Game of Mates

“This is the story of how Australia became one of the most unequal societies in the Western world while merely a generation ago it was one of the most equal. It is the story of how groups of ‘Mates’ have come to dominate our corporate and political sectors, and managed to rob us, the Australian majority, of over half our wealth.”

So begins a just released book by one of my favourite economists Cameron Murray, written with another Queenslander Paul Frijters.

Panama papers background

Economist Dr Michael Hudson describes how the money laundering and tax avoidance practices revealed by the Mossack Fonseca documents have been a reality ever since the oil and mining industries ably assisted by the US State Department created Panama in the early 1900’s specifically for that purpose.

Why are we so shocked?

Read the full transcript or watch the 17 minute interview HERE.

FBT hysteria

Hysteria from interest groups whenever governments announce plans to trim handouts usually indicates an absence of suitable contra arguments. Government plans to change the fringe benefits tax treatment of motor vehicles is a case in point.

How dare the government contemplate reducing allowable claims for motor vehicle expenses to amounts actually incurred in earning assessable income?

It’s reminiscent of the outrage that accompanied the curtailing of entertainment expenses, which critics said would destroy the restaurant industry. Before the changes, a little imagination combined with few scruples made it possible to categorise many social engagements as deductible entertainment events when they were really just mutually agreed taxpayer-funded piss-ups.

Austerity pitfalls and alternatives

Austerity measures are very much part of economic policy discussions around the world, more so in Euro land but also in the US as part of the recent so called fiscal cliff stand-off.

The recent uncovering of some shoddy research by two prominent Harvard economists, Reinhart and Rogoff used to justify austerity measure has also reverberated around the economics blogsphere.

Costello's privatisation propaganda

Peter Costello’s Queensland Commission of Audit inquiry is recommending large scale privatisation of public assets especially electricity and port assets.

Something similar in Tasmania would not surprise as the ideologues in the Liberal Party ponder the possibility of majority government.

Cameron Murray who posts as Rumplestatskin on the macrobusiness.com site has a short discussion of the issues and a few interesting comments follow.
 

If the exercise was genuine we would see some public discussion about the merits of public debt and the financial benefits to the State from privatisation.

Would you decide to sell your business simply because you had debt, even if that business was profitable and had solid future prospects? No. The best thing is to keep the debt and the business, as the returns from the equity in the business outweigh the cost of debt.

By definition the price the government would receive for any asset sales is a price that reflects a market level of return on equity, which would surely be higher than the rate of interest on the debt that is being repaid. Thus, by definition the government is in a financially better position to own the assets.

And in Comments
 

All you are doing as a State is selling assets to pay debts when there is no reason to do so, and the net public financial position will be worse for it. Imagine that the government raises $10 billion from all these asset sales. If the private sector thinks these assets are worth $10 billion, they probably expect an annual return in the order of $800 million. The cost to government from $10 billion in debt is probably about $600 million. So they are making the budget position worse by $200 million per year by privatising.

Read the blog Costello propaganda covers QLD asset sales 

The astonishing ineptitude of the policy elites.

Excruciating details of how the Gillard government completely failed to discharge their fiduciary duty to the Australian people by securing a higher ‘rental’ fee for our mineral resources are revealed by David Llewellyn-Smith who writes as Houses and Holes on the macrobusiness.com site  HERE

An interesting quick read about the horrendous outcomes which ensue when politicians put politics way ahead of sensible public policy.

 

The alternative is probably worse. Houses and Holes critiques the latest offering from the Opposition  at Abbott's Recession Risk. The last sentence says it all:

"If this speech captures the state of the nation then we are a sausage stuffed with risk, broken ideology, dated growth hopes and empty promises"

What have we done to deserve this?

Voodoo economics

Consultants are often willing to write reports to support floundering arguments. The forest industry's commissioning a report comparing the assistance it receives with other industries is a case in point.

At first I thought it (see Brucey hits back for forestry) was written as a spoof.

Or maybe similar to the recent Sunday Tasmanian Op Ed piece that was riddled with errors from the very first paragraph, designed as an educational exercise, encouraging students to spot the incorrect facts, identify the non sequiturs and the sophist techniques with a view to honing their skills.

GFC: an accounting parable

 

Economics has been squeezed out of most business studies courses and as a consequence recent graduates have little understanding of macroeconomic events. The following is the first draft of a paper which attempts to explain credit formation, derivative products and the ensuing GFC, from an accounting perspective, presented to  business studies students. Whilst a simple model beloved by economists is used, the major point of is to interpret what happened from an accounting perspective.