Henry Ergas responds to David Gruen’s defence of the indefensible:
Gruen says the infrastructure spending is justified because it adds to productive capacity.
But this is true only if the benefits from that spending exceed its costs. If they don’t (think national broadband network or pink batts), then the [...]
Saxo Bank has released its outrageous predictions for 2010, which are actually not outrageous at all. But how did they go with their outrageous predictions for 2009? My comments in square brackets.
1) There will be severe social unrest in Iran [...]
So says Deputy Governor Ric Battellino of the RBA’s official cash rate. Battellino’s speech once again highlights the fact that the RBA calibrates changes in the official cash rate to changes in actual borrowing rates. Battellino also notes that:
The margin on variable housing loans is [...]
I have an op-ed in today’s Australian taking Treasury Secretary Ken Henry to task for resigning Australia to a permanent expansion in the size of government. I argue that the expansion in the size of government since Gough Whitlam fails the criteria set by the Treasury’s ‘wellbeing’ framework [...]
Tony Makin makes the case for a crowding-out effect from fiscal stimulus via the exchange rate and net exports. Last week’s September quarter balance of payments implied a 1.8 percentage point subtraction from growth on the part of net exports, which is consistent with this story. Indeed, [...]
The Centre for Public Integrity and the Washington Post investigate Ginnie Mae:
The trouble signs surrounding Lend America had been building for years. A top executive was convicted of mortgage fraud but still helped run the company. Home loans made by its headquarters were defaulting at an extremely high [...]
Treasurer Wayne Swan has announced an expansion of the Foreign Investment Review Board and a review of the communication of FDI policy in a speech to the Global Foundation. The government’s first initiative will be to:
release an easy-to-read version of the foreign investment review framework for [...]
With the government, the opposition and the media all heavily engaged in gratuitous bank-bashing, few people have given much attention to the implications of tighter capital adequacy regulation for the cost of borrowing to consumers. RBA Governor Glenn Stevens was remarkably frank about [...]
The Australian economy just got bigger, thanks to the adoption of the new national accounting standard SNA08. The revised data raise the level of nominal GDP by 4.4% for 2007-08. As the government was quick to point [...]
True socialists don’t support reactionary conservatives like Clive Hamilton:
it’s a sign of the decline of Left politics that a reactionary, pro-censorship sexual moraliser who hates the idea of working people enjoying a higher material standard of living could ever be considered left-wing…
It’s time that left-wingers stood up [...]
Michael Stutchbury makes the case for Liberal leader Tony Abbott to adopt Warwick McKibbin’s hybrid ETS-cabon tax as a counter to Labor’s ETS. Former opposition leader Malcolm Turnbull was once sold on the McKibbin model when in government, but couldn’t be bothered making the [...]
With Malcolm Turnbull’s political career seemingly all but over, his only significant legacy may be bad lighting:
The importation of General Lighting Service (GLS) Electric Filament Lamps will be prohibited under the Customs (Prohibited Imports) Regulations 1956 (the Regulations) from 1 February 2009…
The maximum penalty for importing these [...]
The following observation from a London-based hedge fund trader is perhaps representative of offshore perceptions of monetary policy in Australia:
The RBA hiked rates again overnight, in line with leaks yesterday but contrary to some speculation at the height of the Dubai panic.
I don’t think there [...]
RP Data-Rismark have released the capital city hedonic house price index for October, showing house prices up 10% YTD.
Here’s what $1.85 million buys you in the Sydney suburb of Paddington:
Michael Stutchbury quotes Warwick McKibbin on the likely consequences of Labor’s emissions trading scheme:
Economist and Reserve Bank of Australia board member Warwick McKibbin warns the Carbon Pollution Reduction Scheme is “fundamentally unstable”, the price of permits will be “inherently volatile” and the Copenhagen agenda is in “total [...]
Tony Abbott offers support for a carbon tax as an alternative to an ETS in today’s Australian:
many respected economists think a carbon tax would be more certain, less complex and far less open to manipulation than traded carbon permits.
In government, Malcolm Turnbull showed considerable interest in Warwick [...]
RBA Deputy Governor Ric Battellino, on why the housing investment share of GDP will have to rise.
[...]Brendan O’Neill, on why Malthusians are always wrong.
[...]Gold is all about capital gain (or loss, as the case may be). After storage and insurance costs, gold has a negative yield. These costs may be about to go up, with retail gold bugs being booted out of gold storage facilities to make way for institutional investors. From the [...]
The Wall Street Journal has been running a series of articles on the impact of US dollar weakness on Asia-Pacific economies. In today’s edition, I write about New Zealand Labour’s abandonment of the consensus on inflation targeting:
Mr. Goff’s criticism of this dynamic misses the important benefits inflation [...]
The leader of the opposition New Zealand Labour Party, Phil Goff, has announced the abandonment of his party’s support for inflation targeting by the Reserve Bank of New Zealand.
It was a Labour government that introduced the Reserve Bank of New Zealand [...]
The CIS have released my Policy Monograph on Reforming Capital Gains Tax: The Myths and Realities Behind Australia’s Most Misunderstood Tax. There is an op-ed version in today’s Australian.
The 2004 Productivity Commission inquiry into first home ownership noted [...]
An illustrated history of Nouriel’s money-losing calls of 2009.
[...]RBA Board member Warwick McKibbin, on the resource cost of fiscal stimulus:
RESERVE Bank director Warwick McKibbin has publicly questioned whether the Rudd government dumped him from the Prime Minister’s science council as payback for saying its fiscal stimulus package was “too big”.
Speaking yesterday after Wayne Swan [...]
The US Treasury has been running high level briefing sessions for economic bloggers. Officialdom has obviously recognised that bloggers are an influential voice and need to be managed like old media. Fortunately, economics bloggers are proving a little more spin-resistant than Treasury perhaps expected. Here is what [...]
I have an op-ed in the business section of today’s Australian on the future of the US dollar (no link, but full text below the fold). Many commentators mistakenly view the market-clearing price of the US dollar on foreign exchange markets as a reflection on the US dollar’s future role [...]
Eugene Fama reviews The Myth of the Rational Market, by Justin Fox:
The book is fun reading, but its main premise is fantasy. Most investing is done by active managers who don’t believe markets are efficient. For example, despite my taunts of the last 45 years about the [...]
An insight into how Australia is perceived abroad, care of Holman Jenkins in the WSJ:
What most infuriated their hosts, though, was Telstra’s abandonment of its traditional deference to policy makers. The company took regulators to court over mandates requiring it to lease its network to competitors at [...]
Following the release of the ABS house price data for the September quarter, Steve Keen concedes defeat in his bet with Rory Robertson and will be hiking from Canberra to the top of Australia’s highest mountain wearing a [...]
I featured in a Lateline Business story last night on Reserve Bank media backgrounding in relation to monetary policy. Lateline Business supervising producer Richard Lindell deserves considerable credit for pursuing this story in the face of both official and unofficial stonewalling. Credit is also due to [...]
Australia’s sovereign wealth fund, the Future Fund, does not pay tax, which would be pointless, but it is not too keen on paying foreign taxes either. The Fund’s 2008-09 Annual Report shows five Cayman Islands subsidiaries. As the report notes ‘the Fund seeks to maximise after [...]
Jeremy Siegel on why the financial crisis proves rather than disproves the efficient market hypothesis:
is the Efficient Market Hypothesis (EMH) really responsible for the current crisis? The answer is no. The EMH, originally put forth by Eugene Fama of the University of Chicago in the 1960s, states [...]
You know it’s Friday whenever the government slips out another late afternoon FDI approval. The government continues to micro-manage FDI in Australia, with another long list of conditions attached to Yanzhou Coal Mining Company Limited’s acquisition of Felix Resources, while creating even [...]
As Australia records the biggest annual percentage decline in Australian dollar export prices since comparable data began in 1974, Stephen Green predicts ‘enormous’ Chinese demand for Australian iron ore next year.
I discuss the relationship between Australian export prices and volumes in this article.
[...]The latest 12-month consumer house price expectations from Westpac-Melbourne Institute:
Some 73% of respondents expect prices to increase over the next 12 months with 15.9% expecting no change and 9.9% expecting a decline. The proportion expecting an increase compares with 53% in July and 32% – a minority [...]
Scroogenomics author Joel Waldfogel, on the welfare costs of poorly chosen Christmas gifts:
My favorite way to do it is to compare what would you be willing pay for stuff that you receive as a gift per dollar spent versus what would you be willing to pay for stuff [...]
Peter van Onselen on Australia’s internationally anomalous system of postal voting and why you should never use the postal voting forms sent out by politicians:
Political parties operate sophisticated databases that track voters, recording their voting intentions and issues of interest. They are a central element of [...]
The rhetoric of class hatred from Prime Minister Kevin Rudd:
If you want a definition of social injustice this was it in brutal colour - millions of innocent workers losing their jobs because a few thousand financial executives around the world surrendered any pretence of social [...]
RBA Governor Glenn Stevens, making the case for tightening monetary policy yesterday:
If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat [...]
John Garnaut continues to expose the chaos in the regulation of foreign direct investment in Australia:
a whole industry of lawyers, lobbyists and retired politicians is springing up to earn fees by promising China that they can divine the mysteries of Australia’s foreign investment laws. Many contacted by [...]
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 [...]
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 [...]
The Centre for Independent Studies has a Facebook page that can be used to follow CIS media, publications and events. The latest issue of Policy magazine is also available, including my review essay on behavioural economics.
[...]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 [...]
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. [...]
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 [...]
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 [...]
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 [...]
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 [...]
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…
[...]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 [...]
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 [...]
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 [...]
The European Center of Austrian Economics Foundation is calling for submissions for its 2nd International Vernon Smith Prize for the Advancement of Austrian Economics. The essay topic is based on Schumpeter’s statement that ‘This process of Creative Destruction [...]
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 [...]
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 [...]
Oliver Hartwich and I have an article in Juedische Allgemeine profiling Nouriel Roubini. Linked text is in German, but an English language version can be found here.
[...]Eric Falkenstein recalls Hyman Minsky:
I was Minsky’s TA while a senior at Washington University in St.Louis in 1987, and took a couple of his advanced classes, which regardless of the official name, were all just classes in Minskyism. He was a maverick, but perhaps a bit too [...]
John Cochrane and Luigi Zingales, on how policymakers induced a financial crisis a year ago today:
the main risk indicators only took off after Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke’s TARP speeches to Congress on Sept. 23 and 24—not after the Lehman [...]
I join the history wars with an op-ed in today’s Australian taking issue with Paul Kelly’s claim that ‘the defeat of Dr Hewson’s policy [of Reserve Bank reform] laid the basis for the successful monetary policy of the Keating-Howard era.’ I make the case that:
Far from being a [...]
Juedische Allgemeine, Germany’s leading Jewish newspaper, recently asked Oliver Hartwich and I to write a profile of Nouriel Roubini as a counter to the numerous puff pieces in the Anglo-American press. The German language version has yet to appear online, but there is an English language version in today’s [...]
David Hirshleifer ponders the loaded character of the language behind activist fiscal policy:
Regardless of who’s right on the economics, clearly the ‘stimulus’ language captures the pro side perfectly, and the con side not at all. Indeed, the term immunizes the mind to opposing evidence…
So, here’s a political [...]
Even Steven Pearlstein recognises that the failure to rescue Lehman Brothers was not the pivotal event of last year’s financial crisis:
subsequent events have only confirmed that, if Lehman had somehow been rescued, things would not have turned out a whole lot better for Citigroup, or Washington Mutual [...]
Henry Ergas and Alex Robson highlight the welfare costs of federal infrastructure spending:
Australian Government spending on infrastructure projects has increased rapidly in recent years, and especially so over the course of 2009. In this paper, we examine the processes for project evaluation, in the [...]
Richard Cookson suggests two scenarios for the resolution of the current episode of equity and bond market divergence:
The benign argument for bond yields (and equities) revolves around supply. Many pundits and investors have been in a lather about the vast quantities of debt that governments have to issue. [...]
The Rismark Monthly for August suggests the following explanation for house price doom-mongering:
It’s very easy to rip into housing since it is a non-institutionalised asset class. All of Australia’s 8.4 million homes are owned by highly dispersed and faceless families. Australian and international equities, LPTs, unlisted commercial property, [...]
Matthew Hassan looks at the supply-side of global housing markets, finding that Australia has one of the world’s most under-supplied markets, which in turn explains the resilience of Australian house prices. Hassan’s simple indicator does a good job explaining cross-national variation in house price growth.
[...]Andrew Leigh uses survey evidence to estimate the amount by which the 2009 fiscal stimulus payments boosted spending in Australia. The cross-sectional variation in the spending rate finds evidence in favour of Ricardian equivalence:
The third variable tabulates the spending rate against respondents’ degree of worry about government [...]
Eric Leeper argues that expectations for fiscal policy are as important as those for monetary policy. Leeper points to ‘an egregious example of non-transparent fiscal policy’:
the recent $787 billion American fiscal stimulus plan. Leading up to the introduction and passage of the American Recovery and Reinvestment Act, [...]
CIS Policy Point Lecture: Stern Hu and Stern China - Why Beijing did it and what it means for Australia-China Relations.
Since the arrest of Rio Tinto executive Stern Hu in mid July, Beijing has stood firm by reiterating several times that evidence against Mr. Hu for commercial espionage causing massive [...]
I’m quoted in a story in The Australian today on the effectiveness of fiscal stimulus. As I noted in this post, if we are to accept the proposition that fiscal stimulus has been effective in supporting demand, then this implies that monetary policy has [...]
Treasury Secretary Ken Henry suggests that Australia remains an attractive proposition to foreign investors:
it seems quite likely — to me at least — that the Australian economy might attract an even greater share of global capital flows, and quite possibly even larger capital flows in [...]
Asked about the effectiveness of discretionary fiscal stimulus measures, RBA Governor Stevens told the House Economics Committee on Friday that:
we believe that the fiscal measures have supported demand and, therefore, at least to some extent, output.
The distinction was probably lost [...]
Eugene Fama explains why recent asset price volatility is entirely consistent with the efficient markets hypothesis.
[...]If people are most bearish near the bottom of the cycle, it is probably a good sign that Slate has been running an interactive feature on The End of America: How It Will Happen. It is even more encouraging that of the top five apocalyptic [...]
Bill Easterly answers Her Majesty’s questions on the role of economists in the financial crisis:
We correctly predicted that we would not be able to predict it.
Robert Lucas spells out the obvious implications:
The main lesson we should take away from the EMH for policymaking purposes [...]
The always interesting Scott Sumner (who is right on most things) falls into the grass-is-always-greener trap that seems to afflict many Americans when it comes to monetary policy:
Earlier I said Australia is very similar to the US. The main difference is that the wizards who run monetary [...]
Following hot on the heels of the New Zealand government’s announcement of reforms to its regulation of foreign direct investment, the Australian Treasurer has also announced changes to the thresholds for screening FDI applications. My take on the changes can be found in an op-ed in The Canberra [...]
I have an op-ed in today’s Age contrasting the New Zealand government’s liberalisation of its regulatory regime for foreign direct investment with the Australian government’s growing use of FDI regulation as an extension of domestic industry policy (note that there is a minor sub-editorial error: [...]
Open Australia is providing a useful service making information about federal parliament available on-line. This volunteer effort often provides better information than parliament itself, as this story notes.
Most notably, the volunteers have scanned the 1500-odd pages of the Register of Members’ Interests and [...]
From RBA Governor Glenn Stevens’ speech yesterday:
A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances – the economy [...]
I have an op-ed in today’s Australian Financial Review, comparing the level of media scrutiny applied to central bankers in Australia and the rest of the world. Full text below the fold (may differ slightly from edited AFR text).
[...]Louise Adler of Melbourne University Press provides a self-parody of the arguments against liberalisation of parallel book imports:
To borrow from John Howard, surely we should decide what books come to this country, and the manner in which they come.
Tim Wilson makes the case for scrapping parallel import [...]
Robert Carling and I have an op-ed in today’s Australian on our proposals to reform Australia’s federal fiscal responsibility legislation.
‘Henry Thornton’ responds:
Pardon my cynicism, but I see Australia as a long way from establishing another “self-binding” system, one that enforces long-term economic rationality on the [...]
Tony Makin, on the relative effectiveness of monetary and fiscal stimulus:
dramatically easier monetary policy has probably done more for the Australian economy than fiscal policy. A less modest, or perhaps more independent, Reserve Bank would take more credit for this.
Tony makes an important point. The RBA’s very [...]
Greg Sheridan and John Garnaut both have good analyses of the issues arising from China’s detention of Australian Rio Tinto executives for alleged espionage. Both emphasise that this is a critical test of Kevin Rudd’s leadership and China credentials, although Garnaut maintains that Rudd’s [...]
In Bubble Poppers, I followed Peter Garber in arguing that claims about ‘bubbles’ in asset prices are a substitute for fundamental analysis, a non-explanation for events that people are otherwise unable or too lazy to explain. In contrast to the dominant non-explanation for innovations in house prices [...]
Robert Carling and I have released a new CIS Policy Monograph, Fiscal Rules for Limited Government: Reforming Australia’s Fiscal Responsibility Legislation. The paper makes the case for a rules-based framework for fiscal policy to replace the Charter of Budget Honesty, as well as the [...]
Yet another open letter from the usual suspects, this time calling for a new financial system inquiry. However, their call proceeds from a mistaken premise:
SINCE the severe market failures in Australia’s securitisation industry were identified in 2008, we have been concerned that these problems were partly attributable [...]
The Australian’s FoI desk has another stab at the decision-making processes of the RBA Board, this time seeking voting records, but comes up empty-handed:
“There are no records as the board seeks to achieve a consensus without the need for formal voting,“ the board’s secretary, David Emanuel, wrote [...]
Don’t hold your breath waiting for the Foreign Investment Review Board’s annual report:
THE Foreign Investment Review Board is reinforcing its reputation as one of Canberra’s most secretive bodies. More than a year after the 2007-08 year there is no sign of its annual [...]
