Catallaxy Files

Andrew Bolt has a post  up this afternoon reporting that some well informed people have dropped a bomb on the $42B National Broadband punt by the ALP.

Could you ever call it a plan? Not long ago Andrew was speculating that the industry would keep quite and just feather their nests out of scheme , a la the School Hall Miracle and the Pink Bats Feeding Frenzy.

There is a movie we went to see last week that is a perfect miniature of the entrepreneurial life. Father of My Children in English (in French, Le père de mes enfants) won a special Jury Prize at Cannes but don’t let that put you off.

I also don’t want to say anything about the film itself since it is a movie best watched with no expectations about what will happen next. In fact, that is part of its theme. The very last moment of the movie, and I don’t think there are any spoilers in saying this, the background music is Doris Day singing Che Sera Sera with heavy emphasis on the “future’s not ours to see” motif.

It is a film to think about on a number of levels. And as there are very few movies with a strong underlying theme embedded in economics – aside from The Fountainhead are there any others? – if that is the kind of thing that interests you, you might put it on your list.

Let’s assume the Gillard government gets back. I don’t want to argue here how likely that is – we’ll just assume it.

What would the government look like and how would she behave?

Gillard would have had a near political death experience. That would, I reckon, make here very cautious. Certainly no major reforms. Whatever she has had to promise the independents, she will pander to them. She can’t afford to upset them. Within the party, she won’t take on the factions. They got here there.

Parliament will be a disaster, what with all the courtesies promised to the independents – time for private members’ bills and such.

Also, she will be guessing that there will be an election before three years . She will have promised not to go early but there will be a getout clause for extraordinary circumstances. (What did Fraser use in 1975 to deny supply after promising not to?) So she will give bribes to the seats she needs to win back. Not difficult but not good government either.

Or could we all be surprised?

By the way the independents carry on, it is easy to get the impression that things are really bad in the bush – high unemployment, low incomes, widespread despair, etc. According to Bob Katter, there are four suicides per week among farmers, while never quoting the suicide rates in the cities or among small business owners whose businesses fail.

The reality is quite different; many areas away from the capital cities have been booming – for a variety of reasons. Moreover, now the drought has broken in many parts and there are high prices for many agricultural days, the description ‘salad days’ springs to mind (laugh now).

Many years ago, I undertook a study at the Productivity Commission looking at the impact of National Competition Policy on Rural and Regional Australia.  The “bush”, it seemed, were very unhappy about aspects of NCP, including the dismantling of various forms of regulation affecting agricultural products – dairy, sugar, wheat marketing, etc. 

What we found at that time was that the attribution between what was happening in the bush and the various initiatives under the NCP was at best flimsy, and that there were always winners and losers.  For example, dairy farming in parts of Victoria, with its natural advantages, did very well out of deregulation.

It was certainly true that the smaller towns were shrinking, with the larger ‘sponge’ cities growing instead.  Think Horsham, Sale, Wagga Wagga, Tamworth, Bathurst, Port Macquarie all growing strongly, but at least partly at the expense of smaller hamlets that no one outside the districts can name.  We would need to ban the car if we want these smaller towns to cease shrinking.

Sea-changers and, more latterly, tree-changers have contributed to the vigour of the bush, as cashed-up city folk seek alternative lifestyles – yes, all those advantages of living in a country town as opposed to a big city.

If we look at objective indicators such as unemployment and net incomes (housing costs are much lower in general in rural and regional Australia), there is not as much in it between the city and bush in contrast with what many seem to think.  And of course, there is no direct accounting of the favourable social amenity of rural life compared with battling congested freeways, packed trams, potential social isolation, etc. that big city life can entail.

Taking recent unemployment figures, for instance, the differences are insignfiicant.  The unemployment rate in Sydney 6.4 %, rest of New South Wales 6.3 %; Melbourne 5.9 %, rest of Victoria 5.8 %; Brisbane 5.2 %, rest of Queensland 5.6 %; Adelaide 5.4 %, rest of South Australia 4.3 %.

The real point is that there are always trade-offs in life – the benefits of life in the bush are offset by some costs, but surely no one can expect a public hospital on every corner.  It is important that government subvention in the bush does not distort this trade-off to the point that citizens in the city subsidise their country cousins for their choice of lifestyle or vice-versa.

The National Accounts for June 2010 have come out today and will provide those who look no deeper than the headline figure with the belief that the Australian economy is on a shortcut to prosperity. The numbers tell a different story, and while I have no better idea about the future than anyone else, there is nothing in the recent past that should make anyone think things are heading in the right direction.

Three sets of figures stand out as part of a cautionary tale told by the numbers.

The first is the set of figures on Private Gross Fixed Capital Formation, the data on private sector investment. Across the year the growth rate was a quite sedate 1.3% and for the quarter itself (I always use the trend numbers), the growth rate was actually negative, coming in at -0.1%.

Meanwhile, for Public Gross Fixed Capital Formation the growth rate was 38.5%, a monstrous increase. The quarterly figure was only 4.7% which means the numbers are coming back down to sane proportions but even so.

Then thirdly there is the figure for imports which rose by 15.9% across the year, raising spectres of its own. For the quarter it was 1.9%, and for the first time this financial year was lower than the level of exports.

There is a story of debt printed all over the accounts, both domestic and foreign. We have as a nation splurged to get a result, but the costs are still to be paid.

The notion of a double dip, especially after efforts made to maintain the appearance of growth in an economy heading into recession, is in part due to the need not only to unpick the production errors that led to recession in the first place, but now to undo all of the structural changes introduced as part of the stimulus. People producing and installing pink batts now have to find a real job although the major horrors may take place in the United States. We shall see what happens then.

As part of Labor’s stitch up with the Greens, the genius idea of the consensus-building (as long as they agree with government policy – see Penny) Citizens’ Assembly has been dumped. 

It’s a very sad day for my Medicare Gold, Gold, Gold competition, the results of which are not yet finalised – just like the identity of the government.

But of course there was a late entrant – the Epping to Parramatta railway link (all Julia’s idea we hear), which seems to have got John Alexander over the line in the seat of Bennelong.  A very strong contender, in my opinion.

You will all be pleased to know that our (caretaker) Treasury and Deputy Prime Minister, Wayne Swan, is giving an address to the Sydney Institute tomorrow night, modestly titled:

LABOUR’S ECONOMIC PLAN AND THE STABILITY AND PROSPERITY AUSTRALIANS DESERVE

I can only assume that Mr Swan thinks there are people that really deserve instability and penury.

Note also that PLAN was part of Labor’s spin during the campaign, with the Prime Minister repeating early and often the phrase about her party having a “positive economic plan for the future”.

I’m not so sure about the term PLAN.  Is she thinking Gosplan?  Is she thinking the economic plan of the People’s Republic of Korea?  Maybe a plan like the Great Leap Forward?

What she doesn’t seem to realise is that the word PLAN for a national economy is a negative not a positive; it involves all the mistakes that were made by the Ruddster – ridiculously ambitious targets in a ridiculously large number of areas, badly executed from Canberra.

Governments are not in a position to plan economic outcomes; they can facilitate better outcomes, but mainly by getting out of the way to allow markets to determine the best possible outcomes.  This is something that this government does not seem to get.

I am hoping that someone who attends the caretaker Treasury’s speech asks him the following question:

Is it true that the proposed super-profits tax was to be applied beyond mining to include banking? (and hence the name, rather than the more specific, resource rent tax as recommended by the Henry Review).

And supplementary question (allowed under the new Parliamentary Question Time rules):

Is it true that its application to banking was dropped because of the fear that mortgage rate increases would be blamed on the tax, and hence on the government?

The SMH has an article talking about the failure of the skilled migration program – apparently secondary applicants (usually the wives and children – the primary applicant is more likely to be male) are not employed to the same extent as the rest of the population.

Unemployment among skilled migrants and their families is 30 per cent higher than for the population as a whole, new research shows, but those who do have a job are more likely to be in a professional role.
…
Although the program is geared towards overcoming serious skills shortages, a significant number of skilled migrants are unable to find work.

At the last census, 7.3 per cent of skilled migrants were unemployed compared with 5.2 per cent of the population as a whole.

”[This] highlights the fact that the skilled migration program is not working,” a Sydney University migration expert, Dimitria Groutsis, said.

”We are not fully utilising the skills and vocational experience offered by people living overseas.

”There needs to be better … information for individuals when applying in their home country for emigration to Australia about what the expectations are.”

The original ABS report is here. The conclusions drawn in the SMH are far too strong for the data reported by the ABS. This is the bottom line from the ABS (emphasis added).

In general, half (50%) of Skilled Program migrants aged 15 years and over were employed full-time compared with 35% of Family Program migrants and 17% of Humanitarian Program migrants. Almost a fifth (18%) of Skilled Program migrants were employed part-time. In comparison, in the 2006 Census, 37% of the Australian population aged 15 years and over were employed full-time and 17% were employed part-time.

When you drill down there is a lot of detail.

Almost two-thirds (63%) of Skilled Program migrants aged between 15 and 19 were ‘not in the labour force’, compared with almost a quarter (23%) of Skilled Program migrants of all ages. Most (96%) of the Skilled Program migrants aged between 15 and 19 who were ‘not in the labour force’ were studying at an educational institution and they were all ‘secondary applicants’

So the children migrants tend to get an education. As do their wives.

A large proportion (40%) of the female Skilled Program migrants 15 years and over, who were ‘not in the labour force’ were studying at an educational institution. Note that male Skilled Program migrants were also far more likely to be primary applicants (64%).

So the data are far more nuanced than the SMH suggest. But that isn’t the real story here. There are two other factors that should come into play. The length of time that migrants have been here has an impact on the employment statistic. The ABS recognises this, but doesn’t calculate a time-weighted unemployment figure.

As length of residency increases, Skilled Program migrants were more likely to be working full-time. The proportion of Skilled Program migrants who were employed full-time was higher for residents who had been living in Australia for a length of time between 4 and 6 years (54%) when compared with recent migrants (48%).

The other problem is that we are not comparing like with like. The secondary applicants’ unemployment rate is compared with the Australian average. But the wives and children of migrants are a select group – they are often the wives and children of high-income professionals.

A higher proportion of Skilled Program migrants (16%), 15 years and over, earnt over $1,300 a week when compared with the Australian population, 15 years and over (10%).

So a comparison should be made with the labour force characteristics of Australian high-income professionals not the general population. I doubt the ABS have that data easily to hand, or even at all.

So all up there are two problems with the SMH interpretation. First many of the people described as being unemployed are less likely to have full-time employment anyway and given the logistics of migration the secondary applicant (usually the wife) is less likely to start work anyway because she would be managing the settling in period and ensuring that the children are happy at school etc. before going out to work. (At the same time, of course, she would normally begin looking for a job).

Andrew Wilkie, the new independent member for Denison, who by the way received 13,681 primary votes has issued his 20 point log of claims. It would make even the most radical trade unionist blush.

Given the independents’ insistence of appropriate costing of government policies, it is worth pondering how many billions – yes,  I think that is the right ballpark figure for his demands – his log of claims would cost. 

The rebuilding of the Royal Hobart Hospital would not be cheap, for instance.  Contracting out beds to the private sector in the meantime would involve a bill in the millions. And including dental care in Medicare would add many, many millions to the annual cost of running Medicare. 

Then there is requirement that pensions and government benefits be adequate and indexed generously – billions there.  Light rail for northern Hobart – several hundreds of millions one would suspect; some sort of transport plan, more millions; and completion of Stage 3 of the National Broadband Network – well, think billions and add a large figure in front of it.

And then there is a conscience vote on gay marriage, limiting pokie bets to $1 and assorted other pot pourri. And of course, there is the adequate office and staffing (at least that can probably be accomodated under the million dollar mark.)

It all reminds me of that P.G. Wodehouse novel where he jots down his immediate aspirations: Sunday, win British open; Monday, get married ….  I’m sure you get the drift.

The tragedy, as opposed to the comedy, is that this fellow really means it and had the Labor Party paid more attention to Denison, including installing a more electable candidate, we would not be paying the slightest attention to Denison or the failed independent candidate.

Of course, the same can be said of the National Party; in particular, in the seat of Lyne, where the decision by Mark Vaille to leave parliament early and thereby force an unwelcome by-election, led to the election and now re-election of Rob Oakeshott.

Great debate on ABC Counterpoint, run by the token non-lefties on the roster, Michael Duffy and Paul Comrie-Thomson, Does Being Green mean Going Nuclear?  Featuring Ian Lowe in the red NO corner, and in the blue YES corner, Barry Brooke, who is also a  green but in favour of nuclear power.

A key feature of the debate is the revelation that modern nuclear power does not have to involve materials that can be made into bombs without using a plant equivalent to the Manhattan Project. The Plutonium produced from reprocessing nuclear fuel is not weapons grade.

Is there a convenient reference work on the history of the nuclear mining and power debate in Australia?