Aust set an example to world? Are you kidding. We are setting an example, how a devotion to an ideal allows a nation to dig its own grave.

Now what is the US and EU doing? The exact opposite to what this author suggests.

Now I know the situation is complicated, as both sides have their strengths and weaknesses, but I want the CIS or IPA to show me how their ideas will actually help Aust achieve a better production-consumption balance without decimating the social fabric of this nation.

I expect I will be always waiting, because the centre-right is just as naïve as the centre-left in claiming to know the answers.

That is why the Coalition will only partly listen to the ideas of the iPA and CIS because reality is much more complicated.

I agree with Chris Lewis's comment. The author doesn't understand much about trade or economics. For a start sea trade burns a most noxious fuel and this cause a substantial number of deaths per year. It puts more sulphur dioxide into the atmosphere each year than all cars.

I repeat below what I posted on another discussion today.

Towards the end of WW2 Chifley and his cabinet decided that infrastructure and productive industries needed to expand to provide employment for returning servicemen and for the refugees likely to arrive from a devestated Europe.

The Snowy Scheme was started as was other major infrastructure such as power plants and the expansion of communications. Factory development was encouraged for the production of cars, trucks, trains and other rolling stock, and whitegoods etc. Apart from a blip under Menzies in the early sisties Australia enjoyed a properous 25 years.

Metal production and industrial production is essential for security purposes yet we have lost most of the industries which provide the base load for the steel industry (white goods, fabrication, rolling stock, vehicles). The USA was so successful in WW2 because of its stock of machine tools and factories. Some Ford Motor plants were converted to producing one Liberator (a four engine bomber) every hour. Japan and Germany could not compete!

Once the steel industry has no base load we will be back to being boundary riders on the squatter's fences, a situation I first described at AC45 at the Australian Administrative Staff College in 1972. Then, I was arguing that adequate tariffs were needed to ensure continuation of essential industries. What has changed?

Now too many people are employed in such non-industries as banking and superannuation.

The problems of the future cannot be solved by having a pile of funds. They can only be solved by having a sustainable current account position, which includes have other assets, much like Norway does, as replacements for the natural assets now being exported, and by having the infrastructure and the industries that can efficiently supply the goods and essential services necessary at that future time.

The previous two posts sum up the obvious...this fellow is typical of the bureaucrats and academics who live on the assumption that their modelling data (imaginary though it is) will give a factual result just because they have an end result that they have matched the data to achieve...too bad that real life doesn't work that way!

With our primary industries being choked to death with quality controls and government imposed charges that none of our competitor nations contend with...his arguments on 'competitiveness' fail miserably. Our manufacturing industries have dropped from some of the most productive and sound in the world, to it's lowest level (other than Greece!) in the developed world...nothing to be proud of achieving there either.

Take a look at the rate of suicide in rural Australia...hang your collective heads in shame that our primary industries are being gutted by greedy political agenda and a banking system more corrupt than our halls of power are proving to be. (refer Storm fiasco, etc.

Meg1

The usual definition of primary industry includes mining as well as manufacturing, and the mining sector is doing very well at the moment. Indeed, one of the problems the agricultural industry faces in the high dollar that the mining boom has created.

I know that our farmers are doing it tough at the moment, but how on earth could a return to the "good old days" of protectionism be good for them? Not only would it add to input costs (inputs like fertiliser and tractors would be more expensive) but it would also reduce demand for their products if other countries protect their industries against our exports.

The only argument in favour of anti-dumping rules is to protect against the international equivalent of predatory pricing, where a foreign producer sells below costs in order to destroy domestic competition with the intention of increasing prices once the competition is eliminated. That is extremely rare for internationally traded goods and services, because in a competitive market someone else will replace the displaced supplier.

Otherwise, if foreign governments or businesses want to subsidise Australian consumers, why should we stop them?

Foyle has given important details of the disaster brought about by the accession of the Hawke-Keating Government in 1983. As trade-led poliical relationships with slave countries like Indonesia and later China were progressively strengthened, industry after industry joined the initially slow but accelerating conveyor belt to the drain through free trade agreements which set up the slave countries as competitors with our community in a race to the most debased industrial and social and environmental conditions in the world.

Treasurer Paul Keating brought about an explosion of privatisation/foreignisation of key public assets aqnd ceding oif controls over imports which hasn't ceased, gutting Australia's manufacturing industry (including cars). Global big business were so overjoyed they called Keating "the world's greatest treasurer". Praise from the architects of the 2007 Global Financial Heist!

Only by reversing the Keating/Howard/Rudd/Gillard/Swan "reforms" can Australia start to restore hard-won Australian wages, conditions, environmental protection, public welfare and (most important of all) national economic and political independence.

[The sorry story of Australia’s long decline in control of its imports is detailed, without evaluative comment, in a major report b y Melbourne University Professor Peter Lloyd which can be read at http://www.economics.unimelb.edu.au/downloads/wpapers-07/1023.pdf]

Rhian, this suggestion that other govts subsidise their own production which benefits us for buying cheap products needs to be elaborated upon in regard to demonstrating how our own production-consumption balance improves against the huge advantages now being gained by corrupt and mercantile nations.

I ask the CIS and IPA and anyone else to demonstrate this.

I think it is time that all thinktanks lift their game, not just centre-left.

Emperor Julian, I cant open link.

Chris

What do you mean by “production-consumption balance”? Our current account balance on goods and services for the last year was positive, indicating the value of what we produce is more than the value of what we consume. I think it could be higher given where we’re at in the business cycle and our terms of trade, but it’s a marked turnaround from the deficits we recorded for most of the past 40 years.

We are better off with cheap imports because it means we can buy more stuff for a given number of dollars – simple as that. Trade is good because it means we concentrate on producing what we’re relatively goods at and swap it for stuff other people are relatively good at producing. It’s a win-win.

According to the ABS, the price of motor vehicles in Australia has fallen by 14.3 per cent in the last 10 years, while other prices increased by about 30%. Who benefits from this? Anyone who drives a car, and any business that uses them.

Australia has sustained real GDP growth and real income growth in recent years when other developed economies have faltered. I think much of the reason for this is the resilience and flexibility that resulted from the economic reforms you bemoan, coupled with our good fortune in being able to produce the stuff China needs.

Sorry, the Peter Lloyd link is
http://www.economics.unimelb.edu.au/downloads/wpapers-07/1023.pdf

In my post, the closing bracket ( ] ) added itself to the URL.

Apt comment I read on another list while exploring Google for stuff about the so-called "Centre for Independent Studies":

'It's a fair assumption that any country that puts "Democratic" in its name isn't.
'The same can be said of any "think tank" that puts "Independent" in its name.'

A look at the Centre for Independent Studies' website confirms what is already obvious from Stephen Kirchner's article. The website is at http://www.cis.org.au/
(Final full stop punctuation carefully omitted !)

EmperorJulian
Lloyd’s paper does indeed trace the decline in Australia’s tariffs in recent years, but it does not support your conclusion that this has been a bad thing for economic welfare. He does, however, remind us of the “beggar thy neighbour” protectionism of the early 1930s, which pretty much every economic historian agrees made the great depression deeper and more prolonged.
http://www.newyorkfed.org/research/staff_reports/sr172.pdf

Chris
This paper presents a nice simple overview of the welfare economics showing that tariffs generally reduce societal welfare in small open economies – basically the gains to producers are less than the loss to consumers
http://www.joycemeng.com/writings/trade.pdf

There are some exceptions where a country’s share of world supply/demand is so large it affects the world price. This is unlikely to apply to any Australian imports, as our market is small, but could conceivably apply to some of our exports that represent a significant proportion of global supply (coal, gold, iron ore). In these cases, the theoretical welfare maximising behaviour is a small export tax, but I don’t think any government is game for one of those!

Thanks Emperor Julian and Rhian for links.

What I mean from consumption-production balance is twofold a)when balance becomes distorted by so many cheap imported goods that our productive capacity is decimated by the elimination/erosion of key industries. For example, cheap food products may lower costs to consumers, but may further erode production in rural and regional areas.

b)when we do not produce enough wealth from goods to pay for our increasing reliance on services. I spoke to someone in real estate the other day, and he agreed that people need productive jobs to build wealth to actually buy them.

Chris

Service jobs are no more or less inherently “productive” than goods-producing ones – or do you regard Mozart as less productive then the person who made his piano? Hong Kong used to be mainly a goods-producing economy and is now mainly service based. Its living standards have rocketed in the process.

If other countries can produce goods much more cheaply than us, why should we waste our resources producing them too? We are better off finding more productive uses for our people, infrastructure and investment dollars.

Cheap food imports are unlikely to destroy our farming base, as we are among the most efficient in the world at many types of farming. What imports (or export opportunities) may do, however, is prompt a shift from one type of farming (or manufacturing) to another. We produce less pig meat than we used to, perhaps because of import competition from more efficient producers, but lamb and beef production is at record highs (and much of this is exported). For all the problems our farmers face (and they are many), protection is not the answer and in fact will make things worse. The high exchange rate, climate change, drought and changing water policies, falling land values, changes to bank policies, bungled interventions like the live cattle export ban, changes in consumer tastes, rising input costs – all these have far more impact on the agricultural sector.

I don’t deny that the structural adjustment that competition can engender is painful and difficult, and believe government has a role to assist people to make economic transitions. But economic restructuring is also absolutely essential to the process of raising living standards through economic growth. Competition does not destroy our economic resources, it prompts us to use them differently.

Rhian, free trade has its strengths, but I am yet to be convinced we are all okay based on recent trends.

As for live trade of animals, what a joke it even exists.

Do you suggest we also rely on gambling because that is a growth industry? Is gambling equal to growing crops and helping sustain a rural community?

I speak to people in my area (Albury Wodonga), and I am yet to meet one that shares the optimism of free traders.

Truth is few countries adhere to free trade, and only a few are more willing to follow the concept more religiously

Now being aware of the authors employment, I read one of his earlier articles on the failure of the USA politicians and the GFC.
That article glossed over the real story of the GFC. It appeared to be typical blame shifting by the right.

The principal problem that led to the GFC was excess private debt and deregulation of the financial market. The debt, particularly on credit cards, was often necessary to create demand as governments strove for budgets surpluses. Banks sold CDOs to people looking for triple A rated (falsely) investments whereas others were sold mortgages they could not afford. Fraud was the principal problem and it was fraud by those in the financial industry.

Most people do not realise that for any economy with a current account running in balance, then any government surplus results in a loss of private financial wealth. That does not mean that asset values cannot increase but any such increase in such a circumstance will be due to the reduction of bank prudential sense. Such build up of private debt leads to a later slow down as people get into trouble and decide that they need to get their personal balance sheets under control.

The author needs to read William K Black's blogs at New Economic Perspectives (NEP)which often deal with control fraud and Gresham's Law. Black's book, "The Best way to Rob a Bank is to Own One" would be of help.

The other contributors to NEP are also well worth following. They are well across the European problems. The sooner the Europeans abandon austerity, and probably for some the common currency, the better.

In my last comment I referred the author, and others, to New Economic Perspectives and the efforts of William K. Black on that site and to his book. Overnight, Black posted a new article pointing out the problems of the game theories of some of the Nobel Prize economists who assume control fraud out of their models. Black's latest article is at;
http://neweconomicperspectives.org/2013/06/roger-myerson-updated-paean-to-plutocrats-as-capitalisms-greatest-treasure.html#more-5571

Plutocrats are the enemy of the general public and their own shareholders.

The following is an extract from the article,
"For a CEO (which is the critical position – a vital analytical point that the game theorists almost always miss) the “project” is not the relevant issue. The CEO will usually be judged on the firm’s reported performance. Even “project” performance, however, is often a credence good where the defects may be hidden or terrible results may be portrayed as spectacularly successful results by accounting fraud. The firm’s success is frequently not dependent on the CEO’s “effort.” It is far more dependent on the CEO’s integrity and ability to select good managers and then delegate to those managers.

The statement in the second bullet point is even more dubious and dangerous – particularly the phrase that Myerson chose to emphasize. Note how much Myerson is conceding. There is a danger that the CEO will deliberately “abuse” his “power.” The reason he would do so is frightening – he can gain at the expense of the firm by abusing his power. But the situation is worse that it appears on its face, for Myerson’s emphasis springs from his assertion that it is rational for CEOs to cheat the shareholders whenever the CEO would profit from that betrayal of his fiduciary duties".

Peter Drucker once reported a finding that all large companies that are successful in the long term are run buy a committee of near equals each with little to fear by speaking their minds. I suggest that each should be well educated in their fiduciary duties and be subject to severe penalties for any breaches.

Three reasons for manufacturing collapse:

1. Population growth has robbed money from research, development and higher education, so innovation has been stifled . For example, 3 billion has been slashed from universities and 3 billion has been found for new roads.

2. Tariffs have been removed

3. The car design mix has not met changing needs.

Best,

Ralph

Chris

I didn’t say we are “all ok”. I said we are, on average, better off under free trade policies than protectionism.

Of course there are services some people regard as not especially productive, or are even destructive. The same is true of some goods (pornographic magazines, nose hair clippers, heroin, alcohol). My point is that there is nothing intrinsic to services that makes them less valuable than goods.

Gambling has made an enormous difference to the lives of some Native Americans, whose sovereignty over tribal lands allows them to build and operate casinos that State laws would otherwise forbid. This creates income, jobs and infrastructure and sustains communities. I’m not suggesting we can or should do the same thing here, but gambling (or mining, or the arts, or tourism) can be a productive economic activity that sustains a community.

http://en.wikipedia.org/wiki/Native_American_gaming

The ethical arguments against live animal trade are worth exploring. My point was that very few of the farming sector’s problems can be solved by protectionism.

You surely know that “most people I speak to” is not a persuasive argument.

It’s true that few countries adhere to pure free trade. Occasionally there are good reasons not to, but more often than not it’s the result of lobbying for economic privileges by special interest groups. Unfortunately, rent-seeking is as old as government. That doesn’t make it right.

Rhian, I generally share your sentiment.

For myself, who is still struggling to understand how best a country can achieve the right balance to both promote freer trade but not be decimated by trends, I just am looking for some empirical analysis that best demonstrates Aust's right approach.

At present, I look at the data and see worrying trends, and no one (including the IPA and CIS) appear capable of tempering my fears.

I realise that what some of the centre-right is correct, such a labour markets and so on, but I think national success is much more complex than just getting govt our of the way.

Chris

Which data are you looking at? There are some worrying trends, but there are also some very positive ones, especially in Australia's overall economic performance compared to other developed economies.

And I'm not sure the negative ones have anything to do with "free trade", still less dumping, which is the subject of this article.

Can you be more specific?

home affordability, Aust's declining agricultural performance in global terms, Aust's high level of household debt, Aust's declining manufacturing performance, Australia's increasing reliance upon an authoritarian and corrupt nation for its wellbeing.

You all seem, together with the majority of economists, to be ignoring
the underlying fundamental of the influence of energy.

ALL recessions have, except for the dot.com recession, been preceded
by a spike in oil prices.
Peak crude oil according to the IEA occurred in 2006.
This caused a climb in fuel prices peaking in July 2008.

The extra cost of fuel and the resulting higher cost of food placed
very many mortgage holders into a situation of buying petrol, food or
paying the mortgage.

That triggered off those CDOs etc a few months later and the rest is history.

It is not all about money, it is about energy and no growth occurs
if you cannot afford the energy because it is increasing expensive to extract.

yes, Bazz Aust's carefree attitude about energy is another one as many more people struggle to meet rising fuel and food costs while we seem happy just to sell as much as possible overseas.

I am sure there are many more issues which Aust seems to have a care free attitude about, relying on the growth of china and so on.

Like I said before, I want the IPA and CIS to demonstrate how Aust will benefit long term relying on more of the same recent trends. It worked for a while, but we will see what we have left in coming years

Rhian, watching Business program on ABC today. One guest optimistic and pointed to three services jobs being created for every one manufacturing job lost in recent times, and health being an important example.

But I want to know how health can keep expanding given the need to pay for it. Remember budget pressures now, and health big portion of spending.

Chris, most people think that a growth in service jobs is an increase
in the economy. It is not, it is an overhead on the economy.

About the only place where service jobs help is in the repair of
machines, appliances etc etc as they save the cost of buying a new one.

Generally services is like taking in other peoples washing.
It produces nothing but is a cost on the economy.

Chris
You are right that financing health services will be an increasing challenge with the aging population, especially as the boomer generation has high expectations of both lifestyle and services in retirement. I’m not sure what this has to do with free trade or anti-dumping provisions, though.

Bazz
Services are just as economically important as production jobs.

Even within production industries like mining and manufacturing, and even agriculture, an increasing proportion of jobs is in service functions, like research, marketing, IT, logistics, etc. Operators standing on a factory floor actually making stuff are an increasingly rare breed. And having once done that type of work, I cheer this development

Rhian, functions like research are not services but the early part of
production. Marketing is a service as it does not produce anything.
It is an overhead, as necessary as it might be.
Some of IT would be overhead and some would be production.

I wonder how they define services ?

Rhian, under free trade, we benefited from mining, while our other industries are in decline in relative terms. At the moment, thre is little growth from domestic sector.

Now illusion of reliance on mining is complicated, where do you think enough wealth will be created in production terms to pay for decent level of services.

One cannot really exist with other.

I see a lot of pain ahead. I see our society becoming more unequal, and I don't see either party offering much to meet our challenges, albeit as hard as solutions may be.

Certainly I don't see the CIS or IPA offering much, but the usual cut govt and get govt out of the way.

Will it work, like it did under the Howard govt? It wll be interesting now mining boom appears to have peaked. Now treasury looks to the housing sector for a domestic recovery.

The joke of Aust governance now goes on and on as limitations on debt growth by households emerges

Further on fuel etc, there is an interesting talk on Radio National
on the problem of fuel.

http://www.abc.net.au/radionational/programs/bigideas/australia27s-oil-vunerability/4565726

Well worth a listen.

Chris and Bazz

Here are a couple of good articles that debunk the “manufacturing fallacy” – the idea that manufacturing is somehow more important than other industries, or should be given more government support. Services aren’t the icing on a cake of production industries. They are part of the cake.

By a leading UK business economist:
http://www.ft.com/intl/cms/s/0/a525e6dc-2cd9-11e2-9211-00144feabdc0.html#axzz2WRFh4rFT

By one of the world’s most prominent trade economists:
http://www.project-syndicate.org/commentary/the-manufacturing-fallacy

Chris
Most other industries declined relative to mining because mining grew so strongly. “Relative” decline is a mathematical inevitability when one sector is doing exceptionally well. In fact, in the past 5 years the sectors that have grown fastest are health care & social assistance (5.3%pa) and professional, scientific & technical services (5.7%pa). Mining grew at 4.8% pa and agriculture by 3.3%pa (trend data, real GVA, March 2008-March 2013).
http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5206.0Mar%202013?OpenDocument (Table 7)

I also see challenges ahead, especially as the terms of trade start to fall. But some of the pressures on other industries might start to ease as the exchange rate falls with lower commodity prices.

The hard economic data (growth, employment, unemployment, inflation, real wages, consumption, investment, exports) still overwhelmingly show Australia’s economy outperforming virtually any other developed economy. The ball is in your court to show how protectionism would have made things even better

Rhian, thanks for links, will look at them later.

I have always thought trade issues are tricky, albeit I am a supporter for trade (on the record).

I am not calling for protectionism, as in old days. The west has indeed been a leader in promoting trade, which has had benefits (and some consequences).

What I am suggesting is that Western countries were always going to struggle under freer trade, so how best can we remain supporters while ensuring we do enough not to dig our won graves.

As I have suggested before, we should spend less on welfare, and help aid our productive sectors rather than merely accepting their demise because of not having some supposed comparative advantage. This does not been decimating the social fabric, hut tinkering with a number o policy settings to achieve a better productive-consumption balance.

I agree answers are tough, and some pain probably needs to be inflicted, but I cant see how accepting more of the same is going to help Aust long term.

It is indeed a subject which requires much effort, by all.

I am not necessarily saying manufacturing is everything, albeit that a minority of nations dominate this source which represents two-thirds of global merchandise exports.

I could think of many ways to ensure that Aust has a high level of GDP per person without changing much. We could rely more and more on Chinese rich immigration and tourism, and make our universities even more reliant on international students, but what about the many ordinary Austs wishing to have a reasonable job, university or housing opportunity. As it stands, these basic expectations are getting harder by the day.

I only see more pain ahead for a growing minority, but I hope I am wrong.

yes, more protectionism will have side effects. All policy settings have unique policy advantages and consequences.

But what of agriculture where we are supposed to have a comparative advantage. By the day, our trade balance worsens, and many farmers have high levels of debt which would not offset any rise in land value over years as paying bills the bottom line.

do we simply allow foreigners or large corporations to buy all assets and keep industry going at their choosing.

Does Europe sit back and let China increase its share there of solar panels over 80% so that mercantile nation has total control of production? Sure there are pros and cons, but letting things just happen is just bs.

It is all about balance, that is why the Coalition will only partially listen to centre-right thinktanks who have their own particular bias which is only partially in touch with how the real world operates.

life and economics has a whole lot of players with different motivations and actions working at the same time, and smart govt policy (including by the West) should take all these variables into account, not simply follow an ideal because it sounds right.

Chris

Foreign students don’t displace local ones. They benefit our colleges and universities by contributing to fixed costs and increasing demand, allowing a wider range of subjects to be offered.

We have a comparative advantage in agriculture. We do not have a trade deficit, and we most certainly don’t have a deficit in agricultural goods:

http://ec.europa.eu/agriculture/analysis/tradepol/trade/trade-balances-main-players_en.pdf

As an exporting industry, agriculture is hurt by protectionism. Our protectionism raises input costs. Other countries’ protectionism makes it harder to export. As discussed above, I acknowledge that Australia’s farmers face serious problems. Lack of “protection” is not one of them.

You ask: “do we simply allow foreigners or large corporations to buy all assets and keep industry going at their choosing.” No we don’t. FIRB will not approve significant foreign investments if they are not in Australia’s national interest. But foreign investment is absolutely in Australia’s interest, because we do not as a country save enough to cover the cost of the investment we need. Australian business owners will behave exactly the same as foreign ones when it comes to running businesses – try to run them as profitably as possible, and close or sell them if they cannot be made profitable. We have no more power over domestic business owners than foreign ones (if anything, a little less), and no capacity to abolish the laws of business.

The EU’s decision to slap tariffs on imported solar panels will benefit German producers but hurt consumers across the EU, as well as related industries. However, in this case there may be a genuine case of predatory pricing rather than backdoor protectionism.

I agree that “life and economics has a whole lot of players with different motivations and actions working at the same time”. But not that “smart govt policy (including by the West) should take all these variables into account”. I know from bitter experience that government policy, however smart and well-intentioned, cannot possibly take all those different motivations and actions into account. That’s why, with some clear and well-known exceptions, markets are far better than government planners at optimising economic welfare

but rhian, the EU's agricultural export-import ratio has remained similar since 2000 whereas Australia's has worsened greatly.