The carbon tax and governance

Comments on Dennis Shanahan “Credibility joins carbon crusade”, 17/08/2011, http://www.theaustralian.com.au/national-affairs/commentary/credibility-joins-carbon-crusade/story-e6frgd0x-1226116270286

The government would sound more credible if it hasn't used the carbon tax as a way for wealth/income redistribution as it has proposed in its carbon tax package, and it got a border carbon adjustment to not distort and reduce Australians' comparative advantage in trade of goods and services with other nations.

These fatal shortcomings of the government's carbon tax bill are related to ALP Robin Hood ideology and its cowardice to confront other powerful nations in terms of equal treatment.

Of course, the compensations for businesses should not be as generous to recognise that businesses can pass the higher costs due to carbon tax either fully or at least partially as they are proposed in the bill, and more compensations should be for households on an equal per capita basis to remove the income distribution effects.

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

Taken together, it shows the government is incompetent, out of date and out of touch.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

Households real income and housing costs

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

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

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

Rethink and redesign economic policies

Comments on Stephen Grenville “Curing the US policy paralysis”, 16/08201, http://www.businessspectator.com.au/bs.nsf/Article/US-debt-ceiling-economic-policy-politics-deficit-f-pd20110815-KR8BT?OpenDocument&src=rot

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

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

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

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

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

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

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

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

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

Scared they've been on the run

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

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

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

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

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

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

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

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