Club Troppo

Kevin Young of The Investors Club (TIC) wants a royal commission into the Reserve Bank’s interest rate decisions — or as TIC’s web site puts it "an royal enquiry into the banking industry". According to the ABC:

The Investment Club says interest rates in Australia are among the highest in the developed world.

The club wants rates to be cut by 2 per cent to bring them into line with countries like New Zealand.

Investors Club president Kevin Young says the RBA has repeatedly breached its own charter.

"On our website we’ve listed 80 breaches of their own charter," he said.

"They’re a completely non-elected group who can destroy our lives. Their crystal ball is flawed."

Why do news outlets like the ABC and AAP and the Herald Sun keep treating Kevin Young’s comments as news? Here’s a few of the things I read while I tried to figure out if Young was a useful source of information and analysis on banking:

(Continued)

Yep. Ned is back for another crack at internet stardom.

You may need to read back over the post, which is thoroughly worthwhile in itself (for eco geeks, or anyone with an interest in social science) but I lerved this comment.

There are no simple mistakes in applied macro, Nick! Unless one counts asking, on a public forum, provocative and far-reaching questions such as: “Is the entire field of applied Macro junk?” Hopefully the next faculty lunch isn’t too awkward.

In my opinion, the simplest refutation of applied macro is that hedge fund managers and other assorted punters have zero interest in the field. If macro models had even the slightest ability to forecast any better than a closed eye and a thumb held at arm’s length, these guys would be drooling over them.

Unfortunately, a lot of careers and prestige currently depend on macro modeling continuing to be taken seriously, and you have to spend a LOT of time studying the friggin things to be able to confidently say that they are crap. Sadly, honest eyebrow raising like this notwithstanding, I fear it may be some time before we can finally snap our MatLab CD’s in half. One funeral at a time, as they say.

Cheers,

Zdeno

So Zdeno, the Troppo Mercedes Sports is yours for this month and is being helicoptered to you as we speak.  Here at Troppo, we want you to know we appreciate your efforts. Enjoy.

The recently announced Resource Profit Tax is in principle a profit grab, taking from those who owns large mines, and handing this out to those that dont. Obviously this makes mining executives angry and the noise they are creating at the moment is deafening, with all sorts of nonsense bandied about in the media about how this tax will mean the end of the world as we know it. Leaving the noise from a few super-rich to one side, it is useful to think of who belongs to the winners and the losers of the proposed tax.

A difficulty in making that assessment is that no-one yet knows how this tax will be carried out. Part of the difficulty is that the tax is meant to replace the existing royalty system in individual states, but these individual states are unlikely to simply agree to such changes in their tax raising activities. Also, definitions of ‘costs’, ‘rents’, and just exactly what constitutes a ‘mining project’ are yet to be worked out, so we can at the moment do no more than give a best guess. Let’s presume that the tax gets implemented in the way it designed, meaning that the profits of all current and future mining projects will be taxed at 40%, whereby the initial costs and losses count as a kind of tax-offset.

At the moment, the government’s plan includes the possibility that mining firms that made a loss on a project get part of that loss reimbursed, but exactly how that will work out is not clear (what happens in the case of bankruptcy?), so let’s presume that costs and initial losses will be treated as tax off-sets, which is what they will be for most of the big mining companies. Since a profitable project now remains a profitable project in the future, the long-run effect of this tax is that at least as many projects will go ahead as without this tax. Indeed, more will go ahead because the tax replaces existing royalty taxes which tax all mining activity and do discourage all mining activity. Hence, in the long-run more mining will take place under this new tax, implying higher levels of investments. The beauty of the tax is that the underlying assets (minerals in the ground) cannot run away and hence the tax cannot be avoided by mining somewhere else.  It is just not credible for any company to pretend they will refuse to make money and not dig up and sell the minerals that are there. All talk of capital flight, sovereign risk, and other forms of saber rattling are just not credible.

Another clear effect of this tax is that it will give mining companies (like Xstrata and BHP Billiton) an incentive to increase the costs, just like any tax-offset increases people’s incentive to use those offsets. This means that one should see increased job security, higher wages, and increases in other cost factors like transport. Indeed, the tax office will have a tricky time in deciding whether all the costs mining companies will start putting on their books are really costs associated with mining activities. Mining companies can for instance try to hide profits by paying excessive amounts to transport companies for transporting the minerals if these transport companies are owned by the same parent companies. All kinds of tax-avoidance games can be played. However, let’s presume the tax office will do a reasonable job and manage to keep the increase in ‘fake costs’ to acceptable levels. Even then, anything that is essentially a cost to mining (like employment, wages, and inputs) should get an easier time in negotiations with mining bosses because the government now effectively pays some of those costs.

Who, then, are the winners of this tax?

(Continued)

It’s been raining on and off just about every day in Darwin for more than two weeks.  Who cares you might ask?

Well, it’s the dry season.  You get the occasional shower in the dry season but not rain for weeks on end.  It’s certainly never happened before in the 27 years I’ve lived here anyway.

I thought it must be a manifestation of global warming, but this morning’s NT News has suggested an even more sinister explanation.

I discover, that while I’m on the other side of the world, the Age and SMH have published a column they asked me to write on the new resource rent tax. They’ve published it, but edited and garbled various bits of it.  Anyway, for better or worse, here’s the original.

It’s strange. The Opposition’s most successful attempts to paint the government as economically irresponsible have arisen when the Government has most closely followed the advice of its premier economic advisor – the Treasury and its Secretary, Ken Henry who are hardly paragons of economic irresponsibility.

Tossing over 50 billion dollars into our pockets and rushed infrastructure spending seemed somehow to offend commonsense. In such dire straights shouldn’t we be suffering to make things better? Not if you understand economics.

Likewise, won’t the so-called super profits tax on surging mining profits kill the goose that laid the golden egg, the industry that saved us from the downturn? Not if you understand economics. (Continued)

So asks Don of Ed. It’s sufficiently off-topic to warrant its own thread. Here’s my own first stab at the question, but it’s doubtless very unsophisticated, and sure to be substantially revised after a robust discussion.

Belief has a wide variety of meanings connected by family resemblance.

1. A deeply held conviction, such that finding the contrary to be true would be a disturbing experience — like finding out that your father isn’t your real father. Or it might be something quite trivial — I remember discovering that a fellow student at uni, who had told me she was 26, was really 22, and it quite shook me. Children’s belief in Santa is in this category.

2. A hunch we hold on a factual question that we know is not settled one way or the other. I might claim to ‘believe’ that there is life on Mars or that the Hindenburg was sabotaged, but I wouldn’t be unsettled if the balance of evidence tipped the other way.

3. A hunch on a question that is unsettled and we know is unlikely to be settled in our lifetime, such as whether there is extraterrestrial life, or whether God or gods exist.

4. An official position we declare on some issue — factual or metaphysical — that we don’t have a firm conviction or opinion about, but on which an opinion is expected. Don’s opinion poll responses are in this category, but some people enjoy expressing such ‘beliefs’, like fashion statements.

5. A cultural identity statement: If someone raised as a Catholic says ‘We believe that in the Eucharist bread is transformed into the body of Christ’, they may be combining two factual statements — (i) here is a piece of Catholic doctrine and (ii) I am, due to circumstances of history, identified as a Catholic. The speaker’s personal convctions may remain uninterrogated and are irrelevant to the point being made.

Religious belief could be any of these. For children and extremely naive adults it most closely resembles (1). People who have deconversion experiences when they are very young usually find them very truamatic. In modern societies reflective people who remain religious progesss from (1) to (3), which is essentially optimistic agnosticism. Less reflective people progress to (4), and non-reflective people stay at (5).

There are intermediate cases between the above, but have I missed any important forms of believing, at least insofar as they relate to the question of religiosity?

As the pseudo debate about the resources rent tax continues to vomit forth, it’s striking how little we have changed even in the industrial age, and the challenges we have in protecting our philosophical gains.

When humanity began farming we entered a world in which prosperity became tied inextricably to finite land. Wealth and income would be higher or lower depending almost solely on access to that land and not any other contribution, and those that owned it would remain the most prosperous. The justifications for this became a chronicle of ugliness in human thought and society. We had appeals to and the creation of the cosmos and the divine, class, caste, race, genetics and innumerable others. All of which to support the idea that the receivers of rents have some virtue  that justified their prosperity, and all of which caused inhumanity, division and bloodshed and in turn spawned counter ideologies that spawned yet more.

Whilst the rents themselves helped pay for the creation of such horrendous ideas, to a certain extent the mere fact that the rents were being received provided justification for their continuation. Having the rents gave one the status and authority for which to speak for one’s own deservedness and the perpetuation of those rents.

The industrial revolution provided new disparities in wealth. Whilst the new world was still ridden with rents, technological and institutional development meant prosperity began to return to aspects that were not land; to labour and to initiative and intelligence. These returns gave new voice to other ideas and the power of the landed began to diminish in thought and in society. Democracy became a winner as thought became less hostage to supporting unearned prosperity.

It’s quite disheartening then that even today, in an advanced economy like Australia, we haven’t moved too much from the dynamics of the past. Large rents, no matter how transparently unearned, still allow the shaping of debate in favour of continuing those rents. I can understand (whilst bemoaning) a lazy press corp that reproduces PR paid for by said rents, or a party reliant on donations from those rents. But we still have a tendency to give authority to those made wealthy by rent; to listen dutifully and respectfully as they tell us that it is for the good of all and only right that they continue to receive this wealth.

This might also be the first time since the colonial era that we have true conservatism as a major political force in parliament. Not the “conservatism” as we have come to know it, of market tendencies and “traditional values”. This is good old early industrial conservatism, dedication to the protection of vested rents and unshakable faith in the self evident cosmic rightness of them. The Bunyip Aristocracy have a major party. This isn’t helped by the fact that (astoundingly for a discipline so oft accused of being right wing) most of Australian economics seems to have joined climate science on the enemies list of the epistemically closed.

Even in the industrial age, rent is still the greatest enemy of enlightenment.

Evolutionary psychologists have been busy proposing explanations for religiosity. Belief in transcendent conscious beings might promote survival, they argue, by instilling hope and optimism. Or it might be a by-product of other naturally selected susceptibilities, such as infant credulity, pattern seeking, or the tendency to attribute strange events to agency.

But last year a certain Gregory Paul announced in Evolutionary Psychology that this project is a false trail. According to Paul, the rapid decline in religious belief in the West shows that it can’t be a hard-wired psychological propensity.

Paul first ignited controversy in 2005 with an article in the Journal of Religion and Society arguing that religiosity was highly correlated with high rates of homicide, drug addiction, teenage pregnancy and other social disorders. Despite his explicit protestations to the contrary, critics initially inferred that Paul was blaming religion for social problems. In fact his aim was merely to refute the conventional wisdom that religion is socially beneficial, and the best way to achieve this was by showing that the relationship is if anything negative.

In the 2009 article, Paul went on to propose a causal relationship, but with the direction of causation running the other way: that is, religion is a response to social dysfunction and anxiety. This is evident, he argues, from the observation that religiosity has retreated in response to three pressures: (1) the march of science and rational thought; (2) increased economic security including employment protection and free medical care; and (3) the ascendancy of materialism as a legitimate outlook. These factors neatly explain why religiosity has declined so much in Europe, Japan and Australia, and why the USA is such an outlier. (Continued)