View From The Couch - 26/Feb/2016

This Isn't Working

There are days where I think Malcolm Turnbull might be smart, lucky and rich, but maybe - just maybe - he's not very good at this politics thing. It's a weird thing to say about a guy who is immensely popular and managed to become Prime Minister of this country but... there are moments where it looks a lot less certain, a lot less solid. For instance, he now has a coterie of backbenchers who are holding his policy platform to ransom.

It comes as Mr Turnbull and his Finance Minister, Mathias Cormann, continue to discuss the unorthodox move of bringing forward appropriation bills in Parliament to before the May budget in order to keep a double-dissolution election option open without risk of the government running out of money to pay public servants.

Fairfax Media reported earlier that informal discussions had been held about bringing forward budget day, but the latest thinking is believed to favour the early introduction of the appropriations - also called supply bills - which would clear the way for a snap poll to be called either before the budget or immediately after. 

Proponents say there is no legal problem with appropriating funds prior to the budget but admit the move would be tantamount to admitting an early election call was imminent.
The $15 billion figure is a similar amount of money that would have been available to spend after a GST rise to 15 per cent, which would raise about $35 billion, and the payment of compensation to low-income earners. 

The group of Liberal economic dries are, in particular, determined to kill any change by the Coalition - such as a dollar limit on the amount that can be deducted - to negative gearing because in the words of one MP, "why would we attack Mum and Dad investors?"

Which is all very weird. We appear to have a Prime Minister with very little authority over his own party in spite of his high personal polls.

The quick answer to the rhetorical question why the Liberal Party might attack the Mum and Dad investor might be because they're way in over their heads and need to back out before the shit hits the fan. In fact, not doing so is a kind of moral hazard situation that the conservatives and economic dry types hate so much. Making matters worse, negative gearing as it stands is kind of the wrong economic incentive that encourages the very same moral hazard that conservatives hate so much. 

Put more bluntly, the very same Mum and Dad investors are now the most indebted people on the face of this earth. Yes, Australia has the highest per capita private sector debt and the majority of it is locked up in mortgages. The whole point of winding back negative gearing is to take the wrong incentives out of the system, so the same Mum and Dad investors can make a more rational decision, based on a more rational economic policy. 

I'm pretty sure this is not lost on Malcolm Turnbull. It's just that he seems incapable of explaining this to his own side and making them shut the hell up. You'd think a conservative PM could explain traditional conservative economic policy to his own side. Of course, it might be that these backbenchers aren't conservatives at all but simply just "greedy cunts" as Paul Keating would have characterised them. Turnbull is letting these people hold his office to ransom too much. He should be playing hard ball with his side if he wants to get anything serious done. A leader is only good as his willingness to whack his own side to make the deal stick. Even I know that - why doesn't the prime Minister? 

I Hate It When Things Close

Some years ago at the height of the GFC, Starbucks closed a slew of their stores in Australia. They had picked the wrong moment to expand with their stores when all of a sudden, carrying debt became a dirty word. I was walking through Martin Place on the day they announced the mass closures, and I could see they were having a staff meeting about it in their store. It just looked terrible, witnessing all these people losing their jobs in a very public place. I didn't particularly like their offerings, but it was just terrible to see them in that situation. 

Anyway, Dick Smith stores are closing and 3000 people are about to lose their jobs. 

Dick Smith's debts total about $400 million including $140 million to its banks, National Australia Bank and HSBC. 

Dick Smith staff will now have to liquidate the remaining stock, which is understood to have a book value of about $200 million. 

It's the second fire sale in three months for the chain, which launched a desperate pre-Christmas clearance in a bid to prop up sagging sales.

One Dick Smith worker said the sale was likely to kick off as early as Friday.
The store manager said it was an anxious time for staff even though they knew the end was nigh. 

"There was a false sense of community for a while with everyone trying to look on the bright side and then there was the news about a potential buyer from China," he said.
"But we have an update this morning, saying no more customer orders and we thought uh oh!" 

"Then when we got told about a national conference call . . . and we knew that this was probably going to be bad news, not good."

It has to be said, Dick Smith stores were terrible. They didn't offer up a big range of stuff, they didn't offer up a good range of stuff, they weren't price competitive and they never really had up to date stuff. It was kind of the electrical doodad shop you went to when you couldn't get to any other electrical doodad shop. You couldn't decipher what the selling proposition was, when compared to its competitors, let alone if it even had a unique selling proposition at all. You just couldn't understand how it was supposed to operate, let alone compete with JB HiFi. As it turns out, neither could they.

A long time ago, this kind of something-nothing shop sort of blundered on in the market place. Grace Brothers which turned into Myers, was for years operating like this where you could get second tier goods for second tier prices guaranteed to leave you somewhat dissatisfied. Not surprisingly, Myers has been on the ropes for the last decade because it simply has no edge whatsoever in the modern retail marketplace (and never really had anyway). In many ways it's not surprising at all that Dick Smith stores hit the wall. 

Nonetheless I really do feel for the employees in the stores. It's terrible watching a long time going concern close down. Working through the process is even worse. Some of these private equity people that brought about the debt-laden IPO need to be investigated. 

The Meaning Of Bernie In The US Presidential Elections

It's 56 years since John F. Kennedy was elected President. There have been equal years with Republicans and Democrats in the White House since 1960: Nixon with 6; Ford with 2; Reagan with 8, George Bush Snr. with 4; and Dubya with 8 making 28. Kennedy with 3; Johnson with 5; Carter with 4; Clinton with 8 and Obama with 8 including this year also makes 28. It's surprising because it feels like there have been more years under Republicans and crazy ones at that: Nixon, Reagan and Dubya make you want to reach for the American Psychiatric Association's DSM. It was also a long time between Kennedy who was a Northern Democrat and Obama who is from Chicago. 

The years since Kennedy's assassination have been quite depressing from a progressive point of view, up until Barack Obama. If we cast our minds back to the 2008 election, Obama's campaign essentially ambushed and derailed Hillary Clinton's campaign, largely on building from the grassroots, and this in turn delivered the first Northern democrat President since JFK. Which goes to show it hasn't been easy for a Northern Democrat to get up. Just think of Walter Mondale and Michael Dukakis and their terrible campaigns in 1984 and 1988 respectively. And while Bill Clinton's two terms gave some respite, he was decidedly a Southern Democrat who wooed back the Southern vote. Thus the rise of Obama in 2008 signals a new direction for American politics. All of a sudden, the Northern Democrats are a big force, thanks to a progressive grassroots. 

It's enough to make one sort of wonder if Hillary Clinton's problem is that next to Bernie Sanders, she's not Northern Democrat enough. She may even not be Southern Democrat enough. Bernie Sanders is of course, espousing a lot more progressive politics. There was at one time great expectation for Elizabeth Warren running, because she too is more progressive than the Clinton camp. There are strong indications that the younger demographic is radically slanted towards the progressive end of the spectrum. 

The more historic view I take on the Sanders campaign is that it is the first time since Robert F. Kennedy was gunned down in 1968 that a Democrat is running with a very progressive platform. It's the first time in 48 years we're seeing the kind of galvanising force assembling a strong youth vote turn out, in favour of the Progressive cause. Sanders' platform - much more than Obama's platform - inherits the legacy of the1960s activism and builds upon it until it finally reaches the middle of American politics. It's the moment the protest songs and the hippies and the activists and the New Left finally arrive, decades late - but better late than never. 

It's funny because back in 1992, Bill Clinton fooled us all into thinking *he* was that guy. The fact that he wasn't is demonstrated by his presidency, by the things he was not able to achieve in office. It's actually the kind of baggage that really weighs down Hillary Clinton's campaign. 2016 is 24 years beyond 1992. There's a whole generation of kids who grew into adults, not believing in the Clinton name, and they'll be out there not voting for her. Should Sanders get up over Clinton, there are going to be a lot of 'Regressive Left' types who are going to be upset. But then they were upset when Obama got up over Hillary in 2008 and that didn't exactly change anything for them. The Clinton supporters are essentially Baby Boomers who are still fooled by the Clinton name. 

As for Bernie Sanders, in a certain way, the most impressive thing about him is how long he's been fighting for equality. He has been 'on message' since before Generation X was even born. The photos that have emerged from his activism in the early 1960s are heartening. They give us great strength and let us understand that it is possible to fight the power for a lifetime and make it count. If the defining characteristic of leadership is to inspire people into being their best, then certainly Bernie Sanders has that quality in spades.

That's him right there during some sit in in 1962. It could have been you, it could have been me in another time and place; but as it turned out, it was him all along. If people really think the 1960s activism meant something more than just what people did to kill boredom, they really ought to look into Bernie Sanders. 

The Post Capitalist World

Without The Growth, It's A Zero-Sum World

I cam across an article written by a Japanese economy professor who ran a historic analysis of what it means to be running Zero Interest Rate Policy (ZIRP for short in certain circles). It's a pretty straight forward article that even an economics novice can understand, and it centres round what it means to have ZIRP and why this signals a problem.

Japan is running interest rates lower than 2.0% for a couple of decades now. Germany has been doing the same for some time. The level of low interest has not both seen since the days of the Reformation and by that we mean the days of Genoa during the wars that saw the rise of Protestantism in Europe, thus splitting away the fiefdoms controlled by the Catholic Church, effectively stunting the growth of lending to the Catholic Church by the bankers in Genoa.

The point is, that the extraordinary length of ZIRP in our time is pointing to something extraordinary in the history of capitalism itself, and it essentially comes down to this: Capitalism has ceased to self-replicate at the rate it has done for most of modern history that extends back as far as the Reformation. Economic Growth and Modernity were interchangeable for a very long time, but we've arrived at a point where there is no scope for growth in some of our advanced economies. The growth won't come because in most part we've hit a saturation point for where capital can be applied.

The article goes into some quick schema to paint a picture which can be reduced to a simple formula. If an economic unit produces more, then the quantity of production the increase in production and subsequent sales can be understood to be on this axis which we can call 'X'. Another axis's the rate at which we produce and sell these goods and services, whites essentially the productivity. We can call this Axis 'Y'. Combined, the 'X' and 'Y' axes provide a field which is the GDP of the economic unit. When taken at the national level, what we find in advance economies is that we can't seem to grow quantitatively and we can't seem to grow qualitatively. So our GDP stagnates.  

The only other axis is actually growth in the virtual and cyberspace. And this is why there has been growth in the financial sector and growth in the internet and technology businesses. This is the 'Z' axis which has exploded comparison to the stagnant growth which befell the 'X' and 'Y' axes growth in the first world.

Up until 1980, there was consistent growth in modernity because there was space to grow into. Since 1980, we've pushed for globalisation so that there was more economic space to grow. As of 2008, the first world economies have hit the limit. This also dovetails with the drives for productivity sought by business and governments since 1980 where we've seen offshoring of manufacturing and attendant mass lay offs in the first world. In its place we've seen the greatest growth in the space created by technology, whether it is in advanced financial instruments and high frequency trading or simply high-tech industries that are off-the-charts in valuations as soon as they list.

It's not as if the 'Z' axis opened up because of the limits to growth on the 'X' an 'Y' axes, although there is a partial relationship between the need for growth and the massive rationalisation that high tech brings. Most of the gains in the 'Y' axis have come from the dividends of the 'Z' axis. The 'X'and 'Y' axes can't grow because the world is just about saturated with the economic activity of the first world.

What The RBA's Drop To 2.25% Tells Us

The whole world is experiencing the limits of growth along the 'X' and'Y' axis. The Central Banks in Europe are also running historically outlier low interest rates and even ZIRP in some countries. It's no coincidence then that the RBA has been running the lowest interest rates in its history, and this week set a record low 2.25%. The shenanigans of Federal politics aside, it's interesting to note that it comes at a time when the forecast for growth in Australia keeps dropping.

Combine this with the fact that the automotive industry is pulling out of Australia and myriad manufacturers have had to close their doors in the short time the Coalition Government has been in, and you get the picture of an economy that is quickly running out of ways and places to grow. It's one thing for Joe Hockey to tell the world leaders that what we need is growth. We sure do, Joe; but if there is no room for it in the physical world relative to the G-20, then it's a bit like fish in a crowded fishtanks saying what they need more of is water.

What's become even more stark and obvious with the retreat of commodity prices to their historic norms, is that absent the income from mining, we suddenly are back to being that economy thetas bloated in the service sector. And while this can be roughly divided into to categories like most things - good and bad - the glaring truth is that the manufacturing we lost is never coming back and even if it did, it would have no economic space in which to grow.

In this context, it would have been (and still very much is) imperative to to grow along the 'Z' axis which would entail growing the tech sector, growing businesses that operate in the virtual space, and look to becoming a force in 'Z' space. Odd then, that we have a government fixated on miners, bricks and mortar retail businesses and a degraded numpty version of an NBN. The complete array of policies concerning business and the economy is fundamentally backward looking and fails to take in the evolving problem.

We're not investing in tech or education or for that matter paying for students to learn things that would help them survive the evolving economy. Our government is trying to off-load those costs back on to the people and wipe its handoff the responsibility, exactly at time when a strategic view needs to be taken as to what kind of industries can be imagined and nurtured along the remaining 'Z' axis of growth. Instead the investment money has flooded into real estate - mostly because those investors get to borrow money so cheaply, this forming a positive feedback loop, but also because they have so few alternative options to invest but on bricks and mortar.

The popping of the Australian property bubble may never come - after all the guys at Zero Hedge have been saying China's economy is doomed and somehow the thing keeps going, and if China keeps going there's no reason why Australia's property bubble should collapse. If the GFC didn't pop it, then god only knows what it would take. But the distortions created by the property bubble are here to stay, putting a gigantic brake on growth. Eventually the RBA may well cut interest rates down to the ZIRP. In which case we will have arrived at the end point of capitalism without having made any investments into surviving what comes after traditional capitalism completely matures.  

The Problem With The Stimulus Packages

The greatest irony of Tony Abbott's tenure as Prime Minister is that having promised to be a Infrastructure Prime Minister, he hasn't really done much of any of it, and the infrastructure he did want to build was roads because let's face it, it's about the political donations coming in from general construction companies. You can't accuse them of corruption, but you can sure charge them with crony capitalism as Bernard Keane has done.

Again, we've seen this development in other countries but basically big government contracts are sold as good for jobs, and investors in General Construction companies make out like bandits on these projects. Australia has a peculiar development called Private Public Partnerships whereby the government refuses to go into debt and sucker investors are given the exploding doll sold to them as a good deal. You'll notice that once built, those roads really don't create more jobs or economic activity in of themselves. It's amazing that they get classified under Capital Expenditure. But these tollways Tony Abbott's backers want to build, are simply unlike factories that actually produce things or for that matter a digital workspaces that churns out apps. They don't contribute to the 'X' axis of production and they're only marginal contributors to the 'Y' axis of productivity, not to mention having no impact on the'Z' axis.

Equally stupid then, is the belief that we can have a building-led recovery. I know it flies in the face of the way our economy gets reported, as well as the housing sector making up 25% of our GDP,  but a house that's once built does not contribute to any of the 3 axes. The worst use of capital going around is all the debt piling up on the private sector's ledger as mortgages. It's good for the banks but it has much, much much less of a future than the NBN. In fact we're seeing this very problem unfolding China because they keep building the ghost cities in order to pump up the GDP figures but those ghost cities, once built, are contributing absolutely nothing to the 3 axes of economic space while the fastest expanding and most successful Chinese venture is probably Ali Baba, an internet market.

It's the same in Japan where fro 20years the government has unleashed stimulus package one after the other and still growth and the 2-3% inflation everybody so desires eludes the government of Japan. All those stimulus packages were one-off spends that contributed very little to the'X' and 'Y' axes over the same time span. The most healthy growth in Japan has been the IT sector. This pattern is repeated in the UK, the USA, and other members of the G8 ...except Russia where frankly, nothing makes sense except digging up more oil.

This is why I was banging on about the NBN prior to the September 2013 election. It really is our only hope for a future with a growing economy. Instead we voted in a government that is on the whole insensitive to that reality and hastily knobbled it to help out some backward looking cronies. Unless that gets rectified, in the years ahead, we'll come to see that this Coalition government was responsible for screwing up the future of this country.

Maybe The Work Ethic Thing Is Not Universal

The Weird Things You Think Up When You've Got The Flu

I had the flu (again) and was laid out for a couple of weeks. I'm really only recovering my lungs this week and I've had a lot of stuff to think about at work so I haven't been writing much here. Apologies for the break in transmission.

Anyway, in-between the moments of headaches and coughs and general ordinariness, I had this insight that maybe our society putting too much emphasis on the work thing. It sounds crazy, I know, but here's the thing. We've come to the point where our government has so demonised the 'dole bludger'. that they don't want to hand out unemployment benefits to somebody under 30 for 6months while they are unemployed. The work-for-the-dole programs are presented as this great idea where these young long term unemployed people are made to work for their unemployment benefit money.

But when you think about that, you have to ask if that job they're doing is absolutely necessary. If it is necessary, then why isn't the government paying proper money to get that done by proper professionals? It's paradoxical because if the government had that kind of money it wouldn't have to cut the dole. So what you have is the government insisting that some random, context-free 'work' be accomplished when in reality it might not be relevant to the economy except it makes some people feel better that lazy people are being made to work.

What if the point of life isn't work and getting money? Maybe we're looking at unemployment benefits all wrong. Maybe what the dole really is, is a kind of dividend we pay out to members of our society based on the increasing efficiency of our society? Consider for a moment that the rewards for work are not distributed in any kind fair way.

Take Gail Kelly, the retiring CEO of Westpac who reportedly got paid 12.8million dollars this financial year. No wonder she's quitting. That's like winning lotto. With all due respect to her fine acumen as CEO and qualifications, there's no way her efforts were really worth that much. And her effectiveness probably had a lot to do with turfing people out of jobs to make Westpac a more efficient organisation. Which is to say part of her $12.8million remuneration involved putting people on the dole and taking their share of the capitalist money pie.

This sort of distorted sharing of the profits of business is happening all over the place. If there's such a disconnect between work and the rewards, I don't see why we have to pretend that it's all about the effort. Let's face it, somebody can only work so many hours the work-for-the-dole program, as hard as they can, for as long as they can, but nobody is ever going pay that person $12.8million a year. That $12.8million is simply not related to effort or dedication or skill. How can we then pretend that it represents fair value for Gail Kelly's work?

It's more rational to say, at some point there is no connection between work and its rewards. It's just circumstance and chance. So why do we insist that the connection applies to unemployed people all the time? It seems more delusional to think that the merits of the work ethic applies to everything all the time, given the extreme ends of employment and unemployment.

And it's not like the unemployed come from nowhere.

Economic Rationalism Always Kills The Golden Goose

Try this for an example. Imagine a person working for company A, manufacturing product B. Company A decides to move production to China. This is good for the company because the production of B gets cheaper. usually, it's like the fraction a cost, so let's say there's a 75% saving right there.

So let's say they're generous and Company A might pay out a redundancy to the worker which effectively buys them out for length of time until they allegedly find another job. But the person might not find another job because all the companies are moving their manufacturing to China to get that 75% saving. Pretty soon you have all these workers who lost their jobs who can't get another equivalent job, because those jobs disappeared too. Pretty soon, they're the long term unemployed.

Meanwhile, company A has pocketed the 75% saving in manufacturing costs and posted it up as profit. Shareholders lap this up because it represents 'efficiency' and 'productivity'. So in one fell swoop, they've made an unemployed person in their own country and then given that job to somebody halfway around the globe, and pocketed the change. This has more in common with killing  the golden goose; but this kind of thing has been the mainstay of managerial theory for something like three decades. And they keep coming up with reasons why this is somehow going to lead to a better economy while in fact the middle class has collapsed in America and is sinking in Australia. it's clearly self-serving corporate nonsense.

What most governments say when this happens is that these people have got to be re-trained. In reality the retraining programs often fly in the face of what actually happening in the market place for jobs. If a person loses a join the manufacturing sector, then it's cheap and easy to retrain them for something else in the manufacturing sector. If the entire manufacturing sector is shrinking overall, then it's just musical chairs where somebody misses out on the chair each round. At some point the government has to re-train these workers out of their sector which is going to cost more time and money.

The point of all this is to say, corporations regularly export the jobs and collect the difference as profit. They even devise ways to pay taxes by going international and feeding earnings through some weird tax scheme in tax havens like Luxembourg. It seems incredibly inequitable to lump the government with the costs of the unemployment imported from the third world, then complain that the government is spending too much money on welfare. If the business lobby don't like this so much, they should just bring those jobs back and employ people. It always amazes me that the ALP don't just tell the business people this, but instead go on about working with businesses and hand over subsidies which are bribes to stop them killing these golden geese.