Australia is facing a future of lower growth...

Macro Business has a post looking at the budget debate: The delusional budget debate.

Australia is in the early stages of an historic adjustment downwards in its income growth as the terms of trade fall.

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The problem Pascoe is identifying is that by definition in a current account deficit country when the public sector runs a surplus (or smaller deficit) then the private sector must run a larger deficit to offset it or growth will fall. That is, the private sector will have to borrow more (or sell more assets).

That might be OK, a return to the Howard/Costello growth model as it were, but our situation is actually worse than Pascoe is arguing. Credit growth is not at such low levels entirely by choice. It is kept low because APRA insists that all new loans are funded by deposits. This limits credit distribution (not price) by driving up credit standards. This in turn is the result of Australian banks no longer being able to borrow money endlessly offshore or they will have their credit ratings stripped. We are, in fact, in a slowly tightening current account squeeze.

This is the vice that I have described for the Australian economy for the past five years. Private credit cannot grow too fast lest it threaten the banks’ credit ratings. Public credit cannot rise too fast because it will threaten the national credit rating which still guarantees the bank ratings. Yet you can’t cut back too fast on either lest growth plunges. We’ve been supported through it so far by massive growth in the external sector (the mining boom) but that is ending.

This election should be about this: which party offers the best path forward out of the trap. The right solution will look something like this:

•     a huge productivity drive
•     modest public deficits aimed very much at productivity boosting soft and hard infrastructure
•     private sector disleveraging and probable deleveraging
•     above all, measures to lower the dollar and boost tradables growth without firing up greater credit growth

The budget deficit and reported decline in revenue explained

In Labor in a budget quagmire of its own making Greg Jericho looks at the changes in revenue and spending over the last few budgets and compares them to the situation in the nineties. As usual there are plenty of graphs to back up his reasoning.
This week the budget situation is being spoken of in grave terms. News articles are full of dire prognostications, the Prime Minister is being sombre, and the opposition is free to run every scare campaign it wishes.

But back in the 2009-10 Budget - the first after the GFC had smacked the bejeezus out of the revenue - Wayne Swan predicted by 2012-13 that the budget would be in deficit of 2 per cent of GDP. Back then we weren't expected to return to surplus until 2015-16.

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In reality its predictions of the budget situation were pretty much on the money - perhaps even too conservative. But a year later the Government in a misconstrued desire to win the race of economic management through achieving speedy returns to a surplus, shifted the goal from 2015-16 to 2012-13.

Rudd vs Gillard

A couple of articles on the topic.

Drag0nista in Crean, Rudd and WTF? explains what happened in the non-spill of March 2013. It's probably the best analysis I have seen up to now.

Josh Bornstein, an employment lawyer, explains in When you understand hate, you understand Rudd's fall why so many of Kevin Rudd's colleagues hate him and thus would rather lose than make him leader again.

The decline of whom

In For Whom the Bell Tolls Megan Garber writes about the slow death of "whom".

Household income distribution

Matt Cowgill posted this table of working age population household income distribution to Twitter:

Government debt - it's more complicated than what it seems

Bernard Keane and Glenn Dyer in Here’s the real story of Australian debt explain why Australia's debt is not a problem. They highlight that if Australia had tried to maintain surpluses during the GFC the country would probably have gone into recession. They also have concerns about future Governments:

The danger, as the continuing depression in Europe illustrates, comes if politicians take seriously the sort of cant about debt pushed by News Ltd and start treating budget outcomes and debt reduction as ends in themselves, rather than tools of economic management. A fiscal policy that goes beyond addressing the structural problems of our tax and spending frameworks to a cut-debt-at-all-costs policy not merely has the potential to drive the economy into recession, but it would risk thereby increasing what little debt problem we have through reduced economic growth and tax revenues.

But Eslake doesn’t see much danger from austerity-driven politicians. Instead, he is concerned that an incoming Coalition government, should one eventuate, will repeat the mistakes of the Fraser years and fail to use its position to drive necessary fiscal discipline. “Like the Fraser government, an Abbott government may be divided between a leader who distrusts markets, has little interest in economics and is actually contemptuous of economists, a National Party that has reverted to its traditional agrarian socialism, and reformist liberals like Hockey, Robb, Turnbull and Sinodinos.”

As it turns out, the world of debt is a lot more complicated than journalists and editors might have us believe.

American health care costs compared

Ezra Klein in 21 graphs that show America’s health-care prices are ludicrous highlights how much more expensive the US health system is compared to other developed countries.

457 Visas

457 visas have been in the news lately. Here are a couple of articles on the topic:

Peter Mares, adjunct fellow at the Swinburne Institute for Social Research, in Temporary migration is a permanent thing discusses the benefits of the 457 visa and the implications for the permanent migration cap and processing queue as temporary visa holders seek permanent residence.

Tim Colebatch in The books are being cooked on 457 visas discusses how the visas are being abused just as happened with student visas.

Brett Winterford in Why we use 457s in Australian IT projects quotes an executive as explaining whey they use 457 visa workers:

1. There are generally insufficient skilled Australian IT workers available to ramp up large scale IT projects.
2. The cost of employing Australian resources, even if you can find them, is very high in relation to the rates available via third party companies.

Sylvia Pennington in Employers want a 'cheapie, just arrived off the boat', Aussie IT workers told quotes IT workers as saying that employers are using 456 and 457 visas to cut staffing costs and undercut local businesses when tendering on outsourcing contracts.

Turnbull on Abbott's climate change policy

Abbott's climate change policy is bullshit is an old op-ed by Malcolm Turnbull on Tony Abbott's climate change policy. Since it was written the Coalition has released its Direct Action policy. However, much of the criticism still stands.

Global warming is accelerating

Dana Nuccitelli writes in In Hot Water: Global Warming Has Accelerated In Past 15 Years, New Study Of Oceans Confirms that global warming is actually increasing with much of the warming taking place in the deep ocean:

Perhaps the most important result of this paper is the confirmation that while many people wrongly believe global warming has stalled over the past 10–15 years, in reality that period is “the most sustained warming trend” in the past half century. Global warming has not paused, it has accelerated.

The paper is also a significant step in resolving the ‘missing heat’ issue, and is a good illustration why arguments for somewhat lower climate sensitivity are fundamentally flawed if they fail to account for the warming of the oceans below 700 meters.

Most importantly, everybody (climate scientists and contrarians included) must learn to stop equating surface and shallow ocean warming with global warming. In fact, as Roger Pielke Sr. has pointed out, “ocean heat content change [is] the most appropriate metric to diagnose global warming.” While he has focused on the shallow oceans, actually we need to measure global warming by accounting for all changes in global heat content, including the deeper oceans. Otherwise we can easily fool ourselves into underestimating the danger of the climate problem we face.

Krugman on Cyprus

Paul Krugman has now written several articles on the current financial crisis in Cyprus.

In Hot Money Blues he ponders whether we might see a move to increase limits on international capital flows.

In Cyprus, Seriously he suggests that the best thing for Cyprus to do is to withdraw from the Euro.

Artic sea ice loss causing extreme weather in Europe

John Vidal writes that Scientists link frozen spring to dramatic Arctic sea ice loss.

Soil carbon sequestration costs $80 per tonne of CO2

Actual viability of soil carbon sequestration for farmers studied looks at work by UWA researchers into estimating the impact of using soil carbon sequestration to mitigate carbon emissions:

NEW UWA research looking at the economic impacts of implementing soil organic carbon (SOC) sequestration methods into farming practices, is showing that these impacts may prove impractical for farmers.

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The authors found that while altering certain practices can be used to increase carbon sequestration it is costly and farmers would require high levels of compensation to make it a viable option.

By modeling the cost of these practices researchers estimate the profit loss for each additional tonne of CO2 stored on the model farm was $80.00 which is far more than the initial buying price of $23.00 per tonne under carbon tax legislation.

A/Prof Kragt says there are also a number of other barriers for the implementation of many practices of carbon sequestration.

“There are a lot of opportunities to increase soil carbon but pretty much most of those are categorised as conservation practices and those conservation practices won’t be eligible for carbon credits under additionality”, A/Prof Kragt says.

Additionality is the requirement that any practices implemented create additional sequestration or reductions in emissions than would have occurred under a business as usual scenario.

In summary, Direct Action will cost $80 per tonne.

Irrational nonsense - a Venn diagram

The Venn Diagram of Irrational Nonsense (from https://twitter.com/Adenovir/status/315652686995390466/photo/1):

Using The Wire to explain horizontal fiscal equalisation

In The Wire and horizontal fiscal equalisation Matt Cowgill uses examples from the HBO series The Wire to explain why we have and need horizontal fiscal equalisation:

It’s this sort of ruthless indifference to poorer areas that underpins the American approach, illustrated so vividly on the Wire. I’m not claiming that a recalibrated Commonwealth Grants Commission funding formula would lead us to a situation like Simon’s Baltimore, but I am suggesting that any deviation from the principle of citizens’ equal entitlement to government services would be a disastrous and repugnant step, however tentative, in that direction.

Renewables may be reducing power prices in South Australia

Dylan McConnell, Research Fellow at University of Melbourne, writes in Power of the wind – how renewables are lowering SA electricity bills that:
Renewable energy sources such as wind and solar power appear to be the impetus behind a South Australian proposal to substantially drop electricity prices, just as other states are hiking theirs.
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And while it is not specifically acknowledged in the determination, this may be the first time the “merit order effect” of renewable energy sources can conclusively be seen flowing through to consumers in Australia.

Mark Lathams' Quartely Essay - Not Dead Yet

The latest Quarterly Essay features Mark Latham's Not Dead Yet: Labor's Post-Left Future. As the Quarterly Essay in not free I am unlikely to read it. There have been some positive reviews on Latham's essay, and a few critical analysis.

Matt Cowgill's Back to the future with Mark Latham’s Quarterly Essay concludes with:

The essay isn’t all bad. I applaud Latham’s goal, announced in the first chapter, of producing a work that is more focused on policy proposals than on blood-letting and carping from the sidelines. I do, strange as it might seem, agree with him about many aspects of policy. Labor has always been a pragmatic party, a party that seeks to govern. It’s not a dogmatic party, driven by purist ideology. Latham has that right. I think that Labor was right to float the dollar and to pursue many of the more market-oriented reforms it has implemented over the past three decades.But I think that Latham is wrong to miss the other half of the picture, Keating’s view that if people “fall off the pace you will reach back and pull them up.” Some members of the Clause IV generation are too keen to leave behind central elements of the centre-left agenda.

Mark Bahnisch, who seems to have had a run in with Latham in the past, isn't a fan of the essay. His post Mark Latham Redux: Just a step to the right? concludes with:

I’ve enjoyed a lot of Mark Latham’s occasional writing in the Financial Review and in Crikey, but I don’t think Australian Labor has a lot to learn from ‘Not Dead Yet’. Nevertheless, it’s a good thing that he’s written the essay, as debate among Labor people and sympathisers about its political philosophy and strategic direction is much to be welcomed.

In Mark Latham and the return of the underclass Don Arthur writes that Latham's plan to end poverty won't.

Latham on education

In The real education revolution Labor needs Crikey has an extract from Mark Latham's contribution to Quarterly Essay 49, Not Dead Yet: Labor’s Post-Left Future.

Politics of Narcissism

Matthew Yglesias in Rob Portman and the Politics of Narcissism notes that Senator Rob Portman of Ohio has changed his mind on gay marriage after learning that his son is gay.

But what Portman is telling us here is that on this one issue, his previous position was driven by a lack of compassion and empathy. Once he looked at the issue through his son's eyes, he realized he was wrong. Shouldn't that lead to some broader soul-searching? Is it just a coincidence that his son is gay, and also gay rights is the one issue on which a lack of empathy was leading him astray? That, it seems to me, would be a pretty remarkable coincidence. The great challenge for a senator isn't to go to Washington and represent the problems of his own family. It's to try to obtain the intellectual and moral perspective necessary to represent the problems of the people who don't have direct access to the corridors of power.

Senators basically never have poor kids. That's something members of Congress should think about. Especially members of Congress who know personally that realizing an issue affects their own children changes their thinking.

Recently Tony Abbott was on TV explaining how his attitude to women had changed because of his daughters (this seems to have been a rather slow change). Likewise his attitude to gays had changed after his sister's recent coming out. This is exactly what Yglesias is writing about in his article.

Probability of warming being due to random chance

Philip Bump in If you’re 27 or younger, you’ve never experienced a colder-than-average month quotes the National Oceanic and Atmospheric Administration in October 2012 as saying:

The average temperature across land and ocean surfaces during October was 14.63°C (58.23°F). This is 0.63°C (1.13°F) above the 20th century average and ties with 2008 as the fifth warmest October on record. The record warmest October occurred in 2003 and the record coldest October occurred in 1912. This is the 332nd consecutive month with an above-average temperature.

Bump goes on to write:

If you were born in or after April 1985, if you are right now 27 years old or younger, you have never lived through a month that was colder than average. That’s beyond astonishing.

Josh Voorhees in It Has Been Nearly 28 Years Since We Have Had a Colder-Than-Average Month quotes the above Bump article (although I couldn't find the reference to February 2012 in the article myself):

The last below-average month was February 1985. The last October with a below-average temperature was 1976.

I assume Voorhees came up with February 1985 by subtracting 332 months from October 2012 (the month referred to in the NOAA quote above. It's now March 2013. So last month makes 336 consecutive month with an above-average temperature.

What's the chance of that happening by random chance? Let's assume that there's a 50% chance that temperatures in any given month could be above average (it's actually slightly less than 50% because temperatures could be above, equal to or below the average, but it's close enough for our task and if anything will understate things). The equation is basically 2³³⁶. According to Microsoft Excel the probability is 1 in  139,984,046,386,113,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 (note Excel rounds numbers this large). The Windows calculator puts the probability at 1 in 1.3998404638611276315984014253553e+101. Either way that's a very large number.

So what does it mean? It means that it's not random chance that we have had 336 consecutive months with an above-average temperature. Something has caused it and all the evidence indicates that to a large extent it's us.