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Saturday, 12 March


Sandpit John Quiggin

A new sandpit for long side discussions, idees fixes and so on. Discussions about climate policy and related issues can be posted here, along with the usual things.


Blockbusters. The net is the force that is making us all alike Peter Martin

It's getting hard to see movies other than Star Wars.

 Playing on a record 941 Australian screens, The Force Awakens is squeezing other films out. Want to see a different film? You'd better be quick. Since December, other films have been on screens for mere days, replaced by others on for mere days, as The Force and The Force in 3D monopolise real estate and obliterate potential competition.

Fortunately, many filmgoers I know don't seem to want to watch other films. Some have seen The Force Awakens repeatedly. Others who aren't that interested feel they have to see it in order to find out what everyone else is talking about.

It isn't what we were told would happen.

Ten years ago, in an award-winning book titled The Long Tail: Why the Future of Business is Selling Less of More, the editor of Wired magazine Chris Anderson argued that blockbusters were on the way out. In their place would be "a market of multitudes". There would still be big sellers, of course, but beyond them would be an ever-growing tail of niche products that would do surprisingly well, "shattering the mainstream into a zillion different cultural shards".

Anderson used the example of a long-forgotten British book, Touching the Void, by mountain climber Joe Simpson. It sold poorly, until a decade later a fellow mountaineer, Jon Krakauer​,...


Relax, Spotify won't stop the music Peter Martin

Remember how the internet was going to kill music?

Seriously. And before that home taping, the arrival of the radio, and the invention of the record player.

Each was going to cut the return for making music. As a result, we would be surrounded by less of it. Seriously. At home I have a copy of a 1990s CD entitled "Don't stop the Music". The Australian record industry sent it around to warn that Australian music would vanish if the government allowed the unregulated import of CDs, which it did. The record player was going to cut sales of sheet music, putting composers out of business. Radio was going to cut sales of records, putting recording artists out of business. Home taping was going to cut multiple sales of records, meaning that artists would no longer find it worth their while to record. And the internet was going to cut payments to artists altogether.

Now there's streaming radio. It charges two prices: nothing (backed up by advertising), and very little. It pays the recording companies just 0.7 US cents per play. The artists and composers get a fraction of it.

Yet all these years on we are still surrounded by music. It follows us throughout a day from our bedside to our commutes to our earphones at work to our drive home to settling into bed.

And an astonishing amount of it is new. A decade after the arrival of file sharing, US economist Joel Waldfogel charted what had happened in a paper called...


Trans-Pacific Partnership will barely benefit Australia, says World Bank report Peter Martin


Australia stands to gain almost nothing from the mega trade deal sealed with 11 other nations including United States, Japan, and Singapore, the first comprehensive economic analysis finds.

Prepared by staff from the World Bank, the study says the so-called Trans-Pacific Partnership would boost Australia's economy by just 0.7 per cent by the year 2030.

The annual boost to growth would be less than one half of one 10th of 1 per cent.

Other members of the TPP stand to benefit much more, according to the analysis. Vietnam's economy would be 10 per cent bigger by 2030, Malaysia's 8 per cent bigger, New Zealand's 3 per cent bigger, and Singapore's 3 per cent bigger...

Australia and the United States benefit the least from the Trans-Pacific Partnership. The study says it would boost the US economy by only 0.4 per cent by 2030.

Non-members would suffer as members directed trade to other members. The biggest loser would be Thailand, whose exports are set to fall 2 per cent while Vietnam's grow 30 per cent.

The study explains that highly developed nations such as Australia are either relatively reliant on things other than trade for economic growth or are already fairly free of trade restrictions.

Since sealing the deal in October the Australian government has been reluctant to commission an economic analysis of its effects, turning down an offer from the Productivity Commission.

Prime Minister Malcolm Turnbull described the deal as a "gigantic foundation stone", saying it would deliver "more jobs, absolutely"....


Melbourne booms while the rest of Victoria sinks Peter Martin

Melbourne has pipped Sydney to become Australia's fastest-growing city, but risks a "lost decade" after years of underinvestment in public transport.

The latest spatial breakdown of economic growth produced by SGS Economics and Planning puts Melbourne at the top of the pack at 3.1 per cent, a growth rate exceeded only in regional Western Australia and the Northern Territory. Sydney's economy is growing at 3 per cent, Brisbane's 0.9 per cent and Perth's 0.3 per cent.

Adelaide is growing faster than the other second-tier capitals at 2.1 per cent, Canberra at 1.4 per cent, and Tasmania (no separate results are calculated for Hobart) at 1.6 per cent.

But regional Victoria is languishing. Away from Melbourne the calculations put Victorian growth at just 0.3 per cent, a rate that fails to cover population growth, meaning income per person is going backwards.

"It's been a bad year for both manufacturing and agriculture," said SGS partner Terry Rawnsley. "The closure of the Alcoa refinery in Geelong hit manufacturing, and we had drought in the Wimmera. Agriculture is seasonal so things might improve, but Melbourne is where the growth is."

Driving Melbourne's economy has been a rapid growth in the financial sector and a boom in apartment building, but Mr Rawnsley says both are at risk from years of underinvestment in public transport.

"Putting aside the regional rail link which has just opened...


The bonds that fell to earth. Bowie's part in the global financial crisis Peter Martin

Did David Bowie spark the global financial crisis?

It was a question seriously asked after Lehman Brothers collapsed in 2008.

A decade earlier in 1997 he pioneered what came to be called Bowie Bonds. The first was essentially a long-term loan to him in return for the future revenue from the 287 tracks he released before 1990.

He and his financial engineer collected $55 million. The bond holders collected the rights to the income from singles such as Space Oddity, Heroes, Changes and Ashes to Ashes. After 10 years Bowie had to return the $55 million (plus interest) and the bond holders had to return to rights to income from his tracks.

Securitisation, as it was called, had been around for a while, but Bowie showed it could be used for almost anything. By the late 2000s it was being used on an industrial scale to bundle the future income from bad US home loans with the future income from good ones and offload it to unsuspecting investors.

In the new movie The Big Short opening in Australia on Thursday Brad Pitt and Ryan Gosling outline what happened.

Bowie got the better end of his deal.

His bonds were given a AAA credit rating. Prudential Insurance bought the lot. Yet by 2004 they were...


Stephen Anthony. Australia 'has few tools left' to fight recession Peter Martin

A further downturn in China would leave Australia exposed, without sufficient tools to avoid a recession, one of Australia's leading forecasters says.

Stephen Anthony is a former BusinessDay forecaster of the year. In 2015 he took up a role as the chief economist for Industry Super Australia after having run his own economic consultancy and worked on forecasting in both the Treasury and Department of Finance. On Saturday, January 30, when the next set of BusinessDay forecasts are published, he will once again be awarded the title, this time for having most accurately predicted 2015.

"I think the risk of a recession is higher than most people would price it," he told Fairfax Media. "Most people are talking about a less than 30 per cent chance this year. I think it is higher."

Dr Anthony said the government had far less "wriggle room" to avoid a recession than it had before the onset of the global financial crisis in 2008.

In January 2008 the Reserve Bank's cash rate was 6.75 per cent, giving it plenty of room to cut interest rates. In January this year the cash rate is just 2 per cent.

In January 2008 gross government debt totalled just $55 billion. It's now $415 billion, or 25 per cent of GDP, giving the government less room to borrow more without alarming rating agencies.

Australia is going into 2016 with an expected budget deficit of $35.1 b...


China gets it wrong Peter Martin

A write-in protest is unusual in an economic survey.

I am in the middle of compiling the annual BusinessDay survey, to be published at the end of the month.

This year, five of those surveyed complained about one of the questions.

They were asked to forecast China's economic growth.

Instead, they forecast what China would say the growth rate was, and said they wouldn't believe it. "I, as well as many others, suspect the official figures are significantly inflated," wrote one. "I have forecast 6.5 per cent, but the actual figure will be more like minus 1," wrote another.

That they are openly mocking the pronouncements of Australia's biggest customer says a lot about where China finds itself.

Its target growth rate is 7 per cent. Its official growth rate, released on Tuesday, is almost exactly the same, 6.9 per cent, suggesting either that China's leaders are incredibly good at meeting targets, or that their frightened underlings are good at leaning on the figures to make it look as if they are.

The first is unlikely, given the leadership's spectacular failure to get what it wants out of its own share market, the world's biggest. The Shanghai composite index plummeted 15 per cent at the start of the year, despite frantic efforts to prop it up.

What's happening to the share index isn't that important, except as an insight into a bigger game being played out on a larger canvas.

"Countries are like people," says Patrick Chovanec, chief strategist at Silvercrest Asset Management i...


BusinessDay 2016 Economic Survey: Share market flat all year, economic outlook bleak Peter Martin



The Reserve Bank board will confront a bleak economic outlook when it meets for the first time this year on Tuesday.

In 2016 the forecasting panel for BusinessDay's Scope economic survey is expecting below-trend economic growth, a further collapse in mining investment, next-to-no lift in other investment and a lacklustre year on the sharemarket.

It believes Australia's unemployment rate will stall rather than improve, wage growth will barely match inflation, US economic growth will remain weak, Chinese growth will weaken and the price of iron ore will stay low while Australia's terms of trade weaken.

In other words, it is forecasting a year pretty much like the one we've just had. Except that this time the Reserve Bank won't cut rates.

The panel concedes there's a small chance of an cut (its average forecast is for a December cash rate of 1.9 per cent) but not enough of a chance to force the Bank to cut by a standard increment, from 2 to 1.75 per cent.

It'll be a muddling-through kind of year, with little to drive growth. Housing investment, which did t...


The Weekend Quiz – March 12-13, 2016 – answers and discussion Bill Mitchell – billy blog

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Question 1:

If there is more “money” in the economy its value always declines.

The answer is False.

The question turns on the inclusion of the word ‘always’.

The question requires you to: (a) understand the difference between bank reserves and the money supply; and (b) understand the Quantity Theory of Money.

The mainstream macroeconomics text book argument that increasing the money supply will cause inflation is based on the Quatity Theory of Money. First, expanding bank reserves will put more base money into the economy but not increase the aggregates that drive the alleged causality in the Quantity Theory of Money – that is, the various estimates of the “money supply”.

Second, even if the money supply is increasing, the economy may still adjust to that via output and income increases up to full capacity. Over time, as investment expands the productive capacity of the economy, aggregate demand growth can support the utilisation of that increased capacity without there being inflation.

In this situation, an increasing money supply (which is really not a very useful aggregate at all) which signals expanding credit will not be inflationary.

So the Maybe relates to the situation that might arise if nominal demand kept increasing beyond the capacity of the real economy to absorb it via increased production. Then you would get inflation and th...


Negative Gearing. It's turning us into a nation of landlords and serfs Peter Martin

Once we talked about the great Australian dream. Now it's something meaner: "getting ahead".

The great Australian dream meant owning your own home. "Getting ahead" means getting ahead of someone else. It's how Treasurer Scott Morrison sees the Australian dream.

"I think it is great in this country that people want to aspire to do better and provide for their kids, so I don't judge people for actually wanting to get ahead," the treasurer told radio host Neil Mitchell a few weeks back. "That's what this country is about."

It's certainly what negative gearing is about. "The vast bulk of Australians who use negative gearing are just trying to get ahead and trying to get their family in a better position," Morrison says. But negative gearing only gets them ahead if prices climb. The more that people negatively gear in order to get ahead, the more prices climb. The further they climb, the harder houses become to buy. And the harder they become to buy, the more the Australian dream recedes.

This is what has happened. Back before the explosion of negative gearing around the turn of the century, 52 per cent of Australians aged in their mid-20s to mid-30s actually owned their home. At the most recent census in 2011 it was 47 per cent. Before the turn of the century, 70 per cent of Australians aged in their mid-30s to mid-40s owned their own home. It's now 64 per cent.

The negative gearing-driven explosion has made it harder for Australians to buy houses to live in. Here's how Luci Ellis, head of the Reserve Bank's financial stability department, puts it: "It's a truism that...

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Friday, 11 March


Repeal Taft-Hartley (crosspost from Crooked Timber) John Quiggin

Assuming that the US Presidential election is between Trump and Clinton (or, for that matter, Sanders) the voting bloc that’s most obviously up for grabs is that of working-class whites[^1]. Relative to expectations, working class whites have done worse under neoliberalism/market liberalism than almost any other group in the population. So, they ought to be more solid than ever against the right. But it’s easy for tribalists like Trump to blame migrants and minorities for the losses that working class whites have suffered.

What’s needed to turn this around, I think, is something, in Trump’s words “yuge”. My suggestion is repeal of the Taft-Hartley Act. Way back in 1948, Taft-Hartley prefigured anti-union laws that were passed throughout the English-speaking world[^2] from the 1970s and have spread even further since then. Its repeal would, at a minimum, be a huge symbolic step.

Would it be more than symbolic? The case for mere symbolism was presented (a little surprisingly for me) by Doug Macarey in Counterpunch

Yes, without Taft-Hartley there would be more national membership drives, more people being allowed to join unions, all of which would be a salutary, democratic effect of repeal, one that would benefit working people. But, arguably, the country is too “grown-up,” too cynical and world weary, to engage in radical industrial actions such as secondary strikes and boycotts, even if they were made legal.

With so many workers now invested in the stock market, and union expectations and identity having been profoundly warped over the last half-century, it would be hard to find a critical mass willing to engage in the more radical actions made available by repeal of Taft-Hartley.

This argument, presented in 2008, looks hopelessly dated now. Wh...

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Thursday, 10 March


With the GST out of the way we could fix what's broken Peter Martin

What's left to reform if Scott Morison's push for a GST hike goes south?

Lots. The really big money is in superannuation. A switch to taxing contributions at marginal rates rather than the present flat rate of 15 per cent would raise an extra $15.6 billion per year, about as much as would be left over from an increase in the GST after compensation. It's enough to buy substantial income tax cuts or properly fund hospitals and schools in line with the wishes of the premiers and leave money over for company tax cuts.

If the government didn't want to remove the concession altogether, it could tax contributions at marginal rates minus 15 per cent, raising $6 billion per year. It could rightly claim to be going after high earners harder than Labor, which had the best part of a decade to fix the unfair super tax system it introduced and came up with something more mild.

The biggest economic boost would come not from a switch from income tax to GST but from a switch from stamp duty to land tax. To get it the Commonwealth would have to knock together the heads of a few state premiers, but according to the the discussion paper that kicked off the tax reform process, it's where the big gains lie.

Capital gains are taxed at only half the rate of income earned from interest in bank accounts. The discussion paper asks whether that's appropriate and talks about taxing all income from saving at the same (discounted) rate.

Fringe benefits tax, employee deductions, business deductions, dividend imputation and the role of the family home all come under the microscope in the discussion paper. Getting the GST off the table would allow the government to focus on fixing what's really broken.

In ...


TPP: It's not a done deal. Take action! AFTINET

The Trans-Pacific Partnership (TPP) has been signed and tabled in Parliament - but it's not a done deal yet.

Labor, Greens and independent representatives could still block the deal by voting against its implementing legislation in the Senate.

The easiest thing you can do right now is send a message to your Senators and MP asking them to block the TPP.

It only takes a couple of minutes and could have a big impact.

Want to do more? You can also:

1. Visit your Senator or MP: 
The most powerful thing you can do is visit your Labor or independent Senator or MP. We’ve designed a step-by-step guide to take you through the process.

2. Join AFTINET! 
We're a network of organisations and individuals representing around two million Australians. The stronger our numbers, the greater power we have! Plus, your small annual membership fee will go directly towards supporting our campaigns. Join here

3. Spread the word 
Help raise awareness by liking AFTINET on Facebook, following us on Twitter and sharing our updates. You can also download and distribute our latest leaflet Crunch time in Parliament

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Tuesday, 08 March


Parallel universes John Quiggin

Of the 20 years or so that I’ve been observing climate change policy, global developments over the past year have been the most hopeful I can remember, particularly as regards electricity generation

* The Paris Conference was a big success, at least relative to expectations
* Coal-fired power stations are shutting down around the world
* China has reduced its coal use for two years in a row
* India has increased its coal tax, and greatly expanded use of renewables

Whether emissions reductions will be big enough and fast enough remains to be seen, but at least we are going in the right direction.

As far as climate science is concerned, the string of temperature records broken recently has killed any idea that we are in a ‘pause’ or ‘hiatus’. Even the favorite source of deniers, the satellite data from UAH, is now showing a new record. The only remaining issue is the second-order debate over whether there was a pause or perhaps slowdown at some point in the first decade of the 2000s.

At the same time, following the US election, I’ve been paying more attention than usual to rightwing blogs, most of which run climate denialist pieces fairly regularly. Given that nearly all the major US coal companies are now bankrupt, and that coal-fired electricity is declining rapidly, I’d have expected a lot of “wrecking ball” pieces on the supposed damage to the economy (in reality, the effects are small and mostly offset by the expansion of renewables) now that mitigation policies of various kinds are taking effect.

But I don’t see anything like that. Rather, most of the articles I’m reading are claims of victory in the debate over both science and policy. Here’s a fairly typical example, with the title “Is the Climate Crusade Stalling?


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Monday, 07 March


Growth Surprise Flattens Australia’s Big Shorters The Diplomat » Pacific Money

The Australian economy posts a surprisingly robust growth number.

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Friday, 04 March


The Weekend Quiz – March 5-6, 2016 Bill Mitchell – billy blog

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.

Please go to The Weekend Quiz – March 5-6, 2016 to view the quiz

Thursday, 28 January


288 – Bowie albums ranked Pannell Discussions

Since David Bowie’s death a couple of weeks ago, I’ve playing his albums pretty incessantly. Playing them all within a short time made me think about which ones I prefer. I’m sharing, in case it’s helpful to others thinking of expanding their Bowie collections.

David Bowie is in my second rank of favourite musicians: not someone whose music I’m completely obsessed with, but definitely one of the greats. He fits into mainstream rock, but like the most original and creative rock artists (The Beatles, Bob Dylan, Elvis Costello, Radiohead) he was renowned for making radical changes in his music from time to time. In fact, Bowie’s changes were more radical and more frequent than any other major artist.

My decade-by-decade summary would be:

  • The 1960s: An awkward debut, one brilliant single, and a very good second album.
  • The 1970s: Mostly stunningly good, progressing through five utterly distinct phases.
  • The 1980s: Starts with one very good album. After that, several dreadful albums that I can’t bear to listen to.
  • The 1990s, 2000s and 2010s: Everything from 1995 on was very good to excellent.

You can see that I have a strong preference for his more adventurous work, and a very strong dislike of his most commercial work (from the mid 1980s).

To be more specific, here is my ranking of all his albums, from best to worst, with some comments about each.

1. Low (1977). The second o...

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