Tag Archives: economics

Inequality


Peter Saunders from the Centre for Independent Studies releases not just one but two Issue Analysis papers on the St Vincent paper on inequality. For those interested, the papers can be found here and here.

This is a little late perhaps as it all took place last month but I’ve only just got around to putting it up for the sake of completeness seeing as I was writing about it a bit when St Vincent’s first published their paper.

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Puzzle


Two takes on the noun of the day.

take one.

This morning, I picked up a cryptic crossword from the Age for the first time in a year or so and surprised myself by getting more than half of the clues out. Either the Age in line with its ongoing pursuit of ever lower browed readers have been watering down its cryptic crossword difficulty levels or my crossword skills inspite of zero practice have somehow increased in that time perhaps due to my newish very nerdy habit of pulling out my pda and looking up every single word I dont know (often in company and in mid conversation).

take two.

At work in an all day long sales meeting (which sucks in every way possible considering most of the people in that room were the ever lower browed readers pursued by the Age and owned by the Herald Sun), in a desperate attempt to stave off boredom and despair I puzzled over the means of turning the traditional sale process into a board game and making a lot of money using the very same sales process to move lots and lots of units into the unsuspecting marketplace.

The game I came up which I named SELL THAT THING! resembles monopoly to a degree.

Every player is allocated a starting number of products. Rolling dice moves each player’s counter around the board. There are three types of opportunity squares: sales, investment and marketing.

Landing on sales square means that that the player gets to sell a product to a customer of choice. If the customer is owned by another player, a risk like battle of the dice ensues depending on the number of value points the competing products have. If the customer is not “owned” by another player, the value point of the product has to be over the customer’s resistance points. Every customer generates a set amount of revenue each year which the player can use at the investment and marketing squares.

For example, product value points can be increased through investment and marketing. As well, credibality points (which lower customer resistance points) can be increased in similar ways. Investments include R&D, user forums, CRM investment, sales staff development, gun sales executive recruitment, product development (very expensive). Marketing includes market research, advertising, marketing campaigns, brand development.

Even though players would be able to do cool things like poach each other gun sales executives and buy out a failing player’s products and there would be wild cards like Government Panel Contract, Sudden Commodification, Falling Value Proposition, Total Product Recall, Complete Failure to Deliver, I stopped at that point because I realised that playing SELL THAT THING! would only be marginally less painful than being in an all day sales meeting.

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Poverty


Ok, so the measurement and definition of poverty is a huge controversial field with scholars, politicians and social welfare groups disagreeing with each other about it.

The current measurement of poverty is the Henderson Poverty Line (HPL) which estimated the poverty line in 1973 for a family of two adults, two dependent children, one full-time wage earner on the basic wage including child benefits (or family allowances). Since then, that original dollar figure has been updated quarterly by the Melbourne Institute of Applied Economic and Social Research (MIESR) based on the movement of average weekly earnings over that time. The current weekly earnings figure for a family of four with one working person is $598 per week (including housing costs) disposable income which translates into $31,096 per year after tax. Assuming 20% is taken off by tax, this becomes $37,315 annual income (including family allowance). For a single person, this becomes $318.48 per week, $16,560.96 per year after tax, assuming 10% tax, $18,217.056.

I dont have a family so have no idea if that’s too little or too much but $318 a week after tax as the single person poverty line! Crickey! Luxury, that’s wot it is. Ok, I am notoriously tight but crikey!

The latest MIESR update can be found here.

So, it’s a relative measure based on data collected in 1979 then reasonably simple adjusted over that time. No investigation of underlying societal and economic changes. Interestingly enough, if the poverty line was adjusted based on CPI (which is more an absolute figure for purchasing power), the CPI adjusted poverty line would be on average 36% less than the current HPL measure.

I did find two interesting papers both by Prof Peter Saunders (director of the Social Policy Research Centre), one printed by the SPRC itself here and the other not quite as interesting or controversial making but still valuable one published by the ATO here.

The first is interesting in that he adjust the proportion of people below the HPL based on income, expenditure and hardship parameters (for example: Cannot afford a week’s holiday away from home each year). I wont bother repeating his findings here except using his adjusted values except that he finds the not surprising result of proportion of people below the poverty line falling remarkably. Whether his resulting figures are more accurate or not is hard to say.

The other thing of interest is that he finds the proportion of people below the poverty line more than halfed when he used half-median income as a new poverty line.

Anyway, it seems pretty clear to me that the HPL is inaccurate and needs to be modified. Poor and distrusted measurements result in the poverty question being swept under the rug with government finding it easy to say that people have become richer and opposition waving inflated poverty statisitcs. The question as to why, even though everyone seems to have criticised the HPL as a crap measure, a better measurement has not been created is mystifying to me.

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Divinations


The AFR today has an article where three leading American economists provide their forecasts on the world economy for the short to mid term. After much sacrificing of beasts, reading of entrails and casting of bones, our modern day diviners (selected so that neither of them quite agree with each other) have predicted three outcomes rephrased and annonated somewhat by me:

– a hard landing. In order to slow down its overheated economy, China will re-value its yuan upwards with one of the consequences being that it will buy less US treasury bonds. (currently, much of the US dollars that’s flowing into the Chinese economy is piped back into the US by the Chinese government purchasing US treasury bonds which the US government then uses to finance its spending habits. Why do the Chinese do this? So that the yuan can remain pegged to the dollar) Anyway, once this river of finance slows, there’ll be less credit floating around in the US and hence more competition for finance. The result is that interest rates will rise and all those bubbles (housing, assets, investment) in the US will deflate. And seeing as much of what happens in the US affects the rest of the world, the same will happen in Australia. The predicted timeframe is by the end of this year, so if you’re thinking of buying a house, wait till mid next year.

– a soft(ish) landing. The US government will realise it cant keep operating such a huge deficit and start increasing taxes in order to fund it. This will result in a slowing of the economy and growth in the US but as the US has a flexible economy, it should be able to wear the slowing without any massive corrections in its markets. (Flexible in the sense that it has a diversified economy with very little aritificial barriers for money to swoosh around so even though some portions will suffer, others will adjust and the overall result wont be too bad). The slowing US economy will probably result in less money flowing into China (as the Americans buy less of everything) and that may then slow the Chinese economy in a good way. Too bad for the rest of the world though, especially those moribund European economies. Australia will likely go the same way as its best buddy (hopefully).

– continual growth. There is no current account deficit in the US, markets are just investing in the US because currently it gives the best returns. So its best to think of the current account deficit as a capital account surplus. Eventually as China, the Asian and the some of the Europeans markets start generating good returns, capital investment will shift to them and the US capital account surplus will decrease. This will all happen in an orderly fashion. In other words, everything will just work out hunky doo if people would only stop intervening with the market (and stop scaring the Chinese with silly talk of overheating economies, asset bubbles and the social effects of too many rich people in a once communist state)

They all pretty much agree however that the biggest risk is that China and Asian banks which currently hold a lot of US dollars ($2 trillion) decide to get rid of some of those dollars.

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Expectations


In a developed country like Australia, the issue of what constitutes poverty must be linked to expectations. Alain De Botton wrote a book called Status Anxiety a year ago which promptly sold like hotcakes not only in your more niche cultural elite bookshops but also in general bookshops pretty much everywhere. I’ve not read the book, just reviews of it and I’ve browsed through it a couple of times. It seemed ok, I’ll probably read it if I find a copy of it a local library but I’m more interested in what it says about our society that it was so popular.

It strikes me as the Gini coefficient of our country increases and I dont doubt that it has and will continue to do so, so too will status anxiety about where we are on that widening bell curve of earnings. Physical poverty at the bottom 10 percentile may not exist (and it is my contention that it does not when measured against developing countries) but status anxiety must. The ironic thing about that is that status anxiety cuts right across all percentiles. Regardless of income, people appear to be relentlessly comparing themselves with others and finding that what they do have is never enough. In that respect, we are all poor. In the longer term, this means that as a species we are more likely to consume more and more natural resources.

I have, in my opinion, a well paid job and have some assets, so I am conscious that it can be heartless to say that poverty, in Australia, is a relative state of mind. But I firmly believe that complete freedom from financial worry can be achieved in a more healthy and sustainable way by decreasing expenditure as opposed to increasing income. Measurements which focus on income inequality when overall in real terms income in every percentile have been increasing concerns me greatly because I think that emphasis can only lead to greater status anxiety.

I believe that focus should be maintained where it belongs: are the lowest income earners of our society making enough to have a comfortable physical existence? Are the Lathamite ladders of oppurtunity in place and functioning? Are our health and education systems able to care for those who are unable to look after themselves? If so, then some overeducated sod who is working 100 hours a week for the pleasure of 150k a year is not my concern.

In the end, I am convinced that it is the duty of a mature and wealthy State to provide a level of safety net which fulfills the lowest tier of Maslow’s hierarchy of needs for all of its citizens, beyond that it is up to the individual.

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