The Business Council of Australia has included a report by Stephen Bartos making the case for an independent Commission of Budget Integrity in its pre-Budget submission to the government. Bartos references a similar proposal by Robert Carling and I on the subject, as well as earlier work by Nic Gruen, which drew on a 1996 proposal by Larry Ball when Larry was visiting the RBNZ.
The report does something we did not do, which is to cost the proposal. Bartos puts a 30-40 member commission with two executives and a board at $10m a year. To put this in perspective, it is less than the extra $15m the ABS wants to increase the frequency of the CPI from a quarterly to monthly release.
IT WAS mid January and Bill Shorten, the Assistant Treasurer, was in Hong Kong attending an Australian Chamber of Commerce function.
In an address to a relaxed gathering of ‘‘Australians in finance’‘, Shorten told the audience of the importance of financial services, and if anyone had fresh ideas they should approach him in the informal setting.
David Webb, a former director of the Hong Kong Stock Exchange, elected on a corporate governance ticket by institutional investors, took up the offer. A well-known activist and retired investment banker, he now devotes much of his time to dealing with corporate governance in Hong Kong.
When Webb’s turn came for a chat, the Englishman told the minister that Australia should consider scrapping the Foreign Investment Review Board as it was an impediment to attracting foreign capital. Other regulators could consider contentious investments, he said.
According to Webb, Shorten said the board was necessary, turning the topic to a looming decision on the takeover of the Australian Securities Exchange by its Singapore counterpart…
But what Shorten said next surprised Webb.
‘‘His attitude about this was … that foreign ownership or a perceived foreign takeover would result in Australian investors being screwed. He didn’t make very cogent arguments to me.’‘
An inflation hawk tackles virtual commodity price inflation. The virtual world would seem to be a good place to test the macroeconomic implications of alternative monetary regimes.
Deutsche Börse AG looks set to acquire the New York Stock Exchange, while the LSE Group is also set to merge with the Toronto exchange in the latest cross-border tie-ups between securities exchanges. The local market has correctly interpreted these deals as increasing the likelihood that Australia’s Treasurer will approve the proposed merger of SGX and ASX (it has already cleared ACCC scrutiny). If an icon of US capitalism such as the NYSE can be acquired by Deutsche Börse, it becomes very difficult for Australia’s FDI protectionists to argue that the ASX should be immune from foreign acquisition. Oddly enough, opposition to the Deutsche-NYSE deal is more likely to come from European than US regulators.
We should still not underestimate the potential for the ASX-SGX deal to fall over, either because Treasurer Swan deliberately spikes the approval with so much conditionality as to make it unacceptable to the parties or because of parliamentary disallowance of the necessary regulatory changes. The deal remains a key test of Australia’s international openness, one that some combination of the federal government, the cross-benches and the opposition might still fail.
When, in 1998, the Australian Competition and Consumer Commission rejected ASX’s bid for the Sydney Futures Exchange, it consigned ASX to a non-independent future. In the seven years it took for the ACCC to finally approve the merger, most of the bigger stock exchanges in our region and some outside it had emulated Australia’s aborted lead. This robbed ASX of a significant first mover advantage, depriving it of scale and scope and an unrepeatable regional leadership position.
There can be no doubt that the 2006 merger of ASX and the Sydney Futures Exchange, when it came, was a huge benefit to both markets and to Australian financial services generally, but it came too late to fully leverage this success internationally.
Government intervention in US housing finance was the cause of the recent financial crisis and yet US policymakers have completely ignored GSE reform in their policy responses. Despite having some of the world’s most sophisticated, deep and liquid capital markets, US policymakers find it hard to conceive a system of housing finance that is not dependent on government support. The AEI has produced a white paper on GSE reform, a theme the AEI has pursued since well before the crisis. Here’s some of what the AEI had to say about the GSEs in 2005:
Congress may be unable to summon the political will necessary for enacting a suitable regulatory framework for these politically powerful entities. The inability of the political process to cope with the power of the GSEs, even after their demonstrable failings in recent years, should be a matter of concern to all Americans. Either Congress controls the GSEs or the GSEs control Congress.
Posen on Monetary Policy Activism and Asset Price Cycles
We have previously linked to Adam Posen’s work critical of suggestions that central banks should adopt an activist approach to managing asset price cycles. Here’s Posen’s talk at last year’s Cato Institute Monetary Policy Conference.
Peter Martin rounds-up opinion in favour of re-appointing Warwick McKibbin to another five-year term on the Reserve Bank Board, including some supportive comment from me.
As Chris Joye notes, there is no reason why Ross Garnaut could not be appointed to one of the other looming vacancies on the Board, allowing both Warwick and Ross to serve concurrently. That would certainly liven-up Board meetings and move the Board closer to an MPC-style model of decision-making. The government should eventually move to separate monetary policy decision-making from the Board, as I argue in this article.
In the UK, the government was brave enough to appoint an American, Adam Posen, to the BoE’s MPC. The logistics of having a foreigner other than a kiwi attending monthly RBA Board meetings would be difficult, and the local media reaction would be nothing short of hysterical, but there is no reason why foreign talent should not be considered. A foreigner would actually be significantly less conflicted as a monetary policy decision-maker than many of the existing external Board members.
While my first foreign pick would be Don Brash, my guess is he would be unwilling to serve under the existing RBA governance model. All the more reason to change it.
The libertarian entrepreneur and hedgie has a thing for New Zealand. One theory:
Thiel is nothing if not an ambitious, long-term thinker, so what’s the big picture here? What could the famously contrarian investor possibly see in a country of 4 million people whose economy is mostly based on agriculture and tourism?
Here’s a thought: maybe Peter Thiel wants to turn New Zealand into the next Silicon Valley. Or maybe even the libertarian utopia of his dreams.
Instead of Leonard Read’s classic I, Pencil, I have been using The Toaster Project in teaching as a more contemporary take on the division of labour, specialisation and the gains from trade. Thomas Thwaites gave a presentation on it at TED, which be viewed here. While it is amazing he got as far as he did, it is also a disturbing glimpse into the counter-factual of life under autarky.
