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.

Lucky country no more

This sort of thing is always news to politicians, most of the community and to almost all economists: The Economy Doesn’t Need Government ‘Help’ To Reopen.

Governments don’t create economies. It’s not only beyond their legitimate functions, it’s beyond their abilities. They need to stay out of the way and let the wisdom of markets steer us back to normal.

“The wisdom of markets!” Do you think Dangerous Dan Andrews would have any idea what that means? There are many others I would ask that same question of but will leave it there. Because this is the reality that comes in the very next sentence after.

But some officials see an opening through which they can drive their big government dreams.

These people are incompetent to direct an economy. Or let me put it this way. THESE PEOPLE ARE INCOMPETENT TO DIRECT AN ECONOMY. This is Daniel Andrews bio from Wikipedia.

Andrews was born in Williamstown, a suburb of Melbourne, to Bob Andrews (1950–2016) and Jan (born 1944). In 1983 his family moved to Wangaratta, where he was educated at the Marist Brothers‘ Galen Catholic College.[1] Andrews moved back to Melbourne in 1990 to attend Monash University, where he was a resident of Mannix College and graduated with a Bachelor of Arts degree in politics and classics in 1996. After graduating, Andrews became an electorate officer for federal Labor MP Alan Griffin. He worked at the party’s head office from 1999 to 2002, initially as an organiser, and then as assistant state secretary.

Following his election to parliament in the Legislative Assembly seat of Mulgrave at the 2002 election, Andrews was appointed Parliamentary Secretary for Health in the Steve Bracks Labor government. Following the 2006 election, Andrews was appointed to the Cabinet, becoming Minister for Gaming, Minister for Consumer Affairs and Minister Assisting the Premier on Multicultural Affairs. In 2007, Andrews became Minister for Health in the John Brumby Labor government….

Brumby resigned as leader of the Victorian Labor Party following the Labor defeat at the 2010 election, after 11 years of Labor governments. On 3 December 2010, Andrews was elected Victorian Labor Party leader, becoming Leader of the Opposition in Victoria.

At the [2014] election, Labor gained seven seats for a total of 47, a majority of two.

And thus Daniel Andrews, economic cypher but socialist extrordinare became premier. And now he not only guides Victoria right towards the rocks, but he is signalling the way for the Feds to do the same. Shall I mention Scott Morrison and his career. Why not?

Morrison was born in Sydney and studied economic geography at the University of New South Wales. He worked as director of the New Zealand Office of Tourism and Sport from 1998 to 2000 and was managing director of Tourism Australia from 2004 to 2006. Morrison was also state director of the New South Wales Liberal Party from 2000 to 2004. He was later elected to the House of Representatives at the 2007 election, representing the Division of Cook in New South Wales.

Etc etc. And just how on top of things is our PM? The news just in: Scott Morrison to push for WHO to be given ‘weapons inspector powers’.

Australia will push for the World Health Organisation to be given the powers of an international “weapons inspector” that would be mandated to enter a country without invitation to trace the source of outbreaks in any future pandemics.

It is believed that Scott Morrison raised the idea with world leaders over the past several days while seeking a consensus for reform of the organisation be given priority and should not wait for any review or investigation into COVID-19 pandemic which could take as long as five years.

It is believed that Scott Morrison raised the idea with world leaders over the past several days while seeking a consensus for reform of the organisation be given priority and should not wait for any review or investigation into COVID-19 pandemic which could take as long as five years.

Let me add that after all this disruption, the most useful way to get us back to something like how things only so recently were is not to disrupt markets any further but just let conditions work themselves out on their own. Gently, gently. Thus we have the Head of the RBA coming up with this:

Handing down a detailed assessment of the damage being wrought by the COVID-19 pandemic, Dr Lowe warned that the nation could not rely on a quick return to a pre-coronavirus economy and suggested long-ignored calls for income, consumption and land tax reform, as well as stripping regulations that stifle innovation, would need to be revived.

Does no one in charge know how to run an economy any more?

Hey SloMo, what’s the plan from here?

Received this quite astute comment about where we are to go from here.

I think the ‘endgame’ will become an interesting political maelstrom. I can’t see how there is any choice but for governments to finally concede to take the calculated (cost vs lives) approach to open back up.

Try to eradicate? No way

Wait for a Vaccine? long way away and may not work

Wait for Herd immunity? long way off (think need 80%+) and who knows if that will work

Keep flattening forever? doesn’t make sense

Open up and then find the same exponential curve? can we take such a crazy risk (and how is it different to the risk we haven’t allowed ourselves to take to now)

Eventually I think it will just have to get back to normal and people will accept the risk that there’s a new strand of flu and just get on with it. Now how do the politicians enable that from the position we are in now?

Yes, indeed. How does the government begin to ease the restrictions and under what circumstances? Are they even giving us the rudiments of an exit strategy? Nothing so far, so why don’t they get on with it and let us know what’s in their minds and what the end game will look like?

Rudd returns to defend his economics because no one else will

There was a letter to the editor in The Oz yesterday which they have not even preserved on their editorial page so I have had to re-type it so that you can see it in full. The heading is “Conservative no radical”.

Janet Albrechtsen accuses me of executing a “canny con job” by campaigning as an economic conservative.

As Peter Costello has said, John Howard had become a serious big spender by 2007. Our election commitments tallied about 75 per cent of the Liberals’; hence my statement I would not match his reckless spending promises. Indeed, in May 2008, we budgeted for a surplus of 1.8 percent of GDP. Then came the global recession in September. We took the mainstream conservative approach, learning from the Great Depression by reaching for the proven lever of fiscal stimulus and leaving a legacy of productive infrastructure.

The economic radicals of the Liberal Party voted against the stimulus. If they had succeeded, there would have been a 15-month recession with 210,000 more unemployed according to Treasury and the OECD. Instead, we were the only advanced economy to avoid a recession. Conservative does not mean reactionary.
Kevin Rudd, Sunshine Coast, Qld

The point of a “stimulus” is to reduce unemployment, which other than trivially never occurred. And if he thinks there was no recession in Australia following the GFC, he ought to take a look at the rise in the unemployment rate which has remained more or less at the same elevated rate it reached at the height of the GFC. Meanwhile productivity growth has been dismal, and real wages have continued to stagnate.

So to remind us of just how conservative K. Rudd was, I attach for your interest two articles I published in Quadrant. First, Reflections of a Neo-Liberal, which discusses an article by Rudd published at the time giving his economic philosophy. In my response to Rudd, there was this.

To capture as least some of the rhetorical overdrive, I reproduce the two insert quotes displayed in large print across the page. The first:

The great neo-liberal experiment of the past 30 years has failed … the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy.[ellipses in the original]

And then there’s this:

The stakes are high: there are the social costs of long-term unemployment; poverty once again expanding its grim reach across the developing world; and the impact on long-term power structures within the existing international political and strategic order. Success is not optional. Too much now rides on our ability to prevail.

We are here not discussing whether some policy or another might make the economic system work more effectively. This is not about whether there ought to be a stimulus package and if so, how it ought to be structured. This is beyond the technical side of economics and into the realm of good and evil. It is a psycho-drama in which Frodo and his mates take on Gollum in a bid to save the world.

That was in April, 2009. In July I wrote another, also in Quadrant, The Neo-Socialism of the Twenty-First Century. Here are the final two paras:

We in the West once understood how to develop strong economies. Kevin Rudd’s article reminded me that such knowledge is not possessed by all. The coin of the political realm is now the creation of jobs irrespective of what those jobs actually do. The Soviet Union had no unemployment for almost all of its seventy-odd-year history, but those who had “jobs” produced next to nothing because they did not have the market to guide them, either in what to produce or over which inputs to use.

Why these questions are important was one of the major ideas developed by Friedrich Hayek, the arch “market fundamentalist” [Rudd’s phrase] to whose good advice and sound counsel our Prime Minister has closed his mind. On the surface Rudd appears to be guided by some defunct academic scribbler, but in reality looks to be making it up as he goes along.

And let me just refer to this comment by Rudd in his letter, that in trying to roll back the Great Recession, they were “reaching for the proven lever of fiscal stimulus and leaving a legacy of productive infrastructure”.

Since all that has been proven by the stimulus spending across the world following the GFC was that public spending never brings an economy out of recession, it is astonishing that no one ever seems to learn from experience. Neither here, nor in Obama’s America, nor anywhere else did public spending lead to a recovery. If anything has been proven it is that Keynesian economics is economic nonsense. This was the great Keynesian experiment, adopted across the world, and it was an absolute failure whose dismal legacy remains with us to this day.

And then to have suggested that left behind from the stimulus was “a legacy of productive infrastructure” you really do have to wonder what kind of fantasyland Rudd is living in. The Pink Batts and School Halls programs left nothing productive behind. Only left behind were the debts and deficits which remain with us still, more than a decade later.

WORSE THAN WHITLAM

If I hadn’t just listened to Steve Conroy present the Labor side of things on Andrew Bolt, I would not have known that they are even more absurd than you and your national cabinet. But I don’t really blame you since you are an economic simpleton. I blame those buffoons in Treasury who are giving you and your Treasurer this advice. They are your enemies. They are incompetent. Don’t you know that?

The important part of what first needed to happen was to ensure that no one runs out of purchasing power, which means that no one runs out of MONEY. This was not supposed to be an endless supply of cash unbacked by any productive activities. It was only supposed to be a stop-gap of a week or two and only for those who have been caught short of cash to spend.

If you think this kind of funding of unproductive activity can go on for even a couple of months, never mind six, you will go down in history as WORSE THAN WHITLAM.

I understand that such considerations have gone out of fashion, and are never mentioned in an economics text, but have you ever heard of this thing called the private sector? Do you understand the conception surrounding the notion of value added? If you do not do as much as possible to ensure that incomes are related to productivity, you are guaranteed to run the Australian economy off the rails. You will make the Liberal Party poison for a generation if not longer.

I am perfectly aware that governments skim billions that have been earned through actual value-adding work through taxation and other forms of revenue acquisition. I am just as aware that these tens of billions you gather in are spent on producing assets that never have a positive return on funds invested. The NBN, the train lines in Melbourne or the streetcars in Sydney are a sinkhole of loss that must be covered by actual value-adding projects in the private sector. The ratio of wages paid to value produced in the public sector is a massive negative. You guys have never managed a payroll in your lives which shows in almost every economic decision you make.

But to take these stupidities and extend them even farther is gross negligence. To fund the economy’s wages bill while you have shut down productive activity all across the continent is nuts.

We have eighteen dead from the Corona Virus. People are getting sick, and anyone of us, particularly our older citizens, might end up with this disease and some may die. But to crash and burn an economy because there might eventually be a few thousand of us caught up in this medical firestorm is so bizarrely disproportionate as to defy belief. Have you no sense?

Say you are doing everything you can to overcome this virus, and then do everything you can. There are cures coming, vaccines being developed to prevent its spread, forms of isolation and treatment on the way that will limit how much further the disease continues. Common sense ought to be the prime prerequisite for a Prime Minister. That is why we elected you, to make difficult decisions. People will die from the Corona Virus, that is a certainty. They will also die from incompetent economic decisions.

You must open the economy up as much as possible and do it as soon as possible. Everyone now knows they need to be careful of what they do. Everyone is aware of what they must keep an eye out for. But if you do not let us get back to work, you may ultimately be held responsible for the greatest economic disaster in Australian history.

Cut public service salaries by 20%

Aside from essential services, of course. As for the run of the mill public servants, of which there are hardly any other kind, they should be part of the solution to the economic challenges we face. The greatest economic problem are the structural shifts in the economy which will affect private sector employees alone. Maintaining cash flow in the hands of individuals so that they can purchase the goods and services they need is essential.

It is also important that the structure of demand is maintained to the greatest extent possible so that we do not find businesses that will thrive when we return to normal times have disappeared.

If there are sacrifices to make, those whose jobs are never threatened because of public service contracts should be asked to contribute their fair share.

TEACHING MOMENT: Having just finished my first round of editing of my next book, Classical Economics and the Modern Economy, let me recommend it to one and all once it is finally published in June. Meantime.

Recessions do occur but NEVER because a deficiency of demand. When they occur, they are the result of a structural shift in the underlying economy. We are now in the midst of one of the most profound shifts in the international economy ever seen. Just the restaurant trade is facing a major fall in demand, along with airline travel, tourism and lots of other parts of the economy. The structure of the economy is under stress. The downturn which is inevitable is due to a structural shift, not a fall in demand. Everyone once understood that. Since 1936, it has disappeared utterly from economic discourse. I used to think this was obvious, but the reason I wrote this book was because I discovered that virtually no one understands this. We are all Keynesians now, except for myself and a handful of others. But there are others. After the failures of the stimulus after the GFC I thought there would be more, but obtuseness in settled theory is universal.

Nothing will prevent a downturn now, but what you must do is (1) ensure those who are now being temporarily displaced from their paid employment are receiving cash in hand so that they can buy what they need, and also so that businesses which will return to profitability after this disruption are able to maintain their cash flow. (2) It is the structure of demand that needs to be preserved, not the level. The level of demand will fall, but the crucial issue is that the structure of demand will also be badly affected. It is to maintain the structure that is crucial, not the totality. Demand is constituted by supply and supply will be falling all over the place (see Qantas). I only wish the Keynesian virus was not as virulent as ever.