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Monday Message Board

October 12th, 2009

Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.

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  1. Michael of Summer Hill
    October 12th, 2009 at 11:56 | #1

    Update, Update, Update, latest Treasury figures find a $3.2 billion big black hole in Turnbull’s ETS. And if Joe Hockey wants to knock off Wayne Swan then he could start by rebutting Swan’s claim that the Opposition ‘have failed miserably’.

  2. October 12th, 2009 at 17:54 | #2

    PLS join our Facebook group – ‘Movement for a Democratic Mixed Economy’.

    see: http://www.facebook.com/home.php#/group.php?gid=152326549326&ref=nf

    What is the Movement for a Democratic Mixed Economy?

    We’re a network of progressives in dialogue with each other – working to contest the dominant economic paradigm – and to promote an alternative which is democratic; involving mixed forms of ownership.

    We believe there is a substantial role for the public sector. We accommodate many positions ranging from the restoration of a “traditional social democratic” model of the ‘mixed economy’ (inspired by the ‘Keynesian Golden Age’) – to more radical positions envisaging extensive public and democratic ownership and control.

    We also believe strongly in promoting democratic forms of non-state ownership – co-operativist, mutualist, collective capital formation, participatory economic (PARECON) models…

    We aim to provide a forum for both radical and more mainstream positions – with a shared objective of challenging the ‘common sense’ of neo-liberalism.

    We endeavour to establish the ‘democratic mixed economy’ as ‘common sense’ – and to refashion and contest the relative political and economic ‘centre’.

    And though our positions are many and varied – we endeavour to support each other – that all our voices are heard in an inclusive and rational exchange of views.

    Again: we support both radical and relatively moderate interpretations of the ‘democratic mixed economy’.

    We do not, however, include perspectives which are authoritarian: which deny our liberal human rights.

    We seek to include socialists, social democrats, liberals, Greens and libertarian leftists – co-operating and in dialogue with each other.

    Finally: We are seriously in the business of promoting social change.

    To begin we need to build our Facebook Group as an extensive network. But once we are in dialogue with each other – hopefully we will provide a real forum for members to organise and co-operate in pursuit of real social change.

    If you are sympathetic with these principles and objectives PLEASE JOIN.

    Tristan Vaughan Ewins (Movement for a Democratic Mixed Economy Moderator)

  3. October 13th, 2009 at 00:06 | #3

    So here is a question, I never expected ask: How did the Civil Rights Movement in the American South led by Martin Luther King affect Australian politics? Is just me, but I can see some influences that happened last Saturday in Helensburgh and covered by The Illawarra Mercury (Watch and listen: http://www.illawarramercury.com.au/slideshowplayer.aspx?id=9048).

    Coal mining was the local industry around these parts, but now the coal miners, in this case the American company Peabody, are international and so we are linked with events in, for example, West Virginia.

  4. October 13th, 2009 at 00:12 | #4

    . . . for some reason that link does not work. Try going to multimedia, “Climate Camp Protesters march through Helensburgh”: http://www.illawarramercury.com.au/multimedia/

  5. October 13th, 2009 at 00:32 | #5

    A Hayekian Nobel Prize this year? The folks at the LvMI are raving.

  6. Salient Green
    October 13th, 2009 at 07:19 | #6

    I have just come across this amazing solar powered airconditioner.
    http://www.coolerado.com/tech-info/
    Video 2 is the best to explain the principle.

    It uses one tenth of the power of a refrigerated AC and works on the evaporation of water but pulls the temperature way down. It does this by dividing the incoming air into two streams. One stream does the evaporating, becomes saturated (and cooler) and is exhausted to cool an array of solar PV cells. The other stream is cooled in series by heat exchange principle (stays dry) from evaporation occuring in the first stream and is directed into the building.

    The system uses water but the site explains how conventional electricity generation uses large amounts of water and the net result is, at worst, no more thirsty than a conventional energy guzzling AC.

  7. Stan R
    October 13th, 2009 at 11:04 | #7

    John Quiggin,

    First, I’m really enjoying watching your Zombie Economics unfold. In your intro, you mentioned helping “readers” understand the global financial crisis. Which readers are your audience: ones with no background in economics, or self-read economics readers, or econ students?

    Second, have you read the recent work of Herbert Gintis on unifying the behavioral sciences, such as The Bounds of Reason, and if so, what are your thoughts about his work?

  8. jquiggin
    October 13th, 2009 at 11:27 | #8

    @Stan R I’m hoping for a general audience of non-specialists interested in how economic theory affects them. I guess that is somewhere between “no background” and “self-read”. I guess it will be too hard going for people with no previous exposure to economics, but I’m trying to make it as accessible as possible.

    I haven’t read Gintis, though I saw some reviews. Another one for the backlog pile!

  9. Monkey’s Uncle
    October 13th, 2009 at 12:18 | #9

    There seems to have been relatively little discussion in the media and among the economic commentators about the obvious implications of the Reserve Bank’s interest rate rise for the government’s fiscal stimulus. Once the Reserve starts tightening monetary policy, the government cannot justify ongoing fiscal stimulus unless it wants to argue that the Reserve Bank is wrong and the government is right.

    Once the Reserve starts lifting interest rates, further fiscal stimulus becomes pointless as it will only be clawed straight back in further interest rate rises.

    When in Opposition, Labor were quick to blame any interest rate rises on the government’s “reckless spending”. So they cannot escape scrutiny now. At the last election Rudd declared that “this sort of reckless spending must stop!”. Indeed Prime Minister. Feel free to do so at your earliest convenience.

  10. Jim Birch
    October 13th, 2009 at 12:27 | #10

    MU: Seriously? Aren’t interest rates a little bit more complicated than spending by the Australian government? You seem ambivalent.

  11. Monkey’s Uncle
    October 13th, 2009 at 12:45 | #11

    Jim, I’m not suggesting the government is entirely responsible for interest rate rises. I am merely suggesting that once interest rates start to rise, there is an obvious risk that further fiscal stimulus will push them up further. i.e. even if the government is not to blame for most interest rate rises, they could still make the problem worse.

    In any case, if government spending has little impact on the economy then I guess the whole fiscal stimulus was a waste of time and money in the first place. Right? It does amuse me just how selective and inconsistent these arguments tend to be.

    Moreover Jim, you are dancing around the point here. If fiscal policy and monetary policy are moving in opposite directions someone must be wrong. Either the government is wrong or the Reserve Bank is wrong. Which is it?

  12. Uncle Milton
    October 13th, 2009 at 13:40 | #12

    Monetary policy, after last week’s rise, is still highly stimulatory. The cash rate is 3.25%. A neutral cash rate would be in the range in 5-6% and above 6% monetary policy would be actively trying to slow the economy. The RBA is not trying to slow the economy at all. It has decided that the economy still needs monetary stimulus, but less than before.

    The fiscal stimulus is still there, but it too is winding back. There will be less stimulus spending in 2010 than 2009. This was built in to the original policy. The government might or might not decide to cut back even further.

    The stances of monetary and fiscal policy are consistent with each other, and with an economy that is still growing well below trend. (Growth is of the order 1%, which is a lot better than the -2% that a lot of people were forecasting, but still below trend growth of 2-3%.

  13. Monkey’s Uncle
    October 13th, 2009 at 14:48 | #13

    Uncle Milton, a few points:
    - the level at which interest rates could be said to be neutral would surely have to vary a lot with economic conditions (inflation, growth). So you can’t really put a fixed line in the sand at 5-6%. Given the current world economic conditions and how low interest rates are in other countries, it is hard to take seriously a claim that an interest rate of 6% would somehow be “neutral”.
    - the extent to which interest rate rises impact on the economy doesn’t simply depend on where the rate is relative to some fixed “neutral” point. If interest rates rise from a low base, even small rises can have a big impact in slowing the economy (if people have borrowed a lot of money and haven’t factored in rate rises). Conversely, if rates fall from a high base they will have more of an impact in stimulating activity. To take the argument through to its logical extreme, if interest rates were 1% and the Reserve hiked them to 6% would anyone say: ‘oh well, not to worry. The Reserve is merely moving from a stimulatory to a neutral monetary policy. No big deal’. Hardly. Of course such a move would hit the economy hard.

    Even if the argument holds that the Reserve is still stimulating the economy but not as much, surely the government should gradually reduce its fiscal stimulus at the same rate as the Reserve increases rates. If the government is delaying until next year, they are still out of step with the Reserve.

    Moreover, even if the argument holds it still doesn’t refute any possible link between continued government spending and more interest rate rises. By defintion, if the need for economic stimulus is still there but is just not as great as before, then if the government does most of the stimulus work on the fiscal side it means there is less for the Reserve to do on the monetary side. So there is more scope for further interest rate rises towards the “neutral” rate.

  14. Uncle Milton
    October 13th, 2009 at 16:09 | #14

    MU, your argument assumes that monetary and fiscal policy are perfectly substitutable. But they are not. For one thing, monetary policy operates with what Milton Friedman memorably called “long and variable lags”. It’s usually thought that monetary policy takes 12-18 months to have its peak effect. Fiscal policy on the other hand has quick effects.

    Aside from this, monetary and fiscal policies have different effects in other ways. Monetary policy works via the banking system. Low interest rates during the GFC were particularly important in keeping the flow of credit going when it looked like drying up completely. There is less need for that now.

    But it is not a good idea to cut interest rates to extremely low levels unless it is absolutely necessary to do so (as it has been in the US and the UK). Extremely low interest rates create a lot of liquidity which has to be wound back very quickly when credit market conditions return to normal. It is much better to have a mix of low (but not extremely low) interest rates from monetary policy and stimulatory fiscal policy.

    Fiscal policy can also be given a regional and industry dimension; monetary policy cannot. They have different effects on the exchange rate, and so on.

    I agree that if interest rates suddenly moved from 1% to 6% that would be a big deal, but that is not what has happened. the RBA moved them from 40 year lows to all-but 40 year lows. On any reading, monetary policy is still highly stimulatory.

    As to future fiscal policy, as I said before, there is a built-in wind back there already. The government will be releasing its mid year economic and fiscal policy in a few weeks and we may well see then an announcement of additional wind back. But it is in the nature of fiscal policy that it just is not as flexible an instrument of macroeconomic policy as monetary policy. Spending programs can’t be turned on and off and back on if need be quickly.

  15. Donald Oats
    October 13th, 2009 at 16:53 | #15

    As observed previously, the Australian’s unending war on science is having an effect: survey shows climate interest has dropped.

    The Labor party ought to do a deal with the Greens on the CPRS, and after Copenhagen use the health bill as the trigger for a double dissolution. That wouldn’t go down well among the coalition rabble, but by golly, after seeing the way Bill Heffernan treated senior CSIRO scientists during estimates yesterday, I’d say the coalition deserve some humiliation themselves. Huffy Heffer seems to have forgotten that CSIRO has been exceptionally good value to the farmers over the years – and all he can do in return is go gimme gimme gimme with no respect at all. Grubby Junee bardie should go find someone his own size to pick on.

  16. Monkey’s Uncle
    October 13th, 2009 at 21:27 | #16

    Uncle Milton, I know that fiscal policy and monetary policy are not perfectly interchangeable or equivalent. But to the extent that there is a trade-off between the two I think it is preferable for fiscal policy to do more of the hard work. That is, it is generally more desirable to have a tighter fiscal policy and slightly lower interest rates than the reverse.

    The problem with government stimulus spending is that invariably a lot of the money is wasted on projects that are politically advantageous but deliver little economic benefit, like building more facilities in marginal electorates. Whereas lower interest rates benefit the economy more generally.

  17. Fran Barlow
    October 15th, 2009 at 15:46 | #17

    I went along to UWS today to witness, if that is the right term, a lecture from our esteemed leader, Nathan Rees, ostensibly on the subject of “literature and life”.

    I’m beginning to see why he is in such trouble politically. Sure he got a hospital pass from Iemma and Costa, but seriously, this guy has had a charisma bypass. Along the lines of that old stand up routine “is there anyone here from Pittsburgh?” he started asking if anyone had read various books he had … ugh. If anyone had read Voss they were keeping stum.

    Eventually someone asked him which book “best represented his vision for NSW” and he struggled to come up with anything and decided diversions was the best response, with an extended refernce to the Heidelberg School.

    Needless to say the UWS PR people were mightily embarrassed that apart from the few Rees security people and the admin staff hardly anyone showed and since Rees had apparently decided that he wasn’t eating cakes, nobody else felt they could either. Then came the opportunity to have your photo taken with Nathan but for some reason, people were reluctant. Eventually, to save embarrassment, a couple of admin people stepped forward.

    I wanted to ask him a few questions about public policy in NSW but his minders made sure it was one question and then move on … and no way were they allowing any detailed cross-examination. I asked him why he hadn’t made an effort to distance himself from the last government and he said he thought they’d “been harshly treated” and that was it …

    Gosh …

  18. Fran Barlow
    October 15th, 2009 at 15:48 | #18

    PS …

    I did manage to get a nice doodle done. Nathan apparently likes the phrase punching above your weight and I drew a very nice set of traditional scales with me on it in jabbing at the NSW Parliament building …

  19. October 20th, 2009 at 16:17 | #19

    Dear friends,

    After editing an article of mine from ‘Left Focus’ has been republished at ‘On Line Opinion’.

    The article concerns GDP – and why it is an inadequate measure of social and economic well-being.

    It also concerns the case for maintaining economic stimulus – especially in the US.

    Your comments at On Line Opinion would really be appreciated!

    see: http://www.onlineopinion.com.au/view.asp?article=9571&page=0

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