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I have an op-ed in today’s Australian arguing that improved fiscal responsibility legislation is a better approach to managing the fiscal consequences of terms of trade cycles than sovereign wealth funds such as the existing Future Fund:
a sovereign wealth fund provides no guarantee current revenue will be spent more wisely in the future than it is today.
If governments are unwilling to commit to binding fiscal responsibility legislation that improves on the existing Charter of Budget Honesty, there is no reason to believe greater use of a sovereign wealth fund will lead to better long-term fiscal management.
Part of the op-ed that hit the cutting room floor noted that Australia is not like Norway, Timor Leste or Nauru, dependent on a single export commodity. Australia’s resource endowment and overall economy is much more diversified, making Australia less vulnerable to some of the macroeconomic and other problems associated with dependence on a single commodity export.
posted on 15 July 2010 by skirchner in Economics, Financial Markets, Fiscal Policy
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Don Harding and Jan Libich on why Paul Krugman can’t be taken seriously:
Consistency is one of the touchstones used to evaluate not only arguments but also the people that put forward the arguments. In assessing the person advocating an argument, it is natural to look for coherence over time in their arguments and, secondly, whether the person offers a convincing explanation for a change of view. We apply this framework to evaluate some of Paul Krugman’s macroeconomic analysis…
The contrast between his assessment of 2002/2003 and 2008/2009 is so large and the justification for the changed view so ephemeral that we feel his policy recommendations no longer have the required consistency and coherency.
posted on 14 July 2010 by skirchner in Economics
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From the latest issue of the Harvard Journal of Law and Public Policy:
The decision to save counts as deferred consumption, which has its own multiplier effect. Here it is best to drop the term and just substitute for multiplier effect the traditional concern with gains from trade through voluntary transactions, which typically have positive external effects by creating additional opportunities for others. As one person saves the other invests in long term projects with borrowed capital. The key point is that stable expectations require enforceable contracts and steady and predictable price levels. So long as each person makes informed trades, each of these contracts over time should be a positive sum. Reduce the transaction costs in good Coasean style by supporting stable property relationships and the temporal consumption issue will take care of itself in the same way that all such allocations take care of themselves.
posted on 12 July 2010 by skirchner in Economics
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…and then the appliances:
The Prime Minister’s special taskforce on energy efficiency has concluded its report to hand to Ms Gillard, calling on her to adopt a national energy efficiency target. The target will lead to bans on many energy-sapping appliances being sold in Australia.
Meanwhile, sales of the centrally-planned Rudd Car languish:
The Hybrid Camry, which began rolling off its Melbourne assembly lines six months ago, was expected to attract 10,000 buyers this year, but fewer than 3000 had been registered at the halfway mark, this week’s figures reveal.
A string of record months for vehicle sales and an aggressive marketing campaign by Toyota failed to stimulate demand for the Hybrid Camry, hailed as a new era in Australian manufacturing by Kevin Rudd when he launched it in December, just before he flew to Copenhagen for the ill-fated climate change summit, and the project was granted $35 million from the green car scheme.
posted on 10 July 2010 by skirchner in Economics
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We reported on the five-year Tierney-Simmons oil price wager back in 2005. Mark Perry notes that Tierney has all but won his bet against peak oil crankery:
In August of 2005, Houston banking executive Matthew Simmons and New York Times columnist John Tierney each put up $5,000 and made a bet about the price of oil in 2010.
The wager was based on the price of oil in 2010, specifically on the average daily price for the entire year, adjusted for inflation into 2005 dollars. If the inflation-adjusted oil price this year is $200 or more per barrel, Mr. Simmons wins $10,000 plus interest, and if the average price this year is less than $200, Tierney wins the bet.
The bet was made public in Tierney’s New York Times column on August 23, 2005 called “The $10,000.00 Question.”
Julian Simon is still winning from beyond the grave: Julian Simon’s widow put up $2,500 towards Tierney’s $5,000 obligation, to honor the tradition of her husband’s famous wager with Paul Ehrlich.
posted on 08 July 2010 by skirchner in Economics, Oil
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I attended the Sydney launch for John Birmingham’s new novel, After America, part of a planned trilogy that follows from Without Warning. In the first instalment, the bulk of the continental US is destroyed on the eve of the Iraq war and the novel speculates about the likely implications for the rest world. Birmingham said that the idea for the first book came from an anti-American rant by a fellow student radical when he was at university. The book is a cautionary tale about what happens when the rest of the world finally gets what it wished for.
Birmingham’s talk did clear up one mystery for me: why he kills off some of his more likeable characters. He randomly pulls names out of a hat to determine who will die. As Birmingham notes, it adds an extra element of unpredictability to the action.
I’m a fan of the speculative fiction genre. As the economist Simon Kuznets once observed, science fiction is a much better guide to the future than the writing of most economists, who consistently sell the future short. Birmingham’s ‘axis of time’ trilogy, first published in 2004, features the ‘flexipad’, effectively anticipating the iPad of 2010. We didn’t need to wait until 2021 for that one.
Birmingham blogs here.
posted on 08 July 2010 by skirchner in Misc
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1. Risk management with Robert Prechter: ‘If I’m wrong, you’re not hurt. If they’re wrong, you’re dead.’ More Prechter here.
2. Rogoff and Reinhart profiled in the NYT.
3. Natural libertarianism and the social psychology of freedom.
posted on 07 July 2010 by skirchner in Economics
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Niki Sava on the Ken Henry speeches of yore:
KEEP checking the Treasury website. Any day now a speech by Ken Henry, meant to be private, will appear. In it, he will distance himself from the Gillard government, condemn it for its profligacy, for its weakness, for ignoring Treasury advice and for poor policy formulation in the run-up to an election.
It should say something like this: “[Treasury] will be under pressure to respond to the growing number of policy proposals leading up to the calling of an election, and once the election is called.
“At this time, there is a greater than usual risk of the development of policy proposals that are, frankly, bad.”
And: “There is a temptation to think that all problems can be solved by government spending.”
If previous practice is observed, that is what would happen, followed swiftly by the appearance of those supposedly private observations to staff, on the front pages of newspapers.
Then again, maybe not.
But that is what happened in 2007. The quotes above are taken from a speech by Henry in March that year, a few weeks after prime minister John Howard released the $10 billion water security plan to save the Murray Darling Basin.
Here is another Ken Henry speech that time forgot.
posted on 06 July 2010 by skirchner in Economics, Politics
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The post-RSPT backlash against Treasury:
A key figure in the negotiating team of one of the major mining houses puts it more bluntly: “Clearly Ken Henry was on a mission from God. The fact that Treasury had got religion was not the biggest surprise. What we were especially amazed at was the level of sheer naivete and incompetence. The grasp of fundamental economics—more specifically commercial reality—was barely past what you learn in year 12 at high school.”…
In the end the miners were not provided with Treasury’s modelling until last Wednesday. These were the numbers that, according one insider, had come from “planet Mars”.
“They had made it up and had no idea how to back it up. It was like sitting university professors down to lecture primary school students,” one of the miners’ advisers claimed yesterday.
posted on 04 July 2010 by skirchner in Economics, Fiscal Policy, Politics
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Staff writers at The Australian have compiled a comprehensive psychopathology of former Prime Minister Kevin Rudd, showing him to be every bit as bizarre as former Labor leader Mark Latham. I was particularly struck by this passage:
In April 2008, at the height of his power and popularity, he gave an address to the Sydney Institute annual dinner that completely misjudged his audience.
Many of those there groaned inwardly as Rudd failed to read the occasion or recognise the sheer power in the room.
Rudd did exactly the same thing at the closing dinner of a private CIS function I attended in July 2008, except people groaned outwardly on that occasion. The audience included a large number of the country’s most senior business people. Half way through the speech, the people at my table were looking at each other with a WTF? expression on their face. I could not tell whether the speech was a calculated insult, or whether Rudd sincerely thought the speech was appropriate to the occasion. It was an extraordinary performance in any event.
posted on 04 July 2010 by skirchner in Politics
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From Ode magazine:
In 2005, compared with 1955, the average human being on Planet Earth earned nearly three times as much money (corrected for inflation), ate one-third more calories of food, buried one-third as many of her children and could expect to live one-third longer. All this during a half-century when the world population has more than doubled, so that far from being rationed by population pressure, the goods and services available to the people of the world have expanded. It is, by any standard, an astonishing human achievement.
posted on 03 July 2010 by skirchner in Economics
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Der Spiegel profiles the four German professors valiantly trying to bring down the euro and the bailout of Greece:
The court in Karlsruhe dismissed their request for a court injunction against the Greek bailout. But now that the Constitutional Court is reviewing at length whether to consider their complaint, Schachtschneider believes that it stands a chance of succeeding after all. In any event, he intends to publish the 60-page brief as a legal reference book, thereby going down in the history of the anti-euro movement once again. Hankel is against the idea. He would prefer that the group publish a book that is more accessible to the general public, something along the lines of their 1998 book “Die Euro- Klage. Warum die Währungsunion scheitern muss” (“The Euro Suit: Why the Monetary Union Must Fail”) or the 2001 work “Die Euro-Illusion” (“The Euro Illusion”).
posted on 03 July 2010 by skirchner in Economics, Financial Markets
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Former Prime Minister Kevin Rudd, on the eve of his execution:
We have large challenges ahead, not least of which is an upcoming G20 summit in Toronto, at which I am currently scheduled to lead an Australian delegation. This G20 summit will deal with a whole range of fundamental reforms to the financial system, which goes to the interests of the Australian banks and the cost of credit in this country.
These are important national interests to pursue, it is one reason why I’ve decided, apart from others, that its important to resolve this matter of the leadership as a matter of urgency.
Former Treasurer Peter Costello’s farewell speech to the House, after he decided being opposition leader was too much like hard work:
I do not need to say that, from our perspective, a seat at the table which represents 90 per cent of global GDP is a very, very important diplomatic position for us and for our country.
Former Treasurer Peter Costello, explaining why the G20 is very, very important:
BARRIE CASSIDY: All right. Let’s move on to the G20 now and its involvement next weekend under your chairmanship. 90 per cent of the world’s economies under one roof, but could you identify one key result you would like to see emerge from the conference?
PETER COSTELLO: First of all, let’s say, Barrie, this is the biggest financial conference Australia has ever hosted and ever will. This organisation, where Australia not only has a seat at the table, of the 20 most important economies of the world, but is chairing it, that brings together the developed world and the developing world, is important in itself. That’s significant in itself.
Alan Beattie, on how to write-up a G20 communique:
By reporters everywhere
An ineffectual international organisation yesterday issued a stark warning about a situation it has absolutely no power to change, the latest in a series of self-serving interventions by toothless intergovernmental bodies.
“We are seriously concerned about this most serious outbreak of seriousness,” said the head of the institution, either a former minister from a developing country or a mid-level European or American bureaucrat. “This is a wake-up call to the world. They must take on board the vital message that my organisation exists.”
The director of the body, based in one of New York, Washington or an agreeable Western European city, was speaking at its annual conference, at which ministers from around the world gather to wring their hands impotently about the most fashionable issue of the day. The organisation has sought to justify its almost completely fruitless existence by joining its many fellow talking-shops in highlighting whatever crisis has recently gained most coverage in the global media.
“Governments around the world must come together to combat whatever this year’s worrying situation has turned out to be,” the director said. “It is not yet time to panic, but if it goes on much further without my institution gaining some credit for sounding off on the issue, we will be justified in labelling it a crisis.”
The organisation, whose existence the White House barely acknowledges and to which hardly any member government intends to give more money or extra powers, has long been fighting a war of attrition against its own irrelevance. By making a big deal out of the fact that the world’s most salient topical issue will be placed on its agenda and then issuing a largely derivative annual report on the subject, it hopes to convey the entirely erroneous impression that it has any influence whatsoever on the situation.
The intervention follows a resounding call to action in the communiqué of the Group of [number goes here] countries at their recent summit in a remote place no-one had previously heard of. The G[number goes here] meeting was preceded by the familiar interminable and inconclusive discussions about whether the G[number goes here] was sufficiently representative of the international community, or whether it should be expanded into a G[number plus 1, 2 or higher goes here] including China, India or any other scary emerging market country that attendees cared to name.
The story was given further padding by a study from an ambulance-chasing Washington think-tank, which warned that it would continue to convene media conference calls until its quixotic and politically suicidal plan to ameliorate whatever crisis was gathering had been given respectful though substantially undeserved attention.
posted on 02 July 2010 by skirchner in Economics, Politics
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Business Insider rounds-up the usual suspects. I agree with at least one of them: Tim Congdon. As I noted in this op-ed earlier in the year, bond markets were overstating inflation risks at the expense of the more likely scenario of continued ‘stimulus’-induced stagnation.
posted on 02 July 2010 by skirchner in Economics, Financial Markets
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Anna Chapman (HT: Chris Joye).
posted on 01 July 2010 by skirchner in Economics, Financial Markets
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