Noisy little birds. They chew through the apples on my apple trees. But their pairing and concerns for each other are endearing. They witter away to each other as if discussing today’s letters to the editor. This chap was photographed in the Melbourne autumn on Kodak Ektachrome 100 film, 100mm lens.
There is a difference between the prevailing rates of interest in the money and credit markets and what can be loosely called the natural rate of interest. When the rates diverge, problems emerge.
The central bank in Australia (the RBA) conducts the management of monetary policy, independently of the Government of the day but to a stated aim of constraining inflation between 2% – 3%pa. It has just manipulated down market interest rates twice in two months. Prior to that, the official cash rate (the benchmark the RBA uses to influence all other rates) was held ‘at emergency low levels’ for 3 years. If the old rates were at emergency levels, then what are they now being lower still? The official cash rate is now 1%pa.Continue reading
There has been a lot of chatter in Australia this week about the cuts to income tax rates passed by Parliament. The cuts are phased in with immediate effect for lower income levels and deferred a number of years for the higher income levels.
While I’m in favour of income tax cuts, like anyone else who pays income tax, we ought to remember that the true tax burden is not represented by the rate of income tax, or any other tax, for that matter. The true tax burden is determined by the level of Government expenditure. The tax regime, the rates, the thresholds, the mix between consumption tax, income tax, royalties, stamp duties, corporate tax etc is the outcome of a political process that determines who will pay for the expenditure and in what time period they will pay. Cutting tax without cutting expenditure simply means someone else can pay for it, at some other time.
We are collectively better off when Government expenditure is cut first, and tax reductions can then follow. None of this is to deny the truism of the Laffer Curve.
I think quotas of any sort are inherently wrong and likely to be bad for corporate performance. In recent times, many of those in favour of quotas have shifted their claims from “quotas are necessary to treat under-represented groups fairly”, to “quotas are good for business performance.” It is not easy to prove or disprove such claims.
Conceptually, the skills needed to perform well in business are not held in exclusively in the domain of any particular group of people. Those skills are held by all different sorts of people. And plenty of people do not have the necessary skills. Consequently, the best corporate performance will emerge from the companies with the best collection of people with those skills, regardless of who they are or where they came from.
Adding a degree of empirical research to the debate, the authors of a study conducted in Norway and published last month (accessible here), considered corporate performance controlling for gender composition of the board. Among the conclusions was this:
“Analyzing the causal effects of the Norwegian gender-balancing quota, we find the quota significantly increases the share of women directors on the boards of treated firms. Further, we find the quota significantly adversely affects the performance of treated firms and firm risk is significantly reduced.”
That is, if the law imposes quotas on gender balance, gender balance will improve. (No surprises there.) Also, firm risk reduces. Finally, corporate performance is significantly adversely affected.
Corporate performance changes as a result of gender quotas. Lower performance and lower risk is not the same as improved performance with no increase in risk.
Investors want yield. Many will take on quite a degree of risk to earn it. But yield has become difficult to find over the last five to eight years and there is every prospect that it will remain elusive for the foreseeable future. Are we mired in a never-ending low yield out-look?
To a large extent, the low yield environment has been deliberately generated by central bank policy in most countries. Faced with the prospect of a recession after the the sub-prime financial crisis, including the collapse of some banks, US and UK central bank policy engineered a reduction in interest rates by creating cheap easy money (in effect, printing banknotes) as a matter of priority. On top of that, fiscal expenditure programmes were instituted in haste, a course of action followed in Australia to the ludicrous extent of the Government mailing $900 cheques to citizens (including dead ones, of course). The end result has been budget deterioration, increased public debt and, crucially, a distortion in the structure of interest rates in the market and the delay in cleaning out bad investment projects.Continue reading
Bob Hawke, former Australian Prime Minister, died today. Bob was a larrikin and a stalwart of the Australian Labor Party. His partnership in government during the 1980s with Treasurer Paul Keating was a genuine advantage for this country and set in place many reforms that added to our fortunes, for the nation as a whole.
Bob was a Labor PM unlike those before and after him. A Rhodes scholar, a firebrand, a union leader, a heavy drinker and guilty of certain other alleged character flaws not for me to air, he came to the leadership of the ALP at the exact time the election was called in February 1983. The election date itself was March 5, 1983 and the ALP with Bob at the helm, won. Malcolm Fraser’s prime ministerial career was over, the Liberal/Country Party coalition government was over and, amazingly, Labor was back in power federally only 8 years after the previous disastrous Labor government under Gough Whitlam had been thumped at the ballot box and kicked out in disgrace.
Bob was cut from a different cloth than was Gough. Bob was economically literate. He served his country very well.
Spain is following exactly the same pattern that all other western countries are going through. The political divide is no longer between left and right, the continuum that was formed in the French Revolution and has lasted over 200 years. The divide is now between insiders and outsiders. Insiders include all mainstream political parties, all government civil servants, the institutions of state, education and church, and big business. Centre right parties are being decimated everywhere, and rightly so. The outsiders are labelled far-right or populists or deplorables etc by the insiders. The outsiders confuse and scare the insiders. They are actually made up of people that have, under the old left/right divide, a range of political views. This is behind Trump, Brexit, gilet jaunes, Hungary, Italy, Alternative for Deutschland and now, the so-called far right extremist party in Spain. The story in Spain is not so much the socialist win, as that was expected, it is the weakness of it in the face of the rise of the ‘far-right extremists.’
It is interesting visiting corporate offices these days and comparing them to how they were like 20 years ago.
Many physical buildings were designed and built at least 20 years ago but are now occupied by today’s trends. This means, the building no longer suits the way corporations want to use building spaces, but the rational decision is to make do, rather than demolish and rebuild, as long as there is an economic life in the asset.
Grand entrance halls and foyers are now often empty. A single, lonely person may sit at the front desk. Visitor car parks have plenty of empty spaces. Sign-in books can remain on the same page for days. Meeting rooms clustered near the entrance foyer are empty. Continue reading
The Economist newspaper this week reported that the findings of an academic study of insects in a forest in Puerto Rico have “triggered alarm, almost panic.” The piece introduces the term “insectageddon” and ponders the chance of an “insect apocalypse.” The issue is that if the insect world is decimated, plant pollination would be too, the food chain would collapse and all animal life would disappear.
It’s always useful to have another looming global catastrophe theory, especially if 97% of scientists agree with it, in case the current looming global catastrophe theory turns out to be wrong.
There is an old joke about tourists in Ireland stopping a local in Dublin to ask for directions to Killarney. ‘Well,’ the local replied, ‘if I were going to Killarney, I wouldn’t be starting from here.’
At least those tourists stopped to ask. There has been little obvious evidence that the critics of the Australian superannuation system, and there are many, have stopped to ask themselves what is super’s purpose before criticising it and calling for change in policy. Super policy is easy to criticise when there is no articulated reason for its existence. This vacuum then results in an Alice in Wonderland response – the critic can criticise anything or everything because they make up their own idea of what super is for.Continue reading