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eclectic mix of michael's musings

The devilish dilemma which is the Euro zone.

It seems to be going from bad to worse in Europe, not necessarily in the economic conditions, but with the political impasse which is accompanying them. The EU basically has two options as a way out of this self imposed mess: the breaking up of the Eurozone and a return to individual currencies, or further and complete economic and political union.

The first is really not an option at all. Just to give you one example of what this would cause. In Greece, as a microcosm of the breakup, individuals and firms are taking their money out of banks and either putting then abroad, or literally hiding their euro notes under their beds. They would be doing this for rational economic reasons. If Greece left the Euro zone, the country would convert back to the drachma , with an almost certain immediate devaluation of at least 50%.  For those who had left their wealth in euros this means a doubling of their wealth in equivalence in drachmas.  But what about those who cannot do that: those on social security, those who own property in Greece, those who own businesses. They will all suffer a substantial, perhaps fatal, loss when compared to the rest of the world. Let alone the rash of writs which undoubtably will occur as people and firms seek to cover their losses in the courts.

These effects would be multiplied 100 times if the break up occurs all over Europe, leading to a worldwide depression even worse than that in the 1930s.

The second alternative is futher economic and political union. The problem with this is that voters are simply not buying it. In all democratic tests of this throughout the euro zone over the last two years, the voters in all countries are living in denial. The economic and political medicine they need to take for their survival simply is unacceptable.

God help us all if there does not emerge a sense of reality very soon, because everyone will be affected, even in prosperous, “bullet-proof “Australia.

Filed under: Economics, European Poltics, Politics, Uncategorized

Costello, here we go again….

No matter how many times Costello denies it, hardly anyone believes he didn’t “test the water” about returning to politics. Why wouldn’t he? He would probably be PM by Christmas, as virtually the whole country breathes a sign of relief as we all dodge the bullet of Tony Abbott as Prime Minister. The country, eternally grateful….

The problem is, Costello has form when it comes to this sort of thing. The “will he or won’t he” atmosphere which pervaded the end of the Howard government about the endless speculation about a Costello challenge on Howard. In the end, of course Costello didn’t challenge when he realized the perks he would have to give up as a backbencher. Better to have the easy life as the Treasurer, and quietly exit when they lose office.

Costello’s reputation for laziness exhibits all over the place. To go to the backbench, and continuously campaign for the top job, takes energy and guts. Guts Costello doesn’t have. The precedents are endless: Frazer, Howard, Peacock, Keating, Rudd all spent time on the backbench as they organized a successful second challenge after the failure of the first. All of them, persistent gutsy men – and not lazy.

Even though I think Costello would make a better Prime Minister than either Gillard or Abbott (particularly Abbott), I fear he may not have the drive to make it a real success. Still, by far the best option is Malcolm Turnbull. Could Costello (unwittingly) be Turnbull’s stalking horse?


Filed under: Australian Federal Politics, , , ,

Why Gillard Will fall on her Sword

Why Gillard Will fall on her Sword.

In spite of my writing several weeks ago that I thought Gillard would recover lost ground over the second half of 20012, I’ve now come to the conclusion her political end is terminal. She is unelectable. Within two months, one of the Labor elders, probably Bob Hawke, will tap her on the shoulder and tell her it is time to go, and she will be replaced by Bob Carr. Carr will create a resurgent government, and when the polls put Labor in front, the blood-letting on Tony Abbott will begin, which will make the hatchet job on Kevin Rudd look like a game of fencing. Abbott will be replaced by Malcolm Turnbull in the first quarter of next year. then the fun will begin.

Sanity will return to Australian politics, and we might, just might get some constructive debate, and resume the path of reform which has served Australia so well in the last 30 years.

Filed under: Australian Federal Politics, Politics, , , ,

The Curiosity that is the US

I must have been to the US I suppose 20 or 30 times in my life. It is somewhere I intellectually should like, but I don’t somehow. I much prefer secular Europe and dynamic Asia. I know that many will say it is ridiculous to catagorize so negatively nearly 400m people. No doubt it is, but you can make certain observations, and as far as the US’s future is concerned, none of them are very flattering.

First though, I should say, that if we had to have a global superpower, the US is about as benign as they come. It has been the global policeman for 75 years now, and has presided over a period of unprecedented global growth, prosperity, and largely without war (at least world war). Sadly though I fear this is all about to come to an end.
Interestingly, there was recently conducted a study by Stanford University about the attitudes of senior American military officers past and present. Surprisingly, for a group you would normally expect to be strongly pro Republican, and pro miltary spending, nearly eighty percent of them came out strongly for deeply cutting defence expenditures and spending the money on rebuilding America, especially educational institutions, healthcare, infrastructure, and investing in innovation. What drove such a surprising result? Well one thing the US military is, it is not stupid. These officers fully realised, and articulated very forcibly, their long term future depends on a strong economy. Without economic strength, military might disappears viz; the Roman Empire; the British Empire; the Soviet Empire; the Ottoman Empire. Pity they do not influence their conservative political masters likewise, which of course may be just another indication as to how the Tea Partiers have high-jacked the agenda, and sidelined the GOP’s traditional, more conciliatory conservative base.
One of the most consistent things about America throughout its history is its ability to re-invent itself when all seems lost: slavery; the Civil War; Pearl Habour; the Cold War; Russians putting the first man into space; Vietnam. Unfortunately, now almost every statistic, financial and no- financial, shows the US in decline. And its political system is so badly broken, in spite of Barrack Obama’s best efforts. There is simply an inability to do anything about it.
Let’s take four examples:

1. US Social Indicators are going in the wrong direction.
The Table below from the OECD shows just how badly the US is doing as a society. Nearly all its social indicators are in the bottom half of the OECD league tables . What this table shows is the distribution of social indicators across all OECD countries, and breaks them up into countries in the top two deciles, in the bottom two deciles, and in- between. The measures include:
a. Household income (PPP)
b. Ratio of employment to population 15-64
c. Unemployment rate population 15-64
d. Reading literacy scales
e. Poverty rates
f. Percentage finding it difficult or very difficult to manage on current income
g. Percentage of average gross wage to meet poverty threshold
h. Life3 expectancy at birth
i. Infant mortality rate
j. Rate of positive experience
k. Percentage of persons satisfied with water quality
l. Percentage of people expressing a high level of trust in others
m. Corruption index
n. Pro-social behaviour
o. Voting rates
p. Tolerance of Diversity

Net Score of top decile minus bottom decile scores by OECD countries
Countries              Top Decile      Bottom decile    Net Score Net Ranking
Australia                  8                              0                          8                   3
Austria                      4                              0                          4                  10
Belgium                     1                              0                          1                   17
Canada                       4                              1                          3                  12
Chile                            2                              8                        -6                 27
Czech Republic       2                              6                        -4                 24
Denmark                  10                             0                       10                    1
Estonia                        0                             9                        -9                 32
Finland                       7                             0                         7                     5
France                         1                             0                         1                   17
Germany                    2                             0                         2                  15
Greece                         0                            5                        -5                  25
Hungry                        1                            9                        -8                  30
Iceland                        9                            0                         9                     2
Ireland                        5                            1                          4                  10
Israel                           0                            9                        -9                  31
Italy                             1                             3                        -2                  21
Japan                          5                             2                          3                  12
Korea                           2                             5                       -3                  22
Luxemberg                5                            2                         3                   12
Mexico                        1                            11                    -10                  33
Netherlands              8                              0                       8                     3
New Zealand             6                              0                        6                    9
Norway                       7                              0                       7                     5
Poland                         0                             7                      -7                   29
Portugal                      0                            5                       -5                   25
Slovak Republic       2                            8                       -6                   27
Slovenia                       2                            1                         1                  17
Spain                             2                            2                        0                  20
Sweden                        7                            0                        7                     5
Switzerland                8                             1                       7                      5
Turkey                         1                           14                    -13                  34
United Kingdom       3                             1                        2                  15
United States             2                             5                       -3                 22
Source: Compilation from OECD Social Indicators in Society at a Glance 2011

There are many highlights in this information, but the most worrying from the US’s perspective is that it comes 22 out of 34, behind such advanced economies as Italy, Spain, Slovenia and equal with Korea. To be fair, it is likely that many of the European countries have gone backwards since the GFC and the Euro crisis(s), but so will have the US. It is likely that countries such as Korea and Israel will have gone ahead of the US since then given neither was greatly affected by either the GFC nor the Euro crisis. This probably puts the US about 25th, a disgrace given it is the wealthiest country on earth, and is the most advanced technologically, militarily, and academically.
2. US Obsession with Religion:
If you look at the measures outlined above, many of the social indicators where the US scores badly is what could broadly be called “social tolerance”. Much of this stems from the blind adherence to religious doctrines for much of the population, and much of its politics. The US is about the only country in advanced economies where it would be impossible for a non-believer to be elected to public office. Over 80% of the population goes to church on Sundays, where in the rest of the anglo world it is less than 10%. Even in the so called Catholic countries of Europe, such as Italy and Ireland, church attendances are less than 20%.
As a direct result of this social intolerance in the US, social measures are well below advanced countries norms. Take teenage pregnancies. With the exception of Russia (practices there are distorted by the championing of abortion as the preferred form of birth control under communism, and these practices continue today), the US has the worst record of teenage pregnancies in the OECD. Why? Primarily the opposition of the religious right, and the Catholic church to both birth control and comprehensive sex education in schools (see table below);
Birth, Abortion and Pregnancy Rates for Developed Countries Ages 15-19
Countries                     Births                     Abortions                   Pregnancies
Russian Federation 45.6                               56.1                          101.7
United States              54.4                              29.2                            83.6
New Zealand                34.0                            20.0                            54.0
England and Wales    28.4                             18.6                            47.0
Canada                            24.2                            21.2                             45.4
Australia                        19.8                            23.8                             43.6
Sweden                             7.7                            17.2                             24.9
Denmark                          8.3                             14.4                             22.7
Germany                        12.5                              3.6                              16.1
Netherlands                    8.2                              4.0                              12.2
Italy                                   6.9                               5.1                              12.0
Japan                                 3.9                              6.3                              10.2
*Note: pregnancies exclude miscarriages; data from mid-1990′s. SOURCE: The Alan Guttmacher Institute report on Teenage Sexuality and Reproductive Behavior in Developed Countries

Related to this, is the increasing trend in the US of children not been vaccinated for preventable diseases, mostly because of opposition from the religious right, who regard it as “ungodly”. The result, eminently preventable diseases such as hooping cough, measles and polio are on the rise there, when even in the developing world, partly as a result of the great work by that great American Bill Gates, and his Gates Foundation, rates are rapidly decreasing. In most of the developed world, these diseases are virtually eliminated by almost universal inoculations of the young.
3. The Paralysis of the American political system.
The US is not a Westminster style parliamentary democracy. Although difficult to believe in the current state of play, the US is not an adversarial system in the sense that Westminster democracies like Australia, the UK and Canada are. The way the US system has worked for 400 years is through compromise and consensus, with much of the power residing with the President. It depends on the legislature reaching compromises in order that the business of government gets done. Now, however, one side, The Republicans, have allowed their party to be high-jacked by extremists (the Tea Partyists), and not very bright ones at that, who regard compromise as a sin (a word used advisedly). Much of their ideology comes from the extreme right parties of Europe (Le Pen in France, the National Front in Britain, the successors to the Nazis in Germany, and One Nation in Australia). These parties generally are made up of disaffected working class voters, often extremely racist, and often under-educated. They carry with them an under-lying hatred of the way things are, and a frustration that they feel they are not getting their “fair share”. Usually, when prosperity continues these people remain in a small minority, but after the economic dislocation in Europe and the US in the last 5 years it has created an environment for extreme views to flourish, in much the same way that the consequences of the Treaty of Versailles and the Great Depression was directly responsible for the rise of Hitler and the Nazis. This time, however, the greatest victim is the US itself, where they have managed to successfully press the self destruct button.
Post the GFC, with the election of Barrack Obama, US society has managed to combine the ideology of extreme right Christian groups, with disaffected poor and ill-educated, which has been championed by extreme right billionaires like Rupert Murdoch with his heinous Fox News. For the first time, these people have got a platform, and amazingly are being taken seriously by a major political party. Previously unimaginable lunacies like: never increasing taxes; like dismantling the federal government; like undoing Rowe vs Wade abortion laws; like undoing the historic separation of Church and State; like making science, rather than be the solution to many of their problems, be its cause; and like saying no to everything, however worthy, put up by the Democrats, and not pre-selecting republican candidates who dare to seek a solution to this mess.
The result of all this is that the US has almost become ungovernable. No matter how competent the individual is in the White House, and how much his/her heart is in the right place, there seems to be no way by which will emerge a means to bring in the desperately needed reforms which will reverse the poor social outcomes listed above, and restore the United States reputation, previously assumed by the rest of the world, as being the beacon for progressive thinking, social innovation, and sound economic management.
4. The mad US health system
Nothing exemplifies the parlous state of American politics and economics as much as the US health system. The US spend almost twice as much as equivalent economies in the OECD as a proportion of GDP, yet they achieve substantially worse health outcomes. Currently they rank about 15th in the table of health indocators in the OECD. Nothing illustrates the parlous state of debate in the US as the political intransigence about Health Care, and nothing is so clear-cut in its dis-function. Yet nothing also creates such heat amongst the tea partiers.
It is indeed a sick society.

Filed under: American Politics, Economics, Politics, , , , , ,

At last, the Great Drug Debate has begun….

I’m glad to see the spirit of my post of 22 February, 2012  http://mikes2014.com/category/politics/drug-decriminalisation/ has started to take root. With the report recently out of an eminent persons group lead by Dr. Alex Wodak and which includes the Foreign Minister and ex-ALP NSW State Premier Bob Carr, it is safe to say the Great Drug Debate has started. Let’s hope it is filled with reason and common sense, unlike the several attempts in the past to get reason into this incredibly emotive subject.

Let the Debate begin….

Filed under: Drug decriminalisation, Economics, Politics

The Melbourne Football Club – what next?

As a passionate Demon supporter, it is with great sadness to see the appalling start to the 2012 season. First, there was the sad, but inevitable death of Jimmy Stynes. Then , the seemingly endless difficulties with their very talented indigenous playing list. And then, to top it all off, their major sponsor went rogue, in an unbelievably vicious and bigoted way – very un-MFC. As someone who has admired the sensitivity and inclusiveness with which the Administration has handled incredibly difficult issues over the years (Austin Wonnamiri, Liam Jurrah and now Aaron Davey), Melbourne of all Clubs does not deserve the complications that have befallen them this year.
Having said that though, their poor form can largely be put down to a slow start by their senior players: Maloney, Jamar, Green, Rivers, Frawley, Davey. They are not even playing several of their first round draft picks in their second, third and fourth years at the club: Morton, Bleeze, Gysberts, Strauss, even Lucas Cook. Injuries have not helped either: Sylvia, Martin Jurrah, Gawn. All these issues have contributed, but not to the extent of a 100+ point thrashing in the West.
I think a lot of this can be put down to inexperience both at the Board level and in the coaching group. I suspect the MFC will become a case study in the future on how to not handle crisis in organisations, whether it be in companies or football clubs. What it does show, as has been shown so often in the past, is that dissention and instability are “death” to any organisation.
So what can be done to turn it around? First, the coaching group has to somehow get the senior playing group up and running. Secondly, they need to return to their talented early round draft picks and give them their head. Thirdly, they need to pick the strong bodies in the key positions and tell them to throw their weight around.
There are no easy solutions here, but the new coaching group will be defined by what goes on in the next 6-8 weeks.
Go Dees!

Filed under: Australian Rules, Melbourne Football Club, Uncategorized, , , , , ,

Why the changes we are seeing in the world order no flash in the pan…..

The changes in the world order we have seen in the last 5 to 10 years are not only extremely profound, they are also permanent, however much that is possible. The power of the world is rapidly shifting eastwards, returning it to where it was before and during the middle ages and before the industrial revolution. The power the European states, and after that, the Americas,  acquired on the back of rapid industrialisation , was in many ways a historical accident.

Interesting academic research recently undertaken in the US looked at historical patterns of economic measures: trade flows, per capita income, population levels, capital flows, government expenditures, GDP per head – everything basically which makes the world economy function. And what were their conclusions? In 1970, the centre of the world economy was in the mid Atlantic; in year 2000, the centre had shifted to Israel; by 2020, it will shift to Tibet – the inevitable force eastwards.

The shift of power to Asia, and more particularly to India and China, returns the world to the natural order of things, driven inextricably by large populations, strong cultures, and strong commitment to education and development. Industrialization is being pushed along by a final realisation that this can only occur under free markets and open trade, and once started, and once the benefits are felt by the populations, the electorates will not allow a return to the “bad old days”.

In this, it is interesting to observe the handover of power currently underway in China. Early indications are that the progressive faction of the communist party lead by Wen Jiabao has won the ideological battle between the old ultra conservative Mao sympathisers, lead by the charismatic but ideological Bo Xilai, and those who want to uphold the rule of law and move gradually to some level of democratization.  A similar struggle is currently being played out in India, although possibly with a different outcome. The pace of reform there has slowed over the past three or four years, and there is not a clear indication of the political outcome. However, India being a democracy, a slow down in economic growth and development will inevitably cause an electoral backlash, which will eventually lead to further reforms. It is just in India everything seems to take so much longer.

Where does this leave Australia? As the only advanced Western economy (including NZ of course) at the centre of the world action. Even our current set of mediocre politicians couldn’t stuff that up. Could they?????

Filed under: Asian Politics, Economics, European Poltics, Politics

Why Abbott’s political morality is so wrong and so destructive.

Although Tony Abbott has been ahead in the polls for all of the time since the last election, serious doubts remain about his suitability to become  Prime Minister, both inside and outside his own party. Why is this? Fundamentally, those who follow politics carefully have serious concerns about his abilities and his morality. This is not personal morality, but more fundamental and much more serious . It is his seeming inability to recognize that everyone , whether in government or not, has a responsibility to maintain the workings of our political system. Abbott is no fool: he is after all a Rhodes scholar. This means his ruthless disregard for the Australian body politic is quite deliberate and calculated. He defies the traditional consensus between the parties that although  oppositions are there to hold Governments to account, they do allow them to govern.

He doesn’t. His mindless opposition to anything and everything the government does is rapidly turning Australia into the sort of country that the US  has become: ie ungovernable. This consensus is there for a very good reason ie when oppositions do finally make it into Government they too need to govern. When and if Abbott ever becomes PM, he will want clear air to implement whatever policies he might dream up – and in his case they do all too often seem as though they are developed on the run about whatever seems to take his fancy at any particular time.

Labor and the Greens will never forget nor forgive this behavior. They will adopt identical tactics when he is in government. It is very very unlikely that the LCP will ever again control the Senate. Under those circumstances, this makes Australia just about ungovernable, with a seeming endless cycle of never-ending crisis, manufactured or otherwise.

Abbott will be remembered as the great wrecker of Australian politics: and he deserves to be.

Filed under: Australian Federal Politics, Politics

Why the EU doesn’t work, and other Federations do

Amongst all the angst about the so called EU melt-down, it is worth considering why the federation of Euro Countries is in such trouble and other federations (eg Canada, Australia, the US) generally are not.

The problem with the Europe project is that it is “half pregnant” ie there is a common currency, but not common fiscal and monetary policies. This means all member states accept the market price for the European currency, but they can basically do as they like with the other leavers  of economic management. This means that Greece can pay its population way above what the country can afford, and far more than most countries in the EU, and the others cannot do anything about it. Economic imbalances are inevitable in these circumstances.

Before the Euro, when each country had their own currencies, countries would be judged by the international market, and their currencies would be adjusted by that market based on their economic health. In the current circumstances, some economists are estimating the a free floating Drachma would be less than half its equivalent in Euros. This means amongst other things that Greek exports (eg tourism, shipping, olive oil) would be 50% cheaper to the rest of the world and imports would be twice es expensive, thus the Greek economy would be relatively more competitive. In the absence of this adjustment mechanism, internal adjustments have to be made: cutting pension levels, reducing real wages across the boards, recapitalising Greek Banks, substantially reducing government expenditures at all levels, in order to make Greek goods more competitive with the rest of the world. It is a hard, possibly impossible process. In fact, in my view, a Greek exit from the euro zone is even now inevitable, and they will be better off for it. If you want proof, just look what Iceland has done in the last 18 months. It is now almost back to health.

Contrast with other federations. In Australia for instance, the federal government has taxing powers and distributes monies to the states based on certain criteria. The objective of this is to even out the different growth rates in each state. At the moment, in the middle of mineral boom, the mineral states of Western Australia and Queensland are growing at over 6% per annum. The rest of the country is below 1%. The distributions of money are therefore adjusted down for those two states and increased for the others. This has the affect of smoothing out the imbalances across the country.. In this way government expenditures across Australia are controlled in the interests of responsible economic management. By the way, this is the opposite of what has happened for the first hundred years of Federation – the outlying states consistently were subsidized by Sydney and Melbourne taxpayers. Interest rates are also set by the Central bank, as are inflation and money supply targets, both of which are administered by the independent Reserve Bank of Australia.

The EU euro zone has two choices: full economic union, or break up the currency union. Until a decision is made on this, I’m afraid the euro zone will be condemned to year on year recession (like Japan has been since the mid 1990′s)

Filed under: Economics, European Poltics, , , , ,

What is going to happen next?

Now that the Rudd-Gillard dustup has concluded, what is the likely scenario in the lead up to the next election? With Gillard having now passed the mining tax and the carbon tax, with both due to go into effect on 1 July, there is every possibility that she will over the next six months claw her way to the front in the polls given she is just 6 points (or a 3% swing) behind now. A much better position than either Keating, or Howard at this stage of the election cycle. I predict that she will make this up by September and hit the front in the December quarter. If this happens, watch the Liberal Party explode in internal recriminations, with the payback on Tony Abbott making the one on Rudd look like child’s play. This will result in Abbott being replaced by Turnbull which will immediately result in the LCP regaining its previously impregnable position. By February 2013, a new leader of Labor will emerge which will result in an election run-off between Turnbull and Bob Carr.

Now wouldn’t that be interesting. At least competence would be returned to both front benches, and  sanity to the Australian political scene.

And that has got to be a good thing…

Filed under: Australian Federal Politics, Politics, , , ,

Michael Liley

 

June 2012
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