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For those who like to make the major parties work for their vote, here is a handy web site that lets you create customised below-the-line Senate voting tickets that you can print-out and take with you on polling day (just don’t use it as a ballot paper, it won’t count!)
posted on 04 August 2010 by skirchner in Politics
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No, according to Ed Glaeser and his co-authors:
Interest rates do influence house prices, but they cannot provide anything close to a complete explanation of the great housing market gyrations between 1996 and 2010. Over the long 1996-2006 boom, they cannot account for more than one-fifth of the rise in house prices. Their biggest predictive influence is during the 2000-2005 period, when long rates fell by almost 200 basis points. That can account for about 45% of the run-up in home values nationally during that half-decade span. However, if one is going to cherry-pick time periods, it also must be noted that falling real rates during the 2006-2008 price bust simply cannot account for the 10% decline in FHFA indexes those years. There is no convincing evidence from the data that approval rates or down payment requirements can explain most or all of the movement in house prices either.
The authors also note that Robert Shiller’s ‘irrational exuberance’ is a non-explanation:
even if Case and Shiller are correct, and over-optimism was critical, this merely pushes the puzzle back a step. Why were buyers so overly optimistic about prices? Why did that optimism show up during the early years of the past decade and why did it show up in some markets but not others? Irrational expectations are clearly not exogenous, so what explains them? This seems like a pressing topic for future research. Moreover, since we do not understand the process that creates and sustains irrational beliefs, we cannot be confident that a different interest rate policy wouldn’t have stopped the bubble at some earlier stage. It is certainly conceivable that a sharp rise in interest rates in 2004 would have let the air out of the bubble. But this is mere speculation that only highlights the need for further research focusing on the interplay between bubbles, beliefs and credit market conditions.
A more fruitful line of inquiry would be to investigate fundamental factors such as the role of US housing GSEs in distorting the allocation of global capital.
posted on 04 August 2010 by skirchner in Economics, Financial Markets, House Prices, Monetary Policy
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Simon Jackman provides a handy update on federal election outcome probabilities derived from Centrebet and updated daily at 9am AEST. Along with iPredict, Centrebet is showing a sharp decline in the probability of a Labor win, reflecting recent opinion polls, but also (perfectly legal) inside information:
SENIOR Labor figures have placed significant bets on the outcome of the federal election, with some punting against their own party. A major betting agency said bets had been placed on members of the opposing team to win marginal seats in NSW and Queensland.
Centrebet primary analyst Neil Evans said: ‘‘I can’t tell you who but I can tell you this: these are people very high up betting on some of the critical seats and I can tell you they don’t always stay faithful to their party - they swap sides.
‘‘They are well-known Labor figures and associates that are punting on these seats. A lot of Labor-connected money has been backing a Coalition win in marginal seats and, to a lesser extent, the Coalition has been doing the reverse.’‘
The Sun-Herald understands the figures include parliamentary staffers, advisers and senior party officials.
posted on 01 August 2010 by skirchner in Financial Markets, Politics
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UNE law lecturer Bryan Pape is an independent Senate candidate for New South Wales in this year’s federal election. He is perhaps best known for his High Court challenge to the constitutional validity of some of the Rudd government’s stimulus spending in Pape v The Commissioner of Taxation. The case was described by George Williams, another law academic and would-be ALP candidate as ‘a major victory for the states in the reasoning, it’s one of those very rare High Court decisions you get that’s going to change the way government operates.’
An opportunity to vote for a federalist and champion of states’ rights in the Senate.
posted on 31 July 2010 by skirchner in Politics
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Jonathan Weil asks why there is no investigation into Freddie and Fannie:
Still absent from the government’s agenda is any serious effort to hold anyone accountable for their ruin or investigate why they collapsed.
Back in December 2003, after Freddie disclosed what in retrospect was a relatively mild accounting scandal, its regulator published an exhaustive 185-page report cataloguing the company’s financial-reporting abuses. In May 2006, the same regulator disclosed similar findings about Fannie’s books in a report covering 348 pages.
Strangely, there’s no similar examination under way today by the Federal Housing Finance Agency into the reasons why Fannie and Freddie imploded in 2008, or whether anyone at the companies did anything improper. That’s probably because the agency and its predecessor, the Office of Federal Housing Enterprise Oversight, bear responsibility for letting the companies resume their natural tendency to run amok.
So here we go again. This month Congress passed the 2,323- page Dodd-Frank Act without any clear understanding of why the financial crisis happened—and without doing a thing to address Fannie and Freddie, which were central players. Now the Obama administration says it will deliver a reform proposal to Congress by January on the nation’s housing-finance system, including Fannie and Freddie. Yet the government still hasn’t undertaken any comprehensive inquiry into why these companies blew up and who was at fault.
I can only assume Weil’s column is rhetorical, because it is shriekingly obvious why there will never be an inquiry into the failure of Freddie and Fannie. The two GSEs did exactly what Congress mandated them to do, while Congress also stymied the attempt to reform them in 2004-05. Politicians are not interested in establishing an inquiry that can only lead to one conclusion: they were the authors of the global financial crisis of 2008.
posted on 30 July 2010 by skirchner in Economics, Financial Markets
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Crowding out effects were built-in to the BER:
BUILDERS and architects tendering for work under Julia Gillard’s school stimulus program were told to include a “cost escalation” of up to 10 per cent to cover the expected inflationary impact of the scheme.
The hidden cost of the Building the Education Revolution, revealed in documents submitted to a Victorian parliamentary inquiry, suggests that as much as $250 million of taxpayers’ money could have been spent to cover a surge in building material and labour costs created by the state’s $2.5 billion share of the stimulus program.
Contract details provided by an architecture firm reveal it was required by the Victorian Education Department to provide a 7 per cent “contingency fee” and a 10 per cent “cost escalation” in the tenders it submitted for work on four primary schools in Melbourne’s east.
Government sources confirmed last night the department specifically included escalation costs in BER projects “because the stimulus was going to be a significant injection into the market/economy and prices could be expected to increase with greater levels of work being undertaken”.
posted on 29 July 2010 by skirchner in Economics, Fiscal Policy
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With both major parties offering to retard economic growth by conditioning immigration on existing policy failures in housing, transport and infrastructure, Imre Salusinszky offers politicians some handy talking points:
From one perspective, it’s a neat trick: you pander to inner-city prejudice by abandoning road construction, then use what you perceive to be outer-suburban bigotry to paper it over.
But in order to prevent further embarrassment, as politicians attempt to source our problems to the fact there are almost three citizens shoehorned into every square kilometre of Australia, here are some talking-points:
* Frustrated you can’t get tickets to the big game? Once we block the reffos, convince people to stop having sex, and move across to a sustainable Australia, everybody will be able to attend the AFL or NRL grand final.
* Sick of waiting around in the morning while other family members use the bathroom? Me too, and I blame the fact there are too many people in Australia.
* Can’t get the job you want? Can’t win the girl you desire? Can’t own the car of your dreams? Have you noticed the common link? That’s right: there’s always some other bastard who already has these things. Too many Australians!
As best as I can tell, the only political party with a pro-immigration policy platform is the libertarian Liberal Democratic Party (you can read their policy here).
posted on 28 July 2010 by skirchner in Economics, Population & Migration
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The following observation by Greg Mankiw could have been written in response to Ken Henry’s recent lament about the role of economists in public policy:
economists are social scientists, not politicians. And whether they work for the government or have the luxury of merely observing the scene from an ivory tower, the integrity of the profession and the importance of the work involved demand that they be subjected to critical judgment; they must be compelled always to submit their assumptions, data, models, and conclusions to careful scrutiny. The foremost job of economists is not to make the lives of politicians easier, but to think through problems, to examine all the available information about the problems’ causes and potential treatments, and to propose the solutions most likely to work.
This is a simple point, but one that is easy to forget. As Milton Friedman once put it: “The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible’ and then to recommend it.”
In a time of economic uncertainty and political turmoil, we economists — both in and out of government — could hardly do better than to follow Friedman’s sage advice.
posted on 24 July 2010 by skirchner in Economics, Fiscal Policy
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It keeps him out of the country, it costs us next to nothing, he speaks perfectly impenetrable international bureaucratese and based on experience at Copenhagen he will put the cause of an international agreement on climate change back years if not decades. What’s not to like about Kevin Rudd as UN adviser on climate change?
posted on 22 July 2010 by skirchner in Politics
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John Birmingham gets the relationship between population growth and infrastructure:
Our built environment, our urban infrastructure has always lagged at least a decade behind what was required to house and support our population. We don’t build empty cities and wait for them to fill up. It’s more efficient, and less wasteful, to cram our new arrivals into the streets and houses and apartment blocks and schools and offices and factories we already have. Only then do we begin to build the extra capacity we need to service the growth.
posted on 22 July 2010 by skirchner in Economics, Population & Migration
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Imagine if you will the RBA publishing a Research Discussion Paper that reached the following conclusions:
despite a relatively stable total fiscal impulse the effectiveness of spending shocks in stimulating economic activity has decreased over time. Short-run spending multipliers increased until the late 1980s when they reached values above unity, but they started to decline afterwards to values closer to 0.5 in the current decade. Long-term multipliers show a more than two-fold decline since the 1980s. These results suggest that other components of aggregate demand are increasingly being crowded out by spending based fiscal expansions. In particular, the response of private consumption to government spending shocks has become substantially weaker over time.
rising government debt is the main reason for declining spending multipliers at longer horizons, and thus increasingly negative long-run consequences of fiscal expansions. We interpret this finding as an indication that further accumulating debt after a spending shock leads to rising concerns on the sustainability of public finances, such that agents may expect a larger fiscal consolidation in the future which depresses private demand and output. We also find that a stronger response of the short-term nominal interest rate goes along with declining spending multipliers. This result is consistent with an increasingly offsetting reaction of monetary policy to the expansionary fiscal shock.
The extract is from a European Central Bank Working Paper and the conclusions reached are in relation to the euro area. Don’t hold your breath waiting for the RBA to publish a similar study of activist fiscal policy in Australia.
posted on 21 July 2010 by skirchner in Economics, Financial Markets, Fiscal Policy, Monetary Policy
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Superannuation system review chair Jeremy Cooper, interviewed by Alan Kohler:
ALAN KOHLER: In fact you call it “libertarian paternalism” in your report. And I must say reading your report it seems to leans toward the paternalism rather than the libertarian.
JEREMY COOPER: Possibly but go back to the original idea it’s very paternalistic. Compulsory superannuation, which really only exists in a very few countries, is very paternalistic.
It’s saying, well unless we force the population to put money away for retirement they’re not going to do it, so we’re going to work out what we think what they’re best interest is and we’re going to force them to hold back wages which would otherwise would be spent on school shoes and petrol and all those important things.
That money is held back by the government, that’s very paternalistic. So to criticise these ideas because they’re paternalistic forgets what the system, what super actually is.
Perhaps the most honest assessment of the motivation behind compulsory super I have heard to date.
posted on 19 July 2010 by skirchner in Economics, Financial Markets
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China’s contribution to global resource demand is well known, but its important contribution to augmenting global resource supply is underappreciated, frequently misunderstood, and often feared. Concerns over Chinese intentions in relation to commodity production and pricing were readily apparent in the Australian debate over Chinalco’s failed bid for Rio Tinto last year, but have also been raised in relation to other acquisitions.
These issues are examined in a new study, China’s Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities, published by the Peterson Institute and authored by Theodore Moran, a member of the US Director of National Intelligence Advisory Panel on International Business Practices. Rather than just raising abstract concerns, Moran examined the actual record of China’s 16 largest foreign resource procurement arrangements between 1996 and 2006, including several in Australia.
Moran concludes that ‘looking at the effect of Chinese procurement efforts on the structure of the global supplier base for energy and minerals, the empirical record to date suggests a predominant thrust … toward diversification of output and enhanced competition among producers.’ It is for these reasons that competition regulators in Australia, Germany and the United States did not raise significant objections to Chinalco’s proposed increased stake in Rio.
Moran argues that Chinese involvement in the development of rare earth elements (REEs) ‘may constitute a significant exception’ and warrants greater ‘circumspection.’ But even here, concerns have been exaggerated. Despite the name, these elements are not particularly rare. The least abundant REEs are still 200 times more abundant than gold. The idea that REEs are scarce is belied by the fact that low prices have often been the main obstacle to the development of more diversified sources of supply.
Australians tend to see China through the prism of growing export demand and higher commodity prices, although there are also significant benefits to Australia’s terms of trade through the import side of the trade relationship. China’s real long-term significance to the global resource sector may be as a source of the much-needed investment that will increasingly alleviate global supply constraints, putting downward pressure on global commodity prices by boosting output, employment and exports in countries like Australia.
posted on 18 July 2010 by skirchner in Commodity Prices, Economics, Foreign Investment
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The 11.1% surge in consumer confidence between June and July shows a clear partisan divide, with confidence on the part of Coalition voters up 19.8% compared to a more modest 3.9% for ALP voters, but this is still a big surge in confidence among Labor voters for a series that has an historical standard deviation of 5.1%. The ~75-80% probability of a Labor victory being priced in betting and prediction markets suggests that Rudd’s demise has significantly improved Labor’s election prospects.
Meanwhile, Frank Brennan thinks we should give Rudd credit just for showing up to work:
Having resigned as prime minister, Rudd had the good grace to turn up to question time, taking his place on the backbench.
posted on 16 July 2010 by skirchner in Economics, Financial Markets, Opinion Polls, Politics
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Consumer confidence surged 11.1% in July, the ‘strongest monthly increase in the Index from a base above the 100 level since records began in the mid–1970s’ according to Westpac. The press release is far too polite to point to the most obvious reason for the surge in confidence, but we can all read between the lines:
Interest rates do not appear to have been the most significant driver of the July result. The confidence of those folks with a mortgage actually rose a little less than tenants or others. As we noted last month the 5.7% fall in the Index in June seemed to be partly driven by concerns about the Budget and tax policy.
Consumer sentiment doesn’t have much independent explanatory power for economic activity once you control for other variables, suggesting that causality runs from activity to sentiment and not the other way around. But that’s just the average effect observable to the econometrician. It does not preclude one off exogenous shifts in sentiment having a significant economic impact. Assuming the new Prime Minister can sustain the boost in confidence, dumping Kevin Rudd may prove to be something close to an economic free lunch. I have not yet seen the break-down by voting intention, but my guess is that it argues against the view that dumping Rudd was a negative from the standpoint of Labor voters.
Arthur Sinodinos notes that Kevin Rudd could destabilise a future Gillard cabinet, arguing against his inclusion in a future government.
posted on 15 July 2010 by skirchner in Economics, Financial Markets, Opinion Polls, Politics
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