Home > Regular Features > Monday Message Board

Monday Message Board

May 20th, 2013

I’m travelling, so posting will be light to non-existent for a while yet. In the meantime, another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.

Categories: Regular Features Tags:
  1. Newtownian
    May 20th, 2013 at 15:11 | #1

    Here is an issue I hope could stimulate impassioned comments. Last week I inadvertently went to one of these Self Managed Superannuation Funds information sessions. What was interesting were the details about the total Australian superannuation pile of money, arguably the biggest bag of loot available for transitioning to a sustainable future. At 1.4 trillion dollars its not chicken feed.

    Worrying issues from a sustainability/social justice point of view included:
    – there wasn’t even the slightest nod to environmental sustainability, the energy crisis or the financial crisis??!! (expected but still depressing).
    – the world is divided into cash, cash extracted by blatant exploitation, property and shares plus a galaxy of wonderful asset amalgamating products.
    – the audience was all about me me me i.e. tax avoidance/minimization to zero and given the level of vested interest (one’s whole pension retirement future) a rising body of potential angry protestors.
    – prudential investment rules seems to rule out low yielding (from narrow neoliberal criteria) long term ethical investments.
    – the increasing SMS take as people increasing distrust government (consider Argentina and Cyprus)
    – superannuation is making rentier capitalists of us all once we reach retirement directly or by default through managed funds.
    – the system’s dubious fund managers predominantly know the difference between rye grass and astro turf. (no one’s fault – just good business).

    While none of this should actually be new to anyone who has filled out a superannuation form it does beg the question where moneys for big changeovers are likely to come from and the stability of this system which is arguably one of the most financially solvent globally.

    For example ZCA proposed $200 billion to replace power plants with solar thermal suggesting a total energy changeover would be of the order of 500 to 1000 billion – in effect approaching the entire superannuation take and probably unacceptable. A big ask.

    More general is the question of how to fund multiple diverse big infrastructure changes in the future – e.g. high speed rail to replace all the major road transport corridors? I just don’t see government having the money or private moneys funding the changes needed without a massive change in the whole economic system that would make the older nationalization programs look like a walk in the park and shake the superannuation system to its bones.

  2. Ikonoclast
    May 20th, 2013 at 15:53 | #2

    @Newtownian

    You sum up the dilemmas very well. Here is my take.

    1. Money is notional, not real.
    2. If there is not real energy, real resources and real production to back up all this notional money “wealth” then money wealth is worth nothing.
    3. If the environment is not liveable money wealth means nothing.
    4. As real resources fail, the investments that depend on them fail to make a return and go bust. The money wealth disappears without even a puff of smoke.

    It’s Ecological Economics 101.

  3. Ben
    May 20th, 2013 at 17:48 | #3

    @Newtownian
    I don’t suppose they had anything to say about the carbon bubble, did they?

  4. May 20th, 2013 at 19:30 | #4

    Newtownian – By carbon bubble do you mean ‘Bucky balls’ (after Buckminster Fuller, that famous physicist)? http://en.wikipedia.org/wiki/Buckminsterfullerene
    Or do you mean like the great South Pacific bubble – the repercussions of which was instrumental in establishing the Bank of England?
    Maybe the tulip bubble in Europe?
    I only mention these ‘cos anyone moderately conversant with the infinite number of ways the unscrupulous can invent rip-off schemes would have to expect that some race- memory might have developed in our collective psyches by now in much the same way ‘fright means flight’ to a normally adjusted human being.
    Yet apparently not: and in consequence the majority get suckered generation after generation.
    Ikonoclast – points 1 to 4 has offered a fair summation which cannot be denied – unless you happen to be one of those exploiting the sheeple.
    If all that moolah (or figures on paper) was actual currency or credits immediately available to individuals and our government wouldn’t that have some initiatives being progressed?
    Instead there is this pretence that the squillions salted away ‘somewhere’ are being managed and utilized efficiently and honestly.
    Yet every day at an accelerated pace this is becoming proven not to be the case.
    A few years back – ‘buy Telstra shares’ said JH. Just go out and spend your life savings on something you already, collectively, own,
    Give us a break!

  5. Ron E Joggles
    May 20th, 2013 at 21:07 | #5

    @Newtownian
    You went “inadvertently”? Come on, admit it – you’re a masochist!

  6. Ikonoclast
    May 21st, 2013 at 07:49 | #6

    I think Europe is the canary in the coal mine. What exactly is happening in Europe? Why is the entire Euro zone apparently descending into a Great Depression? For those who think “Great Depression” terminology is excessive here are some quick, simple statistics;

    Great Depression: Unemployment rates of about 20% to 30% country by country around the world.

    Current European Depression unemployment rates:-
    Spain 27.2%
    Greece 27.0%
    Cyprus 14.0%
    Italy 11.5%
    France 10.6%
    Germany 6.9%
    G.B. 7.8%
    Euro Zone 12.0%

    All of these figures show signs they are climbing further. Those who think a crisis is not already underway have their heads in the sand.

    Theories about the cause of the Euro crisis abound. The main theories are in no particular order;

    (a) Too much debt;
    (b) Too much government debt;
    (c) Too much Austerity;
    (d) Not enough Austerity;
    (e) Peak oil;
    (f) Peak energy.

    I incline to the theory that it’s budget Austerity when budget stimulus is required to stimulate aggregate demand. However, the whole design of the Euro Zone system makes good economic policy almost impossible. In addition, real resource limits are also starting to hurt the economy. Peak oil is past although peak gas, peak coal and peak energy are not, yet. Increasing Asian competition means more oil and gas is going to Asia and less to Europe. So, while some problems could be changed by changing economic policy, other problems are no intractable and due to worsen due to the peak resources situation approaching.

    When will Europe recover? The answer is never. Europe is the forerunner for the developed world. Europe is showing the path of collapse into the Endless Depression.

    To come back to topic, market linked superannuation is in for an endless downward spiral to zero. All those monies will be wiped out eventually. I am no financial adviser but normally I would be advising those about to take market linked superannuation to first pay down all debt. But even that advice is perhaps not certain anymore. Overall, I am not competent to advise and have no crystal ball. Suffice it to say, high risk investments would seem to be a bad bet. Be aware that banks can fail. Any or all of our big banks could fail. Depending on how laws stand at the time of failure and how much money you have and where, all, part or none of your deposits might be guaranteed. Yes, you could even lose the lot in “safe” banks.

    Recipients of government defined superannuation cannot consider themselves safe. Governments can and do cut public service wages and defined super payments in depression style crises. This is irrespective of the wisdom or otherwise of doing that in relation to an aggregate demand crisis.

    The thing that history teaches us is that no crisis is like the last one. A new crisis will have new features. We can only theorise about these new features. Reality is always more complex and surprising than our most complex theories and models. My theory is that one major new feature of this economic crisis will be the conflict and antithesis between the need to stimulate aggregate demand and the impossibility of doing so in the face of real resource shortages. This raises the possibility, I think, of inflationary depression. It’s hard to think of any strategy to meet this.

  7. Sancho
    May 21st, 2013 at 08:30 | #7

    I’m already hoarding bullets and tinned food in preparation for surviving the mutant-filled hellscape once known as “Australia”.

    Then again, the Coalition might lose.

  8. Ikonoclast
    May 21st, 2013 at 08:55 | #8

    @Sancho

    I know your comment is in jest. Even so, certain countries have provided or will provide large laboratory experiments of how well the “hoard tins and bullets” strategy works for a population. Syria is current example. The US will be a future example.

    Hoarding is a zero sum game. Bullets are a negative sum game. Such activities just bring on chaos and disintegration faster.

  9. Paul Norton
    May 21st, 2013 at 10:07 | #9

    As a general rule, any piece of writing that calls post-modernism or post-structuralism “Marxist” or “neo-Marxist”, or describes a prominent post-structuralist thinker as a “Marxist” or “neo-Marxist”, will be complete rubbish.

  10. Ikonoclast
    May 21st, 2013 at 11:12 | #10

    @Paul Norton

    Where is this coming from, Gandalf?

  11. Newtownian
    May 21st, 2013 at 11:40 | #11

    Tks all for the feedback. Comments:

    Non-farmer – I didn’t say anything about a carbon bubble. But the markets do seem to be alternating between different bubbles.

    Sancho
    – Survivalism is nonsense and Mad Max provides a more likely scenario.
    – Modern money is really sets of exchangeable contracts – its partly about trust or if you like debt and obligation (some great lectures by Margaret Atwood on this stuff).
    – A big part of the current malaise is people trusted mistakenly high finance and now that trust is partly evaporated. The trouble is societies generally function on trust and neoliberalism is undermining that because it promotes the view that everyone is your competitor (enemy) and are hence untrustworthy.
    – We have vastly more resources than we need if we used them efficiently. So its not too late and there is a lot that can be tried.
    – Thinking about soft survivalism it makes more sense to buy some dirt and a bunch of photovoltaic panels, and hoard fertiliser and aluminium – these will always be useful, and reflect energy prices, and fertiliser (especially P) may be in short supply soon.

    Ron
    – In part yes it was inadvertent.
    – That said approaching career decline/retirement/use by date focuses you on the third age and taking this more seriously.
    – There is also the memory of 2008 when we nearly lost all and ‘taking responsibility for your money’. This brings out your ‘greed is good’ tendencies.
    – Thinking about it, getting to understand superannuation isn’t unlike Dante’s journey through the nine levels of hell http://en.wikipedia.org/wiki/Inferno_(Dante).

    Ikonoclast – so many comments but briefly.
    – Though environment is paramount. money is still real, its just not corporeal so we have trouble getting our heads around it. ‘Information’ is a useful buzz word but doesn’t explain things. Plans and models aren’t real in your sense either but they are incredibly powerful. And we use both when discussing climate change responses.
    – There is this great Noam Chomsky youtube on the limits of human thought and suggests human limitations in understanding money. He includes himself and describes himself as a Mysterian (see youtube for Chomsky, Norway and Ghost in Machine) – wonderful alternative to atheism and not to be confused with Japanese SF aliens.
    – Re ecological economics – you are preaching to a choirboy. The difficulty is human focused society still dominates our lives. Even survivalist hippy hermits still use industrial artefacts.

  12. May 21st, 2013 at 11:55 | #12

    I’ve been trying to work out why this doesn’t have a headline?

    Beyond that I’ve been waiting for a Sandpit because it seems to be the place John Quiggin would prefer it.

    For the MMT-oriented among you – since you are not all on FB where there is an Australian oriented MMT group, I give you guys this:

    http://groups.google.com/group/mmt-australia

    At first it would like to MMT proponents and advocates – the critics can come later

    I hope to see you there Ikonoclast.

  13. Sancho
    May 21st, 2013 at 12:05 | #13

    Crikey. I’d forgotten how serious this place can be.

    I’m optimistic about the future. The causes for pessimism are vastly overstated and largely a product of media sensationalism.

    The world won’t be unfecked overnight, but things are on the up and the forces of progress and rationality are still winning despite the current period of backlash.

  14. May 21st, 2013 at 12:39 | #14

    @Newtownian

    Depending on the circumstances, major infrastructure investment can “pay for itself” which means it does not need to be funded with an increase in taxation or money printing. The mechanism is that, if the infrastructure investment results in improve productivity and higher economic growth; then future taxation revenue will also increase due to higher nominal GDP assuming the tax rate remains unchanged.

    Multiplier of the public investment will be important if the public investment is to “payment for itself”. The multiplier will be affected by various factors such as how efficiently is the investment planned (this can reduce the cost of the investment while achieving the same outcome); the state of the economy; and the increase in productivity and economic growth as a result of the investment, e.g. upgrading an old railway systems such as that in Australia and US to that of Japan, South Korea and China standards.

    Studies of the effects on the output from public investment varies in its results. For example:

    Alan J. Auerbach & Yuriy Gorodnichenko, 2012. “Measuring the Output Responses to Fiscal Policy,” American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.

    This paper suggests the fiscal multiplier of public investment spending for the US range from 2.12 to 3.02 depending on the economic circumstances. If we assume this result is correct, this means that 47% to 33% (depending on the fiscal multiplier) of the EXTRA ouput measured in real terms (income) as a result of the investment would have to return to the government as taxation revenue plus a few extra percent depending on the government bond rate as the government will have to take on debt to fund the investment, for the public investment to “pay for itself”.

    There also also studies that suggests:

    “We conclude that the euro countries can be gathered in four groups according to the nature of the economic and budgetary impact of public investment. The first group includes Austria, Belgium, Luxembourg, and Netherlands, where the economic effects are either negative or positive but very small and, therefore, cuts will be harmless for the economy and effective from a budgetary perspective. The second group includes Finland, Portugal, and Spain, where public investment does not pay for itself and, therefore, cuts are an effective tool of budgetary consolidation although they are harmful for the economy. The third group includes France, Greece, and Ireland where public investment just pays for itself and therefore cuts are not an effective way of achieving long-term budgetary consolidation and are harmful for the economy. Finally, the fourth group includes Germany and Italy, where public investment more than pays for itself and, therefore, cuts are not only harmful for the economy but also counterproductive from a budgetary perspective.”

    Alfredo Marvao Pereira & Fatima Pinho, 2006 “Public Investment, Economic Performance and Budgetary Consolidation: VAR Evidence for the 12 Euro Countries”, College of William and Mary, no. 40.

    Note this paper is published before the GFC.

    Increase in taxation is needed if a new perpetual spending item is introduced which its fiscal multiplier is not large enough for the spending to “pay for itself”. Why this is the case is well explained in Professor Quiggin’s post “Money for nothing?” http://johnquiggin.com/2011/10/18/money-for-nothing/.

  15. Paul Norton
    May 21st, 2013 at 12:58 | #15

    Ikonoclast @9, in the first instance a review article in the latest edition of Quadrant which, amongst other things, makes a critical references to the policies and activities of the German Greens in the 1960s, even though the German Greens only came into existence in 1980.

  16. Paul Norton
    May 21st, 2013 at 12:58 | #16

    And the article describes Baudrillard as a “neo-Marxist”.

  17. Sancho
    May 21st, 2013 at 13:05 | #17

    @Paul Norton
    More proof of the conspiracy.

  18. Tim Macknay
    May 21st, 2013 at 14:00 | #18

    Paul, the article was in the latest Quadrant. Surely you don’t need parse the terminology to conclude that it’s probably rubbish. 😉

  19. Paul Norton
    May 21st, 2013 at 14:20 | #19

    Tim, this is true.

  20. May 21st, 2013 at 19:32 | #20

    @Newtownian

    A non farmer
    Sorry Newtownian, my apologies.
    It was actually that ‘Ben’ who mentioned the bubbles..
    Nothing changes though.
    The reivers in this society manipulate ‘bubbles’ and the sinusoidal wave form of boom and bust in order to take advantage of whatever hint of ‘insider knowledge’ they might glean from their equally corrupt mates.
    I pause here to make it clear in my mind before I say more.
    Okay. Out there countless millions are doing their best to make themselves a life.
    Most subsist from week to week or from day to day.
    Many perish in that endeavour.
    Meanwhile the bludgers at the top, every day, piss more up against the bar urinal than most of the poor earn in a month.
    And they do that by manipulating the markets.
    And all the time these oxygen thieves are doing that – the dimbulbs are actually acting against their own interests.
    Why so?
    ‘Cause they don’t give a continental. ‘Cause they are as completely stupid as any mob of outlaws. ‘Cos their psychopathic attitude (or is that non-attitude) holds no place in their psychopathy, in any way, manner, or degree for the fate; not even for their own brethren – nor their sisterhood.

  21. May 21st, 2013 at 23:35 | #21

    Newtownian –
    Do you honestly believe there will be any return for all those credits the proletariat have been forced to pay in to some nefarious scheme they have absolutely no contact with or control over – nor oversight?
    I mean, for all too many years they’ve been denied a ‘theoretical’ percentage of their miserable wages.
    It has ‘theoretically’ been paid into something quite ethereal.
    None of those poor bludgers will ever see any of that.
    Find some way of proving otherwise.
    Give us a break, please, and prove otherwise.

  22. Ikonoclast
    May 22nd, 2013 at 07:10 | #22

    @Senexx

    They seem to want me to sign up. I never sign up. Like Groucho Marx said “I wouldn’t want to belong to any club that would accept people like me.”

  23. Ikonoclast
    May 22nd, 2013 at 07:49 | #23

    Late stage capitalism is really moving into surreal territory now. Max Keiser is a bit of a showman and a ratbag but his rants raise some serious issues. This is all going to end in tears (and blood) for billions.

    http://www.maxkeiser.com/2013/05/the-monarchs-of-money/

  24. May 22nd, 2013 at 09:42 | #24

    @Sancho

    …things are on the up and the forces of progress and rationality are still winning despite the current period of backlash.

    I’d like to share this optimism.

    What would be your top three examples to support that comment?

  25. Ikonoclast
    May 22nd, 2013 at 09:51 | #25

    I might add that Max Keiser seems to be a Silver Bug which I certainly don’t agree with. Commodity Money bugs are just as nutty as endless growth cornucopians and AGW deniers. Then again, with Max Keiser the Silver Bug thing just might be a send-up.

    My analysis of the forces at work tells me that everything is unsustainable and will collapse. That is not a popular message. For most of my day each day, even I have to pretend it’s not true for practical purposes. It is essentially too big and too horrific to contemplate for long. That way lies madness.

  26. May 22nd, 2013 at 10:11 | #26

    @Ikonoclast

    Why not? I imagine like half the planet you have a gmail account, perhaps half a dozen of them. Many do

  27. Ken Fabian
    May 22nd, 2013 at 10:39 | #27

    On a different topic – one of the businesses the Coalition highlighted as endangered by the CPRS and Carbon Tax has changed it’s tune; it expects to reduce it’s emissions from 82,000 to 25,000 tonnes per annum by taking advantage of some of the financial assistance the scheme includes for upgrading plant that will reduce emissions and costs and, in the process, help position itself for the future.

    From the Beaudesert Times article

    A vocal opponent of the carbon tax prior to its introduction by the Labor government on July 1 2012, Mr Kassulke (AJ Bush and Sons manager) now readily admits he has changed his tune.

    While sourcing new technology to improve the rendering plant’s energy efficiency was effectively forced on the company, he now sees it as a “positive thing”.

  28. Ootz
    May 22nd, 2013 at 11:40 | #28

    Thank you for sharing that link, as it is somewhat reassuring, that there are still conservative and prudent businesses out there who plan ‘in the long term’. The long arm and greedy fingers of the Murdocracy have obviously not reached the Beaudesert Times yet, eh?

  29. may
    May 22nd, 2013 at 12:32 | #29

    @Ikonoclast

    in your list icono.

    liquidity?

    probably way off beam but.

    the amount of liquidity locked up and paying nothing into the societies it has garnered from seems to be a big part of what is happening.

    taking from a society put in place by the efforts of those who preceded us and evading/avoiding/refusing to contribute in any way to maintain these societies by hiding massive amounts of liquidity held by private/corporate entities.

    i read somewhere that a huge proportion of the worlds wealth is held by something like nineteen thousand individuals.
    whether this is accurate or not is irrelevant in the face of the reality of a very small number of unaccountable and probably unknown individuals holding a disproportionate level of political power.
    there is currently a world wide land aquisition happening.cash for land in huge quantities,Africa, Southeast Asia and even Europe .
    the hidden political consequences of this is what we are living through.

    models and ideologies don’t do anything but delineate small jigsaw pieces of the whole picture.

    the liquidity is essentially stateless.

    two cents worth.

  30. may
    May 22nd, 2013 at 12:43 | #30

    i suppose it could be call

    “strike action”

  31. Newtownian
    May 22nd, 2013 at 13:16 | #31

    @MONTIE

    Thanks for the comments which are interesting – my responses # in reply:

    ” Do you honestly believe there will be any return for all those credits the proletariat have been forced to pay in to some nefarious scheme they have absolutely no contact with or control over – nor oversight?”

    # My own doubts were what prompted the question to the crowd and my curiosity about the wonderful world of self managed superannuation funds. (Is it my imagination that financial industry is adapting to our post 2008 scepticism or instead its my oversight and the current deluge of SMSF stuff has always been there???)

    ” I mean, for all too many years they’ve been denied a ‘theoretical’ percentage of their miserable wages. It has ‘theoretically’ been paid into something quite ethereal. None of those poor bludgers will ever see any of that. Find some way of proving otherwise. Give us a break, please, and prove otherwise. ”

    # You lost me a bit there. I agree money is definitely ethereal or should I say non-corporeal. But its still real. An analogy? Ocean waves are real and powerful but they aren’t strictly speaking solid.

    # 2008 has shown you can definitely lose depending on which super lotto you pick or are assigned to which I think was your point. The excuse given seems to be we are all responsible for our ‘investments’ and have to educate ourselves about the wonderful world of finance (i.e. we are to blame, no Goldman Sachs). In this regard have a look at https://www.vivomiles.com/for.schools.php . The bigger plan (conspiracy?) seems to be to turn the next generation into petit bourgeois rentier capitalists (= financially literate)

    # Regarding super funds being real, as I understand it there is nothing except bureaucracy stopping anyone from transferring their super into a self managed fund which they control and in theory could split between say a small investment flat. Which seems to me pretty real.

    But your point is still valid in that this only works if you have enough super to make it worthwhile. If you don’t (Your mug proletariat) you are stuck with an industry or retail fund and playing a transfer game which few do.

  32. Newtownian
    May 22nd, 2013 at 13:34 | #32

    @A non Farmer

    Ta ANF – spoken like a good bolshie. But as old Karl said “Philosophers describe the world, the point is to change it” presumably by analysing what is going on.

    Now K. Marx did this by identifying big interest groups such as the proletariat and the petite bourgeoisie (though he apparently didn’t use the expression rentier capitalists) as a prelude to understanding how the interacted. This suggests we should do the same and not be locked into his initial analyses, useful as they were.

    The way things are going, the superannuation system seems to be creating a new group of sorts – (‘retiree’) petite rentier capitalists comprising all of us directly of by default whose notionally self controlled pension/income is dependent on how much they can screw out of the working young and old here and abroad.

  33. Newtownian
    May 22nd, 2013 at 13:49 | #33

    @Tom

    Tks for the insights. Useful.

    “Depending on the circumstances, major infrastructure investment can “pay for itself” which means it does not need to be funded with an increase in taxation or money printing.”

    I agree with you on principle but the main sticking point seems to be this ‘Depending’. PV looks like it is doing that after an initial kick start – especially with rising electricity prices, PV economics having become favorable and us living in a good climate.

    What worries me though is that many other essential changes will have a lot more trouble getting off the ground or be still born. The electric car is one current well known example where to really be viable you need a massive network of cables and charging to make it more than inner city/boutique (whether we should all have private cars is a different matter).

    As a different example we should be investing in tighter phosphorus recycling now while the stuff is relatively abundant and cheap and high grade. Unfortunately there is no non-dubious financial mechanism I am aware of for investing say superannuation and getting a short to medium term benefits (=pension).

    It would be different if we could internalise real future costs of very expensive fuel and fertiliser. But current economics doesn’t let us do that. And then there is the problem of trade rules.

  34. Ikonoclast
    May 22nd, 2013 at 15:27 | #34

    @Newtownian

    You are quite right that a new class of “petite rentier capitalists” has been created by the superannuation industry. They are currently quite a powerful voting block and becoming more so. People talk of the “grey vote” but they grey vote divides into at least three blocs in my opinion;

    1. Self-funded retirees with private superannuation (petit (little) rentier capitalists);
    2. Retirees on government defined benefit schemes (“sinecure” retirees);
    3. Pensioners (old age pension).

    Of course, there are some overlaps between these groups. As a disclosure point, I am a “sinecure” retiree. The governments (federal, state and local) are moving or have moved from offering defined benefit schemes to forcing their employers into market linked schemes (private super in essence). So sincure retirees are being phased out.

    Also, as part of the neoliberal project to break up unions and worker power, many workers are now no longer “workers” but self-employed. Thus they become trades-persons, contractors, sub-contractors and so on. So as well as the petit rentier capitalists we now have the petit entrepreneurs running their “business of one”. They become petit capitalists as soon as they employ staff (other than the wife – usually – who answers the non-mobile phone number, cooks, cleans, shops, washes, gardens, housekeeps, raises the kids and does the books, tax returns and records).

    All of these people have been made to feel and believe that they are capitalists, part of the chosen class and their fortunes can rise for ever in an unlimited world of opportunity. Soon the crunch will come, when the siphoning of money right to the top of the mega-capitalist class is too great and the shortage of resources at the start of the production chain is too severe, for the overall system to continue. Be prepared for more and more countries to start looking like Syria. That’s what it will turn into. Probably, the most well-ordered countries with strong, effective government and a modicum of resources remaining can avoid that extreme fate. But more than half the globe will certainly collapse.

  35. Newtownian
    May 22nd, 2013 at 16:07 | #35

    All

    Something more on these lines (serendipity?).

    http://www.nakedcapitalism.com/2013/05/excess-german-savings-not-thrift-caused-the-european-crisis.html

    The thesis of this article is in part that excess savings in Germany (only marginally different reasons than here in Oz) caused the current problems which are feeding back to us in the wildly fluctuating value of different investment sectors. The article is somewhat academic but very readable.

    The central point is ‘savings’ or ‘super’ have to go somewhere – and in system without real productive growth they in effect redistribute wealth. The article is about how Germany started saving in response to current account problems (Keating banana republics anyone?) and this money had to go somewhere which created the credit bubble and destabilized Europe.

    Which is what Australian super seems to me to have been doing too. The solution given though is productive growth – which given ecological sustainability needs is the last thing the planet needs. 1st Solution gets a nice bottle of socialist chardonnay.

  36. Newtownian
    May 22nd, 2013 at 16:34 | #36

    @Ikonoclast

    Talk about the contradictions of capitalism.

    Can I say I think we are in perceptual harmony – with the difference that I am on the verge of entering category 1.. So clearly I am one of these emerging microcapitalists – and it is putting me on the horns of a dilemma – go along with the system and be fat and happy on the way to the falls, be self sacrificing leaving someone else to go laughing to the bank – or take a non existent third way (Blair humbug).

    The emerging perspective is interesting to say the least. But consider – where will the government (and as interestingly ‘quangos’ such as universities) get the funds for sinecures and pensions from in the future if not by raising taxes on super.

    The one saving for sinecures is that politicians on the same arrangements will be loathe to lose them so you are probably safe for the moment.

    As to the environment being increasingly degraded well….. the question of what ‘ethical investments’ really constitutes would make a good request for another day (JQ are you listening from the ether?). Is this really an oxymoron like military intelligence, democratic capitalism or green growth?

  37. Ikonoclast
    May 22nd, 2013 at 18:55 | #37

    @Newtownian

    I don’t think any punters, except maybe the super rich, are safe. Market linked super can fail and government pensions and defined benefits can be wound back. Since real goods will be less abundant in future (due to resource depletion and over-population) there are two basic ways the financial system can adjust or be adjusted by the manipulators. These are debt defaults, where money is wiped out of existence and inflation where the existing money chases less and less goods. Of course, a combination of the two is possible too. Our fortnightly super payments could halve and prices at the supermarket could double. And in a short span too, maybe five years although that five years might not start just yet.

    As for money in banks, all banks can fail except state owned banks. And any government could do what Cyprus planned; a haircut of all depositors. Indeed, Canada is preparing such legislation now. Government bonds, issued by relatively safe, stable governments with their own full currency sovereignty, might be the only safe place for cash. Note, I said “might be”.

    I take, or attempt to take, a philosphical view. Human life on this planet has rarely been secure. Our period of relative security has been the exception, not the rule. Things will return soon to the historical norm. As Hobbes said, albeit of a time before civilization;

    “… where every man is Enemy to every man; the same is consequent to the time, wherein men live without other security, than what their own strength, and their own invention shall furnish them withall. In such condition, there is no place for Industry; because the fruit thereof is uncertain; and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving, and removing such things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continuall feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short.”

  38. rog
    May 22nd, 2013 at 22:23 | #38

    @Ikonoclast

    as part of the neoliberal project to break up unions and worker power, many workers are now no longer “workers” but self-employed.

    Both sides of politics would like to reduce numbers of “contractors” due to loss of PAYE.

  39. May 22nd, 2013 at 22:23 | #39

    Dear May,
    What you say at #29 about the consolidation of wealth into only a few hands is true.
    Of course much of what they control is nothing but zeros on paper and their control of a fair amount of physical assets also owned by them by way of other pieces of paper managed by the sort of sycophants willing to play their game.

    All a bit of a scream if you take the time to think about it.
    Writing and the keeping of records in the dim-dark past – the ancient civilizations of the two rivers and along the Nile, etc.
    The scribes, the priests, noble houses and dynasties.
    And all these years later we are all still mug enough to keep falling for the same old disreputable, ultimately scurrilous, destructive games.

    Of course it is difficult to organize the rabble to come up with a better alternative to the masses being subsumed to the rule of greed.
    But, hey, the oligarchy aren’t doing a very good job either.
    Everyone seems to acknowledge a near future – too many people and not enough resources.

    Best way to demonstrate that is to arc up ‘Google Maps’ and fly over some parts of the world.
    Room quite definitely is running out for, say, rifle ranges or flying fields for model aeroplanes.
    Meanwhile, as you say, some small klatch of ‘faceless men and women’ are buying up big time all over the place (including in Australia) and I’m damned sure that their chief interest ain’t into plinking with their .22 or flying their toy plane without interruption.

    So what ARE they up to?
    In my view they are establishing a new regime. As May mentions it is about the destruction of Nation States as quickly, quietly and efficiently as they might manage.

    AND they are doing that with the gazillions of credits withheld from all you poor overworked punters for all your working lives.

    In closing permit me to say – some years ago just before they ‘retired’ me – a defence paper (for comment) was sent to me.
    The scenario at question was (from memory) about the escalation of stateless terrorism (or the destruction of nation states) being financed by exactly the sort of thing being discussed here.
    In other words, in about 2002/3, our defence establishment had identified, as a priority, the need to achieve some level of forward planning enabling the Commonwealth of Australia to nip that sort of stuff neatly in the bud.

    Going by recent news, they’ve dipped out Big Time!

  40. Ootz
    May 22nd, 2013 at 22:24 | #40

    Hobbes eh? In 2009 Lord Robert May, past President of the Royal Society in an interview with Robyn Williams on RN:

    “… a fascinating meta level evolutionary question of is the trajectory we’re on, which doesn’t look very hopeful at the moment, it looks like a trajectory that at best is going to go to the world of the cult movie Blade Runner and more likely to Mad Max. Is that a trajectory that any inhabited planet gets as it gradually begins to understand the world, use that mastery to do well intentioned things (everybody lives longer, everybody has more energy subsidies, life gets better and better) but all of a sudden you realise it’s just out of control and there are more people than the planet can sustain, putting a footprint on it that’s unsustainable…is what we’re doing an inevitable part of evolution on an inhabited planet or are we aberrant?”

    Hobbes, Blade Runner, Mad Max, and given yesterdays big twister in Oklahoma, may as well add Frank Herbert’s Dune as well.

  41. May 22nd, 2013 at 23:17 | #41

    Hello Ootz.
    Leave Hobbes out of it.
    His mate Calvin loves his tiger very much.
    http://bestofcalvinandhobbes.com/

    And the trajectory you mention?
    More of a screaming terminal crash.

    Bladerunner?
    Or the more simple form of anarchy – ‘Clockwork Orange’?
    http://www.imdb.com/title/tt0066921/
    It is all happening out there in a street near you.

    Question is, Why?
    Could the concept of ‘divide and conquer’ have something to do with it?

    Or could it be that the oligarchy have it right?
    That the peasantry simply cannot act in their own best interests?
    If you want to investigate that scenario – I’d suggest getting hold of a few of the more esoteric novels written by one Michael Moorcock.

    Going back to movies – try out ‘Zardoz’
    http://www.imdb.com/title/tt0070948/

    ‘Cos, buddy, we are coming far too close to that scenario than we want to contemplate.

    Just my fifty cents worth – but a world of cogitation for you if you chase up my poor suggestions.

  42. Tim Macknay
    May 23rd, 2013 at 12:05 | #42

    @Ootz
    “any inhabited planet”? Is Lord May saying he has experience with other inhabited planets? He’s not one of those reptilians, is he?

  43. David Irving (no relation)
    May 23rd, 2013 at 12:52 | #43

    Lord May is Australian, Tim, so it’s unlikely.

  44. sunshine
    May 23rd, 2013 at 13:22 | #44

    2 or 3 people have mentioned the sleepwalking toward a cliff phenomena evident now on a mass scale . They weren’t saying it is ,but, Im sure thats not a new thing . Its an essential part of being human -in order to live each day in the face of our own death .We are all very good at putting impending doom out of our minds . Its not remarkable . Sleepers must eventually wake , simple things like high petrol prices will do it on a mass scale .

  45. may
    May 23rd, 2013 at 13:45 | #45

    but i didn’t say anything about the United Nations at all.

    fascinating.

    and as for going by the “news”.

    which bit of “news” are we talking about here?

    a small klatch?

    possibly,possibly,if the nineteen thousand number is correct,then that doesn’t even amount to the population of a small town in India or China.

    and as for the area of control being nothing but “zeros on paper”?

    i beg to differ.

    what is not done, what is held back through lack of available resources, is a continuing problem and reality,due to liquidity not flowing to areas of neccessity.

    it looks very much like a “capital strike”

    if sovereign states throughout the world had not increased liquidity,an even larger transfer of assets would have occurred from the time of the “GFC”until now.

    a depression is after all,the means by which massive wealth transfers occur.
    nobody tracks the beneficiaries of depressions,they are to busy counting the cost,trying to figure out how it happened and trying to make sure it doesn’t happen again.

    (but it would be kinda interesting to see who came up trumps in the “South Sea” bubble,who lucked out from the “Tulip Mania”,who cleaned up in the “Great Depression”.)

    efforts by sovereign states to retrieve liquidity parked (legally or illegally)beyond the reach and use of sovereign states is a subject of concern and the intent to release this liquidity more than just a conversation.

    the undeniable (as long as deniability could be maintained it was) appearance of historically active stateless entities claiming the sovereignty of private property over and above the sovereignty of countries from which they obtain their profits has occurred.

    the above may be just bulldust but in a world of secrets and lies, who knows?

  46. may
    May 23rd, 2013 at 13:47 | #46

    sunshine :2 or 3 people have mentioned the sleepwalking toward a cliff phenomena evident now on a mass scale . They weren’t saying it is ,but, Im sure thats not a new thing . Its an essential part of being human -in order to live each day in the face of our own death .We are all very good at putting impending doom out of our minds . Its not remarkable . Sleepers must eventually wake , simple things like high petrol prices will do it on a mass scale .

    repent the end is nigh?

  47. may
    May 23rd, 2013 at 13:47 | #47

    or

    repent!

    the end is nigh.

  48. Ootz
    May 23rd, 2013 at 16:11 | #48

    Newtonian @ 36 “.. the question of what ‘ethical investments’ really constitutes would make a good request for another day”

    Given that Bill McGibben is on LateLine to night, what would it take for a notable Australian Super Fun board to become ‘ethical’ and decide to start divest carbon?

  49. sunshine
    May 23rd, 2013 at 22:49 | #49

    I think the ethical super funds have been out performing the couldn’t care less ones .

    May – lets hope the end is ‘high’ not ‘nigh’ – no need to repent .

    I’d like to have a vote here on wether the future will be Mad Max or Bladerunner ! Maybe some parts of the world will be one and some regions the other .Its a bit like that now -that would be an extension of the current situation . I’m worried about the ability of citizens of Western nations to pull together if sudden crises comes . Our first instinct is to fear others . Americans will shoot each other until the bullets run out . Some countries will do much better as they still have fresh memory of working together in crisis . Golden Dawn in Greece and the English Defence League look scarily similar to the Nazi s in pre war Germany .

  50. Jarrah
    May 23rd, 2013 at 23:31 | #50

    “I think the ethical super funds have been out performing the couldn’t care less ones”

    No hard figures to hand, but my understanding is the former have tanked hard compared to the latter.

  51. Nick
    May 23rd, 2013 at 23:37 | #51

    Mad Max was just male fantasy…hero in a land of outlaws type stuff. Short of losing >99% of the world’s population, we’re going to look nothing like that.

    And there’ll always be animals around…we’ll just keep cockroaches as pets!

    That’s a neither for me, sunshine.

  52. Newtownian
    May 24th, 2013 at 06:39 | #52

    @Ootz

    Since you raise the question of ethics here are some possible issues.

    Just watched McKibben – he made the comment about 200 problem companies which would be good to divest from. It could be a useful list but I couldn’t find it. However it wouldn’t include the banks and financial sectors that underpin the investment process – or the superannuation funds or investors who are still oblivious. Still its worth a try and it certainly makes sense long term.

    But to divest yourself you would probably have to open an SMSF as the superfunds don’t divulge full details of who they invest in.

    It was interesting to watch Tony Jones show no emotion whatever as McKibben described the current situation but merely trying schoolboy debating tricks. And then ABC switched straight to the business report without missing a beat. Balance is one thing but this smacks of continuing cognitive dissonance which is very troubling.

    The matter of ethics of course goes further in respect to ethics and superannuation. When dealing with superannuation/financial agents (along with charity sprookers, real estate agents and traders of all shades) the rule seems to be – assume they completely lack ethics and are simply after a sale/percentage or whatever. Now it arguable in the name again of balance they are merely doing what they were taught in upselling classes, they are subject to some official constraints now and they have KPI sales targets to meet to feed their dependents. But being a good salesperson is ultimately about leaving your ethics at home and using every trick at you legal disposal to con/cajole/seduce your target. Its about training in denial or if you prefer lying cheating and swindling (legally).

    So the second question regarding ethics and superannuation is whether realistically we can ever expect ethical advice on balance from a system that is an organised con? You might think you can beat them – but this is the logic of the mug punter at Eagle Farm Randwick or Flemington.

    Finally there is the question of what does ‘ethical’ actually mean? Rio20+, arguably a good guy, ignored the environment and came up with the oxymoron Green Growth. FOE and the Greens are now saying population growth is not a problem and implicitly are pushing growth for the worthy reasons of feeding the poor etc. Worthy indeed unless the planet cant manage this. Judging what is ethical is also a matter of figuring out priorities.

  53. Newtownian
    May 24th, 2013 at 06:53 | #53

    @sunshine

    On the future?? Here is something maybe a little less silly than Mad Max polls though he does get an honourable mention in dispatches given the underpinning argument of energy depletion.

    Costanza R. 1999. Four visions of the century ahead: Will it be Star Trek, Ecotopia, Big Government, or Mad Max? The Futurist 33:23-28.

    Costanza is a well known ecological economist academic and this popular piece isn’t bad. Basically its saying the future is unknown but here are four commonly worked scenarios.

    [And don’t forget Mad Max was made on the outskirts of Melbourne (as Ava Gardner apocryphally put it in On the Beach – a great place to make a film about the end of the world, starting at Anarkie Road – its actual location and the location of a nice vineyard].

  54. Newtownian
    May 24th, 2013 at 06:55 | #54

    ps I think there are links to downloadable copies that don’t require a subscription.

  55. Ootz
    May 24th, 2013 at 08:48 | #55

    Nick @50 “Mad Max was just male fantasy…hero in a land of outlaws type stuff.”
    I dunno Nick, just google Afghanistan and Mad Max.

    How about The Hungry Miles or other Aussie movies depicting the great depression?
    http://aso.gov.au/titles/documentaries/the-hungry-miles/clip3/

    In 2012, the FAO estimated that 868 million people are undernourished (12% of the global population) and that malnutrition is a cause of death for more than 2.5 million children every year (Wikipedia). Anyone read the Salvation Army survey reported two days ago?

  56. Troy Prideaux
    May 24th, 2013 at 10:01 | #56

    Financial Times are reporting that the US is placing a >30% tarrif on cheap chinese solar panels and the EU is looking at imposing a 47% tarrif. Now, I’m a longtime advocate of protectionism, but I don’t agree with imposing barriers to suppress the proliferation of technologies that help the fight against carbon emissions.

  57. Ootz
    May 24th, 2013 at 17:35 | #57

    Thanks for Constanza reference, Newtonian. Could’t find a link for the article, however a (pdf) rehash of it by himself is here http://www.capitalinstitute.org/sites/capitalinstitute.org/files/docs/Costanza%202001%20BioScience%20.pdf

    Interesting Constanza’s last point in above link:
    ” A cooperative, precautionary policy set that assumes limited resources is the most rational and resilient course in the face of fundamental uncertainty about the limits of technology.”

  58. rog
    May 25th, 2013 at 04:48 | #58

    An actuarial argues with conviction that peak oil/peak energy has passed, prices will drive recession and QE is delaying the inevitable.

    http://ourfiniteworld.com/2013/04/11/peak-oil-demand-is-already-a-huge-problem/

  59. BilB
    May 25th, 2013 at 11:35 | #59

    rog,

    Apart from the QE aspect I agree with the actuarial. But the QE comment just gave me an idea. I’ve been arguing (in my limited know ledge of economics that the US QE was justified because the huge amount of unpaid export product to Iraq and Afghanistan had depressed the economy and the QE addresses this imbalance.

    Now if that is true then there in is a mechanism to address extreme poverty in a number of third world countries. Simplistically if a country applied all of its resources to feeding a next door country not being paid for this effort that country would soon hit depression. However if you simply print the money in careful balance with the exported resource the supply country could be kept in balance while providing an external benefit to its neighbour. Obviously there are practical limits, but I wonder what that would be as a percentage of GDP?

    Ootz,

    Thanks for that link. I have saved the article for later reading. But picking up on the central idea I take a central position between technology and ecotopia.

    Technology is our saviour, but we need it to be far more advanced. From an energy point of view the SpectroLab Solar PV efficiency is the right level to solve our every energy need. From an information technology point of view we are heading in the right direction. The optimum is the fnatasy fiction “magic crystal”. This is totally do-able but we are not there yet. Light computers that can receive an external solar energy source and process information (situations) is the most robust permanent processor solution. At least 50 years away, but we just might make it before there is a mass human die off and global economic failure. The problem with high technology is that it is extremely vulnerable to supply failure due to the highly serial nature of the production train. Apart from that electronics have a weak link in the form of electrolytic capacitors. These capacitors age and can flip their polarity thereby destroying the circuit that they serve. So the notion of ultra condensed processing power and data (knowledge) storage in the form of a crystal structured block device is very appealing from a long term survival point of view (hold the crystal in a condensed beam of light and it projects an image onto the wall of your cave,…sort of idea).

  60. Ernestine Gross
    May 25th, 2013 at 16:27 | #60

    Shortly after the Lehman event in 2008, ‘asset price inflation’ was at least mentioned on this blog-site. What happened to this topic?

    The so-called ‘quantitative easing’ (QE) by the Fed in the US, then by Japan and, to a lesser extent, the ECB, was said by many (including Prof Krugman) to not have produced ‘inflation’. True, consumer price ‘inflation’ did not excellerate but what about asset price inflation (shares, real estate)?

    Real estate prices are on the move up in the US. In Australia, neither Keen’s prediction of a significant price level decline came true nor is there evidence of a real estate bubble across the entire country, although there are a few ‘hot spots’.

    Share markets (equity) are different. The US equity market as well as the major share markets in the EU, in Japan and in Australia had a bull run for about 12 months and a major ‘correction’.

    Think about it. QE means bonds are bought by the monetary authority in exchange for ‘cash’. The cash doesn’t go to the homeless, the minimum income earners, the under and unemployed. It goes to the bond holders. Who are they? A lot of the bonds are held by ‘agents’ (superannuation funds, financial institutions, banks, insurance companies) – ‘organisations’ which, for legislative reasons, have control over funds that are in some round-about very abstract way ‘owned’ by people like you and me. What are those agents going to do with the cash? It depends. In general it means QE induces major portfolio adjustments amounting to buying other ‘paper’ with the aim of generating bigger numbers called ‘returns’. Shares are such ‘paper’. Since the ‘paper(s)’ are internationally tradable, portfolio adjustment takes place internationally. The effect of QE in the US or in Japan spreads to many local economies, although not necessarily in a uniform way.

    So, while there was no consumer price inflation (not surprisingly because most of ‘the consumers’ didn’t get the cash), ‘asset price inflation’ re-emerged.

    PS: Terms in ‘single quotation marks’ signify words which have several meanings or are ill defined out of context. For example, the term ‘cash’ can mean notes and coins and it can mean a number changes in accounts.

    While I am on the topic of terminology, the word ‘contagion’ pops up every so often in the media. IMHO, ‘contagion’ is an unfortunate word; there is no infection anywhere. Is it really so difficult to say what actually happens, namely all prices are related and therefore when one price of a widely traded ‘thing’ changes (eg QE increases the price of bonds and lowers the ‘yield’, ie the ‘rate of return’) then other prices change too in ‘the global economy’)

  61. Ernestine Gross
    May 25th, 2013 at 16:30 | #61

    Not long ago I posted on the topic ‘tax havens’. Today there is an article in the smh on this topic. Apparently a non-trivial proportion of major stock exchange listed companies, including in the financial sector, have postbox subsidiaries in the said havens.

    Lets see by how much the federal deficit is affected by the after tax profit motif of major players.

  62. Jim Rose
    May 25th, 2013 at 20:56 | #62

    @Ernestine Gross the optimal rate of tax on income from capital in zero.

  63. Ernestine Gross
    May 25th, 2013 at 21:18 | #63

    @Jim Rose

    The problem to which you provide an ‘optimal’ solution does not exist in economics concerned with the material (as defined by natural scientists) welfare of humans.

    The ‘optimal’ solution you provide is merely a delusion entertained by those accountants who think of ‘tax’ as an ‘expense’. The delusion becomes evident when they produce numbers to lobby governments for hand-outs.

  64. rog
    May 26th, 2013 at 05:58 | #64

    @Ernestine Gross A lot of real estate is what you call “soft” with falls from 2007 valuations as large as 50%.

  65. Ernestine Gross
    May 26th, 2013 at 10:26 | #65

    @rog

    I did NOT call real estate “soft” and I would not agree with this description.

    I would say real estate markets in ‘the global economy’ are geographically more segmented than financial markets, across countries and even within countries, and prices in financial markets move faster than in real estate markets.

    You don’t say where and when real estate ‘valuations’ fell as much as 50%. Further, as you know, there is what is known as an index problem with all inflation measures.

    The relationship between financial markets and a real estate bubble is very clear in the US during the period prior to the Lehman event. The history in the EU provides a more complex picture. After the big bang event of financial market deregulation during the Thatcher years in the UK there was a real estate bubble in the UK, in the Netherlands, and in Finland but not in Germany and France. Similarly, there was no real estate bubble building up in Germany and France during the period prior to the Lehman event but there was one in Greece, Cyprus, Spain, but not in the Netherlands and Finland. While these examples are not comprehensive, I do believe they illustrate my critique of the orthodox macro-economic proposition that QE did not result in ‘inflation’ (because of the share market behaviour) and my reasons for my disagreement (interrelatedness of prices and, in addition, the complexity of this interrelationship as well as the effectiveness of regulatory measures under the control of national governments within an almost continuously changing ‘global economy’).

  66. May 26th, 2013 at 23:45 | #66

    We have a very loud, large, powerful, well co-ordinated, organised and resourced pro-vaccination lobby screaming about the importance of good science in the face of hoodoo quackery.

    And this pro-science movement has chosen Murdoch’s AGW-denial machine as its primary forum.

    I’m pretty sure that’s ironic.

  67. rog
    May 27th, 2013 at 06:30 | #67

    @Ernestine Gross Sorry, when I said “you” I didn’t mean you specifically I meant you in general. Figure of speech, as it were.

    RBA have recently said property boom is over and future prices are to grow slowly if at all. Once you take out inflation and transaction costs returns are sub optimal. Near me a bulky goods site which sold in 2008 for $36M just turned over for $18M.

  68. rog
  69. Ikonoclast
    May 27th, 2013 at 09:19 | #69

    My personal belief is that there is a lot of unmeasured inflation in the system. Note, I have used the word “belief” and the vague unquantified words “a lot.” Without an economic method and without the appropriate mathematical skills and data gathering capacity, I cannot test my belief.

    Asset price inflation was an issue leading up to the Global Financial Crisis in 2008. After QE, asset price inflation might have received a second lease on life. However, government “money printing” or “quantitative easing” (whatever term is appropriate to the precise method used) is not the only source of inflation, in my opinion. I will come back to that point.

    HIA Economics Groups, “House Price to Income Ratios in Australia = 2010”, found the median house price to household annual income ratio moved from just under 2.5 to about 4.2 in the period Sep 1995 to Sep 2010. Australian Bureau of Statistics (ABS) data indicated that in August 2011 typical Australian home cost 6.3 times the average annual income.

    Which is the more important comparison? The one to annaul household income or the one to average annual income? The other point is that a longer data series (for example thirty years) might give us a better picture of changes than a mere fifteen yeas data series. Either way, it is clear that house prices have inflated significantly.

    Shares are often assessed by comparing P/E, the price to earnings ratio. Robert Shiller’s graph of P/E ratios and interest rates is interesting in this context. Hope I can get away with one link.

    http://en.wikipedia.org/wiki/File:S_and_P_500_pe_ratio_to_mid2012.png

    An important point to note, I think, is that if the profits share of the economy has been pushed up (as it has over the last few decades) compared to the wages share of the economy, then this must have a distorting effect on the P/E ratio pushing it lower than it would otherwise have been. If corporates and share owners also pay less tax than they used to pay, whilst this might not affect the technical ratio, surely it increases willingness to buy shares at higher P/E ratios?

    Modern methods of assessing consumer inflation (inflation of goods and services for consumption) are debateable and open to political manipulation. The basket of goods chosen and what is included or left out is open to manipulation by governments with a vested interest in maintaining the appearance of low inflation. Are housing costs and interest costs properly reflected in the basket? Does the basket reflect what poorer people (those most affected by inflation in necessities) actually purchase? The questions could go on.

    Modern mathematical and statistical methods of inflation assessment IIRC include formulas to adjust for substitutions and for “improvements” to goods and services over time. I forget the technical term for this area of mathematics and I do not understand how such mathematics work in any case. Thus a home computer of the same price as a previous model but with four times the computing power would be considered a deflating item if in the basket.

    I doubt that reverse effects get measured. For example, due to the decline in state high school education standards, more families feel compelled to pay fees for a good private school education. In my case (anecdotal evidence I know), I assess my children received about the same standard of education at a private high school that I recieved at a state high school in the 1960s and 1970s. My tertiary studies were also fee free and I was paid TEAS at the independent rate in the good old days. Now, my children at tertiary education are incurring fees which they must pay off one day. Is this measured in inflation? I wonder.

    The decline in the quality of meats, vegetables and fruits has been marked in my lifetime in my firm opinion. Again this is a subjective, anecdotal assessment. Is any attempt made to assess such declines in quality? I very much doubt it.

    To wind the argument up, much is made of the inflationary effect of government spending, deficit budgets and other measures such as Q.E. However, very little or nothing is said by most orthodox economists about the inflationary effects of unconstrained debt money creation by banks and about financial speculation of various sorts and instruments. This is the area which needs to be brought under much better control. Then, more policy space is available to government to deficit spend on targeted programs; for example reduction of unemployment and moving the economy back to full capacity producing enviornmentally and socially needed things (for example renewable energy, social services, infrastructure upgrades etc.)

    For example, it is passing strange that we can afford football palaces (stadiums) and beer palaces (taverns) all over the nation and yet we can’t fund tertiary education properly. The resources are there (for the time being as limits to growth does approach) but we are using the resources for the wrong things. The concrete pour and associated materials for a football stadium could build a hell of a good science wing at a university; maybe one dedicated to the science of renewables. The concrete pour and associated materials for the streets of high rises of luxury units on the Gold Coast could build one or several solar convection towers, each with the capaicty to provide electric power 24/7 to a city of 250,000.

    But we would rather spend on fripperies like football, beer and holidays, than try to save the world from catastrophic resource and climate collapse. And we send expensive, resource chewing armies half way round the world to kill people we should at a minimum simply leave alone.

  70. Ernestine Gross
    May 27th, 2013 at 10:39 | #70

    @rog

    o.k. It seems you bring water to my mill regarding real estate prices in Australia since the GFC.

    Note, the time series data on ‘the ASX’ you provide for a 5 year period is actually a sub-sub-index of all securities traded on the ASX (Australian Securities Exchange). The time series in your link is the ASX-50-reit index. REIT indices refer to securities issued by “vehicles” (another name for a type of organisation) that own property and derive income from rent. The 50-reit index is a sub-index of the ASX-200-reit index, possibly generated for a specific clientele. Nevertheless, the graph of 50-reit index is sufficiently similar to that of the ALL ORD and other share price indices in the major exchanges in the EU, the USA, Japan to capture the ‘deflation’ of the GFC and the recent ‘reflation’ and ‘correction’. (The size of the ‘correction’ in Japan is much bigger though).

    The 5 year period starts with the end of the previous price ‘inflation’ (prior to the GFC). A minimum time series to match my argument is 10 years.

    You write: “RBA have recently said property boom is over and future prices are to grow slowly if at all. Once you take out inflation and transaction costs returns are sub optimal. Near me a bulky goods site which sold in 2008 for $36M just turned over for $18M.”

    What is ‘inflation’? It seems to me many business people (and some macro-economists) are used to taking the CPI as a measure of ‘inflation’ without realising that their borrowing behaviour (leverage) is causing ‘inflation’ (pushing nominal prices up) in one sector somewhere in ‘the global economy’.

    (Someone made a bad investment in 2008. Happens more often than one may think. For example superannuation funds still pumped a bit of compulsory savings into securities markets (ie bought) in 2008 and the theoretical owners of these savings couldn’t get their money out to put into Term Deposits which offered 8% at the time.)

    Never a boring moment.

  71. Jim Rose
    May 27th, 2013 at 18:56 | #71

    see http://www.telegraph.co.uk/culture/hay-festival/10081785/Hay-Festival-2013-Hans-Blix-Some-Iraqis-think-the-war-was-my-fault.html

    Mr Blix candidly admits that, during the countdown to war, he agreed with Blair and Bush that Saddam probably did have poison gas and germs. Why else would Iraq have sabotaged earlier UN inspection missions throughout the 1990s?

    “As to chemical weapons and as to biological weapons, yes I too – like everybody else – thought why, if they had stopped the inspectors so much, wasn’t there something behind it?” says Mr Blix. “I thought ‘my God, would they really stop them if there wasn’t anything’. So I had a suspicion. However, that faded with more and more inspections.”

    By February 2003, after his experts had carried out hundreds of inspections and found nothing, Mr Blix’s suspicion had faded to the point that he actually cautioned Blair: “Wouldn’t it be paradoxical to invade Iraq with 250,000 men and not find anything?”

    a bit for everybody in this quote

  72. Ikonoclast
    May 27th, 2013 at 19:51 | #72

    I note the ABS website indicates that from September quarter 1998 mortgage interest charges and consumer credit charges were taken out of the CPI calculation. There is no indication they have ever been added back in.

    House purchases were taken out in March quarter 1987 and reinstated in September quarter 1998.

    Here are two clear examples of blatant rigging of the CPI at different times. There can be no methodological justification for ever having such key expenses of many, if not most, households not retained in the calculation permanently.

    On another but related topic, complaints about deficit spending causing inflation are never matched by complaints about excessive credit and speculation causing asset inflation. This is a clear example of a double standard. It is OK to drive asset inflation with excess lending but it is not OK for the government to deficit spend to fund universitites properly. That is just one example.

    However, at the bottom of it all you cannot reform the economy without reforming political economy. Where the ownership of capital is vested in too few hands, government is bought and suborned and democratic demands are ignored and suppressed. If plutocratic and oligarchic power is not broken then nothing will change.

  73. sunshine
    May 27th, 2013 at 21:46 | #73

    Thanks for the Costanza link Newtonian .
    Almost 2/3 s of our top 100 listed companies use tax havens . News ltd is one of the worst offenders with 50+ such addresses . Its a similar situation in the U.S.
    Iko – it seems to me too that there is a super abundance of resources about but we are using resources for the wrong things .Whatever market is doing the allocation is thinking too short term . Im no economist so I tend to think of most of the hard big picture economics in simplistic psycho/social/pseudo-economic terms which I feel more comfortable with .We just arent making ourselves look like a very good long term bet ,and we havent grown citizens (or a politics)who are likely to change preemptively .Selfish aggressive people limit choice .
    Jeff Kennet has been saying we all are going to need to get used to working harder and longer because we’ve been living beyond our means .Why not readjust our expectations and work less ? Material wealth is not the only kind.

  74. Gaz
    May 28th, 2013 at 11:21 | #74

    Ikonoclast, I think your claim that the CPI has been blatantly rigged needs a bit of explanation.

    Why has it been rigged, and how has this alleged rigging affected the measurement of inflation?

    Who has ordered the rigging, and to what purpose?

    Why have no ABS emplyees, ever, blown the whistle on this alleged rigging?

    Where does the Bureau’s justificaiton for the changes and its current methodology fall down, in your eyes?

    How do you think housing and finance costs should be measured?

    Unless you can answer those questions, at last some of them, satisfactorily, your comment will look like nothing more than an unsupported smear against what, in my observation over the years, is a group of dedicated, skilled, honest and modestly paid public servants.

    If you have an way of justifiying your comments, let’s hear it.

  75. David C
    May 28th, 2013 at 17:33 | #75

    Gaz, if you think that bureaucrats are never put under political pressure to make things look better than what they actually are, then you are off in cuckoo land.

    Why has it been rigged, and how has this alleged rigging affected the measurement of inflation?

    I’m sure that CPI is a superbly measure of inflation for consumer items. The problem that I have is that I hardly ever go down to the local bank to take out a loan to buy my weekly groceries.

  76. David C
    May 28th, 2013 at 17:35 | #76

    *a superb measure*

  77. Ikonoclast
    May 28th, 2013 at 21:11 | #77

    @Gaz

    Q. “Why has it (CPI) been rigged, and how has this alleged rigging affected the measurement of inflation?”

    A. The government of the day has a political incentive to under-measure inflation. First, the claim of a low inflation rate earns points in the politics. Second, indexed payment rises made by government can be minimised by under-measuring inflation. Pensions, benefits and government super can thus rise slower than real inflation. Third, the capitalists (who donate to both major parties) can be given a free kick. Wages are suppressed, usually even harder, than the rigged under-measuring of inflation warrants. Fourth, asset inflation can be denied and ignored altogether. Again, banks, financiers, speculators and capitalists do well from asset inflation via leveraging and other strategies.

    Q. Who has ordered the rigging, and to what purpose?

    The government of the day orders the rigging for the purposes mentioned above. Of course, the term “rigging” is never uttered. The government has the final say on the basket of goods chosen and the statistical methods applied. Inflation measuring is complex and there are many valid areas of debate. The government of the day carefully controls and manipulates the debate (within the Public Service and the ABS) and has final choices on baskets of goods and services and metrics methodologies from a suite of arguably valid choices. You can be sure they mix, match and model to ensure they get the number closest to what they want. Obviously, they can’t be too blatant or the stink about rigging the CPI would become obvious and get out of hand.

    Q. Why have no ABS emplyees, ever, blown the whistle on this alleged rigging?

    A. The debate is subtle and couched in obfuscating neoliberalese, managerialese and officialese. Top heads of the Federal PS are now political appointees (have been since the Howard era at least). The culture of bullying and intimidation of ordinary workers is now intense in all our politicised public services. No ordinary punter dares raise his or her head. In any case, only a top statistician would have the capability to mount a credible whistleblowing case. The government could assemble 10 other top statisticians who are bought and suborned (essentially) to shoot the poor Don Quixote down.

    Q. Where does the Bureau’s justificaiton for the changes and its current methodology fall down, in your eyes?

    A. It is the brief that is wrong and not necessarily the methodologies used to meet the brief. Though I also suspect some statistical methods used to assess substitution effects and qualitative (usually technological) progress are significantly biased in a fashion that biases the inflation measure downwards. In summary, the government of the day gives biased directions and a biased brief, including cherry-picking of the methods required to get the answers desired. Anyone who does not comply with the dominant paradigm does not get promoted.

    Q. How do you think housing and finance costs should be measured?

    A. It is clear that they should be measured. They are common household (and business) costs. The selective shuffling of housing and finance costs into and out of the basket of goods and services at different times is the clearest possible evidence of the rigging of the inflation figure. There can be no valid reason for ever excluding these costs. IIRC, I remember Keating taking mortgage costs out of CPI when they were going up and putting them back in when they started to deline. That was a clear and blatant rig.

    Q. Unless you can answer those questions, at last some of them, satisfactorily, your comment will look like nothing more than an unsupported smear against what, in my observation over the years, is a group of dedicated, skilled, honest and modestly paid public servants.

    A. Well, I have answered them quite satisfactorily for the standards of a blog. There is no smear on public servants. They are ordered to do their jobs in a certain manner by the govt of the day. If they do not comply they are sacked. None of what they are ordered to do is illegal or inhumane. These would be the only defences under law for not complying with government and management direction.

  78. Gaz
    May 31st, 2013 at 14:57 | #78

    I’m glad I don’t live inside your head, Ike.

  79. Ikonoclast
    June 1st, 2013 at 06:28 | #79

    @Gaz

    I’ve never thought it important to be happy if the cost is to turn myself into a blind fool.

  80. Jim Rose
    June 1st, 2013 at 09:24 | #80

    @Ikonoclast

    The government of the day has a political incentive to under-measure inflation.

    do you remember the underlying inflation rate, which removed more and more volitile items.

    a fightback by law of large numbers eventually made the underlying inflation higher than the headline inflation rate.

  81. Ikonoclast
    June 2nd, 2013 at 07:18 | #81

    @Jim Rose

    No, I don’t actually remember that. Not sure what you mean by the statement “a fightback by law of large numbers eventually made the underlying inflation higher than the headline inflation rate.”

    My thinking is this.

    1. The government collects GST.
    2. All GST returns should contain the data items of GST amount and a goods and services type code.
    3. From this data, data from every legal sale in Australia could be processed.
    4. A very accurate CPI could be calculated from this data.
    5. Given modern technology, the processing volume from this data collection is eminently collectable and processable.

    After all, every GST amount is processed and passed on to the ATO. Add the goods and services code and compute the data. Not hard. Volatility would be swamped in volume giving a very good CPI measure IMO.

    The RBA site states;

    “Following the cyclone (Larry), prices of bananas increased by around 400 per cent, before falling by almost 80 per cent by early 2007, with these movements first adding and then subtracting about ¾ percentage point to the rate of inflation.”

    I find it inconceiveable that people buy enough bananas for a 400% increase in banana prices to affect the entire CPI basket by ¾ of a percentage point. Clearly, the basket is far too inadequate and limited if that effect occurs. The entire purchase of goods and services caught in the GST net, including fresh food at 0%) should be used to calculate inflation. Fixed assets should also be caught up in the calculation net.

    Modern processing power could easily accomplish this entire task. Of course, no government does it because they don’t want real answers. They want to compute distorted answers to suit the agenda of deception which lies at the heart of the system.

  82. Jim Rose
    June 2nd, 2013 at 10:21 | #82

    @Ikonoclast the basket of volatile items taken out of the CPI became so large that the movements up and down within that basket cancelled each other out to yield a number similar to the underlying rate of inflation

Comments are closed.