Fresh from the longest ever jailing for civil contempt in a federal white-collar case in the US, Martin Armstrong is back. You can read a much longer profile of him and others like him in The New Yorker.
I don’t have much time for cycle theories. When I worked in financial markets I met numerous advocates for various cycle theories among fund managers. Strangely, I always wound-up being the one who paid for lunch. However, his story is an interesting one. I’m always suspicious when someone gets locked-up for an incidental crime that hadn’t taken place before the prosecutors got involved and when everyone in the case seems to have copped a plea bargain. Even if I’m completely wrong in my suspicions, there are plenty of other cases like it pointing to the decline of the rule of law in the US.
The Torygraph is all over Alessio Rastani and who can blame them for wanting to stick it to the pretentious Beeb over their seeming lack of quality control. Turns out that Rastani is a ‘talker not a trader’ with somewhat limited credentials on both counts. While his now famous opinions are highly questionable, this doesn’t exactly set Rastani apart from the vastly more credentialed talking heads routinely used by the Beeb and others to fill air time.
The sad fact is that a PhD from Oxbridge or an Ivy League school and a stellar career at the IMF and/or an investment bank more often than not yields a set of opinions and insights only slightly less dubious than those of Rastani.
Euromoney talks to former finance minister of the year, Paul Keating:
When Euromoney sought comment from the only other Australian ever to have received our award, the famously flinty Keating’s instinctive reaction was to tell us “to just fuck off” and “I couldn’t give a fuck”, while curtly offering what appeared to be travel advice, suggesting we visit some place called “buggery”.
Daniel Yergin on Marion King Hubbert, the original peaknik:
Marion King Hubbert was one of the most eminent—and controversial—earth scientists of his time. Born on a ranch in San Saba, Texas in 1903, he did his university education, including his Ph.D., at the University of Chicago. One of his fundamental objectives was to move geology from what he called its “natural history phase” into its “physical science phase,” firmly based in physics, chemistry and, in particular, rigorous mathematics.
In the 1930s, while teaching at Columbia University, Hubbert became active in a movement called Technocracy and served as its educational director. Holding politicians and economists responsible for the debacle of the Great Depression, Technocracy promoted the idea that democracy was a sham and that scientists and engineers should take overthe reins of government and impose rationality on the economy. “I had a boxseat at the Depression,” Hubbert later said. “We had manpower and raw materials. Yet we shut the country down.”
Technocracy envisioned a no-growth society and the elimination of the price system, to be replaced by the wise administration of the Technocrats. Hubbert believed that a “pecuniary” system, guided by the “hieroglyphics” of economists, was the road to ruin.
The government looks set to proceed with a media inquiry. Twenty years ago, Kerry Packer demonstrated the right amount of respect and deference to be afforded the parliament in relation to such inquiries. It is still the most colourful defence of the rule of law in relation to cross-border acquisitions ever mounted in Australian public life. I was working in Parliament House at the time and I think it is fair to say that most of the politicians on the print media inquiry felt ashamed of themselves at the end of that hearing.
The debate over foreign acquisitions of both agricultural and urban land has been driven by anecdote rather than data. Some high profile acquisitions have gained considerable media attention, but this has obscured the underlying reality that Australia’s broadacre, dairy and other farms remain overwhelmingly Australian-owned.
The Australian Bureau of Statistics (ABS) and the Rural Industries Research and Development Corporation (RIRDC) have been engaged in a data gathering exercise to measure the level of foreign ownership in Australian agriculture. As of 31 December 2010, the ABS finds that:
99% of agricultural businesses in Australia were entirely Australian owned;
89% of agricultural land was entirely Australian owned; and
91% of water entitlements for agricultural purposes were entirely Australian owned
This helps put the current debate in proper perspective. Foreign investment in agriculture should be welcomed, but agriculture in Australia is likely to remain overwhelmingly Australian-owned.
It is conjectured here that the pressing needs of governments to reduce debt rollover risks and curb rising interest expenditures in light of the substantial debt overhang (combined with the widespread “official aversion” to explicit restructuring) are leading to a revival of financial repression—including more directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, and tighter regulation on cross-border capital movements.
The Greens are big supporters of making greater use of sovereign wealth funds. This op-ed in The Age helps explain the appeal of sovereign wealth funds to the left:
contemporary Left thinkers have increasingly argued that the ‘‘financialisation’’ of society - the replacement of government-funded retirement with individually-funded savings invested in financial markets, the privatisation of core services, the increasing ownership of society by hedge funds and the explosive use of credit - needs some tempering through social control of public wealth. That could come through government ownership of vehicles such as sovereign wealth funds.
In other words, the role of SWFs is to disintermediate the private sector from saving and investment decisions. This is perfectly understandable coming from a left-wing perspective. However, it begs the question as to why so many Coalition MPs, such as Malcolm Turnbull and Josh Frydenburg, are also such enthusiastic supporters of SWFs.
The private sector already saves and invests for the future through private capital markets. It is governments that routinely squander future wealth thorough increased public spending and borrowing. Increased public saving via a SWF sounds virtuous, until you recognise that public saving is just deferred government spending. Unless you think future governments are going to make better spending decisions than the governments we have actually had, the argument for increased public saving via a SWF is decidedly weak.
In this op-ed, I argue that some of the objectives behind a sovereign wealth fund could be better achieved through binding fiscal responsibility legislation. If a politician supports a SWF, but opposes fiscal responsibility legislation, then you know they can’t be trusted with a SWF.
I have an op-ed in today’s AFR arguing for monetary policy decision-making to separated from the Reserve Bank Board. Full text below the fold (may differ slightly from edited AFR text).
The Centre for Independent Studies has a new blog called incise. I will cross-post between the two blogs, although some material that appears here won’t appear there. Institutional Economics will remain the definitive source for all my bloggy and other goodness. Note that I now tweet more than I blog, so join my 100 odd Twitter followers here if you haven’t already done so.
Listening to some commentators, you could be forgiven for thinking that the terms of trade boom was the worst thing that ever happened to the Australian economy.
Relative to what we pay for our imports, Australia now gets higher prices for its exports than at any time since at least 1870. This was illustrated by Reserve Bank Governor Glenn Stevens’ observation that ‘five years ago, a ship load of iron ore was worth about the same as about 2,200 flat screen television sets. Today it is worth about 22,000 flat-screen TV sets.’
This increased international purchasing power is attributable not only to rising commodity prices, but also lower prices for imports, not least manufactured goods. The flip side of Australia’s terms of trade boom is the collapse in the terms of trade for countries like Japan.
It wasn’t supposed to be this way. In the 1950s, economists Raúl Prebisch and Hans Singer argued that manufactured goods prices would enjoy a secular rise relative to commodity prices and that developing countries should engage in activist industrial policy and import substitution to avoid a declining terms of trade. The same argument has long been made in Australia, but would have had disastrous consequences if its policy prescriptions had been followed in response to previous terms of trade slumps.
Julian Simon would certainly agree with the proposition that real commodity prices should decline in secular terms, but he also noted the broader gains in real purchasing power from increased productivity and declining real prices for manufactured goods. It is fair to say that Simon would have been agnostic on any trend in their relative prices.
The terms of trade boom came about in part because it was unexpected, not least by the mining industry itself. It underinvested in the 1990s, partly because of implicit acceptance of the Prebisch-Singer hypothesis on the part of many investors. Historical experience highlights the danger of conditioning public policy on assumptions about the future direction of relative prices for traded goods.
Our best response to the terms of trade boom is to become even more open to inflows of foreign labour and capital and to reduce the government’s command over resources so that the mining industry can expand with less pressure on other sectors. While the non-mining sectors will contract relative to mining, they can still expand in absolute terms if we continue to remove government-imposed resource constraints to overall economic growth.
