Monday 26 December 2011

Krugman Revisited: Inequality

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:
  1. 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.
  2. 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".
  3. 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".

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.

[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

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!

Saturday 10 December 2011

Circular Reasoning

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.

[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.

Thursday 24 November 2011

Monday 21 November 2011

I Told You so

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).

Sunday 20 November 2011

Chronicle of a Death Foretold

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:
  1. tax reductions for financial investments and corporate taxes;
  2. reduction of tax incentives for home buyers;
  3. industrial relations reform (collective bargaining at firm level, against industry level);
  4. a bankruptcy-like procedure to apply to mortgagors in arrears;
  5. 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...


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...

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:

  1. Karel van Miert (Belgium): former EU Competition Commissioner and ex international advisor to Goldman Sachs.
  2. Otmar Issing (Germany): former board member of the Bundesbank and ECB, advisor to Goldman Sachs.
  3. Mario Draghi (Italy): ECB head, former managing director of Goldman Sachs International.
  4. Peter Sutherland (Ireland): former Attorney General of Ireland, non-executive director of Goldman Sachs International.
  5. Antonio Borges (Portugal): former head of European Department (IMF), former vice chairman of Goldman Sachs International.
  6. 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.
  7. 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.

Thursday 17 November 2011

Where is My Mind?

"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.

Wednesday 16 November 2011

Obama in Oz

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.

Wednesday 9 November 2011

Unilateral Trade, Tax and Circus

"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!!!).

Monday 7 November 2011

The Eurozone Crisis in 22 Words

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.

Thursday 3 November 2011

Berlin, March 15, 1939.

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.


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.


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?"

Wednesday 19 October 2011

Sunday 16 October 2011

Sun Shines Over Half the World

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

Saturday 15 October 2011

Capitalism without Sugar Coating

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?"
[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.

Friday 14 October 2011

Occupy Sydney Day 1

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.

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

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.

" ‘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
See also 911 cities – 82 countries

Thursday 13 October 2011

The Writing's on the Wall

"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

"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:
  1. It includes older data (it starts in 1966);
  2. 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%;
  3. It clearly shows that unemployment has a way of going up quick, but falling slow;
  4. 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.


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.

Monday 10 October 2011

Tax Forum? D'oh!

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.
"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".

Tuesday 27 September 2011

I, Capitalism

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.


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.

Monday 26 September 2011

Congratulations, Prof. Keen!

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!

Sunday 25 September 2011

Another G-20 Meeting

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."

Saturday 24 September 2011

Trouble in Paradise: the Bogeyman Strikes Back

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.
(...) 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

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