Policymakers Sold Australia Short
I have an op-ed in today’s AFR arguing that the budget economic forecasts are the wrong benchmark to use in evaluating the effectiveness of fiscal stimulus. Full text below the fold (may differ slightly from edited AFR text).
Alan Mitchell’s column on the facing page is worth reading for its discussion of the relationship between the Rudd government and the Treasury Secretary. Mitchell argues that ambiguity about the nature of this relationship is undermining accountability for government policy.
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posted on 14 October 2009 by skirchner in Economics, Financial Markets, Fiscal Policy
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Does the RBA Still Feed the Media Chooks?
Speculation about RBA media backgrounding in relation to future interest rate decisions is back again. Even if no such backgrounding has taken place, the perception that this still occurs is very damaging, not only for the integrity of financial markets, but also for the supposed beneficiaries of the backgrounding. It is well understood that politicians engage in selective leaks in order to control journalists. There is nothing more damaging to the credibility of a press gallery journalist than to be seen as the mouthpiece for a politician. The relationship between the RBA and journalists should not be viewed any differently.
The RBA could put a stop to the speculation by denying that the practice takes place or at least foreswearing its use in future. Not only would this benefit the integrity of financial markets, it would also give us more confidence that the rather generous treatment the RBA receives from many in the media was actually deserved.
posted on 07 October 2009 by skirchner in Economics, Financial Markets, Media, Monetary Policy
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The Feral FIRB
John Garnaut has a story in the SMH highlighting the arbitrary and capricious nature of Australia’s regulation of foreign direct investment and the damage it is doing to Australia’s international reputation as an investment destination. If Garnaut is to be believed, the FIRB is a bureaucracy turned feral, which would help explain the Patrick Colmer speech debacle. Extract over the fold, but read the whole thing.
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posted on 06 October 2009 by skirchner in Economics, Foreign Investment
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The Colmer Doctrine?
Matthew Stevens coins the phrase ‘the Colmer Doctrine’, but as his own analysis suggests, the real problem is the complete absence of anything that could be called a doctrine:
There are two quite different conclusion[s] to draw from Colmer’s contribution to last week’s Australian China Business Council conference. Either he is a very new kind of beast in FIRB, in that he has seized the opportunity offered by government uncertainty to help shape foreign investment policy.
Or, as is far more likely, the commentary he offered was vetted and approved by a government still unwilling to formally define its preferences on Chinese investment…
That we are 18 months into our national reflection on China’s investment intentions and we are still so unsure about the FIRB process says only that the government had failed to plainly explain its policy.
That failure would seem to reflect either policy uncertainty or a failure of will. Either way, it is time to sort it out.
posted on 02 October 2009 by skirchner in Economics, Foreign Investment
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The Great Pat Colmer Speech Hunt
Glenda Korporaal weighs in on the Pat Colmer speech:
A week later the FIRB says there is no transcript of the speech, and the Australia China Business Council, which is to be commended for organising a conference with a wide range of Australia-Chinese experts, has been deluged with requests for a copy from every lawyer advising on foreign investment.
As of yesterday afternoon none was available…
The fact that the speech is not yet available—and may not be made available—to people who would genuinely like guidance on foreign investment applications can only add to the potential for criticism that Australia’s foreign investment policy is less than clear…
That said, there is still a real hunger for more information and more clarity about both the official policy and the administration of that policy.
This is an issue that should be acknowledged and addressed at higher levels than the FIRB director, but making the speech generally available would be a start.
The Executive Director of the FIRB is the designated Australian National Contact Point (ANCP) under the OECD Guidelines for Multilateral Enterprises. According to the government, ‘the ANCP is committed to carrying out these responsibilities in accordance with the Guidelines requirement for NCPs to be visible, accessible, transparent, and accountable.’
All rhetoric, no substance.
posted on 02 October 2009 by skirchner in Economics, Foreign Investment
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Single-Issue Forecasting Tragics
Don Harding has a great piece on economic forecasting in today’s Australian:
In the future there will continue to be financial crises and recessions, all of which economists, bankers, finance gurus, bureaucrats, politicians and the public will fail to predict.
To be sure there will be some who claim predictive success… Most will be single-issue tragics who predict the next calamity in the same way that I, an Essendon tragic, successfully predicted their win over St Kilda in round 20 by predicting that Essendon would win every match. The only information in such predictions is about the tragics who make them.
Harding also notes the appalling state of the debate over fiscal stimulus in Australia:
Public policy standards are so low in Australia that my expectation is that we won’t get well-researched, evidence-based answers to these questions from either the bureaucrats or the politicians. Instead we will get spin, vitriol and blame shifting.
Here’s a suggestion for the FOI desk at The Australian: request all the materials that form the basis for the Treasury’s estimates of the impact of fiscal stimulus on economic growth and employment.
posted on 01 October 2009 by skirchner in Economics, Financial Markets, Fiscal Policy
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Yes, We Have No Patrick Colmer Speeches
I really shouldn’t complain about FIRB secrecy. Variations on ‘Patrick Colmer speech’ are now the number one search term delivering traffic to this site. Alan Jury’s Chanticleer column in the AFR yesterday (gated, so no link) deserves considerable credit for highlighting the issue of making pseudo-policy announcements via speeches that are not in the public domain. As Jury noted, it makes a complete mockery of the government’s posturing on transparency and accountability in international fora like the G20, not to mention the ‘Government 2.0 Taskforce’ (I would settle for some Government 1.0).
posted on 01 October 2009 by skirchner in Economics, Foreign Investment
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Xenophobic, Not Racist
I have an op-ed in today’s Wall Street Journal on the confusion being created by the government’s discretionary approach to the regulation of foreign direct investment.
This morning I read in one of the US equity analyst reports I receive that ‘we hear out of Australia that its foreign investment regulator wants to impose 15% caps for global purchases of the country’s large companies.’ This is over-stating the situation, but is indicative of the perceptions now being created among offshore investors.
Australian mining magnate Clive Palmer is not taking Patrick Colmer’s advice to leave the lawyers and media out of it and quietly cut deals in Canberra. He is threatening to take an FDI case to the High Court. Palmer is also calling Australia’s regulatory regime for FDI racist. I think ‘xenophobic’ is a better characterisation (hence the title of my monograph on the subject). Colmer effectively conceded as much when he said that part of FIRB’s role was to maintain public support for foreign direct investment by managing an ‘orderly’ flow of FDI transactions.
posted on 30 September 2009 by skirchner in Economics, Foreign Investment
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Steve Keen’s Long Walk
A Steve Keen forecast that might actually come true:
2010 should be an interesting year for property. I will probably have to walk to Kosciouscko [sic] at its beginning…
posted on 30 September 2009 by skirchner in Economics, House Prices
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The Mother of All House Price Booms?
Recently, I have been drawing attention to the implications of Australia’s population growth, the strongest since the echo of the baby boom in the early 1970s. Paul Sheehan quotes me on the issue here.
In the latest Rismark Monthly (gated), I’m quoted on the fact that Australia is now building fewer dwelling units per addition to the resident population since the early 1980s, based on one measure of dwelling commencements. On another measure, we are producing fewer dwelling units per person than at any time since the late 1960s.
The RBA’s head of economic analysis, Tony Richards, follows Governor Glenn Stevens in highlighting the implications of this dire supply situation for housing affordability. The RBA is performing a valuable service in putting this issue on the agenda for public debate. This is perhaps one of the few public policy issues the RBA can safely touch, because it straddles all three levels of government and so is less likely to be seen as criticism of a particular government’s policies.
posted on 29 September 2009 by skirchner in Economics, House Prices
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The FIRB and the Rule of Law
If you need further evidence that the rule of law is largely non-existent with respect to foreign direct investment in Australia, you need look no further than a speech FIRB director Patrick Colmer gave to the Australia-China Business Council last week, as reported in The Australian:
Mr Colmer said many of the foreign investment decisions were matters of “policy” rather than black-letter law.
He said the government had to balance the need for an orderly flow of foreign investment into Australia with the need to ensure continued public support for foreign investment proposals.
“One of the problems we have also seen is where lawyers get involved and try to turn a policy argument into a legal debate,” Mr Colmer said. “It is not effective. The lawyers don’t like us telling them that, but we do try to steer people through the policy issues rather than the legal issues ... Don’t turn it into a legal stoush, and deal with us the way we like to deal with you - in confidence.”
The last thing FIRB wants is a review of decisions on common law grounds (other forms of administrative and judicial review being effectively precluded). As the ACCC would no doubt tell their FIRB colleagues, legal process and case law are the enemies of bureaucratic discretion.
Perhaps the most tragic aspect of Colmer’s speech is that it was actually welcomed by some commentators as a clarification of the regulatory regime for FDI. This interpretation would be somewhat less ludicrous if Colmer’s speech were actually a publicly available document, accessible by foreign investors. FIRB is evidently too busy micro-managing FDI on behalf of the Treasurer to put the speech on its web site. I have emailed FIRB requesting a copy, but have no expectation of receiving a reply.
posted on 28 September 2009 by skirchner in Economics, Foreign Investment
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‘You Will Not Ask Me Any Questions’
Academics speaking truth to Doug Cameron at the Senate Economics References Committee:
Senator CAMERON—Who would want an academic running the economy? I said that this morning and the more I hear from academic economists the more I believe that it would be a fatal mistake.
Prof. Makin—Ben Bernanke is an ex-academic economist and he seems to be getting a lot of credit for what he has done.
* * *
Senator CAMERON—Do you believe the government has made any positive economic decisions since it has come to power?
Prof. Davidson—Yes. The government delivered on the tax cuts that were promised by the Howard government.
Senator CAMERON—Is there anything else?
Prof. Davidson—The government scrapped the Fuelwatch scheme.
Senator CAMERON—Is there anything else?
Prof. Davidson—The government scrapped the GroceryWatch scheme.
* * *
Senator CAMERON—Are you seriously putting to this inquiry that the federal government should play no role in investing in the nation’s road infrastructure?
Prof. Davidson—I am putting it to you that if you wanted to build roads that you would give the money to the states and allow the state governments to make decisions as to what roads they wish to build.
Senator CAMERON—That is an interesting point of view!
Prof. Davidson—We have a constitution that actually has states that make decisions about these things. You do represent the states, don’t you?
Senator CAMERON—I am here to ask the questions, not you.
Prof. Davidson—Actually, I am a taxpayer. I will ask questions too.
Senator CAMERON—You will not ask me any questions.
posted on 25 September 2009 by skirchner in Economics, Fiscal Policy, Politics
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Oil is Found in the Minds of Men
And ‘peak oil’ is founded on ignorance, argues Peter Foster:
Peak Oil theory represents a combination of economic ignorance and moral rejection of markets as greed-driven and short-sighted. These all-too common attitudes usually go with a profound faith in effective government policy, despite the monumental weight of evidence to the contrary.
posted on 19 September 2009 by skirchner in Commodity Prices, Economics, Financial Markets, Oil
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The Tax Cut that Could Have Been
How much of a tax cut could you get for $97 billion in federal fiscal stimulus spending? Alex Robson does the sums. Of course, from a Ricardian standpoint, a temporary and unfunded tax cut should be no more effective in stimulating activity than a temporary and unfunded increase in government spending. However, it does have the advantage that whatever spending does occur out of the tax cut is on things people actually want, rather than projects the government thinks we need, while the private sector also gets to allocate any increase in saving.
posted on 18 September 2009 by skirchner in Economics, Fiscal Policy
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Gold as an Option on the End of the US
Spengler (aka David Goldman) makes the case for gold as a hedge against the Obama Administration:
The scurrilous fringe of financial journalism likes to speculate as to when China will dump the dollar, without asking the obvious question: what would China do in the absence of the dollar? The billion people who inhabit China’s interior are no substitute for the 300 million in the American market. They have a fraction of the purchasing power, they have little access to financial services, they have no credit bureaus to calculate their capacity to carry debt, and they have no means to make liquid their limited assets through mortgage markets. Perhaps over a dozen years of Herculean efforts, the situation might be changed - but that is then, and this is now.
The world not only is stuck with the United States for the time being, but wants to be stuck with the United States. But the Barack Obama administration’s attempt to substitute government spending for collapsing consumer spending makes US assets less attractive, while its attempt to diminish America power on dubious ideological grounds forces other countries to act as rivals, unsuited and unwilling as they might be to do so.
That is why options on the end of the US are trading well in the form of the gold price. Gold will have no official role unless America’s international role really does collapse, and the world is reduced from a system of trust (or imperial dictates, which amounts to the same thing) to a kind of barter at the international level. That would be a situation much to be abhorred, but it is not to be excluded. The world may need an alternative to the dollar if Obama persists in his present course.
posted on 17 September 2009 by skirchner in Economics, Financial Markets, Gold
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