Working Papers

2011 04

Fed Glasnost: Australia’s Media Shouldn’t Settle for Less

If it’s good enough for Ben Bernanke, it’s good enough for Glenn Stevens:

Next Wednesday, Federal Reserve Chairman Ben Bernanke will do something no Fed chief has done before: Stand before a room full of journalists after officials conclude a policy meeting and answer questions about the central bank’s decisions…

Fed officials have been preparing carefully, according to people familiar with the process. Mr. Bernanke spent a recent weekend watching videos of European Central Bank President Jean-Claude Trichet and Bank of England chief Mervyn King, parrying reporters’ questions at their regular press conferences.

In February, on the sidelines of a meeting of financial officials in Paris, Mr. Bernanke quizzed Mr. Trichet and other European central bankers on how they manage their press conferences. He’ll do dress rehearsals, with staffers peppering him with questions, as the briefing nears.

Mr. Bernanke’s staff, meanwhile, has spent weeks scripting the mechanics of how the press conference will work.

He will hold his briefing in a big top-floor conference room at the Fed’s Martin building, opposite the central bank’s main cafeteria, where Mr. Bernanke can sometimes be found wandering, tray in hand, to chat with staffers…

In the past month alone, 16 different Fed policy makers have given more than 40 formal addresses, in addition to television, newspaper and newswire interviews. They espouse different views, not only on when to reverse the Fed’s easy-money policies, but how.

As I noted in this op-ed, post-Board meeting and post-CPI press conferences by the RBA Governor would change for the better the media dynamics around inflation and interest rates in Australia.

posted on 21 April 2011 by skirchner in Economics, Monetary Policy

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Italian-French Food Fight: How to Regulate FDI

A couple of US lawyers note the global trend towards invoking bogus strategic and national interest considerations to support political intervention in cross-border acquisitions. They suggest the following principles for regulating politically-sensitive transactions:

First, the review process should encourage investment and be tailored to apply to transactions implicating true national security interests. Screening for other reasons, such as a “national interest” standard should require an exceptionally high standard for intervention. To support this principle, reviews should be led by a responsible agency able to assign appropriate weight to the interests of open investment while also fully protecting against national security risks. The review process should be protected from political interference…

Also, the review mechanism should provide as much certainty as possible to investors…

Third, the government agencies conducting the review should be accountable.

Australia’s regime for regulating FDI fails on all three counts.

posted on 21 April 2011 by skirchner in Economics, Foreign Investment

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Symposium on Fiscal Stimulus

Agenda has published a symposium on fiscal stimulus, including papers by Sinclair Davidson, Tony Makin and Ross Guest, Creina Day and Nigel Stapledon. The papers can be downloaded for free.

posted on 19 April 2011 by skirchner in Economics, Fiscal Policy

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Wayne Swan at Home and Abroad

Wayne Swan before the G20 summit in South Korea:

“As we go forward we have to ensure that we don’t see a return to protectionism in new guises,” Mr. Swan said, citing the G-20’s success in staving off protectionist measures in the past two years as one of the global gathering’s “great achievements.”

Wayne Swan before federal cabinet:

Sources confirmed yesterday that Trade Minister Craig Emerson won approval for the shift with the backing of Ms Gillard, but only after her deputy, Wayne Swan, attacked the policy as lacking a political constituency. The sources said that, although the Treasurer, who has a long record of advocacy for trade liberalisation, did not attack the principles of the policy, he questioned the political wisdom of proceeding with the change at a time when the government was already fighting for reform on a range of other fronts, including the carbon tax.

posted on 15 April 2011 by skirchner in Economics, Free Trade & Protectionism

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What Caused the Housing Boom of the 2000s?

Not monetary policy.

posted on 14 April 2011 by skirchner in Economics, House Prices, Monetary Policy

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Budget Needs Micro Not Macro Focus

I have an op-ed in The Australian arguing that federal budget debates need a stronger micro rather than macro focus:

A good indicator of the macroeconomic importance of the budget is the reaction of financial markets on budget night. More often than not, the market reaction is minimal, highlighting the irrelevance of the change in the budget balance to economic growth and macro variables such as interest rates.

The real economic significance of the budget is its microeconomic implications: how tax and expenditure policies influence incentives to work, save and invest. Tax and spending policies should be evaluated based on the incentives they create, for better or worse.

As if to prove my point, Shadow Treasurer Joe Hockey has an op-ed on the same page arguing that the budget should be judged solely on the basis of the surplus.

The Centre for Independent Studies has also released my Policy Monograph Why Does Government Grow?

Economic Papers has published the papers from the symposium on Monetary and Fiscal Policy Interactions: How to Improve Policy Outcomes held at the 2010 Conference of Economists. My contribution can be found here.

posted on 13 April 2011 by skirchner in Economics, Financial Markets, Fiscal Policy

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A Failure of Political Leadership

I have an op-ed in the Straits Times that discusses Australia’s regulation of foreign direct investment in light of the Treasurer’s rejection of the SGX-ASX merger:

the Treasurer’s sweeping powers and the open-ended nature of Australia’s ‘national interest’ test are a standing invitation for politicians to pre-empt and second-guess commercial outcomes. The Foreign Acquisitions and Takeovers Act is a lightning rod for political intervention in the market for ownership and control of Australian equity capital.

The Act adds nothing useful to the regulation of business investment in Australia. It allows government to infringe the property rights of the owners of Australian equity capital, who are denied the opportunity to sell to the highest bidder and thereby realise the full value of their equity. That in turns reduces the amount of capital available for re-investment in Australia by the sellers of these assets. The Treasurer’s opposition to this and other deals devalues Australia’s stock of equity capital.

posted on 12 April 2011 by skirchner in Economics, Foreign Investment, Politics

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Peter Ruehl, RIP

A great loss. Possibly the only reason many people read the AFR. A favourite Ruehl line (from the early 1990s):

Telecom is communism without the tanks.

Thanks for all the laughs Pete.

posted on 12 April 2011 by skirchner in Media

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ASX-SGX RIP: Wayne Swan’s ‘No-Brainer’

Treasurer Wayne Swan’s rejection of the SGX-ASX merger is given an explicitly protectionist rationale:

“Becoming a junior partner to smaller regional exchange through this deal would risk us losing many of our financial sector jobs,” he told media.

Former Treasurer Peter Costello resorted to similar protectionist arguments in boasting about his role in frustrating the globalisation of Australian business:

The head office generates the corporate, financial, legal and insurance services and the highly skilled jobs that come with them.

The regulation of foreign direct investment in Australia is now effectively an arm of domestic industry and employment policy. Swan has received advice on the matter from the RBA and ASIC, but it remains to be seen how much of this advice is publicly released and how much stays a state secret. No doubt The Australian will try and FoI all of it. The journalists at The Australian are the only ones who understand that this is principally a rule of law issue. The commercial merits and implications of the proposed transaction are a secondary consideration.

posted on 08 April 2011 by skirchner in Economics, Foreign Investment, Rule of Law

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John Galt Played by a Raincoat

P J O’Rourke reviews Atlas Shrugged, the movie, Part 1:

I will not pan “Atlas Shrugged.” I don’t have the guts.  If you associate with Randians—and I do—saying anything critical about Ayn Rand is almost as scary as saying anything critical toAyn Rand.  What’s more, given how protective Randians are of Rand, I’m not sure she’s dead.

Then there is the audacity of bringing “Atlas Shrugged” to the screen at all. Rand devotees, starting with Rand herself, have been attempting it for 40 years…  trying to make a movie of “Atlas Shrugged” is like trying to make a movie of “The Wealth of Nations.” But Adam Smith had the good sense to leave us with no plot, characters or melodramatic clashes of will so that we wouldn’t be tempted to try.

posted on 07 April 2011 by skirchner in Rand

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Dear Urban Cyclists: Go Play in Traffic

P J O’Rourke on the evil of cities congested by bikes and bike lanes:

The bicycle is a parody of a wheeled vehicle—a donkey cart without the cart, where you do the work of the donkey.

posted on 02 April 2011 by skirchner in Culture & Society

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