Friday, July 29, 2011

Attention Reserve Bank: Inflation is not as bad as it looks

Take a deep breath.

Inflation is not, as one commentator opined this week, “a disaster”.

It seems to me to be a long way short of what would be needed to bring forward an interest rate hike Tuesday, as the ANZ is now predicting.

There’s no doubt the headline figures are high: 0.9 per cent for the quarter and 3.6 per cent for the year. The underlying measures the Bureau of Statistics calculates for the Reserve Bank are high too, each coming in at 0.9 per cent for the quarter, and a more acceptable 2.7 per cent for the year.

But there are good reasons not to place too much weight on any of these figures, and the Bureau knows it.

From next quarter the Bureau will publish a new improved consumer price index, removing one of the most erratic and troublesome components and shunting it off to an appendix.

The so-called “deposit and loan index” is a valiant attempt to measure what banks charge. The fourth-largest component of the CPI, accounting for 4 per cent of the Bureau’s ‘shopping basket’ it is made up of the fees the banks charge directly and also an estimate of the margins they whack on to their rates.

Because the estimate is a derived number based on all sorts of assumptions it bounces around wildly... at times it turns negative.

In its submission to last year’s review of the CPI the Reserve Bank complained that the index jumped 16 per cent over the year to September 2008, "partly reflecting a one-off correction of earlier errors" adding an extraordinary 0.75 percentage points to the official CPI, before sliding 15 per cent and subtracting 0.75 points.

From the September quarter the Bureau will banish the estimated component from the official CPI, leaving in only the fees and charges it can measure.

In the June quarter figure just released, the last for which this will happen, the old-style deposit and loan index was responsible for about one tenth the increase in the CPI. The Reserve Bank knows all about this; it has complained about it loudly. It’ll see right through it.

Higher fruit prices accounted for an astounding 39 per cent of the increase in the CPI. They won’t last. It’s easy to see that by looking at what happened to the price of vegetables. They shot up 16 per cent in the March quarter after the floods, and then slid back 10 per cent as crops regrew.

Fruit trees take longer to regrow than vegetables, but they do regrow. Not only will the upward pressure from higher fruit prices soon leave the CPI, it’ll soon be replaced by downward pressure as fruit prices return to earth.

You might think none of this should affect the Reserve Bank’s two underlying measures of inflation, the ones that came in at 0.9 per cent you might think. You would be wrong.

One of the measures, the 'trimmed mean' is calculated by arranging all of the price movements in order of size, lopping off the top 15 per cent (of big movers) and the bottom 15 per cent (of small movers or price declines) and then averaging the price changes that are left.

The other measure, the ‘weighted median' also arranges movements in order and cuts out everything other than the middle price change.

How could an enormous price change like that for fruit boost those underlying measures? Not directly. Fruit would be excluded because it was one of the biggest price changes. But if it had previously been included because it was one of the mid-ranking price moves, it will knock one of the other big movers back into the mid-range to take its place; it will push up the trimmed mean indirectly.

It is clear that has happened. A different measure - CPI ex volatiles and deposit & loan facilities - came in at just 0.5 per cent in the quarter and 2.4 per cent over the year.

It doesn’t look a disaster to me.

Published in today's Age

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It's the tax summit you have when...

...the good ideas are off the table

In the gun:

Mining royalties
Insurance taxes
Payroll tax
Company tax
Motor vehicle taxes
Stamp duties

On the horizon:

Congestion taxes
Environmental taxes

Out of contention:

The goods and services tax
Negative gearing

The October tax summit has been set up to fail.

Rule Number 1 set down by the Treasurer in the discussion paper says it will have to recognise “the government’s commitment to fiscal discipline, which means ideas that have a budget cost need to be funded”.

Put bluntly - any taxes that go will have to be replaced by new ones or by boosting what’s raised from the taxes we’ve got.

The paper helpfully identifies the taxes that should go. Top of the list - the taxes that do the most damage from each extra dollar raised - are mining royalties. Every extra dollar raised from royalties cuts economic activity by an extraordinary 70 cents. The government tried to abolish mining royalties in favour of a resources rent tax last year and mostly failed. The mining companies liked things the way they were.

Second on the list are the special state taxes on insurance. Anything on top of the goods and service tax discourages people from taking out insurance and does Australia harm. Treasury says each extra dollar raised from an insurance tax costs society 65 cents... Payroll taxes are little better, costing 40 cents for each extra dollar raised. Also damaging - costing more than 30 cents for each extra dollar raised - are motor vehicle taxes that penalise owning a car rather than driving and stamp duties that tax changing houses rather than living in them.
By comparison a resource rent tax of the kind the government wanted to impose does no damage whatsoever according to the Treasury’s modelling, as would increasing the rate of one other tax Treasury won’t mention.

Administering the goods and services tax imposes substantial costs on businesses. But boosting it to fund cuts in other taxes would impose no extra costs at all. New Zealand has a GST of 15 per cent. Many of our northern neighbours charge 20 per cent.

But you won’t hear that from Mr Swan. “Let me make this absolutely clear” he said launching the summit yesterday, “the government will not be touching the base of or the rate of the GST - end of story”.

Without touching the GST it is hard to know what the summit could do. The paper talks of road congestion charges and environmental taxes, but it isn’t enough. The summit is set to achieve little.

Published in today's SMH and Age

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Thursday, July 28, 2011

Rob Chalmers, legend

Rob has produced his final edition of Inside Canberra.

He died yesterday, aged 82, after the sudden final phase of a seven year battle with cancer.

In the press gallery for 60 years, Rob jokingly dismissed Ramsay, Oakes and Grattan as "young pups".

Ramsay says "nobody, in an any capacity – politician, bureaucrat or journalist – has equalled what Rob Chalmers somehow endured in the nation’s parliament, from the day he attended his first Question Time on 7 March 1951".

Always generous, always interested, and for a time a radio voice I grew up with on 2CH, he has been a part of my life for half his 60 years working in Australia's parliament.

Rob can't be replaced.

Rob and his family can be proud of the life he lived.


Extraordinary. We now have more active mobile phone connections than people

Paul Budde:

Australia’s $17bn mobile industry hits 125% penetration

There are around six million more mobile subscribers than people in Australia. As smartphone uptake increases growth is likely to continue in the foreseeable future, even though subscriber penetration rates are about 125% of the population.

Growth is being driven by population increases and a rise in the number of people using two mobile subscriptions – one for personal use and one for business use. Australian operators are likely to have more than 28 million mobile subscribers by late 2011 as more and more users migrate to a mobile-only environment. Telstra is still the market leader, with more than eleven million subscribers; Optus has around nine million subscribers; and VHA still has roughly seven million subscribers.

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Inflation is baaaaack! Or so it seems. And the dollar....

The Aussie dollar has hit a new post-float high and was last night on track to pass 111 US cents after dramatically worse than expected inflation figures brought forward the prospect of one or more interest rates hikes.

Ahead of the Reserve Bank board meeting due Tuesday the Bureau of Statistics reported inflation had hit 3.6 per cent - well above the Reserve Bank’s target band of 2 to 3 per cent and the highest rate for 10 quarters.

Fruit prices soared a further 27 per cent in the quarter sparked by a further 138 per cent jump price of bananas. The Bureau says since January’s cyclone fruit prices have more than doubled and banana prices have jumped 470 per cent.

The consumer price index is not adjusted to exclude big price rises and so fully reflects the extreme jump in the banana price of bananas. Had fruit prices not risen the inflation rate would have been 0.2 percentage points lower.

Prices rose in all but two of the Bureau’s 11 categories led by shoes and clothing where prices jumped 2.5 per cent as retailers unwound discounts.

“Inflation is strong no matter how you cut the numbers,” said HSBC chief economist Paul Bloxham. “The next move in rates is up. I don’t expect the Bank to wait long.”

ANZ chief economist Warren Hogan said the result could not be dismissed as a rogue number.

“Underlying inflation is running at annualised pace of 3.4 per cent. We are entering the economic upturn at an already uncomfortable stage of the inflation cycle. An interest rate hike before year’s end is now clearly a high probability"...

Jarrod Kerr, Credit Suisse
A 0.25 per cent hike would push the variable mortgage rates charged by the biggest banks above 8 per cent. It would add around $50 to the monthly cost of servicing a $300,000 loan.

Westpac, which this month set itself apart from the market by forecasting a series of four rate cuts, stood by that forecast last night.

“Absolutely,” said chief economist Bill Evans. “The inflation figure was distorted by an unusual reading on financial prices. We are also asked to believe the prices of discretionary goods took off If they did they will fall back. Consumers aren’t buying. The Bank will start cutting rates late this year or early next.”

As if to emphasise the two-speed nature of the economy this morning’s Deloitte Access Investment Monitor identifies a record $832 billion of projects underway or at an advanced stage of planning - an 8 per cent increase on the March quarter.

Western Australia and Queensland between them account for more than half the spending, spearheaded by the giant $16 billion liquefied natural gas project at Gladstone in Queensland and Shell’s $9 billion LNG project in Western Australia, the world’s first floating LNG platform.

Access Economics says the national broadband network is also part of the boom, adding $3 billion to projected investment in 2011-12.

Treasurer Wayne Swan welcomed the “huge pipeline of investment” but said the resurgence of inflation was due to the “massive destruction to crops” caused by Cyclone Yasi and the summer floods.

Shadow treasurer Joe Hockey dismissed the floods as an excuse.

“They put their hands in the air and blame some natural disaster,” he said. “It’s their own actions.”

Mr Swan was incensed, saying as a proud Queenslander he found Mr Hockey’s reference to “some natural disaster” nothing short of offensive. “This is the same shadow treasurer who described the global financial crisis as a hiccup - just one of a litany of reasons why he is so clearly not up to the job,” he said.

The higher dollar was “a mixed blessing” for industry.

“We all benefit in the end from a high dollar, but on the way through there are sectors which are impacted and some are impacted harshly,” Mr Swan said.

Australian Industry Group chief Heather Ridout said important employers were being hurt “while seeing limited benefits from the big investments in the minerals sector”.

Published in today's SMH and Age

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Wednesday, July 27, 2011

Murdoch controls minds. Yea, sure.

Wednesday column

To listen to Rupert, to listen to his detractors, you’d think he could swing elections.

It’s an assumption implicit in the media inquiries likely at both ends of the globe and in the decision Cabinet is about to make on whether to grant his part-owned Sky News the licence to produce Australia’s overseas television service.

Its beyond doubt that Rupert has been on the winning side of many elections. In 1972 The Australian gave the Whitlam campaign free advertising space, it editorialised that it was time for a change and Murdoch himself drafted at least one of Whitlam’s campaign speeches. Three years on the paper campaigned so hard for Fraser its journalists went on strike, finding some of what they wrote unrecognisable in the paper that hit the streets.

In 1992 after the British Labour opposition promised media laws that would force Murdoch to sell either his share of the satellite broadcaster BSkyB or his newspapers his mass-circulation Sun campaigned against Labour as if its life depended on it.

On election day its front page was filled with the face of the Labour leader inside a light bulb. The headline read: "If Kinnock wins today will the last person to leave Britain please turn out the lights".

Page three featured a fat woman in a swimsuit under the heading: "Here's how page 3 will look under Kinnock”.

That night as the results filtered through to Hollywood, Variety magazine says a relieved Murdoch told confidants: “We won.”...

The Sun itself claimed credit. It’s headline the next morning read: “It’s the Sun Wot Won It”.

Later the Sun switched to Blair after the new Labor leader flew half way round the world to speak at the Murdoch talkfest at Hamilton Island. NewsCorp got to keep its share of BSkyB.

But being on the winning side of elections - near consistently - isn’t the same as swinging the result. And it has suited both Murdoch and his critics to act as if it is.

What little economic research there has been on the topic suggests that although we take newspapers seriously we are not particularly influenced by them; if anything the influence runs the other way.

The most thorough study by Chicago University economists Matthew Gentzkow and Jesse Shapiro categorised American newspapers by the terms they used. Some preferred Republican terms such as “war on terror” and “tax relief”. Others used Democrat terms: “war in Iraq” and “tax break”.

Then they examined registered voters postcode by postcode along with circulation figures and found the Democrat leaning newspapers serviced Democrat postcodes while the Republican newspapers serviced Republican postcodes. Checks on church-going (strongly related to politics) suggest it was readers that drove the papers rather than the other way around. Indeed, the more that papers used the language of their readers the more they could charge them. Some owners ran different papers in different cities with different slants.

When Australian National University economist Andrew Leigh and Joshua Gans from the Melbourne Business School asked the same questions in Australia he found The Australian and Daily Telegraph somewhat to the right of The Age and Herald Sun (who were tied) with the Sydney Morning Herald further to the left and the Australian Financial Review slightly further left. But the differences were not statistically significant. Only one outlet - ABC TV - was demonstrably different. It lent to the Coalition.

Leigh categorised outlets by the type of people they quoted (Helen Hughes vs Robert Hughes) after checking which were quoted with approval by Labor and Coalition members of parliament.

Now a Labor member of parliament himself Dr Leigh thinks the study understates the extent to which Murdoch papers back the Coalition. He believes since it was completed in 2004 The Australian has shifted to the right. But he has no evidence, and certainly none that Murdoch papers can swing elections.

But Rupert’s Republican-backing United States television network can.

In a paper called The Fox News Effect University of California Berkley and Stockholm University economists Stefano DellaVigna and Ethan Kaplan took advantage of the uneven rollout of Fox News across the US in the late 1990s.

By the Al Gore – George Bush contest of 2000 some cities had had it for years and some had not.

The vote for Bush was 0.4 to 0.7 per cent higher in the towns with Fox News. It appeared to have persuaded 3 to 8 per cent of its viewers to change their vote, enough in that close election to be “decisive”.

For me the take-home message is that Murdoch is far from all powerful, as anyone who saw his stumbling, vague performance before the British House of Commons will attest.

Newspaper readers are extremely good at making up their own minds about what they read and reading more widely where needed. Reading isn’t a passive activity. Writing doesn’t shape minds.

But television and radio are different. Andrew Leigh’s study finds commercial radio and TV stations far more extreme in supporting the Coalition than either newspapers or the ABC (although the result is not statistically significant because of the small number of times radio stations quoted public figures on his list).

Since then it is clear to anyone listening that radio has become more extreme. On climate change in particular one set of views prevails, especially in Sydney. And because radio is a broadcasting rather than an interactive medium that dominant view is taking hold.

Gillard is getting slaughtered in the media, but not by the press. It's hard to fight back against a medium that caters for people who don’t read. Murdoch is the least of her problems.

Published in today's SMH and Age

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Tuesday, July 26, 2011

Banks need to lower their expectations - the rest of us have

The Reserve Bank has a sobering message for investors in banks and the executives who run them -- get real, the days of double digit growth are over and are unlikely to return.

In speaking notes prepared for a Property Council seminar in Darwin yesterday assistant governor Malcolm Edey said while Australian banks had come through the crisis in good condition with lost profits restored it was unlikely they would ever again enjoy “the days of consistent double-digit growth in lending we saw in the pre-crisis years”.

“That growth was driven in part by factors that can't be repeated – the deregulation of the financial system and the transition to low inflation.”

“In the post-crisis environment, borrowers and investors are more cautious, both at home and abroad. That's likely to mean less demand for leverage and more reliance on equity funding, even when the economy itself is growing strongly"...

While slower credit growth would be good for financial stability, “it will also mean our lending institutions have to get used to lower rates of expansion than were typical in the pre-crisis years”.

His warning echos that of Bendigo Bank managing director Mike Hirst who this month called on investors to think of banks as more like utilities -- able to deliver stable but not spectacular growth.

''If you're demanding 20 per cent returns for something like that, then guess what, there's only one way you can get it. You take shorter term decisions and more risk and in the end it blows up in your face,” he said.

His message may not have got through to the Australian Bankers Association. Late last year it published a press release and graph arguing that it was reasonable to expect a return to the rate of profit growth in the five years leading up to the crisis.

Published in today's SMH and Age

Evidence the Bankers Association doesn't get it:

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Monday, July 25, 2011

Lateral thinking. What to do about the US debt ceiling.

1. Declare there is no ceiling. Brad DeLong

The Treasury's lawyers should simply announce at 9 am Monday morning that (a) since the Constitution prohibits questioning the validity of the national debt, and (b) since the continuing resolution that mandates spending through September 30 was passed later in time than the restriction on borrowing, that (c) the debt ceiling is a dead letter. This is so by the oldest of the principles of black-letter law: a law inconsistent with a previous law is deemed to repeal the previous law even if it does not do so explicitly.

An administration that can find lawyers to say that Libya is not "hostilities" and that wanted to reassure markets and reduce economic uncertainty by solving the debt ceiling kabuki theatre debate would have no problem at all with finding lawyers to advance and justify this well-grounded and wise legal interpretation.

The structure of Tim Geithner's testimony to Congress defending his additional borrowing is:

. The Constitution forbids me from even thinking about default.

. You ordered me to spend.

. A previous Congress told me not to borrow, but no Congress can bind its successors, and those of you who are in this Congress here now ordered me to spend.

. I'm just doing what you told me to do--and what the Constitution directly and explicitly tells me to do.

And then we should move on to the people's business. This episode of kabuki theatre has done nobody any credit. If I had previously had any respect for or confidence in Republicans, this would have shredded it. And each day it continues it further shreds my respect for and confidence in the executive branch.

2. Call the Republicans bluff. Doc G

What needs to be done is for the Democrats in the Senate to present a plain vanilla bill that simply raises the debt limit and NOTHING more. No more wheeling, no more dealing, no more offers hoping for counter-offers that are never ever offered. In other words all the Dems need do is invite their opponents to show their hand. Are they or are they not willing to raise the debt limit? That's ALL that's needed, just that one simple bill. It should have no trouble passing in the Senate, since the Dems have the majority and no Republican in his right mind would dare risk being held responsible for economic catastrophe by filibustering.

Once the bill is passed it's handed over to the House, which will be a moment of truth for the Tea Party. As I see it, there's no question as to the outcome. They will fold.

Wonderful, you say? Not really. Because the Democrats are in total disarray. It's unlikely any of them can see clearly enough to offer up the simplest and most effective solution. After all their failed attempts they will most likely go down to the wire with one lame offer after another, which is exactly what their opponents expect. Holding NO cards at all, the Republicans will continue to bluff, offering nothing in return ever. If the Democrats then hold out, and they might, the "disaster" will be upon us. Checks won't get mailed, the markets will tumble and -- just as with the TARP -- congress will have "second thoughts," the Democrats will act "responsibly" (what a laugh) and totally capitulate to all Republican demands. At that point, the debt limit will get raised. And that will be the death of the Democratic Party.

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Strong for years to come... in one sector - Access

Two speeds, not multispeed

Access Economics has dismissed talk of economic weakness and interest rate cuts forecasting robust economic growth of 3.1 to 3.5 per cent for years to come.

But the firm says almost all of the growth will be in two sectors: mining and mining-related construction.

“Most of Australia’s growth engines are misfiring,” Access says in quarterly Business Outlook “Families are saving rather than spending; stimulus has run its course and its absence will be keenly felt; housing construction is limping as interest rates drown out population pressures; and our export gains are mostly being matched by lost sales to tourists, manufacturers and international students.”

“Add in the huge costs of floods and cyclones, and no wonder people are shaking their heads at hints that the Reserve Bank may raise rates further. But one growth positive is enormous - miners want to spent a fortune on adding to their capacity. It will power continuing recovery even if they only achieve a fraction of what they are aiming for. Business capex alone accounts for two-thirds of our growth forecasts. It should be achievable.”

Access director Chris Richardson told The Age he had been extremely conservative in assuming planned investment would be realised. It seemed to him that little could stop strong overall economic growth no matter how weak were most parts of the economy...

“The Reserve Bank will not cut rates while growth is strong,” he said. “It will sit on the sidelines until inflation picks up, then it will raise them.”

The July Reserve Bank board minutes released Tuesday say the June quarter inflation figure to be released Wednesday will be “important in helping to shape views about inflation, and therefore the future path of interest rates”.

The median forecast of the 22 economists surveyed by Reuters is for a high headline annual rate of 3.8 per cent, masking a slight fall in the underlying rate to 0.7 per cent for the quarter.

Published in today's SMH and Age

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Dodgy but what the heck. The anti carbon tax TV ads:

I'd feel ashamed. They feel proud.

Senior government ministers have blasted new anti carbon tax television advertisements as “factually incorrect” and an attempt talk down the economy.

The multi-million dollar industry-funded campaign claims that in just over six years Europe’s carbon pricing scheme has raised $4.9 billion. Over six or so years Australia’s will raise $71 billion.

Labelling the claim “deceitful” climate change minister Greg Combet said the ads excluded free permits from the European calculation but included them in the Australian calculation.

“It's completely misrepresentative. These are fundamentally Liberal Party ads. The Australian Chamber of Commerce and Industry which is the leading organisation behind these ads has historically had a close association with the Liberal Party,” he said.

The ACCI is one of six industry groups behind the campaign. A strategy document seen by the Herald says its key objective is to ''build public opposition to the carbon tax so that it is either substantially modified or fails to pass the Parliament''...

ACCI policy director Greg Evans said he had “no response” to accusation of a close historical association with the Liberal Party. “On this issue we are representing the unambiguous views of our membership. They are not the large polluters, they are small and medium sized enterprises, it’s nothing to do with politics.”

Until the election of the Rudd government the chamber was headed by former senior Coalition staffer Peter Hendy who rejoined the Coalition on leaving the chamber.

Mr Evans referred questions about the claims made in the advertisements to Minerals Council deputy director Brendan Pearson who confirmed the Australian calculation included the cost of free permits whereas the European calculation did not.

“We are using the government’s own figures for revenue,” he told the Herald. “It’s the right figure to use. But the Europeans simply don’t publish this data, so we have had to use the money raised at auctions of permits.”

Because free permits are not auctioned the European figure excludes revenue included in the Australian calculation.

“But even if you value Australia’s free permits you still come up with an Australian figure of around $50 billion compared to $5 billion in Europe. I hope the government will be pleased to admit that on their reading of the world their scheme is ten times as expensive as Europe’s.”

When asked whether it was valid to compare income over the past six years in one region with income over the next six years in another Mr Pearson said it was.

Speaking from North Queensland where he was inspecting coal export facilities set to double their traffic in five years Treasurer Wayne Swan attacked “well-funded vested interests trying to talk down the future of our economy”.

“A town like Gladstone really is a reality check for the scare campaign. Far from being at risk of being wiped off the map, businesses are expanding and jobs are being created. A staggering $70 billion in coal-related projects was either underway or on the drawing boards as of April.”

An Access Economics report released this morning said the impact of the carbon tax “may well be rather smaller than the huge headlines would have it”.

“Indeed if the government succeeds in generating greater certainty, that could even unlock investment potential in a range of industries, particularly utilities,” Access director Chris Richardson said.

Published in today's SMH and Age

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Friday, July 22, 2011

Malcolm's speech: "If Margaret Thatcher took climate change seriously..."

He begins talking about the Great Barrier Reef

The Great Barrier Reef is brutally confronted, it is indeed in the front line of the climate change battle, by two aspects of global warming. Most of the warming which is the consequence of human carbon dioxide emissions increasing the greenhouse effect has been absorbed in the ocean. That’s no surprise. As ocean temperatures rise, coral bleaching, which is another way of saying coral dying, events have increased. Indeed since 1979 there have been eight mass bleaching events on the Reef with no known bleaching events prior to that date.

Furthermore as more carbon dioxide is absorbed into the ocean it increase the acidity of the ocean – the last time the ocean’s acidity was this high was 25 million years ago. This is reducing the capacity of hard shelled sea creatures to form their calciferous shells – whether they are krill in the Antarctic or coral in the tropics.

Much of the work that was done by Virginia and her team, many of whom are here tonight, and which continues at GBRMPA was to reduce agricultural run-off into the Reef, reduce unsustainable fishing on the Reef, and was all designed to increase its resilience to deal with these larger, long term existential threats. Just as a healthy person can better battle a disease, so can a healthier Reef better respond to, and at least in part adapt to, the consequences of climate change.

Now, you will be relieved to know I am not going to spoil the evening with another political speech about the carbon tax or Julia Gillard’s broken promise not to introduce it.

Rather, I wanted to say something to you about the importance of science.

But first, let me say straight up that the question of whether or to what extent human activity is causing global warming is not a matter of ideology let alone or of belief. The matter is simply one of risk management...

It is, moreover, not a question of left versus right indeed it was Margaret Thatcher who more than 20 years ago called for immediate action to reduce greenhouse gas emissions. Her words, on our response to climate change were as wise and as relevant today as they were in 1990. Mrs Thatcher said then:

“Many of the actions that we need to take would be sensible in any event. It is sensible to increase energy efficiency and to use energy prudently. It is sensible to develop alternative and renewable energy sources. It is sensible to replant the forests which we consume. I note that the latest vogue is to call them ‘no regrets’ policies – certainly we should have none in putting them into effect.”

And let us not forget it was Margaret Thatcher who in 1990 committed Great Britain to reducing emissions by 2005 to a level no greater than 1990 and who as that commitment to combating climate change committed £100 million to sustainable tropical forestry. So so much for those who suggest that people in the Liberal Party or on the centre-right of politics more generally who support effective action on global warming are some how or another from the left.

If Margaret Thatcher took climate change seriously and believed we should take action to reduce global greenhouse emissions, then taking action and supporting and accepting the science can hardly be the mark of insipient Bolshevism.

Nonetheless, there is no doubt that many people are grounding their opposition to the Gillard Government’s carbon tax on the basis that climate change is not real and that the scientific consensus which supports it is not soundly based.

It is important to remember however that the rejection of the consensus scientific position on global warming, rejection of the CSIRO’s position on global warming, is not Liberal Party policy.

Quite the contrary. The Liberal Party’s policy is to accept the scientific consensus that the globe is warming and that human greenhouse gas emissions are substantially the cause of it. It is also the Liberal Party’s policy to take action to cut Australia’s greenhouse gas emissions such that by 2020 they will be at a level equal to 95% of their level in 2000. This is the same unconditional target adopted by the Rudd Government and the Gillard Government and pledged at Copenhagen.

That 5 per cent cut is not expected to single-handedly stop global warming but is a measured and prudent contribution to what needs to be a global effort to reduce greenhouse gas emissions so as to prevent, it is hoped, temperature rises beyond 2 degrees Celsius in the course of this century.

Having said that, it is undoubtedly correct that there has been a very effective campaign against the science of climate change by those opposed to taking action to cut emissions – many because it is not in their own financial interests – and that this has played into the carbon tax debate.

Normally, in our consideration of scientific issues we rely on expert advice. Agencies like the CSIRO or the Australian Academy of Science are listened to with respect.

Yet on this issue there appears to be a licence to reject our best scientists, both here and abroad, and rely instead on much less reliable views. Some of those less reliable views are from scientists – although most are not.

In an age where the Internet gives everyone the opportunity to be a broadcaster, you can find an opinion to support any proposition. If it doesn’t suit your interests to reduce the use of fossil fuels, there are plenty of blogs and articles online to support your self interest.

Some of this material online can be very embarrassing to rely on. A good friend of mine recently contended that the CSIRO were utterly wrong on climate change and he sent me a paper from what he understood was “a leading scientist in a leading journal”. As it turned out the paper was in journal published by the Lyndon LaRouche Movement and was written by a man who had recently served time in gaol for securities fraud. The only peer review to which his work had been subjected was, in fact, a criminal jury.

I might note for those unfamiliar with it, that the local wing of the LaRouche movement is the Citizens’ Electoral Council (CEC) an extreme, rightwing, racist organisation that I’m proud to say that the Liberal Party emphatically and invariably puts absolutely last in any how-to-vote form that we distribute.

These are the charming people who recently disrupted a scientific conference in Melbourne by threatening Professor Hans Schellnhuber, a leading European climate scientist in the midst of his lecture by waving a noose in front of his face and saying “Welcome to Australia”. Just think about that. What a wonderful welcome to Australia from these people.

Now my friend had spent much of his career drawing on expert advice in business, economics and science. He goes to the best consulting firms for his advice, the best law firm, the best accounting firm. And yet on a subject as important as climate change he has been taken in that was anything but the best. And needless to say he was a little bit embarrassed by it.

But this is not an isolated case. And I have to say this is like ignoring the advice of your doctor to give up smoking and lose 10 kilos on the basis that somebody down the pub told you their uncle Ernie ate three pies a day and smoked a packet of cigarettes and lived to 95. Now that is how stupid it is and we have to get real about supporting and responsibly accepting the science. And if we want to challenge the science, do so on the basis of peer reviewed work of which I have to say, there isn’t a lot on the contrary side of the argument.

And this is actually — this war on science and on scientists which is being conducted is much worse than the case of person who ignores his doctor’s advice and follows the advice of his friend down the pub, drawing on the life experience of the fortunate Uncle Ernie.

Because the consequences of getting our response to climate change wrong will not likely be felt too severely by us, or at least not most of us, but will be felt painfully and cruelly by the generations ahead of us. And the people in the world who will suffer the most cruelly will be the poorest and the people who have contributed the least to the problem. There is an enormous injustice here. When people try and suggest to you that climate change is not a moral issue, they are wrong. It is an intensely moral issue raising grave moral issues.

Those of us who do not believe the CSIRO is part of an international Green conspiracy to undermine Western civilisation or do not believe that leading scientists like Will Steffen are subversives should not be afraid to speak out, and loudly, on behalf of our scientists and our science. We must not allow ourselves to be deluded on this issue.

If you are a Liberal, as I and many others here in this room are, most of us are perhaps. If you are a Liberal, do not imagine that taking that position puts you at odds with Liberal policy – it does not. It does not. And remember too that if we form a Government in Canberra and then seek to meet that 5 per cent target through purchases of carbon offsets from farmers and payments to polluting industry to cut their emissions, the opponents of the science of climate change will be criticising that expenditure too as “pointless” and “wasteful” with as much vehemence as they are currently denouncing Julia Gillard’s carbon tax.

As Liberals, we have to stake our environmental case and our position on the right way to deal with climate change on the basis that we are supporting the science. That is our policy and we should not allow ourselves to allow people to imagine that it is not. In my view, we cannot afford to allow the science to become a partisan issue as it is in the United States where it appears that it is apparently no longer politically acceptable for any would-be Republican Presidential candidate to say that he or she believes that global warming is occurring and is caused by human activities. Now the change in the Republican Party is extraordinary. In the Presidential Election in 2008, John McCain, the Republican candidate, ran on a policy in terms of climate change that was only marginally different to that of Barack Obama. I mean, the differences were one of detail. And there has been an extraordinary swing, not against cap-and-trade versus direct action; not against one mitigation policy against another; but there has been a swing against the science and that is profoundly dangerous. Because we run the risk that we diminish the science, that we discredit the science and that of course is the ultimate justification for doing nothing about it.

Now not so long ago I was with a friend, a very long serving and distinguished Environment Minister from our region and we discussed the progress of the climate change issue globally. And he said that he thought that human selfishness and greed was so great that there would no effective action to reduce greenhouse gas emissions and that by the end of the century our planet would be uninhabitable for billions for people. And as he said that, I felt a chill going down my spine. I feared that he was right but my natural optimism reasserted itself and I thought to myself, ‘we are better than that’. We are better than that but you could not fault him in terms of his objectivity or realism.

Now let me just say this to you: The idea that our country, this great country of ours, can sail through a 3, 4 or 5 or more degrees rise in temperature this century with our prosperity and freedom, let alone the Great Barrier Reef, intact is very naïve. So this is a big issue. So in the storm of this debate about carbon tax and direct action and what the right approach to climate change should be, do not fall into the trap of abandoning the science. Do not fall into the trap of thinking that what Lord Monckton says or what some website says is superior to what our leading scientists or leading universities would say.

And I just ask all of you, many of you here, have had important dealings with the medical profession. Would you allow yourself, your own body to be operated on by some medical theory that you picked up on the website or would you seek to get the most highly respected specialist in the field to operate on you. We all know what the answer is. That’s what we do with our own bodies. What we’re talking about now is the future and the health of the planet.

Now I think an effective response to climate change does not depend on one mitigation policy or another being adopted. Different countries will have different views on what is the most cost-effective way to reduce and indeed so will different political parties and different political leaders. But we must not allow opposition to a particular policy to undermine or diminish our commitment to take climate change seriously and to work effectively both here and globally to ward off the avoidable consequences of global warming.

We also need to be very clear-eyed about what an effective global response to climate change requires. There are many calculations on the scale of emissions reductions required. But it is quite clear that to achieve the necessary cuts by mid century all or almost all of our stationary energy – and when I say our, I mean the world’s – will need to be generated from zero or near zero emission sources.

This could be renewables like hydro, biomass, wind, solar or tidal power. It could be geothermal power, it could indeed be nuclear power. But it will not be burning coal unless the emissions from that coal are captured in some form or other.

Australia generates most of its electricity from burning coal – much of it very emissions intensive brown coal in Victoria or South Australia. That is why our carbon dioxide emissions are among the highest in the world on a per capita basis – a reason why the Chinese (whose emissions are about one-fifth of ours) and the Indians (whose are less than one-tenth of ours) find our regular references to their emissions – and why should we do anything until the Chinese or Indians do something – why they find those references incredibly galling. Those of us, and David’s a member of this club with me, who have represented Australia at international conferences on this, know how incredibly embarrassing statements like that are when you actually confront the representatives of those countries.

We are also the world’s largest coal exporter – we have 19% and 58% of the global trade in thermal and metallurgical coal respectively. In 2009, thermal coal exports were worth $18 billion, and metallurgical coal exports worth $40 billion.

Some people would say, I trust that most would not, that as we have a vested interest in coal being burned we should oppose action on climate change and rather like the tobacco companies who sought to discredit the connection between smoking and lung cancer muddy the waters on climate science in order to prolong the export billions from coal mining.

Others might say that we should not be troubled by the long term prospects for coal because we have abundant resources of the alternatives – gas, the least emissions intensive fossil fuel, uranium, geothermal power and, of course, plenty of sunshine.

A more responsible approach would be to encourage the development of those alternatives at the same time as we promote and develop technologies to capture CO2 emissions from coal burning – whether that is by pumping it into the ground or by turning it into other useful products.

Indeed many would say that no country has a greater vested interest in clean coal than Australia.

And yet I regret to say to you that neither the Labor government led by Julia Gillard – who is a woman fond of a hard hat, I must say – nor the coal industry itself have shown much enthusiasm for investing in Research and Development or trials for Carbon Capture and Storage. In fact funding has been cut again as part of the recent carbon tax package.

A handful of large firms dominate production of thermal coal and coking coal. BHP, Peabody, Rio Tinto, Anglo-American, Xstrata, Wesfarmers. The operating earnings generated from thermal coal production alone are not easy to estimate, but they may approach $10 billion in good years. There is plenty at stake at both the level of producers and export earners, not to mention the taxes they pay along the way for there to be a critical mass of parties with the motivation and resources to move on carbon capture and storage.

Now one of the most dispiriting parts of Professor Garnaut’s updates was his analysis in volume seven on carbon capture and storage. Essentially he said work had come to a halt in 2008 and no technical progress or commercial pilots of significance were apparent. The estimate of coal capture and storage adding 40-plus per cent to the cost of coal-fired electricity was about the freshest fact on the page.

One need only look at the vast expansion of new investment in coal-fired generation underway in China, India and elsewhere to understand the importance of this issue. Carbon Capture and Storage isn’t just about saving Australia coal exports or generation capacity. It is about addressing the reality which the MIT study on the future of coal baldly stated as long ago in 2007: “We believe that coal use will increase under any foreseeable scenario because it is cheap and abundant.” Now if it increases and emissions increase and the science is right, the Reef is finished. And that is a very small part of it. So this is a very serious issue and it is remarkable that with all the rhetoric about the need for action from the Gillard Government, the single most important area of research and development, the one that is arguably the most important in terms of the world’s future and most certainly most important from the point of view from our own economy, is being neglected.

So the commercial feasibility and large-scale deployment for Carbon Capture and Storage is the only way – in the absence of some great technological shift, and you won’t find me discounting that, I’m a great believer in the disruptive power of technology – the world has any chance whatsoever of achieving the cuts needed to get to the 60 per cent or 80 per cent 2050 targets that leaders have committed to.

The thermal coal industry and the Gillard government both know this. So how should Australians interpret their disinterest in this technology? As an acknowledgement that Carbon Capture and Storage doesn’t work and is too expensive and hence thermal coal is finished? Or a sign they don’t ever expect to be answerable for those 2050 targets? I fear that is probably the answer.

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The Coalition plans to install 273 solar panels per day. Really.

It'll never happen.

Shane Wright of the West Australian examines its Direct Action Plan:

Australia has had 21 years of direct action to tackle climate change. And, in all but one case, it has been failure after failure.

In 1989 Bob Hawke pledged to plant 1 billion trees over the coming decade as part of an effort to improve the environment.

It’s a good starting point for the history of direct action.

What could be wrong with planting trees?

They make us feel good, they consume a lot of carbon dioxide, they stabilise the soil and they also reduce the air temperature around them.

But, more importantly, did all those trees make a substantial difference in cutting our greenhouse emissions?

Ultimately, you can talk about feeling green and doing our bit but unless the policy is working it is just empty rhetoric that comes at a cost borne by the taxpayers of the country.

Since Mr Hawke wandered around the country urging us to plant trees there have been a host of government efforts to improve the environment and cut greenhouse emissions.

Here’s the bottom line.

Since 1990 Australia’s greenhouse emissions have climbed (by about 6 percent) and are on their way to being about 30 percent higher by 2020.

According to the Grattan Institute, an independent think tank based out of Melbourne which has looked at this issue, the Federal and State governments have tried more than 300 emission reduction policies and programs since 1997.

There’s plenty of evidence available of what works and what doesn’t, of what gets some bang for its buck and what should be dumped because it’s hurting taxpayers and doing nothing for the environment.

One of the key elements of Tony Abbott’s "direct action" is a tendering process for farmers to sequester carbon in the soil...

More than half of the cut in emissions he promises under a coalition government come from this process at a fraction of the cost of a carbon tax (although how it would be monitored and policed is left out).

This is the track record of tendering processes to achieve environmental outcomes in this country.

"Analysis of a range of grant-tendering programs – involving $7 billion in budget funding – shows that they cannot reduce emissions at the necessary scale or speed," the institute’s economists and analysts found.

"On average, for every million dollars the government commits to such schemes, only $30,000 of operational projects result within five years and only $180,000 within 10 years.

"Based on experience, government would need to announce an abatement purchasing fund of $100 billion to meet the 2020 emissions reduction target."

Governments have channelled $5 billion of our money into rebate programs.

They were found to have produced "relatively little" and, to achieve the bipartisan goal for 2020 emissions, would require spending another $300 billion over the coming decade.

Grattan also reviewed energy efficiency standards.

We’ve got energy efficiency stickers on our fridges, dishwashers and big screen TVs, our homes are rated on energy efficiency. Surely it must be working?

Not really.

"Because they are limited in scope and slow to take effect, they cannot play more than a support role in meeting the 2020 targets," the institute found.

One of the Abbott direct action plans is to put "one million additional solar energy roofs on homes" by the end of this decade.

To do this the Government would offer an extra $1000 rebate for either solar panels or solar hot water systems, with a cap of 100,000 rebates a year.

Straight off there’s that rebate issue that worried Grattan, while the thought of 273 roofs getting covered in panels or homes getting solar hot water systems a day, every day, for a decade should worry anyone who watched the home insulation program.

The coalition’s policy document cites a California program of a similar nature as the genesis of this policy.

Which is good, because the Productivity Commission this year had a look at the California program and found the cost of abatement was between $305 and $651 per tonne of carbon dioxide equivalent.

So there’s the choice between letting the public find a solution at $23 a tonne and a government initiative that will cost between 13 and 28 times more.

Sounds a bargain.

Indeed, it looks like the only real success story on the direct action front has been in land clearing.

On that front, an effective ban on native land clearing – which heavily affected Queensland – is the only thing that has stopped Australia’s greenhouse emissions going through the roof.

Emissions from deforestation have fallen from 132 million tonnes back in 1990 to 49 million tonnes expected to average through 2008 to 2012.

But that ban has not been priceless.

Talk to any farmer who has had this fundamental right to do what they like with their land and you’d get a clear picture of the costs involved.

Governments of all persuasions took away a property right from a group of Australians and did not pay them for it.

To put it bluntly, the farmers and regional communities of this country were ripped off.

The Productivity Commission looked at the various bans on native vegetation clearing back in 2004 and delivered a scathing assessment.

"At their most basic, these effects have involved a reduction in the area of land available for agricultural production. But often they also have imposed significant restrictions on the normal operations of agricultural enterprises, preventing many landholders from implementing innovation in technology and farming methods and increases in scale necessary to achieve the productivity improvements required to remain viable," it reported.

"In the longer term, the entry of new younger farmers is likely to be discouraged because of the significant restrictions on any development of new or existing properties which involves clearing native vegetation."

In fact, both the PC and Grattan have recently found that about the best performed, and cheapest, program in this country to have emerged to cut emissions has been the NSW and ACT Greenhouse Gas Reduction Scheme.

Not surprisingly, it’s a market-based system which penalises power companies for not cutting emissions.

It puts a price on emitting carbon – something almost every "direct action" program goes out of its way to avoid.

Two decades on from Bob Hawke and his trees, governments of all persuasions have gone out of their way to find a magic bureaucratic bullet to cut Australia’s greenhouse emissions.

The one shot that delivered, banning the clearing of native vegetation, has come at a cost that most of us choose to ignore.

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Thursday, July 21, 2011

Two Americas - the mobile phone traffic graph

Thank you Boing Boing and thank you AT&T

I would love to see one for Australia.


Wednesday, July 20, 2011

The things people FoI. Treasury electricity use.

Yes, really.

The figures show Treasury uses green power and has cut its electricity use..

Part of it would be quieter times after the GFC. Treasury burnt a lot of midnight oil during 2008/09.

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Tuesday, July 19, 2011

"Economists are not like dentists"

So what are they like?

Concluding remarks from William Coleman at Thursday's Public Policy Symposium:

This Symposium has asked, ‘Is Public Policy Getting the Economics it Deserves?’ The answer that is implicitly presumed is (surely) “No”. But we are missing the point if we think that the frank badness of policy in contemporary Australia is sufficient for the answer. For the question is directing us - not to whether policy is good or bad – but how much good could economics do for policy; what is the most that policy could get out economics? And how might that ‘most’ be realized? Briefly, how is economics to be turned to good effect?

Both the broader public and policy elites share the same answer: economics is to make itself useful by providing experts to provide remedies to ills. In this position it is implicitly supposed that economists have access to some terrain of knowledge that is useful, objective and complex - the kind terrain that is the natural habitat of the ‘expert’- and the task of the economics expert to master and cultivate this terrain, and offer up its fruit in the form of policy advice and conduct. In this answer, economists might be compared to agronomists, or, to use Keynes’ comparison, to ‘dentists’

Here I will part from many in our assembly, and assert that this vision of the economist as the expert is badly wrong.

Why? For two reasons.

First, economists simply don’t have the grip on the quantitatively calibrated counterfactuals that are requisite for any reliable repertoire of remedies.

What economists know is highly conditioned, ‘partial’ propositions ,that freeze the operation of most of the economy by ‘ceteris paribus’ clauses. To put it another way, economists can shine a lamp on some parts of the economic machine, but most of the machine, in all its baroque intricacy, is wrapped in gloom. Thus all attempts to predict the response of the machine are fraught. Our difficulty in predicting this machine is compounded by the fact that economic system is integrated a still more mysterious political- economic system. These ‘general equilibrium’ behaviors of this system will mock any aspirations to control it.

The upshot is that we have little “how to” knowledge – which is the surely the adjunct of the acme of knowledge - but posses only a lesser order of knowledge: a “what” knowledge...

Economists can correctly distinguish things, they can rightly say what they are, and what they will become. (‘this is cost; this is a burden; this is a waste’). In medical terms, economists’ knowledge is diagnostic and prognostic, but not therapeutic.

So where does this leave the usefulness of economists?

First, let’s grant that prognosis and diagnosis, even the absence of therapy, are not wholly ‘useless’.

Second, even in the matter of therapy, there is a usefulness of the Socratean wisdom that we know that we don’t know. Economists, in other words, can be useful in the way medicine was most useful before the 19th century; by discrediting quacks, and the false and destructive hopes of their quack remedies.

But despite these two uses, the position I have outlined above appears to imply a quietism that is extreme and intolerable. Is there really no failure (either government failure or market failure) that is so egregious that economists cannot claim to know of some action that would be improving? To put the point more concretely, is there is no policy that so idiotic that economists cannot be said to know that its abolition will be for the good?

Here I have to concede; of course, there are such egregious failures, of course there are such idiotic policies. But I concede without inconsistency, because the kind of cases which irresistibly illustrate those egregious failures are ‘local’ in domain (rather than macroeconomic or ‘paneconomic’ in domain) so that the general system effects that mock our aspirations to control can be safely ignored.

So, yes: with such local egregious failures let’s identify them, deplore them, and crave their disappearance. Let’s do all this, quite sensibly, in the role of the social critic. But let’s not do this in the expectation that what we have to say will absorbed as ‘advice’.

For there is a second deficiency in the vision of ‘economist as dentist’. That vision assumes a dyadic relation: dentist and patient. But in the matter of policy advice the critical relation is (at least) tripartite; the public, economists, power elites. The critical point is that our power elites so ‘impoverished in consciousness’ there is incoherence in expecting our knowledge to be heeded. It is a bit like recommending to a lunatic Benjamin Franklinesque precepts of rational self-management. Or explaining to a thief the benefits to all of everyone observing an honesty box system. There is an incoherence here; if the advice was ever going to be listened to it, wouldn’t be needed in the first place.

I conclude that to hopefully advance our knowledge as ‘advice’ is a bit late in the day; it is trying to dispose of symptoms without dealing with the pathology. We have to go back a bit, or a bit further down. In that respect I will not pin any hopes on formal economics education; we have plenty of that, and what good has it done us? It is a sobering, even melancholy, exercise to enumerate the MPs with formal economics education in the current federal parliament. It is not the fewness that depresses, but the very number, and the particular individuals who can make the claim.

What the political elite is needs is not the drilling in some abstract curriculum, but ‘enculturation’ or even ‘socialization’. So I will conclude by exploring the suggestion that economics can makes it useful through economists constituting a socialising weather system in an otherwise hostile climate.

Socialization is a thing done in informal groups; it is not something that happens to you by reading a book, or by undertaking a qualification. It is often seen as a hierarchical process (from old to young), but has important elements of mutuality.

Think of economists, then, as comprising a group, with a degree of hierarchy (or gradient); at the apex are performers, descending to audience, and then to mere onlookers and passers by. The performances of the performers span the written word, the spoken word audience, the Facebook micro blog and the Twitter tweet. The audience and onlooker receive an impress from these performances. But at the same time the performer is also receives an impress from the reaction of the audience, and even from passers by. There is also a dynamism; there is a percolation inwards as some of the audience join the performers. More importantly, there is a dynamic in the opposite direction, as the passersby pass by, and soak into the wider world bearing their impress; and so silently and tacitly shape the ways of the wider world, and enrich that impoverished consciousness.

The ‘group’ in the above scenario is obviously not an arbitrary aggregate of individuals, but a community. The Economic Society of Australia is the leading example of such a community, and today’s Symposium exemplifies the process I have hopefully described.

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Monday, July 18, 2011

Multi-speed or two-speed, NSW looks sick

NSW is vying with flood-ravaged Queensland for the bottom spot in the latest CommSec economic league table, slipping below previously weak states such as South Australia and Tasmania.

The quarterly report puts the NSW economy last or near last on most of the measures assessed by the stock broker, and a narrow second-last to Queensland overall.

“Queensland has been hit by once in a generation floods and cyclones. It is understandable that it is struggling,” said CommSec chief economist Craig James.

“But for NSW the problems are deeper. Nearly every other state has had something to propel growth, whether it be housing in Victoria and the Australian Capital Territory or mining in Western Australia. NSW has weak on planning, weak on delivering infrastructure to the places that need it, weak on building railways to the houses that will need them. There is a new government in place now and there should be no excuses.”

The CommSec table puts Western Australia in number one position as the best economy, with the Australian Capital Territory in second place.

The table measures performance relative to historical averages rather than absolute performance... a methodology that disadvantages traditionally strong states such as NSW.

“We are trying to find how each economy is performing compared with its normal,” said Mr James. “Just as the Reserve Bank does with interest rates, we have used decade-long averages to to decide what is normal.”

NSW is at the bottom of the pack when its economic growth is compared to its decade average, with growth just 9 per cent higher. Western Australia’s is nearly 30 per cent higher. NSW is near the bottom of the pack on retail spending with current spending 12 per cent higher than the decade average compared to 22 per cent for Western Australia.

For home building NSW is 17 per cent below the decade average whereas the leader, the Australian Capital Territory, is 80 per cent above it.

“NSW has not had a government focused on these things. Victoria, now in third place, could soon climb to the top. You have to ask why Victoria, why not NSW and the answer has to be NSW needs to be focusing more on getting people coming in to the state, keeping down the cost of living and keeping down the cost of housing.”

“The new government does want to do that but people want to see results. They are what it will be judged on.”

Treasurer Wayne Swan acknowledged Sunday parts of the economy were weak.

“We are seeing out there a cautious consumer but the fundamentals underlying our economy are strong,” he told Network Ten. “We have the strength to withstand adverse international events, although we are not entirely immune from them.”

Published in today's SMH and Age

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Saturday, July 16, 2011

Carbon Tax. When we Google, we are more interested than concerned.

We might be angry about the carbon tax at Tony Abbott’s public meetings, but on the internet we don’t seem to mind.

Google has taken the unusual step of releasing details of the exact terms used in web searches related to the tax in the days immediately following Julia Gillard’s announcement.

Of the 16 most-asked questions none suggest resentment.

The most popular were: “what is carbon tax,” “what is the carbon tax,” “how will the carbon tax affect me” and “what is the carbon tax and how does it work”.

Of the 17 most-entered search terms not phrased as questions only the least popular, “no carbon tax” suggests anger.

The most popular were the more straightforward “carbon tax,” “carbon tax Australia,” “carbon tax website” and “carbon tax explained.

Displaying on a screen what he said was normally internal Google data the firm’s US-based chief economist Hal Varian told a policy forum in Canberra governments might one day be able to use such information to know instantly the questions the public wanted answered and where their concerns lay.

The search queries paint a picture of a nation hungry for information but far from alarmed.

In the days leading up the Sunday announcement there were very few queries relating to the carbon tax and then an explosion of interest which died away to something like five times the normal number of queries by Wednesday...

The most interest was in the Australian Capital Territory, home of the government and public servants, followed by Tasmania. The least interested Australians lived in NSW, Victoria and Western Australia, devoting half as much web search time per person to the carbon tax.

The forum declared so-called “direct action” approaches to fighting climate change the runner up in the annual Economic Society of Australia Dodgy Awards for the worst use of or most callous disregard for economic research.

Judged by former Competition and Consumer Commission Chairman Alan Fels on the strength of boos and cat calls after a series of presentations, the most dodgy project was declared to be the national broadband network, on account of both the paucity of economic analysis supporting it and its cost.

Published in today's Age

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Friday, July 15, 2011

Rates down. 100 points. What Westpac said:

"We now expect a sequence of rate cuts beginning with 25bps in December 2011
and through 2012 totalling 100bps prior to a period of steady rates in

While the catalyst for the first rate cut is likely to come from offshore
we do not expect it to be a one off. Interest rates are too high in
Australia given the state of the non-mining sectors of the domestic economy
and a downward adjustment is required to avert a damaging round of
contraction. This rate adjustment is likely to take a similar form to
previous easing cycles.

Whereas previous easing cycles had been associated with major collapses in
housing and business investment the key driver in this cycle is likely to
be an excessively weak consumer. We have lowered our growth profile for
consumer spending in 2011 from 2.6% to 1.2% and for 2012 from 2.8% to 2%.
With some associated dampening of housing and investment plans (outside
mining) growth in domestic demand has been revised down from 3.8% to 2.5%
in 2011 and from 4.5% to 2.7% in 2012.

The unemployment rate is expected to rise from 4.9% in June 2011 to
5.5-5.75% through 2012.

We have not made material adjustments to our expected profile for the AUD.
We already expect an 8–10 big figure fall in the AUD through to mid 2012.
Note that the first stage of the rate cycle we now envisage has recently
been priced into the market .

Modest changes in interest rate differentials are considered to be much
less important than our global growth view and the outlook for the USD.
Adjustments to those views are broadly offsetting. Heightened concerns
about the impact of financial market turmoil on global growth are largely
offset by our decision to "bring forward" the timing of QE3 in the US from
the second quarter of 2012 to the first quarter. That event (and its front
running by the markets) will have the AUD stronger than it would otherwise
have been if the RBA were easing unilaterally."

Westpac's New View