How do we come out of this alive?

The wages shortfall has been replaced by benefits and then some. Picture: Supplied.

Taken from JobSeeker, JobKeeper ending will reveal massive recession crisis.

The core concept of Jobkeeper was all right, to make sure no one was deprived of the ability to buy because they had lost their income. The data in the graph are however insane. Does no one any longer have a sense of proportion, and can no one any longer look forward for more than a day at a time? And it comes with this, also at the link:

How much the recession will cost you

It comes from the Commonwealth Bank of Australia and it shows how much more money Australians are making than the year before. It’s a lot. We’re flying.

The black line is now at 16 per cent, which means we’re making 16 per cent more money in 2020 than last year.

Think about it like this: Australians who were banking $1000 per week last year are banking on average $1160 now. That’s a lot of extra money each week.

Where is the cash is coming from? Up until the start of the pandemic, the black line was being held up by the blue bars: earnings from work, i.e. salary and wages. We were 4 or 5 per cent richer than the year before, because more wages were being paid.

Then the COVID-19 pandemic starts. The blue bars turn slightly negative – wages and salaries went down (they would have gone down even more if not for JobKeeper!). But the red bars shoot up. That’s Treasurer Josh Frydenberg turning on the money taps.

JobSeeker is the big one, and the two $750 payments that went to pensioners.

We’re paying out 16% more in incomes while productive output must have fallen along with business profitability by some massive percent! If these numbers are anywhere correct we are heading for the rocks.

I will add that if the government, any government, still believes that the level of demand is what keeps the economy moving ahead or adds to job numbers, they are about to find out once again just how wrong that is. Not that they will learn, because they are too stupid, but they will find out all the same.

Belt up, Dan, and hit the road, you communist fool

Every so often you come across something so revealing that there is little more to add once you have seen it. In yesterday’s Herald-Sun there was an article titled, “China Backs Dan deal”. Of course it does, but this is how the story opens:

Daniel Andrews has questioned Scott Morrison’s priorities and demanded the Prime Minister come up with new trade markets for Victoria if his Belt and Road deal with China is cancelled.

Let me say that so far the Prime Minister has performed miles beyond my hopes with every instinct, especially on foreign policy, near perfect. Belt and Road must go. But that wasn’t what caught my eye. This was such pure economic ignorance – that he had demanded the Prime Minister come up with new trade markets for Victoria – yet I imagine it is a view largely supported by his equally ignorant supporters.

It is how these socialist think, that it is up to governments to find overseas markets. Of course Andrews has no idea how a market economy works. Obviously this is the way he thinks, that it is up to the government to sell our produce to foreigners and to create jobs for workers. A complete klunk, but the kind of ignorance that leads to economic collapse of the kind found in Venezuela right now.

Essington Lewis

This is from a fascinating article by Geoffrey Blainey in the Weekend Oz: As the Pacific theatre opened, the nation was ill-prepared. In the article he discusses Essington Lewis. This is what Blainey wrote about Lewis:

The leader of Australia’s industrial war-effort was Essington Lewis, an engineer and chief executive of BHP, whose extensive steelworks and allied factories were centred on Newcastle and Port Kembla.

Visiting Japan for a fortnight in 1934 and closely inspecting many workplaces that were out of bounds to journalists, Lewis was surprised to discover that Japan “was armed to the teeth”. In an emergency it could build 100 aircraft a day at a time when Australia had less than 50 active fighting planes.

Back in Melbourne he formed a syndicate called the Commonwealth Aircraft Corporation, which in 1939 built the first Australian military aircraft, a simple, lightly armed trainer-plane called the Wirraway. Later came fighter bomber aircraft that really held their own. It was remarkable that we mass-produced planes before we mass-produced cars, the first being the now-nostalgic Holden.

In 1940, Robert Menzies as prime minister had placed Lewis in charge of the nation’s industrial war-effort, and eventually a huge workforce of men and women were producing war equipment of a variety that surprised the few foreign industrialists who visited wartime Australia. Lewis, pre-modern in his business ethos, achieved this huge task without seeking payment from the government.

For five years Lewis wielded more power than the high medical officials whose diagnosis of the coronavirus pandemic we now hear each day. He shunned publicity but was known by sight to the hundreds of thousands of workers in munitions and aircraft factories and shipyards, for he inspected each site regularly and minutely.

And do let me emphasise this:

For five years Lewis wielded more power than the high medical officials whose diagnosis of the coronavirus pandemic we now hear each day.

Let me paraphrase what I take Blainey to have meant, and even if he didn’t it is what I understood.

For five years Lewis, who had spent many years at the highest levels in the private sector, wielded more power effectively and with positive purpose than the narrowly-educated and operationally useless medical officials who like the vast majority of the public sector have never spent a moment in a business environment, whose mistaken and highly damaging diagnosis of the coronavirus pandemic we now have to conform with each day much to our cost.

There is a lesson there, if only we could work out what it is.

Explaining what is wrong with Magic Money Theory [MMT]

This was from Beachcomber in the comments:

Hi Steve, I just read a fascinating essay by Peter Smith at Quadrant: Money printing in the age of Covid

In the essay it states:

In the age of COVID-19, bonds sold to finance deficit spending are being largely or wholly bought up by respective central banks. This is manifest in banks’ holdings of deposits with their central bank and of treasury notes or bills.

In comments the question is asked as to from where the “central bank” garners the money to buy the bonds.

To which Peter Smith answers:

It creates it out of thin air cos it can.

The central bank simply issues a cheque or like instrument, drawn on the central bank, which allows the holder of the bond (assume it is a non-bank – the process is short-circuited if the holder is a bank) to lodge the cheque in its bank account. The bank correspondingly lodges the cheque with the central bank and sees its deposts with the central bank increase accordingly. The central bank now has an asset – the bond – and a corresponding liability – the bank’s deposit. It can go on doing this till the cows come home. Or, practically speaking, until inflation rears its ugly head.

Is this true? Can this continue forever? With shrinking incomes and the associated shortage of money supply, inflation seems unlikely. Peter Smith makes a distinction from Modern Monetary Theory without explaining how it is different. Can the creation of money from nothing by the Government continue forever? If so, then Andrews can reign forever!

First, if there is an authority on the banking system in Australia outside and beyond the reach of government, it is Peter Smith. He was, when I first met him, the economist for the Australian Bankers’ Association, then became the Chief Economist for the State Bank of Victoria and finally was the first Chief Executive for the Australian Payments Clearance Association. No one gets this stuff better than he does.

But let me buy into this because this is part of my expertise as well. And to follow this with any understanding you have to divide the economy into two halves. On one side is production, the actual goods and services produced, which also includes the production of inputs into the production process, such as iron ore and natural gas.

And on the other side there is the monetary side of the economy which is completely distinct. This comprises:

  • money as a medium of exchange, say a $100 note, but represents the value of goods and services so that we can sell what we produce to buy what others produce
  • money which we set aside as a store of value, such as bank accounts or superannuation savings, and
  • money which we use as a unit of account so that businesses can calculate how much things cost to produce so that they can determine what to charge so that they can calculate whether they are making a profit.

And it should be emphasised that only profit-making businesses create more value than they use up in production. Loss-making enterprises – which include virtually every activity run by governments – slow the economy, using up more value than they create. Loss-making enterprises cause the economy to contract. Only if there are other enterprises making profits – almost always private sector enterprises – can the economy expand. Without understanding that, you cannot understand the first thing about how an economy works.

Creating more money does NOT create productive resources. Giving more money to governments, or allowing them to print more money out of thin air, lets governments spend on non-productive activities which they inevitably do. Spending more on non-productive activities means less is spent on productive activities.

And adding to the problems, when the government expands the volume of money by just printing the stuff up, they undermine each of the uses money has: as a medium of exchange, as a store of value and as a unit of account. The economy can no longer be run as productively as it might have been and often even leads to a fall in real income across the entire community.

Virtually no politician I have ever met has understood this. Virtually no political leader I see in the news today understands this. All of the others are Keynesians now, who believe the mere spending of money creates jobs, growth and higher real earnings. On this they could not be more wrong.

We will be paying for this ignorance for a very long time to come.

Defund the ABC

Modern Monetary Theory: How MMT is challenging the economic establishment

Illustration of a tree with money for leaves and lush flowers on the ground below where the money falls.

From the dumbest economic analysts in Australia, our very own ABC: Modern Monetary Theory: How MMT is challenging the economic establishment.

What if everything we thought we knew about public finance over the past 40 years has been wrong? A new economic theory has emerged that could rewrite our understanding of how governments create and spend money and what type of society we can afford to build.

And if it is correct, people may be furious. Because it could show that Australia’s political elite can afford to spend far more than they are on public health and education, social housing, scientific research and green energy schemes, while eliminating unemployment.

And yet they’re not — either from a misunderstanding of government finances or because they don’t want to. However, to embrace this radical economic theory you will have to forget what you’ve learned about budget deficits (that they’re bad) and government debt (that it burdens future generations).

Why? Because proponents of the theory say that far from being a problem, budget deficits are often a good thing — they can be the source of healthy economic growth.

More at the link and some previous discussion of MMT here.

Daniel Andrews is showing the way. He spends enormous amounts of money, but never finishes a project so that nothing is ever completed. Tunnels, train lines, you name it, he has left all kinds of useless projects halfway done, which even if completed would never earn as much in revenue as they cost to build. Just build it and they will come, they in this case being massive debt and deficits.

The ABC is filled with such deadheads. I never watch the thing myself but only found out about this from someone else who monitors the place. I don’t know how anyone can listen to such ignorance day after day, but I guess someone has to do it.

ABC delenda est which is Latin for Defund the ABC.

Industrial relations reform

Consensus is “the process of abandoning all beliefs, principles, values, and policies in search of something in which no one believes, but to which no one objects; the process of avoiding the very issues that have to be solved.”

Margaret Thatcher

The quote is from the first of the two following letters to the editor at The Australian published on May 29. Both letters are in relation to the approach being taken by The Government on industrial relations “reform”. I’ll come to those letters in a moment, but first want to mention The ACTU/ALP Accord which I spent a good deal of my working life in trying to contain its excesses. Yet the document was one of the most sensible documents ever undertaken in Australia.

Although he would be surprised to hear this, I have always admired Bill Kelty and especially for having directed the writing of the background document to the Accord that became the fulcrum that IR policy was to be based on. Following the Wage explosion in 1982, a union delegation had gone to Sweden and a number of other European countries where they had discussed how to raise workers’ wages and living standards. In Sweden, the trade unions had explained that their policy had been based around doing what they could to improve business productivity, which they recognised was the only way to raise real wages while also making jobs more secure. It was why so many outstanding international brand names originated in Sweden, brands such as  H&M, Volvo and Electrolux. It was virtually the policy of the unions to foster business growth.

It also mattered that the Labor cabinet was filled with vast amounts of sound practical good sense, from the PM, through Paul Keating to Peter Walsh and even to this day from whom you can still hear its last last echoes, through Graham Richardson on Sky News. I fear that none of these could end up even on the back bench of a Labor Party Parliamentary party today.

I will also say that there was much too much dead weight in The Accord, such as the formalisation of full wage indexation (even with the “Medibank Pause”), and the Productivity Case of 1986 which led to the Superannuation Guarantee. But the recognition of the role of business as the vehicle for increasing living standards was miles ahead of the deadness from the neck up across the ACTU today. Sally McManus is the last person in the world to understand any of this or for the Government to trust. So to the letters from The Oz. First this:

Margaret Thatcher said that consensus was: “The process of abandoning all beliefs, principles, values, and policies in search of something in which no one believes, but to which no one objects; the process of avoiding the very issues that have to be solved.”

That’s what Scott Morrison’s plan to bring together unions, big business and governments will do — avoid the things that need to be done. We need significant deregulation, tax cuts and cheaper energy to encourage investment, energise small business, boost productivity and create jobs.

His proposed consensus group will lock in workplace regulations, stifle competition and siphon billions more from the productive parts of the economy to the unions.

And then this that followed next.

History shows the only chance for industrial relations reform is if it is at the initiative of a Labor government because a Labor government can count on the support of a Coalition opposition for worthwhile reforms.

Conversely, a Coalition government cannot count on the support of a Labor opposition that habitually opposes for the sake of opposing.

History also shows that Labor and the gaggle of odds and ends in the Senate will do anything to thwart a Coalition government even if it means damaging the public interest.

If the government thinks it can negotiate with the union movement without a goodly array of people from the employer side of the divide – and I especially mean Steve Knott of the Mines and Metals Association and others like him – then they will certainly be fleeced.

On the union side, the people who rise are those who start out inside an enterprise and at branch level, almost always because they gain the confidence of their co-workers, usually by being the most belligerent, find themselves elected show steward before moving higher. In this way, step by step, by gaining confidence of their peers and coming to be noticed by those above them in the union hierarchy, they gain more power and influence. Those that eventually get to the top are, through natural talent and further training, phenomenally persuasive, ideologically committed and as tough as nails. There is no room for sentimentality in any negotiation with a union. They know what they want – MORE – and what they are willing to give up to get it – NOTHING.

The only reform I am looking for is to make unions negotiate in good faith and an industrial relations system that will make both unions and employers adhere to their agreements. For a union leader also to understand the role of productivity in creating wealth and who wish to work with employers to achieve it are rare, but it is such union leaders that are an absolute necessity if real earnings are to grow along with an economy.

Daniel Andrews is an economic fool

For sheer hypocritical moronic stupidity, it’s hard to beat this from Mr Lockdown Victoria about his putting the state into hock to the Chinese:

Victorian Premier Daniel Andrews has defended the state’s relationship with China, saying any cooling of the partnership would cost jobs.

He cannot see what’s wrong with China because they are doing just what he would do himself if he could. The people of Victoria have with blind faith in miracles, put the state’s economy into the hands of the person least capable of directing us towards growth and prosperity. The last line of the story is pure enchantment:

Mr Andrews travelled to China to sign a second BRI deal in October last year, agreeing on areas of co-operation including increasing the involvement of Chinese companies in Victoria’s $107bn infrastructure program.

Infrastructure spending – such as the tunnel and the train – literally means public spending on loss-making projects. Economic ignorance comes at a very high price and we are going to pay it. The Federal Government, if for no other reason than to protect itself never mind Australia’s future, must prevent this communist jerk from ruining the economy.

The kinds of forecasts we are dealing with seem similar to this: Australia’s coronavirus response avoided about 14,000 deaths, Chief Medical Officer says. That is the story from just today!

A supply-side take on the PM’s package

I have to say that I have been charmed by the approach taken by the Government to bring us out of the lockdown. I find this especially extraordinary:

Value created by establishing successful products and services, the ability to be able to sell them at a competitive and profitable price and into growing and sustainable markets. It’s economics 101.

Here’s the thing. It is not Economics 101 and has not been for two generations. It ought to be, but isn’t. Because this is an entirely supply-side statement. There is not an ounce of C+I+G anywhere to be seen. It is entirely about Value Adding as the absolutely necessary core for regenerating growth.

Keynesian economics may really be dead, and not a moment too soon.

“More people will die from the measures than from the virus”

An interview with Yoram Lass, “the former director of Israel’s Health Ministry, on the hysteria around Covid-19”: ‘Nothing can justify this destruction of people’s lives’ at Spiked. Read it all, but this is how it opens – I have left out the questions that these are the answers to:

Yoram Lass: It is the first epidemic in history which is accompanied by another epidemic – the virus of the social networks. These new media have brainwashed entire populations. What you get is fear and anxiety, and an inability to look at real data. And therefore you have all the ingredients for monstrous hysteria.

It is what is known in science as positive feedback or a snowball effect. The government is afraid of its constituents. Therefore, it implements draconian measures. The constituents look at the draconian measures and become even more hysterical. They feed each other and the snowball becomes larger and larger until you reach irrational territory. This is nothing more than a flu epidemic if you care to look at the numbers and the data, but people who are in a state of anxiety are blind. If I were making the decisions, I would try to give people the real numbers. And I would never destroy my country.

Mortality due to coronavirus is a fake number. Most people are not dying from coronavirus. Those recording deaths simply change the label. If patients died from leukaemia, from metastatic cancer, from cardiovascular disease or from dementia, they put coronavirus. Also, the number of infected people is fake, because it depends on the number of tests. The more tests you do the more infected people you get.

The only real number is the total number of deaths – all causes of death, not just coronavirus. If you look at those numbers, you will see that every winter we get what is called an excess death rate. That is, during the winter more people die compared to the average, due to regular, seasonal flu epidemics, which nobody cares about. If you look at the coronavirus wave on a graph, you will see that it looks like a spike. Coronavirus comes very fast, but it also goes away very fast. The influenza wave is shallow as it takes three months to pass, but coronavirus takes one month. If you count the number of people who die in terms of excess mortality – which is the area under the curve – you will see that during the coronavirus season, we have had an excess mortality which is about 15 per cent larger than the epidemic of regular flu in 2017.

Compared to that rise, the draconian measures are of biblical proportions. Hundreds of millions of people are suffering. In developing countries many will die from starvation. In developed countries many will die from unemployment. Unemployment is mortality. More people will die from the measures than from the virus. And the people who die from the measures are the breadwinners. They are younger. Among the people who die from coronavirus, the median age is often higher than the life expectancy of the population. What has been done is not proportionate. But people are afraid. People are brainwashed. They do not listen to the data. And that includes governments.

Much more at the link. And speaking of outcomes of Biblical proportions, there is also this to think about.

Two weeks ago, when looking at the recent flurry of chapter 11 filings and a striking correlation between the unemployment rate and loan delinquencies, we said that a “biblical” wave of bankruptcies is about to flood the US economy.

It now appears that the wave is starting to coming because according to Fitch, the monthly tally of defaults in the U.S. leveraged loan market has hit a six-year high, as companies are either missing payments or filing for bankruptcy because of the fallout from the coronavirus pandemic.

Speaking biblically again, there is no doubt that governments around the world have sown the wind. You know what comes next.

In the hands of idiots

It seems to me that every political leader wants to be remembered as the Winston Churchill of their times, when the reality is that there is no greater truth than rooster today, feather duster tomorrow. It is incredible what a bunch of fools this country is led by, state and federal.

We here in Victoria are blessed with the Laurel and Hardy duo of Dopey Dan and Slo Mo. Possibly the stupidest statement to come out of our present situation is from Paul Kelly in relation to the PM: “Political capital built during the virus crisis must be spent wisely on reform”. The only form of capital that occurs to me is capital punishment. We are led by such power-driven idiots that it is hard to have imagined this outcome. If any kind of reform is needed it is to find ways to limit the power we seem inadvertently to have put into the hands of our political leaders. Let me therefore take you to this from Adam Creighton – Coronavirus: We’re paying a high price for saving not many lives – who shows a great deal of what is now missing everywhere, common sense.

He discusses the absurd numbers flowing from the Victorian government. Whoever wrote the document he refers to should resign in disgrace:

The most absurd document published by an Australian government in recent times must be from Victoria’s Health and Human Services Department, which claimed 36,000 Victorians would have died from COVID-19 without the tough lockdowns brought in by Premier Daniel Andrews.

Adam Creighton also puts a number of what this is costing:

The cost [per life saved] is looking enormous and far more than we typically spend to save lives. If we’d followed the Swedish trajectory we might, crudely, have an extra 4500 fatalities by now (our population is 2½ times the size).

For the federal government alone, that works out at $48m per life saved, given the $214bn in budgeted federal assistance.

That is only the additional tally for federal money spent, leaving out the states. I did another similar estimate based on lost GDP which came to $300b per life saved. But let’s work with merely the $48m per individual life saved.

We are in the hands of idiots of such colossal proportions that no one will ever again be able to look back at the Salem Witch Trials and laugh at the people of their time since we are among people so far in advance with their own superstitions that believing in witches will eventually seem rational compared with the dolts we are in the hands of today.