CONCLUSIONS
Optimal outcomes demand that that ‘somewhere’ is at, or close to, where you want to go. Success hardly ever requires absolute precision and 95% of the time near enough is good enough. But keep in mind Peter Ustinov’s statement – ‘I love the guy who aims low and misses’.
- Europe can’t YET go forward.
- China can’t go back.
- America needs to work out where it wants to go.
- Australia needs a federal election as soon as possible.
ALL ROADS LEAD TO SOMEWHERE
From Lewis Caroll’s "Alice in Wonderland" –
- If you don’t know where you are going, any road will get you there. (think about America and Europe)
- Alice came to a fork in the road. ‘Which road do I take?’ she asked. ‘Where do you want to go?’ responded the Cheshire cat. ‘I don’t know.’ Alice answered. ‘Then,’ said the cat, ‘It doesn’t matter.’ (think about America, China and Europe)
- ‘I can’t go back to yesterday because I was a different person then.’ (think about China)
………….the timing of eventual outcomes is somewhat uncertain. Be careful to avoid undue pessimism, as explained succinctly in the movie "The Best Exotic Marigold Hotel" –
- ‘It will all work out in the end, and if it doesn’t…..then the end hasn’t been reached’. (the enduring view of the rational optimist requiring a significant belief in the power of fiat money and human psychology knowing that things will change because they have to, but forever alert to the possibility that it may get worse before it gets better)
GOVERNMENTS and ECONOMICS
In general terms Centre-Left governments around the developed world have taken the government share of GDP from circa 20% to around 30%, and the private sector and workers have been marginalised, especially small business and the middle class. Many governments claim statistics to deny this, but their statistics are generally self-serving and somewhat shonky. This mainly arises out of the fact that government budgets are cash flow statements, states are not consolidated to give a national picture, and off-budget ventures are ignored (national broadband is an example). Additionally, governments do not have sovereign debt levels front and centre probably because it will one day be a problem for another elected government. Government inhabits a world of careless accounting. Prosperity often persuades parliamentary rulers that all problems are solvable if you have a surplus available. Often opportunities are squandered as the social canvas is too broad and fragmented, and ultimately unmanageable. Good government often requires the ability and judgement not to act or intervene.
Paul Krugman said:
- ‘To talk about economics requires more and more, that one write about politics’.
After our editor’s China study tour of 2005 he wrote:
- ‘As our Ecinya editor walked back down the steps of The Hall of Central Harmony in The Forbidden City, he noticed an immaculately dressed and handsome African American reading the information board that he himself had read some minutes before. Editor addressed the man and said: "Do you think George Bush would understand that ?" He replied in a wonderfully resonant voice – "No way man. That boy wouldn’t even come close." We both chuckled and moved on to the next palace. The board read ‘The Way of heaven is profound and mysterious and the way of mankind is difficult. Only if we make a profound and unified plan to follow the doctrines of the centre, can we rule the country well.’ (This was a proclamation of Emperor Qianlong of the Qing Dynasty made in 1645)
There was NO global financial crisis, just a European and American financial crisis. The only response needed from an Australian perspective was to guarantee bank debts to preserve liquidity and ensure solvency. Instead Messrs Rudd, Swan, Gillard and Tanner set in motion plans that destroyed the budget surplus and these actions have led to growing public debt loads at both state and federal levels. Mr Tanner, we believe, can be exonerated from this folly and probably Ken Henry as well. However, just when we might need a surplus to insulate ourselves from the unfolding stage 2 of the European/ USA financial crisis there are no biscuits left in the tin.
At schoolboy level we are told that economics is the contest between scarce resources and unlimited wants and needs. The Austrian Von Mises school teaches that disequilibrium, imbalances, chaos etc comes from the misallocation of resources. Governments, business and householders have to operate in the context of setting priorities, not always in a formal sense, but essentially functioning within the limits of their resources and their abilities and the natural resources accidently bestowed upon them by history and fate.
THERE IS TOO MUCH GOVERNMENT IN THE DEVELOPED WORLD AND A LOT OF IT IS ILL-DIRECTED AND UNBALANCED
Barbara Tuchman in "The March of Folly: from Troy to Vietnam" (1984) said:
- ‘Social systems can survive a good deal of folly when circumstances are historically favorable, or when bungling is cushioned by large resources or absorbed by sheer size as in the United States during its period of expansion. Today, when there are no more cushions, folly is less affordable.’
EUROPE
It is close to a certainty that Europe will record negative growth for the 2012 calendar year, and be in and out of recession for most of the year. Westpac Economics are forecasting GDP growth of negative 1% for 2012 and an anaemic recovery of +0.3% for 2013. These numbers compare with 3.0% in 2007 and 1.7% over 2010 and 2011. The major bright spot that we see is that Ms Legarde has replaced Mr Strauss-Kahn as head of the IMF and David Cameron has replaced the economic illiterates Tony Blair and Gordon Brown. Italy is under new political management along with Great Britain and recovery shoots are emerging. These are all welcome developments.
Greece still has major difficulties, Spain looks to be the next catastrophe, Ireland is probably OK, and Portugal is probably not OK. The common currency seems to be an impediment to recovery except that it tends to benefit Germany, an efficient and hard-working populace producing desired products. The years of social engineering throughout Europe has led to unsustainable sovereign debt loads and domestic deficits. Unemployment is at dangerous levels across Europe. Currency and cultural impediments seem to be a cocktail of difficulties, and gab-fests, summits, and high-level meetings cannot replace action on the ground and the development of attitudes that facilitate progress and economic well-being. A lot of the populace seem to think that street riots will force change, but that does not make common or economic sense. Resources are too scarce to replace facilities that should not have been looted or burned in the first place.
CHINA
China has enjoyed robust growth since the early 1980’s and has been the stand-out economy over the past two decades in particular. However, when you take into account the size of the population at circa 1.3 billion people it is clear that growth needs to continue at an elevated pace. Chinese statistics are impressive, but not so outstanding when reduced to per capita terms. A China slowdown is feared by many commentators inclusive of the following –
- Government instability currently reflected in the unfolding drama between Bo Xilia and his factional supporters and Wen Jiabao and his factional supporters.
- Export growth slippage as the global economic slowdown takes hold.
- Demand for loans has slowed significantly and credit growth has driven economic growth.
- Concerns about a property bubble.
- The divergence between the less bullish HSBC Purchasing Managers’ Index and the more bullish Official PMI. We are inclined to believe the former.
- The peak in the stockmarket in July 2009 and the subsequent volatility and general downward trend since.
On 15 March 2007 Premier Wen Jiabao described the Chines economy as "unstable, unbalanced, uncoordinated, and unsustainable".
In our editor’s 2005 tour a senior Chinese business figure said:
- ‘George, you must understand that in China we have no small problems, only big ones’. Our editor then asked: ‘What is the biggest problem?’ He replied…. ‘corruption’.
Fissures, fractures, and cracks only appear when the dam wall of economic growth is exposed to pressures. The global economy is currently providing that pressure. For how long? Our current view is not as long as some are predicting. The end has not yet been reached in China’s long economic march.
What is certain is that China cannot go back to its Maoist past. That will not work for China itself, nor for the rest of the world.
One of the notable features of China is the ENERGY and aspirational ENTHUSIASMS of the under 30’s demographic. The emerging middle class in China are setting the economic and social agenda and will provide the necessary momentum to lift living standards and achieve sustainable economic outcomes.
THE UNITED STATES OF AMERICA
Colin Powell’s life lessons are often apt. Lesson number 3 of 18 says –
- ‘Don’t be buffaloed by experts and elites. Experts often possess more data than judgement. Elites become so inbred that they produce haemophiliacs who bleed to death as soon as they are nicked by the real world."
Ecinya had hoped that President Obama would not be captured by the Democratic elite just as President George W Bush was captive to the Republican elite. The elites are a combination of ‘the base’, ‘party faithfuls’, doyens of longevity and doubtful abilities, headquarter’s personnel operating as sporting coaches dedicated to winning government, but not always dedicated to good governing. On 13 January 2006 Ecinya said:
- ‘In America common-sense conservatism has been replaced by a religious dogma that god somehow is more disposed towards American goodness and superiority than most other nation states. The creators of hope, freedom, and progress for such a long time, appear to be prisoners of their own worship of American capitalism rather than balanced free enterprise. They prefer to promote fear over hope; war over peace; manufactured myth over debated fact; spin over substance; force over persuasion; the might of the law over the rule of law; the replacement of politicians of good sense, judgement and integrity by charlatans and fools. In short the ends, as defined by an elitist minority of church and state, justifies the means – winning is not the most important thing, it is the only thing. But a world without a good America is a deprived and deficient, and less efficient, world. The next president of the United States is a most important, perhaps, even a critical appointment. A man with an iron fist, a velvet glove, and the communication skills to blend wisdom and attitude. Ecinya cannot see it happening easily without major electoral reform, but America does not yet appear to have a pervasive belief that the system is broken.’
On 4 September 2008 SOT, an Ecinya confidant, in a typically earnest market-related conversation said –
- I have observed nothing with Mr Obama that would yet convince me that he is any better than Mr Rudd; an ability to articulate a problem, but without the experience, attitudinal balance, or resolve, to solve it.
Mr Obama has been a significant disappointment, pretty much for the reasons enunciated by SOT.
When having the job is more important than doing the job, then it’s time to go. Confidence is an essential ingedient in progress and Mr Obama has either ignored or misunderstood the fact that small business and the aspirational middle class set the economic agenda.
America needs to do a lot of work. They need less of a Messiah and more of a Manager. Mr Romney needs a running mate of substance to complement his apparent managerial skills honed in business, managing the Salt lake Olympics and as a state governor. Paul Ryan seems to be a qualified candidate at this point in time with some expertise in relation to America’s massive public debts and budget deficit.
AUSTRALIA NEEDS A FEDERAL ELECTION ASAP
First a disclaimer: Ecinya consists of 2 personnel and about 12 confidants who provide valuable inputs and considerable argument. We suspect that one of the Ecinya gang of 14 is a member of the Liberal Party. We are interested in good government from all parliamentarians, and good governance at the corporate level. In relation to both of these matters there is profound disequilibrium as quantity has replaced quality. We are hopeful that green and red tape will soon start to reduce.
Bad policy well implemented leads to bad outcomes. Bad policy badly implemented leads to even worse outcomes. The Rudd-Gillard-Greens government has been an unfortunate disaster and getting exponentially worse. Though there are considerable deficiencies in the Liberal front bench they can be remedied if the Liberals win the next election. If Mr Turnbull can keep his leadership aspirational baton in his knapsack and become a team player then he should assume the Treasury portfolio after the election. In terms of risk management it would be a good idea if he were to assume it now, subject to the aforementioned caveats, as Mr Hockey is needed and well suited to the industrial relations portfolio which is a monumental policy mess as we appear to have even abandoned the Hawke-Keating reforms.
The Australian economy is failing at many levels…. growth, debt, interest rates, consumer confidence, leading indicators, medium and long term planning, tax policy and social policy, border protection, foreign policy, industrial relations, institutionalised corruption…. you take your pick and add your own dilemmas.
On 8 August 2008 Ecinya said –
- ‘Prime Minister Rudd is behaving badly. He needs to take a leaf out of the first two terms of the Hawke-Keating-Walsh government and realise that outcomes are more important than rhetoric and symbols. The Prime Ministership is not a presidential-celebrity role, it is a function, a job, a real job. At a time of diminishing world growth and failing confidence the PM needs to focus on the fact that prosperity within a balanced free enterprise system carries us all to realisation of our material and social aspirations. The PM is coming closer each day to damaging our national psyche and cohesion.’
Ms Gillard seems to have accelerated the economic failings of her predecessor.
When having the job is more important than doing the job, then it’s time to go. Confidence is an essential ingedient in progress and Ms Gillard has either ignored or misunderstood the fact that small business and the aspirational middle class set the economic agenda.
Just recently Mr Swan and Ms Gillard have started to link fiscal policy and responsibility to interest rates. This is a profound recognition and admission because in days gone by Mr Swan denied such a link. Mr Swan is Australia’s second worst Treasurer in the post-war period in our estimation and opinion. Ms Gillard is, in our opinions, the worst post war Prime Minister we have had even surpassing the regressively negative years under Mr Whitlam and Mr Fraser.