Vital Signs: does monetary policy work any more?


Richard Holden, UNSW

In its quarterly statement on monetary policy, released today, the Reserve Bank of Australia declared its preparedness to “ease monetary policy further if needed”.

This suggests the bank still thinks monetary policy – in this case lowering interest rates to stimulate the economy – could help “support sustainable growth in the economy, full employment and the achievement of the medium-term inflation target”.

But in the wake of the bank last month lowering the official interest rate to a record low and the current somewhat sad state of the Australian economy, many commentators have speculated that monetary policy doesn’t work any more.




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Is that right?

There are a number of variants of the “monetary policy doesn’t work” argument. The most basic is that the Reserve Bank has this year cut rates from 1.50% to 0.75% without any improvement to the Australian economy.

This is a textbook example of one of the classic logic fallacies known as “post hoc ergo propter hoc” (from the Latin, meaning “after this, therefore because of this”). Put simply, it assumes the rate cuts have had no effect and doesn’t account for the possibility things might have been worse had there been no cuts.

Things might have been even worse. We’ll never know.

It also ignores what might have happened if the RBA had cut sooner. Again, we can’t know for sure. It is possible, though, to make an educated guess.

When to cut rates

Had the Reserve Bank acted, say, 18 months earlier to cut rates, it would have signalled that Gross Domestic Product (GDP) growth was indeed lower than desired, the sustainable rate of unemployment was more like 4.5% than 5%, and most importantly that it understood the need to act decisively.

That would have sent a powerful signal.

It would also have ameliorated the huge decline in housing credit that pushed down housing prices in Sydney and Melbourne by double digits. That, in turn, would have prevented some of the weakening in the balance sheets of the big four banks that has occurred (witness this annual general meeting season).

All of this would have pumped more liquidity into the economy and put households in a much stronger position, likely leading to stronger consumer spending than we have seen.

Bank pass through

One gripe both the Reserve Bank governor Philip Lowe and federal treasurer Josh Frydenberg have had with the banks is their failure to fully pass through the RBA cuts.




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It is true there is a problem with banks not being able to cut deposit rates below zero, and as a result having less scope to cut mortgage rates, which are majority funded from deposits.

But there are, of course, other ways monetary policy can work. The leading example is quantitative easing (QE). This is where the central bank pushes down long-term interest rates by buying bonds. At the same time this expands the money supply, thereby adding some upward inflationary pressure.

There is little reason to believe such measures won’t work.

The power of free money

Perhaps paradoxically, the closer interest rates get to zero the more powerful those rates may end up being.

To put it bluntly, if someone shoves a pile of money into your hand and asks almost nothing in return, you’re likely to use it. In fact, you would be pretty silly not to.

Suppose your mortgage rate really goes to zero – as has happened in Europe.

You might decide to redraw that and spend the money on a home renovation or some other productive purpose. Or you might decide to buy a more expensive house.

Such spending provides an economic boost. The effect is all the more pronounced if people expect interest rates to be low for a long period of time. Aggressive cutting coupled with quantitative easing – which lowers long-term rates – signal just that.

But not only monetary policy

Just because monetary policy still has some effect at near-zero rates doesn’t mean we should pin all of our economic hopes to it.

A near consensus of economists have argued repeatedly for the use of more aggressive fiscal policy – including more infrastructure spending and more tax cuts.




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Indeed, Philip Lowe has raised eyebrows by speaking so forthrightly on this issue. That doesn’t make him wrong, though.

There is little doubt the Reserve Bank should have acted much earlier to cut official interest rates. There is also a very good chance it will need to begin to use other measures such as quantitative easing in the relatively near future.

All of that says the Australian economy, like most advanced economies around the world, is in bad shape.

But it doesn’t mean monetary policy has completely run out of puff.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Want more jobs in Australia? Cut our ore exports and make more metals at home


Trucks taking iron ore from mines in Western Australia where it will probably be shipped overseas.
Shutterstock/Inc

Michael Lord, University of Melbourne

Australia could create tens of thousands of new jobs and generate many billions of dollars in export revenues if it turned more to manufacturing metals rather than exporting ore to other countries.

That’s a finding of our report, From Mining to Making, released by the Energy Transition Hub.

As international climate action accelerates, there is a need to produce goods without the carbon emissions. The report describes opportunities for Australia to use its exceptional wind and solar resources to make zero-emissions metals.




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Australia’s hidden opportunity to cut carbon emissions, and make money in the process


The need for metal

Demand for metals is set to grow, not least because of their importance in nearly all renewable energy technologies. Wind turbines are made from steel, copper and rarer metals such as cobalt and neodymium. Solar panels and batteries use metals including silicon, lithium, manganese, nickel and titanium.

As the global economy tries to reduce carbon emissions we must change the way metals are made. Metal production is energy intensive and accounts for around 9% of global greenhouse gas emissions. Herein lies Australia’s opportunity.

Australia is already a major source of the world’s metal. It is among the top three exporters of iron ore, bauxite, lithium, manganese and rare earth metals.

A small proportion of these metals are refined domestically, but most are shipped overseas in their raw mineral form. For example, we found Australia converts less than 1% of its iron ore into steel.

By exporting raw ores, Australia is selling non-renewable resources at the lowest point of the value chain. Processed metal is worth much more than ore.

Metal needs energy

Many metals are made through electrically-driven processes so we can reduce carbon emissions by switching to cheaper renewable electricity.

One example for this approach is Sun Metals, near Townsville in Queensland. The company built a 125MW solar farm to supply a third of the energy required by its zinc refinery. It is now considering adding wind power and battery storage.

Similar opportunities exist with the production of other metals such as manganese, copper, nickel and rare earths.

Another angle for Australia is to make specialised metal products with higher profit margins. Element 25, in Western Australia, plans to produce high-value manganese metal using an energy-efficient process developed with CSIRO. The company says a 90% renewable energy mix could lower production costs and help it compete with Chinese producers.

Renewable energy could even relieve Australia’s ailing aluminium industry. The owners of three of Australia’s existing aluminium smelters said they were “not sustainable” with current electricity prices. Could cheap wind and solar energy provide a lifeline?

The usual objection is that aluminium smelters need a steady power input, not variable solar and wind energy. But, new technologies enable more flexible operation, allowing smelters to react to market conditions, while relieving pressure on the grid during peaks in demand.

Steel production presents a different kind of problem. It uses so much coal that it accounts for 7% of global emissions. But new steel can be made without coal.

Many steelmakers around the world use an alternative process, called direct reduction, fuelled by natural gas. This technique reduces emissions by about 40% and can be modified to run on pure renewable hydrogen, enabling production of near-zero emissions steel.

At least five companies in Europe are actively pursuing hydrogen-based steel production as part of their efforts to eliminate emissions. So far there are no similar plans in Australia despite this country’s unrivalled wealth of iron ore and renewable resources.

The jobs boom

Zero-emissions metals could become a major export industry. Our report explores a scenario in which Australia could double the value of its iron and steel exports to A$150 billion by converting just 18% of currently mined iron ore into steel using renewable hydrogen.

This would be a welcome boost for the national balance of trade, counteracting any reduction in coal exports due to climate and energy policies among Australia’s trading partners.

Making this amount of zero-emissions steel requires a huge amount of renewable electricity – almost double the total electricity generated in Australia in 2018.

But this demand for renewable energy is part of the point – Australia can do this, most of our competitors cannot due to their greater energy demand relative to land suitable for generating renewable energy.

A successful zero emissions metal industry would bring many thousands of steady jobs, often in regional areas with higher unemployment. It could also support towns such as Portland, in Victoria, and Gladstone, in Queensland, where metal producers are already the chief employer.

The market for zero-emissions metals is likely to be enormous. Until recently, emissions embodied in materials have been neglected. But this is changing, as hundreds of the world’s largest companies commit to reducing the emissions of their supply chains.

For example, car makers Volkswagen and Toyota are aiming for zero-carbon production.

In September the World Green Building Council challenged the global construction sector to ensure all new buildings have net-zero embodied carbon by 2050. Such public commitments are a strong signal to manufacturers everywhere.

Make it happen

Zero-emissions metals could be one of Australia’s most significant new industries of the 21st century.




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To make it happen, our report recommends governments acknowledge this opportunity by creating a National Zero-Emissions Metals strategy, committing serious resources to ensure it succeeds. This strategy should identify and evaluate Australia’s best opportunities within the metals sector.

If we don’t do something then, as South Australian Senator Rex Patrick put it, we’ll just continue to “export rocks” and let others reap the benefits from developing technologies to process them.The Conversation

Michael Lord, Zero Carbon Researcher, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia’s drought relief package hits the political spot but misses the bigger point


Lin Crase, University of South Australia

There are two basic components to the Morrison government’s latest A$1 billion package response to the drought affecting large parts eastern Australia. One part involves extra subsidies to farmers and farm-related business. The other involves measures to create or upgrade infrastructure in rural areas.

Unfortunately, most funds will be misdirected and the response is unlikely to secure the long-term prosperity of regional and rural communities. This is a quick fix to a political problem, appealing to an important constituency. But it misses the point, again, about the emerging economics of drought.

Hitting the political target

The bulk of the A$1 billion package is allocated to a loan fund. The terms of the ten-year loans are more generous than what has been offered in the past. They are now interest-free for two years, with no requirement to start paying back the principal till the sixth year.

Farmers will be able to borrow up to A$2 million. In addition, loans of up to A$500,000 will also be available to small businesses in drought-affected towns.




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Because recipients are not having to pay the full cost, these loans are in practice a form of subsidy.

Subsidies are used by government to make more people undertake an activity than would otherwise be the case. In this case the government is offering a subsidy to keep farmers and small businesses owners doing what they’ve been doing, even though from an economic point of view this might not be very wise at all.

The question that should be asked is: “do we want more or fewer people to be involved in a farming activity that is vulnerable to drought?”

Most farming in Australia is completely reliant on rainfed crops and pastures. Rainfall is already highly variable. All the indicators from climate science is that rain will be even more unreliable in the future.




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In addition, the agricultural industries currently drought affected are not just at the whims of rainfall. These industries are constantly changing and being affected by new technologies and market forces.

For most agricultural produce the key market force is price. Sure, some farms and farmers can carve out niche markets, but most farm businesses depend on producing at lowest cost. Increasingly, the farms that survive in a highly competitive global environment do this by exploiting economies of scale. Big farms are thus more profitable than small ones in the good times (such as when it rains); and during the tough times (such as during drought) they have more resources and deeper reserves to ride it out.

Ultimately, this means successful farms are continually getting bigger and small farmers are getting squeezed out.




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The data also support the view that the farmers who survive and are simultaneously exposed to drought ultimately become even more profitable, because of what they learnt about managing in a difficult environment.

This is not to argue drought is a good thing for any farm, but it does raise a serious question about any government policy that effectively encourages more people to keep doing something when global and technological forces would point to it being unsustainable.

So what’s the point?

The second component of the Morrison government’s relief response involves directing about A$500 million from existing regional infrastructure funds into building roads and other things into affected communities.

While many will welcome this on top of the the extension of loans to small business in country towns, the policy detracts from the serious questions that confront rural and regional communities.

The economics of agriculture has flow-on effects to towns, but it would be wrong to think all are impacted in the same way.




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As a general rule, when farmers sell up, they tend to leave from the small communities first. The upshot is that small communities get smaller, older and poorer as those least mobile are left behind. These people also generally require more, not less, public support. Mid-size communities tend to level out, while continuing to age. Large regional centres tend to grow and prosper.

The point is that each community requires different things from government. Genuine public goods like roads, health services and education are desperately needed and undersupplied in many cases. Providing cash to a few select businesses and grading a gravel road in this situation belies the complexity of the long-term challenges and fails to address serious issues.

An elderly retiree in a rural town might well ask why their local road or bridge is only upgraded during a drought. Surely, government should focus on providing legitimate public goods for the long term, regardless of the weather.The Conversation

Lin Crase, Professor of Economics and Head of School, University of South Australia

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Government sets up concessional loan scheme for drought-hit small businesses



The business drought loans will be up to $500,000, and include a two-year interest free period.
AAP/Dan Peled

Michelle Grattan, University of Canberra

The government will provide concessional “drought loans” for small businesses dependent on agriculture, as well as improving the terms of loans under the existing scheme for farmers, in a package approved by cabinet on Wednesday.

Measures to be unveiled on Thursday also include hundred of millions of dollars of direct investment into communities.

The initiatives come after intense pressure on the Coalition to do more for those hit by one of the country’s worst-ever droughts, with Scott Morrison very sensitive to how the issue is playing not just in the regions but among metropolitan voters.

Costings were still being finalised late Wednesday but sources said the package was worth more than $500 million.

The business drought loans will be up to $500,000. They will include a two year interest free period and interest only payments for years three to five, with interest and principal repayments in years six to ten.

Those set to benefit would include harvesting and shearing contractors, carriers, stock and station agents, and businesses dealing in agricultural equipment and repairs.

Businesses not directly linked to the farming sector – such as the local hairdresser or newsagent – would not be eligible.

The loans will be made through the Regional Investment Corporation – a Commonwealth body – with a small business defined as one with 19 or fewer employees.

The loans will be available immediately and no legislation is needed.

The improved terms for farmers loans will be see up to two years interest free, interest only payments for years three to five, and interest and principal payments for years six to ten. The current arrangements are interest only for the first five years and principal and interest for the rest of the 10 year loan.

The former co-ordinator-general for drought, Stephen Day, told the government that concerns had been constantly raised with him about the survival of small businesses in areas in drought.

Morrison said these businesses had been forced to seek overdrafts or other finance.

“Rural communities can’t function without these small businesses – that’s why we’re stepping in to provide this extra support,” he said.

The government says its planned extra direct investment will flow into projects that boost local businesses and jobs.

Six more local government areas will be added to the Drought Communities Program, at a cost of $6 million, and another $122 million will be available for the 122 local councils which have already received support of $1 million each.

The program funds infrastructure and local activities. An extra $50 million discretionary fund will support additional councils when needed. But this will be after a review of the program early in the new year.

Some $200 million will be redirected from the Building Better Regions Fund to set up a Special Drought Round, providing up to $10 million per project in local government areas.

Supplementary payments will be made under the Roads to Recovery program for 128 local government areas in drought for upgrades and maintenance. This is a re-purposing of $138.9 million.

Drought minister David Littleproud said the federal package was not linked to any requirement for state funding, which would have carried the risk of the states not matching the money. But he called on state governments to provide some relief on rates and payroll tax.

“We’re going to cut the cheque and we’re going to get the money out, because that’s what these local economies need now. They need stimulation …. We’re not going to play politics, we’re going to get on with the job and deliver, and hopefully the states will complement us with things like rate relief and also payroll tax”.

Deputy Prime Minister Michael McCormack said: “This suite of measures go to the heart of what matters to these communities. From small businesses to primary producers, we are working with communities to take the pressure off one of the worst droughts in history.

“Not only is the government continuing to respond as the drought progresses, but we are working on measures to assist in the recovery when the rains come, which includes the government’s billion dollar investment in water infrastructure.”

Agriculture Minister Bridget McKenzie said: “I know our farmers and our communities are doing it really tough right now but despite the current drought Australian agriculture has a bright future”.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

India’s not joining the latest free-trade deal which limits Australia’s market access


Pat Ranald, University of Sydney

Australian prime minister Scott Morrison and other leaders involved in the Regional Comprehensive Economic Partnership (RCEP) announced late yesterday that 15 of the 16 countries have finalised the text, and are prepared to sign the trade deal in early 2020.

India is the only one not to join, a joint leaders’ statement saying the country had “significant outstanding issues”. Negotiations will continue in the hope it may join later.

The RCEP now involves Australia, New Zealand, China, Japan, South Korea and the 10 Association of Southeast Asian Nations (ASEAN) countries, covering 2.5 billion people.




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A lost Indian market, for now, and concerns about corporate power

India’s absence severely diminishes the market access Australia hoped to gain. Australia already has a free trade agreement with ASEAN, and has bilateral free trade agreements with all of the other countries.

India would have been the main area of additional market access for Australian agricultural and other exports.

RCEP negotiations have dragged on since 2012. Much attention has focused on India’s resistance to lower tariffs and emphasised the importance of concluding a major trade deal in the face of US president Donald Trump’s America-first protectionism.

But there is a hidden contentious agenda of non-tariff issues that has influenced India’s decision and could restrict future government regulation by giving more rights to global corporations.

These deserve more public discussion in Australia, and reflect the widely divergent levels of economic development of RECP countries.

A secret deal

As usual, the wording of the RECP deal is secret. The final text will not be revealed until after it is signed.

It’s a process widely criticised by both civil society groups and the Productivity Commission.

This secrecy favours corporate players, which have the most resources to lobby governments.

Leaked documents reveal the industrialised countries, including Japan, South Korea and Australia, have been pushing non-tariff rules that suit their major corporations, similar to those in the controversial Trans-Pacific Partnership (TPP).

These have been resisted by developing countries, which have more vulnerable populations, and wish to preserve regulatory space to develop local industries.

Concern over foreign investor rights

The contested proposals include foreign investor rights to bypass national courts and sue governments for millions of dollars in international tribunals if they can argue a change in law or policy will harm their investment. This is known as Investor-State Dispute Settlement or ISDS.




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Tobacco company Philip Morris used ISDS to sue our government for compensation over our plain packaging law, a public health measure designed to discourage young smokers. Australia won in the end, but at a cost to taxpayers of $12 million.

Most of the 983 known ISDS cases have been taken against developing countries, with increasing numbers against health, environment, indigenous land rights, labour laws and other public interest regulation in both developing and industrialised countries.

RCEP members India and Indonesia have policies to exclude or severely restrict investor rights in new agreements.

ISDS has been reportedly excluded from the RCEP text. India was one of the main opponents of ISDS. We won’t know for sure whether ISDS is still excluded until the text is released after signing.

Other concerns over patents and e-commerce

Even more contentious are proposals that pharmaceutical companies should be given longer patent monopolies on medicines than the current 20 years. This would delay the availability of cheaper medicines, at greatest cost to developing countries.

There are also proposals to extend to developing countries’ rules on patenting of seeds and plants that apply to industrialised countries. This would make it more difficult for millions of small-scale farmers in developing countries to save and exchange seeds with each other as they have done for centuries. They lack the capacity to use the legal system to obtain patent rights and lack the funds to buy patented seeds.

The RCEP also includes an e-commerce chapter that mandates free cross-border data flows for global corporations such as Google and Facebook. This makes it more difficult for governments to regulate them.

For example, if trade rules forbid requirements to store data locally, then national privacy laws and other consumer protections cannot be applied to data stored in other countries.

The recent Digital Platforms report of the Australian Consumer and Competition Commission recommended more, not less regulation of these corporations. That was in the face of scandals about violations of consumer privacy, misuse of data in elections and tax evasion.

Developing countries are also concerned rules favouring the global tech companies will lock in their market dominance at the expense of local IT industry development.

These conflicts between governments have been deepened by national pressures from civil society groups in RCEP countries including Australia. When RECP negotiations were held in Australia in July this year, 52 community organisations, including public health, union, church, environment and aid groups endorsed a letter to the trade minister Simon Birmingham. They asked him to oppose ISDS and longer medicine monopolies in the RCEP, and to release the text for independent evaluation before it is signed.

Show us the deal

Even without India in the deal, the Australian government says it will boost local jobs and exports.




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But without India, claimed market access gains are marginal for Australia and must be evaluated against the costs of expanded corporate rights and restraints on future government regulation.

That’s why the text of the RCEP deal should be released before it is signed and there should be independent evaluation of its costs and benefits for both Australia and its trading partners.The Conversation

Pat Ranald, Research fellow, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

We asked 13 economists how to fix things. All back the RBA governor over the treasurer


Peter Martin, Crawford School of Public Policy, Australian National University

Thirteen leading economists have declared their hands in the stand off between the government and the Governor of the Reserve Bank over the best way to boost the economy.

All 13 back Reserve Bank Governor Philip Lowe.

They say that, by itself, the Reserve Bank cannot be expected to do everything extra that will be needed to boost the economy.

All think that extra stimulus will be needed, and all think it’ll have to come from Treasurer Josh Frydenberg, as well as the bank.

All but two say the treasurer should be prepared to sacrifice his goal of an immediate budget surplus in order to provide it.

The 13 are members of the 20-person economic forecasting panel assembled by The Conversation at the start of this year.

All but one have been surprised by the extent of the economic slowdown.




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The 13 represent ten universities in five states.

Among them are macroeconomists, economic modellers, former Treasury, IMF, OECD and Reserve Bank officials and a former government minister.

The Bank needs help

At issue is the government’s contention, spelled out by Frydenberg’s treasury secretary Steven Kennedy in evidence to the Senate last month, that there is usually little role for government spending and tax (“fiscal”) measures in stimulating the economy in the event of a downturn.

Absent a crisis, economic weakness was “best responded to by monetary policy”.

Monetary policy – the adjustment of interest rates by the Reserve Bank – is nearing the end of its effectiveness in its present form. The bank has already cut its cash rate to close to zero (0.75%) and will consider another cut on Tuesday.

It is preparing to consider so-called “unconventional” measures, including buying bonds in order to force longer-term interest rates down toward zero.




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Governor Lowe has made the case for “fiscal support, including through spending on infrastructure” saying there are limits to what monetary policy can achieve.

The 13 economists unanimously back the Governor.

Seven of the 13 say what is needed most is fiscal stimulus (including extra government spending on infrastructure), three say both fiscal and monetary measures are needed, and three want government “structural reform”, including measures to help the economy deal with climate change and remove red tape.

None say the Reserve Bank should be left to fight the downturn by itself without further help from the government.

There is plenty of room for fiscal stimulus, particularly infrastructure spending – Mark Crosby, Monash University

I agree with the emerging consensus that monetary policy is no longer effective when interest rates are so low – Ross Guest, Griffith University

It is time for coordinated monetary and fiscal policies to boost domestic demand – Guay Lim, Melbourne Institute

The surplus can wait

Eleven of the 13 believe the government should abandon its determination to deliver a budget surplus in 2019-20.

Renee Fry-McKibbin. Ease surplus at all costs.
ANU

Economic modeller Renee Fry-McKibbin says the government should “ease its position of a surplus at all costs”.

Former Commonwealth Treasury and ANZ economist Warren Hogan says achieving a surplus in the current environment would have “zero value”.

Former OECD director Adrian Blundell-Wignall says that rather than aiming for an overall budget surplus, the government should aim instead for an “net operating balance”, a proposal that was put forward by Scott Morrison as treasurer in 2017.

The approach would move worthwhile infrastructure spending and borrowing onto a separate balance sheet that would not need to balance.

Political debate would focus instead on whether the annual operating budget was balanced or in deficit.

Former treasury and IMF economist Tony Makin is one of only two economists surveyed who backs the government’s continued pursuit of a surplus, saying annual interest payments on government debt have reached A$14 billion, “four times the foreign aid budget and almost twice as much as federal spending on higher education”.

Tony Makin. Surplus needed for budget repair.
Griffith University

Further deterioration of the balance via “facile fiscal stimulus” would risk Australia’s creditworthiness.

However Makin doesn’t think the government should leave everything to the Reserve Bank.

He has put forward a program of extra spending on infrastructure projects that meet rigorous criteria, along with company tax cuts or investment allowances paid for by government spending cuts.

Former trade minister Craig Emerson also wants an investment allowance, suggesting businesses should be able to immediately deduct 20% of eligible spending.

It’s an idea put forward by Labor during the 2019 election campaign. Treasurer Josh Frydenberg has indicated something like it is being considered for the 2020 budget.

Emerson says it should be possible to deliver both the investment allowance and a budget surplus.

Quantitative easing would be a worry

Five of the 13 economists are concerned about the Reserve Bank adopting so-called “unconvential” measures such as buying government and private sector bonds in order to push long-term interest rates down toward zero, a practice known as quantitative easing.

Jeffrey Sheen and Renee Fry-McKibbin say it should be kept in reserve for emergencies.

Adrian Blundell-Wignall and Mark Crosby say it hasn’t worked in the countries that have tried it.

A quantitative easing avalanche policy by the European central bank larger than the entire UK economy has left inflation below target and growth fading. Quantitative easing destroys the interbank market, under-prices risk, and encourages leverage and asset speculation – Adrian Blundell-Wignall

Steve Keen says in both Europe and the United States quantitative easing enriched banks and drove up asset prices but did little to boost consumer spending, “because the rich don’t consume much of the wealth”.

The treasurer should step up

Taken together, the responses of the 13 economists suggest it is ultimately the government’s responsibility to ensure the economy doesn’t weaken any further, and that it would be especially unwise to palm it off on to the Reserve Bank at a time when the bank’s cash rate is close to zero and the effectiveness of the unconventional measures it might adopt is in doubt.

Measures the government could adopt include increasing the rate of the Newstart unemployment benefit, boosting funding for schools and skills training, borrowing for well-chosen infrastructure projects with a social rate of return greater than the cost of borrowing, further tax cuts that double as tax reform (including further tax breaks for business investment) and spending more on programs aimed at avoiding the worst of climate change and adapting to it.

The economists are backing the governor in his plea for help. They think he needs it.


The 13 economists surveyed




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The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

As the prime minister heads to ASEAN, trade, Vietnam and China will be high on the agenda


Tony Walker, La Trobe University

Given a world in turmoil, an ASEAN leadership three-day summit to begin in Bangkok this weekend has slipped off radar screens. But this is not to say the event lacks importance.

The year-end summit of leaders of the 10 ASEAN nations plus eight dialogue partners may well prove one of the more significant regional gatherings, historically.

Away from the tumult in Europe over Brexit, the United States over impeachment, and a US-China trade war, ASEAN and partners have been quietly working to put in place two constructive initiatives.

The first is the bare bones of a mega trade deal that would knit together ASEAN members plus six regional partners. The second is progress towards a regional security framework.




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Neither of these initiatives will be fully consummated this weekend. But, if progress is made, the Bangkok 2019 summit may well come to be regarded as more than a pro forma talkfest.

Let’s start with negotiations over a Regional Comprehensive Economic Partnership (RCEP). If the ASEAN summit reaches agreement to push ahead with this initiative, with the aim of completion over the next 12 months, this would represent an important advance in the liberalisation of regional trade.

The RCEP, proposed by China as a counter to the Trans Pacific Partnership (TPP) from which it was excluded, would bring together the ASEAN 10 plus six dialogue partners.

The ASEAN 10 are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The dialogue partners are Australia, China, Japan, India, New Zealand and South Korea.

Needless to say, a trade liberalisation pact that accounts for 45% of the world’s population and a third of global GDP would represent a momentous development, potentially.

The TPP is a free trade agreement that was renamed the Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP) after Donald Trump withdrew the United States from it in 2016.

That agreement brings together 11 regional countries, some of which are ASEAN members and would also be parties to the RCEP. The awkwardly acronymed CPTPP comprises Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

This is a significant trading bloc. However, it would be dwarfed by an RCEP, dominated by China and India, with the emerging economies of Indonesia and Vietnam as part of the mix.

The RCEP is an important initiative. It matters from a trading standpoint and as a regional power balance in the ongoing strategic rivalry between China and the US.

Beijing correctly views the initiative as a means of countering US-initiated trade and other pressures.

From an Australian standpoint, an RCEP would serve the useful function of providing more certainty to a liberalising regional trading environment.

Australia has a free trade agreement in place with ASEAN and other members of the proposed RCEP, including, importantly, China, Japan and South Korea.

Prime Minister Scott Morrison will attend the Bangkok summit along with Trade Minister Simon Birmingham, reflecting the importance Canberra attaches to these events.

The vast proportion of Australian trade resides in its trading relationships with RCEP countries, principally China, Japan, South Korea and India.

Australia’s trade with ASEAN, both merchandise and services, totals more than A$50 billion a year, or about 12% of Australia’s total exports.

At the same time, ASEAN countries’ investment in Australia exceeds A$118 billion. These are significant numbers.

Among all of Australia’s trading partners, six RCEP parties – or seven if you include Hong Kong as part of China – are in the top 10 Australian export destinations.

These are, in order, China, Japan, South Korea, India, New Zealand, Singapore and Hong Kong. Making up the 10 are the US, Taiwan and the United Kingdom.

This brings us to one of the principal drags on an RCEP deal in Bangkok.

Indian concerns about Chinese goods flooding its market remain a sticking point under any RCEP arrangement. New Delhi is seeking safeguard mechanisms that would guard against surges in imports and what it regards as unfair competition. India’s particular concerns relate to its vulnerable agriculture sector.

Whether these Indian reservations can be satisfied in time for a broad agreement to proceed with the RCEP in time for the Bangkok summit remains to be seen.




Read more:
Australia and China push the ‘reset’ button on an important relationship


There is another important issue that will feature in Bangkok and on which progress is far from certain. These are matters relating to China’s assertiveness in the South China Sea. Beijing is in dispute with five ASEAN members over conflicting territorial claims: Vietnam, the Philippines, Indonesia, Malaysia and Brunei.

Conflict with Vietnam over potentially oil-rich territorial waters is the most vexatious of these disputes.

At previous ASEAN sessions, China has aligned itself with client states like Cambodia to bully and block reasonable discussion about its territorial ambitions.

In efforts to reduce tensions over Beijing’s behaviour, ASEAN negotiators hope to achieve a “first reading” of a code of conduct for the South China Sea that would provide some sort of framework for resolving disputes.

It’s not clear whether China will go along with such an initiative.

Judging by remarks made by China’s defence minister, General Wei Fenghe, at a recent defence forum, Beijing will be reluctant to yield ground. He said:

We will not relinquish a single inch of territory passed down from our forefathers.The Conversation

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Growing numbers of renters are trapped for years in homes they can’t afford



Rental stress leaves hundreds of thousands of Australians struggling for years to cover all the other costs of living.
Tero Vesalainen/Shutterstock

Hal Pawson, UNSW

Low-income tenants in Australia are increasingly likely to be trapped in rental stress for years. New evidence from the Productivity Commission shows almost half of such “rent-burdened” private tenants are likely to remain stuck in this situation for at least half a decade.

Rental stress is where a low-income tenant faces housing costs that leave them without enough income for food, clothing and other essentials. The scale of the problem – commonly defined as when rent eats up more than 30% of income – is usually presented as a “point in time” or snapshot statistic.




Read more:
City share-house rents eat up most of Newstart, leaving less than $100 a week to live on


As the Productivity Commission report reveals, the snapshot number in this situation has increased from 48% of low-income renters in 1995 to 54% in 2018. That’s around 1.5 million people pushed into poverty by high housing costs.

For some, of course, this will be only a temporary problem. On this basis, it is sometimes argued that concerns over Australia’s high rate of rental stress are overstated.

However, the Productivity Commission report, Vulnerable Private Renters: Evidence and Options, highlights longitudinal survey evidence showing that a low-income tenant’s experience of rental stress is increasingly likely to be long-term – not a passing problem. As the commission notes:

[…] a growing number of households find themselves stuck in rental stress.

What is the evidence for this?

This conclusion stems from a comparison of two different tenant cohorts experiencing rental stress as revealed by survey data for 2001 and 2013. Less than a third (31%) of the 2001 cohort remained in stress five years later. But almost half (46%) of the 2013 cohort were.

While many people exit rental stress quickly, the proportion of private.
low-income renters in long-term rental stress has increased significantly.

Vulnerable Private Renters: Evidence and Options, Productivity Commission, CC BY

So, it’s not just that more low-income earners are paying unaffordable rents at a particular point in time. This is increasingly a situation that affected private tenants cannot escape.

Beyond the obvious welfare impacts, recent work argues that excessive rent burdens may also damage human capital and, as a result, reduce economic productivity.

The commission’s findings seem to suggest the ongoing restructuring of Australia’s labour market and housing system is eroding socioeconomic and/or housing mobility. The report notes the significant fall in the numbers who manage to move from renting to owning – from 13.6% of renters in the period 2001-04 to 10.0% from 2013-16.

Perhaps slightly more surprising is the commission’s explanation for the rising rate of (point in time) rental stress for all low-income tenants. According to the report, this results not from increasing unaffordability for the private renter cohort specifically, but from the growing dominance of private rental housing as the tenure in which low-income households live.

The number of private renters has grown as the proportions of owner occupiers and public housing tenants have fallen.
Vulnerable Private Renters: Evidence and Options, Productivity Commission, CC BY



Read more:
Private renters are doing it tough in outer suburbs of Sydney and Melbourne


This, of course, results from the post-1990s failure of Australian governments to expand the supply of social housing to match population growth. By 2018, well over two-thirds (71%) of low-income tenants were renting in the (relatively expensive) private market – rather than from a (rent-limiting) social landlord. Back in 1996, barely half (52%) of them were renting privately.

What does this mean for policy?

The report presents some useful discussion of possible policy directions.

For example, while dismissing rent control as liable to advantage existing tenants at the expense of potential tenants, the report is implicitly critical of residential tenancy laws in most states and territories.

The report advances the broad case that tenancy law reforms, “if well designed”, can enhance tenant welfare “without substantially increasing the cost of renting”. Longer notice periods are particularly favoured because these will “provid[e] vulnerable families more time to find new accommodation and prepare for the move”.

Slightly more controversially, the commission strongly hints at support for outlawing no grounds evictions. The landlord power to end a tenancy without any need to justify the move persists across most states and territories. Discussing this power the report states:

It increases the bargaining power of landlords […] and decreases that of tenants. Landlords’ incentives to carry out obligations, such as repairs and maintenance, decrease when no grounds evictions are available, since this provides them with an avenue to terminate leases in the event of a dispute.




Read more:
Life as an older renter, and what it tells us about the urgent need for tenancy reform


However, having highlighted a private rental affordability problem that is both growing in scale and becoming demonstrably more entrenched, the report is timid on solutions beyond modestly improving tenancy conditions.

It argues in general terms for an increase in Commonwealth Rent Assistance but – beyond tentatively floating a 10% rise in maximum payments – advances no specific proposal.

Expanding the social housing stock as part of the broad-ranging housing strategy Australia badly needs is scorned as “an expensive option”. This is a reference to the narrowly scoped analysis in the commission’s 2017 Human Services report. It favoured market solutions to provide low-income housing – on efficiency grounds.

The “expensive option” assertion is out of line with the more broadly framed analysis of the Productivity Commission’s predecessor, the Industry Commission. The latter concluded:

Public housing and headleasing [when social housing providers sublease private rental properties] are assessed to be more cost-effective than cash payments and housing allowances.

While the Industry Commission report admittedly dates from 1993, the subsequent failure of overwhelmingly private provision for low-income renters surely presents compelling reasons to revisit the investment case for social housing.




Read more:
Australia’s social housing policy needs stronger leadership and an investment overhaul


The Conversation


Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

China’s worldwide investment project is a push for more economic and political power


<Amitrajeet A. Batabyal, Rochester Institute of Technology

Inspired by the ancient Silk Road, China is investing in a massive set of international development projects that are raising concerns about how the country is expanding its power around the world.

Initially announced in 2013 by Chinese President Xi Jinping, the so-called “Belt and Road Initiative” has China planning to invest in economic development and transportation in more than 130 countries and 30 international organizations. Projects range across Asia, but also include places in Africa, the Caribbean, Europe and South America.

With a projected cost of more than US$1 trillion, it may be the most ambitious infrastructure project undertaken in human history. The country hopes it will all be completed by 2049, the 100th anniversary of the founding of the People’s Republic of China. My research in international economics with particular reference to China shows that Beijing has both economic and political plans for how these investments will pay off.

Economic effects

A rapidly growing China needs reliable access to energy. The Belt and Road Initiative includes pipeline construction and other building projects in oil- and gas-rich central Asia.

China also has an ambitious goal to dominate global production of electric cars – as well as other high-tech equipment – for which it needs reliable supplies of cobalt, a key ingredient in high-capacity batteries. More than half of the world’s supply comes from the Democratic Republic of Congo. China’s investment there has helped secure much of that crucial element for Chinese production.

Analysts and scholars have criticized these and other moves for economic dominance, arguing that taking the country’s money is like drinking from a “poisoned chalice” – a brief refreshment leading to certain death.

Sri Lanka, for instance, defaulted on debts it owed China for development at the port of Hambantota – and was forced to give the Chinese government control of the port for 99 years.

Chinese investments in the Pakistani port of Gwadar have set Pakistan up to owe China more than $10 billion.

A diverse group of world leaders attended China’s Belt and Road Forum in Beijing in April 2019.
Jason Lee/Pool Photo via AP

Political payoffs

As these countries get more closely tied to the Chinese economy, they also shift into the range of its political efforts, sparking several concerns about the country’s motivations. Navy analysts have called China’s growing control of ports in Asia – including Hambantota, Sri Lanka; and Gwadar, Pakistan – an effort to assemble a “string of pearls” with which it can dominate much of Asia.

Malaysian Prime Minister Mahathir Mohamad warned that China may be turning into a new colonial power.

The U.S. sees Chinese expansion as a security concern and has urged India to serve as a strong example that a Western-style democracy and society can succeed in Asia. In addition, the U.S. has proposed working with Australia, India and Japan on a massive development effort to rival China’s power.

The European Union is also unsure about China’s political intentions. Some of its members have joined individually, but others have expressed concerns that Chinese plans often overlook environmental and social sustainability – and that its bidding process is not sufficiently open to the public. There is some general European concern that China is seeking to divide Europe politically.

Recent reports suggest that Chinese investment in the Belt and Road Initiative – and international interest in Chinese funding – is slowing. In part that may be because, predictions and analysis aside, nobody knows for certain what China is aiming for – except to boost its own side in its rivalry with the U.S.

[ Expertise in your inbox. Sign up for The Conversation’s newsletter and get a digest of academic takes on today’s news, every day. ]The Conversation

Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Our ability to manufacture minerals could transform the gem market, medical industries and even help suck carbon from the air



Pictured is a slag pile at Broken Hill in New South Wales. Slag is a man-made waste product created during smelting.
Anita Parbhakar-Fox, Author provided

Anita Parbhakar-Fox, The University of Queensland and Paul Gow, The University of Queensland

Last month, scientists uncovered a mineral called Edscottite. Minerals are solid, naturally occurring substances that are not living, such as quartz or haematite. This new mineral was discovered after an examination of the Wedderburn Meteorite, a metallic-looking rock found in Central Victoria back in 1951.

Edscottite is made of iron and carbon, and was likely formed within the core of another planet. It’s a “true” mineral, meaning one which is naturally occurring and formed by geological processes either on Earth or in outer-space.

But while the Wedderburn Meteorite held the first-known discovery of Edscottite, other new mineral discoveries have been made on Earth, of substances formed as a result of human activities such as mining and mineral processing. These are called anthropogenic minerals.

While true minerals comprise the majority of the approximately 5,200 known minerals, there are about 208 human-made minerals which have been approved as minerals by the International Mineralogical Association.

Some are made on purpose and others are by-products. Either way, the ability to manufacture minerals has vast implications for the future of our rapidly growing population.

Modern-day alchemy

Climate change is one of the biggest challenges we face. While governments debate the future of coal-burning power stations, carbon dioxide continues to be released into the atmosphere. We need innovative strategies to capture it.

Actively manufacturing minerals such as nesquehonite is one possible approach. It has applications in building and construction, and making it requires removing carbon dioxide from the atmosphere.




Read more:
Climate explained: why carbon dioxide has such outsized influence on Earth’s climate


Nesquehonite occurs naturally when magnesian rocks slowly break down. It has been identified at the Paddy’s River mine in the Australian Capital Territory and locations in New South Wales.

But scientists discovered it can also be made by passing carbon dioxide into an alkaline solution and having it react with magnesium chloride or sodium carbonate/bicarbonate.

This is a growing area of research.

Other synthetic minerals such as hydrotalcite are produced when asbestos tailings passively absorb atmospheric carbon dioxide, as discovered by scientists at the Woodsreef asbestos mine in New South Wales.

You could say this is a kind of “modern-day alchemy” which, if taken advantage of, could be an effective way to suck carbon dioxide from the air at a large scale.

Meeting society’s metal demands

Mining and mineral processing is designed to recover metals from ore, which is a natural occurrence of rock or sediment containing sufficient minerals with economically important elements. But through mining and mineral processing, new minerals can also be created.

Smelting is used to produce a range of commodities such as lead, zinc and copper, by heating ore to high temperatures to produce pure metals.

The process also produces a glass-like waste product called slag, which is deposited as molten liquid, resembling lava.

This is a backscattered electron microscope image of historical slag collected from a Rio Tinto mine in Spain.
Image collected by Anita Parbhakar-Fox at the University of Tasmania (UTAS)

Once cooled, the textural and mineralogical similarities between lava and slag are crystal-clear.

Micro-scale inspection shows human-made minerals in slag have a unique ability to accommodate metals into their crystal lattice that would not be possible in nature.

This means metal recovery from mine waste (a potential secondary resource) could be an effective way to supplement society’s growing metal demands. The challenge lies in developing processes which are cost effective.




Read more:
Wealth in waste? Using industrial leftovers to offset climate emissions


Ethically-sourced jewellery

Our increasing knowledge on how to manufacture minerals may also have a major impact on the growing synthetic gem manufacturing industry.

In 2010, the world was awestruck by the engagement ring given to Duchess of Cambridge Kate Middleton, valued at about £300,000 (AUD$558,429).

The ring has a 12-carat blue sapphire, surrounded by 14 solitaire diamonds, with a setting made from 18-carat white gold.

Replicas of it have been acquired by people across the globe, but for only a fraction of the price. How?

In 1837, Marc Antoine Gardin demonstrated that sapphires (mineralogically known as corundum or aluminium oxide) can be replicated by reacting metals with other substances such as chromium or boric acid. This produces a range of seemingly identical coloured stones.

On close examination, some properties may vary such as the presence of flaws and air bubbles and the stone’s hardness. But only a gemologist or gem enthusiast would likely notice this.

Diamonds can also be synthetically made, through either a high pressure, high temperature, or chemical vapour deposition process.

Synthetic diamonds have essentially the same chemical composition, crystal structure and physical properties as natural diamonds.
Instytut Fizyki Uniwersytet Kazimierza Wielkiego

Creating synthetic gems is increasingly important as natural stones are becoming more difficult and expensive to source. In some countries, the rights of miners are also violated and this poses ethical concerns.

Medical and industrial applications

Synthetic gems have industrial applications too. They can be used in window manufacturing, semi-conducting circuits and cutting tools.

One example of an entirely manufactured mineral is something called yttrium aluminum garnet (or YAG) which can be used as a laser.

In medicine, these lasers are used to correct glaucoma. In dental surgery, they allow soft gum and tissues to be cut away.

The move to develop new minerals will also support technologies enabling deep space exploration through the creation of ‘quantum materials’.

Quantum materials have unique properties and will help us create a new generation of electronic products, which could have a significant impact on space travel technologies. Maybe this will allow us to one day visit the birthplace of Edscottite?




Read more:
How quantum materials may soon make Star Trek technology reality


In decades to come, the number of human-made minerals is set to increase. And as it does, so too does the opportunity to find new uses for them.

By expanding our ability to manufacture minerals, we could reduce pressure on existing resources and find new ways to tackle global challenges.The Conversation

Anita Parbhakar-Fox, Senior Research Fellow in Geometallurgy/Applied Geochemistry, The University of Queensland and Paul Gow, Principal Research Fellow, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.