Monday, 31 October 2011

Laura Tingle on Tony Abbott

I've respected Laura Tingle's work since she was with the Australian (back when I regularly read it). Unfortunately most of her work is inaccessible behind a pay wall. Luckily we can see a recent effort for free. Last week she wrote Labor hopeless, Abbott a hollow man where she equates the Opposition Leader to King Arthur of Monty Python and the Holy Grail:
... in his chain mail and ill-fitting crown, riding an imaginary horse while porters walk behind him banging coconut shells together is more the ticket.
She then goes on to tear apart his policies on Asylum seekers and look at his recent pronouncement on poker machine reform. She finishes with:
But two years is a long time to get away with being such a negative, opportunistic and hollow man.
Edit 5/11: Ben Eltham discusses Laura Tingle's article in Will negative Abbott get a positive result?

Saturday, 29 October 2011

Changes coming in the power industry

Paddy Manning has written Power providers energised for coming of a green age:
Electricity companies are preparing to shift to a green future by investing in the industry of energy solutions.

A SMARTER, greener future for energy use may be coming too slow for some, but it is coming nonetheless. Eventually our dirty old electricity grid may provide little more than back-up power, giving us plenty of scope to retire ageing coal-fired power stations.
Meanwhile Ben Harvey looks at why Western Australian power bills are going up and up in The shocking truth about your bill:
It's an inconvenient financial truth, but if you think your electricity bill is big at present you are, pardon the pun, in for a shock.

And it's an inconvenient political truth that there is no white knight waiting to save you - we are going to get screwed on power prices regardless of whether the ALP or the Liberals are in office.

Colin Barnett is doing a very good job of apologising for raising prices and is gently putting out the message that things might not be so bad in the future.

Eric Ripper is doing an even better job of making everyone think that life will be easier if you vote for him in 2013.

Both these men - who are generally decent and trustworthy - are full of it: prices are going up far higher than either is letting on.

Both want to ensure that our bills cover the cost of delivering electricity to our houses.

9-9-9 may not be so good for the other 90%

US Presidential candidate Herman Cain has put forward a "9-9-9" tax reform plan:
which would replace all current taxes (including the payroll tax, capital gains tax, and the estate tax) with 9% business transaction tax; 9% personal income tax rate, and a 9% federal sales tax
This sounds great at first glance. However it might not be as attractive as it sounds. There's a great graph on the "Effect of proposed '9-9-9' tax reform plan on average tax liability. Basically, the graph shows only the top 20% being better off. The graph is well worth a look.

The Downside Of Monetary Easing

In The Downside of Monetary Easing William F. Ford and Polina Vlasenko look at the impact of the Federal Reserve's monetary stimulus initiates and ask if the programs may have actually had a negative impact of employment. They argue that the lower interest rates as a result of the initiative have a negative impact on the income of retirees, who in turn spend less.

Friday, 28 October 2011

Is trickle-down economics a myth

Since the Occupy Wall Street movement started there has been a lot written about the growing inequality in wealth and income, particularly in the USA. Saul Eslake in Why some incomes are just gross writes:
According to data published in the Paris School of Economics' World Top Incomes Database, the share of total household income accruing to the top 10 per cent of the income distribution in the US rose from 34.6 per cent in 1980 to 48.2 per cent in 2008 - an increase of 13.6 percentage points.

Put simply, the top 10 per cent of Americans control almost half the country's household wealth.

Over the same period the share accruing to the top 1 per cent of the income distribution more than doubled, from 10 per cent to 21 per cent; while the share accruing to the top 0.01 per cent of US households ranked by income increased almost fourfold, from 1.3 per cent to 5 per cent.

Indeed, from 1980 to 2008 the average gross income of the richest 1 per cent of American households rose by 172 per cent in real terms.

Over the same period the average real incomes of the bottom 90 per cent of American households rose by just 2 per cent.

Quite staggeringly, the average gross income of households in the bottom 90 per cent of the income distribution was, in real terms, lower in 2008 than it had been in the early 1970s.
He also states:
An increasingly polarised distribution of income and wealth can have adverse consequences for economic performance.
But there's absolutely no guarantee that the distribution of income and wealth produced by markets will be socially desirable, or politically sustainable; indeed, there's plenty of evidence to suggest that more often than not, it won't be.

Thus, if there's to be less government intervention in the means by which incomes are generated by the operation of market forces, based on the belief that the result will be a higher aggregate level of income, there may well need to be more government intervention in the way in which that higher level of income is distributed, in order that the end result is socially and politically sustainable.
To quote Wikipedia:
"Trickle-down economics" and "the trickle-down theory" are terms used in United States politics to refer to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole. The term has been attributed to humorist Will Rogers, who said during the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy." The term is considered pejorative by some proponents of tax cuts.

Proponents of these policies claim that if the top income earners are taxed less that they will invest more into the business infrastructure and equity markets, it will in turn lead to more goods at lower prices, and create more jobs for middle and lower class individuals.[citation needed] Proponents argue that economic growth flows down from the top to the bottom, indirectly benefiting those who do not directly benefit from the policy changes. However, others have argued that "trickle-down" policies generally do not work, and that the trickle-down effect may be very slim, if indeed it even exists at all.
So, the idea is that the more income available to the wealthy, the more money will flow to everyone else. Yet the reality, as seen in the statistics quoted by Saul Eslake above, seems to suggest that this is not the case.

Edit 03/11: Jessica Irvine is of the opinion that Top bosses' riches are undeserved. Dan Ariely, Professor of Behavioural Economics at Duke University, looks at level of executive compensation, particularly in the financial sector in Better (and more) Social Bonuses. He has a great graph comparing the pay of the leaders of the world's top banks to their market capitalisation. For example, James Dimon of JPMorgan earns $19,651,560. JPMorgan has a market capitalisation of $158.6 billion. Jiang Jianqing of ICBC earns $235,700 while ICBC has a market capitalisation of $250.2 billion.

Edit 20/11: Bruce Guthrie writes that They're not the messiahs, just very overpaid and wonders if executive salaries should be capped at 10 times the Prime Minister's salary. Of course that would mean a significant pay cut for many CEOs.

Edit 21/11: Tony Webber on Why executives are worth their fat salaries.

Spending $400 million by mistake

In $400,000 sweetener became $400m Phillip Coorey mentions an anecdote from Peter Hartcher's new book "The Sweet Spot".
The GST negotiations were in 1999 and Mr Howard needed the support of the Australian Democrats to pass the legislation through the Senate.

The Democrats leader, Meg Lees, was horse trading. One demand was for the government to establish a greenhouse gas abatement program.

The former treasurer Mr Costello tells Hartcher: ''This was 1999. Neither Howard nor I had much of an idea of what a greenhouse gas was, let alone how to abate it … Trying to co-operate without blowing the financial position, I whispered to Howard, 'Offer her four hundred.'

'''Okay,' he said. '$400 million.'

''She accepted. I tapped him on the shoulder and whispered in his ear, 'That's not what I meant. I meant we should offer her $400,000'.''

There was no way to retract the offer.

''It was how $400 million got expended by mistake.''

The cost of living aint so bad

Michael Pascoe looks at cost of living issues in They're spending money, Jim, but not as we know it and writes:
That is the other thing we forget – that household incomes have been rising faster than the inflation rate. Therefore, on average, it shouldn't be the electricity bill that breaks the budget, but all the other stuff we spend money on.

And while we're complaining about the rising cost of living, we tend to overlook all the things that haven't been rising, or not rising much. Over the past three years, the all groups CPI has risen by 7.7 per cent, an average of about 2.8 per cent. The categories with the biggest increases have been alcohol and tobacco up 19 per cent thanks to higher taxes, followed by education up 18 per cent and that housing group ahead 15 per cent.

But at the same time, clothing and footwear didn't increase, transport and recreation and culture costs fell and communications increased by just one per cent.

It's swings and roundabouts, or perhaps shoes and school fees, in the cost of living game. Smoke and pay private school fees for a pile of kids who like airconditioning and leaving the TVs and computers on and you'll go backwards. Ditch the coffin nails, send the kids to state schools or, better yet, don't have kids and stay at home letting your parents pay for the power bills and you'll have no trouble living the good life. There are plenty of cost of living choices we make for ourselves.
Bernard Keane is wondering Who killed economic reform? Maybe we all did. He also references a Ross Gittins post from 2010 - Economists help cause gutless government.

Thursday, 27 October 2011

Opinion over News

mUmBRELLA has an article where they cite Lachlan Harris, Kevin Rudd's former press secretary as saying that opinion is now more important than news:
The news cycle has been replaced by the opinion cycle, with Andrew Bolt now the most significant media voice, Kevin Rudd’s former press secretary Lachlan Harris has argued.

Tuesday, 25 October 2011

The BEST project proves global warming

The Berkeley Earth Surface Temperature (BEST) project was set up by Richard Muller, a University of California astrophysicist. Rik Myslewski has written about the project's findings in Massive study concludes: 'Global warming is real'.

A wide range of groups contributed funding to the project, including Bill Gates and the Koch Foundation (the latter being well known for its hostility to the idea of climate change).

To quote the above article:
The study – the Berkeley Earth Surface Temperature (BEST) project – was set up by a University of California astrophysicist who was concerned about the "climategate" dustup over email messages hacked from the UK's University of East Anglia (UEA) that led many observers to believe that climate data had been fudged to exaggerate global warming.

The core of UC Berkeley scientist Richard Muller's concern was not, however, that the UEA scientists were getting a raw deal; in his opinion they had brought the worldwide criticism upon themselves.

"I was deeply concerned that the group [at UEA] had concealed discordant data," Muller told BBC News. "Science is best done when the problems with the analysis are candidly shared."
The article goes on to say:
The BEST team, however, had a stated goal of neither proving nor disproving global temperature increases. As expressed by project cofounder Elizabeth Muller, Richard's daughter, the goal was to conduct an analysis so data-rich and objective that it would "cool the debate over global warming by addressing many of the valid claims of the skeptics in a clear and rigorous way."

The "valid claims" didn't survive.
In other words, this project was set up by a skeptic (in the true sense of the word) to prove or disprove whether the world has warmed. And the conclusion - the world has warmed.

It's worth noting that the project has not looked at the cause of that warming - whether it's anthropomorphic or not:
Muller also cautions that observers should not take the BEST results and use them to prove something that they can't. When we asked him if it were possible to extrapolate from his team's results and predict whether the temperature increase will continue, he told us: "I don't think that is possible. The key issue is what fraction of the observed change is anthropomorphic. We don't shed much light on that."
The article also makes the excellent point:
The development of those models will require sober analysis of data and cooperation among scientists, technicians, and mathematicians, both from supporters and skeptics of predominantly accepted climate-change science.

And during those discussions, The Reg humbly suggests that we keep two things in mind. One, that although "predominantly accepted" means neither true nor false, automatic contrarianism is of value only when its proponents remain open to data-fueled persuasion.
So, where is the value in this project if it hasn't, yet, looked at the cause of warming? The value is in the claims by some (who I wouldn't call skeptics as I don't believe that they have an open mind on the issue) that the Earth has actually cooled over the last decade. This project proves that not to be the case.

Edit 16/Feb: The BBC has an excellent article on the study.

Floods, globalisation and disk drive shortages

For those that aren't aware, there are reports that the current floods in Thailand will lead to a shortage of disk drives. Some might wonder how, in a global industry floods in one country could cause a world wide supply shortage? In Disk drive crisis: Economists are terrible weathermen Tim Worstall explains why this has happened.

Kimberley Ramplin on Clowns to the left of me, jokers to the right

Kimberley Ramplin in Clowns to the left of me, jokers to the right has a critique of a rather manipulative poster at Occupy Melbourne. It's a great blog post.

Matt Cowgill on Albrechtsen, tax and the Laffer curve

Matt Cowgill has a go at Albrechtsen, tax and the Laffer curve. I'm not to sure how much I agree with what he says, but it's an interesting read. Cowgill cites N Gregory Mankiw as saying that US President Ronald Reagan's tax cuts didn't raise more revenue as President Reagan expected. Cowgill, and the Tea Party Movement, fails to mention that President Reagan actually ended up having to increase taxes to combat the rising deficit as tax revenue declined. Of course, this does sort of prove the point Mr Cowgill is trying to make.

Monday, 24 October 2011

Bernard Keane on the Internet changing media and politics

Bernard Keene, in How the internet messes with the game of media and party politics has written a thought provoking essay on the traditional media, politics and the Internet. Bernard puts forward the proposition that TV leads to isolation whilst the Internet, through avenues such as social media, leads to greater interconnection. He concludes with:
The problem isn’t so much whether the major political parties and the media will work out a response to the challenge of the internet, it’s whether they’ll do so before someone else does. The short history of the internet says they won’t, that they’ll be left behind by smarter, more innovative digital natives who grow organically on the internet, rather than trying to make the internet fit the demands of the analog era or bolt it on to analog models. The politicians and the press probably have more time than other industries to understand their plight and react to it. But society is being rewired once more, and not in a way that benefits them.
I think it's worth a read.

Sunday, 23 October 2011

Good inequality and bad inequality

Jessica Irvine in Like cholesterol, inequality cuts both ways looks at one of the major motivators for the Occupy Wall Street movement, inequality in income and wealth, and how there's good inequality and bad inequality. She writes:
Milanovic argues the global financial crisis is a direct result of this kind of ''bad'' inequality taking hold in the US. An excessive build-up of wealth and income in the hands of the financial elite meant they soon ran out of ways to consume it in caviar and champagne, meaning it needed to be invested in ever riskier vehicles. Meanwhile, US politicians sought to hide the uncomfortable truth of declining middle and lower class wealth by turning a blind eye to a massive loosening of credit standards, which enabled people to borrow and feel rich, even as their incomes stagnated. A more equitable path of development ''would have spared the United States and the world an unnecessary crisis''.

IKEA and tax (or the lack thereof)

Michael Pascoe has written before about how IKEA seem to have a very unprofitable operation in Australia. In Another enormous store, but why does IKEA bother? Michael looks at the issue again:
The mystery, though, is why IKEA bothers. The Dutch (yes, Dutch) retail giant appears barely profitable in Australia. According to the most recent accounts filed with the Australian Securities and Investments Commission, IKEA's bottom-line profit margin was barely 1 per cent of the $556.6 million it took from shoppers in its 2010 year. And, as IKEA doesn't make much profit here, it doesn't pay much tax - just $2.5 million last year.

The mystery, though, is why IKEA bothers. The Dutch (yes, Dutch) retail giant appears barely profitable in Australia. According to the most recent accounts filed with the Australian Securities and Investments Commission, IKEA's bottom-line profit margin was barely 1 per cent of the $556.6 million it took from shoppers in its 2010 year. And, as IKEA doesn't make much profit here, it doesn't pay much tax - just $2.5 million last year.
A greater mystery for me was the way the company's cost of sales blew when other Australian retailers' gross profit margins were doing very nicely out of our appreciating currency. IKEA's revenue rose by $23 million but what it paid for stuff jumped by $38.6 million. Despite all those lost-looking souls queuing at checkouts, the company's gross profit margin fell from 44.7 per cent in 2008 to 40.5 per cent in 2009 and 35.6 per cent last year.
He then looks at IKEA's ownership:
It's an odd business - just like IKEA's ownership. The once-Swedish corporation is now housed in the Netherlands, where it is owned by a ''charitable foundation'' that receives very little of the many billions of IKEA's global profit and disperses even less for good works.
Far be it from me to say that IKEA is seeking to minimise it's tax (is that a euphemism of avoid or evade), but obviously it is. Perhaps the ATO needs to look at transfer pricing at IKEA. Mind you, this sort of thing is not that uncommon.

Edit 25/10: A Guardian article - Quarter of FTSE 100 subsidiaries located in tax havens. I have to say that when I read this Guardian article, it occurred to me that just because a multinational company has a subsidiary in a jurisdiction "that offer low tax rates or require limited disclosure to other tax authorities", it doesn't necessarily mean that the subsidiary is there just to allow the parent to avoid tax. It might well be there for legitimate reasons.

Carbon tax starting to cause problems for Tony Abbott?

In Blood oath reality is taking Abbott out of comfort zone Shaun Carney observes that:
Climate change policy is the tar baby of Australian politics: get too close to it and you can really get into a sticky situation. The passage of the carbon pricing legislation through the lower house has forced Liberal leader Tony Abbott to finally place his mitts on it, and he is starting to get into strife.

Tea Party vs Occupy Wall Street

In Tea Partiers: The self-hating 99 per cent Heather Digby Parton compares the Occupy Wall Street movement to the Tea Party movement. It's an interesting read if you take an interest in US politics.

Saturday, 22 October 2011

Lenore Taylor on a fact-less Tony Abbott

Lenore Taylor in Ignore all facts and just run with the bluster looks at how Tony Abbott seems to be a fact free zone when it comes to pricing carbon and asylum policies.

She finishes with:
No politician would, or should, unthinkingly accept all advice they receive. But it's a bit worrying when they seem to reject out of hand, and without coherent arguments or reasons, all advice that contradicts their focus-group-tested case.

Monday, 17 October 2011

A few links on economics

Ross Gittins talks about how economists should be on the side of the consumer in the article In a better world more economists would speak on behalf of consumers. He then goes on to discuss Dr Diane Coyle's book "The Economics of Enough" and quote Dr Coyle on the issue of executive pay, especially in the banking system.

Jessica Irvine in Agile minds edge out nimble bodies talks about the decline in the proportion of people working in "production industries". She finishes with the paragraph:
If you want to worry about the future of jobs growth, spend less time worrying about protecting declining industries and more time worrying about the fact that Australian government spending on higher education as a proportion of gross domestic product is one of the lowest of all member countries of the Organisation for Economic Co-operation and Development.
Adele Ferguson discusses moves to give shareholders some say over executive remuneration in CEOs not enjoying the payback from shareholders.

Misha Schubert notes that Even conservatives say the dole is too low.

Fairfax economics writer Jessica Irvine in Economics by book not for Abbott notes that the Government is following the economic text book but Tony Abbott seems to be rejecting it:
But in Tony Abbott's hands, the economic textbook seems little more than a handy blunt object with which to whack one's opposition. The Opposition Leader appears hell-bent on styling himself as some sort of economic Antichrist.

Wednesday, 12 October 2011

Michael Pascoe on housing affordability

Michael Pascoe has some interesting things to say in Housing affordability: the summit we really need. I'm not sure I agree with everything he says, particularly in regards to negative gearing (disclaimer, I don't have an investment property or any negative gearing). I'm also not sure I support a land tax. Still he has a point.

Edit 12/10: Michael Janda discusses negative gearing and the tax summit in Let's talk about tax.

Edit 19/10: Jessica Irvine in The true cost of NIMBYism discusses modelling by economists from the Reserve Bank that looks at some of the causes of the housing shortage.
Through a combination of empirical research and new economic modelling, the authors Mariano Kulish, Anthony Richards and Christian Gillitzer highlight some factors that contribute to Australians living in more expensive, smaller and lower density housing than we would if the housing market was not constrained by a number of structural factors, including high transport costs, restrictions on density and costs imposed on new housing supply.
Edit 22:10: In Urban Densities: Keep it Real Bob Carr discusses Jessica Irvine's above piece and notes that although it's correct, it fails to address two recent developments that will lower housing density in NSW (with the implication that the increased sprawl will decrease affordability):
One, Barry O’Farrell in April this year gave control over density and zoning decisions to local government. As a result, this will see more high and medium density developments rejected.
Two, the Land and Environment Court has overruled attempts by the previous Labor government to have high density development along the North Shore rail link in Ku-ring-gai shire, boosting densities near the railway station and along a major transport artery. This decision means 10,000 more future dwellings will have to be delivered on Sydney’s urban fringe.
He concludes with:
Jessica finishes her piece saying “Interestingly, the … researchers found evidence that Sydney’s population density has increased in recent years.” Yes, it is interesting. It was also the product of 16 years of sound planning policy. Sydney has the highest population density of any Australian capital. Over the past decade only 21 percent of new homes were built in greenfield areas, compared to over 50 percent in other Australian capitals. Melbourne is going for growth on the fringe. Cities either grow up or out. Stop them growing up and they sure as hell will grow out.

Sunday, 9 October 2011

Ross Gittins on Big Business and Tax

Ross Gittins in Bleatings of big business tax credulity and deserve no sympathy wonders if business leaders believe that politicians owe them a living and if they're really committed to tax reform.

Wednesday, 5 October 2011

A Fox News interview that didn't make it to air

Fox News were interviewing people at an Occupy Wall Street protest. This is one interview that, unsurprisingly, didn't make it to air. There's the video, a transcript and background at Occupy Wall Street Activist Slams Fox News Producer In Un-Aired Interview. The actual video can also be seen on Youtube.

Personally, I think the Occupy Wall Street movement probably has as much economic credibility as the Tea Party. However, I think Jesse LaGreca's (the interviewee) answers are well articulated. I can see why it wouldn't air on Fox News - apart from the criticisms of Fox News, News Corp and Rupert Murdoch, Mr LaGreca probably talks too fast for the average Fox News viewer.

Eli Pariser warning of online filter bubbles

TED has a video of Eli Pariser warns of the dangers of Internet companies tailoring their services to our personal tastes in Beware online "filter bubbles".