Canadian FDI Protectionism
An important reason for opposing FDI protectionism at home is that Australia is also a significant exporter of direct investment capital. Australian firms are potentially vulnerable to FDI protectionism abroad. Terry Corcoran discusses the protectionist and nationalist backlash in Canada over BHP Billiton’s takeover of Potash Corp. The arguments made against foreign investment in Canada almost perfectly echo those made in Australia, but somehow sound even less convincing when an Australian listed company is on the receiving end:
Jeffrey Simpson at the Globe, David Crane at the Toronto Star, Maude Barlow of the Council of Canadians, investment guru Stephen Jarislowsky, and now former Calgary resource executive Dick Haskayne — together they have become the ersatz Paul Reveres of the Canadian economy, riding through the pages of newspapers to alert the population to the looming menace of foreign ownership of our vital natural resources. In this case, the threatened sacred trust is potash. Collectively, our midnight riders of economic nationalism have assembled a wrong-headed and misguided series of arguments against BHP Billiton’s $40-billion takeover of Potash Corp. of Saskatchewan. If ever Canada sought to become a backwater in the global mining economy, moving to block the Potash deal would be a good place to begin.
posted on 16 September 2010 by skirchner in Economics, Foreign Investment
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The Irrelevance of Modern Political Science
Steven Hayward on why nobody notices political scientists:
Ask yourself this question: Among policy makers in Washington, are you more likely to find academic economic journals in their offices, or academic political science journals? Why do economists not face the same kind of worry about their “relevance,” even though their mathematical approaches to the subject matter can be even more esoteric and forbidding?...
As my late friend Tom Silver once wrote: “Imagine yourself marooned on a desert island with only ten books to read, but in this case ten books not of your choosing. Suppose them all to be books written by behavior political scientists during the past twenty years. Question: Do you think that you would die first of boredom, or of self-inflicted wounds?”
posted on 15 September 2010 by skirchner in Economics, Politics
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The Congressional Correspondence that Time Forgot
Alex Pollock revisits 2004.
posted on 14 September 2010 by skirchner in Economics
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Ten NBN Myths
Peter Cox exposes some of the myths that have grown up around the government’s latest industry policy cargo cult, the national broadband network.
posted on 11 September 2010 by skirchner in Economics
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Why Jeremy Grantham is Wrong on Australian House Prices
Chris Joye explains.
posted on 09 September 2010 by skirchner in Economics, House Prices
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Peak Oil and the Doomsday Myth
Vaclav Smil has a new book out, Energy Myths and Realities Bringing Science to the Energy Policy Debate. Here is a taste:
There is a finite amount of liquid oil in the Earth’s crust, but estimates of the grand total remain uncertain. Until we explore the entire planet as carefully as we did Oklahoma and Texas, our assessment of global oil reserves will have plenty of room for surprises. Improvements in production also mean that we are now recovering more oil than ever before. And, in addition to our supply of conventional liquid oil, there are vast, untapped reserves of unconventional hydrocarbon fuels, some of which are already being refined for use. A combination of new discoveries, higher recovery rates, and increased use of unconventional resources means that the near-term future of global oil production will not drop off precipitously, as alarmists claim, but will more likely resemble an undulating plateau. Appraisals of the oil future tend to focus on dwindling supply and assume that demand will inexorably grow. But this is not the case. Rising oil prices and economic downturns exert clear downward pressure on demand, and we can reinforce this pressure through more efficient fuel conversions, by promoting sensible alternatives, and, above all, by turning to natural gas. This abundant fuel can do everything oil can, and is already the most important fuel for heating houses and the second most important fuel for generating electricity. The United States already has natural gas reserves sufficient for nearly a century at the current rate of consumption.
posted on 08 September 2010 by skirchner in Economics, Oil
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A ‘Small Australia’ Will Limit Our Creativity
I have an op-ed in today’s SMH arguing that a ‘small Australia’ will not only limit economic progress, but also scientific and cultural creativity:
Like the US, Australia provides an environment in which people and their ideas can flourish. But while the tyranny of distance has receded with advances in communications technology, Australia’s small scale remains an obstacle to economic and other forms of progress. How often do Australian innovators complain about a lack of local commercialisation opportunities and local markets? How often do customers complain of an apparent lack of competition in industries dominated by a small number of companies?
Entrepreneurs, scientists, writers, artists, actors and filmmakers often find Australia too small for their talents. They move to other countries, even if it is with reluctance. While their talents are not lost to the world, Australia is the poorer for them leaving.
Similarly, New Zealanders move to Australia because it provides opportunities that are either non-existent or in insufficient supply in a country with a population no greater than Sydney. Australia’s relatively large and crowded cities are beacons to New Zealanders. While New Zealand enjoys the same institutions and a similar culture to Australia, few Australians would choose to make a new life there. The reluctance is hard to explain with reference to anything other than the limiting effects of scale on life and opportunities in New Zealand.
posted on 07 September 2010 by skirchner in Economics, Population & Migration
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Fundamentals of Australian House Price Inflation
There is a lot of ill-informed offshore commentary about Australian house price inflation, with anecdotal reports suggesting that some hedge funds are putting on trades designed to capitalise on what they see as an inevitable Australian house price bust.
We have heard all this before from a local debate about house prices that goes back to at least 2003 and substantially predates international interest in this issue since 2007. In 2005, Robert Shiller declared that Australia had suffered a burst housing bubble the previous year, a proposition that has become even more laughable with the passage of time.
Chris Joye reviews the latest data in his presentation for offshore investors.
posted on 02 September 2010 by skirchner in Economics, Financial Markets, House Prices
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The Broken Windscreen Fallacy
The policies the current caretaker government would like to emulate:
When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.
posted on 02 September 2010 by skirchner in Economics, Fiscal Policy
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How Much Stimulus is Too Much?
Richard Epstein wants to know.
posted on 01 September 2010 by skirchner in Economics, Financial Markets, Fiscal Policy
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Fiscal Policy After the Election
Tony Makin argues in The Australian that:
Whichever side forms government, it will have to live with the legacy of the fiscal extravagance since October 2008. Just as present budgetary actions have implications for future economic activity, past actions have economic implications for the present and the near future.
Questions that will most likely arise during the term of the next government include the following: Why are long-term interest rates and the cost of obtaining funds from abroad continuing to rise? Why is private investment not improving as expected? Why is future economic growth now likely to be lower than otherwise? Why are inflationary pressures continuing to build?
The answer to each of these questions is the same. It’s either mostly, or partly, due to the excessive fiscal stimulus of the past two years.
My view is that activist fiscal policy in Australia and abroad will have negative consequences through a rather different channel: a negative wealth effect from increased government debt that will weigh on economic growth and consequently lower rather than raise long-term interest rates globally. I made this argument in a recent op-ed. Recent developments in global long-term interest rates have been consistent with this view.
For those interested, I will be discussing these issues as part of a panel at this year’s Australian Conference of Economists on the topic of ‘Monetary-Fiscal Interactions: How to Improve Policy Outcomes.’ Other panellists include Don Brash (ex-RBNZ), Jacopo Cimadomo (ECB), Carl Wash (UCSC) and Jan Libich (La Trobe).
posted on 30 August 2010 by skirchner in Economics, Financial Markets, Fiscal Policy
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Political Insiders and Anti-Gaming Wowsers
There are calls to ban political insiders from election betting markets. Apart from the usual anti-gaming wowsers like Nick Xenophon, I suspect this is motivated by the same mistaken notion of fairness that supports anti-insider trading laws in relation to equity securities. As Henry Manne’s work has shown, anti-insider trading laws are based on a fundamental misunderstanding of the role of markets. Simon Jackman notes that a ban on political insiders would be impractical, but this is no less true of anti-insider trading laws in general.
It is interesting to note that for all the reports of trading by political insiders, prediction markets got the election outcome ‘wrong’ in an ex post sense. While the betting market odds bounced around with the polls, they consistently gave a strong probability to a Labor win, while the polls suggested a tighter contest.
This is not necessarily anomalous, because they measure different things. Polls measure vote shares, but these translate only very loosely into seats won and the ability to form government, so betting markets can quite reasonably imply results that are not obviously supported by the polls. Still, the polls were a better guide to the overall result than the prediction markets on this occasion (have not looked at individual seat markets).
My guess is that political insiders are little better than noise traders. We should be happy to let the market professionals milk them for all their worth.
posted on 26 August 2010 by skirchner in Economics, Financial Markets, Politics
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Low Expectations: Why Financial Markets Didn’t Care About the Election Result
Financial markets usually take federal election outcomes in their stride, an indication that the result is either not a surprise or makes very little difference to expected economic and financial outcomes.
The fact that markets have been just as sanguine when faced with the prospect of a hung parliament for the first time since 1940 implies that markets do not expect public policy outcomes to be appreciably worse under the various options for a minority or (small ‘c’) coalition government than under a majority government. One can only conclude that markets had very low expectations for the public policy outcomes from any majority government and those expectations have not in any way been disappointed by a hung parliament.
posted on 24 August 2010 by skirchner in Economics, Financial Markets, Politics
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The Future of US Housing Finance
Peter Wallison’s gloomy thoughts.
posted on 24 August 2010 by skirchner in Economics, Financial Markets
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Sydney: Too Many People in 1912?
I have an op-ed in today’s Australian referencing an article in the Sydney Morning Herald from 1912 about how Sydney’s then transport system supposedly could not cope with a population of 700,000.
The text below the fold is a slightly longer version that went out on Friday in the Ideas@TheCentre series. You can subscribe to Ideas@TheCentre here.
continue reading
posted on 19 August 2010 by skirchner in Economics, Population & Migration
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