Friday, December 12, 2008

Market Meltdown Worse Than 1930

It’s a sobering piece of news to hear that the financial market collapse for the calendar year is set to go down in history as the worst ever. That’s right, the fall in Australian Sharemarket values has now exceeded the decline in 1930 as the Great Depression took hold. With only two and bit weeks until the end of the year, it’s pretty safe to say that any rally in the market big enough to prevent that result would be nothing short of a miracle. So the obvious question is: does this mean that we can expect the coming economic slowdown to also reach record proportions?

First, all of the warm and fuzzy advice we have been getting about Australia being better placed than most is actually true. The Federal Government is in a sound budgetary position, the big banks are solid despite having to write off some bad investments, and the balance of trade is actually improving because of the lower dollar and stronger exports. While we are not immune from the effects of the Global Financial Crisis, we are in a position to cope with it far better than most.

Second, while many people are working hard to reassure us all about the strength of the Australian economy, it is also important that they are working even harder to boost the economy in practical ways. One of the reasons that the Great Depression lasted as long as it did in the United States was a reluctance to intervene until Franklin Rooseveldt turned the tide with the package of nation building policies he called the “New Deal”. Barack Obama won’t be sworn in until next month, but all the indications are that he is keenly aware of the lessons of history.

While it remains to be seen just exactly what the new United States President will do after he takes office next year, here in Australia our government is already acting to intervene in the real economy with its economic stimulus package and now the new nation building plan. Other governments around the world also seem to be far more aware of the need for intervention now than was the case during the Great Depression. The same is also true for the various central banks, all of which have been aggressively cutting interest rates to help encourage economic activity.

Having said that, there are no guarantees. As unemployment rises, consumer spending will fall, dragging the economy into a negative spiral. That’s why employment is the key, and why the infrastructure programs being rolled out by the government are important not just to build capacity but to create jobs. If it works, any recession will be relatively mild. Of course, if the global crisis is sufficiently damaging it may turn out that the measures taken by the Australian government are not enough to head off recession. Even so, in a worst case scenario, the efforts of the Government and the Reserve Bank to ameliorate the effects should mean that the downturn will not be as severe as the Great Depression was.

Either way, there’s no escaping we are in for a bumpy ride.

Thursday, December 11, 2008

Sitting On The Fence Gives You Splinters

The debate over proposed carbon pollution emissions targets is becoming hotter than global warming itself. While Federal Climate Change Minister Penny Wong is representing Australia at talks in Poznan in Poland, pressure is mounting from both directions. Although Australia has not yet announced its targets for 2020, it is believed that a 25% reduction on 1990 levels is on the table subject to broader international agreement. In the absence of such agreement it appears that the Government is likely to commit to a much less ambitious target of 5% to 15%.

Both the Opposition and some sectors of Industry are pushing for any targets to be subject to international agreement, as well as calling for the planned 2010 starting date for an Emissions Trading Scheme to be delayed. And they’re not alone. Unions are also concerned about the impact on jobs if industries such as mining and construction are made to bear the brunt of emissions trading without a genuine international agreement.

The heat of the debate is such that Paul Howes of the Australian Workers Union has described Australia’s banks as hypocritical for their stand in favour of deep emissions cuts. He says that the banks, having participated in the global “stuff-up” of our financial system, are now seeking to create new sources of revenue from carbon trading markets. He’s right about that. Bankers and Lawyers have the most to gain out of any carbon trading scheme, whereas heavy industries such as mining have the most to lose.

Of course, the government is maintaining its line on the 2010 start date, insisting that business needs certainty. And while the government is yet to announce its emissions targets, that is also a decision which has almost certainly already been made and is unlikely to change. But while the Government is holding back that announcement until next Monday, the door is kept ever so slightly open for a last minute change of heart.

It has been reported that heavy pressure is being placed on Kevin Rudd by the likes of British Prime Minister Gordon Brown and former U.S. Vice President Al Gore to commit to the more ambitious 25% reduction target. The suggestion is that for Australia to make that commitment now at Poznan will help to propel those negotiations to a successful conclusion. It’s all part of the negotiating process, but it does seem a little paradoxical that Kevin Rudd and Labor were elected amidst a blast of environmentalist fervor, ratifying the Kyoto protocol within minutes of being sworn in, only to go soft now.

More to the point, if the threat of Climate change is real, and the vast consensus now is that it is, then compromise positions are simply not going to cut the mustard. Why bother with a 5% or 15% target when all the expert opinion says that only targets of 25% or more have any hope of achieving the desired environmental outcome? Either the world must commit to a serious effort to achieve change, or there is no real point.

Settling for a compromise position will result in half measures which dramatically disrupt the economy for no real benefit, at the same time as failing to adequately address the climate change problem. But if the view is taken that the climate change problem is not so serious that it demands such drastic action, then the whole thing would seem to be a waste of time. Surely it is time to go hard, or go home.

The only thing you are likely to get from sitting on the fence is the risk of being skewered up the backside by a paling.

Wednesday, December 10, 2008

Bill Of Rights, Or Villains' Charter?

As the world observes the 60th anniversary of the United Nations Universal Declaration On Human Rights, Australians are considering the question of whether or not we need a Bill of Rights. In some respects, it is odd that we don’t already have one, given the central role Australia played in the creation of the Declaration in 1948. And yet, many of the freedoms that we take for granted are not actually guaranteed in our own laws. Instead, our freedom depends upon the democratic process which has thus far actually worked rather well.

Some critics of the idea of enacting a Bill of Rights suggest that rather than safeguarding freedom, a Bill of Rights might conceivably limit those freedoms. The suggestion is that anything not specifically guaranteed in the Bill could come to be viewed as not a right at all. There is also the concern that a Bill of Rights could also be misused to protect criminals and terrorists from efforts to end their activities. Indeed, there is actually some frustration with this very effect in the United Kingdom where a Bill of Rights was introduced ten years ago.

In Britain it has been referred to as a “villains’ charter”, and the man who introduced the Bill, former Home Secretary Jack Straw, has said that he has become greatly frustrated with the interpretation of the Courts. This highlights the concern that many people have that a Bill of Rights both constrains the power of the Parliament to make laws, and increases the power of the Judiciary in ruling on those laws.

Of course, many of those effects can be seen as the result of defects in the drafting of the Bill in the first place. A bill which guarantees a range of vaguely defined rights without also requiring recognition of responsibilities and observance of the law is a recipe for creating problems. But that doesn’t mean those problems are inherent in the idea of a Bill of Rights. Proponents of such a Bill in Australia insist that it should be drawn up in such a way that remains subject to the sovereignty of the parliament.

There is also the question of just what rights ought to be enshrined in a Bill of Rights. The obvious fundamentals are the rights to freedom of movement, freedom of association and freedom of expression. Also on the list of obvious choices are the right to a fair trial, the right to religious freedom, and the right to political freedom. There might be others, such as the right to profit from free enterprise, and such things will no doubt arise in the debate.

But the real challenge would be to define those rights in such a way as to not limit them, and at the same time, not provide shelter to the very people, such as terrorists and criminals, who would seek to attack our rights, or bring us harm.

Tuesday, December 9, 2008

What Do They Know That We Don’t?

Spend! Spend! Spend! It sounds like the sale of a lifetime, rather than serious advice to the community from our political leaders. And yet that is exactly the catchcry from Kevin Rudd and Wayne Swan. You can be sure that the message is not just for the recipients of this month’s welfare bonuses too. While the aged pensioners, the parents and the carers will all no doubt find useful purposes for their money, the Government is hellbent on telling us all that blowing the cash is in the national interest to help prop up the economy. If others in the community also get inspired by the call to spend and open up their purses too, well then so much the better for the economy.

Or is it?

Malcolm Turnbull has pointed out that economic boost is like a “sugar hit” and can be expected to have no lasting benefit. National Party Senator Barnaby Joyce is on the same wavelength, suggesting that the government ministers sound like “spruikers at a bargain basement sale”. Senator Joyce says that instead of long term employment on infrastructure projects we will have imported plasma TVs. Both Mr. Turnbull and Senator Joyce make an important point.

It’s not wrong to give a helping hand to struggling pensioners in an economic downturn, but to urge them to “spend, spend, spend,” isn’t of itself going to save the economy. Like any one-off windfall, once it is spent it is gone. What happens next week, next month, next year? Even if the whole $8.7 billion dollars worth of bonus money gets spent back into the economy, where is the long term investment in jobs? And equally important, where is the long term solution for pensioners existing below the poverty line?

There are many indicators pointing to the possibility of the Global Financial Crisis becoming worse next year, not better. The government has openly stated that another economic stimulus package may be necessary next year. But how much more can be splashed up against the wall of consumer spending without greater investment in productive infrastructure? Is pouring money into the economy likely to be enough without also reforming the structure of the economy so that it is more suited to the new financial landscape?

As for Kevin Rudd and Wayne Swan urging all and sundry to “Spend! Spend! Spend!”, well it has a sound of hysteria about it. Really, as far as the welfare bonuses are concerned, people would have been likely to spend that money anyway. That’s just the way people behave. The government has maintained that the Australian economy is sound and is forecast to continue growing, but to hear the spruikers bellowing at the top of their lungs has me wonder just how desperate they must be. Is the outlook for Australian economy really so bad that we have to rely on the pensioners spending every last cent of their bonuses to keep afloat?

What does the government know that the rest of us don’t?

Monday, December 8, 2008

Gun Tragedy Opens Debate

The tragic death of fourteen year old Josef Cruickshank has propelled the gun control issue back into the spotlight once again. At this time it is not clear exactly what happened. What we do know is that Josef was staying at his friend’s house for a sleep over. He was shot in the face and neck, and ambulance officers were unable to save him. His friend, who is also 14 years old, has been arrested. On legal advice, the friend has not made a statement to police, who have subsequently laid a charge of murder, and he has been released on bail. What we don’t know are such things as the circumstances around the event, or who owns the shotgun involved. It has been reported that the mother of the victim considers it an accident and is pleading with police to drop the charges.

While the police are yet to complete their investigation and the matter will be dealt with by the court, there are a number of questions which immediately spring to mind. How is it that a pair of fourteen year old boys came to be handling a shot gun? Were they under any supervision? And most importantly, who is the adult responsible for the security and safe storage of the gun?

Guns are a fact of life. In rural areas in particular they are just a part of everyday existence. Many people have perfectly valid reasons to own guns, and most are perfectly responsible. But it is events such as this which highlight the reasons for having sensible and practical laws and regulations for how we handle guns, and for their safe storage. Those laws exist to prevent exactly the kind of tragedy which has now unfolded. For that reason, it is only right to ask if those laws and regulations are adequate and appropriate. It’s also reasonable to ask if any of those laws have been ignored. Whether or not that is the case will presumably emerge in due course, but either way, these are questions that need to be asked.

It is often claimed by the gun lobby that guns don’t kill people, people kill people. Aside from the glib tone associated with that claim, it is actually the perfect argument why some people should not be allowed to have a gun. That in turn means that adequate gun control measures are essential for responsible gun ownership. And even in the case of an accidental shooting, surely it must be obvious even to idiots that without the gun, the accident would not have happened.