Comment of the Week, MBTV and Reddit

interaction talking heads

The interaction stakes climb up a notch again: after launching a forum recently, introducing podcasts (click here for the latest feed)  this week also saw the launch of MacroBusiness TV, with an exclusive interview with Professor Ross Garnaut:

Rounding this out, we’ve also launched the official subreddit of MacroBusiness, err, on reddit – click here – where submissions and posts are most welcome. Click on the reddit alien in the sidebar, or to share anything form MacroBusiness on reddit, use the “Share this” button at the bottom of each post (just above the comments).

A big thank you to our Members for providing us with the support to continue this expansion – you can become a Member by clicking on the icon below:

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Finally, although the Forum is starting to build up, the comments section on the blog is still the main interactive area and this week brings up a doozy from our friend in the west – and the very wrongly named – “Briefly“. In the wake of the announced closure of Fords manufacturing plant this week, here is his very insightful comment repeated in full:

The global economy is currently characterised by excess investment and over-capacity in manufacturing generally, and a whole lot of responses from competing countries aimed at improving their individual export competitiveness. A lot of things have been tried since the GFC shook global trade to its knees and provoked the steepest, fastest contraction in global trade since the 1930′s – a contraction from which the global economy has yet to properly recover. Most of the measures that have been employed have been monetary.

We’ve seen QE and depreciation in the US and UK, internal devaluations in the Euro zone, currency targeting in Brazil, tax breaks on manufacturing exports in Ireland and now tremendous monetary expansion in Japan, among others. These steps have been aimed at improving the price competitiveness of individual countries and at supporting investment/ re-investment in their respective economies.The effect of all this has been to increase competition in the traded sector and to flood the financial sector with liquidity, which has distorted interest rates and financial flows.

From the standpoint any one country, these measures are aimed at appropriating part of the demand that exists in other economies. They are not expressly aimed at improving internal demand. Indeed, in Europe, the measures taken have been intended to repress internal demand. In the absence of demand growth, these measures have only intensified competitive pressures across the global supply system generally. It is these pressures that are driving the ongoing re-alignment and liquidation of excess capacity in global production, of which the Ford closure is but one instance.

We really have to consider how Australia can fit into the hyper-competitive network that comprises the manufacturing economy. We should have a long hard look at the dynamics of global manufacturing and then ask ourselves where and how we can find a viable place in what are chronically saturated markets. Of course, there is also the reality that manufacturing investment is a beneficiary of competitive subsidies as well.

Car-makers in SE USA and China alike are recipients of State Aid of one kind or another, and it may be that rather than trying to compete against other subsidisers, we should make the most of their largesse, which reflects in cheaper products for our own consumption.We are already about to become over-invested in resources. It would be very stupid of us to become over-invested in other sectors simply because of errors we’ve made in minerals and energy.We should look back, if only briefly. For most of the postwar period, the vast acceleration of trade and investment occurred between industrialised economies, reflecting the liberalisation that occurred under GATT.

Unfortunately, during this period Australia persisted with a system of tariffs and quotas that really just increased our costs, making us progressively less able to attract direct investment and less able to hold a competitive position in the manufacturing economy. Our share of global trade and investment in manufacturing declined both while local manufacturing was protected and again when the protection was removed.At a certain level, it is probably true to say that Australian capital has forgotten how to compete in manufacturing. Perhaps this is because it has not had to compete or has found it easier to compete by retreating from manufacturing. Capital in Australia is concentrated in monopolistic rent-taking, or has been diverted into consumption.

If we are to frame new-era manufacturing policies, surely we have to be looking into the opportunities that will arise in the growth economies – in Asia, Latin America and Africa – rather than in the subsidised, competition-dense markets of the archeo-industrial economies.My thoughts are that we must set up a series of reforms that will shift capital out of rent-taking sectors and into competitive sectors. We should:- adopt an exchange rate management system that mitigates the effects of QE in other economies

  •  change the way we tax mineral and resource production
  •  abolish tax shelters in Super and Property
  •  abolish the monopolies in banking, media, retailing, among others
  •  resist the temptation to offer subsidies to individual sectors
  •  eschew any return to tariffs or quotas
  •  increase investment in infrastructure
  •  increase investment in science and technology, and increase efforts in pure research
  •  find ways to celebrate excellence and innovation
  •  liberalise labour flows into and out of the economy, and, in particular, ban the practice of indenturing temporary workers
  •  reduce company taxes rates – perhaps to 20%
  •  abolish payroll taxes
  •  rationalise taxes on land
  • find ways to intensify commercial, educational and cultural exchange between this country and our neighbours, especially among the young and the educated

We have to re-build the industrial economy. I think this must consist of a lot more than trying to support car-making, important as it is.

We have to think about next-generation products and markets, about the adoption and application of best-technologies and systems, and how to best scale, finance and support them.

More of a post than a comment – on that note we welcome any submissions for guest posts, please submit for review via the Forum or by contacting us at this page.

Join the Forum discussion on this post

Comments

  1. GunnamattaMEMBER

    That was a magnificent post. Thanks

    The points about carmaking are spot on – there is not a car industry anywhere in the world that hasnt received large scale support and the vast bulk are still getting it.

    ‘adopt an exchange rate management system that mitigates the effects of QE in other economies’

    Has anyone in any position of authority (either side of politics or RBA) said anything on why we wouldnt do this?

    • The political/regulatory/media nexus are all beholden to failed economic ideology: would any acolyte in the Mayan Temples put their hand up and ask – err, chaps, why are we beheading our own people?

      Its a religion that needs wiping out, but it will take a big shock (like discovering the earth is round, or that the Chinese economy does not revolve around Australia) to get anyone to listen to those of us with our hands up.

      In the meantime, vote Quimby and short…well you know what.

    • FEDERAL Treasurer Wayne Swan says it would be “folly” to intervene to bring down the high Australian dollar, even though the manufacturing sector is suffering…

      “A Swiss-style intervention would be folly … extremely ineffective and dangerous,” he told a Committee for the Economic Development of Australia function in Melbourne on Wednesday.”

      http://www.theaustralian.com.au/news/breaking-news/taming-the-dollar-is-dangerous-swan/story-fn3dxiwe-1226633137012

      • Why mr Swan? coz “The Swiss central bank has intervened – unsuccessfully – to try to tame the strength of the Swiss franc, spending billions buying up euros.”??

        Really?? Lying bastard.
        We’ve all got charts Swanny

      • SweeperMEMBER

        What is Swan on about? The thing about the Swiss intervention is just wrong. Swiss intervention has clearly been a success.

      • As my favourite cartoon show would say: “Catastroph!”

        As always be careful when politicians are lying – they usually have their mouths open.

    • Why don’t we develop more efficient infrastructure and public transport, which can safe as from subsidizing car industry too much and will be beneficial for the environment and resources? Look at Japan and their fantastic rail way infrastructure. Look at Europe and their fast trains and infrastructure. When this madness with everyone in an individual car will be over?

      • Japan: 120 million people with less space than coastal NSW. And Australians overwhelmingly do not want a “Big Australia” policy. Therefore it does not want a rail based travel system.

        Here are the conclusions of a 2008 European Parliament Conference on Transport Policy entitled “Liberating or Strangling Europe’s Potential” – MEP’s Ari Vatanen and Malcolm Harbour being the authors.

        “90% of travel in the EU is by car”.

        “Transport modes are not simply
        interchangeable”.

        “Public Transport operates effectively within
        specific niches”.

        “In the great majority of cases, travel by road
        cannot be made any other way”.

        “The smooth running of modern economies
        relies on road transport. Cars play a large role in economic productivity and the enlargement of markets”.

        “The high costs of public transport subsidies weighs heavily on Europe’s economy”.

        “The “external costs” (air pollution, etc) of vehicle use is covered many times over
        by the net taxation revenues specifically levied on road users”.

        “Since 1985, emissions levels of each new vehicle coming to market have been reduced by a factor of at least 10, and even though traffic volumes have increased, air quality in Europe’s cities is improving spectacularly”.

        “Investments in Rail would take 10,000 years to recoup in terms of reduced CO2 emissions”.

        The USA is the world’s most productive large economy, and is the furthest ahead of the world’s economies in the penetration and eventual saturation of car use and ownership.

        http://www.econ.nyu.edu/dept/courses/gately/DGS_Vehicle%20Ownership_2007.pdf

        One would think that if cars were so bad for an economy, the USA should not be the world’s MOST productive one.

        It is irrational and anti-objective to assume that an inflexible transport system that serves only a limited area of land – and this being even more limited given a time frame – can possibly support the kind of progress to “developed” economy that the first world has experienced. Robert Murray Haig developed a theory of transportation system flexibility and economic land rent way back in 1926 that should have been the end of any fetish for transport system inflexibility. I suspect the transport planning authorities during the decades of “automobile dependent” development in the west were actually exponentially better educated than the current useless mob.

        Even Japan is covered in roads. But Japan’s 120 million people in a limited amount of space does mean rail services, where they are provided, will be more viable than anything Australia will ever manage unless it lets the entire population of China in.

        Most public transport is now less efficient per person km than smaller cars with only the driver on board anyway. Increased average efficiency of the car fleet and better utilisation of car seats at rush hour is the answer, not a leap backwards to the 19th century.

        Those Jeepneys rushing around Manila slaughter every rail based public transport system in the world for cost efficiency. Private para-transport had to be banned in most countries in the 1920’s and 1930’s because the public monopolies on mass transit would have been riderless after a few more years on the trajectory of the time. Now we have GPS’s and I-Pods and the efficiency of private vehicles has made exponentially greater gains than commuter trains have, it is madness to keep going with this prohibition.

  2. LabrynthMEMBER

    God dam-it why oh why are people not like the poster above making the big decisions for this country.

    As a Gen-Y who has been saving I had a couple of options, keep saving and have inflation erode my money, put the money down as a deposit and go up to my eyes in debt, or start a business.

    I chose to start a business which is web based and OMG it would have cost me 5 x more if produced it here than if I outsourced it. The other thing that annoyed me is all the government requirements when starting up a business I had to pay my accountant $350 to lodge a nil BAS statement.

    When someone needs to spend more time on government rubbish than actually developing a business then what’s the point…. Its such a waste of time, I should have just bought a property…..

    • Re: nil bas -That’s more about your accountant than the government. With an auskey and a log on to your ato account that would have taken you 2 seconds. Your accountant made out like a bandit.

  3. boyracerMEMBER

    Good comment from briefly. About the only thing I disagree with (in part anyway) is reducing the company tax rate to say 20%. I have no issue with this per se but it should be done in conjunction with personal income tax rates being taxed at the same rate.

    My opinion is that there is currently a huge amount of wasted talent and effort spent in shifting income into the most advantageous tax structure. Just make the income tax rates the same for busines & personal, remove stamp duties as part of a new LVT regime, remove payroll tax (distortionary thresholds) etc etc.

    Get smart tax people spending their time on actual innovation instead of essentially pointless tax minimisation.

    Our tax legislation is hopelessly complicated and inefficient. The amount of time I spend dealing with it is a drag on the company I work for. It should and could be so much simpler.

    • Simplicity presupposes fairness, because it would be too obvious if taxes are unfair when simplified. Otherwise keeping it simple is always better and more efficient.

  4. innocent bystanderMEMBER

    I don’t know who he/she is, but I live in hope he/she is, or will be, a politician

  5. Yes, I applauded Briefly’s insight too.

    Here is what I would add. The great econometrist Colin Clark loved an old saying, “the owl of Minerva (wisdom) flies at dusk”. That is, we start understanding a phenomenon just as the sun is setting on it anyway.

    So the whole world understands that manufacturing for export is a valuable source of economic primary income; or understands that IT is the latest growth industry, or whatever – and politicians all over the whole world then launch a zero-sum race to the bottom trying to “attract” the right sectors to their local economy and before long, ironically, trying to keep them alive as a kind of global bubble in “attracting” these sectors, bursts.

    But as Ed Glaeser admirably describes in his otherwise-flawed book “Triumph of the City”, the path-dependent economic evolution that led to automaking in Detroit, and IT in Silicon Valley, started decades before anyone had any idea that what was happening locally was the slow growth of a small seed towards an eventually large tree. No-one knew then, and no-one knows now, what the wave of the future for local and national primary income is going to be.

    So what matters? What matters is not actual real life “things” about which we can feel warm and fuzzy; what matters is principles; knowledge, creativity, imagination, vision, entrepreneurship, boldness; and institutions – cultural, fiscal, regulatory, and political – that minimise obstructions to new paradigms and their commercialisation.

    While Aussie is agonising over whether to keep their own Detroit propped up, the “growth corridors” of the USA are where new auto making factories have been built even as Detroit died; where both large international airliner builders have opened new plants; where IT spin-offs are happening now that Silicon Valley has gone all exclusionary; where gas fracking has “gone commercial”; AND where 3D printers are mostly as yet, actually being manufactured. But point up the reasons for this success, and all we get is a whole lot of sneering about “exploitation” of workers and the environment and so on – odd in the face of the scale of “voting with the feet” expressed in the migration of millions of people to those growth corridors.

    It is culture and politics that are 90% of what will determine the catching of the waves of the future. And the politics of “the plan” and the “picking of winners” and the “non commercial priorities” and so on, will merely result in a nation’s missing of waves of the future, and participation in the zero-sum races to the bottom global “bubbles” in the latest politically fashionable buzz-word “industry” that the voters feel warm and fuzzy about.

  6. Red states hold the edge in growth
    Job, investment potential greater

    http://www.washingtontimes.com/news/2013/may/23/red-states-hold-the-edge-in-growth/

    “……The odds of finding a good job are significantly better in the nation’s red states than in blue states, according to a new study of business and tax policies across the country released Thursday.
    “Rich States, Poor States,” the annual report by the American Legislative Exchange Council (ALEC), examines the latest state trends in economic growth, ranking the 50 states based on their economic prospects for 2013 as well as how they fared from 2001 to 2010.

    The study’s authors — economists Arthur Laffer, Stephen Moore and Jonathan Williams — conclude that the divide is expanding between pro-growth states, which tend to elect Republicans, and those with anti-growth policies, where Democrats often dominate.

    “Today, we are witnessing an economic ‘Balkanization’ between states in America,” the report from the conservative-leaning council says. “Our view is that the steady movement of human and investment capital from high-tax states to low-tax states, which has been present for decades, will continue and likely accelerate over time.”

    The bad news for blue states: Not one ranks in the top 10 based on overall economic outlook as gauged by 15 economic indicators, including tax rates, regulatory burden and labor policies. Eight of the top 10 slots are held by GOP-dominated red states, led by Utah, while two are politically mixed “purple” states, Florida and Virginia.

    On the other hand, the list of the bottom 10 is dominated by blue states. Vermont, a solidly blue state, ranks last in terms of economic outlook, and only one red state — Montana — makes the bottom 10.
    Meanwhile, by a second measure in the ALEC study, eight of the top economic performers from 2001-2010 were red states, based on three factors: gross domestic product, absolute in-migration and nonfarm payroll employment.
    Bright-red Texas ranks first on economic performance, followed by purple Nevada and then a string of red states: Utah, Wyoming, North Dakota, Idaho, Arizona, Alaska and Montana. Only one blue state — Washington — appears in the top 10.

    Again, the reverse is true of the bottom 10 states. Eight are blue states, while Ohio is the only purple state and Missouri is the lone red state. The worst state for past economic performance? Blue-state Michigan, although the study predicts an economic turnaround based on recent moves by Republican Gov. Rick Snyder (elected in 2010) and fiscal conservatives in the legislature.

    How can a low-performing state rev up its economy? The report recommends busting up unions, reducing taxes and lightening the regulatory load — ideas not likely to find much traction in states where Democrats control the governorship and legislature.

    “Nationally, states with low tax rates, limited government regulations and right-to-work laws were most likely to have a better economic outlook than states with high income taxes and burdensome regulations,” ALEC officials said in a statement accompanying the report. “The report shows that over a 10-year period, the nine states without personal income taxes have outperformed the nine states with the highest income tax rates in population, job and revenue growth.”

    Not surprisingly, most of the nine states without personal income taxes are red states. The exception is Washington, which was also the only blue state to rank in the top 10 based on economic performance from 2001-2010…..”

    (And give Washington State time…..! Boeing could be GM one day….)

  7. Stephen Morris

    Isn’t payroll tax simply the GST on the labour component of value-added?

    It should be a credit for GST.

  8. IMHO there is absolutely no point in discussing or developing an Australian Industrial police until Housing prices collapse AND the mining boom is but a distant memory. Unfortunately until this dark day occurs, it’ll all be for naught.

    If by some fluke our next federal gov’t gets a clue, then I’d suggest they focus on creating efficiency in construction. The automation of domestic house building would be an ideal starting point, because it simultaneously addresses the problems of house supply and housing cost. At the same time it could lead to the development of advanced exportable products and create world-wide demand for Aussie Tradies, Engineers and Architects with construction automation experience.

    • +many.

      Considering housing is a national obsession a competition to get the lowest cost most efficient housing to market would be a worthwhile objective – and even a reality TV series.

  9. I would like to thank MB for giving me a soapbox on which to stand and declaim, and for providing such invaluable information and analysis in the first place.

    MB really is an excellent forum and is a great credit to those who run and contribute to it every day.

    On the subject of information and analysis, one other item at Project Syndicate caught my attention today:

    http://www.project-syndicate.org/commentary/the-doha-round-and-the-decline-of-the-world-trade-organization-by-peter-sutherland

    In writing about trade, Sutherland reinforces the point that global trade has really failed to get back on its feet since the GFC.

    The decline in the growth rate of trade has multiplier effects: weak export growth in one country leads to weak import growth in the same country and reciprocal declines in export growth elsewhere, in turn retarding their imports. In this way, decelerated trade transmits and multiplies economic stagnation. This is something we here might recognise as contributing to the Ford Effect.

    Perhaps the world economy is adjusting to a much slower rate of growth in trade (and a retreat from export-oriented industrialisation), or perhaps the locus and direction of trade is just shifting away from the industrialised north to the emergent south.

    As an economy that is highly dependent on trade (exports and imports each exceed 21% of the economy) we really should get a whole lot better at understanding and responding to changes in the trade environment. Perhaps we need to become more trade-literate.

    • Thank you for your posts Briefly.

      Love the debate at MB and I always love to read your posts … normally I make a good strong cup of tea and grab the Economics text book!

      😉

      Cheers, TM.

  10. Hmmm

    Here’s a thought: I’m not really convinced Australia has what it takes to compete with the world in manufacturing – we just have not, and don’t enough talent, enough focus; we COULD do it, yes – we’ve got some great brains here – but we don’t, and I think we won’t.

    Additionally, we are just too expensive, and we don[‘t have the capital – and why would we get much foreign capital when we are so expensive? This “needs” to change, as part of a “matrix of change”, if we are to compete.

    Honestly, I think we should compete differently: use what we have inherently, and exploit and use it efficiently and sustainably.

    My quick thoughts:

    – Agriculture: do it really, really well; do it big, do it really cleverly, and really sustainably; throw terraforming in there as well;

    – Energy: do it really, really well, do it really cheap – focus on renewables like solar, solar-thermal, etc…crikeys we have the heat and land that we can’t do anything else with, so use it;

    – Mining, Gas: we are brilliant at this; get even better, develop tech, methods, minds…be the best; buy foreign mines, foreign tech, lead the world (overtake Scandinavia!); throw on a couple of upstream and downstream value-additions;

    – Materials and Metallurgy: we are good with building materials, tech materials and metallurgy; IMHO, this is the sort of “high tech” innovations we can do, that are consistent with our cultural and educational inclinations, and natural abundances.

    – IT and electrical engineering: we have some brilliant minds…but, for heaven’s sake, stop trying to develop apps, games, social media, platforms, etc….apply clever custom IT to enhances the efficacy and efficiency of the fields mentioned above…do something that is actually practical for a change!

    That’s just some really quick thoughts.

    I do not think we can compete in high tech industries; I really don’t think we can, and I really don’t think we will.

    I think we should focus on what is intrinsic to Australia – primary industry – and making it work really, really well, and make specific custom-techs that are very sought after for their specific applicability, not their generic or touchy-feely IT qualities…

    We are a culture of that has its heart and mind “on the ground”, “in the mud”, “in the field”, and “hands on” – let’s work with these human, material and geographical blessings, and, “Get on with it, ya mug!”

    Stop trying to be like the high-tech, tertiary parts of Europe, the USA, Korea, China, Japan, etc. Instead, focus hardcore on our natural material and human blessings, and differentiate into an economy quite like others, that develops and delivers the “needs” of the world in unique and incredibly clever and efficient ways.

    Instead, focus on primary and secondary industries, where we already have distinct human and material blessings.

    My 2c
    Stewart

  11. “….we are just too expensive…..”

    That’s what has been said about the USA for decades, but it keeps going with things old and new that Aussie does not, due to differences in local policy that Aussie consistently gets wrong. And it is certainly not “bureaucratic management”, which some contributors to MB seem to have a misplaced faith in, that makes the USA’s growth corridors successful.

    Your suggestions are great though, as part of an “all of the above” approach – I would argue that the USA already does all this:

    Agriculture: do it really, really well; do it big, do it really cleverly…..Energy: do it really, really well, do it really cheap…..we have the heat and land that we can’t do anything else with, so USE it (+100)…..Mining, Gas: we are brilliant at this; get even better, develop tech, methods, minds…..be the best (USA done this already); buy foreign mines, foreign tech, lead the world (overtake Scandinavia!); throw on a couple of upstream and downstream value-additions (US growth corridors certainly done this);- Materials and Metallurgy: we are good with building materials, tech materials and metallurgy; IMHO, this is the sort of “high tech” innovations we can do, that are consistent with our cultural and educational inclinations, and natural abundances.- IT and electrical engineering: we have some brilliant minds……”

    And what is it about the USA, versus EVERYWHERE else (not just Aussie), that THEY get ALL the “wave of the future” billionaires?

    THIS is an instant classic by the great historian Victor Davis Hanson:
    “‘Oddball heaven’ works for America”

    http://www.washingtontimes.com/news/2013/mar/25/oddball-heaven-works-for-america/

    “…..The world now wakes up to iPhone communication, Amazon online buying, social networking on Facebook, Google Internet searches and writing and computing with Microsoft software. Why weren’t these innovations first developed in Japan, China or Germany — all wealthy industrial countries with large, well-educated and hard-working populations?

    Because in such nations, young oddballs like Jeff Bezos, Bill Gates or Steve Jobs more likely would have needed the proper parentage, age, family connections or government-insider sanction to be given a fair shake.

    Even in its third century, America is still the most meritocratic nation in the world. Unlike the caste system of India; the class considerations of Europe; the racial homogeneity of China, Japan or South Korea; the tribalism of Africa; or the religious orthodoxy of the Middle East, America is still a place where one can offer a new idea, invention or protocol that is judged on its merits, rather than on the background, accent, race, age, sex or religion of the person who offers it…..

    “……the upside to the wild arena of America is that almost anyone is free to enter it. Oprah Winfrey, a black woman, reinvents the genre of daytime talk shows and builds a media empire. Warren Buffett outpaces New York’s Wall Street — from Nebraska. A one-time five-and-dime owner from Arkansas, Sam Walton, refashions the way an entire planet buys stuff. A Russian emigre, Sergey Brin, co-founds Google, perhaps the most indispensable site on the Internet.

    Just when we read obituaries about an unruly nation of excess, unlikely nobodies pop up to pioneer fracking, the Napa wine industry or Silicon Valley. Why? No other nation has a Constitution whose natural evolution would lead to a free, merit-based society that did not necessarily look like the privileged — and brilliant — landed white male aristocracy who invented it……”

  12. Interesting that r/macrobusiness is essentially a straight up shill/spam subreddit for Australian Property Forum (APF). Someone over at Reddit really ought to be notified.

    • Im sure the 3 people who read it each day are thrilled with their (cut and paste) success.

      Best not to give them anymore oxygen, even though they are a bit deprived, ok Karan?