Catallaxy Files

Quite true. Nobody ever criticised John Howard for being a woman or on the basis of his femininity.

From the National Taxpayers Union – Fool me twice …

This is not the first time Chrysler has claimed a “comeback” from government assistance.

In 1983, Chrysler was bailed out by America’s taxpayers – some of this may sound familiar…
…
Of course, we know today that Chrysler was not prepared to go the distance, and faltered into government hands once more in 2009.

The American people should not be fooled again. The Clint Eastwood ad is just the latest example of dressing up a flimsy “comeback” that has cost taxpayers and the economy dearly. Let’s hope we are not writing the same thing in another 25 years.

Bob Brown seems to think that increasing taxes on superannuation will lead to low-income earners having more super. As best I can work out, he seems to think that low income earners won’t save more in super because high income earners get a tax break. Here he is explaining how that works to Emma Alberici.

EMMA ALBERICI: Now I’ll pick you up on what you mentioned just a moment earlier about your proposals for superannuation. You want to lift the taxation on contributions. Where’s the wisdom in that?

BOB BROWN: Well we want to drop it, the taxation on low income earners.

EMMA ALBERICI: But not on 12 per cent of earners.

BOB BROWN: That’s the 12 per cent top income earners who get 50 per cent of the tax breaks. Now how about the people in the middle and lower down get a fairer go? Most people in the middle won’t be affected by our proposal. But at the moment, Emma, if your income’s so low that you’re not being taxed, you pay actually 15 cents for each dollar you put into your superannuation.

EMMA ALBERICI: How many people on the lowest tax rate actually have extra money at the end of the week to put into superannuation?

BOB BROWN: We want to encourage them to do that because they deserve in retirement a bit more money in the bank. But let me say this: that wealthy people under the Greens configuration will still get a 15 per cent cut in their tax rate. Suits win-win. And …

EMMA ALBERICI: No, surely that would be a disincentive for people to put money into superannuation which potentially could starve superannuation funds in Australia of money?

BOB BROWN: It’s not disincentive if you’re paying 45 cents in the dollar.

EMMA ALBERICI: As opposed to paying 15 cents which they currently are?

BOB BROWN: And you put – yes, well, that’s right: it will increase the tax rate, but it’s still not going to go to anywhere near the tax rate they will pay on the income if you’re very wealthy. There’s still going to be a 15 cents-in-the-dollar prize for you if you invest your money into superannuation. And that’s a big win.

At the moment it needs to be understood that forgoing usual tax rates costs the Exchequer $30 billion a year, Emma, and that’s predicted to go to $40 billion by 2014-’15.

Now that’s money that’s not going to hospitals and schools, it’s going in a tax break and half of it is going to 12 per cent of the populace who are the big income earners. What we’re saying is: they can forgo a little of that.

We can help people on lower incomes have more superannuation, and roughly, the income will stay the same. It’s a pretty good arrangement.

EMMA ALBERICI: But the government that brought in superannuation, the whole idea of the concessionary tax rate was to encourage Australians to put away money for their future. Now if you’re essentially doubling and more what people are paying in tax for their contributions, then surely they’ll revisit that investment and perhaps put their money elsewhere, which again as I stated earlier, might well starve Australian superannuation funds of cash.

BOB BROWN: Well I don’t think it will. There’s a lot of people out there support this. And remember: part of the superannuation philosophy was to have people rather than going onto the pension, having money stored away for when they retired. And we want to encourage more Australians to be able to do that.

So, lifting the potential for that to many more of the 88 per cent of Australians who aren’t in that rich bracket is a good thing. We want to see more Australians feeling independently able to make ends meet when they retire and not worried about how they’re going to get along with a pension.

Pensions are essential. They’ll be there for good. But if people can save a bit more than that, well, that’s what we’re in the business of encouraging.

EMMA ALBERICI: It assumes that people in the low tax brackets, those earning $30,000, $40,000 a year, have spare cash to voluntarily contribute to superannuation, which is simply not borne out in the facts.

BOB BROWN: Well, I don’t know that you’re right there. I think most Australians want to have good superannuation when they retire. I haven’t run into any who don’t.

EMMA ALBERICI: It’s about having the spare cash to commit to it though, isn’t it?

BOB BROWN: Well, yes, but, you know, let’s be – let’s again get back to the fact that women across the board earn less money, still, in this country. Why shouldn’t we be helping those who are on lower incomes in that system be able to put a bit more aside for their retirement?

We should be doing that. And this scheme is one that I think Labor will look seriously at, by the way. There is a new superannuation round table, proposals like this will no doubt be seen by that superannuation round table. They’ll go to Treasury. But they’re for making this a fairer, happier society, and that’s what we’re about.

(HT: Andrew Bolt)

Word is that there might be a Bladerunner II. Bladerunner remains one of the greatest movies ever – if not the greatest. Up there with The Godfather.

After all this time a sequel would only annoy the fans* and destroy the original – especially if Harrison Ford reappraised his role as Deckard. Not that there was anything wrong with his original portrayal, I’m daggy enough to have enjoyed the narrated version of the movie over the Scott director’s cut. Recall the last Indiana Jones crystal skull movie – was it any good?

* think about the Star Wars prequels (now in 3D – how long will that last?) and the ghastly post Frank Herbert Dune series.

Greg Combet has just released a presser saying the Coalition’s economic credentials are in tatters. Debt and deficits anyone? Anyway this is what he said.

Opposition climate action spokesperson Greg Hunt is trying to frighten workers by claiming that a carbon price will cut real wages.
…
he facts are that Treasury modelling of the Gillard Government’s clean energy future package shows that under a carbon price:
Real wages will increase by 20 per cent by 2020 and almost 50 per cent by 2050;
…
Mr Abbott and Mr Hunt consistently misrepresent Treasury modelling.

That is a lot of words. Why doesn’t Combet show people a picture – like this one from the 2008 modelling exercise.

How did Treasury describe that?

In the short run, real wages are assumed to be sticky, taking up to 10 years to
adjust, resulting in some temporary unemployment. However over time, real wage growth slows,
demand for labour increases, returning employment to reference case levels (Chart 6.12).

Wage growth will decline and unemployment will grow. But only for ten years or so – after that you’ll be able to get a job at lower wages. What’s the problem?

A bit too scary? In the second modelling exercise the Treasury showed the levels and the relative decline.

This how Treasury explained what would happen.

Pricing carbon affects the demand for labour, as a result of slower output and capital growth. Real wages grow slightly more slowly than in the global action scenario. The level of employment is largely unaffected. Around 1.6 million jobs are added to 2020 in both the core policy and global action scenario, with a further 4.4 million jobs added by 2050 with or without carbon pricing.

Given that unemployment is now higher than when it came to office, it is good to see that they’ll be pursuing policies that create 1.6 million jobs.

Nonetheless Combet is very careful to talk about the levels and not the decline in growth and not the increase in unemployment (carefully whitewashed out of the second Treasury modelling report).

Combet also says

This puts them at odds with economists and policy experts who advise that a carbon price is the lowest cost and most efficient way to transform the economy for a clean energy future.

Makes you wonder if he’s read the AFR today. Tony Wood of the ALP government funded Grattan Institute tells us

It is increasingly clear that a carbon pricing scheme alone will not do enough to enable low-emission technologies to generate enough of our electricity at sufficiently low cost.

Locking into a future dependent on gas would be expensive.

He concludes with

Otherwise, the low carbon future will be too expensive.

We knew that and said it all along.

(HT: New Gold Dream)

Update: The Coalition presser is here (emphasis added).

Real wages are expected to fall by almost one per cent than otherwise by 2020.
This means for an average worker a cut in salary of $600 a year.
By 2050, the cut in real wages is six per cent, which is equivalent to an annual pay cut of $6,000 a year.

Exactly consistent with the Treasury modelling.

It has taken a long time but today Bruce Hawker (speaking on the Bolt Report) linked the Australia Day race riot to the Lindsay pamphlet scandal. To be fair, these two events are similar in that the individuals behind them are probably equally stupid. I also think the premise of the Lindsay pamphlet scandal was probably more offensive than the race riot – but let’s not quibble. There is, however, a very important difference between the two events (emphasis added).

The matter was referred by both the Labor and Liberal parties to the Australian Electoral Commission, who in turn referred it to the Australian Federal Police.

What was John Howard’s reaction?

Well look the flyer was put out by people without any authority from anybody in the Liberal Party and the first thing I knew about it was yesterday morning. When this stupid act was reported to me, I made if very plain that I wanted action taken.

The individuals in the pamphlet scandal were prosecuted, those who were found guilty of offences were fined, and – I presume – now have records of having committed an offence.

What has been the government response to the Australia Day race riots?

CHRIS UHLMANN: And all the things I’ve just described are the basis for criminal offences: incitement to riot or affray, causing public alarm and making false statements with the intent to cause public alarm, so why isn’t that worthy of a police investigation?

NICOLA ROXON: Well, we’ve been very open as the Government. The police are of course able, as they always are, to investigate any matter that they are concerned with. I think, however, you are attributing to my answers some things that I did not say. It’s for the police to make an assessment what constitutes incitement. They wanna look at intent, they would look at words that are used. I think we need to be very careful here when we’re talking about informing people of particular situations or whether we’re talking about encouraging people to act in a way that is violent. I don’t want any …

Yep – it’s up to the police to investigate if they have a concern – no referral from the government or ALP.

Between being away in January and not following up and The Drum editor Jonathan Green being away a piece I wrote on manufacturing fell between the cracks. It is a bit dated now so I thought I’d post it here.

The past few days have seen a debate about whether Australia should protect the manufacturing sector. The current angst revolves around the long-suffering auto-industry. The government has budgeted to provide additional subsidies to the sector, while the Liberals debate whether or not to cut any subsidies. Aside from the specifics of the auto-industry there is a valid question to be asked – what, if anything, should government do to protect local industry?
First thing we have to decide what constitutes “protection”. Government has a legitimate role in providing an institutional framework that facilitates economic activity. The great Austrian economist Friedrich von Hayek provided an extensive list of legitimate government activity in the economy; maintenance of the rule of law, infrastructure, the setting of minimum standards, and so on. What he disliked was the existence of monopoly, and special privilege.
To the extent that government intervention affects all industry equally that intervention cannot be described as ‘protection’. Similarly the government is likely to be a consumer of many products, for example the government leases motor vehicles, office equipment and so on. Often government will be the single largest customer for some industries or firms. That too cannot be described as being ‘protection’.
Protection is the granting of some special privilege like a subsidy or tariff or tax break to protect an industry (or firm) from the operation of market forces. It could also be some special privilege that provides an incentive to some or other industry. In short, protection is a benefit that is not widely shared across the economy.
The short answer to the question of whether Australia should protect local industry is “No”. Economists have known for over 200 years that all trade, not just foreign trade or even fair trade, is good for the economy. This is based on the theory of comparative advantage. The great textbook writer Paul Samuelson once said that the theory of comparative advantage was both true and non-trivial.
The short answer, however, is unsatisfying. So what of the long answer? That is a “definite maybe”. There might be good reason why Australia should protect local industry. Those reasons could relate to Australia being a special case, or even having Dutch disease.
The special case argument revolves around the view that there could be some or other market distortion or market failure that requires government intervention. There is a whole long list of possibilities here, but the Australian debate has singled out two possibilities; national security and job protection.
In June 2008 Kim Carr argued, “…it is not just building motor cars here. It is having the capacity to build jet fighters and therefore it is incredibly important that we keep the skills base.” Tony Abbott is open to that idea saying in August 2011, “if a respectable case can be made for maintaining a heavy manufacturing base on the grounds of national security … there needs to be a forum where it can be addressed”. It is not clear that a respectable case can be made – it takes many years to design and build jet fighters while modern warfare wouldn’t afford us that luxury.
What then of job protection? Since 1984 the number of manufacturing jobs has declined from just over a million jobs to just under a million jobs. In that time the total number of jobs has increased. But the economy is continuing to generate new jobs overall – in that time the participation rate has grown as has the employment to population ratio. So protection isn’t protecting jobs, it is protecting particular jobs. This raises the question, “Do Australians have a right to a manufacturing job?” The answer to that question is a value judgement, but I suspect most people would answer “No”.
Dutch disease is the other possibility we need to consider. We keep hearing that the mining boom is restructuring the economy. The argument about Dutch disease is that a resource boom leads to a decline in manufacturing. Demand for Australian resources would be shifting factors of production away from manufacturing towards mining. We also hear that the high exchange rate makes it difficult for Australian manufactured goods to compete on world markets. Well, yes. These things are happening, but is it really Dutch disease?
The high Australian dollar is making it tough for Australian manufacturers (and retailers). Yet that argument concentrates on price competition only. It assumes homogeneous quality – the solution to high costs is to improve quality. Some Australian industries are managing to do that, they will prosper. The movement of factors of production from low value add industry to high value add industry is exactly what is supposed to happen, so it is hard to label that as being some sort of disease.
The biggest problem with the Dutch disease argument is that the relative decline of manufacturing is a long-term global phenomenon. Australian manufacturing as a share of GDP has declined from 21 per cent in 1970 to nine per cent in 2009. Global manufacturing as a share of GDP has declined from 26.6 per cent to 16.6 per cent over the same time period. Remember over that period China has increased its manufacturing output, yet the overall global manufacturing share of GDP has still fallen. So we cannot simply blame the mining boom for the relative decline of Australian manufacturing.

The last point to consider is that it isn’t all doom and gloom for the manufacturing sector. The profit margin for the entire sector has increased over the past ten years – with a very pronounced v-shaped decline during the global financial crisis.

That suggests that some parts of Australian manufacturing are doing very well, while others are not. In other words in the absence of government protection Australia would still have a manufacturing industry – just not one that produced motor cars. Mind you, it isn’t clear that the auto-industry would entirely shut down either.
So the long answer ends up approximating the short answer. Australia is not a special case where government protection is warranted and Dutch disease does not explain the relative decline of Australian manufacturing.

Other readings: Here is Stephen Kirchner and Henry Ergas had a piece in the Australian (see post below).

Semi-regular threadster Piett has views on the Superbowl.

On Monday at 10 am EST, those of us in Australia who are NFL fans will have the pleasure of watching Superbowl XLVI live on channel One.

The game pits the New England Patriots against the New York Giants. The Patriots are the favoured team according to the bookmakers, with a spread of -3 points (meaning that if you place a bet on the Pats at even odds, the bookies take 3 points off their final score in determining whether you’ve won your bet).

However, most analysts favour the Giants. The Patriots may have a better quarterback in Tom Brady, but football is a team game; Brady can’t win it by himself. The Giants’ ace may be their defence, which features a ferocious four-man pass rush, capable of constantly pressuring the opposing quarterback while leaving free defenders to drop back into coverage of receivers. This is, as I understand it, pretty much the Holy Grail of NFL defence.

Joe Public apparently agrees, because around 2/3 of money wagered has been on the Giants (64% to 71%, depending on which site you read). And yet, over the last fortnight, the spread hasn’t shifted from Pats -3. This is rather odd.

In theory, bookmakers should aim to have equal money on both sides of a contest. Then it doesn’t matter for them who wins – they just collect their commission (or “vigorish”), which is usually around 10% of the total wagered. Easy money, and risk-free.

So, the bookies should have been reducing the spread, to entice more people to bet on the Patriots. Why haven’t they? Stephen Levitt – author of Freakonomics – may have the answer. In an interesting paper, he crunched a lot of NFL data and found that bookmakers “[do] not appear to be trying to set prices to equalise the amount of money bet on either side of a wager … [they] appear to be strategically setting prices in order to exploit bettors’ biases”.

He concluded that “the bookmakers are at least as good at predicting the outcomes of games than are even the most skilled gamblers in the sample and the bookmakers exploit their advantage by strategically setting prices to achieve profits that are likely higher than would be possible if they simply acted as market makers letting supply and demand equilibrate prices”.

Do you think Levitt’s right? And who are you barracking for? The bookies may be playing me for a fool, but I still think the Giants will win. And besides, the Patriots are arrogant sons-of-bitches: they deserve to lose!

More government spending will not bring back the days when supposedly triple-A-rated mortgage securities could be fashioned out of dodgy loans to unqualified borrowers.

Arnold Kling