I wrote this for a Guardian panel. The published version was cut for space reasons, so here’s the full version

The central concern expressed by the Reserve Bank in defending its high-interest rate policy is that expectations of higher inflation may become entrenched, requiring a further, more painful round of contractionary monetary policy in the future. Even after stripping out the effects of various “cost of living measures”, the RBA’s estimated core inflation rate is only just above 3 per cent. This suggests extreme sensitivity to the risk of even a modest increase in the long run rate of inflation.

By contrast, the RBA expresses no concern that the reduction in economic growth induced by its policies will lead to a permanent reduction in living standards. The underlying assumption of the RBA’s macroeconomic model is that the economy will always return to a long-run growth path determined by technology and economic structure.

But there is ample evidence, notably from New Zealand and the UK to suggest that the loss in productive capacity associated with slowdowns and recessions is permanent or very close to it. Until the 1980s, the New Zealand and Australian economies grew almost in parallel. But from the early 1990s, onwards, while Australia has avoided recession (at least on the widely-used measure of two quarters of negative growth) for more than thirty years, New Zealand has had at least half a dozen. This miserable performance, reflecting both policy misjudgements and overzealous neoliberal reforms has resulted in New Zealand falling far behind Australia in terms of incomes and living standards. The steady flow of New Zealanders to our shores, and the lack of any comparable flow in the opposite direction, reflects this.

In the UK, the combined effects of the GFC, Conservative austerity policies and Brexit has produced a long period of stagnation in national income. As Brad DeLong observes, had Britain continued on its pre-2008 growth trend it would now be forty percent richer than it is today

The Unmaking of a Modern Economy: Brexit, Austerity, and Britain’s Great Retraction

Even though Australia has experienced a lengthy period of declining national income per person, the RBA does not even mention the risk of a permanent reduction in living standards. In its pursuit of rapid achievement of an essentially arbitrary inflation target, RBA monetary policy puts all our futures at risk

Last week, I gave a presentation at the 2024 Australian Basic Income Fellows Workshop. Most of the talks were about Basic Income trials, which have been undertaken around the world. I focused on something more modest but perhaps more achievable: getting evidence on the effects of Scrapping or Scaling Back Mutual Obligation and Income Management.

You can download the Powerpoint presentation here or see the slides on my Substack

What can Americans do? What should Australia do?

A few weeks ago, I drew up a flowchart to estimate the probability that Trump would establish a dictatorship in the US, which looked, at the time, like an even money bet.

We don’t need to speculate any more. Trump has announced the dictatorship, and there is no sign of effective resistance. The key elements so far include

• Extremists announced for all major positions, with a demand that they be recess appointments, not subject to Senate scrutiny
• A state of emergency from Day 1, with the use of the military against domestic opponents
• Mass deportations, initially of non-citizens and then of “denaturalised” legal immigrants
• A third term (bizarrely, the nervous laughter that greeted this led to it being reported as a joke).
• A comprehensive purge of the army, FBI and civil service

It’s clear that Trump will face no resistance from the Republican party. There’s an outside chance that the Supreme Court will constrain some measures, such as outright suppression of opposition media, but that won’t make much difference.

It’s possible that Trump will overreach in some way, such as carrying out his threat to execute political opponents before the ground is fully prepared. Or, his economic policies may prove so disastrous that even rigged elections can’t be won. But there is no good reason to expect this.

I can’t give any hopeful advice to Americans. The idea of defeating Trump at the next election is an illusion. Although elections may be conducted for some time, the outcome will be predetermined. Street protest might be tolerated, as long as it is harmless, but will be suppressed brutally if it threatens the regime. Legal action will go nowhere, given that the Supreme Court has already authorised any criminal action Trump might take as president.

The models to learn from are those of dissidents in places like China and the Soviet Union. They involve cautious cultivation of an alternative, ready for the opportunity when and if it comes.

For Australia, the easy, and wrong, course of action will be to pretend that nothing has happened. But in reality, we are on our own. Trump is often described as “transactional”, but this carries the implication that having made a deal, he sticks to it. In reality, Trump reneges whenever it suits him, and sometimes just on a whim. If it suits Trump to drag us into a war with China, he will do it. Equally, if he can benefit from leaving us in the lurch, he will do that

Our correct course is to disengage slowly and focus on protecting ourselves. That means a return to the policy of balancing China and the US, now with the recognition that there is nothing to choose between the two in terms of democracy. We need to back out of AUKUS and focus on defending ourselves, with what Sam Roggeveen has called an “echidna” strategy – lots of anti-ship missiles, and the best air defences we can buy, from anyone willing to supply them.

I’ll be happy to be proved wrong on all this.

The Great War continues, more than 100 years later

Yesterday was November 11, the anniversary of the armistice which ended fighting on the Western Front of what was then called the Great War. It’s always an occasion for sad reflection on my part, thinking about the pointlessness of the massive sacrifices of the War, which achieved nothing except to set the scene for worse disasters to come.

But it’s particularly sad in a year when the forces unleashed by the War have come back to cause more death and destruction. In one respect, I have a personal link, as my maternal grandfather served in the Australian Light Horse, which played a leading role in the capture of Beersheba and Gaza in 1917. The ensuing partition of the Ottoman Empire set the stage for a century of conflict, still continuing with the brutal destruction of Gaza today.

Great War cemetery in Gaza, now destroyed by Israeli bombing

The end of the Great War also led to the annulment of the Treaty of Brest-Litovsk under which the Soviet Union ceded vast territories, including Ukraine, to Germany. With the defeat of the Germans, the Ukraine Peoples Republic sought independence, but was defeated in the Soviet-Ukraine War a defeat which led, under Stalin’s rule to the genocidal Holodomor famine. The Russian claim to Ukraine is being brutally asserted once again.

For much of the world, the decades following the outbreak of the Great War in 1914 were some of the worst in history. Those times may be returning. The most comforting thought I have is that our parents and grandparents managed to defeat the forces of evil unleashed by the War and to leave us a society that, while imperfect, was more prosperous, free and equal than any that had gone before. I hope we can find a way to save it.

Back in 1947, the standard Australian working week was reduced from 44 hours to 40. In 1983, 36 years later, the working week was reduced to 38 hours. That was more than 40 years ago, and there has been a lot of technological progress since then. It makes sense to take some of the benefits of that progress in the form of shorter working hours.

I’ve been an active supporter of the movement for a Four-Day week, but progress has been slow. Some of the moment has been dissipated by the availability, for most office workers, of the option of remote work. This option, backed up by the right to disconnect, has greatly improved work-life balance for many of us.

One notable result of remote work has been that lots of offices are just about empty on Fridays, and particularly on Friday afternoons. Office workers stay home, or go home early, then knock off when they’ve wrapped up their work for the week.

But remote work isn’t feasible for everyone. Around half of all jobs have to be done entirely, or mostly, in person. And, there hasn’t been any real adjustment in relative wages to compensate for this. This is a significant economic injustice.

But the shift away from Friday work at the office provides a way to address this injustice and deliver the long overdue 35 hour week at the same time. The idea would be to begin the weekend at Friday lunchtime, with most workplaces closing, and overtime rates applying for those that remained open.

The costs of this change would be modest in the case of office workers, given the unofficial advent of early weekends and the potential efficiency gains from the arrival of AI. For other workers, it would largely offset the decline in real wages since the arrival of the pandemic.

In political terms [3], advocacy of a 35 hour week{2] could be a winner for Labor. Improvements in working conditions, like the right to disconnect, have been among the few positive achievements of the Albanese government, but they’ve been too modest to overcome the general (and correct) impression of pointless drift.

In this context, it’s worth looking at Queensland Labor and Steven Miles’ introduction of 50 cent fares for public transport. This proposal was originally put up by the Greens and seemed way outside the realms of political possibility. But it proved so popular that it pulled Labor back from what seemed likely to be a wipeout, and forced the LNP into copying it. Labor still lost, but not nearly as badly as they might have.

As things stand, Labor is likely to end up with 30 per cent of the national vote, or even less, at the next federal election. Playing it safe, and talking about the “cost of living” is unlikely to change that. What we need, above all, is hope for a better future and a shorter working week will be a step in that direction

fn1. As I’ve mentioned in various posts, I’m not going to do any day-to-day political commentary for a while. Rather, I plan to focus on longer term issues including the climate transition and the future of work.

fn2. In practical terms, Labor could either seek to legislate a 35-hour week or commit to supporting it on a case-by-case basis at the Fair Work Commission. I’ll leave the details of that to Industrial Relations experts/

fn3. Slightly contradicting fn1 here, but I want to make the case that this is a practical idea in the political scene as we find it.

I spend a lot of time these days thinking about what I, and Australia as a nation, should do if the US ceases to be a democracy. But, it doesn’t seem as if lots of other people are thinking this way. One possibility is that people just don’t want to think about it. Another, though, is that I’ve overestimated the probability of this outcome.

To check on this, I set up a flowchart using a free online program called drawio. Here;s what I came up with

I hope it’s self-explanatory. The bold numbers next to the boxes are the probability of reaching that box. The numbers next to arrows coming out of decision nodes (diamonds) are the probability of that decision.

I also apologize in advance if there are any arithmetic errors – my degree in pure mathematics doesn’t insulate me against them.

If the US were remotely normal, every entry on the left-hand edge ought to be equal to 1. Harris should be a sure winner, Trump shouldn’t find any supporters for a coup, the MAGA Republicans in Congress should be unelectable and the moderate program proposed by Harris should be successful enough that Trumpism would be defeated forever.

But that’s not the case. There are two end points in which US democracy survives, with a total probability (excessively precise) of 0.46, and one where it ends, with a probability of 0.54. By replacing my probabilities at the decision nodes with your own, you can come up with your own numbers. Or you may feel that I’ve missed crucial pathways. I’d be interested in comments on either line.

Note: Any Thälmann-style comments (such as “After Trump, us” or “Dems are social fascists anyway”) will be blocked and deleted.

Via Peter Hartcher in the Nine papers, I learned the other day that Albanese snubbed President Prabowo of Indonesia to meet King Charles.

The immediate decision before the Albanese government was how to deal with two important heads of state asking for attention at almost exactly the same time. The prime minister had a long-standing invitation to the inauguration of the new president of Indonesia in Jakarta on Sunday, and a request for a visit by the British monarch to begin on the same weekend.

This ought to be have been a no-brainer. As PM of Australia, Albanese should have been able to set the dates for a visit from Charles in his capacity as King of Australia. And, as Hartcher points out, he could have fitted in both engagements with a flying visit to Jakarta. Instead, he sent Richard Marles.

Here’s where Hartcher’s piece gets interesting. He makes the point that, thanks to AUKUS, our relationship with the UK has gone from being a sentimental relic to a central strategic commitment. As Hartcher mentions, this brings to mind the longstanding struggle over whether Australia is really an Asian nation, a claim firmly denied by Malaysian PM Mahathir Mohammed. He doesn’t mention, though it would have amplified his point, the view expressed by George W. Bush and John Howard, that Australia should act as a US “deputy sheriff” in the region.

Hartcher ends optimistically, saying that since Prabowo (in his previous capacity as Defence Minister) signed a defence agreement with Marles, the attendance of the latter at a major ceremonial event would not be a problem.

So Australia finds itself in the fortunate position of being able to draw on both its history and its geography, forming intensified strategic arrangements with both Britain and Indonesia, simultaneously. Not torn in two directions, but strengthened by each.

This strikes me as massively over-optimistic. The governments of ASEAN countries, including Indonesia, have generally been negative about AUKUS, and popular feeling is almost certainly more hostile still. Ostentatious preference for our former Imperial overlords over our neighbours in the region is unlikely to be helpful.

Perhaps none of this would matter if AUKUS had a clear strategic rationale, with demonstrable benefits for the region as a whole. But for Morrison, it was much more a matter of loyalty to the Anglosphere than of any coherent analysis. Now that Albanese has followed suit, as part of what Hartcher describes as a “remedial post-Voice effort to persuade the electorate that he does, in fact, identify with the Australian mainstream”, the racial overtones of this exercise are undeniable.

AUKUS was bound to be an economic disaster. It looks likely to become a diplomatic and strategic disaster as well.

We’re in another round of concern about the “death of the book”, and, in particular, the claimed inability or unwillingness of young people to read full-length books. I’m not going to push too far on the argument that this complaint is ancient, but I can’t resist mentioning the response of my younger brother, who, when asked if he wanted a book for Christmas, answered “thanks, but I already have one”). That was around 50 years ago, and he went on to a very successful legal career.

Fifty years ago, the main competitors for books were TV and radio. Critics at the time decried the passive mode of consuming these broadcast media, compared to the active engagement required by reading. Now, in many respects, the complaint is the opposite. The various services available on the Internet are interactive, and engrossing, finely tuned to keep our attention.

Read More »

Over the eight decades following the end of World War II, the US has taken part in dozens of land wars, large and small. The outcomes have ranged from comprehensive victory to humiliating defeat, but all have received extensive coverage. By contrast, the US Navy’s admission of defeat in its longest and most significant campaign in many decades, has received almost no attention. Yet the failure of attempts to reopen the Suez Canal to shipping has fundamental implications for the entire rationale of maintaining a navy.

Operation Prosperity Guardian was launched in December 2023, following a series of attacks on shipping undertaken by Houthi rebels. The US dispatched a carrier strike group, led by USS Dwight D. Eisenhower, and supported by ships from the Royal Navy and other European forces. Despite intensive bombardment of Houthi positions, attacks on shipping continued and traffic through the Suez canal fell by 70 per cent.

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In July, the Dwight D. Eisenhower quietly returned to returned to Norfolk, after what the Navy correctly described as “a historic nine-month combat deployment” but not historic in a good way. The strike force without achieving any of its goals. And then, in late August, came the official admission of  defeat As reported by Voice of America:

Vice Admiral George Wikoff, who heads the U.S. naval efforts in the Middle East said that not only have U.S. strikes and defensive efforts done little to change the Houthis’ behavior, it now appears unlikely the group will be swayed by military force.

“The solution is not going to come at the end of a weapon system,” Wikoff told an audience in Washington, speaking via video from U.S. 5th Fleet headquarters in Bahrain.

“We have certainly degraded their capability. There’s no doubt about that. We’ve degraded their ability,” he said. “However, have we stopped them? No.”

Why has this failure attracted so little attention? Why, for example, has it not even been mentioned by either side in the course of the Presidential election campaign? The answer, quite simply, is that the strategic rationale for the mission turned out to be spurious. “Vital shipping lanes” are not actually vital at all.

The closure of the Suez canal has, indeed imposed higher insurance costs on shippers using the canal, and has led much of the traffic to be diverted to the longer route around the Cape of Good Hope. But the overall impact on freight rates has been modest, and any effect on global economic activity has been too small to be observable. 

There shouldn’t have been any surprise here. Despite some hyperbolic claims at the time, the six-day blockage of the Canal in 2019 (due to the grounding of the Ever Given) caused only modest disruptions, with massive insurance claims being quietly settled for much smaller amounts

More notably, the Canal was closed for lengthy periods in the 20th century allowing studies of the economic impacts. These turned out to be very small except for India and Pakistan, both of which were then heavily dependent on trade with the UK and Europe.

And what is true of the Suez Canal is just as true of other “vital shipping routes”, such as the Straits of Malacca. It’s almost always better to take the long way around (for example through the Sunda straits or even through Australian waters in the Southern Ocean) than to fight a war to keep a short cut open.

On the other side of the coin, the failure of Russian attempts to block Ukraine’s exports of wheat and grain provides further lessons on the limits of naval power. Ukraine’s tiny navy was wiped out on the first day of the 2022 invasion. But Russia’s much-touted Black Sea Fleet has fared little better, being driven from its Sevastopol base to ports in Russia, out of reach of Ukrainian missiles. By sailing close to the western coast of the Black Sea, ships carrying Ukrainian grain can be protected by land-based defences, while sailing in waters too shallow to permit attack by submarines.

In summary, as a recent commentary put it, the failure of Prosperity Guardian poses an “existential threat” However, the threat is not to the world economy but to the US navy and, indeed, all the navies of the world. If keeping “vital trade routes” open is neither militarily feasible nor economically important,  a large part of the rationale for surface navies disappears.  

It’s unlikely that defeat by the Houthis will have much effect on perceptions of the US Navy in the short run. But with so many other demands on the defense budget, the rationale for maintaining a massive, but largely ineffectual, surface fleet, must eventually be questioned.

• I haven’t discussed the broader horror of the various Middle East wars, which gave rise to the Houthi attacks. My long-standing view is that the US can do nothing useful and, beyond humanitarian aid, should do nothing to help any party. Please don’t derail discussion by talking about this.

I’ve been consistently critical of the Labor party since Anthony Albanese became leader after Labor’s narrow but unexpected loss in 2019. It’s always easy to fall prey to confirmation bias in this kind of thing, making much of the bad and ignoring the good. To check my beliefs, I’m taking a widely circulated list of Labor’s claimed achievements, and giving my own responses. This is by no means a complete list of the governments achievements, and of course it doesn’t mention failures, but I’m confining myself to the list for now. Readers can judge whether I’m being fair.

Claims are in bold, my responses in italic

*Establishing National anti-corruption Commission

No significant prosecutions yet, decision not to pursue robodebt

*Cheaper child care

Genuine, but partially eroded by fee increases 

*Pay rise for aged care workers

A special case, amid real wage reductions for most workers

*Tripling the bulk billing incentive

Not sufficient to prevent a decline in bulk billing

*Single parent payment extended to age 14 (57,000 single carers will receive an extra $176.90 p/n)

Good. Reversal of change made by Howard and accelerated under Gillard

*$500 electricity rebate for all concession card holders

A once-off handout

*Savings on PBS subsidised meds

$12.50 per script Small but worthwhile

*60 Day dispensing halving the cost of medications

Overstated, but still worthwhile 

*Paid domestic violence carers leave

 Up to 10 days, small but worthwhile 

*Increase to Jobseeker and Rent Assistance (biggest increase to rent assistance in three decades)

Jobseeker increase of $20 above indexation (Morrison gave $50 increase). Still way below poverty line.  Rent assistance just kept pace with rising rents

*Cybersecurity developments

No idea what this is

*The Housing Australia Future Fund

A half-baked idea, still to produce any actual houses. Greens pressure drove much stronger action.

*Robodebt Royal Commission

No consequences for those responsible, no systemic reforms 

*180,000 fee free TAFE places

Good. Probably the most significant expenditure initiative of this government

*NDIS sustainability

These are cuts. Arguably necessary but misleadingly described 

*Largest increase ever for cancer nurses

Small but worthwhile

*Review into Australia’s visa system

If there is one thing this government does, it’s review

*Reopening trade to China

Overstated – China’s sanctions were largely symbolic and never affected our major export, iron ore

* Triple incentives for GPs

Repeated from above – not enough to stop decline in bulk billing

*58 Urgent Care Clinics

Worthwhile but small, and far too little to fix problems in emergency wards

* Fairer conditions for workers

Working conditions one of the positives for this government, but real wages have fallen

* Fixing a one-sided tax change

More hide than Jessie the Elephant. The one-sided tax change was their own election commitment, matching the LNP. Even after the fix, most middle income earners paid higher taxes than when the government was elected because of the scrapping of LMITO

* Two Surpluses (Two more than the LNP)

Who cares

* Aged care reforms

Marginal tweaks

* Halving of the inflation rate since coming into office.

If Labor wants credit for this, should be blamed for increase in unemployment rate and reduction in real wages