are different from one's assumptions, then one needs to change the strategies according to the new reality as opposed to sticking with the original plan?

Mr Swan, you need to get some common sense, not to mention the skills to manage the nation's budget and the economy.

Besides, the nation’s top economic advisors need to get real as well and provide good economic and budgetary advice to the government of the day. It is their advice that has also contributed to Mr Swan’s confused mind.

Australia should continue its economic reforms

Comments on Michael Stutchbury “How we beat the recession”, 5/09/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/how_we_beat_the_recession/

Australia has benefited from the successful reforms from the previous successive governments, as well as China boom.

We have been able to weather the most severe world recession in many decades thanks to the past successes.

Macroeconomic policies, both monetary and fiscal, have played a useful role and contributed. Both the government and RBA should be congratulated, although the government should not over claim credits.

We should continue economic reforms to raise productivity and to stay in the front of world frontier.

Industrial relations changes are an unfinished business. The Rudd/Gillard government needs a strategy to move beyond its current rewriting of the IR laws after the next election if it retains the government, as it is expected now. There should be no complacency about that.

Relations with Asia especially with China also need to be attended closely.