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Monday Message Board (Easter Tuesday)

April 14th, 2009

After a longer than usual weekend, it’s time for another message Board. Long weekends always make me think this is something we should have more of, and maybe an economic downturn is the right time to start thinking about more holidays instead of higher wages. Your thoughts on this, or any topic, are welcome. As usual, civilised discussion and no coarse language.

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  1. Monkey’s Uncle
    April 14th, 2009 at 15:44 | #1

    If businesses have to reduce staff due to a decline in economic activity, then reducing the hours of existing workers or forgoing wage rises is a better solution than sacking workers outright.

    In the past whenever there was a recession it would invariably create an unemployment legacy that often lasted years after the recovery. It is important to minimise that downturn.

  2. chrisl
    April 14th, 2009 at 16:46 | #2

    It has certainly been an interesting recession(so far)
    Bad Times can be Good Times
    Interest rates down by 4%
    Petrol Down
    Mobile Phone Bills Way Down
    In some places it is cheaper to buy than rent
    Think of the economy as a computer re-booting, temporarily down but coming back stronger and faster than ever

  3. observa
    April 14th, 2009 at 17:54 | #3

    I see one particular professor has been busy setting homework while you’ve all been on hols-
    http://www.news.com.au/adelaidenow/story/0,22606,25325285-2682,00.html

  4. Michael of Summer Hill
    April 14th, 2009 at 18:43 | #4

    John, if the story in the Brisbane’s Courier Mail is correct and Labor intends on cutting back the Rural Retention Program in the May Budget, then many would agree with Turnbull’s position that stuffing around with the rural doctors retention scheme and cutting vital medical services to those communities already doing it tough may not be the wisest thing to do.

  5. Alan
    April 14th, 2009 at 20:25 | #5

    I would like to pose a question to the smart people who post here. Which nations are best placed to cope with global warming? By “cope”, I mean best able to provide a reasonable standard of living for its citizens.

    Canada and Russia are not going to suffer severe water shortages and might even find that longer growing seasons and an extension of arable land northwards represent an improvement. Australia might be able to trade minerals for food.

    Which countries do you expect to fare better than average, and why?

  6. April 14th, 2009 at 22:52 | #6

    Dear John

    In light of your previous comments on “the government’s residual attachment to the ideas of the past 30 years”, I think it is pertinent to comment on the toxic relationship between the ALP Qld government and various banks that conduct themselves in ways that might compromise government with their irresponsible credit policies.

    I have previously commented on Qld Transport sending out invitations to get credit with Citibank with vehicle registration renewals. Premier Anna Bligh’s reply was basically that she saw no problems with such a cozy relationship.

    The airlines and their infrastructure providers are the latest casualties of the world financial meltdown, along with ‘partners’ like BrisConnections (see ABC story: ‘Investors angry over BrisConnections outcome’).

    A government that was serious about global warming and able to shake off its “residual attachment to the ideas of the past 30 years” would have provided an affordable rail link to Brisbane airport. Now we have a financial mess and inappropriate and outdated infrastructure and a planning and governance morass.

    Regards from Vientiane, Lao PDR – where they are likely to copy these mistakes.

    Willy Bach

  7. Ian Gould
    April 14th, 2009 at 23:02 | #7

    Citibank common stock closed in New York last night at US$3.80.

    That’s almost 10% above the price at which the government converted part of its loan to the company into common stock.

    I know that supposedly the GFC means “all bets are off and anything (bad) could happen” but I’d suggest that the US government is likely to recover all or most of their loans and equity investments – and they may even show a profit as they did from the S&L crisis of the 1980′s.

  8. Tony G
    April 15th, 2009 at 00:07 | #8

    Ian,

    In a bear market it is good to sell into the rallies, maybe the US Government should do that.

    If you are talking about FC déjà vu 1980′s, you might want to mention prolonged high inflation and double digit interest rates, especially with all the quantitative easing going on at the moment. Maybe those US government profits (like the ones in the 1980′s) will be in nominal terms only.

  9. kayarrisa
    April 15th, 2009 at 10:42 | #9

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  10. Paul M
    April 15th, 2009 at 10:52 | #10

    Prof Q, I am intrigued by Nick Bolton’s action regarding exposing the hidden costs in the Brisconnect scheme. As I recall from your papers in the late 90′s you are not a fan of PPPs. I have recently researched the question of the level of public participation in Public Private Partnerships and it is hard to find one that has been successful for the public.

    What are your current views on this please?

  11. Sam
    April 15th, 2009 at 11:29 | #11

    @9 Kayarrisa

    Here’s a thought. Why not not try making a blog that is actually good? It seems to have worked for John Quiggin. I feel sure that there is a correlation between blogs being interesting, and their having high hit rates.

  12. Chris Warren
    April 15th, 2009 at 11:48 | #12

    More holidays instead of higher wages would be a unmitigated disaster.

    Wages need to ensure that consumption expenditures are maintained at their real value and the national accounts share between wages, Salaries and Supplements, and Gross Operating Surplus is not disrupted.

    You cannot cover normal increases in rates, food, electricity, etc with stagnant wages.

    However extra holidays with real-wages protection (say funded by a Tobin tax) might be useful.

    But, in this scenario, why wouldn’t we try a shorter working week (funded by Tobin tax) as this would counter unemployment. The holiday device will not counter unemployment.

    I would compare the holiday concept against an explicit shorter working week and see which is preferable.

  13. Ikonoclast
    April 15th, 2009 at 17:50 | #13

    A (non)answer to post five which posed the question: “Which nations are best placed to cope with global warming?”

    The short answer is “it depends”. The longer answer is that “it depends on a lot of things”. The longest answer is that “it depends on so many imponderables it is hard to make more than educated guesses”.

    Having put the question into this truly difficult context I would make a few observations. First order vulnerability to climate change will be related to susceptibility to climate change and susceptibility to sea-level rises. Second order vulnerability will be related to economic/social resiliance and adapatability. Third order vulnerability will be related to conflict scenarios (wars).

    Tiny, low lying, island nation states (e.g. Kiribati) are likely to be swamped by sea level rise and thus have little liklihood of survival. Large, populous, low lying delta areas where many millions live (e.g. The Ganges Delta, Bangladesh) are in similar trouble. Other examples of places in serious danger from sea-level rise are the Netherlands, London and New York to name a few.

    Australia is likely to get much hotter and dryer so we are also in serious trouble. Desertification will also threaten northern China, Mediterranean Europe and push towards central Africa. Where climates become warmer and wetter, tropical diseases will push into previously unheard of latitudes. Dengue fever and malaria could come to Brisbane, Australia.

    Cold countries like Canada and Russia will not necessarily benefit. The widespread thawing of the tundra could cause great problems, for example seemingly endless mosquito infested swamps and methane releases on a massive scale.

    Climate and weather instability is likely to increase. Hurricanes, cyclones and typhoons (all much the same thing) are likely to increase in frequency and severity; the same with tornadoes. Ocean currents may change or fail, drastically changing the climates of some countries.

    Basically, climate change will be an ill wind that blows nobody any good. Then there will be the climate and resource wars. If you live in a reasonably stable country, well-defended, with a climate that could go up (or down) 5 degrees and still possibly be survivable and you are more than 10 meters above sea-level… stay where you are and hope to ride it out.

  14. carbonsink
    April 15th, 2009 at 18:24 | #14

    I’d suggest that the US government is likely to recover all or most of their loans and equity investments – and they may even show a profit as they did from the S&L crisis of the 1980’s.

    Gouldy! Mate! If its all so rosy why did Goldman have to fake its numbers?

    If China has turned the corner, why are its trade numbers still in the toilet? Do you believe the Chinese consumer will soon take up the slack left by the American and Euro consumer? If not, who is going to buy the stuff made in Chinese factories?

    P.S. Is the Chinese New Year Effect over yet?

  15. SeanG
    April 16th, 2009 at 07:01 | #15

    One of the looming problems is bad debt within the national economy and it’s effects on society and banks balance sheets.

    Many people would like to see banks hold off repossessions or taking action against people who are temporarily facing hardship. I agree that it would definately win the support of the individual as a loyal customer and in the long run help society.

    However a problem develops – what does this mean for continued lending? If banks refuse to claw back bad debts then this sits on their balance sheets and they will have to hoarde their capital to offset these bad loans. This means less borrowing ultimately leading to a protracted slowdown.

    The only reasonable response would be transparency on behalf of banks, coupled with an insurance scheme over bad loans to mitigate their effect on balance sheet and Risk Weighted Assets plus a further injection of capital.

    ———————————————–

    On another note; did anyone read yesterdays (Wednesday) FT? There is an excellent column in there by Edmund Phelps regarding “Knightian uncertainty”. His premise is that this has never been incorporated into the thinking of policymakers, bankers and others which have led them down the path where shocks like the credit crunch are totally unexpected in an economy (when shocks should be expected with any capitalist system).

  16. Alice
    April 17th, 2009 at 11:44 | #16

    14 #carbonsink
    Agree- apparently Dow has rallied again but according to commentary its not the large banks and institutional investors returning to the market. This is on the back of some pretty substantial falls in housing start numbers and rising default rates.

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