A brutal reminder of macroeconomic incompetence

The GFC was over with in 2009 and now we are at the end of 2017. So what are we to make of this, other than they have no clue what’s gone wrong:Brutal reminder of GFC still here, Treasury says, as retail stung by poor sales.

Treasury secretary John Fraser has slammed politicians for being out of touch with the struggles of everyday Australians and blamed “extraordinary political instability” for a lack of consistent policy settings that could push the economy forward.

Mr Fraser made his comments as retail figures released on Friday showed yet another month of downbeat results, with a fall in food, clothing and department store sales.

Rising energy prices and the weakest wage growth in Australian history are slugging consumers, driving anxiety among businesses in the lead-up to the crucial Christmas trading period.

In a speech at the Australian National University before the dismal data was [were] released, Mr Fraser said the country was still struggling with “the brutal reminder of the global financial crisis,” which took longer than expected to recover from and had led to a “perplexing weakness” in the economy.

The actual perplexing weakness is in the economic theories that have been used to analyse what’s gone wrong and then work out what to do to fix things.

The GFC was a worse-than-usual downturn that would have blown over in about a year, were it not for all of the Keynesian so-called “stimuli”. It is the fantastic amount of our national savings that have been blown by governments on building the education revolution, pink batts, the NBN, green energy and pretty well every other government spending program over the past decade. Obvious as the day is long, yet there is no one in Treasury who seems to understand why their road to recovery has been a road to ruin.

The public cost of supporting those who game the welfare system

This is how the welfare system works: it is as if someone has moved into your house, uses your kitchen, bathroom and one bedroom, but doesn’t contribute to the groceries or help to pay the rent. There may be reasons to allow this: sick relatives, friends who are down on their luck or because of a charitable streak in the owner of the house. But whatever else, this outlay does draw down on what is available to everyone else and leaves those who offer the welfare less well off than they otherwise would have been.

Most societies have offered welfare assistance to the sick, the disabled, the elderly or others who cannot provide for themselves. But they have also always limited the amounts provided for a number of reasons including the ever-present possibility that some of those receiving welfare could be earning their own incomes and contributing to total output, instead of taking from the earnings of others while putting nothing back in.

I say all this because of an article that showed up on the front page of the Herald Sun this morning: Warning over booming Australian welfare bill. From which:

TAXPAYERS are coughing up $300,000 a minute for a welfare bill that has soared $40 billion in 10 years.

The Herald Sun can reveal that the total lifetime welfare bill for all those currently receiving benefits has been estimated at $2.1 trillion.

The frightening figure emerged as federal government debt reached a record $506 billion yesterday, renewing concerns about the public cost of supporting those who game the system or are locked into a cycle of welfare dependency.

Remarkably, anyone currently receiving government help to study is expected to be on welfare for nearly half of the rest of their lives, costing taxpayers an average of $247,000.

This is the equation showing in miniature how our ability to spend works:

Income Earned – Taxes Paid + Welfare Payments Received

There is no reason in any particular instance that Income Earned minus Taxes Paid will be greater than Welfare Payments Received. Especially if for those receiving welfare are able to keep Taxes Paid to a minimum relative to Hidden Income Earned.

Welfare should not be a way of life, but assistance given when it is needed and only then. But now that Voting for a Living has become a viable alternative to Working for a Living, the constituency to do something about what is shown by these latest studies on our exploding welfare bill may no long exist.

Not everyone on welfare is gaming the system, of course. But not every payment on welfare is legitimate either.

“Wage growth is stuck in the doldrums”

The fact of the matter is that no one using modern economic theory could explain this: PAY GAP: Australian wages growth is stuck at record lows, and running behind inflation. Certainly you don’t find an explanation in the story which has only this:

With wages currently growing at an annual pace of less than 2%, and given evidence that it’s been hard to stoke wage pressures in other developed nations even with recent improvements in labour market conditions, it’s little wonder that some remain sceptical about a sharp turnaround in wages, particularly to levels back above 3%.

“The fact that wage growth is stuck in the doldrums comes as little surprise given the deterioration in Australia’s labour market, with the jobless rate climbing from 5.7% to 5.9%,” said Tom Kennedy, economist at JP Morgan, following the release of the report.

“We expect wage growth to remain unimpressive for some time given significant slack remains in the labour market.”

The problem has been obvious for almost a decade but only for those who have been classically trained.

Nonfunctional Broken Network

What happens when someone who writes with great charm about the funny stuff in life instead gets really angry about something that is not funny at all. Here we find out. Danny Katz has just been hooked up to the NBN and it is definitely no joke. He titles his column The NBN is coming! but it’s actually about what happened after the NBN arrived. For me, the waste and incompetence associated with government services like this are just one of life’s impractical jokes. This is part of the joint efforts of the Liberal-Labor Coalition to turn Australia into another Venezuela. Read the column through, but this will help you see what’s there at the link.

I sat down and stared at the green lights, waiting for them to stop flashing, waiting for my better life, thinking “NBN (Nearly, Be-patient, Not-long)”. The NBN connection box flashed for another 20 minutes, then another 20 minutes, then another hour and a hour, and I thought, “N… B… N (Nope… Bugger… Nothing).”

I was reminded of the wise ancient proverb, “A watched NBN™ Connection Box will never connect to a high-speed network (via a hybrid fibre coaxial lead-in cable)”.

So I got up and had a little snack in the kitchen: NBN (Nachos, Bowl, Noshing). When I came back the lights were still flashing. Getting a bit stressed now, a bit anxious, NBN (Nails Bitten Nervously).

The NBN instruction booklet told me to contact my internet service provider if there was any trouble, so I rang up Technical Support and was put on hold for another 40 minutes, an occasional recorded voice saying, “Did you know that you can resolve many of your technical problems online?” and I thought, “Well I would, if I could get online, you NBN (Numbskull Boofhead Neanderthal!)”

This is the full flowering of the Kevin-Julia-Malcolm alliance, peak political and economic stupidity at its highest intensity.

A carbon tax and falling GDP! What does Malcolm ever get right?

First a carbon tax and now contracting GDP.

The nation’s worst economic performance since the global financial crisis threatens to upset the government’s budget planning and force a reluctant Reserve Bank to reconsider the case for further interest rate cuts.

The 0.5 per cent fall in GDP in the September quarter was much worse than either Treasury or the Reserve Bank was predicting and reflects both continuing falls in business investment and poor consumer spending.

Malcolm is our Obama, utterly incompetent in every way, the only person who could make Bill Shorten viable. He’s got to go.

Another Keynesian at the RBA

So what’s the new RBA governor like? He is standard issue Keynesian, that’s what he’s like, which means he will never have a clue what’s going on. This is so depressing: Reserve Bank governor Philip Lowe urges government to invest in infrastructure. The opening paras:

Incoming Reserve Bank chief Philip Lowe has appealed to the Turnbull government to help him out with economic management by borrowing big for infrastructure, saying there’s only so much that further cuts in interest rates can do.

In what amounted to a plea to the Prime Minister and Treasurer to take advantage of near-record low interest rates and borrow now that the Reserve Bank’s cash rate was close to zero at 1.5 per cent, he told a parliamentary hearing that monetary policy is “not working as effectively as it might have”.

“One response is to keep doing more of it in the hope that it finally works, he said. “My judgment is that that has not been particularly useful.

“Another option is for some entity in the economy to use the low interest rates to increase its spending. The government could either use its balance sheet or its planning capacity to do infrastructure spending.”

Does he not know that we have already tried the public spending and that it didn’t work. We have also tried low interest rates, and that didn’t work either.

Only private sector spending, where a genuine profit and loss statement in involved, will generate recovery. How about cutting deficit-increasing expenditures and reducing the weight of business regulation? Having seen his first go at giving policy advice, I am not encouraged by what he will now do to rates. As for public infrastructure, right under the AFR story on the RBA, there was this: Communications Minister Mitch Fifield eases NBN charge concerns. Wherein we read:

Investors saw the first real impact of the high wholesale access charges on Tuesday after David Teoh’s TPG Telecom warned that its margins will be cut as more users switch to the NBN under the current pricing model. TPG shares have been savaged since, dropping 24.5 per cent since Tuesday, while shares in Vocus Communications have dropped 10.4 per cent.

Mr Fifield said that “NBN is acutely aware of this issue.” The NBN is under increasing pressure over the charges as telco entrepreneurs warn that the industry may reach a point where some companies may go broke.

NBN would not even exist except for the billions blown by both governments on this ridiculous project. It is now the white elephant in the room and is threatening to devastate the industry. This is government infrastructure at its finest, a perfect example, along with unusable desal plants, green energy projects, billion-dollar Myki cards and beyond the idiocies found across the globe, we in Victoria have billion dollar non-existing roads-to nowhere. Let me give you my favourite quote from Adam Smith.

[Governments] are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”

Written in 1776 and with the words “always” and “without any exception” found in a quote from the normally cautious and careful Dr Smith. No one who has ever read that passage in all the years since it was written has ever seen a government that could be described as in any way different from what was described. It is a passage our new RBA Governor needs to read and takes to heart, while he goes back and has a look at Wicksell at the same time. Haven’t these people ever heard of the private sector?

Australia has the world’s best central banker

The headline reads, RBA’s Stevens says it’s time for government to step up on growth and this is the point:

Stevens says central banks have done all they can to boost economic growth and, eight years after the global financial crisis, it is time for governments to do more.

And if you missed the message, here’s a bit more:

In a speech in New York last week, he said central bank intervention was effective at heading off a potential catastrophe after the Lehman collapse but always­ had limited ability to accelerate the recovery. Rate cuts bring only a short-term boost to activity. He said the fall in global interest rates, which has been under way since 2007, reflected more than the actions of central banks.

Nothing left for central banks to do. And here is a bit of financial artistry that sets out the central point:

Financial assets are just paper claims on the flow of real returns from business investments or, in the case of government bonds, on the ability to tax those real returns. “If the real economy can’t perform to provide real returns to capital, there is nothing to back higher yields on financial assets.” Stevens says the lack of profit in the real world is the cause of the global stagnation, and central banks are powerless to change that. The growth potential around the world has fallen, he says.

That is so exactly right and I don’t think you can hear it said anywhere else. We are in a fiscal mess which cannot be fixed by adjusting interest rates up or down, although pushing them up would at least do some good. And even when he shifts onto the fiscal side, he is precisely right but you have to pay attention to the words he uses.

Stevens acknowledged that years of slow growth were jeopardising the “social compact” in many parts of the world. He urged government­ to take advantage of record low interest rates to embark on infrastructure projects that would raise construction activity­ and lift productivity. The critical issue was good governance to ensure the right projects were built and managed to add value, he said, not lack of money.

Projects that add value are, unfortunately, almost never the projects chosen by governments since there is no profit and loss statement nor any serious means to ensure more value is created than is used up. But at least he understands what needs to be done, but has much more faith than I ever will in the decision making processes of government to get that kind of result