Friday, September 28, 2012

The Truth, Finally!

Have you noticed how our overlords' discourse is becoming more candid lately?

First, it was mega-rich Gina Rinehart quoted as describing her fellow Australians as a bunch of lazy, drunk, envious whingers.

Then American right-wing presidential hopeful Mitt Romney with his 47% remark: "My job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

More recently it was British former banker and conservative MP and Government Whip Andrew Mitchell's turn. According to the official logs of police officers in Downing Street, after asking Mitchell to dismount his bike and use the pedestrian gate, instead of the vehicles-only one, this is what happened:
"There were several members of public present as is the norm opposite the pedestrian gate and as we neared it, Mr Mitchell said: 'Best you learn your fucking place ... you don't run this fucking government ... You're fucking plebs.'
"The members of public looked visibly shocked and I was somewhat taken aback by the language used and the view expressed by a senior government official. I cannot say if this statement was aimed at me individually, or the officers present or the police service as a whole.
"I warned Mr Mitchell that he should not swear, and if he continued to do so I would have no option but to arrest him under the Public Order Act, saying 'Please don't swear at me Sir. If you continue to I will have no option but to arrest you under the public order act'.
"Mr Mitchell was then silent and left saying 'you haven't heard the last of this' as he cycled off."
Unfortunately for PM David Cameron, who is trying to improve the Tories' chronically bad image, the incident received wide publicity: "After a dressing-down from Mr Cameron, Mr Mitchell apologised."

----------

A few years ago, all of this would have been pretty much unthinkable. Nowadays, it's becoming commonplace.

Commenting on the Mitchell affair, The Daily Telegraph (UK) columnist Janet Daley (who "moved to Britain (and to the Right) in 1965 where she spent nearly twenty years in academic life before becoming a political commentator") says:
"Time to tell the truth about the 'nasty' party: as someone who has defended the Conservatives (or at least defended their arguments) for so many years, it is time to come clean. (...) The Andrew Mitchell Debacle is not an uncharacteristic, deranged and inexplicable lapse. It is just an extreme example of the kind of attitude with which many people who circulate in this world are familiar".
Apparently, Daley thinks Tories should try changing their ways.

Australian arch-conservative columnist Gerard Henderson, at the other hand, argues that incidents like these are being deliberately magnified by the sinister and manipulative "left-liberal" contemporary Western media, suggesting that a more ideologically adequate media would treat things in a more favourable way.

And referring specifically to Romney's remark, Henderson says:
"Sure, Romney's message was expressed in a clumsy manner. Moreover, he forgot the modern rule of politics that no event can ever be regarded as truly confidential. Yet Romney's essential problem is that he said what should not be said. According to, that is, the left-liberal consensus that prevails in much of the contemporary Western media".
I can't speak for the Western media, of course, but I for one thank Rinehart, Romney and Mitchell for expressing their true views with honesty.

No need to apologize (as Mitchell was forced to do), to act nice (as Daley seems to ask), or to mince words and be discreet (as Henderson apparently recommends). Speak your "inconvenient truths" freely.

Thursday, September 27, 2012

Show me the Money!

"An artificial mirage (...) This simulates
an atmosphere with two inversion layers." [A]

"Coal baron Nathan Tinkler has lost AUD2 million a day over the past year, according to BRW, and now ranks second on the Young Rich [Australians] List with a fortune estimated at AUD400 million." (See here)

And he is not the only extremely rich bloke to become slightly less rich in the past few weeks. About two weeks ago, mining billionaire Andrew "Twiggy" Forrest reportedly lost AUD500 million in one day, 330 of them... "in less than an hour". (See here)

How could this have happened?

After all, according to the free-market cult, rich people are rich because they work hard and are smart. Did these two very rich guys suffer a sudden mental breakdown? Did they just remain in bed longer than usual?

Clearly, not. If you are one of their fans, you can relax.

Or, were they robbed by a bunch of moochers and looters? I couldn't see anybody running around with bags of money, so I'd say it wasn't that, either.

I know! Maybe it was somehow that nefarious bearded dead German philosopher's doing? After all, the mere mention of his name keeps Murdoch "journalists" and their Pavlovian readers awake at night. You see, he's "Evil I tells ya. Eeevil!", and to be blamed for pretty much everything, from dandruff and belly-ache to the Holocaust, but not even He-Who-Must-Not-Be-Named can come back from the grave...

To me, what did happen wasn't much of a mystery or a drama. The mining machines didn't simply rust and fall to pieces overnight; the metallic ore and the coal veins didn't just disintegrate as in a sci-fi movie: they are still there, as they have been for hundreds, maybe thousands, of millions of years.

It was just that commodity prices sometimes go up, sometimes go down. They were inflated, and then they deflate.

But wasn't all that wealth destroyed in a matter of hours?

Think about it. Did any real wealth disappear? No. What was "destroyed" never had a physical existence, in the first place. It existed in paper only: it was an accounting mirage. It was virtual.

Michael Hudson has written about this kind of things. This is how our fearless leaders think, according to Hudson:
"Shifting planning to the financial sector [aka economic rationalism] and privatizing public enterprise on credit creates wealth by inflating asset prices".
Sounds familiar?

And, what is a free market, for Hudson?
"A free market is one free of unearned economic rent, including interest and financial fees, monopoly rent and resource rent."
Here, I don't fully agree with Hudson (capitalist markets exist to exploit one unearned income: surplus value), but he's not that far off the mark.

----------

On second thoughts, maybe the dead bearded German philosopher is smiling in the other world.

Image Credit:
[A] "Mirage experiment..." Wikipedia. By Shy Halatzi. File licensed under the Creative Commons Attribution-Share alike 3.0 Unported. My use of the image does not imply the author's endorsement of it.

Wednesday, September 26, 2012

The Exorcism of Adam Bandt.

Or Red-Baiting Down Under

Medieval book illustration of Christ
exorcising the Gerasenes demon. [A]

OMG! Thank God for The Herald Sun rediscovering (Sunday, September 23, 2012) what The Australian had already discovered in 2010 (August 28) and what the other Murdoch "journalists/newspapers" will surely keep periodically rediscovering in the future.

Brace yourselves, dear readers, for this earth-shattering revelation:
"The former teenage Marxist [Green MP Adam Bandt], who confesses he once described the Greens as 'bourgeois', has revealed the stunning conclusion to his 300-page epic is that Marxism did not offer 'a proper explanation for what was happening in 21st century society'.
"He completed the thesis four years ago in 2008, but requested university officials impose a three-year ban on anyone reading it."
And that proves that Bandt, is... a cripto-Marxist!

Don't believe me? Check this out:
"Amazing! The very fact that these believers actually close their eyes to the very fact of how the general population lives [sic] in Russia, not to mention all the other countries they have occupied and destroyed their economys! [sic] Sprout your wisdom after you lived under them, not for long, just 3-5 years or so! [sic]". (Eva Balogh of Melbourne, posted at 11:59 AM September 23, 2012. Comment 15 of 16. Comment thread to The Herald Sun's "exposé")
Call an elite team of exorcists!

----------

I am sure this has nothing to do with another recent revelation involving punches against a wall, a lost election and other youthful indiscretions.

For another related Murdoch media chilling revelation, see here.


Image Credit:
[A] Healing of the demon-possessed. Wikipedia.

Saturday, September 22, 2012

Who Creates Wealth? (II)

In the previous post in this series, I quoted Ayn Rand's views that wealth is at least a close correlate to talent or hard work.

Today I intend to show why, under capitalism, wealth is a reward to property, independently of talent, hard work or creativity.

----------

A few weeks ago, according to reports by Reuters and Bloomberg:
"Apple became the most valuable public company of all time after its market value climbed beyond $US620 billion to surpass a milestone set by Microsoft more than a decade ago.
"Its shares were up 2.3% at $US662.73 in overnight trade (...)". (See here)
Click for a larger version. [1]

The chart above traces Apple Inc. (AAPL) market-close share price since September, 1984. All that time, within the US and abroad, assembly workers assembled gadgets, mobile phones, computers. Industrial designers, designed; computer programmers, programmed. They contributed anonymously to the production with their physical and mental efforts and were paid for it. They pulled their own weight, so to speak.

Stuff was sold; profits made and cash dividends were distributed.

According to Yahoo Finance, this was AAPL price in September 7, 1984: USD26.50 (adjusted for dividends and splits). This was the price in August 14, 2012: USD631.69. [1]

A shareholder (or capitalist, if you prefer) who held AAPL stock since September 1984 did not do anything: did not assemble a single machine or write a single code line, didn't design anything. No hard work, creativity or talent flowed from the shareholder to the firm.

If she bought the share in the secondary market, inherited it, or somehow acquired it from an original capital subscriber (say, won it in a raffle), she did not contribute to the initial capital, either.

What about "entrepreneurship"? Assuming one accepts entrepreneurship as a potential justification, an individual's ownership of AAPL stock cannot be said to improve the quality or quantity of the gadgets produced, neither it influences their method of production or variety. [2]

Moreover, shareholders, as such, don't need to go near the firm they partly own, know what is it they do, or for that matter, even breathe: institutional investors, for one, can't do those things and they are shareholders in the exact same sense human shareholders are.

And yet, every shareholder gained from holding that share: USD26.50 (the price of a single AAPL share in September 7, 1984), adjusted for inflation, is equivalent to USD58 to 60 in August 2012. The close price of USD631.69, represents a capital gains of at least 950% over the original investment. [3]

It's hard to see what kind of contribution shareholders, in their capacity as shareholders make to the productive process, even taking into account "entrepreneurship". The only justification shareholders (breathing or not) need to profit from their ownership of shares is ownership itself.

----------

Note that I am not making any value judgement. I am not saying this is good, or should be otherwise. The reader is free to decide.

Some readers, however, are likely to oppose this scenario on several grounds. A common objection, for starters: let's leave aside institutional investors and limit the discussion to breathing human shareholders; these shareholders, the objection would go, may deserve their gains, no longer as reward for hard work, personal talent or creativity, but due to other personal virtues.

Incidentally, formulated that way, that is a moral objection, not that there's anything wrong with that. But it's important to call spade a spade.

To keep this post as short as possible, that and other objections will be considered in the coming weeks.

----------

Readers are invited at all times to submit their questions, to offer their own original objections and comments. Please, however, check the Comments page before posting.

Notes:
[1] Yahoo Finance: APPL
[2] The topic of entrepreneurship has become popular in the last few decades. To this day, however, the notion of entrepreneurship is contested even among mainstream economists and for good reasons: how do we define and measure it?
[3] Source: BLS. Series ID: CUUR0000SA0

Thursday, September 20, 2012

Scullin, Gillard and Reincarnation.

"Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce". K. Marx

James Scullin and Julia Gillard. [See image credits]

Check this out:
"The treasurer and the International Monetary Fund are at odds over whether the budget should return to surplus this financial year.
"The fund has used its latest report on Australia to raise the prospect of abandoning the planned surplus, saying the authorities had 'scope to delay their planned return to surplus' should the economic outlook deteriorate sharply.
"The treasurer, Wayne Swan, will tell a business breakfast in Sydney today he intends to return to surplus regardless, saying although the task 'is made harder by a fall in commodity prices', a surplus is 'still our best defence against the current global economic volatility and sends a clear message that we are committed to responsible fiscal policy'."
(See here)
And this.

----------

Do you believe in reincarnation?

Images Credit:
James Scullin. Wikipedia. Image source page.
Julia Gillard. Wikipedia. File licensed under the Creative Commons Attribution 2.0 Generic license. My use of the image does not imply the author's endorsement of it.

Poverty and Exploitation.

"They are at our mercy right now. They have to have a place to stay."

The logic of capitalism, explained by a capitalist: if you have money, you'll make millions, because "they are at our mercy right now".
----------

Thomas B. Edsall, professor of journalism at Columbia University, commenting on the work of Matthew Desmond, associate professor of sociology at Harvard, refers a conversation between Desmond and a Milwaukee slumlord (going by the pseudonym of Sherrena Tarver):
"At the height of the housing collapse, Tarver saw an opportunity. 'This moment right now,' she told Desmond, 'it's going to create a lot of millionaires'. 'You know, if you have money right now, you can profit from other people's failures. (...) I'm catching the properties. I'm catching 'em'." (See here, h/t Occasional Links & Commentary)
Edsall also quotes Desmond as asking:
"How different our theories would be - and with them our policy prescriptions - if we began viewing poverty as the result of a kind of robbery".

----------

I suppose it takes a sociologist and a journalist to do economics competently and to show us how utterly banal and childish mainstream economic theories are.

Economists should read the NYT piece.

Update:
21-09-2012. Peter Martin reporting on a related topic in Australia:
"From today..
"Newstart up $2.90 per fortnight to $492.60
"Pensions up $17.10 per fortnight to $772.60
"Department of Families Community Services and Indigenous Affairs, maximum single rates."
(See here)

Wednesday, September 19, 2012

Who Creates Wealth?

So, who actually creates wealth?

If you believe Ayn Rand, talented people, and only talented people, do. For her, talent and wealth are equivalent in a logical sense: if you have wealth, that's because you are talented and you deserve it. If you have talent, you'll be wealthy and rightly so.

And if by accident you are born into riches, but had no talent, soon enough you will lose them and become poor.
 
In other words, wealth and talent/creativity/hard work are at least close correlates.

The fact, however, is that only a tiny minority are wealthy and getting wealthier, while the majority either stay put where they are, or go backwards. From today's news:
"Technology titan Bill Gates has been listed by Forbes magazine as the wealthiest American for the 19th year in a row, with a fortune of USD66bn (GBP41bn), up USD7bn from last year.
"There was no change in the order of the top five richest from a year earlier.
"The total wealth of the US super-rich grew 13% to $1.7tn, with the top 400 worth an average USD400m more in 2012.
"The group's assets are worth as much as one eighth of the US economy, and grew much faster than the economy at large."
(See here. Emphasis added)

Why is it a few go places, while growing numbers of others go nowhere? Clearly, in Rand's view, because the latter lack talent/creativity or don't work hard enough. Gina Rinehart was recently quoted for saying as much:
"Australia's richest person, Gina Rinehart, has issued a stern rebuke to those jealous of the wealthy: start working harder and cut down on drinking, smoking and socialising." (See here)
Bottom line: if you have no wealth, you have no talent; then, at best, you are an honest but unthinking brute; at worst, a lazy moocher or a dishonest and envious looter:
"Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. (...)" (Ayn Rand, Atlas Shrugged. Francisco D'Anconia's speech. See here)
In any case, you depend on the wealth the wealthy few create and you should be grateful for whatever scraps fall from their table: you survive on that.

While the previous quotation describes a fictional monologue, one can find eerily reminiscent, if more subtly expressed views in real-life (emphasis added):
"(...) You cannot have a strong economy without profitable business because only profitable business can invest; only profitable business can employ and without investment and without employment there is no strength, no bonds of cohesion. The social fabric unravels and this is what the Prime Minister and the Treasurer don’t understand. Success is good. We should be grateful to people who put their houses on the line so that others can be employed". (Federal opposition leader, Tony Abbott. See here)
Moreover, even if the brute/moocher/looter bit is yet to become popular, the notion that wealth, financial success, and talent/hard work are inseparable is seldom disputed: "if you are so smart, why ain't you rich?"

Ironically, even those claiming to oppose these views end up endorsing them in a slightly weaker form (emphasis added):
"We are all wealth creators, and the inference that small business owners, union members, the low-paid, the poor, the old and the ill have no legitimate voice in our economic debates, and have no right to share in our national wealth, is one that I'll fight to my last breath." (Treasurer, Wayne Swan (Labor), here)

In the next few posts, as time permits, I will attempt to challenge those views.

In doing so, I will try to shed light on the question "who creates wealth" by identifying who do not create it, because (and in this Rand was right) not all of us are wealth creators. I will also suggest who do.

Monday, September 17, 2012

Reality and Make-Believe.

[A]

Last week was a busy one for journalists in Australia.

It began with Federal opposition leader Tony Abbott being accused of physically threatening and verbally bullying political opponents during his university days:

"He [Abbott] approached [progressive opponent Barbara] Ramjan. She thought he was coming over to congratulate her. 'But no, that's not what he wanted,' she recalls. 'He came up to within an inch of my nose and punched the wall on either side of my head'.  Thirty-five years later she recalls with cold disdain what he did. 'It was done to intimidate.' Abbott tells me [former Fairfax Media journalist David Marr] he has no recollection of the incident: 'It would be profoundly out of character had it occurred'." (See here)

The news generated controversy. Predictably, Abbott's supporters were quick to cast doubt on it (initial response by Christopher Pyne -Coalition MP -, conservative columnist Gerard Henderson's response); unexpectedly, however, barrister David Patch came publicly forward in support of Ramjan's allegations. Apparently, Patch was prompted by Henderson's piece.

After a week in the sidelines, Abbott formally reiterated the denials Marr reported previously:

"Fronting the media yesterday for the first time in almost a week, Mr Abbott sought to reconcile his previous statements that he could not recollect the incident and that it never happened. 'How can you recall something that never happened?' he said.
"He did admit to another allegation - that after Ms Ramjan became the SRC chairman and asked to be known as chairperson, he called her 'chairthing'.
" 'There were lots of silly, embarrassing, childish things done in student politics and I wasn't immune to that,' he said.
"Mr Abbott denied the wall-punching allegation and claimed the matter had been dredged up by a Labor dirt unit."
(See here)

----------

Last Tuesday, QLD premier Campbell Newman (Liberal National) unveiled his first state budget. Newman announced his plans to slash state payroll by 14K positions and increase mining royalties by AUD1.6bn over four years. (See here)

Both announcements were unpopular among those directly affected (for state public servants' reactions, see here)

Among miners, supposedly affected by the increase in mining royalties, one of the most vocal critics was gazillionaire Clive Palmer, who is also a major donor to the Liberal National Party (QLD's equivalent to the federal Liberal /National Coalition).

Palmer, who 3 years ago claimed credit for Kevin Rudd's removal from the Prime Ministership, had this to say about Newman:

" 'Well I'd be very surprised - if he sticks with this policy - that he'll be Premier by Christmas, to be honest with you" (See here)

Newman, who apparently agrees with Wayne Swan in at least one subject, had already said this about Palmer:

" 'Mr Palmer clearly is speaking from the good old standpoint of vested interest,' Mr Newman told ABC's Lateline program earlier this week".

I, however, remain sceptical about this Newman vs Palmer spat:

"Mr Newman's royalty increase, however, may be of no net benefit to his budget bottom line if Mr Swan penalises Queensland for the move.
"Under the terms of its Minerals Resource Rent Tax, the government agreed to refund coal and iron ore miners for all present and future royalty increases.
"But this loophole has enabled the states to keep increasing royalties and gouge the profits of the mining tax, which have already been budgeted for small business tax cuts, superannuation increases and infrastructure projects.
"With the mining tax revenue and the budget surplus target already under threat, Mr Swan wrote to all the states three weeks ago saying those that proceeded with royalty increases after July 1, 2011, would be docked the same amount of federal funding, be it GST revenue or infrastructure money.
"The leader of the Greens, Christine Milne, repeated her call for the loophole to be closed by legislation."
(See here)

Has anyone heard of the World Wrestling Federation?

No economist that I know of has included these variables in their models. So, there's a challenge for you.

----------

By midweek, another local gazillionaire was in the news. Last Thursday, after Standard and Poor's put Fortescue Metals Group on credit watch, an announcement that it was asking its lenders for credit relief caused FMG stock to lose 13.8%:

"The day's plunge shaved about AUD1.5 billion off Fortescue's market capitalisation, thereby reducing the value of chairman and founder Andrew 'Twiggy' Forrest's nearly 33% stake in the company by AUD500 million - AUD330 million of which was wiped out in less than an hour of trade late this afternoon". (See here)

Referring to this, Morningstar analyst Mathew Hodge said: " 'If the iron ore price goes up to USD120 [a tonne], we'll wonder what all the trouble was,' Mr Hodge said. 'If it hangs around at USD100, there'll be trouble'."

The following day, FMG asked ASX to halt trading on its shares: "Fortescue shares are suspended in the wake of revelations that its bankers had been asked to waive their loan covenants". (See here)

Steve Keen has an interesting piece explaining how capitalists leverage themselves expecting that price booms will never come to an end. You can read it here


----------

In the meantime, the NSW government of premier Barry O'Farrell (Liberal) announced a AUD1.7bn cut to education.

Originally, the cut was to affect both public and private institutions. However, miracles do happen. O'Farrell apparently found a solution that does not affect so much the private sector:

"Funding for independent schools is to be frozen instead of being cut $67 million a year, as originally planned. The Premier, Barry O'Farrell, stepped out of a cabinet meeting yesterday to phone the Catholic Archbishop of Sydney, Cardinal George Pell, about the decision.
"The decision means the planned cut of 8 per cent is reduced to 3 per cent - $116 million over four years. That will be matched by a $201 million cut over four years to public school budgets.
"It would not be capped forever and the cap would not come into effect until July 1 next year,
[NSW Education minister] Mr Piccoli said". (See here)

By comparison, the public sector will have to shed 1,800 positions: which goes to show that "we" are all equal, only some are more equal than the others.

Update:
18-09-2012 FMG got an AUD4.3bn loan from Credit Suisse and JP Morgan, payable in 5 years and at 5%. Not too bad.

Iron ore went up:
"Since hitting the low, iron ore has regained some strength, rising by $US9 to $US105.1 after the US Federal Reserve unleashed its latest monetary stimulus which lifted global commodities prices.
"Leyland Asset Management senior portfolio manager Rohan Schmidt said the deal would be positive for Fortescue shares, but over the longer-term fate of the company was still tied with the direction of iron ore prices."
(See here)
So, let's wait and see.

Image Credits:
[A] "A wrestler (Christopher Daniels) leaps off the top rope", by Hugo Hernandes. Wikipedia. Image licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license. My use of the image does not imply the author's endorsement of it.

Friday, September 7, 2012

Mining? Boom!

So, the mining boom that would last for 25 years appears to be losing some steam. Will this be one of those "forever" kind of things? Who knows!

But this is what Fairfax Media Rania Spooner reported today:
"Billionaire Andrew Forrest's iron ore empire - branded the 'Fortescue family' for its collective approach to success - has endured what insiders are calling the most horrific week in the company's history.
"But Fortescue has paid a price for its survival, shedding as many as 1000 'family members', including long-standing senior executives hired by Forrest himself, in an aggressive move to wipe $300 million from the company's operating costs."
(See here)

Jade MacMillan and Gian De Poloni (ABC):
"It is understood several hundred contractors at the Solomon site have already been sacked.
"One contractor has told the ABC, staff were called in earlier this week and told to check a list of names pinned to the wall.
" 'The people whose names were on there were told they'd been sacked,' the worker said.
" 'Some people were crying, it was pretty awful'."
(See here)
Yup, Fortescue "paid the price", but those crying were the former "family members": to the best of my knowledge, contractors are entitled to no redundancy, no nothing.

----------

Peter Martin has a lot (and I do mean a lot) more on this. Some bits and pieces:
"What's galling to someone concerned about economic management is that they (commodity prices) are coming off the boil at exactly the time the government has switched from pumping money into the economy to taking money out. (...)
"The new financial year has begun with the resources downturn worsening and the government turning the money tap off. Everything has to be cut back in order to achieve the promised 2012-13 surplus.
(...)
"And it probably had to be cut back more in the budget review due in November. Asked Wednesday what he would do if the iron ore price didn't recover Swan said it would make his budget task harder and that he would cut harder.
" 'We are absolutely committed to delivering a surplus in 2012-13,' he said. 'The government has a proven track record of delivering savings and we remain able and willing to do it again.'
"Former Reserve Bank Board member Warwick McKibbin says cutting harder when economic activity is turning down is almost a definition of economic stupidity."
(See here)

----------

Three closing comments:
  1. In the end, it all depended on China (as I said here)
  2. The stupidity thing applies both to governments at the federal and state levels (see here)
  3. What is going to happen to foreign workers brought in to fill the mythical skills shortage?

Mitchell's Job Guarantee.

Unlike MMTers, I don't think the Job Guarantee Prof. Bill Mitchell and other well-known academics propose is the revolution. Further, I don't think capitalism (with or without JG, with or without MMT) has a long-term cure.

But I have to admit, Prof. Mitchell's proposal is intriguing and, it seems to me, would be a valuable step in the right direction. And its theoretical study may shed light on theoretical topics important to Marxists.

But this post is not about what I believe, it's about what you should know.

So, you be the judge.



Further resources:
Prof. Mitchell's blog
MMT Primer

Our Daily Madness.

"Madhouse", by Francisco de Goya (1812-1819) [A]
 
There was a time when people taking a personal risk would be called courageous. Not anymore.

Nowadays, people are considered courageous based on their eagerness to inflict misery on others. On this criterion, the Queensland state government today gave proof of enormous courage:
"Queensland Health Minister Lawrence Springborg says more than 2,700 jobs will be axed from Queensland Health as part of the State Government's cost-cutting campaign" (See here)
And, if the misery is gratuitous, unnecessary and motivated by ideological obsession only, we could speak of heroism.

Yes, heroism is a better word, because, in this case, the need for the cuts is being challenged by at least two reputable sources: "Queensland's Peter Costello 'audit' trashed by experts". (See here)

But QLD premier Campbell Newman is not fighting alone in his heroic quest to sack between 15K to 20K state public servants. Federal shadow treasurer Joe Hockey (Coalition) joined the fray immediately:
"Campbell Newman, all strength to his right arm, he's showing incredible courage to try and fix up a state government that has been in complete chaos, an absolute mess during the term of Labor and Campbell is showing the sort of courage and doing the right thing by the people of Queensland that hopefully gets Queensland back on the rails." (See here)
After the wannabe federal treasurer's statement, it was Wayne Swan's turn. Full of concern for those sacked, the real federal treasurer (Labor) said:
"These comments from Mr Hockey should send shivers down the spine of Australian workers across the country who are already worried about what Mr Abbott's reckless negativity might mean for the economy and for jobs". (See here)
Swan certainly has a point there. But the recent sackings of Commonwealth public servants and his stubborn negative to increase the dole to the unemployed (which I've chronicled before: here, for instance) do not speak well of his moral authority.

----------

Meanwhile, the NSW state government also has its own plans to sack public servants (according to rumours, up to 10K). But this is not what I want to touch here.

The local topic of the day for me is this:
"The NSW government is considering a bold plan that would lead to hundreds of coal seam gas wells being drilled across Sydney's drinking water catchment, supplying a fifth of the city's gas". (See here)
----------

This is a bizarre, grotesque world. Decent working class people are mere statistics, collateral damage and pawns in the power games of our fearless "leaders".

And yet, the same working class people, the real victims, do not deserve more than a passing mention in the news. No faces, no names, no statements; only figures. The victimizers hoard all the attention: and, on top, they are courageous and bold.

Keep listening to these people and taking orders from them.

I guess it takes a communist to perceive this madness.

Image Credits:
[A] "Manicomio", by Francisco de Goya (1812-1819. Wikipedia.

Thursday, September 6, 2012

For a Fistful of Dollars.

On breaking the news that Gina Rinehart "offered a $50,000 bounty to a representative of the resources industry who best promotes mining in the face of 'far left or non-understanding media attacks' " (see here), the good folks of MacroBusiness humorously nominated one of their regular readers, well-known for his/her consistent, invariable and unconditional support of anything mining.

MacroBusiness, which excels in financial and business news, seem to have found a fool-proof way of attracting what looks like entirely new readers, for the comment thread numbers 102 (as at September 7, 08:05 am EST), which (to me and without having any hard data) seems to be a rather considerable number of comments.

And (surprise, surprise!) several of these new readers seem to be extremely well-disposed towards... the mining industry!


Rinehart's initiative is the latest in a series of innovative ideas recently advanced by local magnates. In July, her fellow mining gazillionaire Clive Palmer unveiled the blue-prints of his new Titanic II. (See here)

Wednesday, September 5, 2012

Who is "Us", Exactly?

I've always wondered why economic pundits have such a, to me, alien outlook on reality.

However, thanks to one of Tim Colebatch's latest pieces, I think I had a kind of an epiphany: it's a matter of pronouns!

Commenting on Victorian Treasurer Kim Wells' presentation on the economic perspectives for Victoria, Colebatch says:
"But Asia's growth also brings opportunities. Wells noted that Victorian firms also gain from the mining boom, and was one of many to highlight the potential for our agricultural, manufacturing, tourism and knowledge industries to service the growing demand from Asia's middle class, for quality food, goods and services.
"The problem is that to reap that benefit, we must regain the competitiveness the high dollar took away. If we can't change the dollar, we will have to make dramatic changes to workplace productivity and relative labour costs." (See here)
Observe carefully what Colebatch says: "Victorian firms also gain from the mining boom". Notice the pronoun: "they". They also gain from the mining boom.

But note, now: "We must regain competitiveness". The pronoun changed; it's no longer "they", now it's "we".

A second case: "We will have to make dramatic changes to workplace productivity".

So, it is the firms who gain, but it is us who pay the price for the adjustments required.

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The reader may be objecting right now: "Okay, I think I get your point. But firms are only abstract entities. They are formed by people, by us. When Colebatch/Wells say 'firms also gain from the mining boom', they're really saying 'the people who work for them also gain from the mining boom'. So, there is indeed a cost to be paid by us, but the gain comes back to us, too."

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I don't think that's quite right but, for the sake of the argument, let's assume it for now: people lose with the changes in the economy, but people also gain from those changes. One thing compensates for the other: tit-for-tat. There may be even a net gain, to be measured somehow.

So, who are the "people who work for" the firms, who are "also gaining from the mining boom"?

Let's answer with Colebatch's own example: "Victoria used to be Australia's manufacturing capital; that's gone, as hundreds of textile, clothing and other factories shut their doors". The people who used to work for these industries aren't winning anything; they're net losers.

According to Colebatch, this is where the net winners are: "Our construction workforce has doubled, as has the workforce in cafes, hotels and restaurants".

So, those who lost (say, manufacturing workers) do not necessarily wind up compensated (say, become construction workers). Losses and gains are not equally distributed.

But, there's more: in reality, what these "winners" gained doesn't necessarily compensate what the losers lost. The winners won largely casual, temp, part-time, minimum wage jobs: shitty jobs; the losers lost permanent, full-time, relatively well paid jobs. Not much of a gain for the "winners". It's unlikely there was a net gain, while a net loss seems likely.

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But I said that the objection wasn't quite right. One cannot think of firms as simply shorthand for "the people who work for them". A firm also belongs to concrete people.

When "firms gain from the mining boom", the firms' owners benefit. So, to those who lost big time, and those "winners" who won a crappy prize, we need to add a third group: the firms' owners. And they won without paying anything for it.

So, within Victoria, there's a group of people "gaining from the mining boom". The others paid the costs for those gains and got at most a partial and unequally distributed compensation.

It is this reality that those pronouns hide.

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During the last 6 years, we see that story, writ large for Australia, reflected in this colourful chart coming from the latest Statistical Bulletin produced by the Library of the Parliament of Australia:


The Bulletin says this: "The wages share [seasonally adjusted] peaked at around 63 per cent in 1974 while the profit share bottomed at just over 15 per cent at the same time". (See here)

Observe a peculiarity with that chart: when profits decrease, wages increase and viceversa, when wages decrease, profits increase. If there were no other reason, simple arithmetic means that what bosses get comes at the expenses of workers (and viceversa). But here I provided a simple mechanism, beyond simple arithmetic, that explains how this transfer takes place. [*]

Similar wage data, starting now in 1962-62 is in the much less attractive chart produced by the ABS (5204.0 - Australian System of National Accounts, 2010-11 - Analysis of Results, here):

Compensation of employees (COE) as share of GDP (government excluded)


Notes:
[*] Paragraph added, at the suggestion of a reader, after the post was published. Thanks PK.