2008 06
This week’s Business Spectator column. If you would like to receive an unedited version by email on Fridays, let me know and I will put you on the distribution list. Email info at institutional-economics dot com.
posted on 28 June 2008 by skirchner in Economics, Financial Markets
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This week’s Business Spectator column. If you would like to receive an unedited version by email on Fridays, let me know and I will put you on the distribution list. Email info at institutional-economics dot com.
posted on 21 June 2008 by skirchner in Economics, Financial Markets
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University of Chicago academics oppose naming a new research centre after Milton Friedman:
In a letter to U. of C. President Robert Zimmer, 101 professors—about 8 percent of the university’s full-time faculty—said they feared that having a center named after the conservative, free-market economist could “reinforce among the public a perception that the university’s faculty lacks intellectual and ideological diversity.”
“It is a right-wing think tank being put in place,” said Bruce Lincoln, a professor of the history of religions and one of the faculty members who met with the administration Tuesday. “The long-term consequences will be very severe. This will be a flagship entity and it will attract a lot of money and a lot of attention, and I think work at the university and the university’s reputation will take a serious rightward turn to the detriment of all.”
...faculty critics are concerned that it will be one-sided, attracting scholars and donors who share a point of view.
The opposition probably tells us more about the lack of diversity and the ideological biases at the rest of the university than at the new research centre.
posted on 19 June 2008 by skirchner in Economics
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Another one of those laughable WSJ editorial comments:
The biggest problem in emerging economies isn’t “the credit crunch about which we hear so much . . . but inflation.” So said Glenn Stevens, Australia’s central bank governor, to a business crowd in Melbourne Friday. It’s too bad U.S. Federal Reserve Chairman Ben Bernanke wasn’t in the audience.
Unlike his Fed peer, Mr. Stevens has ruthlessly resisted inflationary pressures.
Never mind that Australia has a much more serious inflation problem than the US on most measures, none of which the WSJ sees fit to mention. The US core CPI was running at 2.4% y/y in March compared 3.5% y/y for the comparable Australian measure. If Stevens has taken a tougher rhetorical stance on inflation than Bernanke (which is by no means obvious), it is because Australia has a much more serious inflation problem. The WSJ cites Australia’s nominal cash rate as a measure of the tightness of monetary policy, but this only highlights the inflation premium built into Australian interest rates. The real cash rate, which is the more appropriate measure of the stance of monetary policy, is only around 3%.
The more significant difference between the Fed and the RBA, however, is that the Fed considers inflation too high at 2.4%. In Australia, 2.5% is the mid-point of the target range. The RBA doesn’t even aspire to beat the Fed on inflation and has the inflation outcomes to show for it.
posted on 16 June 2008 by skirchner in Economics, Financial Markets
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This week’s Business Spectator column. If you would like to receive an unedited version by email on Fridays, let me know and I will put you on the distribution list. Email info at institutional-economics dot com.
posted on 14 June 2008 by skirchner in Economics, Financial Markets
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Business Week’s Chris Farrell, on why we should welcome so-called ‘bubbles’ in asset prices as a normal part of the functioning of a market economy:
Let’s go back to the dot-com example. What’s remarkable is just how quickly the Internet economy was established during that so-called era of fictitious value. “The conventional wisdom is that the period of exuberance during the boom period—especially 1999 and 2000—was a bubble,” writes BusinessWeek Chief Economist Michael Mandel in his book Rational Exuberance. “It carries connotations of something fragile, which was never quite real in the first place.”
But rather than a bubble, argues Mandel, the second half of the 1990s could just as easily be called an “age of exploration.” “The low cost of capital enabled risk-taking people and companies to try out lots of new ideas simultaneously, and on a large enough scale that they got a fair test,” he writes…
Bubble moralizers greatly underestimate the vital role of speculators and speculative markets in allocating resources toward an economy’s fast-growing sectors and away from stagnant industries.
posted on 13 June 2008 by skirchner in Economics, Financial Markets
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Sources being quoted by Reuters suggest that Australian banks are raising term funding from the Future Fund. ANZ has supposedly raised about A$500 million this way. A Commonwealth Bank spokesman is quoted as saying that it looked at all funding options and “the Future Fund is clearly emerging as a future source of funding.”
From a capital raising and portfolio management perspective, this lending would make good commercial sense and is fairly low risk. However, it does raise some interesting issues as to whether the Future Fund may come to be seen as a de facto lender of last resort. This also may not play well politically if the perception is that taxpayers are involved in subsiding bank capital. It should make for some interesting questions at Senate estimates (hint for Coalition staff!). Future Fund Chairman David Murray has previously argued that the Future Fund would serve to lower the cost of capital for Australian business, which effectively concedes the point that the Fund is providing a more or less explicit subsidy through such lending.
posted on 12 June 2008 by skirchner in Economics, Financial Markets
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The ALP’s manufacturing fetish was evident when it was in opposition. Kevin Rudd said back in 2006 that he wanted Australia to be ‘more than a mine for China and a beach for the Japanese.’ The subsequent appointment of the left’s Kim ‘Il’ Carr as industry minister in the new government was also a bad sign. Australians will now start paying the price for this manufacturing fetish through local production of hybrid cars, one of the worst industry policy decisions in 20 years. As Henry Ergas notes:
In an economy that is pushing over-full employment, increased subsidies to assembling cars only diverts resources from more productive uses. In addition, according to recent estimates from the Productivity Commission, “more than $1 billion is redistributed each year to the automotive industry (a majority of which is foreign owned)”. The consequence is that these subsidies will attract further inputs to an industry that is already far from making productive use of scarce resources, magnifying the waste. It would have been better had Rudd and Brumby scattered the dollars on the streets of Melbourne.
posted on 12 June 2008 by skirchner in Economics, Financial Markets
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This week’s Business Spectator column. If you would like to receive an unedited version by email on Fridays, let me know and I will put you on the distribution list. Email info at institutional-economics dot com.
posted on 07 June 2008 by skirchner in Economics, Financial Markets
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