Magpie's Asymmetric Warfare

Atlas' Happy Days.

2012-01-21T23:37:00.000-08:00

Alan Greenspan. 2005 [A]

"If you saw Atlas, the giant who holds the world on his shoulders (...) what would you tell him to do?" (Ayn Rand, Atlas Shrugged).

The transcriptions of the Fed's Federal Open Market Committee 2001-06 meetings were released last Thursday January 12, 2012. (See here)

This is how mainstream media chronicled these meetings:

The New York Times (12-01-2012):

"As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.
"The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. (...)
" 'We are getting reports that builders are now making concessions and providing upgrades, such as marble countertops and other extras, and in one case even throwing in a free Mini Cooper to sweeten the deal,' George C. Guynn (...) said at the June [2006] meeting." (See here)

The Washington Post (13-01-2012):

"The year began with adulation all around for [Alan] Greenspan. In that January [2006] meeting, Roger Ferguson (...) called Greenspan a 'monetary policy Yoda'." (See here)

All that's good and well, but it fails to capture the mood prevailing in those august meetings, where monetary policy for the US (in extension, for the free world) is decided and where the Great Moderation was generated. The Economist (Free Exchange) and DealBreaker contain a selection of witticisms, jokes, and happy anecdotes, as one would expect from Übermenschen in the best Randian/Nietzchean tradition.

But The Daily Stag Hunt went one step further and quantified it (the transcripts dutifully noted their laughter).

So thanks to that site's generosity, I'll give you without further comment:

Well, bear with me, one little comment: that blue dot corresponds to the meeting where these immortal words were uttered:

"VICE CHAIRMAN GEITHNER. Mr. Chairman, in the interest of crispness, I've removed a substantial tribute from my remarks. [Laughter]
"CHAIRMAN GREENSPAN. I am most appreciative. [Laughter]
"VICE CHAIRMAN GEITHNER. I'd like the record to show that I think you're pretty terrific, too. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you're even better than we think is higher than the alternative."

I haven't thought yet how I would answer Rand's question, opening this post. That is, assuming the Maestro ~~Atlas~~ Alan Greenspan stopped laughing and that I could be heard over the sounds of boots being licked.

Photo Credits:
[A] Former Chairman of the Federal Reserve Alan Greenspan, receiving a Presidential Medal of Freedom in 2005. 09-11-2005. Wikipedia

Einstein and Socialism.

2012-01-19T02:17:00.000-08:00

Albert Einstein. [A]

Albert Einstein (1879-1955) needs no presentation.

Better known for his theoretical work in physics and as a teacher, Einstein was also - although this tends to be forgotten - a public intellectual who used his prominence to promote ideas he considered worthy: pacifism, a Jewish homeland in Palestine where Jews, Muslims and Christians would co-exist peacefully with equal rights, and socialism.

But Einstein wasn't simply a socialist, without any other adjectives. He was a Marxist.

The first issue of the Monthly Review magazine, published in May 1949, included Einstein's "Why Socialism?" essay.

Written in a precise and direct language, without losing the warmth and intellectual honesty usually associated to Einstein's name, the piece has the feeling of an introductory lecture on Marxism and I highly recommend it to both, those who are already familiar with Marxism and those who are not.

The fragment below closes the essay and was extracted from "Why Socialism?", generously made publicly available by Monthly Review:

"Why Socialism", by A. Einstein.

"This crippling [of social consciousness] of individuals I consider the worst evil of capitalism. Our whole educational system suffers from this evil. An exaggerated competitive attitude is inculcated into the student, who is trained to worship acquisitive success as a preparation for his future career.
"I am convinced there is only one way to eliminate these grave evils, namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. (...)
"Nevertheless, it is necessary to remember that a planned economy is not yet socialism. A planned economy as such may be accompanied by the complete enslavement of the individual. The achievement of socialism requires the solution of some extremely difficult socio-political problems: how is it possible, in view of the far-reaching centralization of political and economic power, to prevent bureaucracy from becoming all-powerful and overweening? How can the rights of the individual be protected and therewith a democratic counterweight to the power of bureaucracy be assured?
"Clarity about the aims and problems of socialism is of greatest significance in our age of transition. Since, under present circumstances, free and unhindered discussion of these problems has come under a powerful taboo, I consider the foundation of this magazine to be an important public service."

Photo Credit:
[A] Albert Einstein during a lecture in Vienna in 1921, photographed by Ferdinand Schmutzer. Wikipedia.

On Folly, Master Chefs and Bonhoeffer

2012-01-16T01:08:00.000-08:00

Dietrich Bonhoeffer. [1]

Dietrich Bonhoeffer (1906-1945) was a German pastor and theologian. Arrested for his participation in the 1944 plot to kill Hitler, Bonhoeffer was executed in April, 1945 in the Flossenburg concentration camp, after being convicted by a Nazi kangaroo court.

While in prison Bonhoeffer wrote diverse texts. This is one of them:

"Of Folly", by D. Bonhoeffer.

"Folly is a more dangerous enemy to the good than malice. You can protest against malice, you can unmask it or prevent it by force. Malice always contains the seeds of its own destruction, for it always makes men uncomfortable, if nothing worse. There is no defense against folly. Neither protests nor force are of any avail against it, and it is never amenable to reason. If facts contradict personal prejudices, there is no need to believe them, and if they are undeniable, they can simply be pushed aside as exceptions. Thus, the fool, as compared with the scoundrel, is invariably self-complacent. And he can easily become dangerous, for it does not take much to make him aggressive. Hence, folly requires much more cautious handling than malice. We shall never again try to reason with the fool, for it is both useless and dangerous.
"To deal adequately with folly it is essential to recognize it for what it is. This much is certain, it is a moral rather than an intellectual defect. There are men of great intellect who are fools, and men of low intellect who are anything but fools, a discovery we make to our surprise as a result of particular circumstances. The impression we derive is that folly is acquired rather than congenital; it is acquired in certain circumstances where men make fools of themselves or allow others to make fools of them. We observe further that folly is less common in the unsociable or the solitary than in individuals or groups who are inclined or condemned to sociability. From this it would appear that folly is a sociological problem rather than one of psychology. It is a special form of the operation of historical circumstances upon men, a psychological by-product of definite external factors. On closer inspection it would seem that any violent revolution, whether political or religious, produces an outburst of folly in a large part of mankind. Indeed, it would seem to be almost a law of psychology and sociology. The power of one needs the folly of the other. It is not that certain aptitudes of men, intellectual aptitudes for instance, become stunted or destroyed. Rather, the upsurge of power is so terrific that it deprives men of an independent judgement, and they give up trying - more or less unconsciously - to assess the new state of affairs for themselves. The fool can often be stubborn, but this must not mislead us into thinking he is independent. One feels somehow, especially in conversation with him, that it is impossible to talk to the man himself, to talk to him personally. Instead, one is confronted with a series of slogans, watchwords, and the like, which have acquired power over him. He is under a curse, he is blinded, his very humanity is being prostituted and exploited. Once he has surrendered his will and become a mere tool, there are no lengths of evil to which the fool will not go, yet all the time he is unable to see that it is evil. Here lies the danger of a diabolical exploitation of humanity, which can do irreparable damage to the human character.
"But it is just at this point that we realize that the fool cannot be saved by education. What he needs is redemption. There is nothing else for it. Until then it is no earthly good trying to convince him by rational argument. In this state of affairs we can well understand why it is no use trying to find out what 'the people' really think, and why this question is also so superfluous for the man who thinks and acts responsibly. As the Bible says, 'the fear of the Lord is the beginning of wisdom'. In other words, the only cure for folly is spiritual redemption, for that alone can enable a man to live as a responsible person in the sight of God.
"But there is a grain of consolation in these reflections on human folly. There is no reason for us to think that the majority of men are fools under all circumstances. What matters in the long run is whether our rulers hope to gain more from the folly of men, or from their independence of judgment and their shrewdness of mind." (Emphasis added. See here.)

Written by a Lutheran theologian imprisoned by the Nazis over sixty years ago, these thoughts are surprisingly relevant to the current economic policy debate in Australia.

Here I offer one example; I am sure readers (like my friends PeterC and Stubborn Mule) could easily relate:

"In short, expect unemployment to rise, job insecurity to rise, union power to increase and the federal bureaucracy to expand for the duration of the Labor-Greens-Windsor-Oakeshott government, while it blames everyone but itself." (See here)

And that catalogue of real or imaginary calamities, if you believe Paul Sheehan's unlikely narrative, will befall upon Australia because the underpaid hospitality workers want to be paid something extra for working on weekends, while some wealthy celebrity restaurateurs, who employ them and on whose behalf Sheehan seems to speak, don't want to: after all, every dollar they pay their workers is one less dollar they can deposit in their accounts.

The thing is so terrible that some of these celebrities might even have to work themselves! Imagine the outrage.

Unfortunately, I am an agnostic, skeptical about spiritual redemption. We better find another way. You know, just in case.

Image Credit:
[1] Dietrich Bonhoeffer. Wikipedia.

Update:
Brilliant blog post by Matt Cowgill debunking dodgy claims that Fair Work is strangling Australian businesses.

S&P's Ratings: Good News, Bad News.

2012-01-13T17:08:00.000-08:00

During the 19th century, people afflicted by tuberculosis/consumption were called "tísicos" in the Spanish-speaking world (tubercular, consumptive, in English).

Tísicos were easy to spot: pale complexion, weakness, thinness, fever, cough, mucus mixed with blood.

On Mediate Auscultation (1819).
Théobald Chartran. [1]

According to urban legend, shortly before dying (and most died of tuberculosis in those days) a person would regain some colour and other symptoms would briefly disappear, raising hopes that sufferers would recover.

This gave origin to an ironic expression: "alegría de tísico" (that is tubercular's/consumptive's joy/relief).

What Happened:

The BBC, two days ago:

"Spain and Italy's borrowing costs fell sharply in bond auctions on Thursday.
(...)
" 'It's a step in the right direction, but the bigger test will be the longer-dated auctions further down the road', said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh". (See here)

Or The Sydney Morning Herald/Bloomberg News:

" 'For all the talk of debt downgrades, the truth is that bond auctions have shown that the most worrisome countries can access credit', said Francisco Salvador, a strategist at FGA/MG Valores in Madrid. 'This has comforted investors'." (See here)

The BBC last night (Australian time):

"France confirms loss of top AAA credit rating
"The move came after world stock markets fell on reports many Eurozone governments are being downgraded." (See here)

The Good News:

The immediate effects have been limited. Coming after Eurozone share markets had already fallen on anticipation of S&P's move (FTSE -0.46%, Dax -0.58%, Cac 40 -0.11%) it hasn't affected NYSE or Nasdaq much: Dow Jones -0.45%, Nasdaq -0.50%.

Bond yields haven't suffered much, either: "France's borrowing cost rose slightly, from 3.03% to 3.07%. Germany - considered the safest borrower in the Eurozone - saw its borrowing cost fall from 1.83% to 1.76%."

So, the good news is that this, by itself, is no reason to panic.

The Bad News:

The bad news is that Fitch and Moody's are yet to emit pronouncements.

As these events took place after our local stock exchange closed, in Australia we should wait for next week.

What Now?

From an Australian perspective and beyond next Monday, are there any guesses as to how this story might end?

If you have the stomach, time and inclination, here is a good guess: "S&P Takes Rating Actions on Euro Area Governments".

If you don't have the stomach, the time or the inclination to read a rather complex article, just let me give you this painting:


Misery (1886). Cristóbal Rojas. [2]

Update:
18-01-2012. ABC:

"World Bank slashes growth forecasts
"The World Bank has cut its global economic growth forecasts, citing the eurozone's debt problems and weakening growth in emerging economies.
"The bank expects the global economy to expand 2.5 per cent in 2012 and 3.1 per cent in 2013, sharply lowering its June estimate of 3.6 per cent for both years."

I haven't read the report itself (it's over 180 pages long), but it allegedly mentions Australia only twice, and never in particularly terrible circumstances. (See here)

21-01-2012. ABS (19-01-2012):

"The ABS reported the number of people employed decreased by 29,300 to 11,421,300 in December. The decrease in employment was driven by a drop in part-time employment, down 53,700 people to 3,370,300, and was offset by an increase in full-time employment, up 24,500 people to 8,051,000.The decrease in seasonally adjusted part-time employment was driven by weaker than usual growth during the December period, which was particularly noticeable for women aged 15 to 24.
"The number of people unemployed decreased by 3,800 people to 629,900 in December, the ABS reported.
"The ABS monthly aggregate hours worked series showed an increase in December, up 5.6 million hours to 1,622.0 million hours.
"The ABS reported a decrease in the labour force participation rate of 0.3 percentage points in December to 65.2 per cent".

Upon hearing those news, Opposition leader Tony Abbott, commented:

"The Australian economy, for all its comparative strength, created no net new jobs in calendar 2011. This is a very disappointing result and it demonstrates how important it is that the Government urgently get debt and deficit under control". (Emphasis added. See here)

"Well, perhaps Mr. Abbott is alone in his belief on the virtues of expansionary fiscal contraction", I can almost hear readers (often more optimistic than yours truly) objecting.

Well, perhaps, but I would not hold my breath. Just eleven days ago the Employment minister and acting Treasurer, Bill Shorten (Labor, former trade unionist) commenting on the demands to increase the New Start Allowance (aka dole, currently $243 per week):

"Australia's social security system needs to provide a strong safety net for people who need financial assistance while also acting as an incentive for people to take up paid work" (...)
"Participation in the workforce is a priority the Gillard government is passionate about. Work is at the core of our beliefs.
"In the current economic climate, I believe we have got the balance about right. Particularly when delivering a surplus next year and continuing our strong economic management is an important part of this balance". (Emphasis added. See here)

It's by no means certain how our fearless and enlightened leaders would respond to a new crisis.

If I were you, I'd start worrying about now. But, then again, I'm not you and you're not me.

Image Credits:
[1] On Mediate Auscultation. Théobald Chartran (1819). Wikipedia.
[2] Misery. Cristóbal Rojas (1886). Wikipedia.

Santorum Doesn't Love You.

2012-01-09T16:01:00.000-08:00

Rick Santorum

Lose all hope, Aussie economics graduates: Rick Santorum doesn't love you.

According to Charles P. Pierce (The Politics Blog, Esquire, 02-01-2012):

"Rick Santorum has no use for the Ivy League, or the economists produced therein".

If he has no use for them, would he rather take graduates from, say, Melbourne Uni?

"He also expressed doubts about the Republican reliance on economists from the 'Australian school'."

Photo Credit:
Rick Santorum. Wikipedia.

Dismal Science: Mill and Carlyle.

2012-01-09T01:40:00.000-08:00

With a negative connotation, the term "dismal science" has been widely used to describe economics: a recent Google search for that string returned some 2,140,000 results.

But is that connotation appropriate?

Some have argued that it is not:

"I have outlined above the true circumstance in which Political Economy (or Economics) was first labelled 'The Dismal Science'. It is a circumstance we should draw to the attention of our students. They, like us, can be proud to be associated with the profession which was the target of Carlyle's scorn." [1]

Thomas Carlyle [A].

According to this view, the "dismal science" label may be popular, but it is unfair: it would be based on the wrong belief that Thomas Carlyle used it to oppose Malthus' population theory.

J.S. Mill [B]

In reality, proponents of this view continue, it was first used against John Stuart Mill and like-minded figures during the infamous Negro Question debate. In this controversy Mill defended the abolition of slavery on economic grounds; Carlyle opposed him, and according to this view, found economics "dismal" because Carlyle supported slavery:

"At the most trivial level, Carlyle's target was not Malthus, but economists such as John Stuart Mill, who argued that it was institutions, not race, that explained why some nations were rich and others poor. Carlyle attacked Mill, not for supporting Malthus's predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact-that economics assumed that people were basically all the same, and thus all entitled to liberty-that led Carlyle to label economics 'the dismal science'." [2] (Emphasis added).

Other, slightly less damning, more nuanced pronouncements on Carlyle have been made. According to these views, Carlyle was to some degree motivated by opposition to the political economy advocated by Mill and the classical liberals. [3]

It is not controversial that the epithet was used by Carlyle in the context of the Negro Question debate, as stated above; however, in my opinion, it does refer to Malthus' population theory, at least tangentially. Other authors have reached similar conclusions (see [4]).

Anti-slavery campaign medallion,
by Josiah Wedgwood, 1787 [C]

Nevertheless, regardless of whether it alludes to Malthus or not, that is not the key issue in the paragraph quoted above. Carlyle's alleged racism, proponents of this view seem to argue, is clearly the key issue.

In other words, Carlyle's beliefs/motivations are central in establishing whether the "dismal science" epithet is justified. At one hand, if Carlyle was motivated by a repudiation of Malthusian thought then the term "dismal science" would be justified, seems to be the premise (box A in the diagram below). But Carlyle was not motivated by a repudiation of Malthus: he was motivated solely by racism (box B). Therefore, the term "dismal science" is not justified (box D), the proponents of this view conclude.

At the other hand, if the "dismal science" epithet is not justified, then Mill and economics, by extension, are vindicated (box C), is the final but unstated assumption. Therefore, [economists] "can be proud to be associated with the profession which was the target of Carlyle's scorn".

The following diagram schematizes the whole reasoning:

It is my contention here that:

Even if one were to accept that reasoning, it is easy to show that Carlyle had reasons beyond racism to consider political economy dismal. That is, I intend to show that B is false.
However, the reasoning is fallacious in itself: it is logically flawed. Ultimately, Carlyle's shame does not imply Mill's virtue.
Even if "Mill's virtue" could be ascertained, economics as a whole cannot be evaluated on the basis of any one single theoretician or group of individual theoreticians, regardless of merits.
More importantly, both sides of the controversy were ostensibly defending high-minded positions, but in reality both sides were equally disingenuous.

In this piece I will attempt to demonstrate a valid reason to consider political economy dismal, in Carlyle's argument (i.e. point 1, above). Then, I will tackle point 2, the issue of the fallacy mentioned above. Point 3 should be obvious and requires no further elaboration. After that, I will explain why I believe both sides were equally disingenuous, that is point 4.

Finally, I will give a brief sketch of the aftermath and conclude.

Section 1: Carlyle's Motivations.

My intention is not to whitewash Carlyle's position. Consequently, I will quote him extensively, to avoid selective quoting. As Carlyle's text contains extremely offensive views, I apologize in advance.

Carlyle's Occasional Discourse on the Negro Question (see here), published anonymously in 1846, is where "dismal science" was famously used by Carlyle (my emphasis in all quotes):

"Truly, my philanthropic friends, Exeter Hall Philanthropy is wonderful; and the social science-not a 'gay science,' but a rueful-which finds the secret of this universe in 'supply-and-demand,' and reduces the duty of human governors to that of letting men alone, is also wonderful. not a 'gay science,' I should say, like some we have heard of; no, a dreary, desolate, and indeed quite abject and distressing one; what we might call, by way of eminence, the dismal science. These two, Exeter Hall Philanthropy and the dismal science, led by any sacred cause of Black Emancipation, or the like, to fall in love and make a wedding of it,-will give birth to progenies and prodigies; dark extensive moon-calves, unnameable abortions, wide-coiled monstrosities, such as the world has not seen hitherto!"

Apart from introducing the "dismal science" epithet, this paragraph makes clear Carlyle's views on race and is enough to convict him of the charge of racism.

However, the following paragraph explains both what was the solution proposed by the dismal science (and by Mill) and gives a reason for Carlyle's opposition:

"Science, however, has a remedy still. Since the demand is so pressing, and the supply so inadequate (equal in fact to nothing in some places, as appears), increase the supply; bring more blacks into the labour-market, then will the rate fall, says science. Not the least surprising part of our West Indian policy is this recipe of 'immigration;' of keeping down the labour-market in those islands by importing new Africans to labour and live there. If the Africans that are already there could be made to lay down their pumpkins and labour for their living, there are already Africans enough. If the new Africans, after labouring a little, take to pumpkins like the others, what remedy is there? To bring in new and ever new Africans, say you, till pumpkins themselves grow dear; till the country is crowded with Africans; and black men there, like white men here, are forced by hunger to labour for their living? That will be a consummation. To have 'emancipated' the West Indies into a Black Ireland; 'free' indeed, but an Ireland, and Black! The world may yet see prodigies; and reality be stranger than a nightmare dream."

In other words, an increase in the black West Indian population, by means of immigration of free African labourers (as advocated by economic science) would cut wages and reduce West Indians to misery levels, as it did in Ireland.

With this my first contention (point 1) is demonstrated: Carlyle's diatribe, if undeniably racist and despicable, was not solely motivated by racism. In principle, there was an apparent concern for West Indian workers: box B is shown false.

A potential and reasonable objection to this conclusion is that Carlyle could have been disingenuous. That is a valid objection, which requires further consideration and will be treated in section 3.

Before proceeding to the second section, I also would like to draw the readers' attention to the "Black Ireland" reference. This will be explained in section 3, too.

Section 2: Logical Fallacy

In symbolic terms, the first half of the argument (green boxes leading to box D) can be stated thus:

If M then J; however, not M, therefore not J.

In words: if the epithet was motivated by opposition to Malthus (i.e. M), it would be justified (hence, J); but it wasn't (not M), therefore the epithet is not justified (not J).

This argument superficially resembles Modus Tolens, but a closer look reveals it is different.

This is a symbolization of Modus Tolens:

If A then B; however, not B, therefore not A.

A simple visual inspection is enough to make the point: both forms are different. There is no logical form corresponding to the first argument, that I know of.

Putting this all in words: even if Carlyle was motivated only by racism, this does not imply that the dismal adjective is not justified. Economics should stand or fall on its own merits.

By falling into this fallacy, defenders of economics' honour turn a discussion on economics' merits into an argument about Carlyle's shame.

With this I consider my second contention (point 2) demonstrated.

Section 3: Disingenuousness

At the end of Section 1 there was a reference to a "Black Ireland", that readers might find intriguing. That is a reference to the Irish Potato Famine (1845-52).

Bridget McDonnell and her two children.
Illustrated London News, December 22, 1849 [D]

I turn to this now, starting with some background.

Since 1815, Thomas Robert Malthus and David Ricardo, friends and intellectual rivals, embodied two radically opposed views on the economy. Ricardo decried land rents, and based on the so-called Say's Law, believed general gluts were impossible, advocating laissez faire, fiscal conservatism and free trade on agricultural products; Malthus, a believer in scarcity, underconsumption and general gluts, considered land rent a way to drain excessive output; he also supported tariffs on foodstuffs, and a more active government.

Ricardo's theoretical views, also unlike Malthus', with modifications were dominant in intellectual circles, counting among his followers names like John Stuart Mill, Herbert Spencer, Harriet Martineau and John Bright.

More to the point, Ricardo's theoretical and policy recommendations became popular with the capitalist class emerging during the early phases of the Industrial Revolution. The party more closely aligned to these views was the Whigs.

At the other hand, Malthus' perspectives were shared by the landed aristocracy, that resisted the changes advocated by the Whigs and whose preferred political party was the Tories (predecessors of the Conservatives).

By 1845, Sir Robert Peel (Tory) was Prime Minister, governing also over Ireland.

The potato blight initially spread in continental Europe and the Scottish highlands, reaching Ireland that year.

With the potato crop failure and fearing a popular revolt at both sides of the Irish Sea, the government undertook a modest program of relief works, repealing also the protectionist Corn Laws (in May 15, 1846 at the Commons'; and June 29, the House of Lords).

This move, long-advocated by Ricardo and the Whigs, but firmly opposed by the Tories and Malthus, was argued on the grounds of lowering the price of food to provide some relief to the lower classes in England and Ireland. In reality, less altruistic considerations were powerfully at play:

"It has been my endeavour to shew throughout this work, that the rate of profits can never be increased but by a fall in wages (...) If, instead of growing our own corn, or manufacturing the clothing and other necessaries of the labourer, we discover a new market from which we can supply ourselves with these commodities at a cheaper price, wages will fall and profits rise." [5]

Dissent and anger swelling within the Tory ranks and with the Whigs still seething since Peel's passing of the Factories Act 1844 (reducing 9-13 year old children's shifts to 10 hours a day, six days a week), Peel found himself confronted by an unlikely alliance: Whigs, protectionist Tories and Radicals.

Ricardo's posthumous victory cost Peel dearly: his ministry ended with the defeat of the Irish Coercion Bill (designed to arrest Irish dissidents without warrant or trial).

With Peel's resignation, Lord John Russell (Whig) became Prime Minister. Peel and the Tories still loyal to him went on to merge with Whigs and Radicals, to form the Liberal Party. The protectionist Tories reformed as the Conservative Party.

Once in power, and following the dictates of laissez faire and fiscal prudence, advocated by the British Liberal intelligentsia, including Mill, Russell's Whig/Liberal ministry proceeded to cancel the relief works established by Peel.

In their place, Irish landholders, largely Tory/Conservative supporters, were to pay for workhouses and soup kitchens for their tenant peasants, as a way to redistribute the land rent landholders received. Unable or unwilling to do so, landowners did not provide much additional help, evicting their tenants instead, while cash crops were shipped to Britain uninterruptedly, as free trade recommended.

Peasants and farmers faced difficulties all over Europe, but in Ireland they were hit the hardest: the Irish population fell by between 20% and 25% (1 million deaths, half the total loss, due to starvation and disease). By most accounts, the majority of this death toll occurred under Whig/Liberal government.

Friedrich Engels [E}.

Having arrived in Manchester in 1842, a wealthy industrialist himself without any links to Whigs or Tories, Friedrich Engels' eyewitness account carries much more authority than anything I could add. Writing in 1845, on the power games played by Tories and Whigs:

(...) "In nearly every instance the Liberals try to emphasise the distress in the rural areas and to argue away that which exists in the factory districts, while the Conservatives, conversely, acknowledge the misery in the factory districts but disclaim any knowledge of it in the agricultural areas." [6]

From this one can reasonably conclude that Carlyle was pointing to a true problem: there was misery in Ireland (indeed, all over Britain) and there were good reasons to believe this would happen in the West Indies. His sincerity, however, is dubious.

With this, I rest my case on my contention of disingenuity. Principles might have played some role in this subject, but they were only a part of the discussion: the other part often remains modestly hidden.

Section 4: Aftermath

Neither Malthus nor Ricardo lived to see this episode, and the landowners v. capitalists fight for supremacy did not end with it.

While the Irish either migrated or starved to death, the novelty effect of the famine on the British public worn-out.

A new round of the fight started in 1849: the Carlyle-Mill Negro Question Debate, which so attracts the attention of contemporary economists. Ostensibly, at stake were the rights of recently liberated West Indian slaves as opposed to those of plantation owners.

From the monumental HET website:

"Carlyle's 1849-1853 work was not well-received. Although the Victorian world could entertain some degree of racism, even one as extreme as Carlyle's, it was Carlyle's attacks on the new gospels of the age that offended most. It was somewhat clear for many contemporaries that neither West Indian blacks nor Irishmen, nor prisoners, were his prime targets, but rather the evangelicals and economists themselves." [7] (My emphasis)

In the 1860s the debate expanded further, after a bloody massacre perpetrated by Edward John Eyre, governor of Jamaica, against protesting West Indian black workers. In this second stage Bright and Spencer, Thomas Huxley and Charles Darwin joined in Mill's condemnation of Eyre; while John Ruskin, Alfred Tennyson and possibly Charles Dickens took Carlyle's side.

Mill went on to become a Liberal MP, and eventually embraced the cause of women's rights, labour unions and farm cooperatives.

Spencer went on to coin another famous phrase ("survival of the fittest"), expressing his understanding of Darwinism, as applied to individual human beings living in society. With this he became the father of Social Darwinism, even though he may have never used this label himself.

Darwin himself never publicly endorsed Spencer's views, so it is likely he did not share them; although this is not certain. If the readers can offer more details, that would be appreciated.

Carlyle is currently considered a proto-fascist.

Conclusions

"Whig history" is an expression used by history academics to denote partisan history, written to justify a current state of affairs, by depicting historical events and characters in the light of an assumed good v evil conflict, inevitably leading to the present.

The unqualified defense some make of economics against the charge of being the "dismal science" would seem a remarkably appropriate example of "Whig history".

Nevertheless, even the more nuanced views on this matter fail. To judge this episode solely on the basis of what was openly said by its participants, without reference to what was happening and to whom benefited from these public statements, is clearly misleading.

Attentive readers might have noticed that many current issues in economic policy were already hotly debated over 160 years ago. Section 3 gives several examples. In this sense, modern economics is little more than a "fugue and variations" on a theme composed in the 19th century. If no other failure could be attributed to mainstream economics, this failure to advance and reach a consensus on vital matters would be more than enough to find economics guilty as charged.

But there are other failures illustrated in this episode: for one, economists' amenability to become spokespeople for vested interests.

The label of dismal is by no means unfair.

But, just like mainstream economics stands or fall on its own merits, so should economists: whatever pride an economist derives from his/her occupation, it will never be due to economics itself, but to what the economist in question achieves.

In other words, a degree in economics does not automatically turn one into the latest in a long lineage of bright but misunderstood benefactors of human kind. The sooner economists realize this, the sooner economics might actually deserve a different label.

References:
[1] Dixon, Robert. 1997. "The Origin of the Term 'Dismal Science' to Describe Economics". Department of Economics, University of Melbourne. Working Paper No 1999/715.

[2] Levy, David M. and Sandra J. Peart. 2001. "The Secret History of the Dismal Science. Past I". First featured article in a series. Library of Economics and Liberty.

[3] Dixon, Robert. 2006. "Carlyle, Malthus and Sismondi: The Origins of Carlyle's Dismal View of Political Economy". Department of Economics, University of Melbourne.

[4] Groenewegen, Peter. 2001. "Thomas Carlyle, 'The Dismal Science,' and the Contemporary Political Economy of Slavery". History of Economics Review (Canberra, Australian National University) 34.

[5] Ricardo, David. 1817. "On The Principles of Political Economy and Taxation".

[6] Engels, Friedrich. 1845. Preface to the "Condition of the Working Class in England".

[7] The Carlyle-Mill Negro Question Debate. HET. The New School for Social Research.

Image Credits:
[A] Thomas Carlyle. Wikipedia.
[B] John Stuart Mill. Wikipedia.
[C] "Am I Not A Man And A Brother?" Medallion as part of the anti-slavery campaign by Josiah Wedgwood, 1787. Wikipedia
[D] A 1849 depiction of Bridget O'Donnell and her two children during the famine. Wikipedia.
[E] Friedrich Engels. Wikipedia.

Krugman Revisited: Inequality

2011-12-26T21:08:00.000-08:00

Paul Krugman [A]

A debate on inequality, which might offer some lessons to Australians, has been raging on and off in the US mainstream media since the early 1990s. One of its most conspicuous protagonists has been Paul Krugman.

The thesis I intend to argue here is that Krugman gradually moved from an initially technocratic position to a more politically engaged one. To achieve this I will study three larger essays published by Krugman over a 10-year period, which illustrate this intellectual evolution.

Clearly, in assessing Krugman as public intellectual, there are other subjects that would need to be considered, particularly foreign trade. Here I will limit myself to inequality.

A warning: I am largely sympathetic to Krugman, so I will try to keep editorializing at a minimum and I will warn the readers when I do. Readers, of course, are free to judge by themselves.

Act I: "The Rich, the Right and the Facts".
Writing in 1992, for the American Prospect, Krugman remarked on rising inequality in the US:

"The income gains of the 1980s did go overwhelmingly to the rich. The right could have argued that it didn't matter, or that policy was powerless to alter the outcome. Instead, conservatives cooked the books". [1]

Appearing in the lead up to the 1992 presidential elections, the essay generated some controversy and the debate soon turned acrimonious. The accusations that Krugman was politically motivated to criticise the Republicans were quick to flare and perhaps that was predictable.

In any case, employing an assortment of data for the period 1947-89, Krugman set to demonstrate that income inequality had in fact increased. Unlike Krugman, here I will illustrate this using the Pareto-Lorenz inverted coefficient series (currently available at the World Top Incomes Database) as it offers a simpler and less ambiguous picture:

A few comments are in order. First, the higher the curve, the more unequal the underlying income distribution. Second, the label next to the red dot at the left shows the level of inequality in 1929 (i.e. 2.61), immediately before the Great Depression; in 1992, when Krugman wrote the essay, inequality was still lower (2.42), but was approaching those levels. Third, after two decades of falling inequality (in the chart, the "valley between two mountain ranges"), the curve rose again, and it hasn't stopped ever since. Fourth, the "mountain ranges" are "rugged": inequality not only increases, but becomes more volatile as it increases.

In any case, using different data, Krugman did not perceive any of this and limited to make his case, after which Krugman does not appear concerned: "Rising inequality need not have any policy implications. Even if you would prefer to have a flatter distribution (...) what should we do about it?"

In other words, inequality would be a matter of preferences. Krugman did not go into causes and effects. In fact, to conclude that inequality was probably an inevitable development would not misrepresent Krugman at the time.

Act II: "The Spiral of Inequality".
In 1996, during Clinton's presidency, Krugman published "The Spiral of Inequality", in Mother Jones [2]. Instead of aiming to demonstrate the empirical reality of inequality, as in his 1992 essay, Krugman starts by stating that technological change and foreign trade "do not answer why it is harder today for most people to make a living but easier for a few to make a killing. Something else is going on".

Instead of these hypotheses, Krugman advances self-reinforcing and interrelated mechanisms causing inequality, while feeding on it:

Changing ethical and cultural values that once limited disparity between top corporate levels and rank-and-file workers. Unable to stop this, unions lost credibility with its membership, increasing governmental acceptance of inequality.
Unions themselves also lost membership due to a "shift from manufacturing to services and from blue-collar to white-collar work, growing international competition, and deregulation". Weaker unions lost the ability to support each other and influence bosses, becoming unimportant for politicians: "America's union movement just got too small, and it imploded".
Wealthy people's growing ability to sway policy: "They are more likely to vote (...) and far more likely to provide the campaign contributions that are so essential in a TV age". The rich would prefer to pay directly for private services, instead of tax-funded publically provided; this had the side-effect of further weakening unions (whose last stronghold was in the public sector), and it also further disadvantaged the non-rich.

Krugman proposes increased taxes as a partial solution, although he does not place much faith in the political system, and (perhaps surprising his critics) is quite critical to the Democratic Party: "But of course neither party advanced such proposals during the electoral campaign. The Democrats sounded like Republicans".

Even if his views could be found wanting on other grounds, they certainly deserve further consideration: "Does this sound like America in the '90s? Of course it does. And it doesn't take much imagination to envision what our society will be like if this process continues for another 15 or 20 years".

It seems reasonable to conclude that Krugman's position changed substantially since 1992: whatever its causes, inequality is no longer simply an statistical fact.

The other side of the debate was divided during Clinton's period. At one hand, some denied any increase in inequality:

Jude Wanniski (perhaps fairly described as hardline conservative):

"I maintain that the central problem of the last 30 years is that the poor are getting richer much, much faster than the rich are getting richer (...) We must convert all wealth into the measure employed by mankind for 6,000 years, i.e., ounces of gold. On this measure (...) in the last 30 years, the people who owned America have lost 40% of their wealth held in the form of equity." [3]

At the other hand, others acknowledged it:

Ken Arrow (more accurately described as a moderate conservative) preferred a more equal society on principle; like Krugman, Arrow considered that technological change and free foreign trade (to which he adds foreign migration) may explain some inequality, but not all; Arrow, again like Krugman, recommended some tax increases. [4].

Kenneth L. Judd acknowledged that inequality increased, but doubted it was bad per se, while trying to explain it as a matter of technological change and the increasing participation of women in the workforce.

Act III: "For Richer".
In 2002, ten years after The Rich, inequality kept increasing (reaching 2.48), as shown in the chart above. During the George W. Bush administration, Krugman writes "For Richer" (The New York Times):

"The concerted effort to deny that inequality is increasing is itself a symptom of the growing influence of our emerging plutocracy (...). So is the fierce defense of the backup position, that inequality doesn't matter - or maybe even that, to use Martha Stewart's signature phrase, it's a good thing." [5]

At this stage, Krugman's views on causality subtly changed. In this essay Krugman refers mostly to soaring CEOs compensation, insisting they reflect social and cultural change [that is, point (1) above], instead of any real contributions to general wealth and wellbeing or even market forces. Reading this after the housing bubble burst in 2007, the last remark seems uncannily prescient.

Unlike 1992, Krugman is openly concerned with the consequences of increasing inequality, including health outcomes and labour insecurity. Additionally, writing after Enron, the Asian crisis and the Dotcom bubble collapse, he highlights the costs the new style of imperial management has in terms of "corporate malfeasance, whether or not it actually involves breaking the law". This topic should also be familiar to contemporary readers.

The core of the essay, however, transcends the merely economic and falls squarely into the political. Krugman draws on research by Nolan McCarty, Howard Rosenthal (both from Princeton University) and Keith T. Poole (University of Houston) to argue that political polarization is related to inequality.

Although Krugman did not illustrate this relationship, in a subsequent lecture (made publically available the 28-06-2010, through his NYT blog) he used the following chart:

Writing in 2002, Krugman again sounds quite prescient as he considers that both US main parties are becoming increasingly radicalized along ideological lines: Republicans proposing policies that increase inequality, Democrats opposing them.

Taking into account Krugman's 1996 remarks critical of both parties in "The Spiral", it would seem that he changed his tune. Not so: "The polarization of politics has occurred because the Republicans have moved to the right, not because the Democrats have moved to the left. And actual economic policy has moved steadily in favor of the wealthy".

Epilogue
Inequality became a topic of debate in the US nearly 20 years ago. At the time, as measured by the inverted Pareto Lorenz coefficient, it reached 2.61. Since then a huge amount of time has been spent in discussing it, although no real effort has been made to actually do something about it. In 2007, the measure reached 2.89, considerably higher than in 1992.

It seems reasonable to conclude that Krugman's stance on inequality has evolved over time, from being a purportedly "neutral observer" in 1992, to being politically engaged. I haste to clarify that this does not mean Krugman has followed partisan lines: it has not, as the text demonstrates.

In this sense, Krugman's case suggests that there is no possible technocratic neutrality on subjects like inequality and it is not simply a matter of personal preferences. Whichever stance one adopts, inequality clearly transcends the limits of abstract theory, because it reveals a lot about the political environment (and the economy, a topic that ironically Krugman neglected).

In Krugman's case, he justifies his position on rational grounds: experience, observation and theory. And this is evidenced in the rich level of nuance and content incorporated in the latter essays, when compared to "The Rich".

Although, for obvious reasons, I have abstained from including too many criticisms from Krugman's opponents, readers are invited to check them out. Some links provided below would allow some comparison. [6]

I mentioned that Krugman neglected the economic consequences of inequality. A topic Krugman neglected is underconsumption, and this is particularly puzzling and ironic, as he is a self-described Keynesian. As recently as 2008, Krugman was quick to dismiss without much thought any reference to underconsumptionist explanations to the crisis.

More recently, Krugman appears more open to that possibility, especially after becoming acquainted with data like the one in the first chart, although he still remains largely critical and, in my opinion, he misses the point altogether, which compounds the irony: this is another reason why inequality is not a matter of personal preferences. But I am editorializing here and a treatment of this matter falls outside the scope of this text.

Another related subject where Krugman's views appear oddly dated is MMT. As others, much better qualified than me, have commented on this, I will not treat this here. Instead, I will direct readers to some of the discussion:

Krugman's "What Are Taxes For?" (at Krugman's NYTimes blog, 21-04-2011) opens the debate, to which Bill Mitchell replies "Who the Cap Fits?" (at Mitchell's BillyBlog blog, 22-04-2011).

Finally, another related subject, and one where Krugman's views have changed (in my opinion, for the better) is foreign trade. This is another long debate, and one which I will not treat here, as this post is already too long.

References:
[1] "The Rich, the Right and the Facts: Deconstructing the Income Distribution Debate". The American Prospect, September 1992. Although the date in the link is 19-12-2001, this article was published in the September, 1992 issue of The American Prospect.

[2] "The Spiral of Inequality". Mother Jones, November 1996.

[3] "Jack and Jude". Email from Jude Wanniski to Mother Jones commenting on Paul Krugman's "The Spiral of Inequality". October 29, 1996.

Krugman's reply to Wanniski:
"Hey Jude". Email from Paul Krugman to Mother Jones replying to Jude Wanniski. November 1, 1996.

[4] "Rich Man, Poor Man", Hoover Digest, October 30, 1997, No 4. Ken Arrow and Kenneth Judd interviewed by Peter Robinson.

[5] "For Richer". The New York Times, October 20, 2002.

[6] "Income Inequality Archive". Contains a chronology and resources on inequality:

Photo Credit:
Paul Krugman. Wikipedia

Carry On Thinking

2011-12-26T00:21:00.000-08:00

Be honest, you did not know there was a Reader's Digest version of The Road to Serfdom. Well, there was.

Adam Curtis' tongue-in-cheek (?) account of the origins of think tanks: The Curse of Tina.

Fascinating/entertaining/scary reading. And it's got photos and videos!

Circular Reasoning

2011-12-10T22:40:00.000-08:00

Socrates. Louvre. [1]

Socrates is a man.
All men are mortal.
===================
Socrates is mortal.

Let's begin from the beginning: what is a sentence? A sentence for our purposes is a sequence of subject, verb and predicate, in that order.

Above we have three examples; in the first one, the subject "Socrates" is in red, the verb "is" and the predicate "a man" are in blue.

Together these three sentences (aka statements) constitute a well-known example of valid deductive argument, where the first two sentences (the premises) provide evidence for the conclusion (the last sentence).

Considered as an argument, one could read the three sentences above like this:

Given that "Socrates is a man" and that
"All men are mortal",
it must be the case that
"Socrates is mortal".

Let's call this Version 1 of the argument.

And the argument is said to be valid because the conclusion ("Socrates is mortal") follows logically from the premises ("Socrates is a man" and "All men are mortal").

Note something in this example: the subject of the first premise ("Socrates") and the predicate of the second ("mortal"), both represented in red and joined by a variation of the verb ("is" replacing "are"), form the conclusion: "Socrates is mortal".

That is, in the example the conclusion is formed by recombining pre-existing elements of the premises. [2]

Let's sum things up: deductive logic allows to produce new knowledge (the conclusion), from a known set of premises which are assumed true. If the premises are indeed true, the validly deduced conclusion is inescapably true.

However, as the example shows, the conclusion is also limited by the premises (here, by the pre-existing elements recombined).

To explain this last point: from the two premises given one cannot conclude "Skippy is a bush kangaroo" (because, in the premises, neither "Skippy" is a subject, nor "a bush kangaroo" is a predicate); it's not possible to conclude either that "Socrates is not a mortal" (because it does not follow logically from the premises). And one cannot conclude "Socrates loves me" (even if you were a male), because "to love" is not a verb available.

In this sense, conclusions validly derived from a set of premises are always determined by those premises.

Let's now consider this: the premise "Socrates is a man" informs us that Socrates is an element of the set of men; this way in the premise "All men are mortal" the subject "All men" can be considered shorthand for a list of all individuals in the set of men, including Socrates! In other words, the subject "All men" is equal to the list "1st guy, 2nd guy, ..., Socrates, ..., and Last guy".

So, one can delete the first premise and, using our list, rewrite the second as "1st guy is mortal" and ... and "Socrates is mortal" and ... and "Last guy is mortal".

So, by replacing the old premises with the new ones, Version 1 of the argument, originally stated as:

Given that "Socrates is a man" and that
"All men are mortal",
it must be the case that
"Socrates is mortal".

Can be re-stated now as:

Given that
"1st guy is mortal" and ... and "Socrates is mortal" and ... and "Last guy is mortal",
it must be the case that
"Socrates is mortal".

Let's call this, Version 2 of the argument. Compare this second version with Version 1, above.

One finds that the sentence "Socrates is mortal" appears twice in Version 2: as premise and as conclusion. We concluded where we started from: the reasoning moves in circles.

When this happens in informal logic, as one finds in texts and conversation, it is a logical fallacy, not surprisingly called "circular reasoning": the argument is meant to prove that the conclusion is true, based on premises presumed to be true. And in this case one of the premises is the conclusion.

What is all the fuss, the reader could ask. It's only a matter of checking for repeated sentences, isn' it?

Not quite. As it happens, in informal logic, unlike the example, the same sentence can be re-written in many different forms with the same meaning and it can be difficult to notice that two apparently different sentences in reality are the same.

Further, as my example shows, even if the argument is fallacious (as it was in Version 2, if we consider it as an informal logic statement), this does not mean that the conclusion is false (because it's the same conclusion of Version 1). Further, my ingeniously crafted example shows an additional fact: a valid argument (Version 1, for instance) could be re-stated as circular reasoning (Version 2) and a circular reasoning evidently could be re-stated as a valid argument.

The main points are: (1) all valid conclusions are determined by the corresponding premises; (2) it can be tricky to correctly identify a fallacious circular argument, and (3) simply to claim that an argument is circular does not prove its conclusion false.

In consequence and generalizing a bit: the sure way to oppose an argument is to demonstrate that either (1) the conclusion does not follow from the premises (if it doesn't indeed) or (2) the premises are false (if that's really the case).

I don't know whether this reflects the readers' experience, but I have often encountered the "circular reasoning" wildcard applied rather indiscriminately, while surfing the web and even in formal readings.

It works like this: someone argues something you don't like, but you can't challenge the validity of the argument or its premises. Easy way out: Yell "circular reasoning" like crazy.

I may provide some concrete examples of this and related issues in the not-so-distant future.

Photo Credit:
[1] Socrates, Louvre Museum. Wikipedia.

Notes:
[2] Strictly speaking, the examples here are part of Predicate Logic, but the main points apply regardless to other forms of logic, and particularly to informal logic, which one commonly finds in web discussions.

One Image is Worth a Thousand Words (III)

2011-11-24T21:38:00.000-08:00

Dedicated with love to Lieutenant John Pike.[1]

Photo Credit:
[1] KnowYourMeme: moshimoshi167 (You rule!)

I Told You so

2011-11-21T00:43:00.000-08:00

Man I was so busy with other things, that I missed this:

"Get Real. Wage Growth is More of a Wage Crawl
"Wage growth has slowed to a crawl, confounding doomsayers who have warned of a wages breakout emanating from mining and giving the Reserve Bank more room to cut interest rates." (See here)

I know. I should not gloat. Gentlemen don't gloat, they are gracious.

It's not cool to gloat when you are right and about every-fucking-body else (especially pro-business "experts", bosses, journos and sundry eggheads) is wrong and obviously so.

But, dammit, I ain't no gracious gentleman. I am poor and I work for a living, so I'm rude and crude, and, quite frankly, I don't give a shit:

Toldya so.

(See here and here and here).

Chronicle of a Death Foretold

2011-11-20T23:31:00.000-08:00

Mariano Rajoy [1]

The Spanish general elections took place today and the results were largely expected: the "socialist" PSOE lost, the right-wing PP won. Mariano Rajoy (a former bureaucrat under the Francoist regime) will assume as PM next December.

What may have surprised is how badly the PSOE lost: its poorest result ever (29.32% of valid votes for the lower house, compared to 43.87% in 2008, for a -15.14% fall).

Participation: actual valid votes from voting age population.
Party votes: percentage of valid votes.
Source: El País.

And although the PP captured some of the former PSOE votes (44.61% now, against 39.94% in 2008), the majority of former PSOE voters voted for minor parties.

IU increased its lower house representation from 2 to 11.

How does this election leave parliament?

The PP increased its absolute majority in the upper house (Senado), and achieved absolute majority in the lower house (Congreso de Diputados): 186 out of 350. Thus, the road is open for the PP to apply its programme, according to this AFP dispatch, published in the SMH today:

"Though considered uncharismatic, Rajoy won support from voters lured by his promise to fix the economy and create jobs, even if it means more austerity.
"He vowed to make cuts 'everywhere', except for pensions, so as to meet Spain's target of cutting the public deficit to 4.4% of gross domestic product in 2012 from 9.3% last year." (See here)

Other measures:

tax reductions for financial investments and corporate taxes;
reduction of tax incentives for home buyers;
industrial relations reform (collective bargaining at firm level, against industry level);
a bankruptcy-like procedure to apply to mortgagors in arrears;
employers subsidy for new hires. (See here. Spanish.)

Why did the Spaniards vote for such a party?

The chart above does show that the percentage of PP votes was already increasing. Apart from its promise to "fix the economy and create jobs, even if it means more austerity", the AFP/SMH dispatch mentioned above hints to a further reason:

"Prime Minister Jose Luis Rodriguez Zapatero's government was blamed for reacting late to the 2008 property market implosion, which combined with a global financial crisis to throw millions out of work."

But the most revealing passage in that dispatch, to me, is this:

"Octavio Arginano, a retired 67-year-old factory worker, said he voted for the right for the first time in his life.
" 'My son has been unemployed for over a year, my daughter earns just 600 euros ($A810) a month looking after young children,' he said as he left a polling station in Madrid.
" 'There has to be a change, although I am not sure anyone knows what to do to get us out of this situation.' "

Lo siento Octavio, pero creo que te vas a llevar una sorpresa desagradable. No todos los cambios son para mejor. Vamos a ver qué opinas dentro de un año.

I'm sorry, Octavio, but I believe you are in for an unpleasant surprise. Not all changes are for the better. Let's see what's your opinion in a year's time.

Including Spain, so far five European governments did not survive the crisis. Would this phenomenon be over, or is this just the beginning?

I can't say for sure, but the Rajoy Government could have a very short-lived honeymoon...

Update:

23-11-2011. Just 48 hours since the PP won the Spanish general elections, and yesterday "the annualised interest rate Spain had to pay more than doubled to 5.11%, from 2.29% at the last auction in October." (See here)

Where are the confidence fairies?

Photo Credit:
[1] Mariano Rajoy. Wikipedia

Good News... Bad News...

2011-11-20T01:05:00.000-08:00

So, is a change of Government a good or a bad thing for countries like Spain, Italy or Greece?

Let me answer as a Latin American politician once did: "Ni lo uno, ni lo otro, sino todo lo contrario" (my translation: neither the former nor the latter, just the opposite).

More precisely and cautiously, if not so colourfully: it would not improve things for the majority. Let me reason this considering Mario Monti and Italy. The cases of Spain and Greece largely follow from analogy.

Mario Monti [1]

Mario Monti, current Italian Prime Minister replacing Silvio Berlusconi, had a distinguished education and successful career, in academe, the bureaucracy and the private sector. That is undeniable.

His career in the private sector included a senior advisory role for Goldman Sachs. In this, his experience is shared by a remarkable number of prominent economists currently (or at least until quite recently) in position of authority throughout Europe:

Karel van Miert (Belgium): former EU Competition Commissioner and ex international advisor to Goldman Sachs.
Otmar Issing (Germany): former board member of the Bundesbank and ECB, advisor to Goldman Sachs.
Mario Draghi (Italy): ECB head, former managing director of Goldman Sachs International.
Peter Sutherland (Ireland): former Attorney General of Ireland, non-executive director of Goldman Sachs International.
Antonio Borges (Portugal): former head of European Department (IMF), former vice chairman of Goldman Sachs International.
Lucas Papademos (Greece): Greek current PM, former head of Greece's central bank at the time of derivative deals with Goldman Sachs, enabling Greece to "cook" its books on public debt.
Petros Christodoufou (Greece): head of the Greek debt management office and former Goldman Sachs. (See here)

One of Monti's positive characteristics, it has been argued, is that he is a technocrat, without links to partisan policy.

I will not argue here why this is not necessarily a good thing: it could make this post too long. Instead I will simply remark that Monti, to be appointed Prime Minister, had also to be previously appointed Senator for Life, by president Giorgio Napolitano. (See here. In Italian)

This may be a perfectly constitutional process, I will not argue otherwise. However, in my mind, to be "elected" Senator when one single vote was "cast" (Napolitano's) cannot be reconciled with the notion of democracy.

If I had to speculate, I'd say it means Monti does not owe his position to popular decision, but to whatever group supported him. And I might be unduly suspicious, but this is where Goldman Sachs comes into play.

It would also mean that Monti has little in the way of legitimacy and eventually the Italian electorate is bound to find that, particularly if the new government attempts to impose severe austerity measures.

Further, it could mean Monti has little political support from the parties, if his tenure as Prime Minister becomes too unpopular.

Is the Spanish case different? It remains to be seen.

Photo Credits:
[1] Mario Monti. Wikipedia.

Where is My Mind?

2011-11-17T21:21:00.000-08:00

"Where is my mind?
"Way out in the water, see it swimmin' "(The Pixies, "Where is My Mind?")

I'll admit it: I'm confused.

In my mind, Silvio Berlusconi was a conservative media/finance/real estate tycoon cum politician. He introduced labour market deregulation policies (so-called "Legge 30" or "Legge Biagi"); during his second period as PM, he increased the retirement age from 58 to 60 years (the "riforma Maroni", turned back after he lost the following elections) and abolished the inheritance tax (reinstated after he lost the following elections). Politically, he was a supporter of the War on Terror.

In fact, in my confusion, I'd have thought he was a more politically extrovert, personally more colourful and flamboyant version of our very own Rupert Murdoch, with a dash or two of Donald Trump.

That's why I can't understand that the local right wing commentariat seem to put Berlusconi next to those nefarious social democrats and bureaucrats guilty of pushing Europe to the brink. Take, for instance, Paul Sheehan quoting with approval a Pierre Ryckmans (presumably a very well-known name among right wing types):

"He summed it up with this: the European social democrats, and their allies in the bureaucratic class, have been living in a fantasy world that is now unravelling." (See here)

I mean, it's not cool to abandon a fellow right winger (and a very rich one, at that) in distress, on top accusing him of being a pinko (horreur!), just because he fucked things up big time, and other right wingers, like Frau Merkel and Monsieur Sarkosy, deposed him... Or (gasp!) does Sheehan mean they are also lefties?!

But my confusion does not end there.

I know most Italians were pissed off at Berlusconi. I can understand that. But I can't understand these images:

As I see it, the question is not so much that Silvio Berlusconi was quicked out of power: the question is who is replacing him, who put him there and why?

The same thing is happening in other European countries: people desperate are putting their hopes in what they would like to be an alternative, without realizing that this so-called alternative is no better than what they currently have.

I'm looking at you, Spain. The next elections are due to take place this weekend.

More on this in a following piece.

Obama in Oz

2011-11-16T02:49:00.000-08:00

While Barack Obama visits Australia, this is what the NYPD does to peaceful demonstrators carrying court orders affirming their right to go to Liberty Square.

There is a cop filming the incident. My question is: will the footage be used to investigate what looks like an assault against civilians, or to persecute the demonstrators?

Democracy? My ass.

Unilateral Trade, Tax and Circus

2011-11-09T01:07:00.000-08:00

"Fortescue, Labor Trade Blows on Mining Tax" is how the ABC's The World Today entitled its report on the hearing into the mining tax in Canberra, today. (See here)

As far as trades go, I'd say the "terms of trade" were quite "favourable" to the Labor MP: he gave little and received a lot. Something like a "unilateral trade": it reminded me of an inverse "shitty deal" US Senate hearing. (See here)

A little background information for overseas readers: after deposing former Labor PM Kevin Rudd last year due to the big mining corporations' opposition to the Resources Super Profit Tax (RSPT, for short), the Federal Government (headed by Labor PM Julia Gillard) is now trying to resurrect the RSPT (rebranded Mining Resource Rent Tax), with the same opposition from the miners and their conservative political minders in the Australian Liberal Party. (Don't ask: this is the antipodes and things here are upside down).

Anyway, beyond the niceties (or lack thereof) in the exchange, the most interesting part of the "dialogue" between Julian Tapp (believe it or not, head of Government Relations, Fortescue Metal Group Ltd) and Labor MP Andrew Leigh is this:

"JULIAN TAPP: We're also paying circa $450 to $500 million a year on current production levels in WA state royalties. So I do not agree that Fortescue does not contribute its fair share.
"ANDREW LEIGH: But in terms of corporate tax paid it wouldn't be correct to describe Mr Forrest as a tax payer, would it?
"JULIAN TAPP: Mr Forrest isn't a company. Fortescue Metals Group is the company.
"ANDREW LEIGH: But as things currently stand, it wouldn't be correct to describe it...
"JULIAN TAPP: We have not cut a corporate tax cheque today, no." (Emphasis added)

In case the readers missed the detail, Stephen Dziedzic, ABC reporter, made it clear:

"Dr Leigh also pushed Fortescue to say how much tax it's paying at the moment. The company admits it has not yet paid company tax but says it will pay up to $800 million this financial year". (Emphasis added).

Or, according to Senator Chris Evans (Government Senate leader):

" 'They [Fortescue Metal Group, that is] have never paid a dollar in company tax to date and they want to resist having to pay the Mining Resource Rent Tax,' Senator Evans said." (Emphasis added. See here)

But if the situation were not absurd enough, the timing of its release is insuperable. Just today, former Liberal Federal Treasurer, Peter Costello, published an op-ed in the SMH, stating:

"Australia has a decisive advantage in mining. It is carrying the Australian economy, but the old taxes such as company tax and royalties are not enough. The government thinks we need new taxes as well." (See here)

So, there you have it: Peter Costello warning about taxes strangling mining corporations... that don't pay corporate taxes.

To close in an appropriate note:

Note: this march is named "Entrance of the Gladiators" and was composed by Julius Fucík (between the C and the K there is an I!!!).

The Eurozone Crisis in 22 Words

2011-11-07T23:28:00.000-08:00

Paul Mason summarises the facts about the current state of the Eurozone crisis in 22 words and a chart:

The Eurozone Crisis: Who Can do What

A few days ago a picture of German chancellor, Frau Merkel, seemed to summarise the global economic outlook in one image:

Merkel Calls for European Unity at End of Tumultuous Week

I have only one thing to add: capitalism sucks.

Berlin, March 15, 1939.

2011-11-03T18:33:00.000-07:00

Hácha (second from the left), Hitler, Goering and other officials [1]

Less than 6 months after the Munich Agreement was signed (30-09-1938), what remained of the former Czechoslovakia was in crisis, again.

Abandoned by their French and British allies, the Czech government was forced to give the Sudetenland to Nazi Germany, plus other territories ceded to Poland and Hungary; while Slovak nationalists, instigated by the Nazis, were pressing for the independence of Slovakia.

Emil Hácha [2]

Edvard Beneš, who presided over the Czech government during this earlier crisis, self exiled to London out of fears for his life, leaving the 66-year-old conservative Emil Hácha as president of Czechoslovakia (appointed in November 30, 1938).

In reply to his own request for a face-to-face meeting, president Hácha was summoned to Berlin by the German chancellor, Adolf Hitler.

Hácha and his Foreign Affairs Minister (one M. Chvalkovsky, according to reports by the French Embassy), arrived in Berlin on March 14, 1939.

Summoned to the Chancellery in that evening, the two Czech ministers were kept waiting until 01:15/01:30 am, when they were taken to the Fuehrer's study.

After hearing Hácha's pleads on his shrinking country's behalf, it is said Hitler went into a rage, finally giving Hácha a document prepared earlier, by means of which the Czech government requested Nazi protection.

If Hácha signed the document, the "entry of German troops would take place in a tolerable manner" and it would "permit Czechoslovakia a generous life of her own, autonomy and a degree of national freedom...", otherwise "...resistance would be broken by force of arms, using all means", starting with a massive aerial bombardment of Prague next morning. (See here)

As Hácha and Chvalkovsky were still reluctant to sign, Hitler left his visitors in the company of Hermann Goering (head of the Luftwaffe) and Joachim von Ribbentrop (Foreign Affairs minister).

Under relentless pressure, Hácha, who had a weak heart, collapsed to the floor, apparently due to a heart attack. Hitler's personal physician, Dr. Theodor Morell, who was standing by for any eventuality, rushed in and assisted Hácha.

At 3:55 am, Wednesday the 15th, a badly shaken Hácha signed the document.

Czechoslovakia ceased to exist as an independent nation until the end of WW2.

DISCLAIMER:

Any similarity between this historical incident and the sudden change of mind of Greek prime minister George Papandreou on the matter of the referendum, after meeting last Tuesday 2nd with French president Nicolas Sarkosy and German chancellor Angela Merkel in Cannes, is surely mere coincidence (right?):

"Merkel, Sarkozy Read Riot Act to Greece". ABC. November 3, 2011.
"Greek PM Papandreou 'Ready to Drop' Bailout Referendum". BBC. November 3, 2011.

Photo Credits:
[1] Hitler and Hácha at the Chancellery. Bundesarchiv, B 145 Bild-F051623-0206 / CC-BY-SA. Wikipedia
[2] Emil Hácha. Wikipedia.

Further Information:
Nazis Take Czechoslovakia. The History Place.
The French Yellow Book. No. 77. The Avalon Project. Yale Law School.

UPDATE:

05-11-2011: Paul Mason asks Nicolas Sarkozy: "It's evident that you and Mme Merkel (...) are trying to change the governments of Italy and Greece. How is that just? And once it's started, where does it stop?"

Hayagoin'?

2011-10-19T00:25:00.000-07:00

Today is 19-10-2011. To celebrate:

Hayagoin' YM?

Sun Shines Over Half the World

2011-10-16T02:53:00.000-07:00

Puerta del Sol, May 20, 2011 [1]

This is how Spain's El País reported (16-10-2011) the occupation of Puerta del Sol in Madrid:

"The Puerta del Sol [Sun's Gate] overcrowded; people together, excited, chanting against banks and politicians; the people, the euphoria. The 15-M [Spanish indignants: indignados] had yesterday a new historic day. And this is the third in its short existence, barely five months old. The movement born of outrage in the streets in Spain exported its protest to half the world: Tokyo, Sydney, Auckland, Kuala Lumpur, Buenos Aires, Santiago de Chile, Los Angeles, São Paulo. (...)
"In the crowded assembly of the Puerta del Sol it was released the figure of half a million attendees. In Barcelona, the authorities spoke of 60,000, while organizers claimed it was 400,000." (My translation. See here)

And this is what The Economist had to say (14-10-2011) about the Indignados:

"THERE was no rock-throwing or tear gas, but on July 9th Spain's polite 'indignant' protesters still chalked up a victory. After being endorsed as the ruling Socialist Party's candidate for prime minister in the election due by next March, Alfredo Pérez Rubalcaba used his acceptance speech to propose electoral reform. This might not sound much. But Mr Rubalcaba's call for Spain to adopt Germany's voting model, so as to install proportional representation but still let people choose their local deputies, was a direct sop to the movement that spontaneously occupied city squares in mid-May, claiming that the politicians 'don't represent us'." (See here)

Image Credits
[1] Puerta del Sol, Madrid. 20-05-2011. Wikipedia

Capitalism without Sugar Coating

2011-10-15T15:36:00.000-07:00

A colourful outside: what's inside? [1]

A few days ago (October 11, 2011) the BBC published "Where Child Sacrifice is a Business", by Chris Rogers. BBC News, Kampala:

"The villages and farming communities that surround Uganda's capital, Kampala, are gripped by fear. (...)
"In playgrounds and on the roadside are posters warning of the danger of abduction by witch doctors for the purpose of child sacrifice.
"The ritual, which some believe brings wealth and good health (...) has re-emerged, seemingly alongside a boom in the country's economy".

The idea is that a "customer", resolute to achieve business success and wealthy enough, pays the witch doctor his apparently considerable "fees", in exchange for his "consulting services":

" 'There are two ways of doing this,' he [Awali, i.e. the alleged witch doctor] said. 'We can bury the child alive on your construction site, or we cut them in different places and put their blood in a bottle of spiritual medicine.'
"Awali grabbed his throat. 'If it's a male, the whole head is cut off and his genitals. We will dig a hole at your construction site, and also bury the feet and the hands and put them all together in the hole'."

This is what the search for profit and business success looks like in Uganda.

Mind you, things are much different in developed nations, right?

Judge by yourself, after this passage, from last Monday's Four Corners ("Sex Slavery", by Sally Neighbour and Peter Cronau, 10-10-2011, joint investigation Fairfax Media/ABC Four Corners):

SALLY NEIGHBOUR [reporter]: "What about the men who pay to have sex with these women? Have you got a message for them?"
CHRIS MCDEVITT [Australian Federal Police, Human Trafficking Unit]: "I absolutely do have.
"They want to be careful, because if they knowingly go into these situations and knowingly use somebody who is subject to slavery, they can find themselves at the end of a criminal charge.
"And I would have no hesitation - and indeed would relish the opportunity - of locking anybody up that was actually involved in that knowingly. It's disgraceful.
"That's the market. That's where the profit is."

That's capitalism without sugar-coating. As Neighbour put:

SALLY NEIGHBOUR: "Like most businesses the flesh trade survives on consumer demand. A key reason why sex trafficking thrives is that customers want Asian women, who are reputed to be more submissive and more compliant with demands such as unsafe sex."

----------

Further Information:
The Four Corners Sex Slavery report contains additional information (see bottom of the page). It links to abundant recent written coverage of the topic (largely by Fairfax Media), including the alleged murder of Australian citizen Abraham Papo, and to institutions focused on fighting slavery in general (apart from sexual slavery, there is labour slavery, not covered in this news item).
To report a suspected case of human trafficking, call the Australian Federal Police on 131 AFP (free call), or Crime Stoppers on 1800 333 000.
I don't know if there is something that can be done about the Ugandan murders.

Congratulations to the BBC Kampala bureau, Fairfax Media and the Four Corners team for their courageous reporting.

Image Credits:
[1] Multicolored chocolate buttons. Wikipedia.

Occupy Sydney Day 1

2011-10-14T22:59:00.000-07:00

Saturday October 15.

14:38 I arrived at Martin Place Train Station.

After a rain that lasted all night and continued through the morning, a magnificent Sydney springtime afternoon (22 C).

More people than I expected, to be honest.

At the lousy loudspeaker, a lady on a wheel chair. I couldn't quite catch her meaning, but she was speaking about Aboriginal issues.

Many attendants were quite young, with that nice middle-class kid and uni student look to them. Big smiles in their faces. It's hard to believe, but once I probably looked like that.

Mostly lefties (from all flavours: tiny groups, micro-groups. atomic-size groups), but some "libertarians", as well. You could tell them because they were more serious, as befitting Young Liberals, I guess.

But there were other people too. Some older, probably long-time left-wing militants; middle-aged migrants protesting the Iran regime, or supporting this cause or that; refugee supporters, working-class looking people, including Maritime Union members; young backpackers and other more adult tourists speaking German and some Scandinavian language; some young Asian tourists having great fun, raising their fists clenched and laughing; ordinary looking people, pushing prams.

The Maritime Union stocky guy spoke well, very articulate and with excellent pronunciation: he did not really need a loudspeaker.

No apparent Greens or mainstream parties representation. Many cameras, but not a single one seemed to be mainstream media. No TV network vans.

Plenty of police around, but without riot gear and a rather relaxed air to them. Some of them were smiling: the nice weather, I tell you.

A group of well-dressed Caucasian adults were seating along Macquarie Street, away from the crowd, when a lefty militant distributing fliers approached them. Suddenly, one of the well-dressed guys, overweight, fortish, started yelling at the lefty: "why don't you ask for airstrikes against Syria?".

His companions, perhaps a bit uncomfortable with the attention they were attracting, tried to calm him down, but fatso would not stop. Finally, they and the lefty militant left him seating there.

There were also some Lyndon LaRouche fans, at the edges of the crowd. After speaking with some ladies, the skinny, gray hair, middle-aged man, with evident reluctance, decided to speak to me (after all, the wog -yours truly, that is- was the only one who seemed interested).

It takes all sorts, I guess.

15:52 I left. I have to work tonight.

Update:
15-10-2011 Zuccotti Park Cleanup Canceled, Occupy Wall Street Protesters Claim Victory. ABC News (US)
16-10-2011 "Indignants all over the world" photo gallery. O Globo (Brazil)
Occupy protests live blog Aljazeera in English

Bloomberg vs OWS

2011-10-14T01:28:00.000-07:00

A long overdue comment on Occupy Wall Street.

A few weeks ago NY City mayor, Michael Bloomberg, scored some points as a sensible man:

" 'We have a lot of kids graduating college, can't find jobs,' he said on his weekly radio show.
" 'That's what happened in Cairo. That's what happened in Madrid. You don't want those kinds of riots here.' " (See here)

When the Occupy Wall Street movement started, the reaction in the US to the occupiers was a kind of amused disdain. Abroad, they did not rate even that: during its first week or ten days, the local media simply ignored the protests.

Gradually, as the protests spread within the US, international attention started to focus on them. And that's when local media began mentioning the movement. Apparently, it could no longer be ignored.

In Australia the local right-wing commentariat (see here, or here), as expected, did not wait to pour contempt and half-truths on the movement (surprisingly and probably accidentally, between his ideologically based sophistry, Berg did make some good points about which I may or may not comment later).

And now, once the protests start to gain momentum, mayor Bloomberg threatens to evict the protesters.

Given his September statement about social unrest, I can only assume Bloomberg is aware of the potential violence his decision risks to unleash.

In this case, I must conclude Bloomberg, deliberately or not, is testing the resolve of the protesters.

But now, unlike a few weeks ago, what happens in NY City will be followed all over the world. The way events turn out in NY City will be followed closely and may influence in one way or another similar protests in the US and abroad, including Australia.

The NY City mayor is playing a dangerous game.

Update:

" ‘Indignant’ protests to sweep across world
"MADRID — 'Indignant' activists, angered by a biting economic crisis they blame on politicians and bankers, vow to take to the streets worldwide on Saturday in a protest spanning 71 nations.
"It is the first global show of power by the movement, born May 15 when a rally in Madrid’s central square of Puerta del Sol sparked a protest that spread nationwide, then to other countries." Agence France-Presse

The Writing's on the Wall

2011-10-13T01:23:00.000-07:00

"25 And this is the writing that was written, MENE, MENE, TEKEL, UPHARSIN.
"26 This is the interpretation of the thing: MENE: God hath numbered thy kingdom, and finished it.
"27 TEKEL: Thou art weighed in the balances, and art found wanting.
28 PERES: Thy kingdom is divided, and given to the Medes and Persians. (...)
"30 In that night was Belshazzar the king of the Chaldeans slain.
"31 And Darius the Median took the kingdom, being about threescore and two years old." Daniel 5

Belshazzar's Feast, by Rembrandt. [1]

The painting at the right is called Belshazzar's Feast and illustrates the biblical passage motivating this post. In it Belshazzar, king of Babylon, his vassals, their wives and concubines are feasting, when a hand writing an undecipherable text interrupts them.

Rembrandt's 1660 self-portrait. [2]

Worried, Belshazzar called Daniel from the Jews and Daniel interpreted the text, as the biblical passage says.

The painting's author was Rembrandt Harmenszoon van Rijn. His self-portrait can be seen at the left.

----------

Last week (03-10-2011) the Federal Court of Australia started hearing the class action initiated against S&P, ABN Amro (RBS, since 2010) and Local Government Financial Services (LGFS).

12 NSW councils are suing the three institutions for AU$ 16 million, for losses suffered by the councils with the Rembrandt CPDO, which was designed by ABN Amro, rated as AAA by S&P and acquired and resold by LGSF, at the same time financial advisor to the councils and Rembrandt reseller.

Michael West (Fairfax media) has a comprehensive background to the story:

"Although the likes of US pension funds have attempted to sue the agencies - indeed the Californian giant Calpers fund has been trying to get a case to trial for two years - this is the first case in the world to get to trial.
"In the US, the First Amendment protections for free speech have assisted the agencies in deflecting claims - so far at least. After all, they contend their ratings are 'just an opinion'.
"The importance of this lawsuit is that a successful claim could set a precedent for further actions for bogus ratings in Australia, and indeed worldwide." (See here)

Image Credits:
[1] Belshazzar's Feast, by Rembrandt. Wikipedia.
[2] Rembrandt's 1660 self-portrait. Wikipedia.

Little Mercies

2011-10-13T01:15:00.000-07:00

"The situation has remained terrible for so long that there is now a kind of defeatism that makes frustrated well-wishers eager to be thrilled by little mercies". Amartya Sen (see here)

Prof. Sen, in the quote above, is talking about Burmese politics.

Let's talk instead about unemployment in Australia, using the following two ABS charts (both coming directly from "Measures of Australia's Progress, 2010", ABS cat. no. 1370.0, here).

This chart tells a story quite familiar:

"For most of the last decade, the unemployment rate declined as a result of Australia's strong economic growth from a high of 6.8% in 2001 to a low of 4.2% in 2008. In the wake of the recent global financial crisis, the unemployment rate rose to 5.6% in 2009 before declining to 5.2% in 2010".

Not too bad, uh?

Let's now have a look at this other chart, from the very same ABS release:

Four things caught my eye in this chart:

It includes older data (it starts in 1966);
Unemployment during the first 6 years shown (the oldest data available) was under 2% (I kid you not: check by yourself!), and for the best part of first 12 years it was under 4%;
It clearly shows that unemployment has a way of going up quick, but falling slow;
The chart does not show the current fall in unemployment rate.

In fact, if the readers download Labour Force Historical Timeseries, Australia - Labour Force Status by Sex and Marital Status (ABS cat. no 6204), they'll find that it was only in February 1975 (well within the stagflation crisis of the 1970s) when unemployment reached 5.4% and thus became comparable with our current "relatively favorable" unemployment rates (5.6% average for 2009, 5.2% in 2010).

Interestingly, since 1975 the unemployment rate never returned to late 1960s/early 1970s levels.

This long-term picture isn't nearly as pretty.

----------

One question comes to mind after seeing the second chart: if employment is the main source of income for a majority, what kind of effect should a higher unemployment have on incomes? A priori, it would be reasonable to assume that an increase in unemployment reduces incomes for the bottom 90% income earners.

Given that ABS does not provide much data on incomes (see here), I'll use information provided by the World Top Incomes Database (WTID, last year available: 2007). The flip side of the coin is that the database focuses on higher incomes: it does not provide details directly on lower income earners.

The following chart provides some insight on this, combining ABS unemployment rate data and bottom 90% average income, from WTID:

It might be an artifact of the data available, but from 1966 and until the first half of the 1970s is not clear that average annual employment rate and the bottom 90% income average move in different directions.

In fact, both average annual unemployment rate and the bottom 90% average income would seem to move together: one rises, the other rises; one falls, the other falls. In other words, both variables appear to be moving in the same direction.

However, from the second half of the 1970s on, both variables clearly move in opposite directions: increases in the average annual unemployment rate tend to be accompanied by falls in the bottom 90% average income; the inverse also holds: one observes falls in average annual unemployment rate tend to be accompanied by increases in the bottom 90% average income.

And here is a scatter plot showing these relationships:

The blue plus signs correspond to the average annual unemployment rate and bottom 90% income averages for the 1978-2007 time period; the red circles represent the same data, but for the 1966-1977 period. The blue dotted line is the second degree polynomial fitted to the 1978-2007 data; while the red discontinuous line is the same model, but fitted to the 1966-1977 data.

It should be noted that perhaps there are too few data points within the 1966-1977 data set, to conclude anything (as indicated by the low R^2). Therefore, the impression that income and unemployment move in the same direction during this period is not confirmed, although it seems evident that a different process underlies this data.

The fit for the 1977-2007 data set, however, seems much more conclusive: in effect, within the data range, it is clear that unemployment decreases incomes.

As can be seen, two apparently very different results.

Conclusion:

Short-run data showing unemployment decreases only show improvements from a really bad starting point. That data is regularly released by the ABS (cat. Nos. 6291 and 6202, for instance).

These improvements overshadow the fact that unemployment remains at a much higher average level than it was during the 1960s. The 1960s data available also comes from ABS (cat. No. 6204).

However, short term changes get reported by the media, while the long-term picture, some academics excepted, is all but ignored. Thus, a fall of tenths of a percent in the unemployment rate tends to influence public opinion, even though the average level on unemployment is more than double what it could be.

This conclusion is reinforced by the fact that underemployment figures seldom receive any mention.

On a related matter: if the unemployment and income data available are reliable, something must have changed fundamentally in the Australian economy during the late 1970s and early 1980s to change the relationship between unemployment and incomes. From the data alone I cannot formulate any explicative hypothesis (any pertinent feedback is welcome)

However, given that currently unemployment and incomes move in opposite directions, the current higher unemployment figures (relative to the 1960s) lead to the conclusion that incomes for the bottom 90% income earners must have suffered, in comparison to what they could be.

In a previous post I showed how the top 1% average incomes diverged from the bottom 90% average incomes, pulling with it average incomes. The increase in inequality reported in that piece, which started in 1983 (at the beginning of the Hawke government), implies that average income is not an accurate indicator of economic well-being for the majority of Australians and that this systematic inaccuracy is increasing over time.

And this is particularly troubling, as average income is the main indicator of economic well-being in Australia, and income, with all its limitations, seems to have a relatively low priority within the ABS research agenda.

On the basis of these two observations, I must conclude that the ABS's Measures of Australia's Progress 2011 (see here) are of strictly limited value to assess the long-term improvement in living conditions for Australians, at least in what refers to income and employment.

Tax Forum? D'oh!

2011-10-10T02:49:00.000-07:00

Last Tuesday 04/10/2011, watching "our" ABC's 7:30, reporting on the Canberra Tax Forum summoned by the Federal Government, I've heard this:

"STEPHEN LONG [reporter]: There was indeed an extraordinary consensus at the Tax Forum, on the left and the right, that at least for the long-term jobless, the unemployment benefit is too low, and some of the comments would have been the last thing the Government expected.
"JUDITH SLOAN, ECONOMIST: I do think that issue about the gap between the Newstart Allowance and the other pensions is an enormous one.
"STEPHEN LONG: Professor Judith Sloan said the low payments hit older workers hard, as they're unemployed for three times longer than the average.
"JUDITH SLOAN: We have to understand that the dole, unemployment benefits, Newstart, was there as a short term transitional payment, but if people are unemployed for a long period of time, the issue of adequacy really becomes important - and, indeed, their ability to successfully find employment becomes important. There is going to have to be something done.
"STEPHEN LONG: Let's put those views in context. Professor Sloan's no bleeding heart. She's a prominent libertarian economist: free market leaning, dryer than dry, a champion of labour market deregulation. If she's saying the Newstart Allowance is inadequate, demeaning and doesn't help people get back to work, sit up and listen. Comrade Jeff Lawrence, president of the ACTU, was amazed by his unlikely bed fellow." (See here).

I must admit, I was every bit as shocked as Mr. Long: don't get me wrong, the so-called Newstart Allowance (aka dole) had been kept at misery levels since forever: "If you had an unemployment payment and rent assistance, after you paid your rent you would have $16.50 a day for everything else and looking for work," said former OECD economist Peter Whiteford of the Social Policy Research Centre, UNSW. (See here)

So, that isn't really news. What surprised me is that experts like Prof. Sloan finally learnt of it.

But the surprise was short-lived: "Community Services minister Jenny Macklin said she understood the concerns but hoped delegates understood 'the budgetary issues that we face'."

That's the thing with tough Government decisions: these guys have such a hard time making your life shit. You've gotta understand her.

No More Mr. Nice Guy

So, Tuesday big business was so nice to ask loudly but not forcefully for a higher dole (and pushing quietly for corporate tax cuts), while the Government was taking tough decisions.

By Wednesday things changed a little:

"ANDREW ROBERSTON [reporter]: With debate today centring around personal taxes, Dr Henry [former Treasure secretary] said they should be fair. Business lobby groups that yesterday called for a cut in corporate tax rates today argued for a cut to personal income tax rates too.
"GREG EVANS, POLICY DIRECTOR, ACCI: 'Well, ACCI welcomes the proposed reduction in the company tax rate; it is a significant area of unfinished business that we need to more closely align the top marginal rate with the company tax rate'.
"ANDREW ROBERSTON: Unlike the company tax discussion, though, debate about personal tax wasn't completely along ideological lines. Investment banker Mark Carnegie argued strongly that the top 15 per cent of earners should pay 15 per cent more tax." (See here)

Well, they didn't change, except for this:

"MARK CARNEGIE, MH CARNEGIE & CO: The number of individual winners in Australia is shrinking all the time. The economic rents of capitalism are shrinking to a smaller and smaller group of people. Unless those people are willing to stand up and say, 'We will shoulder some of the societal responsibility', we will be facing the sort of nightmare that Europe and the US has at the moment."

Who would have guessed, an investment banker talking about inequality is unusual enough. But talking about economic rents and on top warning about social unrest? Holy Mother of God! I am discombobulated, but I imagine Chris Berg must be speechless,

Then came the talk about the tax-free threshold (which I already mentioned here):

"The Treasurer, Wayne Swan, said the government's first priority was to lift the tax-free threshold to $21,000, which would deliver every wage earner a modest tax cut and free 1.2 million people from paying any tax. It would be worth about $500 for someone earning $60,000. [Not quite woo-hoo but better than nothing, you'd say].
"The threshold, now $6,000, was scheduled to rise to $18,200 next year and $19,400 by 2015 as part of the compensation arrangements associated with the carbon tax. [What?!]
"Although Mr Swan said the increase to $21,000 would occur 'when we think it is affordable to do it', it is likely to be implemented before the next election. (...) [D'oh!!] (See here)

And, there's a little detail: they will increase the tax-free threshold to $21K (eventually, you'll understand), but will also eliminate the low-income offset... Moda Fukami!!! (that's supposed to be Japanese for "d'oh". Don't ask me; I don't speak Japanese: Homer and Bart do).

And now we see how pressing those "budgetary issues that we face" really are:

"ANDREW ROBERSTON: The forum ended with the Treasurer announcing a working party to investigate reform of business taxes [aka tax cuts].
"WAYNE SWAN, TREASURER: The purpose of that business tax reform working group is to bring together business leaders, tax experts, unions. It will be supported by the Treasury." (Emphasis added)

Mind you, the idea is to have experts and technocrats discussing serious matters, for the greater good, in a calm, cool and sober atmosphere, away from the prying eyes of those who, like us, have little to contribute to the discussion, and whose only role is to pay taxes.

But you understand, don't you?

----------

Anyway, keep voting Labor or the Coalition: I'm sure they'll do the right thing... after they deal with those "budgetary issues that we face".

I, Capitalism

2011-09-27T01:40:00.000-07:00

This young man's words (h/t occasional links and commentary) may shock you or not (they did seem to have affected the BBC crew, though). You may praise or condemn him for saying them.

All that is irrelevant.

What he said undeniably makes sense for him and those like him. They are legion, their collective name is Capitalism and they will do what they want. And that's it.

What you do is up to you.

Marx understood this and warned you. Modern "progressives" never understood, and mock Marx (without reading him!) for understanding.

So, dear "progressives", let's all hold hands and sing "Kumbaya My Lord".

I'm sure that will make this young man change his mind.

Update:
28-09-2011.

Is Alessio Rastani a hoax?

According to The Daily Telegraph (UK), yes, he is. More precisely, "I'm an attention seeker not a trader".

According to the BBC, where the original interview was conducted, no, he is not: "Trader was not a hoaxer, says BBC".

The Daily Mail Online contains a comprehensive summary of the controversy.

And The Sydney Morning Herald (12:04 pm, exactly 23 minutes ago) published Mr. Rastani's declarations, from a phone conversation (which I highly recommend).

Whatever the final answer, I apologize unconditionally to my readers. Although I did check his Facebook, Twitter and LeadingTrader website, I should have waited until the all too predictable controversy was settled.

Congratulations, Prof. Keen!

2011-09-26T02:26:00.000-07:00

Prof. Steve Keen (UWS) was in the news today because he won an Institute for New Economic Thinking grant to continue his research. The INET was founded in 2009, thanks to a donation by George Soros and counts with Nobel laureate Joe Stiglitz, among other notables, in its advisory board.

I also note that Duncan Foley's name is associated to the INET.

Steve has been funding his research from his own pocket and from donations. This is a much deserved recognition.

Congratulations, Prof. Keen!

Another G-20 Meeting

2011-09-25T01:11:00.000-07:00

I am a big fan of the BBC's Paul Mason. I find his pieces often insightful and accurate.

The piece that motivates me today is no different. But this piece hit home in a very striking manner.

The G-20, as the readers know, is the group of 20 "Finance Ministers and Central Bank Governors" of the twenty largest industrialized and developing national economies, including Australia.

Well, Mason quotes paragraph 10 of the "G-20 Leaders' Statement", Pittsburgh Summit (USA), September 25, 2009:

"10. We pledge today to sustain our strong policy response until a durable recovery is secured. We will act to ensure that when growth returns, jobs do too. We will avoid any premature withdrawal of stimulus. At the same time, we will prepare our exit strategies and, when the time is right, withdraw our extraordinary policy support in a cooperative and coordinated way, maintaining our commitment to fiscal responsibility." (Emphasis added. See here)

And this is what Mason says:

"This is what did not happen. Fiscal expansion turned to fiscal crisis all across southern Europe; the ECB raised interest rates in the face of depression gathering at its periphery. The US legislature used a technical vote to cause a fiscal crisis, removing the country's AAA rating and convincing markets that no further fiscal expansion is possible. (...) The issue, all along the line, is economic orthodoxy. The world's leaders chose to split the difference between the anti-Depression policies of nationalisation, breaking up the banks, running huge fiscal deficits and printing money - with a half hearted version of each of these measures." (Emphasis added)

Why should this strike home? Well, because less than two weeks later, precisely on October 6, 2009, the RBA announced its first official interest rate hike (out of 7 since then): from 3.00 to 3.25%. After this signal was given, the Opposition started pressing the Labor Government to withdraw the fiscal stimulus, and the Federal Government indulged. In this, to be fair, politicians were greatly aided by the local media, mainstream and alternative alike.

This is how Mason concludes:

"My experiences in Greece this week convince me that populations will not long stand for chaos, misery and psychological torture inflicted by news media delivering constant bipolar messages of despair and hope.
"Switzerland, Japan and effectively the United States are already carrying out nation-centric currency policies; ditto Brazil - and China is a perennial currency manipulator. Once we're done manipulating currencies the next phase is trade war."

Trouble in Paradise: the Bogeyman Strikes Back

2011-09-24T16:57:00.000-07:00

Being a chronicle of the Tony Abbott vs. Peter Reith public confrontation, in their own words as reflected by local mainstream media, on the subject of IR reforms:

June 16, 2011: "Reith's Bid [to Liberal Party presidency] Blocked". Phillip Coorey. SMH.

"THE cancellation of a Liberal Party federal executive meeting scheduled for this weekend has fuelled claims it was a deliberate act to stymie Peter Reith's bid to become the party's national president and stifle party reform."

June 28, 2011: "Betrayed Reith Hits at 'Lackey' Abbott". Phillip Coorey. SMH.

"PETER REITH has scolded Tony Abbott for being too timid to embrace industrial relations reforms (...)
"Mr Reith indicated he would start publicly advocating policy change in defiance of Mr Abbott (...)
"Mr Reith is seething after losing by one vote the battle for the Liberal Party's federal presidency on Saturday.
"He feels betrayed that Mr Abbott voted against him after urging he run against the incumbent, Alan Stockdale."

June 29, 2011: "Abbott Bows to Reith on IR". Michelle Grattan. SMH.

"TONY Abbott has yielded to pressure from fellow Liberal Peter Reith to abandon his low-key approach to industrial relations (...)"

August 30, 2011: "John Howard Joins 7:30". Chris Uhlmann. ABC.

"CHRIS UHLMANN: (...) Why is the Coalition mute now on industrial relations? Did you make it harder for them through WorkChoices?
"JOHN HOWARD: No, I don't think so. (...) But I do know that at some point this country has to wind back the re-regulation of the labour market."

August 31, 2011: "Abbott Backs Howard on IR Laws Rollback". Jeremy Thompson. ABC.

"Saying the Gillard Government had swung 'the pendulum to the other side', Mr Abbott endorsed the former prime minister's comments (...).
"Until now Mr Abbott has shied away from workplace reform, fearful of a repeat of the anti-WorkChoices campaign that helped topple the Howard government in 2007."

September 1, 2011: "Coalition Presses For Fair Work Reforms". Andrea Hayward. AAP/Business Spectator.

"The coalition is attempting to fan the winds of change in the industrial relations landscape while keeping the spectre of its discredited Work Choices policies firmly buried. (...)
"The Greens have vowed to oppose any move to bring back Work Choices (...)"

September 20, 2011. "Reith Wants Coalition to Cast Off IR Bogeyman". ABC News.

"Earlier this year Opposition Leader Tony Abbott distanced himself from Mr Reith, who had been pushing for a return to a WorkChoices-style policy within the Liberal Party.
"But Mr Reith told the press club that the Coalition was spooked over the issue in the aftermath of the election.
" 'It's [sic] has been inflated as a bogeyman, ridiculously inflated, and I think that's a political mistake the Coalition has made,' he said".

September 20, 2011. "Abbott Speaks to Chris Uhlmann". ABC.

"CHRIS UHLMANN: On another matter, industrial relations: do you think that there should be a return to individual contracts?
"TONY ABBOTT: No, I don't. (...)
"CHRIS UHLMANN: And if the answer they have is individual contracts would make the workplace more flexible, you wouldn't listen to them?
"TONY ABBOTT: Well we don't support statutory individual contracts. We did once, we don't now. We're happy to look at building more flexibility into the Fair Work Act. (...)
"CHRIS UHLMANN: (...) Other than individual contracts, how would you make the workplace more flexible?
"TONY ABBOTT: Well, we'll have a policy in good time before the next election, Chris, but I'm not going to pre-empt the kind of feedback that we've gotta get from the community."

It's important to note that the Labor Government, to the best of my knowledge, has said nothing officially about this campaign and, instead, has summoned a debate on the subject for next year.

----------

So that's how political debate is conducted in Australia, while the world economy is going down the toilet.

Overseas readers could be forgiven to think productivity and "workplace flexibility" are Australian slang for "anger at not being elected President of the party".

What's unforgivable is having doubts, like the following: there will be rollback of enterprise bargaining (instead of individual contracts), but there will be no individual contracts (WTF?). What about unfair dismissals? Shift penalties and overtime? Union access to workplaces? Non-disadvantage tests? Minimum working standards?

Keep voting Labor or Coalition, folks. We're fucked, big time.

See also accompanying piece Trouble in Paradise: Incomes

Update:
The Age's Michelle Grattan's piece seems to coincide with mine!

Trouble in Paradise: Incomes

2011-09-24T16:38:00.000-07:00

This chart, based on yearly income tax data available at The World Top Incomes Database (WTID), speaks quite eloquently by itself: this is a clear graphical representation of growing income inequality in Australia.

However, I will add a few comments.

Over the first 20 or so years represented in the chart, the top 1% average income (blue line) oscillated over a relatively constant ~~$100K-$150K~~ $150K-$200K band (all money figures in 2010 dollars).

Meanwhile, after an initial period of relatively constant growth from the early 1960s to the early 1970s, the bottom 90% income average (green line) tended to stabilize during the rest of the 1970s and early 1980s. Considering that the top 1% income average remained relatively stable over the same period, the behaviour of the adult average income (red line) can safely be considered a result of the behaviour of the bottom 90% income average. In the chart this shows as the red line paralleling the green line.

1983: Bob Hawke (Labor) occupied the prime ministership (see chart: from A to B). In 1991 Paul Keating (Labor) replaced Hawke as prime minister (from B to C). In 1996 John Howard (Coalition) assumed the prime ministership, which he kept until 2007 (from C to D): the last year for which the TWID has data.

The Hawke/Keating government has the dubious honour of starting Australia's "economic rationalization", principle guiding economic policy in Australia ever since.

Another common feature of this period is that the top 1% income average shot up in quite a regular manner: 197.4% over the entire period; but at an increasing pace: averaging 4.0% p.a. during the Hawke period, 4.7% p.a. during the Keating period and 7.5% p.a. during the Howard period. [1]

That result does not account for the 2 periods of unusually high growth for the top 1% income average: the 1986-1990 years (first spike in the blue line, within the Hawke period), and the 1998-2001 years (second and smaller spike in the blue line, within the Howard period).

As a comparison, during the period 1983-2007 the bottom 90% income average (green) at times remained almost unchanged, sometimes increasing, sometimes decreasing. As a result, over the whole period, the bottom 90% income average grew 29.8% (1.2% p.a.).

It can be seen in the chart above that the adult average income (red line) starts to separate from the bottom 90% income average (green line): the growth in adult average income is driven in large part by the growth in the top %1 average income; thus adult average income increasingly overestimates the real income situation of most Australians.

The following chart zooms in to provide a clearer picture (see chart legend: colour code changes!):

We must consider the current campaign to revive WorkChoices in the previous context, taking into account that the world seems on the verge of a renewed recession, with the consequent increase in unemployment and lower wages.

The opposition knows its leader Tony Abbott has a very good opportunity of giving the Coalition a historical electoral victory against the weak minority Labor Government.

If I had to guess what's behind this campaign, I'd say that big business (acting with characteristic opportunism) and former PM John Howard and Peter Reith consider this a chance to further lower wages and reduce working conditions, at very little political cost. And given that any cost of an unlikely defeat would fall upon Abbott, it's possible that Reith would not regret that event that much.

In any case, the adoption of a technocratic rationalization (productivity and "flexibility" at its forefront) is simply for PR reasons.

At the other hand, Tony Abbott is understandably reluctant to risk a defeat or even a pyrrhic victory, after all the personal effort he's put into his relentless opposition.

So a first question is who'll prevail within the Coalition, Abbott or the hardliners? More importantly, would Abbott choose to fly under the radar on this subject, before the election, just to announce his intentions to resurrect WorkChoices after becoming PM?

But, foremost, would the combined votes of the Labor remnants and the Greens be enough to stop him?

See also accompanying piece Trouble in Paradise: the Bogeyman Strikes Back.

Note:
[1] Calculated for the Hawke period, as an example, in the following manner:
100*($205,914-$156,042)/$156,042 = 32.0%; 32.0%/(1991-1983) = 4.0%

"It's not Personal, Sonny. It's Strictly Business"

2011-09-21T02:49:00.000-07:00

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." Adam Smith (The Wealth of Nations).

[1]

The title of this piece comes from a line spoken by Michael Corleone in the 1972 Francis Ford Coppola blockbuster The Godfather, based on Mario Puzo's book.

Michael and Sonny Corleone, sons of a Mafia don, were discussing Michael's plan. Sonny opposed it, believing that Michael (his little brother, whom he patronizingly calls Mikey) was being driven by considerations outside commercial interests (i.e. "personal").

Michael argues in a quite unemotional, reasoned manner and uttered the line above.

At the end of this piece, I trust the thread linking the two preceding quotes and the cartoon will become apparent.

----------

One of the commonest misconceptions about Marxism concerns its relationship with morality/ethics.

To me, it's difficult to make heads or tails of the following passage, which illustrates that misconception:

"Marx, like Ricardo before him, believed that all value came from labour; that is, the blood, sweat and tears of workers. We might find this a convincing argument from a moral perspective - after all, doesn't the worker do all the work? Or we may not find it a convincing moral argument at all - is that to say that the capitalist literally does nothing? But whether this is morally convincing or not it is, in essence, irrelevant to understanding the processes of a capitalist economy." (See here).

.
In my mind, moral/ethical arguments boil down to this: "A is wrong (right, ethical/unethical, etc.), because of B; therefore C" (where A, B and C are statements, C being also the conclusion, which somehow negates A if it is wrong, or reinforces it, if it is right). It is the terms "wrong", "right", "ethical", "unethical" that characterize this as a moral judgement.

Example: "It is wrong for wealthy butchers to sell meat to the poor, because the poor are hungry, have no money and cannot pay the price asked; therefore wealthy butchers must give away free meat to the poor".

Translation key:

A: "wealthy butchers sell meat to the poor";
B: "the poor are hungry, have no money and cannot pay the price asked";
C: "wealthy butchers must give away free meat to the poor".

That is a moral argument. Let's consider it, under Smith's terms: it addresses the wealthy butcher's humanity, and talks of the poor's necessities. There is also an explicit moral valuation: "it is wrong".

My purpose with the example is to provide a comparison with the statement "all value comes from labour". Unlike the example, the statement "all value comes from labour" does not fit the scheme "A is wrong, because of B; therefore C". It contains no moral valuation. It does not address anyone's humanity and does not speak of anyone's necessities.

Thus, the statement "all value comes from labour" is neither a moral judgement, nor a moral judgement's conclusion.

So, if the statement "all value comes from labour" is not a moral judgement, what is it?

It is the conclusion of a standard logical analysis. To represent that analysis symbolically, in terms similar to those used before: "If we assume premises X, Y, ... and Z, then it must be the case that all value comes from labour" (X, Y, ... and Z are statements). Note that there is no explicit moral valuation.

Although I do support the statement "all value comes from labour" (i.e. I believe its premises are true and the conclusion follows logically from them), it is not my purpose here to convince you of it. In principle, all analysis may be disproved (i.e. the conclusion shown not to follow from the premises); the premises shown to be false. The same applies to this particular analysis.

Thus, readers are free to make their own minds. If the reader is prepared to defend his or her position, by all means, state your case in a pertinent, logical, clear, brief fashion in the comments.

My purpose is to clarify that, as in Smith's quote above, Marx's and Ricardo's statement "all value comes from labour" is about "what is", not about "what should be".

So, Marxism has no moral/ethical implications?

Far from that. It means that these considerations are not required to support Marxist socialism. In this, Marxist socialism differs fundamentally from other forms of socialism and reformism, some of which predated or were contemporaries to Marx (see here). Some of these movements did base themselves on moral judgements, not unlike the "wealthy butchers" example (see here).

To illustrate Marx's point:

Imagine you are in a mission from God to convince wolves that it's wrong to kill and eat other animals, because all animals are God's creatures; wolves, therefore, should become vegetarians.

So, armed with zeal, good-will and faith, you head into the forest and start preaching to the wolves.

Soon you find that your message isn't making converts. Even if wolves could understand your language, the message itself makes no sense: wolves kill and eat other animals because that's what wolves do. It's a part of the definition of what a wolf is: a predator.

Further, if a wolf were foolish enough to heed that preaching, it would soon cease being a wolf and turn into a corpse: its metabolism and digestive system are not adjusted to a vegetarian diet, its teeth and jaws are not efficient grass-foraging tools.

The same reasoning applies to the economic human predator: the capitalist. Capitalists exploit workers because that's what capitalists do: "It's not personal, Sonny. It's strictly business".

In the course of events workers make a living from employers, just like buyers get bread, meat and beer from bakers, butchers and brewers. But that's not what motivates employers, bakers, butchers or brewers. What motivates them is profit. That's the thread linking the quotes and the cartoon.

No wonder socialism isn't popular among capitalists or businesspeople in general: if a wealthy butcher gave away meat he would lose money and would not remain a wealthy butcher much longer; further, if he stubbornly persisted, he would go broke and become a pauper. (That's precisely what happened with Capitalist, an employer, in the example studied here).

Let's not fool ourselves: my little wolf story may be original (at least, I haven't heard it before), but it does not express anything new. Its central message is obvious to anyone.

But progressives often assume that what is obvious to any thinking reader (or any greengrocer) in our days, would be a complete revelation to Marx or Ricardo or to a host of other economists (including Petty and Smith).

When progressives assume that the statement "all value comes from labour" depends on moral judgements, they are projecting on Marx and Ricardo their own naivety. And, in Ricardo's case, this is particularly funny: Ricardo was a wolf among wolves, an extremely successful financial speculator, a landlord and an MP from a rotten borough! You've got to love the irony.

But that does not reflect the full magnitude of this "progressive" mistake: "progressives" (and the quotation marks were deliberately inserted here) are unwittingly misrepresenting superstition as if it was Marx's thought.

Contrast this "progressive" view of Marx, with Marx's own vision of the human predator:

"I paint the capitalist and the landlord in no sense coleur de rose. (...) My standing point, from which the evolution of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them". Karl Marx. (Das Kapital, vol. 1, preface to the 1867 edition).

In this passage there is no appeal to humanity and no talk of anyone's needs: it's all about business. No moral valuation: no "this is wrong", or "that is right".

Marx isn't preaching to the wolves: he's addressing the animals wolves kill and eat.

To answer the question posed in the passage motivating this post: "is that to say that the capitalist literally does nothing?" Yes, while wearing the capitalist hat, they literally do nothing. The workers do.

Or, paraphrasing Smith: It is not from the benevolence of the capitalists that we expect our wages, but from their regard to their own self-interest.

The myth these "progressives" unconsciously perpetuate is that this is not true: workers are a collective Blanche Dubois, always depending on the kindness of strangers.

Image Credits:
[1] Cartoon of the big bad wolf reading a bedtime story, by Gaspirtz. Wikipedia. My usage of this cartoon does not imply Gaspirtz's agreement or disagreement on the subject of this post.

Update:
26-09-2011. Having said all that, does it mean that each and every capitalist, without exception, is a predator? In a word, yes.

But there are vegetarian wolves, too. Or more precisely: wolves that try to be vegetarian (like perhaps Warren Buffett). They are few and far in between, but deserve recognition nonetheless (see here, h/t occasional links and commentary).

Is it Alive?

2011-09-16T16:47:00.000-07:00

"He's just resting - waiting for a new life to come." Dr. Frankenstein (Frankenstein, 1931).

Dracula vs. Frankenstein [1]

Recently the discussion over economic matters revolved around two ABS releases: National Accounts, June 2011 (ABS cat. Number 5206.0) and Labour Force, August 2011 (cat. Number 6202.0).

It turns out that Australia avoided a technical recession (two consecutive quarters of negative GDP growth: see here), but unemployment rate is increasing (see here).

That discussion, interesting as it is, totally eclipsed the release by ABS, on 30/08/2011, of Household Income and Income Distribution, 2009-10 (cat. Number 6523.0).

This is weird for at least two reasons:

Income fell for the first time in 14 years (see here); and
One would have expected journos to be anxiously waiting for news about income; after all, ABS reports on GDP every quarter and labour force every month, but reports on income and wealth at most only every second year!

Yet, extensive Googling returned just three press items (a couple of opinion pieces, see here, here; a small story, here) and a few bloggers. Who ever said Aussies are materialists?

Meanwhile, the local lunatic Right, like a modern-day Victor Frankenstein, attempts to inject artificial life into the decaying WorkChoices corpse (see here), while the big business chorus wails about "high" wages (here), seconded by "our" taxpayers-funded ABC (here).

So, to avoid disappointing the good folks at ABS, I'll try my hand at this topic.

This is how real average gross household income evolved in Australia since 1994:

Real average household income (ABS 6523.0 Table 1.2)

A few observations: the gaps are years where the data was not collected (See? Aussies don't care about money!); the black dots are years where ABS decided to consider as income things that had not been considered income before (So, it's not just that the series is patchy, it isn't fully comparable: things keep getting better); income as defined by ABS includes lots of things (i.e. wages/salaries, government transfers, interests and profits), but it does not include capital gains and often does not even include the lowest income ~~quintile~~ decile, either ("Many of the households included in the lowest income decile are unlikely to be suffering extremely low levels of economic wellbeing", perhaps due to underreporting (?!). See Explanatory Notes, paragraphs 29, 30 and 31).

In any case, although the chart includes things other than wages, it's clear that average gross household incomes have fallen since at least 2007: -2.9%.

But why? Data disaggregated by quintile may suggest an answer:

Average household income by quintile.

The lowest quintile excepted (where mid-quintile average household weekly income rose $10 a week, I kid you not! and where "government pensions and allowances were the main income source for more than 60% of households". See Key Results), incomes have fallen since at least 2007 across the board (where "wages and salaries were the main source of income for more than 80% of households"). The most affected group, the highest quintile, fell -4.7%.

Is that data proof conclusive that wages and salaries have fallen? Perhaps not.

Note as well that this fall occurred even though the Fair Work Act 2009 (the current industrial relations legislation, accused by our esteemed Right-wingers of strangling poor suffering businesses) was in place since July, 2009: half the two-year period covered. So much for the Fair Work Act causing wages to "soar".

Let's now examine the ACTU report "The Fair Work Act: Two Years On":

In the four-year period immediately preceding the approval of the Fair Work Act, every award classification (from C14, the least qualified, to C1b, the most qualified) increased less than inflation (estimated over the period as 12.53%). By July 2009, for example, a worker classified as C1b lost 7.79% of acquisitive power.

Incidentally, those wages are characteristic of low to mid income workers. For instance, a full-time C1b worker (top category of the FWA scale), would earn $1,080 per week ($28.4 per hour or $56,160 a year). If this worker has a dependent spouse, and no children, her equivalised household income of $720 (= $1080/1.5, 1 for the income earner plus 0.5 for the dependent spouse) would put her within the third quintile ($515-$727): roughly median household income (less than average household income).

This worker's wages fell in the 2005-2009 period and, judging by the ABS data, probably ever since. And the way workers can compensate for this loss is through paid overtime or shift penalties.

So, where the hell are those fucking high wages we keep hearing about?

And now our businesspeople and raging Right politicians want to eliminate working entitlements (aka Industrial Relations reform) plus increased "flexibility" to lower wages.

But then, again, we really don't care that much about money...

----------

Finally, for those progressives who "don't believe value exist": when our C1b worker lost 7.79% of her acquisitive power, her employer saved in real wages. In other words, had her June 2005 weekly wage ($1,031.10) risen with inflation (12.53% over the period) it would have reached $1,160.30 in July 2009.

But it didn't. In July 2009 her wage was in fact $1,080.00. The difference ($80.30 or about 3 hours per week) is work effort performed ("labour power sold") but unpaid: she worked about 3 hours for free every week.

Now, you may call it whatever you like (say, "metaphysical substance", while a bit of an oxymoron, as you may or may not know, sounds good). Marx called it "surplus value" (or, more precisely, an addition to it: a drop of your very own metaphysical substance).

Let me close with this quote by Engels:

"And for this change, I must render an explanation (...) to the bourgeois, in order that they may convince themselves how greatly the uneducated workers, who can be easily made to grasp the most difficult economic analyses, excel our supercilious 'cultured' folk, for whom such ticklish problems remain insoluble their whole life long". ("Wage, Labour and Capital", Introduction)

My advice to progressives "proving" Marx wrong without reading him: observe real life, read, and think. It's not that hard and after a while you'll find your head doesn't hurt anymore.

Image credit:
[1] Dracula vs. Frankenstein. Wikimedia

Pilkington's Island

2011-09-05T18:47:00.000-07:00

"The engine that drives enterprise is not thrift, but profit" - John Maynard Keynes

Last month Naked Capitalism included an interesting article by Philip Pilkington [1] on the origin of profits. Mr. Pilkington's "key point here [was] that investment creates profit", as opposed to the Marxian view that, in a capitalist mode of production, labour creates profits in the guise of surplus value.

To make his point Mr. Pilkington described and used a simple but clever model.

These are the key "ingredients" of his model:

One island (i.e. a national economy with no exports or imports, with a government but without taxes or government expenditure: GDP = C + I , see below about depreciation and other inputs/intermediate consumption)
One capitalist (who owns fixed capital: everything but labour power and money)
One bank ($10 in $1 coins)
Ten workers (5 builders, 5 bakers)

And these are the basic assumptions:

Only workers consume (they don't save anything);
There is a minimum wage ($1 a day);
The Capitalist and the Bank do not consume;
"No input costs apart from the cost of labour" and "capital goods (machines etc.) do not depreciate" (labour is the only production input: no intermediate consumption).
The income tax rate is nil.

For the full motivation, read its description, under the heading "A Capitalist, A Bank, Ten Workers, Two Presidents and a Giant Loaf of Bread" (Mr. Pilkington is a writer, and, it seems, a good one, too!).

The model, as I intend to show, does not achieve its goal and tends to obscure things unnecessarily. However, unexpectedly, this has a positive effect.

Readers familiar with the article under scrutiny, may skip the following and jump directly to Discussion.

Otherwise, let's follow Mr. Pilkington's own exposition:

Day 1

"(...) The capitalist hires 5 workers (the builders) to build a bread factory - spending $5. He then hires the other 5 workers (bakers) to make bread in the factory - spending an additional $5. All of this money is raised from the local bank which charges him a rate of $1 interest a day. The capitalist ends up with a giant loaf of bread which he sells to the workers for all their wages - the bread thus sells for $10 and each worker gets a 10% share.
"(...) At the end of the working day, the builders once more join the bakers at the factory door and, since everyone has received their wages, the bread sells at its previous rate - the capitalist gets $10 (after interest payments he has $9), the workers all get a 10% share of the giant loaf and there is no deflation."

Let's pause here and think about what just happened.

Before the first day, these were the balance sheets of Capitalist and Bank:

Capitalist:
Assets: machines (valued $M); Liabilities: $0. Equity: $M (where $M is an arbitrary dollar amount).

Bank:
Assets: $10 (cash); Liabilities: $10 (presumably). No equity.

Bank's and Capitalist's combined equities: $M

During the first day:
Capitalist invested $5 to build a bakery and used the $5 remaining to pay wages.
A loaf of bread, costing $5 in wages, was sold for $10 (10 workers' combined wages), for a profit of $5. The price of bread was $10/loaf.

GDP: $B (brand new bakery's market value; more on this on Discussion) plus $10 (big loaf of bread). GDP = $B + $10.

At the end of the first day, these are the balance sheets of Capitalist and Bank:

Capitalist:
Assets: $M (machines), $B (bakery), $9 (cash); Liabilities: $10 (loan from Bank). Equity: $M + $B - $1 (= $9 cash - $10).

Bank:
Assets: $10 (loan to Capitalist), $1 (cash); Liabilities: $10. Equity: $1.

Combined equity: $M + $B

Day 2

Capitalist already has a bakery. Turning to the builders, he says: "Smell you later".

A depression resulted: unemployment appears (5 builders), GDP falls in both real and nominal terms; prices fall. In real terms, only one loaf of bread was produced: real GDP = $10 (Day 1 prices). The price of bread plummeted (from $10/loaf to $5): nominal GDP = $5 (Day 2 prices). CPI = -50%.

Observe that Capitalist is a peculiar beast indeed: bread demand and prices have fallen, but he refuses to adjust output (still produces one loaf of bread); by assumption 2, he is not a wage-setter, either (even though unemployment increases labour supply); and doesn't even think about asking Government to cut the minimum wage. Further: he can't really sack any baker or increase productivity (more on this below in Discussion). A magical island indeed! As a consequence, although nominal wages remain unchanged ($1/day), real wages doubled.

Faced with falling bread prices and higher real wages, it's no wonder that Capitalist barely managed to match costs and receipts: $5 wage bill, $5 receipts.

But Capitalist is not much weirder than Bank, who remains mute and does nothing at all.

At the end of the Day 2, these are the balance sheets of Capitalist and Bank:

Capitalist:
Assets: $M (machines), $B (bakery), $8 (cash); Liabilities: $10 (loan from Bank). Equity: $M + $B - $2. Capitalist, all panicky, barely manages to mutter: "I'm in deep shit".

Bank:
Assets: $10 (loan to Capitalist), $1 (cash); Liabilities: $10. Equity: $2. Bank exclaims: "Ye-haw! Crisis? What crisis?"

Combined Bank and Capitalist equity: $M + $B (unchanged since Day 1).

The other big surprise is that the 5 bakers are also winners: those guys are lucky that Capitalist is their boss. A really magical island!

From Day 2 on, little changes: GDP and prices fall no further, unemployment does not increase. A sort of equilibrium is reached where Capitalist loses $1 a day. Eventually (Day 5), before running out of money to pay wages and interests, Capitalist leaves the key to the bakery with Bank. Bank may or may not continue producing bread. If it decides to produce bread, the one loaf of bread GDP does not change.

Discussion

To argue his point, Mr. Pilkington set a one-off investment pulse, which, given assumptions 4 and 5, translated entirely into workers' income. This affects effective demand.

Prof. Bill Mitchell, a top exponent of MMT, has treated recently the topic of effective demand, saving me the effort of explaining it here. [2]

To put things simply: construction (private investment) provided jobs to 5 builders, baking, to 5. The demand by 10 cashed-up workers drove the price of the only loaf of bread up, to $10, well beyond the point where its price exceeded its cost ($5). This translated into profits.

Note as well, that every day, the physical product of the physical input of labour was enough to adequately sustain the workers and create a surplus.

For example, on Day 1: a 10 worker-day input (current market price: $10) originated an output consisting of a loaf of bread (current market price: $10) plus a bakery (current market price: $B). The 10 workers ate the loaf (1/10 each); Capitalist kept the bakery. In monetary terms: the workers were paid $10 and Capitalist kept the $5 profit (logically $B = $5, although it was not the product of a sale, as required by the GDP calculation!), from which he paid $1 to Bank later.

Day 2: a 5 worker-day input (current market price: $5) originated an output consisting of a loaf of bread (current market price: $5). The 5 workers ate the whole loaf, which the previous day was enough for them and the builders (each baker is getting 2/10 of the loaf), but no additional profit was left for Capitalist. Because real wages increased, it is the bakers who are getting the surplus now! That's another reason why I keep insisting that this is a magical island: the assumptions on price formation and the assumptions on he behaviour of Capitalist are producing strange effects.

Anyway, the conclusion, to me, seems inescapable: value was added to the product in excess of its inputs. Given that only labour was used as input, in this case I can't imagine how it can be argued that labour isn't solely responsible for the value added. When Capitalist appropriated the excess, this excess was called profit. But if labour is solely responsible for the value added, what role played Capitalist to justify his getting a profit? I'll leave the reader to ponder that question.

----------

In any case, all this was overlooked and seemed to have reasoned: there was an investment then and there is a profit, now; investment stops, profit stops. Gotcha Karl Marx! (More on this when discussing Kalecki's profit equation).

Not so quick. As hinted above, here assumptions 1 and 2 play a crucial role. Let Nc be the number of builders and Nb that of bakers. Once the investment stream ceased, effective demand declined (from Nb + Nc to Nb). Production cost equals w.Nb (w is the daily wage in dollars), while sale revenue is (1-t).w.N (N = Nb + Nc if date = Day 1, Nb otherwise; t is the income tax rate). As by assumption 5, t = 0, profits ((1-t).w.N - w.Nb) had to cease with the investment stream (N fell to Nb).

Incidentally, this means that in the island it doesn't help sacking bakers: other things remaining the same, saving 1 dollar in the wage bill means a loss of 1 dollar in ~~profits~~ sales receipt! For the same reason, a wage fall does not affect the end result, ceteris paribus. No productivity gains in this magical island.

If length of journey had been included, perhaps a different result would obtain. Alas, it wasn't included.

----------

What about Kalecki's profit equation, presented thus:

Pn = I + (G - T) + NX + Cp - Sw?

("Pn = total profits after tax. I = gross investment. G = government spending. T = total taxes. (So, G - T = the total government budget deficit). NX = net exports (total exports minus total imports). Cp = capitalists' consumption. And Sw = total workers' saving.")

By design, all terms in the RHS of the equation are nil, except investment (Day 1, only!). Therefore, the equation becomes:

Pn = I.

Mr. Pilkington's conclusion still holds partially: investment, in this case, did create a profit, as expected using the equation (i.e. it was a sufficient condition for profit in the magical island). I have already argued why it did not, however, invalidate Marx's conclusion, as apparently intended.

Moreover, other variables (a fiscal deficit, for instance) would have created a profit, as well, as the non-trivial version of the equation shows. Thus investment is one among other possible "causes" of profit (i.e. investment is not a necessary condition for profit).

Further, let's consider now an income tax rate of 50% and see what happens with Capitalist's profit even in Day 1! ((1-t).5.w.N - w.Nb, with t = 0.5, N = 10, Nb = 5). Investment in this case does not "cause" a profit!

So, is the Kalecki equation wrong? On the basis of what little I know about it, I have no elements to say that. What I would say is that Mr. Pilkington's interpretation of the equation is incorrect: Marx is speaking of profits at an individual enterprise level; Kalecki's equation speaks of profits at the macroeconomic level.

Further, with the already expressed reservation that I don't really know much about it and pending further tinkering with the model, I would say that the Kalecki profit equation and the LTV seem fully compatible.

----------

Moving to another subject. Note that the way the agents were named in this model (Capitalist and Bank) obscures a fact: in reality, both are capitalists! A Bank/Capitalist separation might have been essential for Mr. Pilkington's purposes (to argue that investment causes profit), but it obscured his analyses and might have contributed to his confusion; but for my purposes here, it is useful, nonetheless.

Capitalist is certainly losing money, and this is correctly noted, but his loss is caused by the need to share his money with Bank. That's why the combined Bank and Capitalist equity remains constant: $M + $B.

This may or may not surprise Mr. Pilkington, but it certainly does not surprise a Marxist: banking does not produce surplus value, but it still makes a profit. Where does this profit come from? It comes from someone else's surplus value!

Capitalist is contractually obliged to share with Bank the surplus value obtained during Day 1 in the form of interests payments, at the rate of $1 a day. In other words: Capitalist, in reality, is exploited by Bank.

Prof. Michael Hudson has written extensively about this. [3]

This shows that there's a value added in Marxian economics which is not provided by the model under scrutiny or even by Kalecki's profit equation.

----------

Finally, there is at least one other issue that remains to be treated. But that issue requires a separate treatment, because Kalecki's equation would seem to offer a macroeconomic way to understand how an economy, where workers are paid less than the value they create, can operate, when the so-called Say's Law supposedly proves it impossible.

And, quite significantly, the equation purports to explain capitalists' profits, which since at least Sismonde di Sismondi and especially Karl Marx is seen as the source of accumulation and recurrent crisis.

----------

A last word: I have criticized Mr. Pilkington's article heavily. This doesn't mean that his effort was without merit. Quite to the contrary. I'd encourage him to persevere in his endeavour. Maybe one way would be to relax the constrains on the Capitalist/Bank's behaviours. Perhaps another way would be changing how prices are formed: the way chosen ensures that markets clear, which is rather ironic for someone who often attacks Say's Law.

And I thank the readers for their patience.

Articles referenced:

[1] Philip Pilkington. 17-08-2011. Profits in a Capitalist Economy - Where Do They Come From, Where Do They Go?
[2] Bill Mitchell. 30-08-2011. We Need to Read Marx.
[3] Michael Hudson. 30-07-2010. From Marx to Goldman Sachs: The Fictions of Fictitious Capital.

To do More With Less

2011-08-30T06:05:00.000-07:00

ABC News and Current Affairs has a proud tradition of excellence and impartiality in journalism.

That's why I am loath to criticise that organization. However, I regret to say that their reporting quality seems to have fallen dramatically.

In these pages I have already commented on occasions where the reporting was less than stellar (see here and here).

Again, I'm forced to comment on a quite deficient report: last Monday (29-08-2011) 7:30 segment entitled "Industry Calls for Fair Work Review", by Hayden Cooper.

The segment was introduced by Chris Uhlmann thus:

"Pressure's growing on the Federal Government for a review of the nation's workplace laws. Businesses of all sizes, industry bodies and economists have told 7.30 the system lacks flexibility and they fear Julia Gillard's re-regulation of the industrial landscape could cause serious problems in another downturn. As Hayden Cooper reports, the Reserve Bank governor says he's getting the same message."

During the segment, Mr. Cooper talks, among others, to workers from an unnamed tea house in Canberra, to Scott Norris (general manager of Norris Cleaning Company Pty Ltd), Steve Knott (Mines and Metals Association) and Chris Evans (Workplace Relations minister). I'll limit my observations mainly to Mr. Norris and to the tea house workers.

It's interesting that of all business managers in Australia, Mr. Cooper chose to talk precisely to Mr. Norris.

Don't get me wrong: Mr. Norris' opinions are as valuable as anyone else's. However, I would have thought that a long time supporter's view of Work Choices and opponent of Fair Work and would be biased... against Fair Work. But what do I know about journalism, right?

Had Mr. Cooper or his production team done something as simple as a Google search (see here) they surely would not have failed to notice the first item returned by that search was the 2007 submission (PDF format document housed by the ACT Parliament) Mr. Norris issued to the Select Committee on Working Families in the ACT in Relation to the Workplace Amendment (Work Choices) Bill 2005.

Now, if Mr. Cooper or his production team were too busy to do a Google search, it seems excessive to expect of them to actually read the submission, where Mr. Norris candidly admits not only his opposition to amendments to the WorkChoice legislation, but also to having problems with the LHMU (union currently known as United Voice, covering cleaners, among other workers) for the union's "abusive" initiative to promote a Code of Best Practice among employers and endorsement of those employers who do sign the Code:

"Over the past few years, I have found the LHMU to be more and more unapproachable, and they have made it clear that they intend to make life very difficult for companies such as ours who refuse to sign their 'Code of Best Practice' document."

But even if Mr. Cooper had known about Mr. Norris' submission, or the LHMU, would he have reported that United Voices still promotes a campaign called Clean Start? By the way the Clean Start's objectives don't seem to me to make life difficult for companies like Mr. Norris':

"Cleaners are committed to quality cleaning in order to provide a safe and pleasant environment for Australian families. However, many of us have no job security, have experienced or witnessed harassment and sometimes do not receive our proper salaries. We therefore support the Clean Start campaign as the way to improve our industry nationally and meet the high standards that are expected of our work. We deserve better."

Incidentally, given Mr. Cooper's question to Mr. Evans (Workplace Relations minister):

"Hayden Cooper: But is it [my comment: Fair Work Act] fulfilling the promise? The current Workplace minister believes it is. [my comment: Mr. Cooper asking now the minister] Do you concede that your workplace relations laws are causing real distress for many small businesses?"

The viewers are left to wonder if Mr. Cooper considers a company that employs "140 people at his four decade-old cleaning business" a small business, when even under the much more "flexible" provisions of WorkChoices a small business was defined as one employing at most 100 people.

But let's leave the cleaning contractor aside.

Mr. Cooper opened his report by representing how busy the tea house young ladies were:

"Hayden Cooper: But for the workers, it's busier than it used to be. This business was set up when there were no penalty rates on the weekend. Now, there are. And meeting the extra cost means something has got to give and the staff are doing more with less.
"Justine Lejano, employee: There has been, like, kind of a noticeable change in how many people are working and we've had to, like, cut back on the longer shifts and less people working, which has been a bit of a struggle 'cause, as you can tell, it gets kind of busy. So, it's a bit hard.
"Hayden Cooper: It's a story that's repeated in small and large businesses right across the country, as employers complain of a system that's inflexible and costly."

Mr. Cooper probably doesn't know it, and maybe it would be too much to expect he did, but when "staff are doing more with less", as he said, bosses and economists alike say "staff are being productive". See here.

And the original and generalized outcry by bosses and economists, alike, was that Australian labour productivity had fallen. I could look for examples, but Mr. Cooper kindly saved me the trouble:

"Hayden Cooper: But it's not only small business that's complaining. The mining sector fears the return of union access is crippling productivity and it worries that rising wages in some operations could filter through to others."

Thus, based on the young ladies example, I'd say that the Canberra tea house must be exceptionally lucky: it almost alone in Australia cannot complain about lack of productivity.

However, given that Mr. Cooper generalised that situation for other business, I would say that it's highly dubious that there is a genuine productivity problem.

So, maybe what bosses are demanding is not so much productivity, but "flexibility", after all. You know, the flexibility required to avoid "those rising wages in some operations [that] could filter through to other sectors".

In this sense, it's interesting to consider this fragment of the report:

"Hayden Cooper: Enter the Reserve Bank governor. In a climate of economic uncertainty, even he has now gone public, giving voice to some of these very concerns, and suggesting a review of the laws might help.
"Glenn Stevens, Reserve Bank Governor (Friday): But what people do say and, you know, this is what they say to me - I can't verify it, obviously, from their individual businesses - is they find it harder to get flexibility. They find it harder to negotiate flexibility. That is something that is - if that's true, then that I think is a matter for concern."

Curious then, but try as hard as I did, but I can't remember Mr. Stevens ever mentioning the need to review IR laws. Neither would I say he went public: that was not an statement he offered publicly without being prompted.

More curiously, though: the fragment containing Mr. Stevens answer mysteriously failed to include the following lines:

"What businesspeople say to me - and I think this would be a theme I have heard from a number of quarters - is not so much that wages are excessive and indeed at this point in time the aggregate data on wage growth which is probably fourish, a touch under maybe, is on a par with what we have seen over the years. What people say to me, I cannot verify it obviously, from their individual businesses is that they find it harder to negotiate flexibility. That is something that is said. If that is true that I think is a matter for concern... If they are wrong, then it would be good to get the heads together and show how the system is actually very flexible, because I think there are people whose instinct is that it has gone back the other way." See here. Emphasis added.

So, I'll be damned, but it's not higher wages, either!

But perhaps the most strange passage in the whole report is the statements by two of the young ladies towards the end:

"Hayden Cooper: As for the staff, it seems not everyone wants penalty rates if it means fewer hours as a trade off.
"Ashleigh Finch: I think it's a bit unfair, really, I mean, paying someone $40, $50 to wash dishes for six hours I think's not quite justifiable. I'd much rather work more hours and get paid less.
"Jess Girvan, Employee: I don't even know what I was on beforehand because I was just happy to come in and get some hours, so, it didn't really affect me that much. But now it's sort of they have to be paying people extra to stay on so now a few of us are sort of getting shifts cut, which is a bit annoying."

I may be really dumb, but I couldn't make much sense of Ashleigh's statement: I don't know anyone who'd much rather work more hours for less money. I can understand bosses liking that, but employees?

And my confusion only increases when she also complains about "paying someone $40, $50 to wash dishes for six hours": $6.67 to $8.33 an hour not quite justifiable?! Holy Mother of Christ!

So, let me ask a question, which I am sure Mr. Cooper can answer: is Ashleigh Finch an employee... or the owner of the place?

If you see the quotes above, copied verbatim from the 7:30 transcript, you'll see that 7:30 goes to great lengths to identify who the characters speaking are. But the transcript quoted above does not identify Ashleigh as an employee, although earlier she was indeed identified as such:

Screen capture from 7:30 website (30-08-2011).

So, could Mr. Cooper be misrepresenting the opinion of Ashleigh Finch as being that of an employee, when in fact she could be the owner?

Let me finish this by reminding that the need to do more (and better!) with less applies to the 7:30 journalistic team, as well, even though they work for a publicly funded organization.

And, as a taxpayer, I must say I am not impressed and I am starting to believe some 7:30 salaries might be "not quite justifiable".

Update:
31-08-2011 Added the screen capture for further evidence, corrected a mistaken reference to Fair Work act, noted that in an earlier part of the segment Ms. Finch had been ~~correctly~~ identified as employee and remarked that the ABC is a publicly funded organization.

To Ali, my Muslim Friend

2011-08-28T02:52:00.000-07:00

When you migrate to another country, you need to learn some new tricks pretty quick. I had to learn some, on personal experience.

Sydney Harbour [1]

If you moved alone, the first thing you must realize is that you are, indeed, alone: you have no friends or family. Nobody knows you or cares much about you; and, let' be fair, it's not their fault.

Understanding this won't make things any easier for you: if you need help, you won't take it personally when other people refuse to help you, but understanding that won't get you any help, either.

And although I like to see myself as a self-reliant bloke, you know, the lone-wolf kinda guy, the day came when I needed help.

Let's not mince words here: some ten years ago, I was broke, days from being evicted from the place I rented. And I had nowhere to go. If I paid the utilities, I had nothing left to buy food. If I bought food, I'd had nowhere to keep it. Where would I leave my stuff?

Sydney is a beautiful city, but at times, that is not enough.

To make a long story short, the only guy who helped me was a Shiite Muslim born in Lebanon. Not the Australian Government through its social security agency, nor the University where I was studying, or Christian-inspired charities. Not my friends (whom I can't blame: they had their own problems) or my family overseas (whom I felt ashamed to trouble with my problems).

Ali did.

I am not a religious man. I am agnostic about God's existence. I, however, don't believe in hell or heaven or other supernatural things. Further, I believe all religions are rather irrational.

But I also learned this: it's not religion, nationality, skin colour, age or gender that makes a decent person, decent.

My friend, Ali, is a good, decent man. Whatever else he is, this is what matters to me. And even though I pride myself on having repaid my friend the money he lent me, there is something I can't repay: his having had faith in me.

Thank you Ali.

Update:
For those who might share the idea that the real side of the Muslim communities deserves to be represented, if not in the mainstream media, at least among individual users, to have a look at the website of My Fellow Americans.

Image Credit:
[1] Sydney Harbour shot taken from the air, by Rodney Haywood. Wikipedia

Are Capitalists Happier? Huh?

2011-08-20T22:07:00.000-07:00

Can't hear, can't speak, can't see.
Tosho-gu shrine in Nikko, Japan. [1]

Last Friday 12-08-2011, the post "Are Capitalists Happier?" signed by professors Ronald Rotunda, Vernon Smith and Bart Wilson, appeared at Reuter's The Great Debate Blogs.

In that post the authors purport to answer, on experimental evidence, the question: "Which kind of economy ultimately works better in the long run - capitalism or socialism?"

Once I learned of that post (h/t Occasional Links & Commentary), I posted a reply (16-08-2011), questioning the experimental design.

In my opinion their design badly misrepresents both socialism and capitalism. Thus, the apparent conclusions stated in the post do not follow and could even be reversed.

I also requested a link to a formal publication, in order to produce a more accurate opinion about the research.

As of Sunday 21-08-2011 (Sydney time) no answer had been posted by the authors, and I must assume none will be posted. Maybe they haven't seen my reply, or, having seen it, they don't intend to consider my observations.

In any case, I decided to reproduce the text of my reply (see below), so that readers can judge by themselves if my criticism is fair, or whether I am missing the point.

If the readers know more about the research, where I can get it and/or would like to comment, as usual, pertinent comments are welcome.

---------------------

My Reply:
Aug 16, 2011
9:47 pm EDT

While a Marxist, my personal approach to experimental economics is rather sympathetic. I, for one, am happy to acknowledge the many positive things achieved by researchers in this field (like Prof. Smith): in my view, the flaws demonstrated in the Homo economicus view of human behaviour, underlining the broader methodological individualism paradigm.

Also, unlike most Marxists, I tend towards empiricism.

With these two things in mind, it’s easy to understand that I find intriguing and exciting the idea of applying experimental economics to the question: “Which kind of economy ultimately works better in the long run – capitalism or socialism?”

What’s more, I welcome the proposition: “Using virtual economies, we can now literally recreate, in laboratory investigations, the state of nature and are no longer left to philosophical musings of first principles.”

Considering all these things, I respectfully must say that the desire not to rely on “philosophical musings of first principles” is not an excuse for not knowing what those first principles are.

And I regret to say, with due respect, that on the evidence of the text presented, the authors seem to have a poor understanding of basic terms.

Let me put an example where no “philosophical musings” intervene. If I understand the experimental setting, each experimental subject is equally endowed with the basic means of production: a capacity to produce (i.e. labour) and a “field” (i.e. land) where they can individually produce the blue and red commodities in some proportion of their choosing. (Although capital was not mentioned anywhere, this is not necessarily an objection, unless the authors intended their demonstration to apply to Marxist socialism).

They can also steal “from each other because, in the state of nature, no legal system protects private property”. Although not explicitly stated, I take it they can steal blue and/or red commodity from each other, but not the “field” itself.

To put it all in a more succinct way: there is absolute equality (including property of the means of production)

However, it’s a basic point of all forms of socialism that not everybody is equally endowed with the property of the means of production. Incidentally, the term “communism” itself alludes to an ideal state where land and capital belong to the community (which although not identical, somehow seems to correspond to your initial setting, ironically enough).

Although the authors do not seem to have it in mind, in the capitalist mode of production, for example, the fact that capitalists monopolise capital (while workers can only provide labour) leads to conflicts. Note the inequality in the initial endowments.

Likewise, in the feudal mode of production, the fact that feudal lords/aristocrats monopolise land, while serfs provide labour in exchange for the right to use a part of the land on their own behalf, produces conflicts.

Thus, the initial experimental setting of absolute equality seems singularly inappropriate to test whether socialism improves well-being: why should people strive to achieve equality, if they are already equal?

Although a more philosophically-oriented criticism would probably be unfair and outside the scope of this reply, I would recommend a revision of the notion of individualism underlying economic liberalism, as it has deep Hobbesian roots; unlike socialism, in all its forms, that emphasises equality, collaboration and at least some degree of “collectivism”.

Finally, I understand that the post I’m replying to is not a formal research report, thus there may be things “lost in translation”. If possible, a link to a publicly available formal report (maybe the working paper version) could help clarify the situation.

Thanks.

---------------------

Image Credit:
Three wise monkeys: Wikipedia

Naomi Klein on the London Riots

2011-08-17T22:46:00.000-07:00

This is what Naomi Klein (h/t Occasional Links and Commentary) had to say about the London (or rather UK) riots:

Naomi Klein. [1]

"This is what Cameron got wrong: you can't cut police budgets at the same time as you cut everything else. Because when you rob people of what little they have, in order to protect the interests of those who have more than anyone deserves, you should expect resistance – whether organised protests or spontaneous looting. And that's not politics. It's physics." (Emphasis added. See here)

Unusually for me, I have nothing to add.

Photo Credit:
[1] Naomi Klein. Wikipedia

Mr. Zoellick's Bad Memory

2011-08-15T21:07:00.000-07:00

Creditors have better memories than debtors.
Attributed to Benjamin Franklin

I don't mean to be disrespectful to Mr. Franklin, but I know of at least one case where a master creditor, a top world banker, has shown what looks like a remarkably faulty memory.

Robert Zoellick.[1]

Compare this statement by Robert Zoellick (former US Deputy Secretary of State and current president of the World Bank) on last Monday 15-08-2011 edition of the ABC's 7:30 Report:

Leigh Sales (interviewer): "Is this sort of economic volatility and the serious structural reforms that are required going to lead to a period of political instability in Europe?"
Robert Zoellick: "Well, you know, it's certainly not good for governments, but you can also see sometimes governments that make tough decisions, sometimes that's rewarded by the voters. (…) I think the British Government to its compliment sort of set a long-term strategy, and as you can see, it actually has helped it in bond markets and it's helped it with its ratings, but then it has to have the fortitude to maintain it."
LS: "Well there were some people last week arguing that it was the austerity measures in the UK that contributed to those riots that we saw and that it's to do with the tensions between the haves and the have-nots. How did you read that?"
RZ: "Well it's so striking to me because I work with developing countries and I see really poor people. And, to me, the idea that poverty leads people to riot is an insult to hundreds of millions of poor people that I work with around the world, who frankly want an opportunity, want to have an education, want to have a chance to climb up the ladder. So, I don't believe that was the fundamental cause. There's obviously other serious things going wrong with that segment of society." (Emphasis added).

And this BBC note ("World Bank warns of social unrest", 24-05-2009):

"Robert Zoellick has warned of the destabilising effects of unemployment.
"The head of the World Bank has warned that the global economic crisis could lead to serious social upheaval.
" 'If we do not take measures, there is a risk of a serious human and social crisis with very serious political implications,' Robert Zoellick said.
"He pointed to Eastern Europe, which faces the 'tricky situation' of fast-shrinking economies and protests.
"Mr Zoellick suggested governments should start preparing for high levels of unemployment."
" 'In my opinion, in this context, nobody really knows what is going to happen and the best one can do is be ready for any eventuality,' Mr Zoellick said in an interview with Spain's El País newspaper." (Emphasis added).

Either Mr. Zoellick, who is in Australia among the 40 US delegates for the 19th Australian American Leadership Dialogue ("The most significant exercise in private diplomacy ever undertaken in Australia", as stated in its website) completely forgot the El País interview (original available here, in Spanish), or has dramatically changed his mind since then.

Which is quite puzzling, considering not only the high levels reached by general unemployment in the UK, but the fact that unemployment among the young has increased since 2009, when Mr. Zoellick seemed to have considered it a potential cause of social upheaval, as evidenced by the April 2009 London protests to the G-20 meeting (see here).


Source: UK Office for National Statistics.

It makes me wonder if the other experts, mentioned here, who also warned about the possibility of social upheaval have either forgotten their warnings, or changed their minds.

Photo Credit:
[1] Robert Zoellick: Wikipedia

Conservatism and Insanity

2011-08-13T19:26:00.000-07:00

Seen in the comments section of the 21-07-2011 ABC's Drum Unleashed piece "Obama's Re-Election Hurdles":

"(...) And by the way, I'm not a libertarian, I'm primarily a conservative with a few modest libertarian leanings on a few specific topics." (22 Jul 2011 8:17:09am)

Let's not nitpick: the differences between "libertarianism" (which the author uses as a synonym for Austrian "economics") and "conservatism" are of little consequence here.

What does it mean, then, to be a "conservative"?

Dictionary.com offers the following definition:

"con·serv·a·tive
"adjective
"1. disposed to preserve existing conditions, institutions, etc., or to restore traditional ones, and to limit change.

(...)

"4. (often initial capital letter) of or pertaining to the Conservative party."

In other words: a conservative is someone who dislikes or fears change; things must be done the way they are done now, or the way they were done in the "good old times".

In a world in crisis, we should remember this quote:

"The definition of insanity is doing the same thing over and over again and expecting different results." Attributed to Albert Einstein.

What Next?

2011-08-11T20:57:00.000-07:00

"The Fortune Teller".
Mikhail Vrubel. [1]

So far, as the sharemarkets start to calm down, it appears Australia and the world dodged the bullet.

Locally, superannuation funds and its account holders must have suffered considerably.

However, last Tuesday 09-08-2011, the press was reporting what could have been the first local negative effect of the financial turmoil:

"MARGIN calls sparked by Australia's five-day share rout have surged to levels not seen since the middle of the global financial crisis, forcing thousands of investors to dump shares or top up with cash to avoid a forced sell-off.(...)
"Bendigo Bank confirmed that more than 1000 of its clients had received margin calls in the past two days of trading.
"The Commonwealth Bank also reported a surge in margin calls since Friday(...)
"The latest figures show about $19.2 billion is tied up in margin loans across Australia, well down from a peak of $41.5 billion in the December quarter of 2007." (See here).

Thankfully, the sharemarket convulsion apparently was brief enough and did not trigger a substantial number of margin calls and as the local market started to regain ground, pressure lifted from those leveraged portfolios.

Making allowances for the effect this had on private sector balance sheets and discounting new catastrophic news (all of which might be a foolhardy thing to do!), volatility should subside gradually.

It may be a little too soon to tell, but it seems the sharemarket convulsion did not create an analogous to the "credit crunch", like the one observed in 2008/09, as feared by Paul Mason.

Does this leave us with business as usual?

Not necessarily. For one, consumer confidence was affected, at a moment when the local economy was already losing steam. This, by the way, was the main risk expected by Ross Gittins.

More importantly, by itself the sharemarket convulsion did not test the Australia/US+Europe "decoupling" theory.

Let's remember that in 2008/09 all the largest economies agreed to apply fiscal stimulus. This sustained aggregate demand, which flowed among other places, to China and developing economies, and these countries were happy to indulge by producing and importing.

Today, a similar agreement would be much more unlikely, for a variety of reasons: political ones (the US politically-induced aversion to deficits and public debt) and institutional ones (the Eurozone nations' decision to transfer their money-issuing sovereignty to the ECB).

As even well-known bulls appear to concede, fiscally constrained US and Europe seem headed to a long period of stagnating growth, at best. For Australia that means that growth would have to come essentially from China.

Will China be able to sustain its growth by switching to internal demand? That seems to be the question now. Bulls seem to take that for granted, and they might well be right.

But, then, again, that was the question then.

If China were not able, would Australia escape the bad example set by the US?

Update:

13-08-2011: An abundant crop of analysis today:

Peter Hartcher's "Winning global confidence" tops the list. Lots of interesting facts, mixing political ones with strictly economic analysis.

The black spot in Hartcher's analysis (common to about all analysts, for that matter), becomes particularly prominent here:

"In three important ways, however, Australia's situation is weaker. In 2008, the federal government had no debt, only assets. Today, its debts are modest by world standards, yet they are real and would pose a constraint on stimulus spending.
"This is why the Gillard government should not see a global downturn as an opportunity to relax its stance and justify deficit - although in a serious downturn that would be inevitable - but why it needs to redouble its efforts to pare spending."

I wish Hartcher had a look at billy blog!

----------------

Ian Varrender's "Our Lucky Country rating under threat as the dragon tires" gives an altogether different perspective:

"Buckle up. That bumpy ride we experienced this week was just the beginning. (...)
"When it comes to being The Lucky Country, we are it, if only because we are in the least worst situation of any other rich nation. But the frenetic growth of the past 15 years has ended. That's something we need to get used to".

Varrender reckons China may have considerable difficulties expanding its internal demand. I guess next week we'll see if I was too optimistic (isn't that ironic?).

----------------

Ross Gittins's "The real action is taking place in developing world" sees things in the exact opposite way: he deposits a lot of faith in developing economies, and backs this faith up with some evidence.

Is this evidence conclusive? He seems to think so:

"No prize for having guessed the punchline: the rich countries likely to do best over the rest of this troubled decade are those most closely plugged into the developing world.
"Heard of a poor, cautious, sorry-for-itself country called Australia? It sells less than 10 per cent of its exports to Europe and only 5 per cent to the US, but about two-thirds to developing countries."

I guess we, like the blind man, will have to wait and see.

----------------

A much simpler analysis, during the week, was Jessica Irvine's "Rating cut won't count for much".

Don't get me wrong: I am a believer that simple is beautiful. Consider me an Ockham's razor fanatic.

As Hartcher, Irvine should read billy blog.

The bond behaviour she described can be explained in much simpler terms: there was no real economic risk. Whatever risk was present, it was politically induced and politicians of both persuasions will first cut age pensions and unemployment benefits than touching debt service.

Deep down, bondholders knew this. Paul Krugman has had a wonderful time making fun of the mythical "bond vigilantes" who were supposed to punish American profligacy.

This way, the first half of the piece, addressing the US downgrade, scores some good points, and misses some others.

The second half, though, addressing the general outlook for lil'ol Oz, which is what concerns me here, is pretty good.

----------------

Well, boys and girls, have fun reading about doom and gloom! Just kidding.

Image Credit:

[1] "The Fortune Teller", by Mikhail Vrubel: Wikipedia.

Les Misérables

2011-08-10T23:59:00.000-07:00

It's puzzling to see a piece that gets so close to the truth, ending up missing the point completely:

"This [my comment: the British unrest] is not a political rebellion; it is a mollycoddled mob, a riotous expression of carelessness for one's own community. And as a left-winger, I refuse to celebrate nihilistic behaviour that has a profoundly negative impact on working people's lives. Far from being an instance of working-class action, the welfare-state mob has more in common with what Marx described as the lumpenproletariat." (Emphasis added)

Except for the "mollycoddled" and "welfare-state mob" things, Brendan O'Neill, who authored that piece, is right on the money there.

Note the word "lumpenproletariat" above. Contrary to widespread belief, Marx never thought there were only two classes:

"Of all the classes that stand face to face with the bourgeoisie today, the proletariat alone is a really revolutionary class. The other classes decay and finally disappear in the face of Modern Industry; the proletariat is its special and essential product." (See here)

Lumpenproletariat (also the "dangerous class") is a term used by Marx to collectively describe the bottom-most layer of society; in Marx's words: the "refuse of all classes" (refuse in the same sense that guts and bones are the refuse from a cow's carcass).

You see, Marx wasn't particularly charitable or even sympathetic towards the lumpenproletariat.

Think, for instance, of individuals who neither own capital, nor can insert themselves in the labour market.

Reduced to mere immediate physical survival (and in Marx's time, they had no social security) these individuals tended to lack class consciousness and often resorted to criminality: "vagabonds, discharged soldiers, discharged jailbirds, escaped galley slaves, swindlers, mountebanks, lazzaroni, pickpockets, tricksters, gamblers, maquereaux [pimps], brothel keepers, porters, literati, organ grinders, ragpickers, knife grinders, tinkers, beggars". (See here)

What distinguishes them from the proletarians is not necessarily poverty, but whether or not they make a living by selling their labour.

Joan Robinson put this in a more sober way: "the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all". (See here)

M. Javert arrests Fantine. [1]

So, if the proletariat is capitalism's "special and essential product", the lumpenproletariat is an unavoidable by-product.

In this, Marx was painfully wrong and much too optimistic: in his view, reflected in the paragraph above, lumpenproletariat and the other classes were considered essentially a temporary anomaly, to be found only in the still developing capitalism, which Marx knew.

O'Neill, over one hundred years after Marx's death, rightly recognizes that the lumpenproletariat is far from extinct. Still, he fails to draw the logical conclusions from this:

"What we have on the streets of London and elsewhere are welfare-state mobs. The youth who are 'rising up' - actually they are simply shattering their own communities - represent a generation that has been more suckled by the state than any generation before it."

"Cosette", 1862.
Emile Bayard. [2]

They are not "rising up", true. But it's not abundance that produces envy and leads to theft and robbery. You don't need to be a Marxian scholar to know it: you might be jealous of a clean set of clothing, if you are dressed in dirty rags; nobody wearing an Armani suit is jealous of the old homeless bugger's dirty, stinking clothes.

Nor is tender care that produces anger and violence.

O'Neill, a self-described "left-winger", should know better.

O'Nell rightly accuses the rioters for "shattering their own communities".

However, wasn't Baroness Thatcher (whom I believe was his compatriot), who famously decreed that community, society and solidarity were abolished? "They're casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families." (See here)

The chronically unemployed, not needed in long-closed factories, the underemployed struggling to make ends meet; the migrants, ethnic minorities, women, young and the over-fifties, who have difficulty finding a stable, well-paid job, those are the human refuse produced by capitalism. And, boy, has capitalism been busy lately!

They are alone, too, as Baroness Thatcher advised.

And they have been left to accumulate, and rot, and ferment, because some metaphysical "Market" will eventually remedy their situation.

And while they await for the "Market", their mere presence reduces wages, and scares the hell out of what remains of the working class. The message is clear: this could be you.

The Spanish neologism "precariado" (PRECArio proletaRIADO: precarious proletariat) reflects this fear: those who walk over the tenuous line dividing proletariat and lumpenproletariat.

They also make us feel good about ourselves, decent people, going places: "There! We finally have someone we can look down to".

Deny them access to that modest social improvement represented by being a proletarian, remove their means of survival, and force them and their children to fight and you will not re-establish the capitalist order.

You will not get a workers' revolution, either: you'll only get more crime and mindless violence.

The Prime Minister, Mr. Cameron, said that his was a sick society. He's right.

The rioters and looters are harming those who already have little, that's true. Repress them, if needed. But be aware: excesses will generate more violence.

And know that repression is not enough. These riots are only a symptom of the true sickness: capitalism.

Your choice. Do what you have to do. By warning you, I did my bit.

Image Credits:

[1] M. Javert arrests Fantine. Pont-au-Change.
[2] Cosette: Wikimedia

Update:
12-08-11: I forgot adding the "welfare-state mob" phrase when I wrote the second paragraph.

Caracas, February 27, 1989.

2011-08-08T23:29:00.000-07:00

The scenes below, from Al Jazeera in English, were posted in YouTube on 08-08-2011:

These other scenes, although posted in February 2007, are much older. They date from 27-02-1989:

"The Caracazo or Sacudón is the name given to the wave of protests, riots and looting and ensuing massacre that occurred on 27 February 1989 in the Venezuelan capital Caracas and surrounding towns. The riots — the worst in Venezuelan history — resulted in a death toll of anywhere between 275 and 3,000 deaths, mostly at the hands of security forces. The main reason for the protests were the neoliberal, pro-market reforms imposed by the government of Carlos Andrés Pérez." (See here. Emphasis added)

Carlos Andrés Pérez.

The then ruling party lost legitimacy. Two failed coup attempts followed and President Pérez was impeached, after a period of constant political turmoil. Eventually Lt. Col. Hugo Chávez was democratically elected.

It remains to be seen whether this was a happy ending.

Lt. Col. Hugo Chávez.

Let's hope British police have better sense than their Venezuelan counterparts.

Image Credits:

Hugo Chávez. Wikipedia.
Carlos Andrés Pérez. Wikipedia.

London Calling

2011-08-08T12:18:00.000-07:00

What's behind the London riots, started at Tottenham, and that appear to spread?

The immediate answer is the killing of Mark Duggan, in apparently strange circumstances. A second answer is that there is a criminal element in the Tottenham/London riots.

And it's clear those are part of the answer.

But I'll suggest the relevant question is not that. The relevant question is: are those the only things behind those riots?

"Unemployment jumped by 44,000 in the final three months of 2010 to just under 2.5 million, meaning that 7.9 per cent of workers were out of a job. But the youth unemployment rate hit 20.5 per cent, following a 66,000 increase to 965,000, the highest figures since records began in 1992.(...)
"There were 75,000 people aged 18 to 24 who have not had a job for two years, the figures said. This was an increase of 43 per cent on a year ago.(...)
"Liam Byrne, the shadow Work and Pensions minister, said young people were being hit by a 'triple whammy' as the Government scrapped Education Maintenance Allowances, which allowed some students to stay in education; introduced increased university tuition fees and abolished the Future Jobs Fund - which Labour claim would have created 200,000 jobs." (See here)

I don't know for sure what the answer could be. However, given the figures above, I'll answer as The Guardian's Dave Hill, in his own opinion piece, reproduced locally by the SMH:

"I don't know what the answers are, but feel grimly confident that such a perfect storm of rumour, resentment and criminality could break in a dozen other parts of inner city London any day. These are nervous times."

London is calling and someone is bound to take the call.

Two Sides of a Coin

2011-08-05T20:03:00.000-07:00

Chung-Kuo

How to evaluate what happened this week? The answer, I guess, lies somewhere between these two extremes:

We (especially we Aussies) are going bananas for no good reason (see here).
We (that is, all of us, regardless of place of residence) are potentially in deep shit, through a possible renewed credit crunch (see here).

The first view (which one could call "Aussie-centric") sustains that in Australia, unlike the US and Europe, an essentially benign internal situation could deteriorate because of undue pessimism, due to outside events.

Although Mr. Ross Gittins (the first piece's author) does not mention it explicitly, in a nutshell his idea is that Australia has decoupled from the American and European real economies. That is, the US and Europe are largely irrelevant for Australia's economic performance.

The mining boom ensures Australia that Aussie exports, largely destined to Asia (China and India), prop up our GDP [=C+I+G+(X-M)], through increased exports (X).

Apart from this international trade item, Mr. Gittins focuses his analysis entirely on Australia; he does not stop to consider the US and the Eurozone (perhaps because he considers them largely irrelevant for the purposes of his piece); maybe less understandably, Mr. Gittins does not seem to consider Asia in any apparent detail.

The second view, by Mr. Paul Mason (which one could call "Euro-centric") coincides with Mr. Gittins' views, in that the US, the Eurozone and Asia need be considered separately, but focuses on the US and the Eurozone, leaving Asia to a large extent outside of consideration.

Unlike Mr. Gittins, Mr. Mason considers international trade, but emphasizes on international finance potential linkages, which is where Mr. Mason appears to consider the global risk lies.

I can find rather apparent weaknesses in both views. For one, are there internal political constraints on national governments? Or, I haven't heard much about China lately; have the readers any precise information about it? (Mr. Mason says that Asia is important, but does not offer too many details about it: perhaps his Eurocentric perspective justifies his overlooking this point; however, in Mr. Gittins' view this should be a highly sensitive matter, although it goes unmentioned in his analysis).

In any case, I do not intend to argue for or against any of these views and I certainly don't want to influence the readers: you are free to make your own mind.

(Pre-publication!?)-Update:

As I finish this I've read that Standard & Poors cut the US credit rating.

Image credit:
Wikipedia

Capitalism Hits the Fan... Again

2011-08-05T00:12:00.000-07:00

Deutsche Welle (Germany):

"Markets Fall After Barroso Raises Specter of Further EU Debt Contagion

"In a letter to EU heads of state, European Commission President José Manuel Barroso has warned that the eurozone debt crisis was still spreading despite agreement over a bloc-wide bailout fund."

The Guardian (UK):

"Asian Markets Tumble Amid Eurozone Fears

"Live Japan, Hong Kong, Australia, New Zealand, Taiwan, Indonesia and South Korea all see large falls
"Global stock markets panic after Wall Street losses
"Larry Elliott: Turmoil carries echoes of 2007
"Eurozone fears send banking shares plunging
"Dow Jones returns to losing ways
"Editorial: State of emergency
"Italian prosecutors turn fire on rating agencies
"Poll: are the euro's days numbered?"

El País (Spain):

"La Caída de los Mercados Asiáticos Hace Prever una Nueva Jornada Negra

"-Japón, Corea y Hong Kong abren con fuertes pérdidas.
"-Los mercados esperan un catalizador hoy en el previsible crecimiento del empleo de EE UU o en alguna medida de Europa.
"-Se extiende el temor a un parón en la recuperación
"-Suben las comisiones por la avalancha de liquidez".

The Sydney Morning Herald (Australia):

"$55b Wiped Off Market

"Aussie shares plunge at the opening, as investors reel over the state of the global economy."

And who's at fault? Go on, make a guess.

" 'One of the reasons [confidence] is beginning to erode is we have lost the reform energy that we had over a 25-year period.'
"In a reference to the politically fraught topic of industrial relations, Mr. [my comment: John] Howard said regulation of the labour market had taken the nation backwards." See here

Or this perfectly timed pearl of political and economic wisdom, by Paul Sheehan, published yesterday:

"What happened in Washington last week, embodied by the Budget Control Act and the brinkmanship that brought it into law, was a national failure. The bill is a bandage, when surgery is required.
"The financial markets tell the real story, and the conservative mothers have every right to be angry." See here.

I can smell a Nobel Prize somewhere near.

Witch Hunts Downunder?

2011-08-03T22:46:00.000-07:00

I don't know Prof. John Quiggin personally.

I couldn't tell much about him as a person: whether he's tall or short; whether, surrounded by his mates, he digs into a good BBQ washed down with a cold beer or two, or whether he's a vegetarian and a teetotaller, instead.

I do know he is a distinguished Australian scholar, who makes himself available to the lay public through his blog, which I occasionally read.

By this limited interaction, I can say he seems to be a well-meaning, unpretentious bloke, with some progressive views (the kind of views that another well-known mainstream scholar, Prof. Paul Krugman, shares, for instance).

I can also honestly say that Prof. Quiggin's expertise does not extend to Marxian economics or politics. And at times, this shows.

In this context, I found the criticism directed towards Prof. Quiggin by Mr. Michael Stutchbury, from The Australian, surprising, misleading and disturbing: "an economist who is good in theory but on the far left in practice".

It's easy to understand why I find it surprising and misleading, given what I have already said about Prof. Quiggin. However, to make sure the message is not lost, let me state it clearly: he seems to be a decent bloke (maybe what Americans call "liberal"?), but he ain't no socialist, let alone a "far Leftist". Mr. Stutchbury's attack on Prof. Quiggin is as unfounded as it is ludicrous.

However, Mr. Stutchbury's accusation, coming in the wake of the Oslo-Utoya extreme-Right terrorist attacks, is disturbing, too. It sounds way too close to "cultural Marxist".

Mr. Stutchbury's piece could be saying much more about his personal politics, than what it says about those of Prof. Quiggin. And I call that disturbing.

Strange Salary Surveys

2011-07-27T04:38:00.000-07:00

So, here we go again:

"ALMOST two-thirds of large companies are considering hiring staff from overseas to overcome skills shortages, according to a recent national salary survey by the Australian Institute of Management." (See here)

It may be just a detail, but doesn't it sound unusual to the reader that a salary survey should reveal hiring intentions, discriminated by origin? More on this at the end.

Anyway, the idea is that Australian labour demand exceeds supply for construction and engineering, sales and marketing and manufacturing/trades, nurses, childcare workers, cooks, hairdressers and butchers, at the professional and technical level.

If demand exceeds supply, one is told, prices should rise as a matter of course, until markets clear. In the labour market, employers compete with each other, via higher wages/salaries, to attract scarce workers. That's the way of the market, isn't it?

Not in the Australian labour market, it seems, according to Mr. Garry Brack, CEO of the Australian Federation of Employers and Industries (formerly known by the more apt name of Employers First):

" 'As the resources sector continued to expand, the construction industry in particular would suffer increased difficulties in filling jobs because of the higher wages offered by mining companies', he said".

That is, the construction industry cannot compete against the higher wages offered by the mining industry, and so wages cannot go up: bring up extra workers. Isn't that a curious statement for a free-market devotee?

First a little detour: how many additional workers will the mining industry require?

"Wilhelm Harnisch, the chief executive of Master Builders Australia, agreed [my comment: with Mr. Brack], calculating that in the next five to 10 years, the mining sector would recruit an extra 60,000 to 80,000 workers, and those from the construction industry were a natural fit."

In other words: the mining industry would require between 6,000 and 16,000 additional workers a year to fill new positions, plus an unspecified number to replace retiring baby boomers, as Mr. Harnisch mentions somewhere else.

The astute reader might have a question, partially answered by Mr. Harnisch: what kind of impact that labour demand would have on the building industry?

" 'With a building workforce of a million, it will certainly hit us hard,' Mr Harnisch said. 'It will not be as catastrophic as some are saying, but [it] is a concern'."

I don't know how hard it would hit them or how much of a concern it should be, as Mr. Harnisch seems to be talking about 0.6% to 1.6% of the building industry's workforce. But I certainly agree that it shouldn't be much of a catastrophe at all.

Now, back to the main theme: with an underutilization rate of 12% (as of May 2011, according to ABS 6202.0), shouldn't employers find more profitable to increase labour supply, through traineeships and apprenticeships?

This is what Mr. Malcolm Tulloch, state secretary of the CFMEU, believes:

" 'Companies don't commit to providing resources to train Australian school leavers,' he said. 'There has been a neglect in this [area] for well over a decade and now Australia is feeling the pinch'."

But, the reader might object, a trade unionist would say that, wouldn't he?

And the reader would be right, of course. However, interestingly, in this Mr. Harnisch agrees with Mr. Tulloch:

"Of equal concern was the structural shortage within the industry, he [my comment: Mr. Harnisch] said, as (...) the dropout rate among apprentices continues to be as high as 50%.
"Mr Harnisch said low starting wages, unmet expectations of school leavers and poor training were behind the dropout rate." [Emphasis added]

So, let's gather the scattered pieces:

Demand exceeds supply for construction and engineering.
Building industry cannot compete with mining on wages.
Building industry concerned about labour shortage.

But apprentice and trainee wages didn't increase... Is it me or something isn't right?

And there you have it: the Australian labour market does not clear by prices/wages rising until scarce supply increases to match an elevated but decreasing demand.

The Australian labour market, it seems, clears by supply matching demand, while prices/wages remain low: supply increases until it matches demand. And the additional supply does not come from within Australia.

This explains why a salary survey shows that Australian employers intend to hire overseas workers.

Update:

30-07-11. The lines written in blue were suggested by reader K-PUT and greatly improve the understanding of the text. Thanks K-PUT!

Norway: Let's Try with Images

2011-07-25T19:15:00.000-07:00

So, let's try with images, as it appears fellow lefties had a lot of difficulty understanding my warning.

The footage below shows Prof. Hans-Joachim Schellnhuber's climate change presentation in Melbourne, last week, being interrupted by an opponent to the idea of anthropogenic climate change:

This is how I interpret the scene:

The display of the "carbon-free noose" constitutes a symbolic threat to Prof. Schellnhuber.
The person making the threat must be considerably radicalized to take that step.

I don't know Schellnhuber's politics. From his Wikipedia entry, I couldn't glean anything. For all I know, he could be entirely disinterested in politics, be an ultra-conservative or a liberal, a Fabian socialist or a Marxist.

However, in this link, he is being accused by the noose-holding man of being a "Green Fascist" and a "British agent".

The first conclusion I draw from the episode is that there's probably just a little step between a symbolic and an actual physical threat.

I suppose it takes some really radicalized people to carry out a physical aggression. But as the video shows, there are some people considerably radicalized already, although perhaps, hopefully, not radicalized enough. This is my second conclusion.

My third conclusion is that Schellnhuber's real political beliefs are not relevant to a potential aggressor; his position on the climate change/carbon tax debate is all it takes

Does it mean he is under imminent danger? I don't know; hopefully not.

Should he change his views, whatever they are, just because some people are angry at him? That's not for me to answer.

The only thing I can say with certainty is this: in my view, he should be careful.

Now, exercise a little imagination: put yourself in the role of presenter; change the topic of the presentation, from climate change to multiculturalism (which you support); and change the accusation, from "Green Fascist" and "British agent" to "cultural" Marxist.

After these imaginary changes, does the resulting scene differ in any meaningful way from the scene above?

Now imagine you heard for the first time about this last weekend's events in Oslo, Norway.

Whatever subtle changes, they appear only after Anders B. Breivik and are for the worse: threats are no longer necessarily symbolic, and we do know that there are people radicalized enough to carry out physical threats.

And your real political beliefs mean shit: if you support multiculturalism, you are a "cultural" Marxist. Full stop. In fact, you are a "cultural" Marxist even if you actually are a "capitalist globalist", for Christ's sake!

Whoever is to blame for this situation, for the purposes here it's immaterial: if you spoke in favor of multiculturalism, you are a potential target.

True, Australia is not Norway post-Breivik. But Norway wasn't Norway post-Breivik one month ago, either.

I close my case.

------------------------------------

If the reader is a lefty, and wants my advice, it's simple: don't fool yourself into the sense of false safety reflected in the newspapers.

However, what you make of the above is up to you.

The Beast and Norway

2011-07-24T04:43:00.000-07:00

"And when they shall have finished their testimony, the beast that ascendeth out of the bottomless pit shall make war against them, and shall overcome them, and kill them." (Rev 11:7)

I hesitated before writing this post.

I have other things to do, which for one reason or another I never manage to finish.

Further, it's a gruesome and sensitive subject. I am loath to trample on the tragedy of good people living at the other side of the world and I ask them their forgiveness, if this post in any measure adds to their pain.

But I can't keep silence on this matter.

Let me state this in advance: I am an agnostic.

The Beast of Revelations exists. It walks among us and it poisons our souls.

It's infinitely more powerful than any man and it's immortal, because it's not made of flesh. If anything, the Beast is worse than anything the Bible tells us, because, unlike its biblical counterpart, the Beast is real, not the product of a mystical mind.

And it has many faces. This is one of its faces:

He made war against them, he overcame and killed them.

A middle-class Norwegian, 32 year old Anders Behring Breivik described himself as economically liberal, revolutionary cultural conservative, former member of the Progress Party (largely anti-tax movement, supporting downsizing of bureaucracy and increased market economy), which he left when his viewpoints became more extreme

I can't vouch for the reliability of the YouTube video [*] purported to be the manifesto of Anders Behring Breivik (aka Andrew Berwick) and of a so-called Knights Templar movement, as it starts with a Legal Disclaimer.

Assuming said video legitimate, it identifies some malignant and mysterious entities called "cultural Marxists" as the persecutors of conservatives and nationalists and, for some unexplained reason, sponsors of the Islamic colonization of Europe (aka multiculturalism).

It goes to some length to identify who these "cultural Marxists" are:

"Marxists,
"Suicidal humanists, and
"Capitalist globalists".

It also pinpoints some institutions as strongholds of Marxism/"Cultural Marxism": "A Marxist United Nations" ("already a Muslim controlled organization") and the BBC:

It also expresses with regret:

"No executions, persecutions or mass deportations of Marxists to the Soviet Union was (sic) ever initiated in Europe, which has proven, in retrospect to be fatal for our continent."

In its Part 4 the video proposes to correct this situation, before starting their crusade against Islam:

"Before we can start our Crusade... we must do our duty by decimating cultural Marxism".

It is in this context that the ruthless murder of 92 innocent people (mostly kids) must be seen.

Are these just the ramblings and doings of an isolated madman, as suggested by the media?

It's possible. I sincerely hope the media is right on this.

However, the video also states in its Part 4:

"The Poor Fellow Soldiers of Christ and of the Temple of Solomon, referred to as the Knights Templar, was re-founded in April 2002 in London (...) KT acts as a War Crimes Tribunal through its independent and self-sustaining single-cell network of Justiciar Templars whose purpose is to target category A and category B multiculturalist/cultural Marxist traitors (...) 12 conservative revolutionary delegates from 10 European countries, France, the UK (England), Germany, the Netherlands, Belgium, Norway, Greece, Spain, Russia and Serbia attended the founding meeting."

We should heed these words as a warning, even as we hope they are not true.

If you listen carefully, you will hear the Beast's voice on the radio and TV; if you pay attention to what you read in Internet forums, blogs and printed media, you will find similar ideas.

For the Beast, the real one, is made of a supernatural substance: ideas. And in Australia, politicians of both main parties, shock jocks, and paid hacks from think-tanks, often speak these words, even if they are not fully aware of it (and often, I wonder if that's the case).

Decency, justice, solidarity, equality, freedom, peace, all the things the Left stands for, are losing the battle of ideas.

As I finish this, night has fallen over Sydney. It's a dark and cold night.

It's ominously appropriate.

NOTE:

[*] I will not post the links to the video or to the PDF manifesto, as I consider them rubbish and immoral. Any readers vitally interested can find them by themselves.

Images From Syria

2011-07-23T23:42:00.000-07:00

I will add no comment, you be the judge:

"Uploaded by AlJazeeraEnglish on Jul 1, 2011

"Activists in Syria are claiming the largest turnout yet against the regime of President Bashar al-Assad, and that 11 people were killed at the hands of security forces.

"The deaths occured in Homs, Damascus and Latakia on Friday, activists say.

"Al Jazeera's Rula Amin reports from Damascus, the Syrian capital, on how Fridays prompt a host of demonstrations, both for and against the president."

"Published on Jun 24, 2011 by AFP

"Pro-democracy protests in Syria passed their one hundredth day this week.

"Demonstrations against the rule of Bashar al-Assad began on 15th March. The resultant crackdown by Syrian security forces has left more than 1300 people dead - and despite calls by Assad for 'national dialogue', the protests show no signs of stopping."

NotW News

2011-07-10T22:56:00.000-07:00

Whaddaya know? Everybody and their dog are talking about Mr. Murdoch's fall from grace.

I hear UK PM Mr. Cameron might be turning his back on Mr. Murdoch; opposition leader Mr. Miliband is calling for prosecutions and such.

And now, The Guardian, in an opinion piece on the subject, contains the following (emphasis added):

"Meanwhile, US law may enter the fray. A former Labour cabinet minister has alerted attention to the US Foreign Corrupt Practices Act, which makes an American company (News Corp) liable for colossal fines if any employee bribes a foreign official (the Met police) even if no one at head office knew. What's more, any whistleblower inside the company (sacked News of the World reporters), stands to win a percentage of that fine if they report acts of bribery."

Kind of ironic, really: isn't self-interest what makes capitalism tick?

Update:

Tuesday, 12/07/2011. The SMH reproduces a Telegraph, London piece, signed by Christopher Hope: "Heir Apparent Could be Charged in US and Britain".

Among other things, this piece states:

"The US Foreign Corrupt Practices (FCP) Act makes it a crime for US companies to offer corrupt payments to foreign officials. If the allegations of payments to police officers totalling more than £100,000 ($149,000) are proven, Mr Murdoch might face a US prosecution and the News Corp empire might face a bill of more than $90 million.
(...)
"In Britain, Mr [James] Murdoch's admission that he made out of court settlements to victims of phone hacking could leave him vulnerable to prosecution under anti-snooping legislation.
"Alan Johnson, a Labour MP who served as home secretary under Gordon Brown, suggested that Mr Murdoch could be charged under the Regulation of Investigative Powers Act, which covers the 'criminal liability of directors'."

Immigration and Oz: What Gives? (II)

2011-06-30T02:44:00.000-07:00

Apologies to the readers for the delay.

"So who wins and who loses from past and current Australian immigration? (...) The actual outcome in distribution terms depends a lot on [the] use of the fiscal dividend, between increased public outlays of various kinds and tax cuts." (Garnaut, Ganguly and Kang. 2003. Pages 159 and 160).

As hinted in the previous post, the Australian Government's favorable perspective on immigration is not necessarily valid for all social groupings.

The 2003 Garnaut, Ganguly and Kang study attempted to analyze this matter, considering different areas. One of the main areas considered is taxation and fiscal policy, which we'll study here.

The chart below shows the Commonwealth cash balance (deficit/surplus) as a percentage of GDP, for the Hawke/Keating and Howard periods.

Source:
2009-10 Commonwealth Budget - The Final Budget Outcome.
Appendix B: Historical Fiscal Data. Table B1.

Excepting three years (1987-88, 89 and 90), the Hawke/Keating period saw a sustained fiscal expansion (i.e. fiscal deficits).

In contrast, the Howard period (excepting its first financial year, 1996-97,) was characterized by fiscal contraction (sustained surpluses).

About now, and following the "spending funded by taxes" logic, the reader should be asking about the origin of the money spent during the Hawke/Keating period and hoarded during the Howard period. (Find the data here, Table B1 of Appendix B).

Show Me the Money

To answer that question, one must consider that during the combined Hawke/Keating-Howard period taxation receipts oscillated over a broader 4.3 percentage point wide range (maximum of 24.1% of GDP for 2004-06, during the Howard period; minimum of 19.8% of GDP for 1992-94, under Hawke/Keating).

Non-taxation receipts, at the other hand, oscillated around a narrower 1.5 percentage point wide range (maximum of 2.9% of GDP in 1986-87, during the Hawke/Keating period, and minimum of 1.4% from 2003-04 to the end of the Howard period).

In other words: during the Hawke/Keating period the Commonwealth spent in excess of revenues, even when they had considerable non-taxation receipts (for instance, privatizations). As a consequence, it's possible that this period also had a considerable degree of "churning" (jargon for returning to tax payers, as transfers, money collected as taxes or as other Commonwealth receipts).

During the Howard period, at the other hand, the Commonwealth hoarded money, largely originated from tax receipts (as non-taxation receipts were greatly reduced by then).

Rich Man, Poor Man.

This sets the context for the following two charts, which describe the evolution of the tax-free threshold (i.e. the minimum income level, beyond which income taxes are paid) and the top threshold level (that income level beyond which taxpayers pay the top rate). In both charts, the red line indicates how much the 1983-84 threshold would be if it had been actualized with CPI variation. In blue is the actual threshold. (Data from ATO: see here)

From 1984 and up to 2005 actual thresholds increased less than their inflated versions: this is known as "tax bracket creeping".

From 2005 on, the top income threshold shot up, while the tax-free threshold remained stuck.

A "beer coaster calculation" (as some friends call this kind of exercise) can be useful to understand what this means:

A person who by 1983-84 earned an income of $4,500 would be just below the tax-free threshold for that year ($4,594) and would have paid no income taxes.
By 2005-06 the same person, earning now some $10,493 (its 1983-84 income, actualized by inflation) would have exceeded the tax-free threshold that year ($6,000) and would have paid $674 over the excess (an effective tax rate of 6.4%). So, this person has clearly lost over time.
A person who by 1983-84 earned an income of $36,000 (just inside the top income bracket for that year: $35,788) would have paid $12,091, for an effective rate of 33.5%.
By 2005-06 the same person, earning some $83,949 ($35,788, actualized by inflation) would have fallen below the top tax bracket. In the second highest income tax bracket, she would have paid $29,059, for an effective rate of 34.6%. So, this person has not seen a real change in her taxes.
Now, let's consider a person who, by 1983-84 earned well in excess of the top bracket threshold: $105,000. In that year, her tax bill would have amounted to $53,491, for an effective tax rate of 50.9%.
By 2005-06 the same person, earning now some $244,851 (its 1983-84 income, actualized by inflation) would have paid $98,630, for an effective rate of 40.3%. So, this person did see a considerable improvement in its taxes.

The examples above are clearly a simplification: the Australian tax system is extremely complex. For instance, it does not include the Medicare levy or HECS (both payable beyond a certain income level); in compensation, it doesn't include National Rental Affordability Scheme, Private Health Insurance Tax Offset, Superannuation Co-Contributions (benefiting mostly higher income earners).

Furthermore, it does not consider the GST (which adds 10% to the price of most goods and services, regardless of income, and which accounts for some 4% of taxation receipts), State taxes and municipal rates (which were greatly reduced after the GST came into effect).

As the opening quote suggests, Garnaut, Ganguly and Kang considered a potential reduction of taxes as one of the main potential benefits of the increased immigration intake.

With its limitations, the calculations above give reasons to suspect that immigration has not been accompanied by a tax bill reduction for all Australians (or for the migrants themselves).

It seems some people are getting a much better deal.

Next post in this series (no promises about the date!!): how about wages?

Update:

This feedback did not take long to come and it's a very good one, too.

The numerical examples were based on the taxation rules applying in 1983-84 and 2005-06.

As the tax-free threshold remained constant on $6,000 since then, currently our hapless low-income earner is paying more than 6.4% (7.2% in the 2008-09 financial year).

The second tax payer improved some, but not much: effective taxes now of 32.2% (versus 34.6% in 2005-06).

But things do get better for the higher earning taxpayer: from paying 40.3% in 2005-06, it came down to 36.5% (2008-09).

Immigration and Oz: What Gives?

2011-06-15T01:13:00.000-07:00

The year is 1988. Declaring himself alarmed by a record immigration intake, then Federal opposition leader, John Howard, released the One Australia policy.

That policy, justified on the need to preserve the ethnic makeup of Australia, called for tougher immigration rules.

As the chart shows, the migratory intake fell dramatically (as did Howard himself in 1989, partly due to opposition within his own Liberal Party of Australia to the One Australia policy).

Population increase: Components. (ABS. 3101.02)

It is debatable the extent this reduced migratory intake was due to the approaching 1991 recession, or to eventual tighter selection criteria voluntarily applied by the Hawke/Keating government, inspired by One Australia. What's indisputable is that the immigration intake rebounded to higher records... during the Howard Government, in spite of its new tough asylum seekers policy.

The contradictions revealed by this episode speak volumes about immigration in Australia, where a populist rhetoric depicts immigration as a risk to some undefined "Australianness", while the Government tries to sell immigration as an unmitigated good and deeper interests, often unmentioned and officially unacknowledged, both oppose and support immigration.

In an attempt to shed some light on these opposed interests, let's consider what facts are clear?

Natural Increase.

An obvious characteristic in the chart above is that natural increase is remarkably constant.

As a consequence, relatively constant increases in absolute numbers result in a decreasing population growth in percentage terms. That is, smaller and smaller proportions of native Australians join the workforce, the internal demand and the taxpaying base.

Consider the children born in Australia in 1982, shortly before Hawke took power. From the first moment, these children have a difficult to assess effect over the Australian economy.

At one hand, they increase demand for private goods and services, which their parents need to provide by themselves or with the help of government transfers.

Increases in aggregate demand are seen as the engine of economic growth, so one could conclude with mainstream economists, that they have a positive effect on the economy.

A more careful consideration, however, reveals that such conclusion is not always granted: it's possible for an increase in demand by the children to be partially offset by their parents' decreased consumption. To what extent one effect prevails over the other is impossible to assess on the data available.

But the 1982 cohort also increases demand for public services (mainly education and health), which require public funding.

And these individuals only start to join the workforce by 1998, into the Howard Government. At this point, they gradually start to earn a living by themselves, freeing their parents' income for their own consumption, increasing their individual consumption, and paying taxes.

For a government as the Australian, that insists on managing its finances by the "spending funded by taxes" logic (logic disputed by the MMT school of economics), this lengthy transition from net recipient of government transfers and user of public services, to taxpayer makes natural increase of the population a relatively unattractive option.

Net Overseas Migration.

From a government's perspective, the option of net overseas migration as population growth driver is easier to assess and much more convenient.

For one, net overseas migration, as shown in the chart, is much more variable and probably easier to control. By itself, that explains that it has recently become a much larger component of population increase.

Are there any other advantages in immigration?

Immigrants do not require public funding to develop their labour skills [#]. If they arrive through the skilled migration stream, they have already completed their professional training. If they arrive through the student stream, and obtain residence while in Australia, they pay for their own training.

In any case, this allows Australia to externalize training costs: either individual migrants or their countries of birth assume these costs and the Australian Government benefits in that measure.

Further, migrant families arriving in Australia need to have at least one breadwinner in working age (i.e. the main applicant in the visa application protocol), and are subject to a two-year waiting period before they can claim social security: they need to provide for themselves from the start, paying taxes in the process.

Notice as well that, as the proportion of older Australians increases, the number of retirees increases and they will all but stop paying taxes. Again, migrants come in handy to fill the void left.

What's more, migrants also contribute to aggregate demand.

The Australian Government Perspective.

From the considerations above it appears that the case is clear: migration is in the interests of the Australian Government, either as a replacement for natural increase or as a boost to it.

In fact, the literature largely follows the logic described above and arrives at similar conclusions, although with some nuances. See for instance the Garnaut, Ganguly and Kang 2003 report (section 2), commissioned by the Department of Immigration, Multicultural and Indigenous Affairs. [*]

But is it legitimate to assume that the interests of the Australian Government coincide with the interests of all Australians? What about the migrants themselves?

Interestingly, the Garnaut, Ganguly and Kang report mentioned above attempted to consider this question explicitly. Reading the report from this perspective, the answer doesn't seem so clear.

This series will continue next week: who benefits from immigration?

NOTES:
[*] One of the factors the report considers, which I did not include here, is the "scale factor". Essentially, larger populations, regardless of origin, should bring about scale economies. The report does not provide any specific estimates of this effect. Further, the report does not consider the possibility that this effect might suffer from decreasing marginal effects. For those reasons, it seems sensible to omit its consideration here.

Update:
[#] Here a note for readers outside Australia is required. Immigration to Australia, perhaps unlike the US, for instance, is largely legal migration. This provides the Commonwealth Government with considerable powers to shape migration. As suggested in the main text, a large contingent of migrants come through the skilled migrants stream. Those who come through other streams often don't require working skills (for instance, relatives of Australian residents, part of the family reunion stream and dependent upon the residents for their support; prospective business owners, who are required to bring in capital, but no specific labour qualifications).

Dodgy Recovery!

2011-06-09T02:03:00.000-07:00

Today Thursday 9th of June the ABS released its latest employment figures (Labour Force, Australia, May 2011 - catalogue number 6202.0).

Last time we reported employment falling by 22,100 fulltime positions (equivalent to a loss of 308 thousand in the US).

At the time, the loss seemed so severe that raised questions about a statistical fluke, as can be seen in my previous comment and here.

Last May seasonally adjusted employment fell again, by 22,000; but it was partially compensated by 29,800 part time new jobs.

Employed Persons

From the chart above (taken directly from the ABS) It would seem that trend employment has reached a peak, barring unforeseen positive events.

Hours worked increased slightly, by 0.4%, although not enough to compensate for April's fall of -0.9%.

Labour underutilization rate (unemployed plus part-timers looking for extra work) increased to 12.2, from February.

At the other hand, not even our esteemed pundits, experts, journos, bloggers and others seem to be calling for an urgent interest rate hike, any more.

Which, come to think of it, sounds really ominous.

You Be The Judge

2011-06-02T00:08:00.000-07:00

Last night (Wednesday, 1th of June) the ABC's 7.30 Report contained a segment on the possibility of a NSW Government/state employees unions conflict.

This post will consist on pieces of the transcript (see here). They are shown in italics, and indentation, so they are easily distinguishable from my comments (not in italics, and either not indented or within square brackets):

CHRIS UHLMANN, PRESENTER: The New South Wales Government is the nation's biggest employer and it's about to revolutionize the way it deals with its 400,000 workers. It's set to cut arbitration rights and fix pay increases. The justification is a blowout in the public sector wages bill, and the changes could become law as early as tonight.

But independent research obtained exclusively by 7.30 questions the assumptions driving one of the country's biggest industrial relations experiments.

Here we'll focus on the calculations the O'Farrell government uses to justify its measures.

BARRY O'FARRELL: Well since 1997, the figures show that public sector wages in NSW have increased by 21.6 per cent. That's outstrips private sector wage increases of 11.1, it outstrips Queensland public sector wages at 14 per cent - 14.3 per cent, I think, and Victorian wages of just over 15 per cent.

CONOR DUFFY [reporter]: The new research obtained by 7.30 challenges the assumptions underpinning the Government's reforms. An independent analysis conducted by Sydney University's Workplace Research Centre concludes NSW public sector workers are paid roughly the same amount as their counterparts in other states and in the private sector.

The research mentioned can be found here. Note one refers to interstate comparisons for three categories of state public employees not at entry level (teachers, senior constables, and registered nurse). Note two refers to an statistical analysis of the difference between public and private sectors pays.

JOHN BUCHANNAN, WORKPLACE RELATIONS CENTRE, UNI. OF SYDNEY: These aren't fat cats who are rolling in clover; these are people [teachers, senior constables, and registered nurse] who are basically getting a little bit above average [wage for both private and public sectors at state level, regardless of experience]. So if you take those kinds of cuts in pay, they're gonna be below average and in some cases quite some way below average weekly earnings.

In some cases, NSW employees are above other states employees, in some cases, below.

CONOR DUFFY: The paper also modelled the effect the policy would've had on wages if it had been introduced 10 years ago. It found teachers would be 14,580 a year worse off, senior constables would be $8,961 a year worse off and nurses would be $12,232 a year worse off.

This is how the segment concludes:

BARRY O'FARRELL: I still make the point that on the 1997 to 2010 figures, public service wages in NSW have outstripped private sector wages and public sector wages in Victoria, in Queensland. That's across the board. I'm sure that, as with any other argument, someone can find an exception to prove the rule, but it doesn't make us back off.

Here it appears Premier O'Farrell is moving the signposts: it's not that NSW state employees' current salaries are higher than those in other states, but that they have increased faster.

CONOR DUFFY [reporter]: Such is the strength of the O'Farrell Government and the loathing for the Labor Opposition, it can politically afford a brawl with the unions, but there are warnings it may come at a cost, particularly in the state's classrooms, hospitals and police stations.

O'BRAY SMITH [registered nurse]: I certainly couldn't live in Sydney. I would have to move elsewhere. I don't think there's many nurses that could afford to live in Sydney with that kind of pay cut.

BARRY O'FARRELL: We want to ensure whether you're a nurse, a teacher, a police officer or some other public servant upon whom we all rely, that you get a fair rate of pay. We think this does guarantee a fair rate of pay.

For an ominous parallel with an episode (totally neglected by Australian media) but that could shed some light on this seemingly looming conflict, please see.

Up, Down, Side-ways?

2011-05-31T22:45:00.000-07:00

Today Wednesday 1st of June, the ABS released its "Australian National Accounts: National Income, Expenditure and Product, Mar 2011" report (cat. Number 5206.0), from where the following chart was extracted:

GDP, Percentage changes - Volume measures

"In seasonally adjusted terms, GDP decreased 1.2% in the March quarter, through the year GDP growth was 1.0%.
"On the expenditure side, the decline this quarter (in seasonally adjusted volume terms) was driven by Net exports (detracting 2.4 percentage points) and Changes in inventories (detracting 0.5 percentage points). Partially offsetting these falls were Private gross fixed capital formation (adding 0.7 percentage points), Household final consumption expenditure (adding 0.3 percentage points) and Government final consumption expenditure (adding 0.2 percentage points)."

The results were better than Goldman Sachs had expected yesterday:

"Investment bank Goldman Sachs predicted Australia's economy will have shrunk by as much as 2 per cent in the first quarter of the year, a big turnaround from the 0.7 per cent expansion in the final quarter of last year." (See here)

Other comments by observers:

"After today's negative GDP figure for the March quarter, and the recent spate of bad news and economic statistics pouring out, it isn't a big leap for Australia's so-called miracle economy to be staring down the barrel of a technical recession in the June quarter." (See here)

My comment: possible, but perhaps too pessimistic.

"Australia's economy has suffered its biggest quarterly contraction since the recession of the early 1990s." (See here)

My comment: see the chart above, for seasonally adjusted (light gray broken line).

And then, we find this:

"The domestic economy grew very strongly in Q1
"Well, for all the whinging and whining! (...) Today's GDP numbers show precisely why the RBA should have hiked in May, or if not May, in June. The more likely outcome is July. Here is Paul Bloxham's (HSBC) summary:
" 'If it weren't for the headline GDP number being severely hit by a sharp fall in coal exports, today's numbers would be universally judged as strong.'" (See here)

My comment: You be the judge.

Protests in Barcelona Turn Violent

2011-05-31T17:35:00.000-07:00

"Lo mío ha sido como estar en una pastelería y no poder comer ni un trocico de pastel. Tanto hijoputa y ni una colleja he podido dar". Ferran T. F. (in Facebook, Guardia Urbana agent) (See here, Spanish)

"It's like being in a patisserie and being unable to eat a slice of cake. So many sons of bitches[*] and I couldn't hit anyone". [my translation]

Last Friday 27th of May, the peaceful protests in Plaza de Cataluña, Barcelona, turned violent when police charged against the protesters.

According to some versions, acting by order of the PM José Luis Rodríguez Zapatero, or by the authority of Felip Puig, Catalonian autonomic Interior secretary, the provincial Mossos d'Esquadra deliberately started to harass and strike at random protesters, as seen in the videos below

Ferran T.F. (apparently himself not a Mosso, but an agent of the Guardia Urbana, municipal police force) witnessed the incident, describing it as lasting up to six hours, and regretting not being able to take part in it. (See here, Spanish)

As a result, 121 were injured; according to Mr. Puig, 37 police agents included.

Faced with harsh criticism, from Spain and abroad, including the European Council (see here, Spanish), the Catalonian autonomic government decided to launch investigations. So, who gets chosen for the dubious honor of perpetrating this aggression against a mob of teenagers?

And the winner is...

The thuggish imbecile who publicly boasted about other thugs beating kids, but did not beat anyone himself: Ferran T.F.

Not those in charge, or even the thugs themselves. As the saying goes: el diablo paga mal a quien bien le sirve.

Note:

[*] Hijoputa or more properly hijo de puta is a curse phrase that does not strictly translate as son of a bitch, but as son of a whore. But as such expression does not exist in English, I chose the closest available.

Precariously Proletarian

2011-05-29T03:47:00.000-07:00

Protester in Madrid. Wikimedia

Last week's Spanish provincial and municipal elections ended with the ruling PSOE (Partido Socialista Obrero Español, Spanish Socialist Worker Party, nominally social democrat) soundly defeated by the rightist PP (Partido Popular: Popular Party or, more accurately, if ironically, People's Party).

(All links to Spanish sites, except where explicitly stated)

According to El País (see here), PSOE lost about 1.5 million votes, in comparison to the results of the 2007 elections. PP gained some 0.6 million and IU (Izquierda Unida, United Left), gained 0.2.

At the provincial level, out of 13 provinces, PSOE gained in one, leaving PP with 11 and Bildu (a basque local party), with another.

Although under opposition pressure to call for early elections, PM José Luis Rodríguez Zapatero doesn't need to form a new national government: the national elections are scheduled for 2012.

Why did PSOE (that ruled Spain for 21 of the 36 years of post-Francoist period) lose these elections so badly?

Whatever their personal ideological stances, the consensus among pundits is that the catastrophic economic situation faced by Spain (21.19% general unemployment and 44.6% unemployment among under-25s) explains this defeat:

"Voters are also taking out their anger on those politicians inflicting euro-zone policies. The ruling Socialists in Spain, who have actually done a pretty good job pushing through tough - but unpopular - reforms, got smacked in local elections this month." (See here, in English)

Some two weeks before the election, the so-called 15-M movement (a spontaneous, broad-base social protest movement) threatened to make the elections difficult.

However, the elections did not seem particularly affected by the movement: in Spain, where voting is not compulsory, abstention (the number of voters that did not vote) actually diminished from 36.73% in 2007 to 33.77%. Blank votes (also interpreted as possible protest votes) did increase, but modestly, from 1.94% to 2.54%. (See here and here).

What are the short term consequences of this defeat? The Rodríguez Zapatero Government, for all their understandable concern with the upcoming national elections, seems intent on maintaining the current policies, while offering to consider only a few of the 15-M's demands (like the Tobin Tax), should they remain in power. (See here)

Under these circumstances, one may be forgiven to speculate that the next elections could see a repeat of the PSOE's defeat, now at the national level, at the hands of the PP. And, given the financial constrains imposed on the Spanish economy by its euro zone membership, it's unlikely an eventual Rajoy Government would be able to undertake adequate social policies, even if their ideological stance allowed for that.

What about the 15-M (a.k.a. Los Indignados - The Outraged Ones)?

According to the respected Spanish journalist and commentator Rafael Díaz-Salazar (see here) that movement represents a subsector of the Spanish working class, quickly mobilized through the new social media, ironically referred to as the "precariado" ("precariat"), in a pun for "proletariado precario" (precarious proletariat): the "unemployed, low-wage workers, young without access to housing, low income pensioners, exploited migrants, unemployed or low income graduates, couples [financially] incapable of forming families, near pension-age workers, poor working and rural area inhabitants" [my translation].

Always according to Díaz-Salazar, the Spanish society has divided itself between a satisfied and integrated group, represented by the mainstream parties, and the precariado.

Again, one may also be forgiven to speculate they're there to stay.

Further reading:

2011 Spanish protests. Wikipedia. (English).
The Pain in Spain. (English),
La chispa del Movimiento 15-M. El País.

Photo credit: Wikimedia

Update:
Speaking of the precariat, last night SBS's Dateline contained a report on a section of this subsection of the working class: the salad slaves.

Disclaimer: Any similarity with foreign student, working-holiday visa and 457 and 456 visa holders in Australia is merely coincidental... Yeah, right.

Wisconsin: Walker BRB overturned

2011-05-27T23:05:00.000-07:00

From Journal Sentinel (Madison, 26-05-2011): "A Dane County judge Thursday struck down legislation repealing most collective bargaining for public employees, but the measure could still gain new life from the state Supreme Court or a fresh vote by lawmakers." (See here)

Since I last reported here, several events have taken place in Wisconsin: the (contested) re-election of Justice David Prosser to another 10-year term in the Wisconsin Supreme, Court after a strange counting error (see here); and the passing and signing of a voter ID bill requiring voters photo ID as a requisite for voting (see here) seem to be the most important ones (see here).

NSW News
In NSW this week, Premier O'Farrell has given steps towards what promises to be a conflict between unions (particularly state employee unions) and the State Government (see here).

Although all state unions are affected, police, nurses and teachers unions in NSW are affected twice: (1) because the State Government decided to strip the NSW unions of their powers to initiate prosecution of employers on breaches of safety legislation; and (2) the New South Wales Industrial Relations Commission will be stripped of its powers to decide on wage levels for State employees (see here).

However, in a surprising development, the legislation, steamed rolled by the Coalition in the Lower House of the NSW Parliament, was stopped at the Upper House, thanks to the votes of the Shooters and Fishers Party (see here).

I will do my best to keep readers posted on these subjects.

Spanish Elections and Protests

2011-05-21T17:01:00.000-07:00

Well, the world ended, but we're still here and life goes on.

And today Sunday 22nd of May is election day in Spain.

Since last week tens of thousands of protesters, mostly young, are encamped at Madrid's historical Puerta del Sol, and some 50 other locations around Spain, plus a number of other European cities (see here, in Spanish).

According to the selective information provided this morning by Sky News:

"Tens of thousands of Spaniards angry over high unemployment rates have taken to the streets in a seventh day of protests before Sunday's local elections."

And indeed, according to Deutsche Welle, Spaniards young and old have every right to be angry over high unemployment rates:

"As [the] ban came into force at midnight, some 25,000 protesters in Madrid's Puerta del Sol Square began to whistle and cheer, shouting 'now we are all illegal.'
"But in spite of the apparent festivities, the predominantly young crowd clearly expressed their frustrations. (...)
"The economic crisis pushed Spain's unemployment rate to 21.19% in the first quarter of this year, the highest figure in the industrialized world. In February unemployment for under-25s, stood at 44.6%."

So angry they are, that they declared themselves in civil disobedience, de facto if not formally, as hinted above.

You see, in Spain, as is often the case in other countries, there is a legal ban on political manifestations and publicity during the days immediately preceding an election.

"Faced with growing criticism of the two-party system and claims that neither the ruling Socialists nor the opposition Popular Party (PP) truly represent the people" (see here), the initial reaction of deputy PM Alfredo Pérez Rubalcaba (with support from Mariano Rajoy, leader of the conservative so-called Popular Party) was to order Madrid police to disband the initial groups of protesters.

After initial tensions, and widespread support for the protesters, the Government decided to allow the protests:

"Police walk past but do not intervene. They are cheered by the crowd, in scenes hauntingly similar to anti-government protests in Cairo's Tahrir Square during Egypt's revolution in February." (See here)

What Sky News and Deutsche Welle didn't quite say is that Spaniards are angry over other things, as well.

According to El País, the protesters demand (in Spanish here, and this is my translation and summary):

Abolition of unjust laws.
Divided support for a (1) republican referendum or (2) direct transition to a Republic.
Tax reforms: progressive taxation and a Tobin Tax; rescued banks nationalization.
Transport: to promote public transportation.
Reform of politicians' working conditions: abolition of life-time earnings, politicians' performance revision and auditing, purge of electoral lists of those accused of corruption.
Complete Church-State separation and division of public powers.
Direct and participative democracy: political power decentralization; operation of citizens' assemblies.
Industrial relations improvement and regulation, euro 1,200 minimum wage, a State job guarantee and equal wages.
Environment: immediate closure of nuclear power plants and support for sustainable economy.
Recovery of privatized public enterprises.
Military: Defense spending cuts, closure of weapons factories, non-intervention in foreign conflicts.
Historical memory recovery: condemnation of Francoism.

A little more that anger at being unemployed, I'd say.

End-Times Survivalist Wisdom

2011-05-19T18:30:00.000-07:00

We were warned that this would happen.

Jacob de Backer.
Last Judgement. 1580.
Wikimedia

Now, the US Centres for Disease Control issued post zombie-apocalypse survival tips (See here, and with some luck, here).

So, the thing is serious.

To contribute to the collective well-being and safety, I will also issue my own advice:

If you have been a good believer and you estimate you have good chances of "going up", don't fool yourself into over-confidence. You can do more. Tomorrow morning, first thing, wash yourself thoroughly and make sure you're wearing clean underwear. When the moment comes, and if you ascend scantily clad, you want to give the best possible first impression...
If you haven't been much of a believer, let's face it, your chances of "going up" are poor. So, you don't need to worry that much about first impressions and personal cleanliness. However, excessive negligence will do you no good, either. So, make sure you wear appropriate diapers. You know, with all the noise, trumpets, and supernatural visions... Let's just say that shit happens.
You want to take advantage of life to the full and decide to have a last sex with that complete stranger. Go for it! Just make sure you carry good quality condoms and do it quick. This way you don't have to worry about the Rapture or rupture.

Anyway, those are my pearls of end-times survivalist wisdom.

Have a nice End-Of-The-World, everyone!

And I'll see you Monday!

...Or, will I?

MWAHAHAHA

Super-Cannes, Now!

2011-05-19T04:02:00.000-07:00

"In the hills above Cannes, a European elite has gathered in the business-park Eden-Olympia, a closed society that offers its privileged residents luxury homes, private doctors, private security forces, their own psychiatrists, and other conveniences required by the modern businessman." Wikipedia

Super-Cannes is the name of a 2000 J.G. Ballard award-winning novel.

I won't tell you the details of the novel, as I highly recommend it: no one reads a story after knowing the details of its plot or how it ends.

Still, I will advance that it's a story about violence, crime, madness and highly unusual suspects. You know, the pillars-of-society kind of suspects.

If you have read the novel, you'll understand why Ben Stein's piece on the Dominique Strauss-Kahn affair, is powerfully evocative of Super-Cannes.

Being fair with Mr. Stein: he reminds his readers that "in this country, we have the presumption of innocence for the accused."

Fair enough. Mr. Stein is right on that: Mr. Strauss-Kahn has the right of being presumed innocent. He also has the right to have his human rights protected, and to be placed in safety. Mr. Strauss-Kahn's health must be a concern for his custodians.

Although less clear, Mr. Stein might also have some reason asking why Mr. Strauss-Kahn was sent to Rikers Island, instead of "been given home detention with a guard".

But if Mr. Stein intentions were only to advocate for moderation and impartiality, then why cast doubt on the hotel chambermaid?

And this is what Mr. Stein does here:

"People accuse other people of crimes all of the time. What do we know about the complainant besides that she is a hotel maid? I love and admire hotel maids. They have incredibly hard jobs and they do them uncomplainingly. I am sure she is a fine woman. On the other hand, I have had hotel maids that were complete lunatics, stealing airline tickets from me, stealing money from me, throwing away important papers, stealing medications from me. How do we know that this woman's word was good enough to put Mr. Strauss-Kahn straight into a horrific jail? Putting a man in Riker's is serious business. Maybe more than a few minutes of investigation is merited before it's done."

I'm no professional writer, but as a reader, Mr. Stein's protestations of love and admiration for hotel chambermaids, when paired with denunciations of lunacy, dishonesty, and irresponsibility sound not only dubious and disingenuous, but also cumbersome and unconvincing. It sounds like Mr. Stein is trying really hard to appear sympathetic to chambermaids, in spite of their unworthiness.

So, even if I am no professional writer, I will try to help Mr. Stein with this awkward problem. The first thing he needs to realize is that no law requires him to love and admire chambermaids or anyone else.

I've known personally chambermaids and on occasion I had to work with them. And I have no difficulty saying that I don't love each and every one of them. Neither do I believe they all are wonderful human beings, or beautiful, or smart or anything, for that matter.

Some of them are alright, some others are not.

See? No need to feel guilty about that.

But if Mr. Stein is ineffectual pretending a sympathy he can't feel, he's much more ineffectual hiding his true sympathies:

"In life, events tend to follow patterns. People who commit crimes tend to be criminals, for example. Can anyone tell me any economists who have been convicted of violent sex crimes? Can anyone tell me of any heads of nonprofit international economic entities who have ever been charged and convicted of violent sexual crimes? Is it likely that just by chance this hotel maid found the only one in this category? Maybe Mr. Strauss-Kahn is guilty but if so, he is one of a kind, and criminals are not usually one of a kind."

"In what possible way is the price of the hotel room relevant except in every way: this is a case about the hatred of the have-nots for the haves, and that's what it's all about. A man pays $3,000 a night for a hotel room? He's got to be guilty of something. Bring out the guillotine." (My underlined in both paragraphs)

So, what Mr. Stein appears to be desperate, but unable, to say is that it's the word of a chambermaid, a has-not, a nobody, against the word of a big time economist, a has-a-lot, someone who is one of a kind. And that should be enough for you.

So, again, it's not difficult to say, Mr. Stein.

What you seem to believe is simply the logical conclusion of the notion of meritocracy: you get what you deserve, and if you get little, you're fucked, and it's your own fault. Isn't that what inequality is all about?

And there's an even easier way to say it. As Mark Taibbi, from Rolling Stone, put it admirably: "crime is defined not by what you did, but by who you are". Which sounds a lot like Super-Cannes.

As for me, I'll say it simply: I don't know what happened between the chambermaid and Mr. Strauss-Kahn. And Mr. Strauss-Kahn has rights.

But to the chambermaid I'll say: if you feel you were the victim of a crime, fight for your rights, because you have rights, too. And you have also earned my admiration, not because I love all chambermaids, like Mr. Stein, but because it takes guts to stand against the powerful.

PS:

Some bloggers took the trouble of answering Mr. Stein's question ("can anyone tell me any economists who were convicted of violent sex crimes?"). See:

Answering Ben Stein's Question.

Oops.

Dodgy Recovery and Pundits

2011-05-14T18:11:00.000-07:00

So, a terrifying labour/skilled labour shortage is strangling Australian businesses and driving soaring wages, uh?

I'd say nope (in fact, I did so before), but you don't need to take my word for it.

According to the latest ABS employment figures, released today:

"The ABS reported the number of people employed decreased by 22,100 people to 11,436,500 in April [seasonally adjusted]. The decrease in employment was driven by a decrease in full-time employment, down 49,100 people to 8,056,800. The decrease in employment was partially offset by an increase in part-time employment, up 26,900 people to 3,379,700.

"The number of people unemployed decreased by 9,800 people to 583,000 in April, reported the ABS.

"The ABS monthly aggregate hours worked series showed a decrease in April, down 14.7 million hours to 1601.6 million hours.

"The ABS reported labour force participation in April of 65.6 per cent, a decrease of 0.2 percentage points from March."

For American readers: a similar result in the US would have shown a loss of 308 thousand fulltime jobs, after discounting part-time jobs. [*]

But the great loss is in hours worked: -0.9%.

Barring any perturbing factor (statistical error, external positive shock, miracle, etc.) I'd say Australia's economic recovery looks dodgy, right now.

And our esteemed pundits, experts, journos, bloggers and others still claim Australia desperately needs either higher interest rates, imported workers or both. See here.

Note:

[*] Australia had (midyear 2009) a population of 22 million people, according to World Bank/Google figures; the USA had (same time) a population of 307 million (US Census Bureau/Google figures).

Foolhardy and Ill-Advised?

2011-05-14T00:22:00.000-07:00

Here is Rolling Stone's coverage of the "ill-advised" and "foolhardy" US intervention in Afghanistan, as Nick Dyrenfurth called it, while accusing the Left for bringing progressives into disrepute.

(WARNING: A separate link in the page linked below leads to a photo gallery. Before the reader gets the idea of seeing those photographs, I advise to take Rolling Stone's warning seriously.)

Mark Boal. The Kill Team. 27/03/2011. Rolling Stone.

I am sure equally gruesome photographs can be presented as genuine evidence of the Taliban/Al Qaeda savagery and barbarism against innocent people, committed in Afghanistan, Iraq, and elsewhere.

But I haven't seen those photographs, yet. If the reader has, do as I did: post a link to them.

However, unlike the Taliban and Al Qaeda, aren't we supposed to be the "good guys", the civilized ones, in this movie? If "we", too, perpetrate the same kind of atrocities, what makes "us" different from the "bad guys"?

Can we dismiss this as just a matter of being "foolhardy" or "ill-advised", as Mr. Dyrenfurth seems to do? Is this just a matter of creating suitably neutral-sounding euphemisms? "Collateral damage" instead of "victim of murder", "police action/pre-emptive strike" instead of "war of aggression", "captured enemy combatant" instead of "prisoner of war"?

No, Mr. Dyrenfurth, and I say this with regret, it is "progressives" like you who bring the Left into disrepute.

Update:

After posting this message, I remembered the particularly gruesome murder of the American/Israeli journalist Daniel Pearl, by Al Qaida terrorists.

Mr. Pearl, reporting for The Wall Street Journal, was abducted in Iraq and beheaded in 2002.

Although I haven't seen the video, it can be easily found on Google videos.

Incidentally, that search also points to other beheading incidents.

Inflation? Where?

2011-04-30T19:10:00.000-07:00

Last Wednesday (27/04/11) the RBA released its quarterly inflation figures. After a 0.4% increase in the previous December quarter, in the March quarter inflation rose 1.6%: shock, horror.

The reaction was immediate:

"The dollar soared [by an 'astounding' 0.5%!!!] to a new high yesterday [Wednesday, that is] after inflation increased by more than economists expected. [emphasis added]

"The currency breezed past US108¢ to US108.52¢ (...)

"Analysts said the Reserve Bank might now consider raising rates.

" 'We've now seen the market pricing in a higher chance of a rate hike in the next 12 months,' a foreign exchange strategist at IG Markets, Chris Weston, said." (See here and here).

That increase puts the yearly inflation figure on 3.3%, against the 2.6% estimated for the year to last December.

So, people would feel justified to believe "soaring" wages are having the catastrophic inflationary effect mentioned in the last post, right?

Not quite. According to the ABS:

"The most significant price rises this quarter were for automotive fuel (+8.8%), vegetables (+16.0%), deposit and loan facilities (+4.6%), fruit (+14.5%) and pharmaceuticals (+12.5%). (...)

"Fruit prices increased by 14.5% in the March quarter 2011 mainly due to an increase of approximately 100% in the price of bananas during the March quarter 2011 due to shortages following floods and Cyclone Yasi. Vegetable prices increased by 16.0% in the March quarter 2011, driven by price rises in cauliflowers, broccoli, lettuce, pumpkin and potatoes due to damage to crops as well as the usual seasonal price rises." (Emphasis added).

In other words: largely supply factors drove these price rises, not a "soaring" demand caused by "soaring" wages. Thus, interest rate hikes would not solve the problem.

You don't need to take my word for it: among others, Ian Varrender and Michael Pascoe, from the Fairfax media, have made the same point. Prof. Bill Mitchell has argued along similar lines, but going into deeper details.

Mind you, both Messrs. Varrender and Pascoe (as Mr. Weston, above) see the need for at least one interest rate hike before the end of the year. I myself can't see any immediate justification, except for the "terrifying" labor shortage/"soaring" higher wages spectre, that is.

So, you might find this surprising, but these three gentlemen are among the inflation-targeting doves.

Believe it or not, at the other end of the spectrum, the inflation-targeting hawks appear to see an urgent need for immediate interest rates increases!

Terry McCrann, arguing for an interest rate increase next June: "They [the latest CPI figures] were seriously concerning in their own right. (...) Especially as the clear surge in inflation pressures came despite the anti-inflationary impact of the strong Aussie."

With due respect to Mr. McCrann, I have enormous difficulty getting around the idea of the Aussie dollar reducing the price of Queensland bananas. You see, I suspect QLD bananas are not imported.

Further, although the AU$ rose fast, oil and derived products prices rose faster, accounting for the AU$ failure to fully compensate the increase in oil prices.

For instance, in the month 30-03-11 to last Thursday, Brent crude oil spot rose from US$ 115/barrel (30-03) to 126.3 (ICE Futures Europe), for a 9.86% increase. In the same period, from US$ 1.0309, the Aussie increased to US$ 1.0974, in London: +6.45%.

Another inflation targeting hawk, Christopher Joye, has also argued about a likely interest rate hike, maybe as soon as May. His main argument is that core inflation has increased more than expected last year

He is right on that: nobody, last year, foresaw the Libyan crisis, or Cyclone Yasi. But this, to me, is irrelevant. The relevant questions are whether a higher interest rate would counter their effects, whether those effects are sustained and whether those effects are not simply adding noise to the series.

Mr. Joye does not consider those points, and I don't blame him: the answer could be negative to him.

But Prof. Mitchell (see link above) did consider these subjects. Speaking on noise::

"The special measures that the RBA uses as part of its deliberations each month about interest rate rises – the trimmed mean and the weighted median – also showed moderating price pressures.

"So what has been happening with these different measures?

"The annual growth in the weighted median was steady at 2.2 per cent in the March quarter having been at 3.1 per cent in the March 2010 quarter. The trimmed mean rose modestly from 2.2 to 2.3 per cent the same period.

"What that means is that there is no underlying price spike. The factors driving the headline rate (which I analyse next) are all volatile and ephemeral (food prices and petrol)."

Surely, this means that I believe the RBA will keep interest rates steady for much longer, right? Unfortunately, I fear Messrs. McCrann and Joye could very well be right.

Being an autonomous body, with unelected leadership, the RBA doesn't need a sound argument to make a decision, just like Messrs. McCrann and Joye seem to hold their views without a sound argument.

In other words: the RBA might lift interest rates for no other reason than "that's what central banks do when there's too much money", just like physicians used to prescribe leeches when patients had "too much blood".

Guillaume van den Bossche.
"Historia medica, in qua libris IV". 1639.
WikiMedia.

Or maybe, as Dean Baker said, it's just because workers could be getting uppity; except this time it would affect not only workers and small businesspeople, as I remarked in the previous post, but mortgagors, because housing prices are falling across the board in Australia.

Update:

03/05/2011. In its May meeting, the RBA Board decided to leave interest rates unchanged at the current level of 4.75%. See here.

Apart from the natural disasters affecting Australian agriculture in January, producing a short-term shortage of produce (yes, you guessed it: largely Queensland bananas) and sudden spikes in commodity prices (read here: oil), the Governor statement says:

"Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent. Most leading indicators suggest further growth in employment, though most likely at a slower pace than in 2010. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn." Emphasis added.

So, dear commentators, journos, talking heads, pundits and bloggers, for the sake of everything that's sacred, stop selling the nonsense that workers in Australia are making cartloads of money.

Like, pretty please, with sugar on top?

To the RBA guys: I love to be proved wrong. Keep it up. At least until the end of this year.