Mainstream economics in a nutshell

Today, the Reserve Bank of Australia decided to leave interest rates unchanged. This has bought about the usual wave of economic commentary from the media. Your average pundit keeps seeing the same themes repeat themselves, with the same underlying assumptions, and assumes the following is all you need to know about economics:

1/ The Reserve Bank does its best to keep inflation in the 2%-3% bracket. Inflation is a "key risk" that needs to be contained above all else. The RBA sets the cash rate , which in turn affects the rate that banks lend money at.

2/ Tax cuts are only as interesting as the impact they have on inflation. In fact they can be bad because they are believed to be inflationary. The head of the RBA even calls these tax cuts "fiscal spending".

Nobody in the media discusses where inflation comes from, or what the correct definition is. The media uniformly accepts CPI as the best index for inflation, and then every effort is made to agonise, analyse and forecast what the next CPI estimate will be and what action the Reserve Bank will take in setting the cash rate.

I'm not sure which one of these assumptions is more aggravating and misguided to come across.

Assumption #2 is infuriating as hell, because it typically comes from left-wing pundits who look for any excuse to justify more taxes and more government control of our money. We are already being taxed to hell and beyond, we are paying more taxes per person than ever before, and every year we pay more in taxes because of economic growth, inflation and bracket creep. As I've mentioned before, the Federal Government could have abolished the income tax entirely, and it would still have as much money to play with as in 1996 !

But assumption #1 is extremely infuriating because it is based on a whole heap of assumptions itself:

• That we need a central bank to begin with
• That inflation should be targeted
  
• That CPI is the perfect and only way to measure inflation.

Our economic commentary is all fine and dandy until you start to question any one of the above assumptions. I am currently reading Murray Rothbard's "The Mystery of Banking" and I don't accept these assumptions any more.

In fact, I strongly believe the presence and actions of a central bank are causing the inflation. And that inflation can be measured by monetary aggregates, not CPI. CPI is used as a method to understate and camouflage the devastating and rampant inflation that we are experiencing.

UPDATE: The Daily Reckoning has an article which covers this exact topic nicely:

Economists of the Austrian School of economics define inflation differently than much of the mainstream of the economics profession. The typical mainstream intermediate macroeconomics textbook defines inflation as “[a]n increase in the overall level of prices” (Mankiw, Macroeconomics 5th Edition, 530). The eminent Austrian economist, Ludwig von Mises, suggested otherwise:

What people today call inflation is not inflation, i.e., the increase in the quantity of money and money substitutes, but the general rise in commodity prices and wage rates which is the inevitable consequence of inflation. (Mises, Planning for Freedom, 79)

Greenies now against CF light bulbs

I'm shocked I tell you. First we are forced to buy these light bulbs by the Australian Government. Now it turns out they can be quite deadly because of the presence of mercury. Perhaps its time somebody sued the government ?
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Al Gore says switching from incandescent light bulbs to compact fluorescents can help save the planet from global warming. California, Canada and the European Union are so persuaded he's right, the three governments are in the process of banning the sale of incandescent light bulbs, following the trailblazing paths of Fidel Castro in Cuba and Hugo Chavez in Venezuela. Even the U.S. Environmental Protection Agency is on board, urging American citizens to do their part for the environment and switch to the twisty little CFL bulbs that last longer and use less electricity.

But opposition is building among other environmentalists who say the threat of mercury contamination as a result of hundreds of millions of broken CFLS, each containing about 5 milligrams of the highly toxic substance, outweighs any benefits from a switch from Thomas Edison's trusty old invention. One new voice weighing in against the tide is Andrew Michrowski of the Canadian-based Planetary Association for Clean Energy: "I feel it's very important to warn people these 'green' bulbs contain mercury, which will end up in landfills throughout the country if we make the switch to them. In addition to filling our landfills with mercury, if the bulbs break you will be exposed to the mercury they contain." He says consumers shouldn't buy them - even though they are now showing up in stores all over America.

Even the EPA, which is cheerleading the mania for the switch to CFLs, offers bone-chilling warnings about the dangers of mercury - if you search for them. "Exposure to mercury, a toxic metal, can affect our brain, spinal cord, kidneys and liver," says the agency.

When a CFL breaks, the EPA cautions consumers to open a window and leave the room immediately for at least 15 minutes because of the mercury threat. The agency suggests removing all materials by scooping fragments and powder using cardboard or stiff paper. Sticky tape is suggested as a way to get smaller particles. The EPA says vacuum cleaners and bare hands should never be used in such cleanups. After final cleanup with a damp paper towel, the agency warns consumers to place all materials in a plastic bag. "Seal and dispose of properly," says the EPA. "Wash hands."

But disposing of properly might be a tough thing to do, because CFLs never should be thrown in the trash like their old-fashioned incandescent predecessors. They need to be turned into recycling centers, which are few and far between. When laws banning incandescent bulbs take effect, so do the mandatory fines on consumers and businesses that dispose of the new CFLs improperly.

The "European Model" of Public Transport stinks

The socialistas at The Age website were having a furious debate about our train and tram network, sparked by the upcoming price rise in tickets.

They correctly point out the obvious problem - prices rise, but standards and services are still very deficient and lacking.

But then as expected, dozens of Age commenters claimed we needed to adopt the European approach and cited London and Paris as good examples where the trains are supposed to be reliable, efficient and popular.

The ideas being suggested were that Melbourne should invest more, operate more services, create more stations, hire more staff and even build new stations and lines. These were often put forward with another strategy - to stop building roads and make it more unpleasant or expensive for car owners. Force more people onto public transport and voila - London !

This is the most idiotic argument from inner city dwellers and it needs to be stopped. Firstly, London is a city of over 10 million people living in very dense dwellings. As is Paris. The government in the UK has legislated the whole "green belt" nonsense where no new land is released for development around the outskirts, pushing up property prices and forcing people to live in more confined dwellings.

I recently returned from Paris, having seen firsthand what their Metro system is like during the strikes, and it is no utopia. Many of the stations are dark, outdated and smell of urine. And quite a few of the trains were severely overcrowded - and I mean overcrowded to a degree I've never seen in Australia and are more likely to see in Bombay or New Delhi. Perhaps this is due to the strikes, but that in itself is a strong argument against public servants operating the trains, and a good argument for private operators who do not need to hire unionised thugs and lazy workers who love to strike simply because their retirement age is being changed from 55 to 60, to be in line with the rest of the French population.

Another thing to note is that the Metro system in Paris is actually quite small geographically. It covers an area that geographically, isn't even as big as Melbourne, but is far more densely populated and has a higher number of stations and lines. So if we were to emulate Paris, we would be removing all lines and stations outside of the inner city (i.e Zone 1 ).

Another issue to consider is the trams we are burdened with in Melbourne. Not only are they slow and expensive compared to buses, but they require expensive infrastructure (tracks and power lines) and they cause massive traffic congestion because they cannot be overtaken easily and they occupy the middle of the road.

Buses would be much more preferable than trams, except perhaps in the crowded Melbourne CBD. We've seen the proliferation of expensive new tram "super-stops" that cost over $100,000 each, as councils struggle to spend their booming annual budgets of $200 million.

But there are some spend-happy bureaucrats who will claim that trams are part of our heritage (so are horse + carriages!) and thats reason enough to let them clog our roads !

Here are some unavoidable facts about transport. People strongly prefer cars and roads. Mass transit is usually only popular in dense and heavy traffic areas for commuting to work or to big events.

We already tax the heck out of petrol, cars, insurance, stamp duty and then ration out parking spaces as well as imposing lots of fines and penalties for speeding and driving whilst talking on a phone.

You can easily make life even more miserable for motorists, but why would you want to ?

Digging up the figures on government

Its time for some perspective people. We just got over an election full of hysteria, promises, vague rhetoric and fear tactics.

Not once during the election debates was there a balanced discussion on the wider issues;

• what services should government provide?
• what about the current level of taxation and the way it is raised ?
• what about the current level of spending ?
  
• what about the current number of government employees ?
• what about the welfare system ?
  

I've done some digging around, and here are some figures that speak for themselves and will make these questions seem all the more pressing.
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From the ATO 2006 annual report:

• "We make $7.5 billion in transfers and payments to the community "
• "At 30 June 2006, we employed 21,511 full time equivalent employees in offices all around Australia"
• Our operating budget expenditure for 2005-06 was $2,533.2 million
• Net tax collections increased to $232.6 billion which was $17.8 billion (8.3%) more than last year
  

From the Centrelink website:

• Its recurrent budget is $2.3 billion
• has 6.5 million customers, or approximately one-third of the Australian population ( !!! )
  
• employs more than 25 000 staff
• has more than 1 000 service delivery points ranging from large Customer Service Centres to small visiting services
• has reduced the number of letters sent to our customers from more than 87 million (in 2004-2005) to 86.4 million per year (in 2005-2006)
• receives more than 30.77 million telephone calls each year
• grants more than 2.8 million new claims each year.

Department of Education, Science and Training annual report.

• Expenses administered on behalof the government increased by three per cent from $18.755 billion in 2005-06 to $19.261 billion in 2006-07.
• Total price of departmental expenses: $507.8 million
• Average staffing level:
  

Department of Health and Ageing annual report:

• Total Departmental Appropriations: $799.528 million
• Total Administered: $45.7 billion
  

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Senator Nick Minchin pointed out the following bit of information, which the media aren't the slightest bit interested in:

“At last count, Mr Rudd had announced 96 reviews and inquiries and 67 new government Departments, committees and task forces.

Have I made the situation perfectly clear ?

The real goals of the welfare state

John Edwards is one of the leading presidential candidates running for the Democrats in America. He is considered your typical progressive, or left-wing social democrat, and he clearly articulates EXACTLY what is intended by expanding the government provision of public health services.

“I’m mandating healthcare for every man woman and child in America and that’s the only way to have real universal healthcare.”

“Evertime you go into contact with the healthcare system or the govenment you will be signed up.”

During a press avail following the event Edwards reiterated his mandate:

“Basically every time they come into contact with either the healthcare system or the government, whether it’s payment of taxes, school, going to the library, whatever it is they will be signed up.”

When asked by a reporter if an individual decided they didn’t want healthcare Edwards quickly responded, “You don’t get that choice.”

There you have it people. PLEASE STOP AND THINK ABOUT IT. Socialised medicine isn't about helping the poor, as much as it is about creating a one-size-fits-all system where the individual has no say or no vote in what kind of services they can receive.

Capitalism is nice and simple ... it doesn't have a feel-good vibe to it, and it sound somewhat selfish, but here it is nonetheless ... you vote with your dollars, and the competitive providers will crawl over each other to provide you what you need in exchange for them.

Having a socialised system means that your dollars will have no say, and you cannot vote or communicate with them. It means that health and education become massive bureaucracies that ration out limited amounts of services, and allow people to die whilst on waiting lists and children to receive a sub-standard education (and to add insult to injury, poor parents MUST send their children to a school, no matter how bad).

I've always said that I would love nothing more than to wave my magic wand and have an army of skilled teachers, nurses, policemen appear and provide minimum health and education services, especially to look after the poor and disadvantaged.

But nobody, no economy on the planet, no leader or super-computer, can allocate these resources at zero cost, with no trade-off.

That is economics in a nutshell.

The Liberals become even less liberal

In today's Australian, the candidates for the new leadership position in the Liberal Party are planning a future course which shows the Liberal Party entirely abandoning its manifesto and policy platform, and steering towards a vague, social welfare and interventionist set of policies. With each day, the LDP becomes the only remotely *liberal* party functioning in the Australian political landscape.

Mr Turnbull, who failed in a bid to convince federal cabinet to ratify the Kyoto Protocol on climate change, said yesterday that Kevin Rudd had a mandate to do so.

"I don't think anybody can reasonably oppose that. He has clearly got a mandate to do that - that's fine, that's done, it's an important symbolic act," Mr Turnbull said.

Now the Liberal Party is no different to the Greens when it comes to supporting free market solutions. The Liberal Party clearly believe more rules and regulations, and a crippling intervention into the energy industry is needed and that a government department should be established to implement these draconian measures.

Dr Nelson said yesterday he was the right man to take the party forward and foreshadowed a rise in the importance of social welfare, "relative to economic rationalism".

"(It will be a balance) not only of economic but also human and social objectives for our country," Dr Nelson said.

"What I will be offering ... is an alternative which is the right balance of experience and stability but also care, commitment, conviction and vision, not only for economic but also human and social objectives for our country."

Social objectives are whatever our elites tell us they are.. like more welfare, or baby bonuses, or free injecting rooms or who knows whats next. This idea allows government to redefine its role, its scope and its size whenever they sniff an opportunity for good PR. Who knows what will be regulated next - fast food ? Sports ? Alcohol ?

Some Coalition MPs are even pushing for the party to concede the Work Choices reforms went too far.

Yet none will contend that it doesn't go far enough. Nobody even proposes that government has no business interfering with workplaces in a free and prosperous society.

Sigh ........

Movie reviews

Thanks to Qantas and Air France, I can post a heap of movie reviews:

Fantastic Four, Rise of the Silver Surfer - predictable action flick, at least it has Jessica Alba - 5/10

License to Wed - not very funny for a comedy - 4/10

Transformers - would be great with surround sound a big screen - 6/10

Knocked Up - some funny characters, but has a disturbing and gross birth scene - 6/10

Evan Almighty - Steve Carrell is the least funny he has ever been. This is kiddy Disney comedy - 4/10

Hot Rod - What a crack up ! A stupid stunt-man acting like an ass - 8/10

1408 - Scary horror/thriller type, John Cusack is pretty cool in this - 7/10

Back from holidays

I'm back from Europe, where I discovered that the French love to go on strike for extended periods that inconvenience millions of travellers.

Anyway, blogging will resume now. I'm disappointed in the election result, my dreams of the LDP scoring a few victories and bigger publicity have been dashed, and the nightmare scenario of the ALP regulating our workplaces and introducing thousands of pages of environmental regulations is soon to come about.

Whats the silver lining in all of this ? Perhaps the Liberal party can actually rebuild themselves as a *LIBERAL* party for the next election. Maybe Kevin Rudd can really shake up the ALP and try to maintain a centrist position, infuriating the unionists amongst their ranks. And of course, just like Germany and New Zealand, by ratifying the Kyoto Protocol, Australia is about to learn how it just doesn't work out. It will not be many years before those who voted ALP at this election will see some broken promises and dashed hopes, no matter how skilled or adept Rudd is.

He's been campaigning for months on catchy slogans like "fresh thinking", "new leadership" and "governing for all Australians". Now its time for a dose of reality.

If you are not a thug, vote for LDP

The media is still running with the general theme of "whose face do you prefer more ? Johnny or Kevin" which makes my skin crawl. It really re-emphasises the cynical notion that elections are where you vote for the person you hate the least.

But in 2007, tomorrow is your first chance to vote for freedom. In every single state in Australia, the LDP are listed on the senate ballot papers.

The major parties, Labor, Liberal, Greens, Family First and Democrats, are all authoritarian thugs who make promises on how they will spend your taxes.

They also make promises about new laws, regulations, quotas, police powers, surveillance, environment regulations and yet more legislation. These in themselves can often be seen for what they are - nanny state bullying and telling other people what to do.

But the concept of spending the current level (or more) of taxes is nothing less than a brutal and thuggish mentality because taxes are *not* voluntary.

If you like the benign, positive and egalitarian sound of some policies, like "greater health spending" or "more school teachers" or "free dental care for teenagers", then you can simply vote for the major parties who campaign on it. Whether more government spending will actually deliver better results in these areas is very doubtful (please look at the last decade as government spending has skyrocketed). But more importantly ...

You didn't ask your neighbour if they want to spend more money on teenage dental care, or baby bonuses, or family tax credits. You never asked another person for permission on how to spend their money.

Instead, you will be voting for a party that uses force to extract taxes and freedoms from people. There is no way to avoid this cruel fact.

I'd love to see a magic wand waved and more teachers for schools appear instantly. But do you have the guts, the aggression or the violent mindset to force other taxpayers to pay for your preferences ?

Put this aside, and vote LDP in the senate !