Marvellous Melbourne in the news

I don’t know that this is a mask infringement, but it has certainly been noticed. This is from our sister blogsite in Canada: They Went From “Flatten The Curve” To “Put Your Hands Behind Your Back” So Fast We Didn’t Even Notice.

Then there was this on the front page of the Hun today: Show us the money.

Plea to reveal project overruns & delays as blowouts top $6.4bn COST blowouts on 10 of Victoria’s key infrastructure projects, including the West Gate and Metro tunnels, have risen to more than $6.45bn. Concerns over delays and associated ballooning expenses on projects have prompted calls for the urgent release of detail on their progress. The information was left out of the budget for the first time in years on Tuesday, with Treasurer Tim Pallas saying the coronavirus pandemic made preparing progress reports difficult. But sources close to the government have detailed blowouts of $6.45bn on just 10 projects, including $2bn on the Metro Tunnel and $1.2bn on the West Gate Tunnel. The state budget revealed only 84 per cent of timelines on the West Gate project were met last year.

They can spend and spend and spend, but adding value and covering the costs of deficits with a projected revenue stream, that they’re not so good at.

FROM THE HERALD SUN: This is a pictorial from inside the paper to give you some idea of the massive cost blowouts Victoria is absorbing. And now they intend to add another $10 Billion to build a train to the airport. Where are the adults?

The worst premier in Australian history

Daniel Andrews is good at wasting money on over-priced infrastructure projects. He had already bankrupted the State even before the Chinese Flu came along. But here is the psychology of what then occurred. Although he is quite stupid, he thinks of himself as a genius. And what he has found out is that his stupidity is now recognised by all, other than the dwindling number of our fellow citizens caught up in the toxic virus of the Melbourne Syndrome. And along with his low grade intelligence, he has a ridiculously high level of self-regard. As a result, the incessant level of bungling has led to his refusing to admit that even a single one of his decisions has been at the centre of the problems in dealing with Covid. Look at this from The Oz today:

Josh Frydenberg, the nation’s most senior Victorian federal minister, has pleaded with Daniel ­Andrews to free Victorians from “devastating’’ coronavirus restrictions, warning that businesses are losing hope and the state now has 40 per cent of the nation’s effective unemployed.

The Treasurer sparked a bitter political row with the Victorian Premier on Monday when he ­accused Mr Andrews of “callous indifference” towards economic hardship in the state after restrictions on many businesses were ­extended for two weeks.

A dismissive Mr Andrews hit back, accusing Mr Frydenberg of playing politics when Victorians wanted their families kept safe so the state could reopen safely.

More psychology here, this time a bit of projection when he accuses The Treasurer of “playing politics”.

Face it, he’s a political moron and even worse economic manager. But he has had some psychological wire tripped and he is now going to show us how it is done properly.

He was elected because he promised to get rid of rail crossings and even he found it too expensive and hasn’t done it. Now he is in charge of dealing with the Covid where we once again discover how massively out of his depth he is.

And there is this which has just cropped up. I wonder who Mr Stupid will blame: Hotel quarantine guests at risk of HIV and other viruses after testing blunder.More than 200 people who were in Victoria’s hotel quarantine program are being urged to get tested for HIV and other viruses after a testing mix-up.`State health authorities have announced that 243 people are being advised to undergo testing for Hepatitis B and C and HIV after it was revealed that single-use blood glucose testing kits were used multiple times.

`
Dan really has to go. Worst Premier in Australian history.

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.