Club Troppo

Mark Crosby explains – I couldn’t agree more.

The RBA released minutes of their most recent meeting yesterday. Debate in the press today about the merits of the RBA keeping their powder dry, or whether they should have cut further. The minutes end with

The question for policy was whether further stimulus should be added at this meeting, or whether, having reduced rates at each meeting since September, the Board should pause for a further evaluation of the situation. Members could see reasonable cases for both courses of action. On balance, they judged that, having made a major change to monetary policy over the preceding several meetings in anticipation of weak economic conditions, the best course for this meeting was to leave the cash rate unchanged. Members believed this would leave adequate flexibility for policy at future meetings.

Alan Oster likened the argument for holding fire as like waiting for the hole to get deeper before trying to dig yourself out. I agree with him on this. There is no sense waiting for further evidence of deteriorating local and global conditions. Delaying cutting just delays the normal response to monetary loosening – Japan made the mistake of waiting too long to cut real interest rates in the early 1990s – eventually inflation became deflation, and it was not possible in the end to deliver the negative real rates that Japan needed to help stimulate recovery. One issue is why central bank interest rate changes are positively autocorrelated. If a new piece of information about the economy arrives that affects the desired target cash rate there is no theoretical reason not to go straight to the new target cash rate.  The fact that rates were cut for several meetings after September suggests that cuts made late last year should have been larger, particularly after the consistent bad news of Q4 when it became evident how poorly the global economy is travelling. The cash rate should have been 2% or below by January this year.

I liken the argument to the captain of the Titanic seeing the iceberg and saying ‘this ship takes a long time to turn round, so it would be silly to change direction too suddenly. I’ll just turn the rudder a few degrees and review the situation in a few minutes.  Don’t want to give away all my ability to turn – what if I need to turn more in a few minutes.

The Slave Trade and the Origins of Mistrust in Africa
by Nathan Nunn, Leonard Wantchekon NBER

Abstract:

We investigate the historical origins of mistrust within Africa. Combining contemporary household survey data with historic data on slave shipments, we show that individuals whose ancestors were heavily raided during the slave trade today exhibit less trust in neighbors, relatives, and their local government. We confirm that the relationship is causal by using the historic distance from the coast of a respondent’s ancestors as an instrument for the intensity of the slave trade, while controlling for the individual’s current distance from the coast. We undertake a number of falsification tests, all of which suggest that the necessary exclusion restriction is satisfied. Exploiting variation among individuals who live in locations different from their ancestors, we show that most of the impact of the slave trade works through factors that are internal to the individual, such as cultural norms, beliefs, and values.

It seems incredible, hard to believe, but we’ve got ten double passes to give away to Highly Suss, which looks like fun.  I’d go myself if I wasn’t going to be overseas. If you’re planning to be in Melbourne for the 4th of April, then let us know and we can send you a ticket to a Troppo table – or perhaps a block of seats in the audience. You’ll laugh, you’ll cry, you’ll be amazed at the incredible elephants that will be on stage. You’ll be abducted by aliens. But you’ll be returned back to the theatre in time for you to catch your tram home.  

How do you let us know – with a comment leaving your email below or by emailing me at nicholas AT gruen DOT com DOT au. Or after Monday 23rd March to rex UNDERSCORE ringschott AT yahoo DOT com DOT au

July 20, 2007, MACQUARIE Bank chairman David Clarke yesterday was forced into a staunch defence of the controversial bonus scheme that delivered $200 million this year to its top 13 senior executives following an unprecedented shareholder revolt.

A good while ago I said to my broker I liked the look of Macquarie Bank and asked if I should buy some shares.  She said they were too expensive.  So I didn’t buy them. They were $8 at the time. Anyway, their fortunes have had a roller coaster ride.  They were certainly innovative, and some of the things they did even made the economy more efficient, a good deal and probably most of Macquarie’s financial innovation was driven by the search for ways to help their clients avoid tax.

Anyway, still surviving despite some ugly moments in the crisis, Macquarie is keeping on keeping on.  As yesterday’sfinancial newsletter The Sheet reports

High yield loans appeal to Macquarie

Macquarie Bank plans to buy corporate debt at a discount and to seek out special lending situations to fund troubled corporates at high rates of interest, the Sydney Morning Herald reported.

Macquarie is seeking high-yield lending opportunities worldwide and has established a dedicated business unit to seek out the opportunities. Ben Brazil crossed from corporate advisory to manage the new business unit, the newspaper reported.

Over the last three months the bank has raised around $14 billion in long-term debt, . . . more than any other bank.

This looks like good innovation non? It’s exactly the kind of thing that should be happening in the financial sector if it is to play its role in helping us out of the crisis. Because lending to business and working out what are relatively higher risks in doing so is something that competing banks will be much better at doing – or should be much better at doing – than government which is too slow moving, and too reliant on simple routines. and rules to really make it’s way surefootedly through the jungles of commercial finance. 

So it’s all good. Well except one thing. (Continued)

(Continued)

“The Odysseus is great because, like, Odyssey sleeps with three different women.”

Michael Duffy liked my most recent column for the Fin and invited me onto his Counterpoint program where we had a bit of a chat about various things – including Oscar Wilde  - though the topic was the permanent income hypothesis and what will happen to the handouts.

In any event, I thought I’d mention this here because I made a claim on the program that I didn’t get time to develop, so I thought I’d just provide you with some evidence. I said something like “Milton Friedman was a kind of Keynesian”. I was thinking particularly of this passage from something Friedman wrote in 1974.

One reward from writing this reply has been the necessity of rereading earlier work, in particular [Keynes's] . . . General Theory. The General Theory is a great book, at once more naive and more profound than the ‘Keynesian economics’ that Leijonhufvud contrasts with the ‘economics of Keynes.’ . . .

I believe that Keynes’s theory is the right kind of theory in its simplicity, its concentration on a few key magnitudes, its potential fruitfulness. I have been led to reject it, not on these grounds, but because I believe that it has been contradicted by evidence: its predictions have not been confirmed by experience. This failure suggests that it has not isolated what are ‘really’ the key factors in short-run economic change.

The General Theory is profound in the wide range of problems to which Keynes applies his hypothesis, in the interpretations of the operation of modern economies and, particularly, of capital markets that are strewn throughout the book, and in the shrewd and incisive comments on the theories of his predecessors. These clothe the bare bones of his theory with an economic understanding that is the true mark of his greatness.

Rereading the General Theory has . . . reminded me what a great economist Keynes was and how much more I sympathize with his approach and aims than with those of many of his followers.

It it not necessary to be a fan of the Rudd administration or the alcopops tax to deplore the horse-trading that is going on to hold the Government to ransom on legislation to ratify the tax. Abuse of the Senate is not a novely and the man from Tasmania was probably the worst example of abusing the balance of power.

It is a sad situation with so many issues that deserve attention to have this piece of business held up for the sake of Nanny State legislation on advertising and spending on alcohol help lines which already exist, at least in New South Wales.

From Today’s Crikey

Trashing Pauline Hanson was a class act

Jeff Sparrow, editor of Overland writes:

Yesterday, Jonathan Green asked the excellent question: if photos of a youthful Peter Costello mugging in his Speedos found their way to a newspaper editor, would the images turn up in your Sunday paper?

Obviously not. But theres another, perhaps even more interesting, hypothetical. What if the flesh being flashed belonged to another female politician? Say, for example, the nudie holiday snaps purported to show a teenage Quentin Bryce or a young Julie Bishop. Would the Sunday Telegraph have published then? Would, a couple of days later, the so-called quality press have been speculating furiously about belly-buttons and hair cuts?

If s-xism remains one of the great unmentionables in Australian politics, class is even more so. Why did Sunday Telegraph editor Neil Breen press ahead with a story that now seems to have been based upon the word of a man who remembers nothing? Was it not at least partly because Hansons background (a bit of a scrubber, probably been around the block a few times, etc, etc) made her fair game?

Back in the day, the tabloids pushed Hansonism to the hilt, but despite all the newspapers she sold for them, they, like most of the media, still see her as white trash, the kind of person to whom you can do absolutely anything you want.

In 1997, at the height of her popularity, Hanson published a volume entitled Pauline Hansons The Truth, a strange title, since she didnt actually write it and it wasnt exactly true: you might recall the warning about how an Asianised Australia would soon be ruled by a lesbian cyborg called Poona Li Hung. But beneath all its craziness, the books sentiment was entirely genuine: it expressed, in distilled form, the rage and confusion of those left behind by the economic reforms of the Hawke-Keating years, people whose lives had been transformed without their consent, and by forces they didnt understand.

That was Hansons support base, men and women who werent simply outside the polite circle of respectable politics but were actively hostile to it, who identified ABC journalists and university-educated parliamentarians as the kinds of snooty elitists who had always patronized and belittled them and taken them for granted. Thus every time a perfectly enunciating interviewer humiliated Hanson on the TV her popularity grew, since those who voted One Nation knew exactly how it felt to be asked unanswerable questions by some sneering know-it-all, whether at the DSS or in the bank managers office. Naturally, most Hanson voters will, quite correctly, draw a simple lesson from these photos: if youve got an accent like Pauline Hanson, then youre fair game for any kind of smear.

None of which is to whitewash the underlying viciousness of Hansonism, a phenomenon in which the relatively powerless found psychological comfort from attacking the absolutely powerless. After all, if you wanted to think of others whom newspaper editors treat with utter contempt, you need look no further than Paulines favourite scapegoats, Aborigines and migrants. Hanson will presumably sue the Telegraph; the refugees accused of throwing their kids overboard — what redress did they ever get?

Still, this grubby little affair with the Sunday Telegraph shows that 13 years after Hansons maiden speech, nothing much has changed. In Australia, if you come from the wrong side of the tracks, no-one will ever let you forget it.

The only bit I disagree with is that Hanson’s supporters were the ‘victims’ of Hawke and Keating’s policies. To the extent that they were victims (some were not victims, they were just troglodytes who still had their jobs) they were the victims of a changing economy – as a result of globalisation and technology – and there would have been more of them without economic management which tried to integrate the economy with those developments at the same time as building a better safety net.