Friday, May 7, 2010

The Second Wave.

The dramatic plunge on the Wall Street share market overnight demonstrates just how fragile the presumed economic recovery really is. It appears that an erroneous trade made for billions instead of millions, triggered the panic in an already nervous market, jittery over the unfolding crisis in Europe. Greece is on the verge of bankruptcy, and Spain, Portugal, and even the United Kingdom are not far behind. The result was that the Dow Jones index suffered the largest ever intra-day fall in value, dropping over 1000 points in a matter of minutes, before recovering about two thirds of the losses before the closing bell. The massive plunge may have been the result of a glitch, but for people buying and selling at the wrong moment it represents real losses of real money. It also represents a clear signal of just how sensitive to bad news the market really is.

Of more concern to most of us is just how such ructions might impact on our day to day lives, and once again Greece provides an example. As nations allow their debt to spiral out of control, it is inevitable that sooner or later it will be the taxpayers who are left to pick up the bill. In Greece the problem has become so extreme that the taxpayers have taken to the street to express their contempt of the government which has failed them. Sadly people have died, and it is possible that there is worse to come. All of this might seem to be half a world away, but as we have already seen through the global financial crisis, Australia is not immune to the impact of events of a global nature.

So far we have been a little bit clever and a lot lucky. Australia has been lucky to have been in a very strong economic position before all this trouble started. Australia has been lucky to have the benefit of vast mineral resources. Australia has been lucky to have a strong trading relationship with China. The steps taken by the Australian government to bolster the economy through the economic stimulus plan have been a genuine benefit in containing the damage, but unfortunately there are two problems with that. One is that a significant amount of the money spent appears to have been wasted on overpriced projects or frittered away without lasting benefit. And it was borrowed money. The second problem is that if today’s drama really is the beginning of a second wave of the global financial crisis we won’t be in anywhere near as strong a position to fight it.

The chances are that ongoing growth in China, and the slow but positive improvements in the United States will mean that rather being a second wave this should turn out to be a series of ripples. But either way, it’s time for our government to start thinking about containing the debt we have acquired over the past couple of years. Next week’s budget will need to be a balancing act containing spending, while not pulling the rug out form under economic recovery.

Thursday, May 6, 2010

Pink With Envy

I can’t believe that the jealousy has begun already. Sixteen year old Jessica Watson hasn’t even arrived in Sydney yet to complete her voyage around the world, and already the knives are coming out. Yesterday it was reported that the editor of Sail World magazine is claiming that Jessica will not have covered enough nautical miles to qualify for an official round the world record. And today it has been revealed that the Pink Lady Apples company has written to Jessica’s management to advise that the name of her yacht “Ella’s Pink Lady” infringes their copyright.

I suspect that most of us didn’t even know that there is a Pink Lady Apples company and we might have thought that it was simply the name of the popular variety of apple, but apparently it is a registered trademark like so many other things we take for granted in life. At this point, the Pink Lady Corporate machine isn’t seeking to penalize Jessica by way of financial compensation but has advised her not to do anything which might damage the brand, whatever that means.

Of course, the reality is that boats are commonly referred to as “Lady”, and always as female, while Jessica’s yacht happens to be pink, largely because that colour is associated with her sponsor Ella Bache. So it’s perfectly reasonable to call it Ella’s Pink Lady and I am quite certain that no one is going to mistake it for an apple of any variety. The Pink Lady Apple Corporation has also take exception to the design of Jessica’s logo, which features a heart, claiming that it also resembles their own logo, utterly ignoring the fact that a heart shape is so thoroughly generic that I am surprised that anybody has been able to trademark it at all.

As for the claim that Jessica has not travelled enough sea miles to claim an official world record, I have to wonder just what sort of petty jealousy is behind that. Fair enough the official World Speed Sailing Record Council rules might require a distance of 21600 nautical miles to be covered, but the fact is that Jessica has sailed around the world, and is the youngest person to have ever done it solo and unassisted. Her management insists that there is no official record recognized for sailors under 18, so the whole argument is pointless. Worse than that, I believe that it is petty and jealous.

Perhaps she should have painted the boat green instead.

Wednesday, May 5, 2010

Any More Interest Rate Rises Would Be A Mistake

Yesterday interest rates went up. Today the stock market is plunging. The two are not directly related, but there is a connection beyond the fact that both are bad news for most people. Interest rates have been increased because of increasing inflation, commodities prices rising more quickly than expected, and the improving terms of trade. The approach reflects the view that the worst of the Global Financial Crisis is behind us and the task now confronting the Reserve Bank is to manage the recovery. The Reserve Bank governor, Glenn Stevens, indicated that the new cash rate of 4.5% means that interest rates are now at a level which can be considered “normal”.

But today’s price drop on the share market tells us that things are not quite normal yet. The GFC was originally triggered by debt defaults on a massive scale. In combating the crisis, governments around the world, including our own, have shifted vast amounts of debt from private hands onto the government ledger. Here in Australia, we had no government debt to start with, and the debt level now is not a serious problem, no matter what Tony Abbott might tell you. However, the same can’t be said for other countries, and today’s share market slide has been triggered by sovereign debt concerns around Greece, Spain, and the fear that other European countries may also be struggling.

The Americans wouldn’t like to admit it, but they too have dangerous levels of government debt, largely because they were already spending trillions of dollars of borrowed money on fighting a couple of wars even before the GFC arrived. As long as the debt remains, the interest payments will act as a drag in the economy, and if debt continues to grow the drag will also continue to grow. If it gets out of hand, a country winds up like Greece, begging the International Monetary Fund for a bailout which will only be forthcoming under terms and conditions which ultimately cost ordinary everyday people a chunk of their standard of living.

Here in Australia, our debt levels remain at manageable levels, but if there is a second wave of Global Financial Crisis we could not afford the same sort of stimulus spending that we have seen in the first wave. And despite the apparent resumption of the resources boom, the retail economy is still fragile. While the falling share prices today may not directly affect everyday people, rising interest rates most certainly do, and those share market prices could well be a signal that we should not assume that the GFC is completely over. For that reason, any further interest rate rises could be the wrong move entirely, and if the European sovereign debt problem gets any worse, it might turn out that yesterdays increase was also a mistake.

Tuesday, May 4, 2010

Sticks And Stones…

The decision by a judge to dismiss an offensive language charge against a university student has raised the ire of the New South Wales Police Association. It’s not that the Association wants the young man locked up and the key thrown away, but they believe that the decision undermines respect for not only the Police, but for the law itself. In this case, 22 year old Henry Grech was stopped by a police constable after jumping the barricade at a railway station. There was a heated argument, which culminated in Mr. Grech referring to the police officer as a “prick”. That in itself is not exactly the most offensive word which might have been chosen, but there is no doubt that it was intended as an insult.

It might in some respects appear to be a trivial matter, but I believe that it raises a great many questions about what should be considered acceptable behavior, about respect for authority, and about whether or not there should be legal implications for what amounts to appallingly bad manners. The judge ruled that the word itself was in common usage, and that the police officer should be accustomed to hearing it, and for that matter a whole lot worse. In so far as that goes, the judge is absolutely right. But the police association is equally correct when they point out that the exact same insult directed at a judge would instantly attract a charge of contempt.

Part of the problem is that there is no clear definition of the boundaries, and what is acceptable in one circle of people is not acceptable in another. 22 year old Mr. Grech has no doubt grown up in a world where casual colourful language is a part of everyday conversation, not to mention popular entertainment such as movies and computer games. As such, he might consider his choice of words as being an appropriate expression of his dissatisfaction with the manner in which the police officer has handled the situation, while not actually intending to commit a further offence. But the truth is that he would never have found himself in this trouble if he had learned to be a little more polite in the first place.

While colourful language is not always intended to be abusive, and abusive language is not always colourful, it is usually pretty clear when a remark is intended to be insulting, offensive, or abusive. After all, in this country we have a tradition of calling our best mates “bastards”, and these days young women can call each other “bitch” as a mark of sisterly solidarity. What seems to be missing is an understanding of when and where to parade the colourful vernacular, and when not to. What seems to be missing is the idea of manners.

Manners are more than just courtesy to strangers, although that is part of it. Good manners provide a framework for how to conduct ourselves in private, in public, with friends and with strangers, in fact in every aspect of our lives. Treating others with respect will not guarantee that they will do the same to us, but it goes a long way towards encouraging it. On the other hand, lack of manners can only lead to lack of respect, and lack of respect leads to anger, fear, and malice. From there, it’s only a short step to more seriously antisocial activities.

Monday, May 3, 2010

No Surprises In Tax Reform

When it was originally announced that the Federal Government would conduct a “root and branch” review of taxation, everybody agreed that it was long overdue, and some even allowed themselves the indulgence of having their expectations raised. Perhaps at last something would be done to iron out the inequities and the inherent unfairness of the personal income tax system. Perhaps at last something would be done to simplify the complex array of business taxes, levies, fees and charges. Perhaps at last something would be done to remove the disincentives from the high effective marginal rates associated with the interaction between welfare payments and the tax system. But perhaps that was too much to expect.

In fact, the Henry Review of taxation did address all of these matters, and many more, delivering 138 recommendations. The trouble is that the government has embraced only four of them, including the much publicized resource rent tax on the mining industry. It seems that the government has attempted to do two things. Firstly, it has taken a carpet bombing approach to getting its hands on a bigger chunk of mining profits to pay for other elements of the reform. And secondly it has emphatically ruled out pretty much anything which might be unpopular even if it would have produced a long term benefit. After all, implementing reform tomorrow depends directly on being elected today.

Of course, the review was never intended to be a blueprint for immediate action. In fact, quite the opposite. It should be seen as guide to the long term future of taxation reform over the next couple of decades at least. The last time any such review was undertaken was in 1975 and it took 25 years for everything foreshadowed in that report to be implemented. So now we have a new report, and even though the government has categorically rejected a long list of measures, that doesn’t mean they will never happen. Over the years ahead, piece by piece, much of the Henry review will no doubt come to pass, including such things as congestion taxes and road user charges, but it’s easy to see why the government wants to distance itself from those ideas right now.

However, it’s not so easy to see why the government has not yet acted to simplify personal income tax returns for ordinary Australians. This is pone of the more popular recommendations from the review and so it should be something that would appeal to a government which is keen to be re-elected. Imagine no longer having to go through all your receipts hunting for deductions, wading through hundreds of pages of the tax pack document, or paying for a tax agent to file your return. Imagine instead, being granted a standard set of deductions and receiving your refund cheque within days, rather than the horrendous situation which exists now with hundreds of thousands of refunds stuck in limbo because of a Tax Office computer glitch.

If the government really wants to win votes, I am sure that they will announce this measure before very long, most likely along with the anticipated tax cuts in next week’s budget.