The inevitable shift in Australian politics

In June I predicted that:

  1. Tony Abbott will not lead the LNP to the next election, and the blood letting that will preceed his removal will make the defence of Julia Gillard during Kevin Rudd”s recent challenge look like a walk in the park;
  2. Abbott will be replaced by Turnbull; and
  3. Gillard will be replaced by Bob Carr.

Whilst i am not now as confident about Carr replacing Gillard, the tide has turned against Abbott six months earlier than I expected. Admittedly, Gillard has improved her performance considerably in the last three months, and the inate contradictions of Abbott’s relentless negativity has been exposed so the electorate now seems to be waking up to it.

To me the turning points in this process have been:

  1. Leigh Sales demolition job on Abbott on 7.30 when he simply could no longer get away with the blatant lies he had been peddling during and after the last election campaign;
  2. David Marr’s latest political epistle in the Quarterly Essay, this time on Tony Abbott (Marr has form; his effort before this was on Kevin Rudd and many in the Labor Party see that piece as the event which lead directly to Rudd’s removal);
  3. the non-event which was the introduction of the Carbon Tax. Voters now realise the sky has not fallen in, and the exaggeration which has accompanied Abbott’s campaigning against it has been exposed as a sham. They are now asking how much of the rest of his overall scare campaign is as equally unreliable; and
  4. the squabbling internally has broken out big time in the coalition about economic policy. The dries, lead by Joe Hockey, and the wets lead by the agrarian socialists which is most of the National Party, as well as the DLP rump lead by Abbott are at each other throats on this. This is where I believe Abbott will ultimately lose it. He is almost illiterate when it comes to economics, and when he does act it tends toward protectionism and picking winners. This is the last thing that the more economically literate on both sides of politics want, as well as the vast majority of the business community.  Once the polls turn inevitably more decisively against him, this will be the weakness which undoes him.

Ride on Malcolm Turnbull. If he gets a chance, he will win in a canter, to the great relief of three quarters of the population. We can only hope!

Europe – what a mess

In retrospect, it was a big mistake to think that the Euro could work across diverse economies, without fiscal and monetary union. But that in itself was impossible because of the very diverse ideas in Europe about economic responsible economic management and fiscal discipline. Indeed, the formation of the Eurozone encouraged all the member economies that they could have German style living standards, but without the disciplined, focussed and skilled German workforce and economy, and without the economic management which has charactarized the German government, at least for the last 10 years.

Many countries, led by the French, have believed they could run economies with very generous social benefits without the hard economic management and decision making which so charactarizes successful economies. For instance, when the last president of France hesitatingly tried to instigate mild economic reforms such as raising the retirement age from 60 to 62 there were howls of protest which forced him to back down. This does not even go near economic distorting policies like the Common Agriculture Policy (CAP), exorbitant pension and social welfare provisions, industry subsidies, and unaffordable internal and external deficits. In spite of the fact that the IMF, ECB, World Bank, and Germany have been handing out enormous bail outs to many broke countries in southern Europe, nearly all of them have been unable to fully implement them because their electorates will simply not wear them.

The only way is for the market to force it on them ie leaving the euro zone and issue their sovereign currencies. How might this work? Take Greece. Greece in the current circumstances will never pay back its debts. It will be saddled with such stringent provisions that it could remain in recession for 20 years. Time for a change in direction.

If Greece, without warning, announced that henceforth the Greek currency would be in drachma, and all international debts would be written off,  then there would be short term pain, but eventually the market would kick in (probably 18 months to 2 years), and the Greek economy would begin to recover. There would undoubtedly be a 50% plus devaluation against the euro, which would make Greek exports cheaper, and imports more expensive. It would also allow the Greek central bank to recapitalise the Greek Banks by printing more Drachmas. This, though, would all end in disaster if it were not accompanied by drastic economic reforms to the social welfare system, collection of taxes and other charges, removal of distorting government subsidies of various kinds, reform of the legal system and a crackdown on the corruption which so distorts the efficient running of the Greek state.

Within five years, the Greek economy will recover, the debts will be written off, and the competitive advantages of Greece will start to kick in in a much more  growth friendly environment than before. The low growth, deficit cutting and low investment environment which ios the consequences of the European bailouts, will be delivered via a market mechanisms and will not therefore be the subject of the political vastitudes currently underway in Greece.

No-one though sees this as pain free. It is not. It will be very painful indeed, but in the medium term it will be less so than 20 years of recession, and it will give hope to a population sadly lacking in it, especially the young. It is somethingthe population and government can galvanise around, and on which it could build a prosperous future.

It is also something the other southern European governments such as Spain, Italy and Portugal would also likely copy once the benefits become apparent. The French, well they will remain French, and keep their heads buried in the sand, even though the economy distorting welfare state, government subsidies, the CAP, and unreformed labour, capital and distribution markets are worse than almost anywhere in the EU, and France’s economic performance reflects that. They should also take the economic medicine, and return to the Franc. But they won’t of course!

What is Gina Reinhardt Up To?

The acquisition of the Fairfax stake by the  wealthiest woman in the world, and a paid up member of the extreme right wing  “crazies club”, Gina Reinhardt, should be a concern for everyone, not only in Australia, who values pluralist democracy, and who has an inate belief in the civic reasonableness of our society. It is a perversion, that someone who acquires obscene wealth, not from her own endeavors, but from that of her father, can use that wealth to pervert the “balance” of what in many ways is an extraordinarily success society. And why is it successful? Because it is well educated, well informed, tolerant, funny, happy, and progressive. I can’t think of any one of these categories for which Reinhardt qualifies. But it is a devilish dilemma.

Those of us who believe in free markets, who believe in efficiency, and believe in best practice, are caught in a bind here. Markets work because the regulation is about openness and information. But from what we can see, Reinhardt is advocating the opposite of that. She wants to dictate the information from the Fairfax papers to be a mouthpiece of her personal financial interests. So in a way, she is breaking a fundamental markets rule generally addressed by such organs as a Trades Practices Act. In a media sense, she is being anticompetitive. Some insiders believe this is not an investment in media, but a play to drive the Fairfax mastheads into the ground, thereby eliminating a pesky, and annoying instruments for Reinhardt getting untrammelled power.

Now we hear that she wants three board seats (out of 8), wants to be Deputy Chairman, and wants a veto over who is appointed Editors of the Fairfax papers. Why is this not anticompetitive in terms of information? The problem is what can be done about it? The last thing we need is for governments to be dictating who can, and cannot, open newspapers, whether online, or in print. But how do you stop Reinhardt from using her wealth to dictate what rest of us are allowed to read?

Actually, the solution may be in the changes in technology which is presenting this opportunity to Reinhardt  in the first place. There will be many extremely talented journasts out of work as a result of these changes. These same changes present an unprecedented opportunity to write new media. After all, all you need now to write an online newspaper are talented journalists, an internet connection, some internet skills, and a burning desire to succeed. I can’t think of a better environment for these out of work journos to get to work. And we may find we end up with a far more diverse media than we have now, and Rindhardt will have wasted her money (not that she worries about that – she has other agendas).It would make the rest of us feel good though….

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.

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?


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.

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….

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?????

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.

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)