Tuesday, February 24, 2009

The fox in charge of the henhouse

Or otherwise - why Australia's federal budget is doomed.

Ken Henry and his band of looting socialist thugs at the Treasury have revealed their ugly stripes in a leaked report given to the PM in 2008.

THE private health insurance rebate paid to millions of Australians is "very poor policy" and should be dumped, according to a confidential briefing to Treasurer Wayne Swan.

Okay, so far, I follow you. After all, if the government was giving a 30 percent subsidy, we could have a tax cut in its place and use the savings, right?

Documents obtained by The Age reveal that Treasury, in one of its first briefings to the Rudd Government after its 2007 election win, urged Mr Swan to seriously consider scrapping the rebate. The briefing said the billions of dollars lost annually to the rebate would be better spent on public hospitals.

Bugger !

Money would be "better spent on public hospitals" ? Public hospitals who feed at the trough, fail to improve services despite their revenue doubling over a decade, and who control, regulate and ration out critical health services to the lucky few ?

How can such bad and unsound advice come from Treasury, who are appointed to spend tax-payers money ? Our budget is entirely doomed, we've already seen a couple of big states hit the financial brick wall (NSW + QLD), its easy to guess that Rudd will drive the federal government into the same situation by the time his first term is up.

But lets not worry about such things. Bless the money hole !

The latest bailout news from the People's Soviet Republic of America

Mike Shedlock magnificently translates financial-speak in this latest joint statement from the Treasury and Fed:

A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

My Comment
: Clearly, the US Government will continue to bail out insolvent banks no matter what it costs taxpayers.

"We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis.

My Translation
: "This new capital will not cost anyone anything. It will be dispensed by magic fairies and recovered at a later date. We cannot share exactly how this magic works because under the rules of the magic ministry, we would be stripped of our magic hats and lose the rights to dispense magic if we did. Trust us. This is the proverbial free lunch that everyone says does not exist. However, like magic pixie dust, it does exist, it really does."

Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion feature will enable institutions to maintain or enhance the quality of their capital.

My Comment
: The market cap of Citigroup is $11.5 billion. The market cap of Bank of America is $20.3 billion. How does a Government guarantee $400 billion of Citigroup and Bank of America debt and inject another $75 billion in preferred convertible shares without costing anyone a dime and without requiring any new capital? Why, magic pixie dust of course.

Monday, February 23, 2009

The ACCC responds !

To my mock-complaint made last week, about electronics retailers who offer "best price guarantees" and who sell goods "below cost price" to consumers.

Of course, I am personally satisfied, not outraged, that businesses make every effort to sell goods and services to customers. They should have every right to offer and set whatever prices they please.

But the sad reality is that Trade Practices Act, and all of its devilish detail exists, and the ACCC has been known to successfully prosecute businesses for charging prices too high, too low, changing prices quickly or simply for being a dominant market player.

The ACCC representative suggested that my accusation that these large electronic retailers were engaged in some kind of predatory pricing under Section 45 of the TPA would fail on two counts:

1/ You need to prove the seller is in an "extremely dominant market position". Harvey Norman and Clive Peeters, although both are large, are considered to operate in a highly competitive market where lots of people sell competing electronics.

2/ You need to prove that the seller is "keeping their prices below cost for a prolonged period of time with a specific intention of targeting their competition".

I explained how the legislation is quite vague and ambiguous, that is why I thought that it could be applied to just about any succesful business in Australia. The ACCC representative replied that the legislation in Australia is quite short, and the rule of thumb is to interpret case law to look at similar situations.

I questioned how the ACCC establishes the "intention of targeting a business" part - was it by guessing ? They responded that there are cases where there is evidence - giving the example of a large supermarket that continually and repeatedly undercutting a small grocery store in the same shopping centre, whilst making inquiries about its suppliers and costs.

( This is what I call normal competition - and the consumer benefits from this )

What isn't mentioned is that if, by the same token, the small grocery store monitors the supermarket prices, and responds by undercutting every price and outdoing them on every special, the legislation cannot or would not likely be used against the small player.

The way I see it, basically is that a judge, on his whim, *can* choose to punish a business under the TPA for engaging in regular trade. And the business is in extreme trouble of it is the most succesful player in its industry.

Thursday, February 19, 2009

Recessions are healthy things

Yes indeed, recessions are the medicine an economy needs to take before it gets better.

Certainly, it has tragic consequences for many hard workers and home owners and borrowers throughout the economy as output contracts. But the underlying theme is that so many human activities and so many resources were mis-allocated towards speculative bubble activities.

The best thing about these depressions is that it uncovers all the irrationalities, myths and misconceptions that existed during the bubble period. We just emerged from the biggest credit bubble in history. The assumption was that property and share prices would continue to soar, Asian economies would continue to grow and make things cheap, the Western consumer would never satsify his appetite to consume imports and grow their debt, and the savers of the world (Brazil Russia India China and the Middle Eastern states) would fuel America's debt forever.

THATS A LOT OF RISKY ASSUMPTIONS THERE ! I say good riddance to them.

And Obama and Bernanke think this kind of process is unhealthy ?

Whenever the crunch hits and people try to pull their money out, you see just how honest and sound some of these speculative activities were. Yet another ponzi scam was just unconvered. How many years did the SEC have to investigate these guys??

Texas financier R. Allen Stanford is accused of cheating 50,000 customers out of $8 billion dollars but despite raids Tuesday of his financial empire in Houston, Memphis, and Tupelo, Miss., federal authorities say they do not know the current whereabouts of the CEO.

Of course, you can't pull off a scam without government connections. Why doesn't an angry mob form outside Washington and demand the heads of the following politicians ?

But in addition to angry clients, Stanford, like Madoff, has many friends in Washington.

Stanford's business is headquartered on the Caribbean island of Antigua. In the last decade, Stanford and his companies have spent more than $7 million on lobbyists and campaign contributions in efforts to loosen regulation of offshore banks.

Among the top recipients: Senator Bill Nelson (D-Fla.), Congressman Pete Sessions (R-Texas), Sen. John McCain (R-Ariz.), Senator Chris Dodd (D-Conn.) and Senator John Cornyn (R-Texas), one of the members who took a trip to Antigua where he was entertained by Stanford.

Look how blatantly corrupt America has become - Washington has an ever increasing budget to spend ($1 trillion stimulus anyone ?) with growing regulatory powers each year, its no wonder every business tries to lobby and bribe politicians to get on board. How can Washington have the infinite wisdom to dish out $1 trillion of payback within a few days, in an optimal way that will stimulate economic growth ?

During the recessions, you get to re-discover reality.. it can be ugly, but society is better off without all these ponzi schemes.

Wednesday, February 18, 2009

Creating Jobs or Making Work ?

I've stolen the excellent headline from this Reason Magazine article which poses the very relevant question to its readers. In the current media coverage of each government's bailout or stimulus package, there is repeated mention of "jobs".

For a free-market advocate, this terminology causes quite a bit of hesitation and discomfort. Not all jobs are the same, clearly. But when government spends hundreds of billions (from taxpayers of course) on short term projects to provide jobs, there are many issues.

If there were absolutely no hazards involved, government could just pay half of the unemployed to dig holes, and the other half to fill them in. Unemployment would vanish. But in truth, so would our capital, our wealth, our standards of living and productive capabilities.

Henry Hazlitt, in "Economics in One Lesson", described a raft of foolish "make work" programs introduced during the Great Depression by FDR. For example, the teamsters in New York introduced a regulation so that all truck drivers visiting New York state had to hire a local New York truck driver to sit beside them for navigation. You had 2 truck drivers doing the job of one.

Government spending has an undeniable track record of being very inefficient and costly. So we often hear the argument put forward in recent times that we need any kind of spending, no matter what, just to "stimulate" our economy.

And with the mention of the word "economy" in that context, most free marketers will once again shudder at the misuse of the word:

The beauty of Obama's dual argument is that he can say the stimulus package is all about putting Americans back to work and then, when challenged on the question of whether this is an efficient way to do that, he can say all the work needs to be done anyway. Conversely, when challenged on the question of whether all these projects are really worth the money being spent on them, he can cite the jobs they "create or save" as a backup justification.

From a technical perspective, a job is created when an employer offers a salary in exchange for a worker's labor. So even if that employer is the federal government, and the salary comes from a stream of tax revenues (or future tax revenues, or even the printing press, for all those governments getting deep into debt), then that still counts as a "job", right ?

No it surely does not.

The nature of a job surely counts. A job that is created when a private employer hires labor, paid for with his own capital, as part of a business that seeks to maximise profit is a real job. Each employer is sacrificing his own wealth, and expects something in return from the employee. Each employer seeks to maximise profits, improve productivity and innovate and grow their business over time, which is the very engine of economic growth and allows for more employment or higher incomes in the future.

The free market consists of millions of voluntarily employed people, developing their skills and applying them across a range of industries, each of which produces something that is in demand and can earn revenue. As we can see, the majority of people are employed by, and receive their income from, the free market.

The same cannot always be said of the public sector. The nature of government work is that a central planner or bureaucracy is given a budget to spend, and chartered with a responsibility to both employ people and to spend their annual budget (or else they won't receive their budget in full the following year).

I read another chapter from Milton Friedman's "Free to Choose" last night which established that when you spend your own money and your own priorities, you seek to both get good value, and to get something that satisfies your own priorities. The hazard occurs when you spend somebody else's money towards somebody else's priorities, where there is no consideration of the budget, and no consideration of that other person's priorities.

Government spending falls entirely into this category. Whilst tax cuts, especially cuts in business tax and income tax, would provide the free market much more capital to employ people in dynamic and growing industries.

It seems clear that each stimulus project is designed to be short term - building roads, highways, green energy, refurbishing schools. Now these sound like noble goals in themselves, but what happens to the workers when these projects expire ?

The private sector would deploy labor and other critical inputs in a much more sustainable way, and use them dynamically and efficiently where they are most needed.

The article concludes:

If the projects really were cost-effective, of course, there would be no need to cite the jobs they create. And if creating jobs were an end in itself, as Obama often seems to think it is, there would be no need to find projects that are worth doing because of the public benefits they deliver. In fact, it would be better to throw money around willy-nilly so as to maximize job creation, in which case we surely could get more than 3.5 million jobs for $787 billion.

Tuesday, February 17, 2009

Clive Hamilton - Nanny Statist

The headline alone is like a red rag to a bull, and should drive most reasonable people to outrage. Go click on his scare-mongering nonsense if you dare. I've taken out one extract below:

Web doesn't belong to net libertarians

Clive Hamilton, Charles Sturt University | February 16, 2009

Some participants in the internet filtering debate do not believe that access to porn on the internet is a problem. One referred to the sorts of images I have described as "naughty pictures". Others take an extreme libertarian view that people (including children) should be able to view whatever they like.

Ahh, the attempt to win the debate through demonising and marginalising your most well known opponents. The old strawman.

All of us internet users and fans are suddenly a fringe group - extreme libertarians. But our statist opponents who want to censor and regulate the internet represent parents, children and just about everybody who cares about "the children".

Hamilton then continues:

Reflecting the influence of moral relativism, there is a common belief in the internet community that any restriction means the imposition of one set of moral values on others who don’t hold them. Any sexual practice, no matter how bizarre, is just a matter of personal choice.
Firstly.. censoring content, by the state, is nothing less than imposing one set of moral values on the entire society.

And internet usage has nothing to do with actual sexual practice. The internet is nothing more than communication, completely peaceful and non-violent.

Basically, Hamilton tries to characterise all freedom of speech concerns to sex, deviant behaviour and predatory paedophiles.

Fortunately, we do not live in the type of society favoured by organisations like Electronic Frontiers Australia. We live in a democracy where citizens ask their governments to impose restrictions on certain types of content that are regarded as harmful to individuals or to the community more broadly.
Clive Hamilton's opinions are harmful and offensive to me, yet I don't go lobbying Canberra to censor him.

But perhaps the most revealing words in the Get Up statement are "our internet". The internet does not belong to the net libertarians, who seem to believe they inhabit a cyber-nation that is beyond normal forms of social regulation. The net belongs to all of us and, like other forms of communication, is subject to our collective decisions.
Yes and should be run according to the whims of Clive Hamilton ! This thug-o-crat has no room for individual disagreements in his utopian view of collective societies living in harmony. I suppose some kind of counselling or re-education is in order for those who disagree with him .. err.. I mean "society".

The ACCC can prosecute anybody under the sun !

We live in a police state. When government is big enough, and enough laws and regulations are passed, each and every one of us can easily find ourselves in breach of some statute and prosecutable. When you criminalize all kinds of behaviour (smoking marijuana, avoiding taxes, charging customers too much or too little), you create a society of criminals.

When business owners who maintain their integrity and form voluntary agreements with customers set prices, they must do so in compliance with the following mumbo-jumbo or else they may find themselves dragged before a court, charged with thought-crimes, and to face much embarassing PR (see Pratt, Woolworths, Myers, Qantas for examples).



Contracts, arrangements or understandings that restrict dealings or affect competition
(2) A corporation shall not:

(a) make a contract or arrangement, or arrive at an understanding, if:

(i) the proposed contract, arrangement or understanding contains an exclusionary provision; or

(ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:

(i) is an exclusionary provision; or

(ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition.


Contracts, arrangements or understandings in relation to prices

(1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.


Misuse of market power

(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AAA) If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.


Tuesday, February 10, 2009

Stop the bailout ! Senators respond to my enquiry.

I've tried to "save the world" as Gordon Brown would say, and stop this ridiculous one-off stimulus package that gives money to people who haven't earned it, and drives us deep into debt for many years.

After emailing all Victorian senators, all Liberal and National senators, both independent senators and a few Labor senators, I've only received a handful of responses, but all of them seem to agree that the stimulus is a huge mess.

Senator Barnaby Joyce:

Thank you for your email and support. The current fire tragedy is front and foremost today and our efforts should be solely concentrating on this today.
The stimulus package put us on a trajectory to financial economic oblivion with a 200 billion dollar debt, and for what pink batts, boom gates.

What about real infrastructure inland rail between Gladstone and Melbourne, what about the getting the water from the north where there are floods to the southern drought and now fire, what about pensioners. And now Mr Rudd has the arrogance to say “get out of the way”.

If the emails that I am receiving in the hundreds are correct then this package is of high concern to all who will be left with the debt to grind down the economic breathing space that our nation requires.

Senator Helen Kroger:

Senator Kroger thanks you for your recent e-mail.

There are many problems with Labor’s Economic Stimulus Package introduced into Parliament this week.

The Coalition believes that the package is poorly targeted, ill-thought through and irresponsible in today’s economic climate. There is no evidence that the Government’s $10.3 billion spending package before Christmas created the 75,000 jobs Mr Rudd promised.

The Coalition believes in good public policy that will create jobs and encourage productivity.

The Coalition has decided to oppose the Government’s irresponsible package – the largest increase in Government expenditure in 35 years. We are aware that this decision will not be popular, however, we firmly belief it is the right decision.

One of the biggest problems in the Government package is the lack of measures that directly and broadly support employment – particularly employment in the small business sector.

To achieve this goal, the Coalition has suggested that the permanent tax cuts currently scheduled for 1 July 2009 and 1 July 2010 be brought forward, and backdated to 1 January this year.

By the middle of 2010 this would leave a two-income household earning $80,000 approximately $1700 better off.

Senator Nick Xenophon:

Thank you for your email to Nick Xenophon regarding the economic stimulus package. Nick will be considering all aspects of the package carefully before deciding how to act. As Nick has said, "If you are going to by a $42 billion car, wouldn't you want to have a look under the bonnet?"

Thank you for taking the time to write to Nick on this important issue, and I will forward your comments to Nick and his advisors for their information.

Senator John Williams:

Senator Williams is opposed to the economic stimulus package in its present form. He believes money should be spent on long term infrastructure not one-off short term cash payments. He is also concerned that we are loading future generations with debt plus interest.

Friday, February 06, 2009

The intellectual depth of the left

Our PM:

The work came as the Prime Minister attacked Malcolm Turnbull as an agent for unrestrained greed and wanton neo-liberalism for his refusal to support the package because it would create a $70 billion debt.

Our Victorian Premier:

The package "couldn't be better-timed", Mr Brumby said.

"It means jobs, it means certainty, it means confidence, it means security."

Is there much depth to this argument ? Is it logically consistent ? Does it rely on reason ? Is it free from any premises and assumptions ?

No to all of the above. It is all self-serving propaganda.

How does saying no to years of deficits, tens of billions of dollars of spending equal unrestrained greed and neo-liberalism ?

Kevin Rudd's use of language is disgraceful Orwellian nonsense. It is Kevin Rudd who seeks more power and more authority to put the government budget into a massive deficit that will take future taxpayers years to repay. It is the opposition who stand up to this arrogance, and they are the ones accused of "greed" ?

What is "neo-liberalism" anyway ? Its communist speak for free markets and capitalism. The ideas and the actual growth of free markets and capitalism have been around for centuries. Portraying it as some scary modern phenomena to be done away with, like fast food, is downright shallow.