Peter Martin

A second Apollo 11 Anniversary

2009-07-21T11:52:00.010+10:00

It's the real one today, in a few minutes actually. I jumped the gun yesterday.

My colleague Brendan Nicholson and I are amazed that it could ever have happened - far more amazed than we were at the time.

I guess it was normalised back then, at least to primary school children.

Another observation, something Jacob Vigdor said when he spoke to the ANU about computers in education the other day:

Now, the policy goal is no child left behind. We evaluate learning tools by how much they lift poorly-performing students out of illiteracy and innumeracy.

Then, during the space race, the policy goal was extreme excellence - getting the top kids further ahead, espcially in physics and maths. We evaluated learning tools by the extent to which they succeeded in leaving the performing-performing students behind.

And now for the best summation:

Tom Wolfe - author of The Right Stuff, which I heartily recommend as a movie.

Read this, if you read nothing else about that day 40 years ago:

One Giant Leap to Nowhere

By TOM WOLFE

WELL, let’s see now ... That was a small step for Neil Armstrong, a giant leap for mankind and a real knee in the groin for NASA.

The American space program, the greatest, grandest, most Promethean — O.K. if I add “godlike”? — quest in the history of the world, died in infancy at 10:56 p.m. New York time on July 20, 1969, the moment the foot of Apollo 11’s Commander Armstrong touched the surface of the Moon.

It was no ordinary dead-and-be-done-with-it death. It was full-blown purgatory, purgatory being the holding pen for recently deceased but still restless souls awaiting judgment by a Higher Authority.

Like many another youngster at that time, or maybe retro-youngster in my case, I was fascinated by the astronauts after Apollo 11. I even dared to dream of writing a book about them someday. If anyone had told me in July 1969 that the sound of Neil Armstrong’s small step plus mankind’s big one was the shuffle of pallbearers at graveside, I would have averted my eyes and shaken my head in pity. Poor guy’s bucket’s got a hole in it...

Continued in the NYT

HT: Mark Colvin

The carve up

2009-07-21T11:34:00.004+10:00

Do our growth states need more?

Premier John Brumby has promised to fight a proposed change in the carve up of GST revenue set to cost Victoria hundreds of millions each year.

The proposed change to the break up of the $40 billion GST pool would give extra money to the growth states of Western Australia, Queensland and the Northern Territory to compensate them for the cost of building the schools, roads, hospitals and police stations needed to service their growing populations.

Until now they have been eligible only for a subsidy for the cost of repaying loans taken out to build such infrastructure.

The Grant's Commission's draft report says states predominantly use GST money rather than borrowing fund infrastructure and that a change that recognised this would allow them to build infrastructure "when the need arises"...

Western Australia's Treasurer Troy Buswell has applauded the report saying his state has been "propping up states such as New South Wales and Victoria for too long".

"We have a very high level of population growth and pressures on us to provide the funding that drives that economic activity," he said.

Premier Brumby disputed that assessment yesterday saying Victorians already got back only 92.7 cents in each GST dollar they paid and "would not want to see that get any worse''.

"Queensland and Western Australia ought to be paying their way,'' he told
reporters in Melbourne.

"They have been the beneficiaries of a huge growth in the royalty income that came through the resources boom, and we wouldn't want to see their position further improved at the expense of Victoria.''

If Victorians lost an extra once cent out of each dollar in GST revenue they handed over the Victorian budget would be down $131 million.

Tax experts contacted by The Age say the exact loss to Victoria is hard to quantify, as the draft Grants Commission recommendation is only general in nature.

Another proposed change would have the GST formula reviewed every four years instead of every five and had the potential to benefit Victoria.

The Commission will issue a final report on the proposed formula in February, but indicates in its draft report that it unlikely to alter its its thinking about infrastructure funding, saying the change reflects "a more comprehensive approach to equalisation."

The change would come into force from mid next year.

Published in today's SMH

Graphic: How to Carve a Turkey

Access: It'll be better we'd thought...

2009-07-21T10:48:00.006+10:00

..but there's worse to come.

Australia is set to emerge from its downturn a year earlier than forecast, with far fewer people thrown out of work.

The latest Access Economics forecasts have the Australian economy growing this financial year in contrast to the Treasury's Budget forecast which has it shrinking.

"Things are better than either us or the Treasury expected," said Access director Chris Richardson. "Our economic stimulus programs have worked better, and China's stimulus programs are helping us more."

Access now expects unemployment to peak at 7.5 per cent, a full one percentage point below the Budget forecast of 8.5 per cent.

But the Access forecast still implies an extra 200,000 Australians joining the unemployment queue over the next two years, almost half of them from Victoria...

"We have avoided the worst the world had to throw at us," said Mr Richardson. "But that doesn't mean things won't get worse. Retail spending is at a record high thanks to government handouts, but their effect will fade and spending will flatline as unemployment climbs."

"Businesses will wind back spending as around $50 billion stripped from coal and iron ore earnings begins to hit profits."

While not endorsing the Access forecast the Access forecast Treasurer Wayne Swan welcomed the acknowledgement that the stimulus package was helping, agreeing that Australia still faced "strong global headwinds and some major challenges, particularly rising unemployment, as well as very large falls in business investment and the terms of trade, stripping billions from our national income."

"These huge challenges simply steel the Government's resolve to implement our three stages of economic stimulus to keep supporting businesses and jobs," Mr Swan said.

Access has Australia skirting a so-called "technical recession" with GDP slipping 0.2 per cent in the June quarter and staying steady in the September quarter before improving.

"It means the worst of the growth slowdown is behind us, but the worst of unemployment is still to come," said Mr Richardson.

The Access forecast has the Australian economy growing 0.4 per cent this financial year, whereas the Treasury's Budget forecast has it shrinking 0.5 per cent. Both Access and the Treasury expect a strong recovery next year of more than 2 per cent with Access expecting an even stronger bounce-back in Victoria of 3.3 per cent.

"Victoria isn't burdened by the size of its finance sector the way NSW is," said Mr Richardson. "And it's already suffered big job losses in manufacturing."

While Victoria's relative reliance on manufacturing will continue to be a drag on growth it stands to benefit from exceptionately strong population growth.

"It going like a train, up almost 2 per cent in the past year alone. That's the fastest population growth rate since Jean Shrimpton scandalised Flemington Racecourse with her mini-skirt back in 1965."

"It's underpinning housing construction and it is helping to protect Victorian retailers."

"And, unlike NSW which was caught flat-footed in the race to justify stimulus funds, Victoria did well in the carve up of national stimulus funding."

An Essential Media poll conducted over the weekend found that 52 per cent of Australians believed economy had hit bottom and was on the way up, compared to 31 per cent who expect things to get worse.

Optimists outweighed pessimists among both Labor and Coalition voters with only Green voters overwhelmingly pessimistic.

Published in today's Age

Meanwhile...

NSW will be by far the worst performing Australian economy in the year ahead according to new forecasts which have it going backwards at a time when every other state and territory economy will move forwards.

The Access Economics forecasts have NSW gross state product shrinking 1.2 per cent during 2009-10 at a time when the Australian economy rebounds 0.4 per cent and the Victorian economy 0.5 per cent.

"It's Sydney's finance sector," says Access director Chris Richardson. "Normally a source of strength, it's on life support, joining NSW manufacturing, farming and tourism which is already there."

"As well NSW coal miners are starting to feel big income losses from lower prices and NSW is faring badly in the carve up of federal stimulus funds, getting less than its fair share."

"It's adding to pressures on Australia’s weakest link."

Access is expecting NSW unemployment to peak at 8 per cent in mid 2011, , well above its present 6.5 per cent, as another 96,000 NSW residents join the unemployed, roughly half the 200,000 extra Australians expected to find themselves out of work.

Australiawide Access expects unemployment to peak at 7.5 per cent, down on the Budget forecast of 8.5 per cent, but well up on the present 5.8 per cent.

"Our message is that Australia has dodged a bullet - we have escaped the worst the world had in store for us, but nevertheless things will get much worse before they get better," Mr Richardson said.

The Access forecasts are at odds with public opinion reflected in the latest Essential Media poll. Asked on the weekend whether the Australian economy was over the worst and starting to improve, 52 per cent said yes. Just 31 per cent expected things to get worse.

The Access forecasts have retail spending flatlining as the effects of the stimulus handouts wear off and unemployment climbs. Businesses will wind back spending as around $50 billion stripped from coal and iron ore earnings begins to hit profits.

Treasurer Wayne Swan welcomed an acknowledgement from Access that the stimulus package was helping, but said he agreed that Australia still faced "strong global headwinds and some major challenges, particularly rising unemployment, as well as very large falls in business investment and the terms of trade, stripping billions from our national income."

"These huge challenges simply steel the Government's resolve to implement our three stages of economic stimulus to keep supporting businesses and jobs," he said.

Access has Australia skirting a so-called "technical recession" with GDP slipping 0.2 per cent in the June quarter and growing not at all in the September quarter. "But in the real meaning of the term, we will be in recession," Mr Richardson said. "If the unemployment rate jumps by 2 or more percentage points, it's a recession."

Access expects a rebound in the NSW housing market, but mainly "because it couldn't get any worse". “Even with improving population growth, low interest rates, government handouts and chronic underbuilding, most of NSW’s leading indicators have only just started to bottom out," said Mr Richardson.

"Financing of new dwellings is usually the first indicator to turn and it's been far more buoyant. That suggests a rebound, even though builders might have to wait until 2010 to feel it."

Let's remember

2009-07-20T11:53:00.011+10:00

At the Warradale Primary School 40 years ago this morning our Headmaster (Mr Munday, I think) told the assembly that any of us who wanted to could go home immediately and watch the planned moon walk.

The students who stayed watched in the school Library.

I walked home with my two younger sisters, and we turned on the TV.

I actually think I was out of the loungeroom in the kitchen when it happened.

But here's what did happen:

A guy who was in the ABC Sydney television control room that day tells me that they didn't have a direct feed they could broadcast. The US TV system is different to the Australian one. So they put a camera in front of the one American TV monitor they had, and put that to air - all four Australian stations took it.

There was a problem - the unorthodox method of broadcasting the vision meant that it was going to air after the sound. So they rigged up two audio tape recorders, recorded the sound on one and spooled the tape along to the other a few feet away where it was played back. They got the distance and the delay about right.

I am sure there are many more such stories.

A computer will help your child get ahead. Well...

2009-07-20T10:02:00.005+10:00

The centrepiece of Kevin Rudd's education revolution may not only be useless, it may actually be worse than that, according to a visiting United States researcher.

In the leadup to the 2007 election Mr Rudd undertook to spend 2.3 billion rewarding parents who installed or spent money on home computers.

"When it comes to investing the nation’s future I can’t think of a better, more important way than to provide an education tax refund which helps mums and dads help their kids engage in a digital economy," he said.

"If you’re a kid today, let’s face it, if you’re not wired at home and if you don’t have access to laptops and computers and software, you start to fall behind."

He later said his decisions would be "evidence-based"...

Professor Jacob Vigdor, from Duke University has conducted what's probably the worlds biggest study on the the effect of gaining a home computer on maths and reading scores. He finds "statistically significant" evidence it sends them backwards.

"In total, children in homes with computers tend to do better than those in homes without, there's no doubt about that." Professor Vigdor told the Herald/Age. "But there could be other reasons. Those homes also have a lot of other things other homes don't have, and often have more educated parents."

"I wanted to examine the performance of individual students before and after their home gained a computer."

Of necessity this meant examining the performance of students from less well-off homes. The better-off homes already had computers. But Professor Vigdor does not think this was an important limitation.

"These are the children that laptop and home computer policies are meant to help," he told an Australian National University seminar.

When Year 3 to Year 8 students in North Carolina take end-of-year tests they are also asked a number of other questions including whether they have a computer at home and what they use it for.

Using five years of answers to compare the average performance of each student before and after their home acquired a computer Professor Vigdor found it made their results "significantly worse" in both reading and mathematics.

"The bad effects fade somewhat over time, but even after 5 years they are still negative," he said.

He found similar results for the penetration of broadband (using postcode data) and even similar results for the amount of time the students reported using the computer for homework.

"The point is that playing games, using email and social networking sites and homework - they are all easier if you have a computer," he said.

"I am not saying go out and burn all the computers. If you want to buy junior a computer with your own dollars, that's fine. If you make this decision that junior's momentary pleasure is worth a small loss in knowledge - go ahead."

"But it's another thing when we talk about spending public dollars. The justification for these polices when they are proposed is not to allow students to have a good time, it's to improve the way they perform at school. It's expensive, and it's not working."

Other studies had found that even computers in schools did little to improve outcomes.

"They should be able to help, but good old fahsioned non-computerised instruction appears to have some advantages. Perhaps we haven't figured out how to get computers as good," said Professor Vigdor.

But the evidence isn't all bleak for the Prime Minister. He can take heart from a different study published on the weekend in the Economics of Education Review. In it University of Technology Sydney academic Mario Fiorini finds that for younger children, aged 5 to 7, time spent on the computer actually improves cognitive skills - partly by cutting the time they spend watching television and playing video games.

Published in today's SMH and Age

The man who bought much of the world the moon landing...

2009-07-18T17:40:00.006+10:00

(via Australia as it happens)

...has passed on

Here's his LA Times obituary.

What did he say at that special moment, almost 40 years ago?

"Whew, boy!"

And here he is announcing Kennedy's death:

It is said that at that moment television became America's cathedral.

The Indonesia bombings were really, really stupid

2009-07-18T13:26:00.007+10:00

I was angry when I arrived at work to be told the news. Really, really angry.

It put me in mind of this, written on the website of the London News Review hours after the 2005 London subway attacks.

(Apologies for the language - it's necessary)

"What the fu*k do you think you're doing? This is London. We've dealt with your sort before. You don't try and pull this on us.

Do you have any idea how many times our city has been attacked? Whatever you're trying to do, it's not going to work.

All you've done is end some of our lives, and ruin some more. How is that going to help you? You don't get rewarded for this kind of crap.

And if, as your modus operandi indicates, you're an al-Qaeda group, then you're out of your tiny minds.

Because if this is a message to Tony Blair, we've got news for you. We don't much like our government ourselves, or what they do in our name. But, listen very clearly. We'll deal with that ourselves. We're London, and we've got our own way of doing things, and it doesn't involve tossing bombs around where innocent people are going about their lives.

And that's because we're better than you. Everyone is better than you. Our city works. We rather like it. And we're going to go about our lives. We're going to take care of the lives you ruined. And then we're going to work. And we're going down the pub.

So you can pack up your bombs, put them in your arseholes, and get the fuck out of our city."

Where are out export prices heading?

2009-07-18T10:08:00.005+10:00

Down, although the very recent trends are promising

Australian export prices "fell off a cliff" in the June quarter in the biggest slide since 1974, heralding the start of the much anticipated collapse in Australia's terms of trade.

Export prices slid 21 per cent in the quarter, after sliding only 5 per cent in the preceding quarter.

Leading the index down was a 37 per cent collapse in the prices received for coal, coke and briquettes and a 23 per cent drop in the prices of metal-producing ores including iron ore.

The slide was worsened by a 12 per cent appreciation in the Australian dollar.

"We had the last gasp of the good times in 2008," said TD Securities economist Annette Beacher...

"Now our terms of trade have fallen off a cliff."

"This is a real loss of income. So far we have escaped a technical recession by spending, but we can't indefinitely ignore income."

"While no Armageddon, this lost income will eventually hurt our broader economy. We can't have continued expenditure without income."

ANZ economist Riki Polygenis said the lower prices would hit corporate profits, national income and government revenues. "But this was widely expected," she added. "The real question is what happens from here?"

Most of the slide is the result of sharply lower coal and iron ore prices negotiated earlier in the year. Those lower prices will remain in force for 12 months.

But the Commonwealth Bank believes their weight on Australia's terms of trade may be less extreme than had been thought.

"The peculiarities of the Australian pricing system are smoothing out the cycle," said economist Michael Blythe. "Large price rises for coal and iron ore were locked in early in 2008, offsetting the subsequent slump in broader commodity prices. Now large falls in their prices are in place. But other commodity prices are rising as global growth expectations improve. So we have managed to top and tail the extremes of the commodity price cycle."

"There are indications that the global economy is bottoming out and some of the key commodity-consuming nations are picking up," said Mr Blythe.

"Trends in the Chinese economy are particularly encouraging. Commodity prices will, on average, be lower in 2009. But they should rise in 2010."

Import prices also fell sharply in the quarter, losing 6.4 per cent mainly as a result of the stronger dollar. The slide is the biggest since import price records were first collected in the early 1980s.

When the collapse in import prices is offset against the collapse in export prices, Australia's terms of trade fell an estimated 15 per cent after sliding 2 per cent in the March quarter.

"We are expecting worse ahead," said JP Morgan economist Helen Kevans. "We had been expecting the terms of trade to fall at least 30 per cent from top to bottom, although it now looks like it will be more than that."

Commonwealth Bank economist Michael Blythe said a silver lining was the likelihood of further falls in import prices.

"Declining activity in the major economies means a sizeable output gap is opening up. At the same time, the lift in the Aussie dollar – with more to come – will keep downward pressure on local-currency import prices."

"It will help offset some of the damage from lower export prices."

Published in today's SMH and Age

Graphic: Wikimedia Commons

We're undervalued

2009-07-17T19:28:00.002+10:00

Why do I feel hungry?

The Economist explains.

The top 25 Economics Blogs

2009-07-17T19:18:00.003+10:00

...as assessed by the Wall Street Journal

Not an Australian one among them, I think.

Comments Policy

2009-07-17T15:05:00.001+10:00

I don't have one. Apart from the obvious. I delete spam and abusive comments (of anyone).

But the Prime Minister does, and how!

"Users who wish to comment on the Prime Minister’s blog will need to register.

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In order to facilitate discussion registered users will be asked to provide a unique screen name to serve as their identifier during discussion. Please note, screen names will be limited to 20 characters and screen names which breach the Protocols for Participation will be rejected.

Once registered just head to the latest PM’s Blog and post a comment in response after the Prime Minister commences the blog.

Comments are limited to 300 words or less. Each Prime Minister’s blog will be open for comments five business days from the date of its publication.

All blog comments will be subject to moderation. The purpose of moderation is to ensure that the discussion does not include offensive or discriminatory language and to keep the discussion on topic. Moderators will check all comments against the published blog comment rules and approved guidelines for moderation. For more details, please see our Moderation Policy and Protocols for Participation outlined below.

We welcome your participation in the blog. To ensure that your contribution meets legal requirements and the discussion stays on track, all comments posted to the blog will be moderated according to the Protocols for Participation set out below.

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I love the bit about nothing "overtly party political"

The price plunge you don't notice

2009-07-17T14:26:00.008+10:00

And the price explosion you do

If you don't believe Australia's published inflation rate, it could be because you're buying frozen peas.

In the year to March the Sydney price of a 500 gram packet of peas climbed from $1.75 to $2.18 according to the Bureau of Statistics - a jump of 24 per cent.

The price of a sliced white loaf jumped from $3.50 to $3.75 - an increase of 7 per cent.

And yet Australia's "official" inflation rate is just 2.5 per cent. It isn't the rate most of us think we are paying.

Now in an effort to reconcile the statistics with reality researchers from the Reserve Bank have gone back 16 years and discovered that the prices that have moved the least are likely to be those we notice the least...

We tend to buy manufactured goods relatively rarely, even if we sometimes spend up big when we do. The paper from Reserve Bank economists David Orsmond and Tom Rosewall says in aggregate the price of manufactured goods "has barely changed" since 1993.

Audio visual equipment has actually halved in price since in that time, motor cars are 10 per cent cheaper. If that doesn't accord with your view of reality it could be because you're comparing the prices that are on the labels. The Bureau of Statistics adjusts these prices to take account of improvements in quality. One thousand dollars buys a much better computer, or a much better sound system than it used to.

Clothes and shoes cost roughly the same as before in dollar terms, and household goods a just 20 per cent more 16 years on.

But the things we buy regularly and can't do without; food beverages and tobacco, have soared in price since 1993, climbing just short of 90 per cent, about 4 per cent per year.

Services such as insurance, education, health, rents and restaurant meals are up 75 per cent, with the price of insurance climbing 6.5 per cent per year, the price of education 5.2 per cent and the price of restaurant and takeaway meals 3.4 per cent.

The reason for the difference according to the economists is that services and food "typically have a high domestic labour cost component, whereas manufactured goods prices are more dependent on developments in world prices".

The cost of the Australian labour used in making goods has increased by 2.7 per cent per year according to the paper. In contrast the price of imported goods has climbed just 0.4 per cent per year.

Tobacco is a special case. Ever-increasing taxes have tripled its price since 1993.

It adds to a pattern where the things we are addicted to or can't live without and buy frequently climb in price quite quickly. The purchases we can put off or rarely make increase in price very slowly, or fall in price when improvements in their quality are taken into account.

Other Reserve Bank figures released yesterday show moving away from credit cards with the average balance down 0.5 per cent over the year and the number of cash advances down 20 per cent.

Going Up

Tobacco 7.2%
Insurance 6.5%
Education 5.2%
Fruit & vegetables 4.1%
Bread & cereals 3.8%
Petrol 3.6%
Restaurant & takeaway 3.4%
Alcohol 3.3%

Going Down

Clothing and footwear -0.1%
Motor vehicles -0.8%
Audio visual equipment -4.7%

Average annual price changes 1993 - 2009

RBA Trends in Relative Consumer Prices, July Bulletin

Published in today's SMH and Age

It's a 'he-session', not a recession

2009-07-17T13:32:00.007+10:00

Men are now more likely to be unemployed than women throughout every part of Melbourne as male unemployment climbs to its highest point in seven years.

Detailed figures released yesterday show an extra 282,500 men have joined the national unemployment queue so far this year, compared to only 50,200 women.

In inner suburbs including St Kilda, Prahran and Richmond the male unemployment rate of 6.5 per cent is almost double the female rate of 3.4 per cent. In outer-western Melbourne male rate of 9.9 per cent dwarfs the female rate of 5.8 per cent. There is no longer a single statistical region of Melbourne in which men have an advantage.

Only in some parts of regional Victoria do men still have an advantage over women...

The change reflects a collapse in employment in the finance sector. The Bureau of Statistics says 1 in every 10 full-time finance jobs have vanished over the last year - a loss of around 9000 full-time positions. By contrast, employment in Victoria's female-dominated retail sector has actually grown, surging 3500 between November and February.

The sinking fortunes of men are now building male long-term unemployment. Almost 70,000 unemployed men have now been without full-time work for more than a year, up from 41,000 in January.

Female long-term unemployment has climbed from 35,600 to 43,200.

So far this year 56,400 men have lost jobs Australiawide as 25,800 women have gained jobs.

Published in today's Age

Graphic: DryIcons

We're down half a trillion

2009-07-16T10:55:00.008+10:00

Feeling poorer?

Since December 2007 you've lost $33,500 if you're an "average" Australian. If you come from an average household, it's lost around $110,000.

Commonwealth Securities has calculated the losses using Treasury data released to economic modelers yesterday and Australian population estimates.

The Treasury says Australian households have lost a total of $602 billion in the five quarters since the crisis took hold, the longest run of wealth destruction in the five decades it's been compiling figures.

Household wealth per person peaked at $250,200 in December 2007 and fell to $216,700 by March. The Treasury estimate pulls together property, share market and financial wealth and is not broken down into components.

Income is also falling...

...with share market dividends sliding a record 37 per cent in half-year to March and take-home pay actually going backwards in the March quarter - the first such slide since the early 1990s recession.

Wage income fell 3 per cent in the first three months of this year as full-time work was switched to part-time work and overtime cut.

Income from unemployment benefits climbed to an all-time high with a record $3 billion paid out to job seekers by Centrelink , up from $2.7 billion in the December quarter.

"These figures quantify and bring home the profound impact of the global slump," said CommSec economist Savanth Sebastian. "The sharp decline in wealth has has hurt consumer spending, cascaded to weaker business profits and is pushing up unemployment."

CommSec believes the latest decline in wealth will be the last for some time.

"We think wealth recovered in the June quarter. House prices climbed and the share market improved substantially. The slide should be over," said Mr Sebastian.

Residex data released also yesterday showed national house prices climbing a further 0.7 per cent in June after climbing 2.1 per cent in May, enough to claw back all of the losses over the last year.

Residex says the typical Sydney house price is now $577,500, up 0.8 per cent over the year, and the typical Melbourne price $492,500 - up 2.7 per cent, the best performance in the nation.

The price rises are most striking for units with prices in both Sydney and Melbourne up 5.7 per cent over the first six months of this year.

"Units are benefiting substantially from strong first home buyer demand," said Westpac economist Matthew Hassan. "The uptrend in prices appears to be building momentum, attracting interest from upgraders and investors."

"It is also removing a significant downside risk to the consumer and economic outlook stemming from the potential for house price falls to cut household wealth and weigh on consumer demand."

The Seek employment index for June points to a slowdown in deterioration in the labour market with the number of new jobs advertised on the Seek site falling a further 4.5 per cent, but the number of new job applicants climbing only 0.2 per cent.

Seek managing director Joe Powell said the news showed the jobs market stabilising rather than improving.

Published in today's SMH and Age

Graphic: Arthur 2

Haul the banks before the Senate?

2009-07-15T14:14:00.004+10:00

Perhaps.

Australia's banks face the prospect of a Senate inquiry into their behaviour unless the Rudd government agrees to set up an independent inquiry into the financial system along the lines proposed by six public policy economists.

The last such inquiry, chaired by business figure Stan Wallis reported in 1997.

Greens leader Bob Brown said the financial system had changed in since then with the banks lifting their share of new loans to 89.4 per cent from 85 per cent in just the last year.

"If the government fails to act will move to establish a Senate Inquiry into Australia's banking system when the Senate resumes in August," he said. "At a time when we need robust diversity in financial systems, we instead are seeing a concentration in favour of banks...

...and especially the big four banks which are benefiting the most from the Rudd Government's guarantee."

Independent Senator Nick Xenophon said he would support a move for a Senate inquiry in August and said it might even be necessary even if the government did set up a new independent inquiry along the lines proposed.

"It would need good terms of reference and a representative panel. I would want a consumer organisation such as Choice on the panel," he said.

A member of the original 1990s Wallis Inquiry Ian Harper has suggested that the former Reserve Bank Governor Ian Macfarlane would be a suitable figure to head the inquiry.

The Coalition wouldn't be drawn on the idea of a Senate inquiry but strongly supports the idea of a new independent inquiry. "Wallis is a long time ago now, and we've had very big changes both domestically and internationally," said Leader Malcolm Turnbull last week.

Family First Senator Steve Fielding was uncertain about a Senate inquiry saying that 37 inquiries into petrol prices over two decades hadn't brought prices down. He said he would prefer direct action to prohibit exorbitant penalty fees and to force banks to justify their interest rate moves.

Published in today's Age

Worried about losing your job? Breathe more gently.

2009-07-15T10:00:00.000+10:00

The latest NAB business survey shows employers easing off on letting go of workers and more inclined to take workers on. And it accords with what they are also telling the Commonwealth Treasury.

Only 1 in 5 employers felt the need to trim staff in June, down from 1 in every 3 in March.

The proportion expanding their workforce climbed from 8 per cent to 10 per cent.

"Employment is still going backwards, but not at the rate it was," said NAB chief economist Alan Oster. "We are no longer seeing large chunks of labour shedding."

The finding mirrors that of the Treasury's Business Liason Program which found this month that job cuts were becoming "less prevalent" and that some retailers and construction firms were taking more workers on...

Extraordinarily good conditions and forward orders for retailers and motor vehicle traders as well as improved conditions for construction contractors pushed the NAB's business conditions index to its highest point since before the late 2008 financial crisis in June. Business confidence turned positive and climbed to its highest point since December 2007.

"I am surprised by the results, and I am concerned they won't hold," said Mr Oster. But June appears to have been the best retail month on record, right up there with December when the first stimulus cheques arrived. Car sales are probably being boosted by tax breaks in the Budget and the extension of the first home boost is feeding construction."

"But can we be sure the jobs market will continue to improve when when each of those supports is removed later this year? I'm not sure."

Mr Oster is maintaining the NAB's forecast that the unemployment rate will peak at 8 per cent, somewhat below the government's forecast of 8.5 per cent. But emboldened by the survey other forecasters think things now won't get that bad.

"We would only expect 7.5 per cent now, not much higher," said UBS economist George Tharenou. "We are now expecting 6.5 to 7 per cent," said CommSec economist Savanth Sebastian.

Every forecaster expects Australia's unemployment rate to continue to climb beyond its present 5.8 per cent even if the jobs market does turn. Immigration and the annual influx of school leavers means employment needs to grow by about 3 per cent a year in order to stop the rate climbing.

Treasurer Wayne Swan took credit for some of the change in sentiment saying as he moved around the country, businessmen and women have told him "again and again that stimulus means they still have customers coming through their doors, and that means they can hold on to more staff than they otherwise would".

The former boom states of Queensland and Western Australia now have the weakest business conditions according to the NAB survey, with NSW the strongest, and Victoria the middle of the pack.

Mr Swan said the global recession still had "some way to run".

"The terms of trade effect alone is expected to cut about 3 per cent from national income over 2009/10," he told an audience at the Australian National University in Canberra.

"And the effect does not stop there - it cycles into weaker business profits and hence into weaker investment and employment outcomes. It also shows up in weaker government revenue."

"Budget decisions are going to remain difficult for the next few years at least."

Published in today's SMH and Age

Graphic: From here

NAB June 09

Our banks are getting bigger

2009-07-14T09:30:00.002+10:00

It's time to act

Australia's banks have gained near unrivaled dominance over the financial system, accounting for almost $90 of each $100 lent - an all-time high.

The market-share figures for May, covering personal loans, housing loans, commercial loans and lease finance come as Finance Minister Lindsay Tanner lends support to a new financial system inquiry.

Addressing international regulators in Sydney Mr Tanner said the pace of financial innovation had now "outstripped the capacity" of regulators to keep up.

"The world has changed beyond recognition," he told the conference. "Whether we’re talking about the United States or Australia, we need a regulatory regime that’s appropriate for 2010 and beyond, not one that simply reinvents the past"...

Australia's last inquiry into the financial system in 1996 and 1997 took place at a time when competitors to the banks had a large and growing share of the market.

The May figures show the share of new loans issued by building societies, credit unions, wholesale lenders and finance companies falling to a record low 10.6 per cent, down from 15 per cent a year ago.

The banks' share was a record 89.4 per cent, up from 85 per cent. The banks' share of new mortgages climbed from 90 per cent to 92 per cent and their share of motor vehicle and other lease finance jumped from 35 per cent to 45 per cent.

Former Competition and Consumer Commissioner Stephen King said there was now a real question as to the degree to which the big four banks "were keeping each other honest and were kept honest by facing competition."

"These figures show the smaller players are becoming less relevant as a constraint on the banks. We have a straight out competition problem. The last 18 months have reversed a 20-year trend for the banks to face more competition," he said.

Professor King is one of the six public policy economists who last week petitioned Treasurer Wayne Swan asking for a new inquiry into Australia's financial system.

"The last financial system inquiry was carried out against a background of the banks facing increasing constraints on their behaviour from emerging competitors, and that has turned around - a 180 degree change," he said.

What the people who say we don't need an inquiry are ignoring is that the rest of the world is changing. In the UK and other countries the old rule book is being thrown out. We can't act as if we are an island."

Australia's Financial Services Minister Chris Bowen Sunday opened the door to a new financial system inquiry saying he "would not rule out" such a review "at the appropriate time".

Treasurer Wayne Swan is understood to also be open to the idea of an inquiry after the dust has settled on the current financial crisis.

Mr Tanner said Australia’s regulators had been vigilant in overseeing Australia's financial sector but that it was clear that a new international rules were needed. "We cannot simply restore past regulation, as appealing as it may be to some," he added.

New lending for housing hit a record high in May with the figures showing a sharp jump in borrowing to buy investment properties, suggesting that more investors are "positively gearing" to take advantage of high rents and low interest rates

Published in today's SMH and Age

Here's Tanner's full speech.

Why you shouldn't trust a mortgage broker

2009-07-14T06:37:00.000+10:00

Today's Australian:

"The Commonwealth Bank has told 8000 mortgage brokers from a variety of broking firms they will no longer be able to offer the bank's home loans if they fail to write enough business for the bank.

Wayne Ormond, executive chairman of Queensland-based mortage brokers Refund Home Loans, told The Australian yesterday the CBA had written to his firm last month stepping up a demand first made in January that each of its brokers submit four home loans per quarter.

Mr Ormond said Refund employed 270 brokers, meaning the group would have to put through 1000 CBA home loans every three months...

"It would be valid for consumers to ask: if a broker is recommending a CBA loan, is that the best loan, or is it being recommended so the broker won't lose his accreditation?"

Well what about private foreign debt then?

2009-07-14T00:47:00.011+10:00

It's climbed enormously since the 1970s, taking up where government debt left off:

A lot - but not all - of it has been borrowed for worthwhile purposes.

Recently it's been leveling off:

This is the Parliamentary Library paper that explains what's been happening.

A commenter asked whether I thought the explosion in private foreign debt mattered much.

I replied that I didn't think it mattered much in and of itself.

But I noted that markets may (suddenly) take a (quite possibly irrational) set against it, which would make my own views beside the point.

I wrote about the danger here.

Worried about government debt?

2009-07-13T20:29:00.009+10:00

Then don't look at this.

It'll make you realise you should have been worrying much more all through the 1910s, 1920s, 1930s, 1940s, 1950s, 1960s, 1970s, 1980s and 1990s:

Thanks to Bill Mitchell for reminding me.

The source is the Treasury itself. I wrote about it at the time here, as it happens earning a Saturday morning phone call expressing the Opposition's displeasure.

STOP PRESS: The Parliamentary Library have just put out a paper on the topic.

Getting China wrong

2009-07-13T13:39:00.006+10:00

Guess what? Tomorrow's must-see conference, the 2009 China Update, is hosted by "The Rio Tinto - ANU China Partnership".

No joke. Check out the sponsorship notice at the top of the conference website.

John Garnaut's typically brilliant report from China in today's Herald and Age begins like this:

"WHEN Rio Tinto holds press events in China, its public relations firm sometimes hands out red envelopes of cash to Chinese journalists who are kind enough to turn up.

Well, doesn't every company in China do it?

No, the best multinational companies do not. And the best Chinese journalists don't accept those "expense" payments, either..."

Read the full thing

Let's see... Australia's AWB stooped to bribery and suffered the consequences, it is alleged that a subsidiary of our Reserve Bank also stopped to bribery and it is awaiting the consequences. Hasn't this taught firms such as Rio anything?

At least Alan Jones hands out money as if he means it

2009-07-13T13:13:00.005+10:00

The other media barrons play both sides of the street.

This breakdown of their political donations from Crikey:

Oh, and John B Fairfax and Ramsay/Prime.

Why oh why do they bother with the G8?

2009-07-13T11:47:00.004+10:00

Italy? Germany? The G8 is no way get the globe on board

Nina Hachigian at the East Asia Forum

"The underlying trouble is the G-8 itself. The world simply needs a different set of countries at the high table of global governance to tackle today’s challenges.

Inertia was the mother of this G-8 summit. The G8 occurs because the member countries—the United States, Germany, Japan, France, Great Britain, Canada, Russia, and Italy—agreed a number of years ago that it would. Over the years, though, the G-8 has lost credibility because it does not reflect the realities of power, influence, and capacity in the world today...

In late 2008 President George W. Bush brought the Group of 20 to life at the leaders’ level, recognizing that China, India, Brazil and other major economies needed to be at the table to plan a coordinated response to the global economic crisis.

In response, Italy this year decided that instead of giving up the G-8 host prerogative — the political equivalent of a cheetah giving up its prey — it would also invite the G-20 countries to meet alongside the G-8. That idea was later pushed aside and the three-day summit now includes meetings of the G-8, the G-8 plus emerging economies, the Major Economies Forum (17 countries), and the G-8 plus emerging economies plus leaders from select African countries. That’s a lot of Gs.

The most valuable commodity in international politics—leaders’ time, especially President Barack Obama’s time — is being lavished on all these meetings. I truly hope breakthroughs result because the issues on the table could not be more serious—the economic crisis, development, and climate change, among others."

"Woolies boss heavied me: Choice man"

2009-07-11T09:11:00.007+10:00

It's war, and of course this is great, but Woolies is cheaper than IGA - GroceryChoice (deceased) said so

Story 1 - AAP

Consumer group Choice has set its sights on keeping the two supermarket giants honest - a job it says went begging following the scrapping of the Grocery Choice website.

Choice has ordered its policy and campaign teams to drop all other issues to try and figure out how to bring down supermarket prices in Australia, which rate among the highest in the developed world.

Story 2 - Kelly Burke SMH

NICK STACE has sat with Sinn Fein and Ulster Unionists at the bargaining table; he has had tough dealings with giant European car manufacturers and survived the political uber-egos of 10 Downing Street.

But it was a meeting that took place in Australia on the morning of June 5 this year that the chief executive of Choice says has been the most hostile and intimidatory in his career. That meeting was with the Woolworths boss Michael Luscombe.

Worth a read.

Reading Terry McCrann

2009-07-10T18:54:00.006+10:00

Here's John Quiggin:

Terry McCrann has responded to the call for a new inquiry into the financial system with a snark-filled piece which is of sociological, if not intellectual, interest. Let’s jump to his last para.

What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the ’six-pac’, Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.

The most charitable interpretation of McCrann’s reference to carbon-neutral homes is that he is indicating a tribal affiliation. He knows that the typical reader of the Herald-Sun business pages has delusional beliefs about climate change, and is assuring his readers that he shares these beliefs. This alone would be enough reason to dismiss the rest of the column. If McCrann is prepared to dismiss a vast amount of scientific evidence on a topic on which he has no particular expertise, simply because members of his social group don’t like the conclusions, his judgements are worthless. In the absence of any new factual evidence (and, all the facts mentioned in his column are well-known), his arguments have no evidentiary weight. In essence, they amount to the statement “if you’re on my team, you shouldn’t agree with these guys, because they are on the other team”

But that, as I observed, is the charitable interpretation...

The less charitable view is that McCrann rejects climate science because his world view is incompatible with the existence of the atmosphere, or any kind of global public good. There’s plenty of evidence for this interpretation in his column. On McCrann’s apparent view, the fact that Australia is not in a deep recession proves that there is, and can be, no such thing as a global recession. Since we haven’t been affected, there’s no need to worry. To quote his column

For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks ‘a problem’ that has been exposed and thereby needs fixing. … global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that’s to say.

There is a real problem here. McCrann is significantly less ignorant and wilfully stupid than the average defender of economic liberalism in Australia (compare for example, Andrew Bolt or the Institute of Public Affairs). But he can’t allow himself to be much smarter than his readers, and stupidity and ignorance (whether endowed by nature or acquired by effort) are essential if you are to be a full member of the tribe. In a period when social democracy is on the rise, we need better opponents than this.

Here's McCrann's column:

ONE Stephen King writes silly fantasy and horror fiction – the other Stephen King writes international best-selling blockbusters.

The so-called 'people's bank' proposed by the first King, the dean of economics and business at Monash University and five fellow 'influential' -- they wish! -- economists, is an idea whose time has definitely come.

In 1911. When King O'Malley founded the Commonwealth Bank.

And then gone. In 1990 when one of his political heirs and successors, Paul Keating started its privatisation. Thereby posing the question: which bank is now just another bank?

A sale, it might be noted, which not exactly incidentally, coincided with the bankruptcies and forced sale of the other three 'people's banks' -- the State Banks of Victoria, Western Australia and South Australia.

There are two insurmountable functional problems with the concept of such a bank -- which were exposed so graphically in the 1980s and Keating understood only too well.

Plus the huge all-encompassing holistic one -- "I'm from the government and am here to help you."

Oh yeah, sure. Only a particular type of economist could still believe that.

Only an even narrower group, well represented by this 'six-pac' would have sufficient intellectual arrogance to believe they could design the right can-opener. The one to open the can (of worms?) in which such a bank would be found.

The first functional problem is such a bank's core ethos.

Is it designed to be commercial? If so, what's the point, if it's just another bank doing exactly what the other banks are doing? Which means paying market rates of interest on deposits, charging market rates to borrowers.

Which is exactly where the Commonwealth Bank was in 1990. But doing things sub-optimally because of legacy restraints and the fact that it was still 'from the government'.

Even accepting the 1980s disasters that also had been created in the private banks, Keating knew that unless it was sold, in the long run it would wither and die in public ownership.

Which also buries the idea that such an institution can 'keep the bastards honest.' It didn't work in 1990 and it won't in 2020. Because the market essentially does, even though 98 per cent of you won't believe it.

The alternative -- then and now -- is to make such a 'people's bank' operate with government subsidies in order to subsidise some or all of its customers in some way.

That is the path to all sorts of disasters, as we saw in those earlier 'people's banks'. It's moral and actual financial hazard on a grand scale.

You make it 'uncommercial', you introduce serious distortions in the market, which at best damage activity and, at worst, end in disaster.

Have any of the 'six-pac' heard of Freddie and Fannie? In their different way, intended to achieve precisely what this bank would try. On both the deposit and lending sides.

As the Bankers Association was quick to point out yesterday -- true, partly speaking its book -- the first victims of such a bank would be all the small banks and building societies and credit unions. Thereby actually strengthening the Big Four.

In simple terms whether or not it had actual subsidised rates, a government-owned bank would have an overwhelming competitive advantage against small financial institutions -- which presumably will have lost their government guarantee.

An advantage, especially in the wake of the very financial crisis, the very consequences of which, the 'six-pac' letter is purportedly designed to address.

Well, it'll just be a 'post-bank' - taking deposits and making plain vanilla housing loans.

Easier said than done. You have to set up an infrastructure, you have to build staff.

Or does the 'six-pac' envisage it operating like another service in the Post Office. I'll have a book of 55c stamps and a $350,000 housing loan, thank you.

Their bigger point is even sillier, but also provides us with a possible pathway to what's it all about Alfie? Actually, Christopher -- one of the six, Christopher Joye, who seems to have a thing about securitisation.

For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks 'a problem' that has been exposed and thereby needs fixing.

Both in the big -- global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that's to say.

And in the small -- yes, the securitisation which funded the alternative lenders has disappeared. But not because of anything that happened here. And actually, good riddance.

Is there any evidence that home buyers are having trouble getting finance? And on very attractive terms, with the basic mortgage rate just 2.8 percentage points above the Reserve Bank's cash rate.

Joye and fellow letter-writer, the Melbourne Business School's Sam Wylie, seem besotted by the securitisation dynamic which proved such a moral and financial disaster in the US.

Wylie wrote a very silly article, attacking variable rate housing loans. When the evidence demonstrates we have been extremely well served by the system of banks taking variable term deposits and lending mostly medium-term at variable rates.

It's proved best for borrowers. Official rates have been cut by about the same in the US and here. But while our borrowers have seen their rates drop by nearly 400 points, in the US the average borrower has been lucky to get 100 points.

And thereby also most effective for monetary policy. The RBA cuts (or hikes) and it actually feeds into market rates. In the US, the impact is muted.

In their grab-bag of 'ideas' the 'six-pac' did highlight some big and important issues, like our foreign debt and unsophisticated investors getting access to trustworthy investment.

But it was ever-thus and can be addressed or looked at individually on their merits.

It is not a sensible basis for a massive inquiry into 'the financial system'. Far less, for starting down the path to ever-broadening government delivery of financial 'services' to the unsophisticated.

What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the 'six-pac', Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.

Graphic: Peirce clipart