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Monday Message Board

November 10th, 2008

It’s time once again for the Monday Message Board. Post your thoughts on any issue. Civilised discussion only. Please avoid snarks and trolling and strictly no coarse language.

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  1. TerjeP (say tay-a)
    November 10th, 2008 at 07:28 | #1

    A beautiful result in the New Zealand election. Especially with the final position of The ACT Party essentially granting it balance of power status. Clearly nobody told New Zealanders that John Quiggin had declared an end to neoliberalism.

    http://2008.electionresults.govt.nz/partystatus.html

  2. November 10th, 2008 at 07:49 | #2

    A beautiful result in the New Zealand election

    Really?! It seems they have elected a currency speculator extraordinaire.

  3. Ken Miles
    November 10th, 2008 at 08:59 | #3

    Clearly nobody told New Zealanders that John Quiggin had declared an end to neoliberalism.

    Or maybe they told John Keys (leader of National), who has run on a platform very similar to Labour.

  4. Ken Miles
    November 10th, 2008 at 09:20 | #4

    And another way to look at the ACT results is this:

    They got about 3.7% of the vote. The previous election they got 1.51%, and before that 7.14%. Before that 7.04%. And before that 6.10%.

    Put another way, this is ACT’s second worst performance in the MMP era.

    Swing to the Austrians. Yeah Right.

  5. O6
    November 10th, 2008 at 09:28 | #5

    No. 2, I couldn’t open your interesting-sounding link as it needs one to log in.

  6. Joseph Clark
    November 10th, 2008 at 10:52 | #6

    Had a quick look at the slides for “The Financial Crisis and what it means for you” presentation. Very interesting stuff.

    I think the last line in the slides is wrong.

    “Risky investments (shares) for the young, safe
    investments (bonds) for those nearing retirement”

    A rational person maximising the log of wealth at retirement will hold the same portfolio proportions at all ages. Your are advising either advising people to be irrational or suggesting that an irrational choice should be made on their behalf.

    Paul Samuelson deals with this in “Lifetime Portfolio Selection by Dynamic Stochastic Programming” (RES, 1969). A more readable version is at the link below (17-19 for the main argument).

    http://www.bus.ucf.edu/cschnitzlein/course%20pages/The%20Long-term%20case%20for%20equities.pdf?bcsi_scan_26D0E565465B1A98=0&bcsi_scan_filename=The%20Long-term%20case%20for%20equities.pdf

  7. November 10th, 2008 at 13:06 | #7

    Terje:

    The outcome of the ACT New Zealand party holding the balance of power, also, I imagine, works for the continuation of MMP in its present form, despite the misgivings expressed by John Key.

    Still, apparently, that is not a done deal, and John Key will be meeting with the Maori Party as an alternative partner.

    What exactly, is a “ministerial role outside cabinet” in terms of accountability?

  8. TerjeP (say tay-a)
    November 10th, 2008 at 13:26 | #8

    Wmmbb – Bob Hawke didn’t included all his ministers within cabinet if I recall correctly. He ran a pretty good government.

    Ken – I don’t think ACT is an advocate of Austrian economics although they obviously agree with Austrian ideas relating to taxation. I wouldn’t call myself an Austrian either. In particular the Rothbardians are IMHO a bit mad in regards to gold and banking. However I think you could call the Austrians (including the Rothbardians), ACT and me neoliberals although it might not be my prefered classification.

    In terms of the ACT result this election you are entirely right to point out that they have polled better previously. However this election sees a recovery from their previous low and it delivers a quite satisfactory position in terms of the potential balance of power they may hold.

  9. boconnor
    November 10th, 2008 at 13:38 | #9

    Well more billions thrown at the car industry.

    Does anyone know the cost per job saved?

    Maybe we should just hand it direct to the workforce, cut the tariffs and let the consumer decide which cars and how many they want to buy. Or is that too neoliberal?

  10. bill broome
    November 10th, 2008 at 13:55 | #10

    i wonder if oz, or any capitalist, free-market, economy can survive in ‘steady-state’ conditions.

    oz has some of everything we need. let’s pull the drawbridge up and find out if capitalism works without any magic pudding of resources or labor, or tax havens.

    it would be a service to humanity. if it’s impossible to run a capitalist economy without looting, the sooner we find out the less disastrous the transition to socialism.

  11. gthorpe
    November 10th, 2008 at 14:04 | #11

    If we have a housing bubble and a sharemarket bubble then each has a base unbubbled value.
    I read many economic sites but no-one is discussing what they think the base unbubbled value of either is.
    Until the experts start offering opinions that are realistic this thing will remain in limbo.
    The sooner the hit is reconciled on everyone’s balance sheets the sooner we can move forward.
    I mean, encouraging first home buyers by offering a $20,000 first home owners grant when you believe there is still a $60,000 drop to come in the average house price is, if not tantamount to fraud, awful close to it.
    Is anyone offering any considered opinions?

  12. Michael of Summer Hill
    November 10th, 2008 at 14:23 | #12

    John, if I may reply to TerjeP by saying not to jump the gun for Key’s may be more of a pragmatist than conservatives think.

  13. observa
    November 10th, 2008 at 14:30 | #13

    Well more billions thrown at the car industry.
    Does anyone know the cost per job saved?

    According to reports, 65000 jobs now at $6.2bill over the next 10 years not including the odd hybrid handouts to Toyota, etc which is around $10,000 per job per year, assuming no more layoffsover that time.

  14. observa
    November 10th, 2008 at 14:38 | #14

    Presumably boconnor, with that subsidy they’ll be able to make lots more fuel efficient cars than the missus’ 5.6L/100km petrol, 5dr, auto hatch with power mirrors and windoews,aircon, CD, ABS, EBD, all on road for $18k now. Keep your fingers, toes, arms and legs crossed when they drop the current tarriff from 10% to 5% so we send a clear message to the world we’re all for free trade.

  15. boconnor
    November 10th, 2008 at 15:52 | #15

    Observa (Post #13): Thanks for the calculation.

    I can’t see any economic justification for the subsidy, in the sense that over the next three years there will be lots of jobs that can be saved by government subsidy, why is the car industry so special as opposed to other industries? And I thought we were trying to reduce GG emissions through more use of public transport and less use of private vehicles.

    Of course that question is independent of the political considerations of SA and Victorian electorates.

  16. observa
    November 10th, 2008 at 17:40 | #16

    boconnor, you might look at it as 65000 lots of $10k middle class subsidies per year for 2kw solar to the grid systems,($100k household income tested of course) not that I’m advocating either. Still that mightn’t be a bad idea if the Chinese economy is going Puff the Magic Dragon and their car makers start wanting to export seriously. Perhaps we could bribe all their carworkers with 451 visas to work cheap in our ABC childcare centres now. Might work and you gotta think laterally these days.

  17. November 10th, 2008 at 17:41 | #17

    “…why is the car industry so special as opposed to other industries?”

    It’s surprising how many arguments are couched in this form. There’s something defective with it in general, and something in it that doesn’t work in this particular (car industry) instance. Mind, at this stage I’m just showing the weakness of this pattern and instance, not arguing the case for.

    In general, there may well not be anything special, any more than when someone who objects to being stopped by the police gets asked “what’s so special about you?” – the police shouldn’t be behaving improperly towards anybody, the only thing special about this one is that it is the one who happened to come up; the important question is, are the police behaving properly anyway? (with the burden of justifying their actions falling on them). That is, this is question begging, trying to reverse the burden of proof.

    In the particular instance of the car industry, there is something special. The problem with arguing it is, that may be taken as conceding the point in the general case – as conceding that, without anything special, there is no case and the burden of proof is the other way. So, without prejudice to the general case, the car industry is special because there really are synergies/positive externalities there, “economies of scale external to the firm”. Just as the same skills once went into both gunmaking and clockmaking, they later also went into both gunmaking and the automotive industry (hence, BSA), giving valuable spillovers. Over and above that, there is the “strategic” reason, arranging to have second sourcing available in the event of disruption to outside supplies from outside events, an insurance sort of thing.

    As for the burden of proof, this is a reflection of people’s deeper underpinnings. For a person like myself of small-c conservative mindset, the burden of proof is on those who advocate change; this view takes the actually existing case as having the benefit of the doubt over hypothetical alternatives.

  18. Damocles
    November 10th, 2008 at 19:51 | #18

    “If we have a housing bubble and a sharemarket bubble then each has a base unbubbled value.
    I read many economic sites but no-one is discussing what they think the base unbubbled value of either is.”

    The base value in both cases is a risk-adjusted value greater than the opportunity cost.

    Let’s say for argument sake you can buy a house for $200,000. Rates and maintenance come to $8000 a year. A similar house in the same area would rent for $200 a week.

    So in effect you’re earning $2,400 a year on your investment – the saving on rent less the outgoings.

    Now let’s assume you put put the same $200,000 in the bank at 8% for a term deposit and rented a house.

    Rent will cost you $10,000, You earn $16,000 in interest but pay tax at the 30% rate reducing your take home return to $10,600.

    So in this case the house offers you a return of $2,400 versus a risk-free (?) after-tax return of $600.

    Clearly the house is a worthwhile investment under those circumstances.

    Similarly, the share market is a worthwhile investment when you can effectively finance your borrowings from the dividend stream.

  19. Damocles
    November 10th, 2008 at 19:59 | #19

    “it would be a service to humanity. if it’s impossible to run a capitalist economy without looting, the sooner we find out the less disastrous the transition to socialism.”

    This assumes that was run a socialist economy “without looting”.

    The historical precedents are not encouraing.

  20. Damocles
    November 10th, 2008 at 20:03 | #20

    “According to reports, 65000 jobs now at $6.2bill over the next 10 years not including the odd hybrid handouts to Toyota, etc which is around $10,000 per job per year, assuming no more layoffsover that time.”

    It’s also assuming no costs avoided and no increase in revenue. Oh and no increase in employment – bearing in mind that this package covers not just the vehicle-makers but the component makers who were doing pretty well before the dollar went through the roof and who may in a position to rehire back to the levels of the recent past now that the dollar is back below 70 cents.

  21. boconnor
    November 10th, 2008 at 20:19 | #21

    In response to post #17.

    All government subsidies are “special�. Good public policy ought to combine equity and efficiency.

    I do not know if the per job subsidy for the car industry is the most efficient way of subsidising jobs, but I’d be surprised if there weren’t other jobs under threat in the economy that could be saved for less money per job.

    It is certainly inequitable: there would be other manufacturing jobs under threat that will not get the government’s largesse, not to mention jobs in other sectors. There seems no good equitable reason why manufacturing should be targeted for assistance. This should be compared with the assistance to the finance sector which (all other pros and cons aside) at least has an economy-wide benefit and therefore a positive impact on the greatest number of people.

  22. Hermit
    November 10th, 2008 at 20:48 | #22

    I’m not sure if the terms of the green car handouts have been finalised but I doubt that hybrids will emerge the clear winner, ‘plugged-in’ or otherwise. The reasons being that a global liquid fuels crisis is tipped for as soon as 2013, a credit crunch and job insecurity may deter the purchase of $40k cars and there will be fond recollections of the power, range and roominess of big Holdens/Fords. For all of these reasons I think natural gas cars (CNG not LPG) and retrofits will rise to prominence. US billionaire T-Boone Pickens has expressed similar views. If this turns out to be correct then once again governments have picked the wrong ‘winner’ if Rudd’s predilection for the hybrid Camry is a guide.

  23. Donald Oats
    November 10th, 2008 at 20:50 | #23

    Any Kiwi arrivals should automatically be given Australian citizenship on compassionate grounds…

  24. jquiggin
    November 10th, 2008 at 21:49 | #24

    I may post a bit more on NZ, but it strikes me that the Nationals have two options.

    (1) Stick to their election promises to maintain Labor’s spending programs and follow the rest of the world in responding to the crisis. This means big deficits, fiscal stimulus, and intervention in the banking system amounting pretty much to nationalisation. I’d be keen to see how ACT feels about supporting a government that does this.

    (2) Repudiate its election promises, cut spending and withdraw Labor’s guarantee of the banking system as ACT would presumably prefer. I’d say in that case, Donald Oats’ suggestion at #23 would apply.

  25. November 10th, 2008 at 23:35 | #25

    In response to comment 21:-

    - When checking whether something is “special”, what counts isn’t whether the subsidy is special but whether the target is. My own view is that this is an area where things should be broad based and enduring, not targetted or time limited, if they have a rationale at all (I’ve often commented on Professor Kim Swales‘s Pigovian subsidy-like approach to unemployment). If not, of course, they shouldn’t be done at all. As a practical matter it may make sense to start somewhere rather than wait to do things everywhere.

    - “Good public policy ought to combine equity and efficiency”; those aren’t the only criteria, e.g. the strategic question doesn’t fall under these headings. It is also not self-evident what balance should be struck as between possibly conflicting criteria.

    - “It is certainly inequitable…”; no, not necessarily. People can change jobs, so – provided the pressure is taken off so that changing jobs isn’t a mockery – it all gets interchangeable. What counts for equity is people, not particular kinds of work.

    - “This should be compared with the assistance to the finance sector which… at least has an economy-wide benefit”; now that is a long way from being established. At best those functions are only indirectly productive, and at worst – well, we have object lessons before us right now.

  26. Salient Green
    November 11th, 2008 at 08:03 | #26

    Re – the car industry subsidy. It would cost the government a lot more if those 65,000 people were on the dole, which looks highly likely without it and there are many more jobs in sectors other than the car indusry which would also go were it to shut down.

    Also, if all goes well and the subsidy/investment kicks off a future of self sufficiency for the Oz car industry, then the $6.2b can be calculated over a longer period, perhaps even viewed as a nation building exersize. There is enormous potential for growth with an Australian car industry producing cars that Australians want to buy.

    The car industry is a big easy target for politicians with lots of bells and whistles going off when you hit it, unlike many other sectors which are like shooting flies.

    I don’t see the sense in going LNG without hybrid. Our need for range means EV’s are not practical for most families so PHEV’s are the go, with LNG fueled ICE range extender by all means.

    Sadly, it shouldn’t have come to this and I don’t know whether it’s because past governments have not attached stringent conditions to subsidies or whether the parent companies are too useless for words, or both.

  27. Hermit
    November 11th, 2008 at 09:08 | #27

    SG there is only one gas hybrid I know of a variant the Hyundai Elantra that uses LPG (mostly propane) not CNG (mostly methane). CNG tanks require a burst strength of around 220 bar not 15 bar for LPG so they are heavier until carbon fibre versions become standard. If a plug-in has both a suitcase or bigger sized battery and a bulky gas tank then grandma and the dog might have to go in a trailer. Most people will want cars with a 300km range and some spare room.

  28. Donald Oats
    November 11th, 2008 at 09:37 | #28

    A Diamondback bike’ll get about 50-60km/sandwich and litre or so of water…

  29. smiths
    November 11th, 2008 at 09:48 | #29

    its f***ing sick,

    i come to work on packed public transport that cant cope with the people using it during a slow motion environmental catastrophe and governments across the world are bailing out car makers who have focused on urban 4wds

    the politicians, business leaders and commentators are scum. end of story.

  30. Donald Oats
    November 11th, 2008 at 11:03 | #30

    Have to agree smiths – I spent five and a half years or so, travelling two to three or more hours a day on public transport, in Sydney. And the endless train schedule changes due to track maintenances. Watching the single-person cars and Beaumont Bulldozers parked on the freeway as endless Public Private Partnership tollways are built up (Lane Cove – what a joke!). In the end it’s a waste of precious life. But where to move to? Where will the water be? It sure ain’t here in Murray Bridge. The river is still receding here.

  31. Socrates
    November 11th, 2008 at 11:31 | #31

    I sympathise with smiths.

    The trouble with Sydney rail is that NSW treasury doesn’t want to expand its operations because it is costly and hopelessly inefficient compared to other Australian rail systems. The inefficiency stems from overstaffing, corruption and inadequate maintenance. But nobody in government wants to fix the problem because that would involve taking on the relevant union and probably sacking or retraining several thousand people who effectively do a job that could be replaced by a few machines (station staff and train guards).

    To put the inefficiency in perspective, not many Sydney train drivers could afford the salary cut to take up a tenured Level C position as a lecturer in an Australian University. Not bad for a group of people who mostly left school at grade ten and get paid more still for shift work and overtime.

  32. Salient Green
    November 11th, 2008 at 12:35 | #32

    Hermit, we may both be wrong by 2013, at the current rate of innovation and when petrol is $2 or $3 per litre, a hell of a lot more things will instantly become possible. At this point in time it looks to me that heavy transport could switch to CNG/LNG quicker than light transport.

  33. observa
    November 11th, 2008 at 13:03 | #33

    You may recall the ever astute Observa becoming increasingly bemused by his society’s somewhat bizarre and superstitious preoccupation with places of death and how they should be treated, should someone happen to die there of anything but old age. He was gobsmacked when his peers wanted to bulldoze a perfectly good cafe in Port Arthur, shaking his head at social pressure on LJ Hooker to give way to the sudden feng shui of a particular house depositor and a bit non-plussed at the increasing decoration of stobie poles, trees, armco, etc to immortalise the stupidity and drunkenness of the young, more often than not. Presumably the more mature drunk and stupid among us only get an austere Govt black marker. Where will all this end thought the Observa as superstitiously accommodating Govts enacted legislation to require homeowners to disclose if anyone had died there. How far back that exercise in history and archaelogy should go is anyones guess he thought.

    Well we didn’t have long to wait for the answer with an impending court case by the looks of things and won’t that be a doozy for rational judges to work out? It seems the owners of a rental house(since 1998) want the NSW Govt to buy and burn down their rental property and create a park for the poor unfortunate 7 yr old girl that died of starvation there late last year. It may have something to do with the fact that under our brilliant new superstition laws, they have to disclose the death and its nature and well you know how superstitious feng shui buyers can be after inspecting a property, paying their deposit and coming over all feng shuieee when the feng shui finally hits them. Now you might say bad luck nasty capitalist exploiters of the renting classes but there is a twist, because in making the judgement to rent it out to needy souls it seems NSW Housing fibbed somewhat as to the parent’s past rental record.-

    ‘The couple say they rented the house in Hawks Nest to the girl’s parents, who are now in custody awaiting trial on charges of manslaughter, after the New South Wales Department of Housing faxed them a reference, including 38 pages of the couple’s banking history and a note saying they had been good tenants.
    The department also told them that a house in Matraville the parents had been renting had been well kept.
    In fact, five truckloads of debris, including human faeces, had been removed from the Matraville property when the couple left, and there had been dozens of complaints about the way they neglected their home and their children.’

    OOPS and double OOPS! I feel a court case a coming on should the NSW Govt fail to buy and burn down a perfectly good house in a time of increasing housing shortages. What can you say superstitious folk?

  34. Nick K
    November 11th, 2008 at 17:17 | #34

    On the NZ election result, it would be a good idea if they could change the current stupid voting system.

    It is quite silly that a party that fields good candidates in competitive electorates and thereby wins more seats should be penalised by gaining fewer party list seats.

    A better system would be to simply have a certain number of seats elected on single-member constituences, and have a certain number elected on proportional representation, but without any extra compensation for parties that win fewer single-member seats than their party vote.

  35. rabee
    November 11th, 2008 at 17:56 | #35

    Here’s a gem in strategic assets pricing theory and agency theory.

    According to an asx public announcement, on the 5th of November Ahmed Fahour, NAB director, sold 130,000 ordinary shares at market. On the 10th NAB surprised the market and announced an institutional placement of shares (discounted). NAB share prices as one expects went down.

    This is classical CEO behavior described in a large literature, both theoretic and econometric.

    While my interest in this is mainly pedagogic, thankfully, I’m not an NAB shareholder.

  36. observa
    November 11th, 2008 at 21:14 | #36

    It’s OK rabee, he’s going to deposit the proceeds with the NAB where it’s safe and can help the bank’s bottom line. Leave these highly technical banking details to the experts.

    Now as you know I’m not usually a superstitious fellow, but with the breaking news that GM has asked the US Govt to rescue them(after a 23%fall in stock price yesterday and Deutsche Bank analysts saying they’ll soon be worth nothing), was the Rudd Govt’s $6.2bill handout to the car industry here really a bad omen? Was it a plot to bring down the parent company and undermine Bush? Is Rudd secretly an anti-US Toyota man? Is he surreptitiously trying to get out of paying that $6.2bill? Will Toyota take over the NAB and then the world? There is more to this than meets eye folks! Be very, very afraid of things that go bump in the night.

  37. Michael of Summer Hill
    November 12th, 2008 at 12:34 | #37

    John, rather than asking the government as to whether there are gremlins in our system which are a national security the Opposition has gone off on a tangent and branded Rudd as ‘a coward’ and of leaking details of the telephone conversation he had with Mr Bush to The Australian newspaper. Drongos.

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