I have an op-ed in The Australian on Wayne Swan’s no-surplus announcement.
CAN you imagine if John F. Kennedy had announced that the US would send a man to the moon, and then leave him there?
Bringing him home would be too hard, too difficult, not really worth the expenditure. Well that scenario is what Wayne Swan has delivered. He sent our budget into deficit and never brought it back to surplus.
This government came to power in November 2007 promising that the reckless spending must stop. But it never did. The global financial crisis can only explain so much.
This is a government that has never really committed to the kind of fiscal discipline necessary to keep our fiscal affairs in order.
Our own Judith Sloan makes this point:
The mushy soft Keynesian rationale for the budget now remaining in the red, a particular favourite of political commentators, overlooks the importance of the credibility of the government in terms of the execution of budgetary policy and anchoring expectations. Its fiscal credibility is now shot. The real worry is that the government will now drop its bundle and lose the will to secure budget surpluses beyond this financial year.
While Tony Makin tells uncomfortable truths:
As any second-year undergraduate economics student can tell you, fiscal expansion under floating exchange rates appreciates the currency, whereas fiscal contraction depreciates it.
The other major reason for keeping the budget surplus objective is that fiscal consolidation is an antidote for the Dutch Disease Australia has been suffering because of the mining boom.
While I don’t think Australia suffers Dutch disease, anyone complaining about the high dollar and calling for debt and deficit is being silly.
Even the AFR editorial is critical:
Mr Swan’s Thursday announcement did not even contain the “deficit” word, just as his speech for the 2009 budget that ended Australia’s surplus era failed to mention it. The Treasurer did not take the opportunity to maintain the government’s determination that this would be just a temporary setback and that the government was committed to a surplus next year. Yet Labor continues to promise big-ticket spending items to be funded on the never never, even though its own Treasury secretary, Martin Parkinson, has been warning for months that the community’s spending demands were out of kilter with budget tax revenue.
…
Mr Swan’s case to allow the budget’s “automatic stabilisers’’ to weaken its bottom line as the economy softened normally would make sense. Many in business will endorse it. By now, however, the budget should be deep in the black, giving it room to cushion a looming economic growth gap that Reserve Bank governor Glenn Stevens warned of in his exclusive interview with this newspaper this week.Instead, the budget remains in both headline and “structural’’ deficits and so is highly exposed to any sharper downturn in commodity prices. That is devastating for one of Labor’s proclaimed fiscal rules: to keep the budget in surplus over the course of the economic cycle.
Mr Swan blames Labor’s surplus retreat on the supposed unexpected decline in the economy’s terms of trade, driven by the fall in iron ore and coal prices. Yet this explanation exposes the imprudence of Labor’s reliance on sky-high commodity prices to fund its budget spending.
Can someone else back this up? Sounds highly dodgy to me.
At present, we are financing the deficit mostly by borrowing from China, so yes I agree that offshore borrowing pushes up the AUD. However, other methods of financing might be domestic borrowing, or just simple money printing (i.e. pressure the RBA to deliver unreasonably low interest rates) and those would have a significantly different effect.
One problem is that there are millions of voters out there who simply do not care about debt and deficits. They just want more pie, and a government that can feign compassion. Obama has proved that.
This paves the way for massive pork and spending from Labor leading up to the next election.
They lied. Again. Government revenue is far higher than under Howard and Costello.
It’s just that these worthless lying incompetent squandermonkeys are spending too much on worthless garbage – they have squandered not only the mining boom but another $260 billion on top of that.
No Mk 50
Howard squandered the mining boom. 3.9% unemployment was a sign of inequality.
Tel – standard open economy macro model.
Has any one heard from our “Commonwealth Minister for Finance and Deregulation “?
A certain Penelope Ying-Yen Wong.
She has a reputation as being competent despite all evidence to the contrary.
You have to loot at revenue in ‘real’ terms and not raw terms. Government revenue over time will be larger due to growth in the economy, larger population, etc. Even so, Labor still could have easily delivered a surplus.
Do you think the ALP will get one surplus in before Wyatt Roy passes on from old age?
Sinclair, thanks for the link.
OK, well that obviously didn’t happen since interest rates are falling.
Fair enough, they presume the shortfall will always be filled by offshore borrowing. That much is probably accurate for Australia right now, it doesn’t explain what is happening in the USA. Mind you, Australia has not gone down the monetizing path quite the way the Fed has done. Touching wood and all that.
Too slow! The revenue has already been looted mate.
The Wong chappy was on 7.30 Report last night. Running the talking points that revenue has collapsed (forgetting to mention Treasury’s hopelessly optimistic forecasts required to make up the cock and bull story in the first place) and how a deficit is now “responsible economic management.”
I don’t believe him.
Our interest rates are high in the international context.
When I did macro (walk to uni barefoot, etc) the US was not considered open – it might be now. But it is still large. The standard assumption in open economy macro is small, open economy.
… raised by borrowing on average $235,000,000 per day – per bloody day! – through August, September and October.
($254,985,766,000) is the Labor government Bankcard balance at Nov 30.
In that case it will take Wyatt Roy much longer to pay off the debt. He’d better live past 110 years of age then.
Hardly a new development, that.
no – but it does keep our dollar high.
Sabra Lane pulls Wayne Swan’s pants down on the ABC:
Love to see the little shit dissembling. If Swan has any skill it’s in retail politics.
Another Goose Springsteen classic, “Baby we were born to cut and run.” With a special appearance by Julia Gillard who reworks a Eurythmics classic “Would I lie to you.”
Yeah, I accept that it is a special case in terms of de-facto world trade currency, etc. However, any country on Earth can print paper money, it really is just a question of whether they choose to do so.
Looking more closely at the Mundell–Fleming model described on Wikipedia, doesn’t seem to have any mechanism to cater to a central bank that systematically manipulates interest rates. This would seem to limit applicability of the model, given how nearly every national economy works this way.
What do you mean, Tel?
Spoken like a man who owes his current position to Green preferences. I think they are starting to give up.
Tel, there is simple variation of Mundell Fleming that allows for this…
http://www.econmodel.com/classic/short_run_fluc_paper.pdf
Tel,the MF model does need modification to deal with the Australian situation.However,the general principle remains valid.
The impact of a deficit on the ER depends on the level of
private saving which reduces the amount of funding which must be raised offshore.In 2009 the level of saving increased sharply-otherwise the ER would have gone to even higher levels.Thus the government did not have to bear the full burden of its stupidity.
As you say Tel,the $US role of a reserve currency prevents it from carrying out the balancing role of the $A.Also,the US is not “small”.
Tony may be right about second year students-it is true of his and mine,but I have doubts about the rest of the profession.Remember,150 economists signed a letter supporting the stimulus.
(Jingle Bells)
Dashing through the dough
On a one course: ‘blaze away’
Over all the yields
Spending all the way (ha ha ha)
Hell’s in next year’s spring
Making MP’s fright
Oh what boy will come to us
And save our hides tonight.
Oh, the death knell, the death knell
The-death-knell-all-the-way
Oh what sums will save our sights
As we blaze away
OH! the death knell, the death knell
The death knell all the way
Oh what sums will save our sights…
(Big brassy finish) Should have re-signed yesterday!
(Thankyou, I’m here daily)
Tel the model assumes interest rates are set by the world:
Which is realistic. Our interest rates are set by the demand from China which leads to more os borrowings for mine development which leads to the squeezing of other exporters which leads to….etc.
Don’t feel bad Wayne, nobody ever really thought you could deliver a surplus anyway.
It is realistic if you look at the money formation tables and see how much of the collateralised debt is from inflows of foreign portfolio investment.
The only Bruce Springsteen song Swan will be cranking up between now and the election.
People aren’t stupid.
Also at the link, an excel document showing government budgets and debt for 30 years.
Great stuff Lysander Spooner.
Forgetting all the economic ramifications for a while I think this was a move designed to shred Swans credibility and prepare Shorten for the 2IC role before an early election. No one will be defending Swan and it will look like “leadership” to remove him. The promise of someone that’s not Gillard being within a stones throw of the lodge won’t look to bad publicly either. It’s her only chance of improving the polls.
What is all this talk about revenue collapsing? What percent is it down or is it up like in previous years only showing a drop from projections? I wish my shares and income from taxi driving collapsed in the same manner the governments revenue has. But not to worry I have rebounded well.
Wonder how long that poor ALPBC reporter had to stand there – and still couldn’t get anyone to run the party line. You can bet it would have gone to air if they could.
If that’s the reaction in the Peoples Republic of Victoriastan imagine running the same exercise in Queensland or WA.
Alice Cooper singing about this government:
Greens want more spending now. Bigger deficit coming soon.
Under Labor our “economic cycle” went from being a Harley Davidson VRSCDX Night Rod Special to a clapped out penny farthing with no tyres.
Thanks Penny
Sinc … Read the hard copy of the Oz today and the most striking thing was the growth in revenue this government has had over the last few years, but are still spending like drunken sailors.
In other words, Swan’s plea that “revenue has crashed” is bullshit.
Can you publish those figures here for those who don’t have Oz subscription?
stackja,
Yep, just saw Bandt salivating.
The greens have a contract with labor that will have a few more expensive obligations.
A referendum was one, full taxpayer funded elections is another.
labor/greens will salt the fiscal soil.
I wonder what the Independent twins from NSW will say now that the Government they keep in office has trashed the economy?
This is probably the only correct statement that the poor dim fool has ever uttered, because sure as hell it’s not going to be his concern once the fool is very deservedly booted out at the next election.
Our interest rates are high in the international context.
No surprise. Our economy has been doing relatively well.
SDFC
Our average growth rate during a period of historically record high commod prices has been absolutely fucking abysmal. Combining that with zero productivity growth means you’re attempting to paint lipstick on the ugliest pig on the continent.
Shut up. You don’t know when throw in the cards.
In fact, you arsehole, if we measured GDP per cap during the life of this government we have basically been in a permanent state of mild recession.
You ought to be banned for coming out with that crap. A life time ban.
Our average growth rate during the worst global recession since the war was outstanding. Hence our interest rates are higher than in other advanced economies.
FAILURE IS NOT AN OPTION
I think I know why Wayne Swan keeps getting the calculations wrong.
He’s using his body abacus but he’s two balls short.
Fuck knuckle, the GFC occurred between 2008/09. From 2010 onwards commod prices reached record levels and consequently our terms of trade hit 150 year highs.
It was after the impact of the GFC in that despite these tail winds per capita GDP in Australia has been horrendous considering what was going on.
Our interest rates were higher and our performance has been awful.
The performance has been relatively good. The credit boom is over.
Zero interest rates are not a goal we should be aiming for.
Relatively good compared to whom, SDFC?
Okay, donkey balls compare like with like then. Compare any country which had a positive terms of trade shock like we experienced and tell us if their per cap GDP has basically been in recession like ours since the GFC.
Go on.
sdfc says
“No surprise. Our economy has been doing relatively well.”
Relatively well compared to what? Other economies that have been doing absolutely crap?
This is the worst I have seen our economy bar 1991 – 1992 nd maybe its doing worse because the GFC happened years ago now and we still are not over it.
Yeah yeah JC
I am asking the same question.
It is a global economy system Alice and Australia is heavily exposed. Always has been.
PVO on his ” contrarians ” show is piss funny.
The pasting and scathing criticism of Swan was epic.
601 on sky.
What the fuck is that supposed to mean. It’s about as relevant to the topic we’re discussing as saying:
It means when the global economy is not doing so well then neither are we likely to be.
Australia suffers from the same malaise that other advance economies do. We also have high levels of private sector debt following a credit boom.
You idiot. Our terms of trade boomed and we have no per cap rise to show for it.
Like what? Increased government debt levels and poor macro management?
Shut up.
We went through a credit boom, ramped up household debt to 100% of GDP, had a credit crisis, and you reckon this is no biggy. Funny as shit.
As for employment, participation rate at historically high levels, near record employment to population ratio, low unemployment rate. Yeah you bet we’ve outperformed.
We outperformed who, you idiot….Greece?
Again, why aren’t you comparing like with like, Donkey balls?
sdfc,
of course “its a global economy” is the pathetic excuse we hear so often now…
Im sorry, but I live here and its still a local economy to me
Call me old fashioned but the local economy comes first to me and I dont give much of a stuff about the global economy.
If it isnt working here…I can assure you I will be looking for someone local to blame (and will use my vote to do so), not someone global.
You’re being disingenuous now but I’ll play. Who is you like with like?
Your not saying anything of any substance Alice. As a starter, just what do you think should be done.
Failure to get a budget surplus was not an option.
Said Julia.
Try adjusting the employment rate to take account of people working who can only get a few hours a week, the people shifted to disability pensions, the students who are wasting their time in schools and unis.
sdfc
says
“As for employment, participation rate at historically high levels, near record employment to population ratio”"
All I can say sdfc – you must bne a buraeacrat. They are the only people who believe their own bullshit numbers.
Why are all the kids still in school till year twelve? Why dont many have jobs to go to? (because there are no jobs and they cant get the dole unless they are in training? Why is a whole gen at uni? Because there are no jobs and they cant get benefits unless they are in training.
BS BS BS – the unemployment numbers are just BS.
They have counted out all 16 to 25 year olds.
And here you are sdfc telling us everything is just hunky dory (because we dont count a whole generation ass umployed IF they are in training and we dont give them unemployment benefits UNLESS they are in training?”
So you just swept a generation under the carpet from the unemployment stats and you expect some of us not to notice????? while you say “we are doing just fine employment wise?”
CRAP
and you must be a bureaucrat to swallow this.
sdfc
I will tell you who the starter is here and who is not saying anything of substance here.
Go and have a good look in the mirror.
sdfc
What do I think should be done?
Ok Ill be honest.
Raise the tariff barriers. Use fiscal stimulus, Decapitate the central bank, raise taxes on welthy absconders.
Strengthen the ACCC (weaklings that they are) to cut up cartels.
Like it or lump it. Thats is what i think should be done.
All I can say sdfc – you must bne a buraeacrat. They are the only people who believe their own bullshit numbers.
When you find yourself turning to conspiracy theories to support your argumument you should give up.
Who said everything was Hunky Dory? (great album by the way)
Ranting is pointless. Present an argument.
Raising tariffs.
You are out of your fucking mind.
Kill industry and have 1970s malaise. Eh, good call.
Raising interest rates in a sluggish economy would lower household disposable income and hinder investment and raise unemployment. Tariffs just protect uncompetitive industries, raise prices and increase inefficiency.
If you take out WA, we’re not much different from Japan or Europe. The touted growth figures have been revised down.
So for the mining boom and terms of trade, the stimulus did that? You didn’t build that strikes again.
Remember that JC was wrong. Last year, we actually had negative productivity growth.
The disaggregated figures for non mining or non mining states would be absolutely pitiful.
No I am not out of my fucking mind Dot.
Oh and here is another suggestion, If anyone here wants to keep the centrak bankers heads on….
Legislate that ALL banks MUST pass on ALL interest rate cuts or raises by the central bank IN FULL or lose therr god damn banking license
Enough of the crap or decapitate them (CB) and make them work on jobs.
You sdfc
have been in here saying we are “doing just fine” pardon me???
sfdc you could write a list of good theoretical and empirical reasons why tariffs are bad. People like Alice basically are going to keep me in a job forever.
What the rates do I don’t really care for, other than that the CB maintains liquidity and a low, stable, pre announced medium to long term inflation target, and has short term target flexibility. Ideally the cash rate and growth of money supply doesn’t change too erratically with respect to V being accommodating itself.
I’d like it if rates didn’t go much lower – Sumner might say it doesn’t matter but anyone who has gone that low usually has a tough time returning to normality. Self selecting? I don’t know. It wouldn’t hurt to let inflation fall a little bit more than risk a structural policy problem.
I don’t know what cartels Alice would like to target. Is she referring to the pharmacy guild or the AMA?
Dot is right sdfc – he says
“If you take out WA, we’re not much different from Japan or Europe. The touted growth figures have been revised down.”
So where does your optimism on how we weathered the storm come from??
No Alice. The CB actually implicitly targets the mortgage rate.
You can’t be an economist. I don’t care what you’ve claimed before. You don’t realise banks have costs of capital that exceed the cash rate plus a margin.
come on Dotty
Im not talking about little association style cartels like the AMA or the pharmacy guild
get real. You know damn well what cartels I am taling about. Big oil, big pharma, big energy and big goriceries.
Dont hit me or anyone else with tiddlewink players in the cartel game.
http://www.smh.com.au/business/the-economy/anz-slashes-rba-cash-rate-forecast-20121217-2bit1.html
Really guys?
There were forecasts of a Q4 2012 and Q1 2013 downturn in the US over a month ago.
I was caught out on this back in September. I couldn’t answer why some people were tipping rate falls. I assumed they were pimping for the property industry.
Come on guys, let’s get your shit together. Months late on this stuff.
Alice the AMA and PG are not bit players.
Oil – war with the Saudis, Iraq, Iran, Venezueala?
Big pharma – war with the United States of America?
Big energy – carbon tax.
Groceries – shop at Aldi, dumbarse.
You are a bit weird Alice. Like the curates egg. Lot of stuff you say seems to contradict the other stuff. But you cant just ‘raise tarriff barriers’ without massive impact on the people you claim to support. You are a recipe for a poor white trash Australia run by gunmen.
Pardon me Dot
” You don’t realise banks have costs of capital that exceed the cash rate plus a margin.”
I dont realise this? You must think me stupid but should know by now I am not Dot (wonderful Dot). They make money on the interest rate spread and thats why they dick around with Central bank changes and it shits me, it shits the central bank and it shits government that they dont play the game and pass it on IN FULL.
Why the hell do we put up with it? Why isnt it law if you want to have an effective central bank that interest rate changes by CB are passed on IN FULL (law that banks must comply).
They are so ineffective as they are now I am for decapitation.
I am not a bank sympathiser – they know their spreads and if the cash rate changes they change their spread, SIMPLE.
Alice and Dot unemployment is relatively low on average around Austraia even excluding WA. With the exception of Tasmania for the obvious reasons. Unemployment hit around 10%, in Europe it is at 11.7%.
Dot
I’m happy that the cash rate has not gone to anywhere near zero. Zero cash rates are policy failure.
around 10% in the US.
sfdc
The participation rates are down and there is a lot of hidden unemployment.
I really, truly hope rates don’t go much lower.
As for the stimulus. This is why I’m always against it. Swan couldn’t pay it off, even with good times. Now, with another possible downturn, he’s got no bullets left.
The Government rarely if ever will have to discipline to carry out a full Keynesian policy regime.
Keynes was a smart dude. I don’t think he realised how incompetent other people are.
Whatever Jannie
? ??? poor white trash run by gunmen?
Original – I’ll give it that – I didnt know poor white trash were run by gunmen. I would have thought it the other way around…
But I bet it didnt cross your mind Jannie.
You’ve got some funny ideas Alice. So the government should dictate how a private entity runs its business now?
sfdc- after agriculture, mining has a very high multiplier.
Now of course that isn’t reflected in the data since mining is still around.
We’re stumbling along. Our terms of trade are still near once in 140 year record highs.
You don’t realise banks have costs of capital that exceed the cash rate plus a margin.
You’ve just said you understand this and at the same time you don’t. Please Alice. This is like last night when you tried to tell me that in Australia, real wages have trended down in the last 20 years.
No.
Dot
The household sector is no longer leveraging up as they were. Terms of trade boom mark one was accompanied by a credit boom.
Keynes had some funny ideas that I am not on board with.
sdfc – in short when it comes to banks, if we are all sitting here relying on a central bank to implement olicy you ask now :whould a government dictate how a private entity runs its business?”
For starters, the central bank is supposed to be “independant of government” so shouldnt the question be
“should the central bank dictate how private banks run their business?”
When it comes to policy – and we expect the central bank to run interest rate policy…
The answer is a definitive YES. The centrak bak should have the power the ensure the FULL compliance of private banks in passing on interest rates in FULL.
Is that so damn hard. Why do we need to have this BS conversation about government and business? This is irrelevant. Either we have an authority with the avbility to eniure compliance or the central bank is a joke and a farce. (Im not all that sure it isnt as it stands)
I dont know how you could misinterpret that. The central bank is either there to run interest rate policy and do it well or they should be woumd up.
Would you conduct a soccer game where everyone can ignore the referee and do what they like?
Richard Denniss reckons I’m wrong about mining.
http://www.canberratimes.com.au/opinion/mining-industrys-big-lie-20120217-1tepr.html
Except I’m not.
Anyone who is familiar with input out modelling can check it themselves from the ABS data.
Im tired and my spelling is now deteriorating badly so Im going to bed. Its 10.30pm!! You lot are all night owls.
eh Dot? Ill be back to read this link tomorrow.
Please don’t say you’re a chartalist. It will break my heart.
The banking system isn’t a soccer game is probably the answer to your question.
Am I an MMTer? No.
You’ll destroy banks doing this.
They do it well. You simply don’t understand how they actually do it.
Disregarding the costs of funding for banks would see a few of them go to the wall. You want reckless, pointless, populist policy.
Dot – on some things we do agree completely if rarely (eg excessive intervention in qualifications training for job seekers etc and crap licensing rules) – not on this tho – but real wages for average people have been stagnant or trnding down for two decades…
tomorrow Dot.
Thank christ.
I’ll go to bed with the Mayan armageddon imminent, but content.
Unless the ABS is engaging in decadal, multi layered conspiracy – no. This is bullshit.
Wages trended up.
Dot hang on
“You’ll destroy banks doing this.”
Rubbish – these are the most profitable institutions of the non producins sector and the producing sectors.
They dont actually make jack. They are doing just fine and would cope just fine passing CB interest rates on in full. They wont hit the wall. That is utter BS.
wages – I’ll look it up at ABS (can we trust them?) tomorrow and be back Dot. Im falling asleep now..
No worries Dot, we wouldn’t want the end to come and have you still wondering.
I think you’ve made a friend.
Poor old Alice a bi polar conservative anarchist.
I swear I learn more economics from Dot and sdfc’s arguments that I do from anywhere else.
It’s all bullshit Jarrah. I’m unemployed and I think Dot is in a mental institution.
Don’t even bother. Real wages rose 21% during the Howard Government. They rose 1.6% in the Hawke/Keating Government over the same time span. Under Gillard/Rudd, they have gone backwards.
Thanks anyway.
It’s almost criminal with the terms of trade shock we had. The slapper and Wand should go to fucking jail for criminal incompetence over this alone.
the sad thing is sdfc you pretend to be from basso. the fact is you’re a fucking disgrace.
That’s putting it mildly too, SDFC.
Which reminds me, where’s fat boy.
That’s distressing Harry, and I really thought we were connecting. You got me I’m from Ashfield not Basso.
connecting? its my first post. you’re a twat. good luck in ashfield
Moved ages ago. Wish I still lived there though.
you sad fucker sdfc.
you’re a fucker sdfc.
That depends on the missus.
Maybe I shouldn’t have said that.
apologies pissed as but sdfc is still a twat
harry
SDFC is ok. He’s actually a nice dude. He’s basically an idiot though.
A few suggestions to get things moving. In no particular order.
Eliminate all Commonwealth Depts that shadow the State departments that actually deliver services especially Health and Education.
Trash the Fair Work Act and the cognate instrumentalities.
End Commonwealth involvement in environomental approvals.
Trash all the Climate Change and cognate agencies.
Introduce a flat tax on all income with no deductions, set at a level to maintain the same take, with a promise to reduce the level as wasteful programs are phased out and/or debt is paid down.
Eliminate the grievance industry and end affirmative action racism.
Give Aboriginals private property rights instead of making them live like communists and welfare depenents.
Raise the salary cap for the Paramatta Eels and the Mighty Demons.
Damn straight.
A bit harsh JC. I often disagree with sdfc, but he ain’t an idiot. I enjoy intellectually sparring with him.
Skute
Ask him about his monetary theory and then come back to me and suggest he isn’t an idiot with a straight face.
SDFC
Explain to Skute your theory on cash flow at the macro level please.
Interest rate targeting doesn’t work. We expect a bunch of public servants to guess the appropriate overnight rate in order to hit an inflation target. You don’t want these people to be thinking too hard.
It’s best to let the market set rates and have NGDP as the target which could also be set against say a futures market for NGDP.
Skute
I think your real argument is about where the CB will set the NGDP target, not with the target itself.
I always thought that it was best for the CB to control the quantity of flows directly into the market rather than doing so through price (interest rate target).
Sumner argues that the RBA has essentially tracked an NGDP target of around 5% over the past 20 years and to be honest it hasn’t been a bad showing.
JC, you are right. For mine, NGDP is a well defined magnitude. Total expenditure. That’s it. So targeting that makes more sense to me than targeting a made up price index. However, as Selgin has argued (and Sumner has essentially conceded) over at freebanking.com, what is the correct trend path to target? This is particularly problematic when establishing a NGDP futures market. The Austrian concerns about structural issues are well founded. NGDP ain’t NGDP if you know what I mean. Composition of production vs consumption preferences matters. Hence why Cantillon effects are so important when evaluating monetary expansions.
Skute
Didn’t Hayek, according to Sumner, suggest a nominal income target at some later stage?
The point is that Hayek and Milt are some pretty heavyweight righties.
Fark JC, now we’re getting into heavy territory. As much admiration as I have for Milt, I think he ignored structural issues as a driver of the business cycle due to his proclivity for aggregation. Possibly Hayek worried too much about the micro structural stuff. And yes, I think he acknowledged that a NGDP collapse (driven by a collapse in velocity of circulation) should be offset by monetary expansion. But is a central bank targeting NGDP the best institutional framework to achieve this? A decentralised free banking system is arguably better but is this politically possible? Hell no. So is a central bank targeting NGDP a second best solution? Maybe…
“I’m unemployed”
If unwillingly, sorry to hear it. Anyway that doesn’t change the value of your contributions. The drinking might, though
Hey JC, shouldn’t you be giving the welcome to country over on the open fred? Or have you lost the passion?
He has 5 or 6 kids! I respect that immensely. Sure he has the odd economic foible but the guy is operating on about 1 hour sleep a week!
Alice, you remind me of that song by Little Feat. Out on the road late at night, it crossed my mind that it might have been the other way round.
But you are doing a hard job arguing with others, so I will not add any further to your problems.
In total agreement there Rafe.
sdfc says
“It’s all bullshit Jarrah. I’m unemployed and I think Dot is in a mental institution.”
LOL – hilarity appeals to bi polarity.
JC and Dot
– its no use concentrating on short periods of time looking at real wage growth in Australia (ie one PM to another just doesnt cut it).
From June 1984 to June 1990, average real wages declined at an average rate of more than 1.6% per annum. Since then, average real wages have been rising at about 1.4% per annum. Despite this improvement, the rate of real wages growth is less than half the rate of the 1960’s and 70’s. Average real wages did not return to their June 1984 levels again until June 2003.
That is, Australia experienced 19 years without any growth in average real wages above 1984 levels.
And after that it was a piddlingly low positive growth (and Id like to know which deciles got most of that – its no bloody use talking averages here).
WHICH CORRELATES EXACTLY TO WHAT I SAID PREVIOUSLY
WHICH CORRELATES EXACTLY TO WHAT I SAID PREVIOUSLY
YES
So what? The 1984 data is skewed because of the 1982/3 recession.
Again so what – you are using growth of average wages. If people become self employed, you are discounting their profits or dividends in addition to their salaries.
You hate self employed persons.
Dot
from a discussion on real wage trends long term Dot comes to an astonishing and amzing final conclusion (That I Alice, apparently hate self employed people?)….which might even confirm sdfcs assertion re Dot’s accommodation in a mental institution?.
btw Dot – I dont hate people on the basis of their employment status.
Anyway Dot
you comment
“So what? The 1984 data is skewed because of the 1982/3 recession. ”
Are you suggesting average real wages growth was higher in 1984 that in the nineteen years after that??…
because 1984 was skewed higher because of a recession a couple of years before that?????
(If that was the case explain why 1994 wasnt skewed higher also!)
You have some explaining to do here because you are making no sense at all.
If you are not envious then why do you care about the distribution of income, even ignoring a trend of workers becoming business owners?
Yeah in rural areas the “real wages growth” comes from people ditching their wages and becoming contractors. If you’re a mechanic it triples your income (per billable hour, you still need to get the hours). But you no longer show up on wages. Neither do tradies, who have made out like bandits during the mining boom.
… leaving behind only experienced labourers, and lots of inexperienced and woefully stupid labourers, for the civil construction game here on the Coast and right up to the north coast.
You cannot find good welders and the plant operators are mostly very ordinary.
I prefer the term “Metal Fusion Technician” Mick, It pays more!
Wages growth in 1984 after the 82/83 recession was actually very high.
YES. THIS IS A WELL KNOWN FACT AFTER A RECESSION PRODUCTIVITY (AND HENCE WAGES) OF WORKERS GOES UP, BECAUSE OF EXCESS CAPACITY.
YOU HAVE A DEGREE TO EARN, GO!!!
Alice
In recent years the top wage earners in their club have been taking a bigger share. Eg company directors as they are becoming accountable to no one. Compulsory super funds own the companies and often pay themselves excessively and often do not question when other executives pay themselves excessively also. The new legislation bought in to help protect the bosses and suggestion that if a sufficient number of shareholders vote against the remuniration then they have to stand re-election is a good start.
There is an interesting take on this the ALP is trying to smash an informal type of union because they are highly paid. So it is good to see the ALP can have a go at unions but pity they only want to pick on certain proffesional ones not the trade ones or lawyers for example.
???
Lawyers are paid market rates. What are you on about Kelly?
I don’t know the numbers but many are working for government, unions and other unaccountable organisations. Laws are also made to give them work. Lawyers are writing the laws too with no accountability (an efficient government would need a lot less lawyers). Take a look at how things are in the US they almost run the joint. So they have an ever expanding market based on more and more government so their “market rate” tends to keep increasing unless the supply of lawyers keeps going up at an even quicker rate. Laws have been written which no one understands like the tax laws with the Tax Office losing many cases. If the government can’t understand their own laws who can?
I understand what you are saying, Kelly.
We need less laws. A solicitor cannot even be sure if he can go through a day without breaking a law.
Dot you idiot you ignored the other comment I made (what is surprising about – your cherry picking is amazing”
You say
“YES. THIS IS A WELL KNOWN FACT AFTER A RECESSION PRODUCTIVITY (AND HENCE WAGES) OF WORKERS GOES UP, BECAUSE OF EXCESS CAPACITY. ”
and I asked you deaf one – if this is such a well known amazing fact post recessions AS YOU CLAIM!!!
WTF happened in 1994 (ie 2 years after the damn 1991 recession).
Let me tell you shall I seeing as I have to spell it out for you? NOTHING.
There goes your amazing all time well known fact Dot.
Also is it happening now a few years after the GFC hit us? Nope.
You take a one time event and skew your amazing fact to all recessionary events?
Both the post hoc fallacy and the fallacy of composition Dot in one grand sweeping statement of
“fact”?.
You have outdone yourself.
Kelly exactly
The wages I discuss above do exclude bonuses. In fact our entire systems of counting income is subject to all sorts of hidden black holes. Those that earn at the top of the pile are not even recorded in any stats anywhere. They dont exist. That would make inequality worse than any here would imagine. There is a hidden core of top income earners who dont even show. They dont get counted in ATO stats because of privacy concerns (can you believe that? The ATO contends with so few at the top of the pile, in industry /sector breakdowns these uber rich may suffer “being recognised” hence privacy concerns delete them from the stats.
The ABS similarly removes bonuses and incentive payments. So if we thought inequality has been deteriorating imagine getting the real numbers?
(its a bit like thinking unemployment improves when you remove half the 15 to 25 year old whilst they are in training).
The numbers reporting game has gotten a lot worse.
And the carte blanche with which some of these uber rich pay themsleves is obscene eg fund managers and the cEOs and boards of major publicly listed companies, bank bosses etc
(and usually they are the first ones to yell for flexible casual labour, reductions in payroll taxes, more productivity, no wage legislative restrictions
and often they sit in closed shop rooms and give themselves their cronies huge increases. The entire edifice / purpose of compulsory super is being eroded from within by these free loading rent seekers in cahoots with government.
Yes but when you tow go mano-a-mano we get to learn lots about economic thingys.
two..
Alice
You moron.
and I asked you deaf one – if this is such a well known amazing fact post recessions
Yes, it is.
Also is it happening now a few years after the GFC hit us?
Not so much but worker productivity increased rapidly after the downturn. WHICH CORRELATES NEARLY EXACTLY TO WHAT I SAID BEFORE.
The difference was unemployment didn’t grow so much because of labour market flexibility. Check hours worked – it buffered about 1.5% inflation.
The last three instances of a recession saw the same pattern in labour market statistics after the fact, as predicted by price theory.
Giving you a lesson isn’t much of an accompliushment.
Yeah. No shit – bonuses paid to employees. Oh no Alice, crap on about how poor wages growth has been – despite bonuses being paid to the lowest of shitkickers well up to mid 2008.
Nonsense. You are making up statistics again.
Who cares? Does Alan Moss getting a $20 million payout when he retired hurt me? No.
Fuck no. No one believes you.
Big fucking deal. Inequality rises and wages growth, even average wages growth increases by a lot more than you admit, even after you had to be dragged kicking and screaming to concede they had risen after you were called for making up bullshit statistics.
Jarrah
Sorry to mislead you but the sense of humour goes a bit awry after a few drinks.
I’m fortunate enough to work in a job I find so interesting that I choose to spend my Friday nights (when I can) arguing about the subject with Dot JC, Skuter and co.
As for the kids IT, they’re getting older now so sleep isn’t a problem. Unlike for yourself I dare say.
DSot says
“Not so much but worker productivity increased rapidly after the downturn. WHICH CORRELATES NEARLY EXACTLY TO WHAT I SAID BEFORE.”
BS – worker productivity DOES NOT HISTORICALLY CORREKATE WITH REALK WAGE GROWTH – which was what we were discussing.
ITS DOES CORRELATE WITH CAPITAL’S SHARE OF AGGREGATYE IBCOMES BUT NOT LABOURS
Moron
You are pissing me off Dot.
You cherry pick data to support your iucking political ideologies. You are not interested in real data and real trends which makes you a politically charged little electron in the economics profession of which you purport to be a certified member.
They need cert two and three for members like you.
Cherry picking?
Not cherry picking at all.
Find another set play from the troll’s handbook to rhetoric.
This is the height of duplicity. I had to drag you kicking and screaming to admit that real wages grew in the last 20 years. 20 years? Two decades is “cherry picking” according to you.
3/3 for a prediction based on theory is “cherry picking” by you.
Yes it does Alice.
It does when you compare total compensation, which you ignore (but at the same time, say that I am cherry picking).
Alice. They are all cointegrated, really. The labour share of income is basically the K/L ratio.
If you are still prattling on about US wages, remember the guy who made that observation basically turned out to be lying.
The point Alice is that real wages and worker productivity rise after recessions. Hence the 1984-1992 data is skewed.
Dot
prove this shibboleth with some real data damn you
” worker productivity DOES NOT HISTORICALLY CORREKATE WITH REALK WAGE GROWTH – which was what we were discussing.
Yes it does Alice. ”
Prove it
More BS fron DOI
The “The labour share of income is basically the K/L ratio.”
BS – this has come UNSTUCk in past three to four decades with the K shares going up.
Thats where ineqhailty is coming from you numbskull.
INEQUALITY – ON THE RISE FOR THREE DECADES DOT
You dare deny that ?? Same as the K/L rtatio of aggregate income with K UP UP UP.
K jas been taking more of its share and stuff L and K has been ripping off the productivity of L gains for itself.
Alice I found this in about five seconds.
An IMF paper on the Republic of South Africa (and other middle income countries).
http://www.imf.org/external/pubs/ft/wp/2012/wp1292.pdf
Unemployment has been going down since the 1970s Alice. Well duh.
I’ve also told you that you, acting as a duplicitous interlocutor, are purposefully cherry picking by excluding AWOTE and looking at average base wages and salaries.
Dot says
Unemployment has been going down since the 1970s Alice. Well duh.
Dot you havent OBVIOUSKT even looked at the trenbds in UNDEREMPLOYMENT the ANS puts out have you?
Why do you think the ANS are doing that? Because we are going headlong down the same path of the US towards a working underclass of casuals to be hired for a feew hours a week
Case in point – go visit you local RSL and see how long the shifts are for the kids they hire (behind the bar, collecting glasses, on the cash registers???)
4 hours max a shift you idiot. If you think this is unique to RSL clubs and isnt part of a wider pehnomen wherevy people are not getting a living wage you deserve to die as an economist.
You dare to complain about house prices for the young? Try mising that with a couple of 4 hour shifts a week. WQelcome to the new long term home for our youth with Mummy and Daddy.
Its happening. Its happened. Mummy and Daddy eating through their life retirement asvings supporting kids who cant afford to move out (and greedy fund managers).
Pissed me off Dot and now you have me spelling badly AND with high blood pressure at your nonsense comments.
Dot for SOUTH AFRICA
YOU FIND
” a weak link between real wage growth and labor productivity growth in the short term.:
A weak link?? For South Africa??
Is that the best you can do??
Alice – you want me to cite data and you use anecdotes?
The participation rates for 25-44 and 45+ year olds has risen at the same time.
…and a strong, cointegrating relationship for all second world countries in the sample
If you want Australian data, I suggest Russell and Tease (1991) who also explain the output, wages and productivity relationship.
What does the particpation rate mean Dot when particpation cen ve an hour a week in some crap casual job below the pverty line and below a living wage?
The participation rate in what? An impermament sick labour market?
It means jack and you know it unless you take uderemployment and marginal attachment to the labour force into account.
The participation rate as a measure aint waht it used to be and is barely worth consideration because of the lies it can hide.
and first world countries Dot – what is their relationship to increasing producity and real wages?
Hang on have they lost it? Why havent you got first world data at your finger tips?
Excluding China from the anbalysis G20 nations real wage growth has halved since the GFC and is hovering near 0.5% down from 1.6% in 2006 and this is in part due to working hours being cut.
Oh and the ILO finds “there is NO INEVITABLE LINK BETWEEN PRODUCTIVITY GROWTH AND REAL WAGE GROWTH IN THE SHORT TERM”
Contrary to what you suggest (link available on request)
Alice, I would venture that, given your comments on part-time and casual employment, you would approve of the Spanish version of labour market regulation. How’s their unemployment and participation rates tracking? The evidence shows that while some people would like some more hours, most casuals are happy with their higher pay rates and greater flexibility.
Skuter its time to move to a new thread.
Whilst greater flexibility contributes to proiductivity gains which may increase the X and I in aggregate demand, if the low wages of casual work decreases the C more than the increase in the I and X
then you my friend, and I and the rest of us will be going backwards.
Link please, Alice.
Short term – who cars anyway.
The argument was over trends not over what happens in the short term.
No inevitable link. Which means it could happen 99999999999999/100000000000000 times.
In the three cases for Australia, it has happened 3/3 times – after a recession the wages and productivity data has spiked.
Which backs up what I said before, that the 1984 data is skewed.
All of this confirms or does not invalidate what I said earlier – wages in Australia have been going up, contrary to what you said earlier.
Nonsense. You are just denying that the wage share is K/L. If I goes up, then wages do to.
This has been confirmed by all of the previous arguments I have put forward.
Alice is right abuot the casualised workforce for a lot of the young. Very up and down, perhaps 40 hours one week but 10 hours the next few weeks.
Still needing their parents support. Those kids smart enough to get a worthwhile degree do better in the long term.
So what are you going to do? Stop them from getting a job?
SAVINGS
That is how businesspeople, especially off the land deal with income fluctuations.
It isn’t a problem.