Are you really entitled to your opinion?

No, you’re not entitled to your opinion, at least according to Patrick Stokes, Lecturer in Philosophy at Deakin University. He makes some good points.

Some articles on the Australian energy sector

Ben Eltham and Squirrel Main have written an interesting series of articles on the Australian energy sector:

Your Energy Bill Explained
Poles, Wires, Regulators and Middle Men


Ben Eltham has also written several other articles on the energy sector:
Renewables Will Win At The Ballot Box
Solar Is The Brightest Energy Option

Our Gold-Plated Electricity Infrastructure

Those opposing wind power

Mike Seccombe has written a two part series on the people and organisations behind much of the opposition to wind farms in Australia:
A field guide to the war on wind power and A field guide to the war on wind power (part two)

Sandi Keane also looks at the same people and how some residents are fighting back in Waubra Fights The Anti-Wind Bullies.

Wind and solar lead to electricty price falls in South Australia

Wind, solar force energy price cuts in South Australia by Giles Parkinson.

Why monetary policy isn't working and fiscal consolidation will makes things worse

In Monetary policy, The broken transmission mechanism The Economist has a great article on why monetary policy is not working in the USA and Europe:

SINCE the crisis hit in 2008, there has been a sharp divide between those who believe that the monetary authorities have been insufficiently aggressive and those who believe that central banks have done everything possible given that households and businesses have no interest in taking on new debts. For what it’s worth, a poll of more than 300 research associates at America’s National Bureau of Economic Research conducted for an article in the print edition reveals that the overwhelming majority (76%) believe that monetary policy has not been too tight. Nearly half believe that fiscal rectitude has been a principal cause of the slow recovery.

The article then goes on to explain why monetary policy hasn't been effective. It concludes with:

None of this is to say that asset purchases, statements about the future path of inflation and nominal income, or interventions in the foreign exchange markets will have literally no effect. However, it seems clear that current circumstances are causing these monetary policy actions to be far less effective than they otherwise would be. Marginal spenders are constrained by their desire (or need) to retrench. Most of the people who get the biggest benefit from central bank action are the people who already own lots of financial assets (the rich).

The fiscal authorities need to step up and do the job that the central banks cannot. Specifically, by running large budget deficits, governments can maintain the total level of spending in the economy while allowing households and businesses to repay their debts and accumulate savings. This is not a new insight, but it has gained popularity in the last few years thanks to the work of Richard Koo, the chief economist of the Nomura Research Institute who coined the term “balance sheet recession” to describe what happened to Japan after the collapse of its asset bubble in the early 1990s. (The paper is well worth reading in full.) Unfortunately, many governments across the globe seem more concerned with the abstract goal of balancing their budgets than with the important task of restoring their economies to health.

Recommended reading, as is the paper by Richard Koo in the above link. Here's where Koo explains how problems caused by the GFC could cause a depression if not correctly treated:

More importantly, when the private sector deleverages in spite of zero interest rates, the economy enters a deflationary spiral because, in the absence of people borrowing and spending money, the economy continuously loses demand equal to the sum of savings and net debt repayments. This process will continue until either private sector balance sheets are repaired or the private sector has become too poor to save (i.e., the economy enters a depression).

To see this, consider a world where a household has an income of $1,000 and a savings rate of 10 percent. This household would then spend $900 and save $100. In the usual or textbook world, the saved $100 will be taken up by the financial sector and lent to a borrower who can best use the money. When that borrower spends the $100, aggregate expenditure totals $1,000 ($900 plus $100) against original income of $1,000, and the economy moves on. When demand for the $100 in savings is insufficient, interest rates are lowered, which usually prompts a borrower to take up the remaining sum. When demand is excessive, interest rates are raised, prompting some borrowers to drop out.

In the world where the private sector is minimizing debt, however, there are no borrowers for the saved $100 even with interest rates at zero, leaving only $900 in expenditures. That $900 represents someone’s income, and if that person also saves 10 percent, only $810 will be spent. Since repairing balance sheets after a major bubble bursts typically takes many years — 15 years in the case of Japan — the saved $90 will go un-borrowed again, and the economy will shrink to $810, and then $730, and so on.

This is exactly what happened during the Great Depression, when everyone was paying down debt and no one was borrowing and spending. From 1929 to 1933, the U.S. lost 46 percent of its GDP mostly because of this debt-repayment-induced deflationary spiral. It was also largely for this reason that the U.S. money supply shrank by nearly 30 percent during the four-year period.

The discussion above suggests that there are at least two types of recessions: those triggered by the usual business cycle and those triggered by private sector deleveraging or debt minimization. Since the economics profession never considered the latter type of recession, there is no name for it in the literature. In order to distinguish this type of recession from ordinary recessions, it is referred to here as a balance sheet recession. Like nationwide debt-financed bubbles, balance sheet recessions are rare and, left untreated, will ultimately develop into a depression.

Koo also makes a very important point:

Flow of funds data for the U.S. (Exhibit 9) show a massive shift away from borrowing to savings by the private sector since the housing bubble burst in 2007. The shift for the private sector as a whole represents over 9 percent of U.S. GDP at a time of zero interest rates. Moreover, this increase in private sector savings exceeds the increase in government borrowings (5.8 percent of GDP), which suggests that the government is not doing enough to offset private sector deleveraging.

Koo later writes:

Countries in balance sheet recessions such as Spain are desperately in need of fiscal stimulus but are unable to take advantage of the rapid increase in domestic savings and are therefore forced to engage in fiscal conso lidation of their own. That causes the aforementioned $100 to be removed from the income steam, prompting a deflationary spiral. And since the countries receiving those savings are not borrowing and spending them, the broader eurozone economy is rapidly weakening. It is no wonder that the Spanish unemployment rate is over 21 percent and Irish GDP has fallen more than 10 percent from its peak.

Fund flows within the eurozone were following the opposite pattern until just a few years ago. Banks in Germany, which had fallen into a balance sheet recession after the telecom bubble collapsed in 2000, aggressively bought the debt of southern European nations, which were denominated in the same currency but offered higher yields than domestic debt. The resulting capital inflows from Germany poured further fuel onto the fire of housing bubbles in these countries.

There is thus a tendency within the eurozone for fund flows to go to extremes. When times are good, funds flow into booming economies in search of higher returns, thereby exacerbating the bubbles. When the bubbles finally burst, the funds shift suddenly to the countries least affected by the boom.

The problem with these shifts is that they are pro-cyclical, tending to amplify swings in the economy. Countries that are in the midst of a bubble and do not need or want additional funds experience massive inflows. Meanwhile, countries facing balance sheet recessions and in need of funds can only watch as money flows abroad, preventing their governments from implementing the fiscal stimulus needed to stabilize the economy.

[...]

One way to solve this eurozone-specific problem of capital shifts would be to prohibit member nations from selling government bonds to investors from other countries. Allowing only the citizens of a nation to hold that government’s debt would, for example, prevent the investment of Spanish savings in German government debt. Most of the Spanish savings that have been used to buy other countries’ government debt would therefore return to Spain. This would push Spanish government bond yields down to the levels observed in the U.S. and the U.K., thereby helping the Spanish government implement the fiscal stimulus required during a balance sheet recession.

The Maastricht Treaty with its rigid 3 percent GDP limit on budget deficits made no provision for balance sheet recessions. This is understandable given that the concept of balance sheet recessions did not exist when the Treaty was being negotiated in the 1990s. In contrast, the proposed new rule would allow individual governments to pursue autonomous fiscal policies within its constraint. In effect, governments could run larger deficits as long as they could persuade citizens to hold their debt. This would both instill discipline and provide flexibility to individual governments. By internalizing fiscal issues, the new rule would also free the European Central Bank from having to worry about fiscal issues in individual countries and allow it to focus its efforts on managing monetary policy.

In order to maximize efficiency gains in the single market, the new restriction should apply only to holdings of government bonds.  German banks should still be allowed to buy Greek private sector debt, and Spanish banks should still be allowed to buy Dutch shares.

In retrospect, this rule should have been in place since the beginning of the euro. If that were the case, none of the problems the eurozone now faces would have materialized. Unfortunately, the euro was allowed to run for more than ten years without the rule, accumulating massive imbalances along the way. It may take many years to undo the damage. 

Koo concludes with:

It is laudable for policy makers to shun fiscal profligacy and aim for self-reliance on the part of the private sector. But every several decades, the private sector loses its self-control in a bubble and sustains heavy financial injuries when the bubble bursts. That forces the private sector to pay down debt in spite of zero interest rates, triggering a deflationary spiral. At such times and at such times only , the government must borrow and spend the private sector’s excess savings, not only because monetary policy is impotent at such times but also because the government cannot tell the private sector not to repair its balance sheet.

Although anyone can push for fiscal consolidation in the form of higher taxes and lower spending, whether such efforts actually succeed in reducing the budget deficit is another matter entirely. When the private sector is both willing and able to borrow money, fiscal consolidation efforts by the government will lead to a smaller deficit and higher growth as resources are released to the more efficient private sector. But when the financial health of the private sector is so impaired that it is forced to deleverage even with interest rates at zero, a premature withdrawal of fiscal stimulus will both increase the deficit and weaken the economy. Key differences between the text book world and the world of balance sheet recessions are summarized in Exhibit 17.

With massive private sector deleveraging continuing in the U.S. and in many other countries in spite of historically low interest rates, this is no time to embark on fiscal consolidation. Such measures must wait until it is certain the private sector has finished deleveraging and is ready to borrow and spend the savings that would be left un-borrowed by the government under an austerity program.

There will be plenty of time to pay down the accumulated public debt because the next balance sheet recession of this magnitude is likely to be generations away, given that those who learned a bitter lesson in the present episode will not make the same mistake again. The next bubble and balance sheet recession of this magnitude will happen only after we are no longer here to remember them.

Koo has written a great paper. Compulsory reading.

Obama the conservative choice?

In The Conservative Case For Obama - Again Andrew Sullivan quotes some commentators as saying that Obama should be true choice for real conservatives. Interesting reading.

An article on writing

In How to Write Colson Whitehead has written "a few simple rules" on writing.

An NBN product review

In Product Review: The National Broadband Network Nick Ross has written a great article on the NBN.

The invasion of American evangelical ideas

Richard Chirgwin in The revolting invasion of American evangelists highlights the fact that the Cori Bernardi's slippery slope argument against gay marriage is actually a copy of the argument used by evangelicals in the USA who used it to campaign against gays in the military.

This doesn’t surprise me: Bernardi has always struck me as too stupid for invention. He is an organizer, a numbers man, an idea-free careerist, all balls, no brains.

Go back just a little distance in America, Land of the Unhinged. The debate was about permitting the military to acknowledge that some of its members are gay. Simple statistics would tell you that, but nobody was allowed to say so, in a delicious paradox for a country that deifies its First Amendment.

And out among America’s theocrats-in-waiting was the same theme. The repeal of laws banning acknowledged* homosexuality in the military was – go on, guess – touted as permitting bestiality. If you need some references, there’s this or this.

Chirgwin goes on to write:

In other words, the link – the “slippery slope” argument that draws an utterly kooky continuum starting at sex with a human and ending at sex with a different species – goes back at least that far.

It’s just another piece of the detestable invention of American snake-oil evangelism. It’s not even Bernardi’s own idea. He’s just spouting someone else’s drivel at us.

And that drivel is the demon spawn of hardline evangelistic American religion, which has been trying to invade Australia, infest our thought, and pollute our politics. In at least the latter, they have succeeded. And in the latter, Cori Bernardi - who seems to owe his loyalties to someone in the USA more deeply than anyone in Australia - deserves not a slap on the wrist, but the loss of his endorsement.

As Chirgwin writes:

If “sex with a man” or “sex with a woman” is on the same continuum as “sex with a sheep”, then doesn’t heterosexual sex sit on the same line?

Finnish education: teachers are important

John Hattie has written Finnish education guru Pasi Sahlberg: treat primary school teachers like doctors

J.K. Rowling on paying tax

Here's a great message from J.K. Rowling on why she's happy to pay tax:

Data rentention and the National Security Inquiry

A good post by Nick Ross on data retention proposals: Why are people so worried about data retention and the National Security Inquiry?

Paul Krugman on European austerity

It seems that too many policy makers and advisors have forgotten the errors of the great depression. But not Paul Krugman. In Europe’s Austerity Madness Krugman argues that all austerity is doing is inflicting additional pain on those that are already hurting. Why is this happening?

Part of the explanation is that in Europe, as in America, far too many Very Serious People have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are the clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess.

Beyond that, a significant part of public opinion in Europe’s core — above all, in Germany — is deeply committed to a false view of the situation. Talk to German officials and they will portray the euro crisis as a morality play, a tale of countries that lived high and now face the inevitable reckoning. Never mind the fact that this isn’t at all what happened — and the equally inconvenient fact that German banks played a large role in inflating Spain’s housing bubble. Sin and its consequences is their story, and they’re sticking to it.

Worse yet, this is also what many German voters believe, largely because it’s what politicians have told them. And fear of a backlash from voters who believe, wrongly, that they’re being put on the hook for the consequences of southern European irresponsibility leaves German politicians unwilling to approve essential emergency lending to Spain and other troubled nations unless the borrowers are punished first.

Recommend reading.

Fending off food cravings

Melinda Beck has written an interesting piece on How to Fend Off a Food Craving.

Alan Kohler on the RBA, China, the AUD and interest rates

Alan Kohler has written an interesting article in Monetary policy is losing its power. His article contains a couple of interesting ideas:

• The RBA probably made a mistake in 2009-10 in increasing interest rates.
• High capital inflows, mostly for new LNG plants in Queensland are going to keep the Australian dollar high.
• Mortgage rates are unlikely to drop to where they were last time the RBA cash rate was at this level; that's because the banks are facing higher international funding costs and more competition for deposits.
• The high dollar and higher funding costs mean that monetary policy, and that means the RBA, isn't as effective as it once was. 

He concludes with:

And no-one wants to borrow anyway. Manipulating the price of credit, which is all the RBA can do, is fine when credit is in demand. Now it's like manipulating the price of beef at a vegetarians' picnic.

Should be abolish negative gearing?

I'm still not convinced, but in It’s time to abolish negative gearing Philip Soos argues that we should.

The poorer you are, the more personal responsibility you have to take

In In Which I Wish I Had 1/3 of Ezra Klein's Brain: Mitt Romney 47% Trainwreck Weblogging J Bradford DeLong quotes Ezra Klein:

The thing about not having much money is you have to take much more responsibility for your life. You can’t pay people to watch your kids or clean your house or fix your meals. You can’t necessarily afford a car or a washing machine or a home in a good school district…. [Romney] is a guy who sold his dad’s stock to pay for college, who built an elevator to ensure easier access to his multiple cars, and who was able to support his wife’s decision to be a stay-at-home mom. That’s great! That’s the dream. The problem is that he doesn’t seem to realize how difficult it is to focus on college when you’re also working full time, how much planning it takes to reliably commute to work without a car, or the agonizing choices faced by families in which both parents work and a child falls ill. The working poor haven’t abdicated responsibility for their lives. They’re drowning in it….

As economist Jed Friedman wrote in an online post for the World Bank, “The repeated trade-offs confronting the poor in daily decision making -- i.e. ‘should I purchase a bit more food or a bit more fertilizer?’ -- occupy cognitive resources that would instead lay fallow for the wealthy when confronted with the same decision. The rich can afford both a bit more food and a bit more fertilizer, no decision is necessary.” The point… is really, really hard to be poor. That’s because the poorer you are, the more personal responsibility you have to take.

New car sales highlight the impcat of the GFC

Greg Jericho in Car sales as a speedo check for the economy looks at the impact of the GFC on new car sales. New car sales are a good indicator of the strength of the economy. He highlights the link between new car sales and GDP. Well worth a read.

Viral hate emails on asylum seekers are wrong

There are a number of viral emails going around that claim that refugees get special treatment from the Government. These emails are wrong. In Talking points: Asylum seekers 'don't get cash, houses, gifts' Malcolm Farr writes about a study that addresses these emails.

NEARLY a decade of viral emails claiming refugees get taxpayer-funded cash, houses and other gifts denied to Australian citizens has been debunked by an independent study.

The emails stir up resentment towards asylum seekers settling here but are simply not true, according to the latest research paper by the Federal Parliamentary Library.

The research dismisses claims that refugees get cash payments, free houses and extravagant gifts.

"There is no truth to claims made in emails recently circulated throughout Australia that refugees are entitled to higher benefits than other social security recipients," says the study by social policy researcher Luke Buckmaster.

"Refugees have the same entitlements as all other permanent residents. They do not receive special refugee payments or special rates of payment."

A question for George Megalogenis - Do we need the states?

George Megalogenis makes the point that states are in the service business. On his blog post NSW government: killing patients with cuts Richard Chirgwin writes:

It is, therefore, a little distressing to read in the Sydney Morning Herald that the austerity fanatics in the NSW want to add hospital outpatient clinics to the list of things they want to cut.

He goes on to write:

A point about the story itself: if the Herald thinks a private specialist visit only costs $300, it's completely deluded; first, because the private specialist doesn't have to constrain charges to the officially scheduled price; second, because those visits often include pathology. Shifting the path from the hospital to the private clinic means that service is also private.

Richard knows what he's talking about in this case because:

Those who know me - either in real life or on the Internet - will probably know that my wife has a chronic illness that keeps us intimately familiar with the inside of hospitals.

Describing things in full would take an essay, but the short version is that she suffers from an immune system disorder that has knock-on effects pretty much everywhere: at the last count, she's a regular with six specialists (immunology, gastro-enterology, vascular, renal, gynocology, dermatology). 

Let's get back to George Megalogenis. George has written that the Federal Government collects the revenue and the states are in business of spending that money in providing services to their citizens. Unfortunately, I don't have a link to these comments. However he did recently state:

The four largest components of the typical state budget are spending on health, education, transport and police.

Health and education tend to take 25 per cent each of total spending, while transport and police divide a further 20 per cent between them.

So, what happens when the states decide not to provide that service? I guess we then need to ask if we still need them. Don't get me wrong, I think it far better that the states provide these services than the Commonwealth. The states are far closer to the coal face and more likely to be aware of the needs of the community. The problem is that some of the states seem to be putting ideology and politics above responsibility and service delivery.