Reform, and other lies told by rent seekers

An excellent if highly cynical piece on yesterday's Reform Summit by Liam Hogan in the Guardian:

The one thing I would not have expected out of our democratic, parliamentary, capitalist system in 2015 is how much a lot of its managerial politics would resemble 1970s Soviet “actually existing” socialism.

As a hearkening back to the glory days of the Hawke summits which led to the Accord, it was history repeated as farce: special interest groups and other rent seekers reciting their laundry lists of demands, talking past each other and agreeing only to a meaningless and non-binding communique which was rightly pilloried by Catallaxy Files as being largely pre-arranged. Hogan's cynicism doesn't go far enough.

The appearance of many of the usual suspects from the stable of right-wingers employed by The Australian at an event organised by Labor's Craig Emerson was not all that surprising in view of Nick Cater's summary of the day's festivities, which consisted of listing all the wonderful ways that the Summit would enable Labor to give in to the Right's policy agenda of lowering Australian worker living standards to match those of Asia in the name of "productivity", "flexibility" and "competitiveness" - i.e. to line the pockets of the capitalists in ye olde Reaganite fashion.

If there is to be an actual bipartisan reform platform in this country, it has to be built with a view to the effects of the 1980s reform and how its effects have played out in the intervening decades. Primary among these is how workers were stiffed by the decision of Labor to put a dampener on real wages, because workers have not enjoyed the benefits of their own productivity gains since the 1980s. Meanwhile, capital productivity has lagged considerably even as executive pay has skyrocketed and share dividends have fattened. Multifactor productivity has been dropping over the past decade, by almost a full percentage point, despite labour productivity rising by 1.5% p.a., because capital investment has proved to be wasteful, particularly in mining.

Hogan makes some compelling arguments for the Soviet metaphor, but I also detected some Chinese influence in what is these days an outpost of the Chinese mixed economy. Kevin Rudd may not have been present to speak Mandarin to the assembled mandarins, but there were parallels to the five-year plans by faceless man in the central committees of those other modern faces of the jerry-rigged communist/capitalist hybrid experiment. There was no Xi, or Che for that matter, but one hopes the feng shui of the room was tickety-boo.

Now that the AUD is back within more regular historic parameters, the bleating about international competitiveness should stop. We should not lower our wages and workplace standards to match those of Asian countries, as that is short-term thinking. The next major growth source for Australia is the burgeoning Chinese middle class - and that of India to a lesser extent - and if we are to ride that wave for another boost to prevent recession post the mining boom, we have to work towards an economy which can sell to it.

"Reform" in this country is too often conceived as a zero-sum game where workers and employers fight over the scraps of the world economy in a race to the bottom to serve the lowest common denominator. That is not Australia's natural role in the Asian century. We can't be the Singapore or Hong Kong of the region because those trade hub positions are already filled, and we can't be Taiwan or Bangladesh either with their focus on manufacturing. We can supply the Chinese bourgeoisie with small amounts of high-quality shipped goods and large amounts of low-cost digitally-delivered services. Whatever policies are attuned towards building that scenario are the ones that will underpin our future growth. I doubt anything will come out of the Reform Summit that would come anywhere near towards that.

Hawks enjoy back-to-back flagwaving

Not much posting lately, for which I apologise. Three month old firstborn child, you understand. Not that much of long term interest has been happening in Australian politics lately. It's been all terrorism this, war that. YAWN! It is all entirely predictable, and plays perfectly into Tony Abbott's obvious desire to pick up right where John Howard left off. In keeping with the Abbott era's complete lack of originality, the war is even in the same place.

The war hawks have been dominating the media just like the Hawthorn Hawks dominated the AFL grand final, mainly because in both cases the opposition just didn't show up. Bill Shorten did not have any wiggle room, because the polls were always going to favour the PM at the start of a war. Shorten has to bide his time and rely on the inexorable turning of public opinion once the grim realities of war become apparent, as they always do eventually to shame the chickenhawk granny bloc into changing their minds. At the moment, Shorten is playing Ryan Schoenmakers to Abbott's Tom Hawkins, and ISIS keep bombing the ball long to the square for the Speedo-clad Tomahawk to grab easily and bang through for goal after goal. Would Anthony Albanese have been the Brian Lake equivalent, a more capable operator who can take on the gorillas and nullify the threat? The supply from midfield is too great at the moment. (I think I've waterboarded that analogy enough now.)

As with the Schoenmakers situation at my beloved Hawthorn, the only emotion I have in watching Abbott strut about the national stage saying stupid things and not being punished for them is exasperation at how easy it all is for him. The beheadings are horrible, yes, but it's just way too simplistic to use them as an excuse for jingoistic nationalism as a pretext for war. Bill Clinton was never seriously punished electorally for his Kosovo bombing campaign under somewhat similar circumstances, because the troop losses were minimal and the war only lasted a handful of months; can the current coalition get as lucky? The facts are different in this case, as this one won't be over quickly, the world is paying much more attention, and it's a different era where YouTube is as much an instrument of militarism as RPGs. Even if there aren't a heap of body bags containing Western soldiers, a My Lai situation is more likely in this theatre.

The timing is wrong for Abbott on this one. By the time the next Australian federal election rolls around, the Iraqi quagmire will have had a good two years to drag him into it. Interestingly, it will probably coincide with the 2016 presidential election in America, with the looming Hillary Clinton era promising a war hawk wonderland. Will Obama be able to wrap up the ISIS bombings before the voters in the Western coalition get disenchanted, like Bill Clinton did for Kosovo? I doubt it.

Caliph shot the sheriff

John Quiggin has a thread on the ISIS/ISIL/IS/Iznogoud mess in Iraq, which produced a cracking comment from someone called Rabee.

The question for Obama must have been if it is in America’s interest for a civil war to start in Saudi Arabia. I’m not sure about the possible outcomes of such a civil war, but I don’t think any good can come from it. So Obama decides that it is in the national interest that the US tries to defeat IS in Iraq before things get bad in Saudi Arabia.I don’t have a firm opinion on this new war, but I’m not hopeful that anything good will come from it. I do think that this almost exclusively a Saudi problem and the Saudi’s must find their own longterm solution to it. To my mind this should trying to resuscitate parliamentary democracy in Egypt.

I have nowhere near the impressive insight of Rabee, but a few things seem clear.

IS is is not a modern guerilla force, just plain old-fashioned infantry, thus air (and I guess sea?) attack is pretty pain-free in terms of soldier lives (albeit costly in dollar terms). Rows of longbowmen would be effective against these throwback chuckleheads, that's how antediluvian they are.

And yes, IS are a product of the Saudis, right down to the vorpal methods. The fact that the Saudis are scared of them doesn't mean they aren't ultimately responsible. The Kingdom could do with some Guy Fawkeses, given they are as suspiciously vicious to their non-chosen citizens as IS. If getting rid of Saddam was a Good Thing Regardless, how much utilitarian worth is there in ridding ourselves of the original cancer, the creators of Al Qaida and ISIS plus whatever comes next? How many more wars is the West supposed to fight to prop up these pretenders? How much worse could the next Caliph-instead-of-the-Caliph be?

Of course, the answer to that last question is probably what he's talking about when he says no good would come of a Saudi civil war. The fear of an actual Caliphate is the new 1950s communist domino theory; reds-under-the-bed replaced by caliph-shot-the-sheriff, and it's fuelled three Iraq wars in twenty years and cost millions of lives. Iz no goud.

I don't see how shipping more ordnance will fix the situation, that will only make it worse. Disarmament is the ultimate answer, as it was in the Cold War to the threat of Mutually Assured Destruction. Unfortunately this isn't as simple as John Howard's gun amnesty. It's monstrously difficult to stop the flow of weapons into the Middle East.

Speaking of the Cold War, does anyone else suspect that the West is being beaten economically like Russia was in the 1980s when they were tricked into pouring billions they didn't have into useless military spending? Or at least, that was the trajectory that George W. Bush had America on, as part of his undeniable legacy as the worst president that country has ever had.

All of this has me looking at Tony Abbott spending $250 million per year to send a token force to support the reluctant Americans and wonder what good it will do. How many lives will it save, and how many will it cost? And what about the budget emerhahahaHAHAHAHAAA... sorry, couldn't finish that thought.

No, if you're wondering, I wouldn't send troops to Iraq, even if they were just flying air support. It's the Saud family's problem, they have enough money and troops, they should deal with it. I'm sick of my countrymen dying for Abdullah ibn Abdilaziz. Put up the dukes and stick up for yourself, old cock.

UPDATE: Thomas Friedman, of all people, says it better than I did.

The doctrine of the Stupid Shit Funnel

Lest I be accused of running a hate site against Club Troppo after my previous article criticising aspects of their wonkery, today's Troppo joint on the West's reaction to ISIS is excellent.

Whose going to win if the West gets entangled in this maelstrom? Well for a while it will be our fearless leaders as their chest thumping arrests their slide in the polls and simplistic News Corp pundits who love a good war, but in the end the West will once again waste blood and treasure.
And the winners? Well I bet Vladimir Putin reckons he’ll be a winner as the West gets distracted and weakened in the Middle East – but no we’ll feel the need to have a go at Putin after this one.  Our last hurrah quite possibly
No I think It’s pretty clear that when all is said and done the winner will be the nation who best absorbs a lesson from  Sun Tzu’s Art Of War.  “The supreme art of war is to subdue the enemy without fighting.”  That nation, appropriately will be China.

This Rex Ringschott piece is of a piece with this other piece in the Atlantic detailing the always-wrong perma-hawks who dominate US media, and when you piece them together it forms a jigsaw of G.W. Bush era recidivism, where no lessons from the failed Iraq and Afghanistan forays have been learned at all.

Having said all that, I am not going to connect the dots and narrow down the focus to Halliburton, Blackwater and crony capitalism in the military industrial complex. I acknowledge that there is a genuine philosophical underpinning to the neo-con thought process on this one. It is, as Ringschott mentions, the "simplistic moral argument" of the sanctity of human life. The slaughtering of Western journalists is a terrible thing (albeit that Muslim journalists were slaughtered in exactly the same way weeks before and the West ignored it). It reminds us that ISIS is committing atrocities on innocents, as Saddam Hussein did, the Taliban did and Al Qaida did. Opposing these people seems like a "good" thing to do, even if you don't want to touch the concept of them being "evil". Lives can be saved; not just Christian lives but Muslims and those of many other faiths and races.

I am on record as having some sympathy with that viewpoint, as in the asylum seeker debate. One should always pay respect to a credo which has as its foundation the primacy of human existence. In the case of asylum seekers, the figures are in and the deterrent, while individually abhorrent, has been shown to work to prevent the rush of asylum seekers by boat, and remove the prospect of hundreds of horrific deaths at sea. It seems rather mercenary to balance one poor bastard getting septicemia or shot in a prison riot with hundreds of corpses in the Arafura Sea, but that's the equation we're faced with and I'm prepared to accept the utilitarian argument from the right on this issue.

In the case of war in the Middle East - and in most other regions where rival superpowers funnel weapons to opposing sides and let them fight it out as proxies for their imperial ambitions - the figures are also in, and the effect of starting the Iraq war was to destabilise the region and cause more deaths than it would have saved. Specifically, the rise of ISIS is everything to do with George W. Bush's decision to remove Iraq's power structure, ship tonnes of ordnance to the Iraqi theatre and then leave all that firepower in the hands of underprepared locals who have mostly abandoned their posts or been mown down.

The lives that Australia and other Western nations have saved directly through combat boots on the ground were then forfeited when they left. Ah, the right might say, so it's Obama's fault for withdrawing troops? First off, that was a withdrawal signed off by Bush before Obama came to office, as part of setting up an independent Iraq. Second, how long is the West supposed to occupy Iraq for? Are we actually there to "liberate", or is the right's paternal instinct too strong to let the kids leave home?

Funnelling arms to Iraq has only caused more bloodshed, not less. It's as if the right wants to go against Obama's "don't do stupid shit" doctrine by doing all the stupid shit it can, but funnelling that shit into foreign war zones where their ideological beliefs can be tested in experiments using other people's lives. The Stupid Shit Funnel has been poised over Iraq and Afghanistan for a long time, raining down a steady stream of weaponry and armoured vehicles, and now it's also making detours to Ukraine.

Ringschott's conclusion - that the winners would be those who don't play, China in particular - dovetails nicely into my conclusion from my discussion with Noah Smith. Winners don't do war.

PS: I am seeing that "blood and treasure" phrase around a hell of a lot lately. It's 2014's version of "known unknowns" in trendy military jargon that pundits use to make them seem like insiders. Also, the word "wus" is not spelled correctly; it's either "woos" or "wuss". This concludes today's instalment of Slang Nitpickery!

Axis & Allies II: Electric Boogaloo

One of the great things about Twitter is that sometimes you have random conversations you never thought possible. One such this evening happened in between wrangling my seven-week-old boy, discussing Russia and China with Noah Smith of the Noahpinion economics blog, who had a thought that those two resembled the Axis powers of Germany and Japan in World War II. I enjoyed the back-and-forth immensely, and thank Noah for his engagement with the hoi polloi.

China is too big to fail

I was retweeted by Brad Delong today for linking to Stephen Koukoulas' latest missive on the results of the current Liberal federal government's campaign of talking down the domestic economy: it looks like it has worked as retail sales have tanked and we're about to enjoy the same sort of quarterly handbrake effect that the US has just endured. This lead to a short (of course) Twitter conversation with Patrick Chovanec about China, which lead to this observation which interested me.

@m0nty for much of the rest of the world, end of China's investment boom is net positive story (relieves deflation, opens up net demand)
— Patrick Chovanec (@prchovanec) July 3, 2014

Chovanec is a Chinese expert of some renown, a former employee under Bill Kristol and a former colleague of Paul Ryan. His blog is interesting reading, in that it is an ongoing attempt by a conservative theorist to understand why this is the Asian Century, and how this is going to lead to China belting the bejeesus out of America in both economic and political power games (if not actual war). He is a bear (despite his protestations), as a conservative academic looking at China must almost inevitably be to jive his beliefs with the ongoing economic and social experiment happening before his eyes based on what he must see as an unworkable melding of private and public control from above. China is still a command economy for the most part, only using those elements of capitalism which are useful for its centrally-determined agendas. As Chovanec notes on his blog, control is actually getting more concentrated among power elites not less. Despite all this, China continues to grow like topsy and it's winning a lot of the contests it enters - like currency wars and its increasingly dominant position in Africa.

Chovanec has issued dire predictions of calamitous domestic Chinese bubbles, as have many watchers over the years, but if the Chinese miracle is merely a mirage then it hasn't dissipated yet. For instance, after he spent a lot of energy talking about how the local real estate "bubble" was ready to pop, it surged again early in 2012, leading to a series of posts floating up reasons as to why stentorian bears like him were so wrong. From the Australian perspective, where it seems apparent that China's restrictions on multiple home purchases are probably why Chinese investors have invaded the Australian real estate market in such numbers to treat empty dwellings like gold deposits, there doesn't appear to be much of an end in sight to the Sino-Australian real estate boom.

Chovanec has also been quoted on recent movements in the heavily subsidised Chinese solar cell industry, as in this NPR interview, and here I think is where his own insights illustrate what is going on.

INSKEEP: So what do the Chinese do now?
(LAUGHTER)
CHOVANEC: Well, what they probably do is they dig deep dig into their pockets – the pockets of the central government – and bail out these companies. Because what they’re really afraid of is, you know, we've seen this over the past couple of months, that even relatively small companies, when they fail in China they're so intertwined in terms of their credit relationships and the local economy that essentially everything's too big to fail.

Just as the TARP bank bailout and the auto bailouts worked perfectly in America, so it appears that China has avoided a series of pitfalls from inefficiencies in its system by temporarily socialising the losses and keeping long-term-viable businesses out of bankruptcy. This is the positive side of too-big-to-fail. Keynesianism is all about smoothing out the peaks and troughs of economic happenstance to prevent long-term damage to the livelihoods of the relatively powerless workers who would otherwise have their careers thrown on the scrapheap of history, for the benefit of the economy as a whole.

No doubt there is an argument that China's socialisation of losses from Suntech et al is a different situation to TARP and the auto bailouts, since the latter actually made a profit in the end and there might not be such an easy denouement to the Chinese solar cell industry's woes. Similarly to the National Broadband Network in Australia - I'm talking about the original Labor vision, not the emaciated joke it has become under the Liberals - governments are in an unique position to invest in such projects and secure a solid rate of return, because they can accumulate many more benefits from positive externalities than do private corporations. Even if the NBN or Suntech were to represent paper losses on their own balance sheets, the indirect public goods from universal broadband in Australia or the popularisation of solar cells on roofs across China could very well translate into higher taxes from increased general production, or a decrease in spending on policing or environmental cleanups.

Under certain circumstances, where it is done for solid Keynesian reasons, TBTF works. Chovanec and those of his ilk like to say that Chinese leaders don't really know what they're doing and lack a coherent direction for the future, but so far in the 21st century they have been kicking ass and taking names in both economic and political realms. Australia may be inside a rapidly shrinking bubble as the bears say... or the lucky country may have just been lucky one more time.