Atlas Stevens while Abbott shrugs?

Stephen Koukoulas is on his hobby horse again about Glenn Stevens and the RBA not being loose enough with monetary policy. In his unofficial role as Australia's (partial) answer to Paul Krugman, he's bashing Stevens about refusing to lower interest rates in the face of a complete lack of interest from the fiscal side in doing the heavy lifting to rescue certain parts of the economy from the depredations of a globalised market.

In these circumstances with below trend growth, a high and rising unemployment rate, a currency that is hurting the traded goods sector and risk still a dirty word, why not cut interest rates?

The obvious answer is that there's not all that many basis points to go before we hit the zero lower bound of 0% interest rates, and as can be seen from the current US and European live experiments, that's not a position that you want to be in. The Kouk wants 50 points to take the official cash rate from its already historic low of 2.5% down to 2%, but it's rare for that to be the extent of a shift in policy. Once the RBA starts moving in one direction, it's difficult to reverse momentum.

No, just because other Western countries have made the mistake of locking in procyclical fiscal austerity and relying on the steaming new theory of market monetarism, doesn't mean we should follow suit. This is about as low as we want interest rates. As Greg Jericho says:

Perhaps we are asking too much of monetary policy.

Jericho goes through the arguments for and against macroprudential tools, as a way to lower interest rates without encouraging a bubbly investment in housing instead of support for solid, growth-producing business. He ends up cautiously endorsing the use of those tools, presumably in conjunction with further easing.

My thoughts go back to one of the key reasons for the housing boom in America that led to the GFC: government intervening in the housing market to incentivise financial institutions to provide "sub-prime" home loans to people who often couldn't afford to pay them off. Now, I know the situation here is a lot different. The thread I see running though is the law of unintended consequences. We just don't know how those macroprudential tools would work in practice.

Perhaps more importantly, we DO know how well fiscal stimulus works, as we have decades of empirical data of successes to show for it, most recently in 2008/09. Expecting Glenn Stevens to be Atlas while Tony Abbott shrugs is too much to ask. The pressure should be on the government, not the wonks. We know what to do, the elites have to be told.

Hayek as the bizarro Lenin?

Brad DeLong has a regular series of Honest Broker posts, where he tries to frame an argument not necessarily in both-sides-do-it centrism, but applying the same logic to both sides of the debate. Thus in this piece at the WCEG blog, after depicting Adam Smith as being in dialectical opposition to Karl Polanyi on the subject of social democracy versus laissez-faire free markets, he tries to classify Friedrich von Hayek - much beloved of the classical liberal economists like those over at Catallaxy Files - as one of the lesser "channels" in a river "delta" of economics of the 19th and 20th centuries, along with Leninism and Keynesianism.

1. Lenin says the social democracy or democratic socialism is unstable. The bourgeoisie is hegemonic. It will turn the mechanisms of the democratic state to its own purposes. What is needed is aggressive communism to exterminate the bourgeoisie as a class. Only after the aristos and the bourgeoisie and the hep-men and the kulaks and the careerist bureaucrats have been eliminated can a properly-good society be built. 

2. Keynes says that we really need much less social democracy (or democratic socialism) than the main Polanyi current believes. Simply stabilize aggregate demand at a high level via clever central bank financial engineering, and people will not mind that the market treats the “fictitious commodities” like commodities. Moreover, the taste-making and the thrift-promoting virtues of the bourgeoisie sitting at the top of a fairly-steep socioeconomic pyramid are a feature, not a bug, for a good society. 

3. Hayek says that the problem with classical liberalism was that it was not pure enough. The government needed to restrict itself to establishing the rule of law and to using antitrust to break up monopolies. It was the overreach of the government beyond those limits, via central banking and social democracy, that caused all the trouble. A democratic government needs to limit itself to rule of law and antitrust–and perhaps soup kitchens and shelters. And what if democracy turns out not to produce a government that limits itself to those activities? Then, Hayek says, so much the worse for democracy. A Pinochet is then called for to, in a Lykourgan moment, minimalize the state. After social democracy has been leveled and the rubble cleared away, then–perhaps–a limited range of issues can be discussed and debated by a–limited–restored democracy, with some kind of group of right-wing army officers descended from latifundistas Council of Guardians in the background to ensure that property remains sacred and protected, and the government small enough to fit in a bathtub.

If Smith and Polanyi are to wear the clashing guernseys of Team Freedom versus Control FC, how do we assess these three other channels, if we are to do so? Perhaps DeLong would argue against such fastidiousness, but it seems to me that he has framed these three in order of... something. It's not in order of adherence to democratic principles, because all three credos are in some ways repudiation of the supposed depredations of democracy, from Lenin's mistrust of bourgeois institutions through Keynes' belief in minimalist efficiency to Hayek's railing against what is called these days the voters voting themselves "free stuff". In fact, the lack of faith in democracy is what unites all three, as DeLong tells it - but that's not what they differ on.

Apart from setting them all on an equally low rating for democracy, I would argue that the axis on which you would plot these three to correctly identify them is class: specifically, which class should be given the reins of government to ride roughshod over the other classes as glorified Guardians of the Galaxy. Lenin believes the exploited workers should rule, Hayek believes the rich and privileged should rule, and Keynes sits somewhere in the middle with the bourgeoisie.

Are any of these better than the others? It certainly puts Hayek in a bad spot, if he's just the other side of an anti-democratic Leninist coin - not so much an anti-Lenin as Lenin with richer mates. DeLong makes this criticism more explicit by later accusing Hayek of being an imperial apologist for the Habsbergs of his native Austria. Lenin's Two Stage Theory - where a temporary period of capitalism will somehow result in socialism - is thus the mirror image of Lykourgan Pinochet-style Hayekism, where a period of fascism will somehow produce a stronger, leaner, more Spartan society.

In the middle, Keynes is no less guilty of wanting to bypass this pesky notion of democratic accountability (according to DeLong's framing), which leads to what these days is called wonkism, or technocracy - and we can all see how that has worked for Europe. Put the eggheads in charge with no pitchfork-wielding constituency to keep them honest, and they will tend to protect their own mates elsewhere in the ruling classes. It is true that of the three, Keynesianism tends to be more democratically popular than the other two extremes, but that is mainly because 21st century society has a much larger middle class - it is a happy coincidence, not a feature.

But why does economics have to abrogate democracy? The framing by DeLong here bypasses the possibility of the coexistence of strong economic theory with a healthy democracy. I am not an expert on Trotskyism or other examples of the more democratic-imbued criticisms of the three channels of economic thought as presented by DeLong. There must be some synthesis, however, which doesn't require abandonment of the Magna Carta.

The new paternalism of Big Daddy

I have not blogged for a while, but I have an excellent excuse: my firstborn son is a month old today. Thanks for those who have already congratulated me, and those who may do so in comments. Everyone is well, if a bit tired and hungry, alternately.

As a  father, of course now I know everything there is to know about how the universe works, and wish to impose my unique insights into how to live onto others through this blog! In this, I appear to be of one mind with the current Prime Minister, who is treating the country as if he is its stentorian patrician. Voters are not as forgiving as his three daughters of his Pinocchio routine, however. 

Most of his thought bubbles since the interlude of MH17 have been either failures or annoyed his base: budget stuck in limbo so deep that Palmer is calling for a mini-budget, Medicare co-payment no chance of passing the Senate, PPL shelved, Newstart cruelness summarily dismissed by public backlash, metadata collection made a national joke by babbling George Brandis, s18C of the RDA retained despite IPA howls, Tory rumblings about links between abortion and breast cancer squashed. As a father figure, Abbott is becoming a figure of fun. Very little is going right for him, especially for those arguing from the right.

If Abbott wants to be Big Daddy to us all, he's going to have to be less of an Adam Sandler kind of Big Daddy by refraining from pissing on walls. Let's not mention the Bioshock kind of Big Daddy, that's just weird. No, Abbott is much more suited to the Big Daddy Pollitt of Cat on a Hot Tin Roof: Tony Abbott, the Pollitt politician, with a sequence of polls that firmly puts his leadership in "death's country". Those of us out in the masses of Team Australia are the Brick in this passion play, refusing to bow to Abbott's rules of morality or adhere to Abbott's vision of living as the patriarch deems worthy. 

On the Team Australia meme, it's peculiar that Abbott is invoking memories of Howard's nationalism without also actually immersing himself in it. When Howard donned the green and gold tracksuit or called himself a cricket tragic, he didn't have to say anything more about what team he was on. Sport is one of Australia's great melting pots, where ability is promoted regardless of race or creed. What is Abbott's vision of Team Australia, what are its intellectual underpinnings, how has he interpreted Howard's legacy? It's not a crime that the PM isn't a sport lover - plenty haven't been - but if he's going to talk about the country in sporting terms, merely pilfering the phrase from sporting jargon and Liberal history without also inhabiting the patriotic nature of sport means it loses as a serious talking point in the modern day.

Like the Big Daddy of Tennessee Williams's play, Abbott has a reputation for hating mendacity but is constantly guilty of it himself, as evidenced by his string of broken promises. One of the biggest lies is that his "base" - an Americanism that is creeping into local political discourse through the agency of Andrew Bolt - actually matters a jot to him. It's not a lie he has told, but the right is telling it a lot about him lately, 

With unemployment higher than it has been for a decade after years of failed attempts by the RBA to stop a high Australian dollar from gutting our non-resources export industries, we are not quite a banana republic yet but it does feel like Abbott wants to turn the joint into his personal cotton plantation. Thankfully, the electorate still enjoys universal suffrage in this country.

Like a Reagan cowboy

After the recent shooting down of passenger flight MH17 with around 300 dead by Ukrainian separatists and/or the Russian military, Sinclair Davidson posts Ronald Reagan's speech on passenger flight KAL 007 after it was shot down by the USSR military in 1983, later calling it "forceful and inspiring". This is an echo of similar posts at Hot Air, RedState and Fox News comparing Reagan's strong words with the cautious early reaction of Barack Obama, which already has the tabloids incensed.

As usual, the right is ignoring the facts in favour of a partisan narrative. As Crooks & Liars details and the Monkey Cage blog at the WaPo annotates, Reagan's reaction was rated at the time by the right wing media as inadequate and weak, gadding about on horseback on vacation in Hawaii for days while the bodies of the American victims were still warm. In fact, Reagan eventually did nothing except continue his previous policy of economic opposition to the USSR without direct military engagement, which is pretty much what Obama has been doing against Russia in the wake of Vladimir Putin's annexation of Crimea.

It is refreshing to see such a debate go on without reference to domino theory, which has been thoroughly discredited since it failed to predict the encroachment of communism in the 1980s. There has also been a lot of sighing from the American left about the preponderance of Dubbya-era reprobates in the media talking up re-engagement in Iraq and/or the Crimea. I am as sanguine about that as I am about the IPA's ubiquity on the ABC: these are free countries, they're allowed to have a voice, and we're allowed to laugh at them.

Reagan may have been a lot of things, but one thing he was right about was how to fight an empire: economically, with any military troops on the ground to be confined to smaller proxy battlegrounds. Obama learned that lesson, and he's already putting the Reagan playbook into practice by squeezing Putin with sanctions, using the tragedy to further pressure the EU to join the US in applying sanctions. As is only proper.

Climate change deniers, from the backline

In honour of Christine Milne's listing of climate change deniers prominent in Australia, I have taken the liberty of adding a few more to bring it up to 22 and arranging them into an Australian football team, named from the backline in traditional style a la the Coodabeens:

B: Brian Fisher, Dick Warburton, Shirley In't Veld
HB: Sam Walsh, Hugh Morgan, Mitch Hook
C: Martin Ferguson, Chris Mitchell, Cory Bernardi
HF: John Roskam, Ian Plimer, Jo Nova
F: Andrew Bolt, Gina Rinehart, Rupert Murdoch
Foll: Bob Carter, Danny Price, Ian McNamara
Int: Innes Willox, Maurice Newman, David Murray
Sub: George Pell

The backline is taken from the panel of the renewable energy target review, which is currently the last line of defence against science and facts. The halfback line is the mining lobby, for which any number of half back flankers could have been chosen since they have all been talking their own book on this issue from the start to deny extra taxes. Morgan is probably due for retirement, but he's going around one last time for another flag.

The centre line includes a left winger at left wing, albeit in name only, as I reckon Martin Ferguson is one of those Labor politicians who is going to end up being more beloved of the right as times goes on (see: Gary Johns). Cory Bernardi wins the right wing spot ahead of a gaggle of aspirants from the Senate clown show. Chris Mitchell sits in the center - not politically, of course, but in the centre of the climate denial team.

The half forward line contains a few IPA hired guns on the flanks, and I could have chucked half a dozen more from the ranks of the wingnut think tanks, but centre half forward could only be occupied by one man: pebble specialist Ian Plimer. There is no rock that Plimer couldn't pick up in Australia and wax lyrical about its geological history with great precision and knowledge... and then proceed to piff in the general direction of intelligent people, to no effect.

In one forward pocket you have Andrew Bolt who is usually fully forward in his attacks, who is in the pocket of the other forward pocket in Rupert Murdoch who is never shy of coming forward and reaching into his pocket, but arguably Bolt's also in the pocket of Gina Rinehart who is your classic roadblock full forward, and has a lot of other teammates in her pocket such as the aforementioned Plimer. Ms Rinehart has a lot of pockets in her overalls.

There are two more jacked-up credibility-free scientists at ruck and ruck rover in palaeontologist Bob Carter and economist Danny Price, but for rover it's a media personality, the host of Australia All Over on ABC Radio, the infamous "Macca". He would also make my team of Australians Furthest Up Themselves, but he makes this list due to his denialism.

The interchange bench is staffed by yet more business rentseekers, of which there are a cast of thousands. In the green substitutes vest is Cardinal George Pell, who doesn't quite fit in with the rest of this list but I suppose will be subbed in once the game is won to rack up some garbage time stats telling us all how right all his teammates were.

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.

Clive Palmer feeds chooks their own entrails

Today, apart from being the one year anniversary of Rudd deposing Gillard, is the day where Australia and its media commentator "chooks" try to figure out what is in Clive Palmer's head by poring over the chicken entrails after his presser yesterday with Al Gore. The primary sources are the transcript of the presser (can't find a full one but long excerpt here), and the transcript of his interview on Lateline.

When you have news.com.au declaring victory for Gillard, Business Spectator speculating that Malcolm Turnbull is the big winner and Catallaxy Files calling it as a sting operation on Al Gore, you know we're in Clivezone where the old way of doing things in Canberra has been shaken up a little bit. I think Andrew Bolt's ambivalence is closer to the truth, as there's something there for everyone.

My reading is that Palmer is trying to #occupy the centre, and has orchestrated a deal which all parties can find fault with, but all parties can find something they like - as with all good compromises. He comes off looking a bit like Bob Hawke in the process, which is remarkable for a first attempt by a minor party leader, and certainly more elegant than anything the Democrats or Greens ever achieved.

In summary:

• Liberals (especially Joe Hockey) should be happy that the new ETS would zero-rated until major trading partners join the party so that it's effectively a short term Keynesian stimulus, but sad that the Rudd ETS framework would be left intact for a future Labor government to switch on without much fuss;
• Labor should be happy that they get much of what they would have achieved if Rudd had won, albeit only medium-to-long-term, and can look forward to cheering on Hillary Clinton to reverse the failure of Copenhagen when she sweeps in 2016;
• Greens should be happy because they get to keep the CEFC and RET (if Clive follows through), even though emissions will blow out again in the short term from the zero-rated ETS;
• The electorate should be happy because Canberra is actually working to produce a compromise.

What Palmer has done is attempted to unilaterally define the terms of battle. Due to him holding the balance of power and - crucially - the failure of Abbott to have the gumption to set down the rules before him, he is probably going to get away with it, because Abbott will most likely accept the terms. Abbott just doesn't have the chops to negotiate anything more favourable, due to a serious lack of talent in his parliamentary team and a lack of empathy with ideological opponents. Whether the proposed amendments are in fact terms of surrender by Abbott or the blueprint for his success is going to be contingent on whether Clinton really does change the world with a tsunami of votes to remove US Congressional blockages in the mooted 2016 "wave" election.

It is Australia's lot to be a cork in the ocean, bobbing about in every which direction the global currents take them. The Palmer deal only makes this more transparent. It's too politically difficult for Australia to bleed itself to lead the way on carbon emission reduction, fair enough, the public has spoken on that. Palmer's compromise ensures that we aren't a roadblock, however, and it would allow Abbott to host the G20 without becoming an international pariah. The pressure should be on the trading partners whom Palmer mentioned. We can say that we'll be there when they are. That is the politics of the possible.

At first blush, Clive has shown himself to have a more deft hand than many would have given him credit for. Clivezone 1, Chooks 0.

UPDATE: Posted this on John Quiggin's thread on the subject:

It is true that the fact that Clive did not make his vote to repeal the carbon tax contingent on passing his ETS amendment does dilute his message somewhat.
However…
Abbott might be well served to follow Clive’s lead and pass his ETS anyway, since it makes a hell of a lot of sense for him politically. It heads off the threat of Turnbull and the wets in general, since Malcolm (or Joe) can’t wedge him on the issue any more. It also means that Abbott can host the G20 without being an international laughing stock, and in fact means Abbott can get on his high horse and lecture Asians about his superior morals, which is right in his wheelhouse. Plus, he doesn’t have to negotiate anything, and the Greens would hate it which makes him very happy. There’s a lot to be said for it benefiting Tony Abbott.