Judith Sloan, who is Honorary Professorial Fellow at the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne and who has a Master of Arts with First Class Honours in economics from the University of Melbourne and a Master of Science in economics from the London School of Economics penned an article in The Australian today making four criticisms of my analysis of tobacco consumption, which appeared here https://thekouk.com/blog/the-australian-s-claim-on-tobacco-go-up-in-smoke.html#.U56tQsa26f0
My reply to each of those four items is below:
The evidence continues to flood in that the carbon price is weaving its magic in exactly the way it was intended. Greenhouse gas emissions in Australia are falling and it has driven a surge in energy production from renewable sources. There is no question in these two trends.
Now there more good news with indisputable proof that household consumption of energy is falling as consumers respond to price signals and knowledge about the benefits of energy conservation.
According to the national accounts, the volume of electricity, gas and other fuel ("energy") consumed by households peaked in the December quarter 2010. In the most recent data for the March quarter 2014, the volume of energy consumed by the household sector is 4.4 per cent lower than in the December 2010 peak. It's a recession in energy consumption!
It is staggering the slowdown in the Australian economy that is unfolding before our eyes.
I was slow to realise this, but the recent run of news has now converted me to interest rates on hold with a renewed bias to cut and I am now bearish on the Australian dollar. Indeed, a couple of low inflation numbers, a faltering GDP growth rate through to the September quarter and a touch more downside on commodity prices will likely see the RBA cut interest rates.
Here is what I am now seeing. In the last month or two, some slightly disconcerting signs have emerged about the pace of economic growth with a number of key economic indicators stalling or indeed, reversing.
It was obvious that 2014 kicked off on a strong note, a point confirmed in the recent national accounts that confirmed annual GDP growth at an above trend 3.5 per cent. I judged this to be the start of a break higher in trend growth and that as a result the RBA would need to hike rates. Thankfully they didn't do that because it seems there is a real risk GDP growth will slow in the next little while.
Last night, Australian time, US Treasury Secretary Jack Lew gave a speech where he openly welcomed the fact that the US economic growth momentum was "gaining traction". It was an optimistic outlook for the US which is only now genuinely emerging from the Great Recession of 2007-2009 which was brought on by a collapse in banking, insurance and the housing market.
In looking at the challenges ahead Lew noted, in comments oozing decency and empathy, that for the many people who were unemployed and those whose wages have stagnated, "this hardly feels like a recovery".
"The ultimate test for all of us will be how inclusive tomorrow's economy becomes and how widely our economic gains flow," he said. "The crisis we face today is the need to make sure the economy is expanding fast enough to support a growing middle class."
At about the same time Lew was discussing these issues of a stronger economy and fairness and equity, Australian Treasurer Joe Hockey delivered a speech which could not have been more at odds with Jack Lew's themes. Indeed, Mr Hockey's speech could have been penned by the US Tea Party fringe given its assault on equity and the contempt he showed for the less well off in society.
This morning's headline from the Australian Financial Review, no less, sums it up. "Joe Hockey slams welfare state".
When Prime Minister Tony Abbott meets with US President Barack Obama and senior officials from the US administration, the economy is likely to be front and centre of their discussions.
With this being the case, Mr Abbott has a wonderful chance to show off just how wonderful Australian economic conditions have been, how adroitly economic policy has been implemented in the last few years and how that is showing up in an economic expansion and fiscal settings that people in the US could only dream about.
Recent data confirm the Australian economy into its 23rd year of unbroken economic growth. This is in stark contrast to the US which endured recessions in 2001 and of course in the period from 2007 to 2009. "Australian's have forgotten how to spell 'recession'", Mr Abbott could quip, such is our economic success. The fiscal stimulus measures taken in during the global economic crisis, Mr Abbott could highlight, were a critical factor stopping Australia diving into a nasty recession with hundreds of thousands of jobs saved, new jobs created and financial stability maintained during these troubled times.
The Australian is at it again. It is running another fact-less story with the express intent of undermining a key policy of the previous Labor government and what is disconcerting this time, is that it is pushing the line of the tobacco industry.
Today there is a Page One story by Christian Kerr which makes the sensational claim that "Labor's nanny state push to kill off the country's addiction to cigarettes with plain packaging has backfired, with new sales figures showing tobacco consumption growing during the first full year of the new laws".
The "exclusive" story based on "new data obtained by The Australian" claims that "tobacco sales volumes increased by 59 million 'sticks' ... last year". The source of this shock finding is "industry monitor" InfoView which is "backed up by retailers, consumer marketers and the industry". Only Philip Morris and the Australasian Associates of Convenience Stores are cited.
Fortunately, the story is wrong.
The increase in the minimum wage has sparked the usual hand-wringing about Australia being a high wage country. Those demoaning the modest 3 per cent increase in the minimum wage and wage levels more generally, suggest wage rates should be lower.
Here is a look at some minimum wage levels in other countries. I for one would never want Australia to aspire for lower wages and view the high income levels in Australia as a sign of our massive prosperity and now 23 years without a recession.
Here we go - average hourly wages rates, US$.
South Korea US$4.63
So Australian wages are high, which is a great thing. We should hope wages here stay high as it is a sign of our economic strength and prosperity.
Source: World Bank
The March quarter national accounts confirmed the economy accelerating to an above trend growth pace in the first quarter of 2014. GDP rising 3.5 per cent is a sign of the robustness of the economy in the past six months in particular (annualised GDP in last two quarters was 4.0 per cent) and it is clear that, in normal circumstances, the RBA would be looking to normalise (hike) interest rates from the current record low 2.5 per cent.
Things are not normal.
Almost half of the 3.5 per cent GDP growth in the past year has been due to China buying the raw materials that are rolling off conveyor belts 24 hours a day, 7 days a week.
The European Central Bank contemplating negative interest rates as one of its policy tools to kick start the moribund Eurozone economies.
I've had a number of questions about the concept of negative interest rates and thought it best if I reproduce an article I wrote for Business Spectator in 2012 on the topic.
The full story is below.
This article first appeared on The Guardian website on 28 May 2014: https://www.theguardian.com/commentisfree/2014/may/28/will-abbotts-economic-negativity-become-a-self-fulfilling-prophesy
Will Abbott's economic negativity become a self-fulfilling prophecy?
Some two weeks after the budget and more than eight months after being sworn in to office, the Abbott government continues to trash talk the economy, seemingly unaware of the damage it is inflicting on consumer sentiment and business conditions.
While unrelenting negativity on the economy and budget was an election-winning strategy from opposition, it is a self-defeating tactic for a government. People want the government to govern, not to tell them how bad things are, even if they are and certainly when they are not.