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Monday Message Board

November 1st, 2010

It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

Categories: Economics - General Tags:
  1. Ikonoclast
    November 1st, 2010 at 07:08 | #1

    The UK and European budget cuts demonstrate that Europe has forgotten history. With these cuts they will bleed their way into a second great depression. As is usual for the right wing, the cuts are used to implement their ideological agenda; to retrench welfare and to reduce public service and public goods. The impacts will be hardest on those who can least afford it.

    And now to a particular bugbear of mine. Again, we see the absurd policy push of raising the retirement age in a climate of high unemployment. In June, unemployment in the UK stood at 7.7% in seasonally adjusted terms. This means about 2.4 million unemployed. About another 2.4 million are underemployed. There is no logic in pushing older, generally less fit and less able people, into a crowded job market and denying jobs to young people. Youth unemployment is the greater problem that needs to be cured first.

  2. Chris Warren
    November 1st, 2010 at 15:39 | #2

    Gawd these rightist wingers put me off.

    Today’s Australian is winging about Budget deficit heading towards 66 billion deficit.

    But its their business mates, including the ALP right, who have destroyed the Australian economy since the 1970′s with tariff cuts, floating the dollar, privatisations, and unioin busting. The wasteland is now bare for all to see.

    In the 1960′s Corporations gross surplus plus surplus from dwellings owned by people, comprised around 20% of GDP.

    Through various economic impositions, this has steadily increased to now sit over 31% a record high. [5206.0] UNder Gillard, what is to stop it going higher given her failure to deal minimum wage earners a decent outcome and her petulant maintenance of the ABCC and associated agendas.

    It is easy to see how workers have been thoroughly exploited. They have lost wages share and now find that the youger ones amongst them will be unable to afford housing, work until they drop, have threadbare super, and be hit with savage electricity, phone, and medical costs.

    This is the legacy of; Gough (tariff killing) Whitlam, Malcolm (union killing) Fraser, Bob (Labor Party killing) Hawke, Paul (currency killing) Keating, and the me-too-ism of John Howard who gleefully followed suite.

    The last 50 years have been one of steadily increasing (ie worsening) contradictions of capitalism, and our poor social democratic economists do not know which way to turn.

  3. paul walter
    November 1st, 2010 at 17:58 | #3

    Chris, you strike me as a rational observer.
    What do you think Gillard’s problem is?
    For that matter, most of those from the ALP’s upper echelons, esp at state level?

  4. Purpurtraitor
    November 1st, 2010 at 20:06 | #4

    The agenda is relentless. I was looking through the Henry Tax Review summary after the debacle of the flat tax was raised yet again. What is it about regressive taxes that so appeals to establishment economists? Hopefully this one is dead in the water as the hard a sell to raise taxes on average wage earners for the sole purpose of giving tax breaks to higher wage earners is just too problematic.

    It was recommendation 102 that got my attention, that ‘the maximum rate of Rent Assistance should be increased to assist renters to afford an adequate standard of dwelling’. This is the madness that has derailed the UK housing market; as subsidies increased so did rents.

    I see the sole purpose of this proposal as being to allow the third of Australian households that now count themselves in the landlord class an opportunity to suckle up to the public spigot, as has been the case with their more wealthy compatriots through such instruments as PPP’s. Rather than dealing with housing as a social and human right, it seems to me that the sole purpose of this proposal is to provide maximum trickle up, to be achieved by two means; first through the rents charged to those who are not currently homeowners, and second by placing in financial peonage young Australians purchasing houses by garnishing between 30-40% of their household income for the next thirty years.

    And no, the houses are not getting better, contrary to the McMansion myth. The block built, slab based gyprock nightmares (complete with signature black tropical roof and completely denuded of trees) being built around here for over $400k are no comparison to older timber Queenslanders.

    This is the political class looking after itself, and I don’t see them doing anything to rock the boat anytime soon.

  5. Chris Warren
    November 1st, 2010 at 21:12 | #5

    @paul walter

    In my opinion, Gillard represents a new (post-70′s) political-cadre strata, based essentially on tertiary education, and careers in party politics (where they are surrounded by their fellows).

    Issues only get on their radar if they have, media-friendly, electoral impact.

    In general, Gillard represents a general problem – the ALP it too “chock-full” of bloody graduates (including me). The real problem is the ALP and political parties in general – not Gillard in particular – she is just “in the system”, as is, to get whatever she can get out of it.

    So she, and her mates, have to accept its terms in order to act efficiently within it.

    But given the clouds on the horizon, we need better than this.

  6. Monkey’s Uncle
    November 1st, 2010 at 21:56 | #6

    @Ikonoclast

    The idea that encouraging older workers to retire will help free up more jobs for younger workers is a good example of flat-earth economics. It’s as though there is simply a fixed amount of work to go around, regardless of the productive capacity of the economy.

    In countries like France there is far more extensive early retirement than in most countries, and yet it doesn’t seem to have the desired effect of solving youth unemployment. Come to think of it, didn’t France have a similar idea some time back in bringing in the four-day working week? The idea was much the same. If people work less, there will be more work to go around, and hence unemployment would go down. Gee, it looks like that one has worked out pretty well.

    If people stop working, this reduces the productive capacity of the economy. This in turn has a negative effect on economic growth and the demand for labour. If people retire, they also most likely are not going to have as much income and so won’t be able to spend as much on goods and services that in turn generates employment (unless you had some system where retirement income could 100% replace pre-retirement earnings, in which case I would like to know how you would fund such a system given the current demographic and budgetary constraints). Moreover, when people stop working or work less they tend to spend more time doing things for themselves that they might have previously paid others to do (home maintenance and the like). This, in turn, reduces demand for labour.

    Methinks this idea of older workers retiring for the good of creating more jobs for younger workers is just a way of allowing old folks to feel better about themselves in the face of the looming demographic problems associated with supporting an aging population. The human mind is remarkably clever at inventing rationalizations as to why certain choices are more noble and altruistic than they really are.

  7. Mozzie
    November 1st, 2010 at 22:42 | #7

    There’s been some public comment on the Browne Report – “Securing a Sustainable Future for Higher Education: An Independent Review of Higher Education Funding and Student Finance” by Lord Browne et al
    The gist of these comments suggest that this report puts s a position similar to that currently pertaining in AU. This Australian system is under siege as numbers drop due to the AUD cross rates, some community racism & bad press in consumer lands, and fraudulent activity in some poorly regulated/mionitored “factory” schools.
    So, is it purely neo-con ideology or a scheme that offers benefits and avoids the AU problems?

  8. Ikonoclast
    November 2nd, 2010 at 09:33 | #8

    @Monkey’s Uncle

    That sounds like a component of supply side economics. You argue that if you increase the supply of labour then the supply of jobs will increase. Absent of any other policies to correct the market’s failure to generate adequate jobs, such a policy achieves nothing. If more people looking for non-existent jobs created jobs then our chronic youth unemployment would have solved itself by now.

    I can propose a simple mechanism for explaining why my proposition holds water. Retiring older workers create openings for younger cohorts to enter and these openings casacade down the system. keeping older workers in the system, clogs up the system and prevents younger people coming through. I doubt you can propose any real mechanism (as oppossed to fanciful supply side Hayekian nonsense) that shows how keeing older people in the labour force in a situation of high unemplyment creates jobs.

    The notion that simply pushing people into the job queue creates jobs and solves unemployment on its own is an absurdity. The only way to solve unemployment after the market has done what it can is to create useful employment in the social and human services sector and environmental sector by deliberate government policy.

  9. Monkey’s Uncle
    November 2nd, 2010 at 21:08 | #9

    @Ikonoclast

    Ikonoclast :

    I can propose a simple mechanism for explaining why my proposition holds water. Retiring older workers create openings for younger cohorts to enter and these openings casacade down the system. keeping older workers in the system, clogs up the system and prevents younger people coming through.

    The problem with this argument, though, is that it depends entirely on static zero-sum assumptions. That is, that the labour market is a zero-sum game where the amount of work available is fixed and one group can only gain at the expense of another. In reality, I don’t agree that one person working is necessarily depriving another person of the opportunity to work. If work increases the productive capacity of the economy, it can help facilitate work opportunities for others as well.

    I am not suggesting that merely forcing more people into the labour market in itself creates more work. Indeed, it might be the case that forcing more people to look for work will increase the official unemployment rate. But all this really means is that more hidden unemployment or underemployment is showing up in official figures. No. What I am suggesting is that the act of people actually working, as opposed to simply looking for work, is not necessarily depriving others of the opportunity to work if it helps support the supply and demand sides of the economy (that is, the labour market is not a zero-sum game where the number of jobs is fixed).

    As for my argument being a supply-side argument, that is partly the case. But it is also a demand-side argument. As I say, having more people work also helps boost demand as people have more money to spend on goods and services, which in turns creates more jobs for other people. Now, you may well argue that some of this lost demand can be made up for if governments are willing to engage in significant fiscal stimulus, run large deficits, spend more on pensions and similar such policies. But the problem is that governments cannot continue to run large deficits indefinitely without the costs eventually becoming unsustainable and the day of reckoning arriving, as many western governments are starting to discover. The beauty of my position is that it is based on a balance between supply and demand management.

    We need to focus the debate on how best to maximise the amount of jobs available in the economy, rather than simply pitting different groups against one another in the labour market and assuming that one side can only gain at the expense of another.

  10. Jim Birch
    November 3rd, 2010 at 11:07 | #10

    A lot of economic argumentation seems to me to confuse scalar quantities with derivatives, doesn’t it?

  11. Alice
    November 3rd, 2010 at 16:02 | #11

    @Chris Warren
    says “It is easy to see how workers have been thoroughly exploited. They have lost wages share and now find that the youger ones amongst them will be unable to afford housing, work until they drop, have threadbare super, and be hit with savage electricity, phone, and medical costs.

    This is the legacy of; Gough (tariff killing) Whitlam, Malcolm (union killing) Fraser, Bob (Labor Party killing) Hawke, Paul (currency killing) Keating, and the me-too-ism of John Howard who gleefully followed suite.”

    Couldnt agree more Chris. Its no one party. Its both parties pushing the same policy set menu. It is about workers being pushed down when they actually need to be doing better and have some spare cash to actually invest in businesses – not large firms, already profitable, avoiding taxes whilst exploiting labour. Yet here we see in the US an unhappy population voting once more for the same “low tax, mean government, free up business” republicans that created the mess in the US first place.

    Here in Australia it doesnt matter who you vote for – Liberal, Labor – same policy menu in both….but the insane thing is – it isnt working but it keeps being peddled our way. The middle class are slipping down and the poor doing worse and everyone is hocked to the hilt to own a home.

    Its a recipe for long slow illness. Sooner or later someone will get the idea that the rich arent paying enough tax to afford job creating government spending. Making people work longer before they retire is just another worker bashing exercise.

  12. Ian Gould
    November 4th, 2010 at 00:30 | #12

    Following the Republican victory in the US midterm elections, I would suggest that the key question is not whether the US defaults on its public debt but when.

    I would suggest that people start to focus their attention on what a default would mean for the world economy and what the appropriate policy response would be.

  13. Alice
    November 4th, 2010 at 18:43 | #13

    @Ian Gould
    Ian – the US has done it before and so has the UK (defaulted). Some governments are bigger than the bond holders arent they? But the bond holders will scream for every public service in the land to be cut first. A default would mean some banks / lenders go down. Which would you rather goes down? – some private sector lenders or the government that doesnt tax enough in the right high up places, to cover its debts of bailing out those in high up places???

    You know….there is a certain irony in there somewhere.

  14. Alice
    November 4th, 2010 at 18:54 | #14

    And with all the quantitative easings going on in the US….could this be the final nail in Friedman and Helicopter Bens love affair with moneatry policy. Nuthin much is happening.

    Dont mention the F word they seem to have forgotten all about.

  15. Fran Barlow
    November 7th, 2010 at 11:06 | #15

    I was just watching some program called something like Asia Focus on the ABC. There was a feature on the capital of Kazakhstan, Astana.

    Now I don’t know much about Astana obviously and I have little grasp of the integrity of their governance or the environmental footprint of the new capital. One suspects it’s a hideous waste of resources, perhaps a little like the new Myanmar capital.

    I have to say though that at a visual level it is gobsmackingly amazing. It was if they got every modernist architect and told them: go nuts! no questions asked; money no concern Suddenly I have an urge to go there and check it out. What is even more amazing is that the whole thing was done from scratch in ten years. Whatever else it shows, it demonstrates that if you are keen you can do a lot in a decade.

    I couldn’t help but wonder if the development got cranked up in irritation at the Borat movie, which really annoyed the Kazakhs apparently. Significantly, there’s not a farm animal or a woman with a scarf in any of the picks, though the guy on Asia Focus did have a somewhat like Borat-like personality.

    It was said that the White House was built to intimidate guests into buying into the authority of American governance, and perhaps that is what the Kazakh regime is doing.

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