At Melbourne airport last night the Qantas jets looked resplendent with their red flying kangaroo and the “Spirit of Australia” logos. I chuckled to myself about the sheer audacity of an airline that continues to promote itself as if it is our “national carrier” yet is systematically trying to undermine aspects of our culture that we value highly. It is dangerous territory to try to define a national identity. But in Australia we continually emphasise fairness as a hallmark of our national aspiration. Yet, reality is often different to our romantic perceptions and imagery. This blog is an extended version of an Op Ed I wrote for the Fairfax media today on the Qantas dispute, which has gained some attention abroad and been the topic of choice in Australia over the last week. The reality is that the gung-ho union-hating management of the airline are now engaged in a death battle with the union movement and aim to destroy working conditions once and for all and turn the airline into a cheap, low quality outfit principally flying out of Asia while still trading on the fact that we consider it to be (as a historical artifact) an Australian icon. The only way forward for Qantas is for the Australian government to nationalise it and get it flying in the national interest.
All the economic news at present is bad. Eurostat released its latest labour force data which shows that the Euro area unemployment rate has risen to 10.2 per cent in September 2011 (0.1 rise over the year) which shows how persistent the crisis is in that region and that is is slowly getting worse. The OECD has released a Special G20 Briefing Note which declares the world economic outlook to be gloomy and decisive action is needed although their policy recommendations will make things gloomier. A major financial company (MF Global) has gone bankrupt, partly as a result of their bond market exposure in Europe (haircuts?) and most disturbingly, the ILO has just released a – G20 Briefing – which was co-published by the OECD and predicts a “massive jobs shortfall among G20 members by next year” if the current slow-down in the world economy continues. There is a major demand (spending) shortfall in the advanced economies and only one sector that can do something about it – the public sector. But politicians are being pressured to spend less. I cannot understand how we have been so caught up in an ideology that caused the problem in the first place and is now being seen as the solution despite all evidence to the contrary.
The only question I have been toying with today apart from all the other ones is whether it was the big bazooka or not. The Melbourne Age article (October 28, 2011) – Euro summit fires ‘bazooka’ at debt monster – lead me to believe that the big one had come out, but then the Financial Times article (October 28, 2011) – Merkel’s mantra works without ‘big bazooka’ – suggested the bazooka was left in the rack. Perhaps the bazooka was brought into action but the big bazooka was left at home. That conclusion would reconcile things nicely. It is very confusing though isn’t it. About as confusing as trying to work out what the EMU leaders might define as leadership. The way I understand it the only bazooka that the EMU has at their disposal refused to play ball and stayed at home in Frankfurt. The result – no matter what the political spin is and no matter how much the governments pledge to put into the EFSF or claim they can get from the Chinese the situation remains – they are recursing back to insolvency. None of the member governments can ultimately stump up the euros when Italy, then France or any other member state requires bailing out. In the end, they will be picked off one by one. I guess they did bring out some sort of bazooka – but just aimed it at themselves.
I am currently quite interested in the formation of consumer expectations after being asked by a major financial institution to consider constructing a new series for them. So in developing the project I have been enmeshed in technical detail the last week or so. I am also interested in the way different polls are interpreted. In the last few days two major polls in the US have been released. They are broadly in agreement but there are some interesting differences. The other interesting aspect of the polls is that they provide further evidence against the way the mainstream of my profession thinks about the economy. They reveal that individuals are not likely to behave as Ricardian agents. The mainstream theorist claim that individuals will spend once governments cut deficits and politicians have used this assertion to justify imposing (or suggesting) harsh fiscal austerity. The reality is very different as these polls suggest.
Economists have a strange way of writing up briefing documents. There is an advanced capacity to dehumanise economic advice and ignore the most important economic and social problems (unemployment and poverty) in favour of promoting non-issues (like public debt ratios). It reminds me sometimes of how the Nazis who were brutal in the extreme in the execution of their ideology sat around getting portraits of themselves taken with their loving families etc. The training of economists creates an advanced state of separation from human issues and an absence of empathy. Such is the case in a October 21, 2011 document – Greece: Debt Sustainability Analysis – which is labelled STRICTLY CONFIDENTIAL by its authors and was intended as input to the upcoming meeting of the Eurozone leaders – which is in fact the EU/ECB/IMF – aka and hereafter referred to as the “Troika”. As I read the document – in all its luridly obscene detail – I wondered what if economists were personally liable for their advice? The jails would be full of bankrupted economists. I am sure that the Troika economists would plead “only following orders” but then we have heard that before too.
Last weekend, on the eve of the G-20 meeting in Paris over the weekend, the Australian Treasurer was talking tough and giving ultimatums to our Northern friends – telling them that the “time for half measures is over. The time for action is here. So people will be looking for a comprehensive plan on October 23”. Of-course, in the Communiqué of Finance Ministers and Central Bank Governors of the G20 from the Paris meeting you don’t get any sense of urgency. Not once do they mention the word “unemployment”. The problem is that the world leaders remain in denial and still want us to believe that you can have “growth-friendly” cuts in spending. To increase spending you do not cut it.
Imagine that the state I live in NSW was for want of a better association Ireland. Imagine Victoria was Greece (a good association because Melbourne is the second largest Greek-speaking city in the world). Imagine Queensland was Spain (both enjoy considerable sun). Imagine South Australia was Portugal (both regions have world-renowned wine making industries). Imagine Tasmania is Italy (both are southern regions in the respective hemispheres). Western Australia can stay as WA although it will not be long before we can add another association (Belgium, France, Estonia?). Anyway, let’s imagine that NSW was Ireland for a moment.
As the Occupy Wall Street movement grows and is spreading to other cities in the US and other cities around the World, my profession is “feverishly” trying to discover the “financial sector” to plug into their New Keynesian models. The global financial crisis caught them out badly. Now they are fixing that “deficiency” up and we will all be better informed again once the boffins do their work. That is what the Bank of International Settlements is trying to tell us anyway. As usual, the BIS is part of the problem rather than being part of the solution. The OWS movement is a recognition of that and anything the mainstream macroeconomists dish up will only inflame the resistance further. It is becoming clear that more people daily are saying “we will not pay for your crisis”.
Sometimes good things come out of bad – not often but sometimes.Yesterday was an example. I merrily set off for my bit over an hour flight from Newcastle to Melbourne with meetings organised in the late afternoon. Weather fine and warm. Upon approaching Melbourne airport we were informed that there were severe storms and after circling for an hour were diverted to Canberra – half-way back to Newcastle to refuel. After an hour doing we renewed our attempt to land in Melbourne and about 45 minutes later we succeeded. Phone calls made meetings rescheduled no problems. Except the airport was in chaos and we were stranded for 3 hours on the tarmac waiting for a gate. So 8 hours after leaving Newcastle – about 21:30 we leave the plane very frustrated and tired. See ABC News report. During the extended “flight” I read a detective novel. So what is good about that? Answer: being stuck in the plane I didn’t have the opportunity to read the WSJ, the FT, IMF papers, World Bank reports – in fact, I managed to avoid reading any financial or economic material. I ate dinner at around midnight – relaxed! But I lie. I did actually read the French financial paper La Tribune which carried the story – Les détails du plan secret allemand pour sauver la Grèce – which translates to “the details of a secret German plan to save Greece”. The headline grabbed me before sleep. As the zzzz’s started to overtake me I concluded that the Eurozone will be one less nation soon – there was once a country named Greece.
I am back in the land of semi-austerity and the sun is shining warmly. That is one of the advantages of living in Australia. We have mindless politicians like everywhere else but at least one can luxuriate near the beach in the sun. Let me just say at the outset that I am not against forecasting. I do it myself almost everyday and acknowledge that it is an art rather than a science – in other words forecast errors are par for the course. But a problem arises when ideology drives the forecasting process and that the forecasts are then used to perpetuate that ideology via policy development. If the underlying model of the economy that is reflective of that ideology is indelibly wrong then the policies advocated may damage the economy rather than improve it. The forecast errors will also be a sign that the underlying theory is deficient. That is exactly what occurs when the IMF produces its World Economic Outlook. If you trace the WEO forecasts for the last several years you will see how inaccurate they have been. But that hasn’t stopped the IMF from demanding fiscal austerity which has worsened the crisis. They continue to strut the world stage – bullying and claiming authority. The participating governments should terminate the IMFs tenure immediately by writing to the IMF saying that the first act of fiscal consolidation is to terminate their funding. The organisation serves no useful purpose.