Friday, August 1, 2008

The Recession We Didn’t Have To Have

EDITORIAL FRIDAY 01.08.08 The release of the latest retail sales figures has prompted the newspapers to scream “recession” in the headlines. Retail sales for the month of June fell by 1%. That is a sharp drop, which if sustained represents a devastating figure. It should have come as no great surprise either with warning signs emerging since the beginning of the year. But is it actually a recession?

The technical definition of a recession is two successive quarters of economic contraction, so the technical answer is no. But the technical answer might also be a misleading one. The two quarters from January to June delivered retail revenue growth that was less than inflation. The actual volume of items sold has fallen by 0.3% in the first quarter and 0.6% in the second quarter. So when measured by volume of actual stock, not dollars, the retail sector is already in technical recession. Unless the trend is arrested it will lead to a real recession.

Now it is true that the nation’s economy continues to be powered by the resources boom, but those who do not directly profit from it are finding it hard to keep up. As important as the resources sector is it is the retail sector which is Australia’s largest employer. If retail employees start losing their jobs, it’s the beginning of the collapse of the house of cards. Some observers have suggested that the retail figures do not take into account the tax cuts delivered on the 1st of July, but any battler will tell you that whatever gains were made from those tax cuts had already been spent long ago on increased fuel and housing costs.

While some are calling for an immediate interest rate cut to head off the recession before it happens, that may not be enough. An interest rate cut may well help restore retail sales, but until we conquer the much deeper problems of the housing affordability paradox it will be difficult to revive consumer confidence to the sunny outlook we all started taking for granted.

Ironically, this didn’t have to happen. When the inflation alarm bells started ringing last year there were some who realized that high interest rates were part of the problem, not the solution.

Bullies Wither Without Peer Support

EDITORIAL THURSDAY 31.07.08. The death of a 14 year old student from Lismore has once again prompted calls for action to be taken against bullying in schools. Alex Wildman is reported to have hanged himself after a series of violent incidents in which he was the target. While the specific circumstances of individual cases might vary, the fact is that there are tens of thousands of students affected by bullying in schools every year.

The New South Wales opposition has renewed a call it originally made last year for an inquiry into bullying. It sounds like a good idea, and would give the impression that something is being done, but the sad truth is that there have always been bullies, and probably always will be. So, will an inquiry tell us anything we don’t already know?

We know that bullying takes place, we know that most bullies are themselves victims of mistreatment who are perpetuating the cycle, and we know that most bullies are cowards. We know that bullies usually have the wind taken out of their sails when someone actually stands up to them. Unfortunately, kids who do stand up for themselves are often labeled as troublemakers themselves if they win the fight, or suffer even more greatly if they lose.

Regardless of all the politically correct efforts to encourage targets of bullying to go to a teacher for help, often they won’t for fear of reprisal and loss of face. While teachers do need to play such a role, it is also important to address the attitudes of children, not just the ones directly involved, but also those who watch incidents of bullying occur.

One of the most effective ways of stopping bullying is to withdraw peer support. If the kids standing around watching are egging on the aggressor, his actions are validated and he is likely to play to the audience. If the other kids express their disapproval, and reject the behaviour of the bully, suddenly he is the one who is isolated, and might just begin to question his own actions.

In other words, kids themselves need to see bullying as not cool.

Wednesday, July 30, 2008

The Liberal Leadership Charade

EDITORIAL WEDNESDAY 30.07.08. How much longer can Brendan Nelson carry on the charade that he is the leader of the opposition? Of course he holds the title, but he could hardly be accused of leading the party after his performance on climate change policy. After making a big fuss about formulating an economically responsible policy which amounted to sitting on our hands and waiting to see what the rest of the world does, he has been forced to revert to the position espoused by Malcolm Turnbull. In essence he has been over-ruled by his colleagues, or as the newspapers have reported it, he has been “rolled”.

Of course, Dr. Nelson’s grip on the leadership has been in question since day one. The contest against Mr. Turnbull for the position was won by only a small margin. His public policy pronouncements have been a meandering discourse that seems to have responded to pressure from a variety of interest groups. At its most ridiculous it included the suggestion that ordinary Australian battlers should spare a sympathetic thought for the banks which have been forced into foreclosing mortgages and repossessing peoples’ houses. After all it hurts the banks just as much as it hurts the poor souls losing their homes. It was after Dr. Nelson made that particularly silly observation that I made the bold prediction that his leadership was already dead, it just hasn’t fallen over yet.

As far as I can see, there really is only one reason for Brendan Nelson to be still keeping the chair warm for his successor. It is this: the Liberal Party hasn’t yet worked out who that should be. Although it is clear that Malcolm Turnbull will one day be leader, it would seem that many in the party are still waiting to see if Peter Costello might change his mind and stick around to give it a go. If he does, then Mr. Turnbull will have wait a little longer for his turn, although that might actually be to his long term benefit.

As I have said before, I believe that Peter Costello will choose not to stay in parliament, and will retire at a time of his choosing and pursue other opportunities. In that case, the choice for the Liberal Party will become clear. But either way, Brendan Nelson’s leadership is already finished. Already, the real decisions are being made by other people.

Tuesday, July 29, 2008

Yes, It Really Is A Rip Off

EDITORIAL TUESDAY 29.07.08. With the price of petrol continuing to sting motorists it has become a common cry that the oil companies are ripping us off. The rapid rise in the price over the past year has unbalanced the family budget, and along with rising housing and living costs has had a significant impact. When we are spending $100 or so to fill up the same car that cost half as much only a few years ago it’s easy to feel that something just isn’t right. But are the oil companies actually gouging us?

Although the high price of oil appears to be driven by a number of factors, at least one of them is speculation on the international market. There’s no doubt that oil producers will benefit from higher prices, but what about the other links in the chain? Refineries, distributors, wholesalers, and retailers all have a part to play. Naturally as the price of oil goes up we can expect the price of petrol to also go up.

The trouble is that the oil industry has a high degree of vertical integration. That is the same company drills the oil, refines it, wholesales the petrol, and in some cases retails it. This delivers market control to what the A.C.C.C. commissioner Graeme Samuel has called a “comfortable oligopoly”, which is really a polite way of saying “monopoly by committee”. Because the oil companies make their profits right along the chain, they can afford to keep retail margins thin, which disadvantages independent outlets.

But even if we accept the idea that rising oil prices cause petrol prices to rise, you would then expect petrol prices to fall when oil prices drop. But they don’t.

Research by economics professor Frank Zumbo of the University of New South Wales shows quite clearly that when oil prices rise the flow on to petrol is almost immediate. However, when oil prices fall, as they have over the last few weeks, there is a significant delay before petrol prices follow suit. Since its peak in June, oil has fallen by around US$25 per barrel. Petrol in Sydney has fallen, but not as far or as quickly as it should have.

Since June, oil has fallen 16%, wholesale petrol has fallen 8%, retail petrol has fallen 3.2%.

Yes, it really is a rip off.

Monday, July 28, 2008

Tax Won’t Stop Binge Drinkers

EDITORIAL MONDAY 28.07.08. The representatives of the distilled liquor industry have released more sales data to back their claim that the so called alcopops tax has done nothing to address binge drinking. The Liquor Merchants Association of Australia claims that since the tax was introduced sales of the premixed drinks have fallen by 30%, but that this has been counterbalanced by an increase in full strength bottled spirits. The suggestion is that rather than cut down on binge drinking, people have changed over to mixing their own drinks.

If that is true, the tax measure might actually be counterproductive, because when people mix their own drinks there is much less certainty about the quantity of alcohol in each serve. There might also be the tendency to start pouring larger measures as more is consumed in a kind of vicious circle. In contrast, a premixed drink in a can or small bottle has a precise amount of alcohol per serving. The argument is that this helps drinkers to more easily keep track of exactly how much they have been drinking.

There is a measure of logic to that argument, but do the figures really add up to support that idea? Well, not according to Nicola Roxon the Federal Health Minister. Ms. Roxon has accused the industry of selectively using figures to protect their profits. In her view it is significant that the data presented by the Association compares sales in April against sales in June for the simple reason that there is a seasonal effect where people drink more spirits in winter, and more beer and wine in summer.

While I believe that there is a benefit in the precise measures of alcohol offered in premixed drinks, it is also true that the Ready To Drink products have a higher profit margin than straight spirits. Of course, it would be na├»ve to think that the industry isn’t fighting to preserve its profits. But whatever their motives might be, the truth is that real binge drinkers will simply buy whatever is most affordable and keep on drinking. For that reason, I don’t believe the alcopops tax alone will achieve a great deal in reducing harmful drinking.