Paul Wallbank – Brilliant Communications

Tag: economics

  • Why you won’t retire

    Why you won’t retire

    Outliving Our Super is the headline of an Australian Financial Review story on the problems of an aging population.

    Jacqui Hayes cites a billboard in San Francisco declaring that life expectancy will soon be 150 and we have to plan for longer retirements.

    The flaw in this discussion is the idea of retiring in our 60s. When the age pension was introduced in 1910, a new-born boy could expect to live 55 years and a girl, 59 years. The odds were against the average person every receiving the pension which was an effective, if ruthless, way of ensuring the solvency of social security programs.

    A hundred years later, a new born can expect to live well into their eighties. Meaning the average person will spend two decades in retirement.

    Making matters worse is the nature of that Millennial’s work pattern – when great, great grandpa entered the workforce in the 1920s,  he was almost certainly in his early teens and worked a solid fifty years paying his taxes before prospect of retirement arrived.

    Today, that child won’t enter the workforce until at least their late teens and more likely until their early twenties. A modern child is also going to have a much more fragmented work career and will likely have periods of unemployment or low earnings as a casual or contract worker.

    For today’s child to retire at 65 it would mean he or she will have had to saved enough over a forty year working life to sustain them for fifteen years of retirement, those numbers are tough and to achieve it most won’t be living the millionaire lifestyle during their golden years.

    With a life expectancy of 150, the early twentieth century model of retiring at 60 or 65 means today’s child would spend less than 30% of their lives in the workforce. Put simply, the numbers don’t add up.

    The reality is most of us won’t be retiring at 65, the baby boomers reaching retirement age now are learning this and it’s a lesson that’s going to get harder for the Gen X’s and Y’s following them.

    As a society, or an electorate, we can pretend there’s no problem and policy makers and politicians will pander to our refusal to face the truth by keeping structures that reflect early Twentieth Century aspirations rather than Twenty-First Century realities.

    We have to face the reality that the retiring at 65 is unaffordable dream for most of us. Once we accept this, we can get on with building longer lasting careers.

    Picture of pensioners courtesy of andreyutzu on SXC.HU

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  • Being careful what you wish for

    Being careful what you wish for

    Economist Yanis Varoufakis posted the conclusion of his speech to British Euroceptics this week with the warning “the cruellest God is the one who grants us our wishes”.

    In a time of austerity this is something we all should carefully consider. Some of these people need to be careful about their wishes;

    • Those renters hoping for property prices to drop 40% may get their wish, but such a crash will leave the economy in ruins and the renters themselves without a job to service their mortgage.
    • Landlords who fantasise about rents tripling, not realising that ripping disposable income out of their tenants’ wallets will also push the economy into recession and hurt their property values.
    • Politicians obsessing about AAA credit ratings without understanding that this locks a government into the narrow, failed ideologies of the ratings agencies – the world’s most incompetent and corrupt organisations.
    • Business leaders demanding that workers be thankful for getting $1 a hour, forgetting that Henry Ford started paying his workers so they could buy his cars and pay executive bonuses.
    • Retired folk reducing their assets to get pensions because “they’ve paid their taxes” who then find life on the aged pension isn’t so great after all.
    • Middle classes urging the government to subsidise their private school fees and medical insurance because “they pay their taxes” and end up paying even more taxes.

    Yanis himself is an interesting guy, having amongst other things taught economics in Sydney for 12 years before returning to Greece;

    In 2000 a combination of nostalgia and abhorrence of the conservative turn of the land down under (under the government of that awful little man, John Howard) led me to return to Greece.

    John Howard himself wished for Australia to return to the “white picket fence” conservative, insular nation of the 1950s. He got his wish and Australians decided they liked the past so much they decided to take the economy back to an 1850s structure of living off the sheep’s iron ore train’s back.

    Today Australia’s inward looking and insular with an economy increasingly based upon mineral exports and property speculation. With both the export markets and property prices now wobbling we might be about to find the cost of our wishes being granted.

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  • Australia in the Asian Century – Chapter One: The rise of Asia

    Australia in the Asian Century – Chapter One: The rise of Asia

    This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

    “Just over two decades ago, the Australian Government commissioned a study of Australia and the Northeast Asian ascendancy” starts the opening of the Australia in the Asian Century report. That sentence describes how this paper is the latest of Australia’s earnest efforts to understand the region.

    The opening chapter of the report follows the sensible principle that to plan for the future we have to first understand the present so this section seeks to explain the development of various Asian economies and put those changes into an Australian perspective.

    Notable in the narrative is the North East Asian focus, while India gets a brief mention most of the story revolves around the development of China, Hong Kong, Japan and South Korea. Chart 1.2, “Asia’s economic dividend” gives the game away when all but one ‘Asian’ country listed is East Asian.

    Russia, along with most of South and Central Asia – not to mention other Asia countries like Iran, Turkey and the former Soviet Republics – rate no mention all.

    The narratives around the countries which are covered is also deficient – for instance the discussion on Japan’s, South Korea’s and Vietnam’s developments totally ignore post-war reconstruction efforts and their relations with the United States.

    China does get a more detailed examination rightly noting it was the country’s admission to the World Trade Organisation in 2001 that really set the economy’s export sector moving, however it skates over the massive dislocations and market reforms introduced in the 1980s which laid the foundations for China’s successful bid to join the WTO.

    More notably, the analysis overlooks – probably to avoid upsetting PRC diplomats and making life difficult in Canberra – the role of Taiwanese investment in China and Taiwan’s development itself.

    In a similar vein the scant discussion of India misses the role of Non-Resident Indians (NRIs) in the country’s economic development along with the concentration of power in the various industrial conglomerates like the Tata Group.

    Again, the same omission is made when discussing the South Korean Chaebols and Japanese Keiretsu. Given the investments made in Australia by all of these industrial conglomerates it’s curious they barely rate a mention in discussing Asia’s industrialisation process.

    The discussion on innovation in Chapter 1.3 is useful however it lacks substance in identifying exactly which sectors various Asian economies are specialising in and which industries are in decline as various countries move up the value chain.

    Singapore’s success in becoming East Asia’s hub for banking and corporate regional headquarters is a notable omission and again one has a suspicion this is because of ongoing Australian governments’ doomed ambitions to establish Sydney as a regional financial and business centre.

    Probably the most glaring omission in Chapter One though is the role of the United States. In tracking the rise of the Indian service sector or Chinese, Japanese and South Korean manufacturing the trade policies of the US cannot be ignored. And yet they largely are.

    That failure to acknowledge the US role means report overlooks the Clinton and Bush I Administrations’ forced opening East Asia’s largely closed economies which radically changed South Korea, Taiwan and Japan in the late 1980s and early 90s. Not to mention the critical role the US had during that period in allowing China and Vietnam to join the global trade networks.

    Chapter One of Australia in the Asian Century is an unsatisfactory introduction to the complexities of the Asian economies and one suspects is because of the compromises made to assuage the egos and groupthink of Canberra’s mandarins and politicians.

    Most importantly, it fails to put the last thirty years’ developments in Asia into an Australian context or perspective. In this respect, it’s a fitting start to a largely inadequate report.

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  • Looking at the wrong curve

    Looking at the wrong curve

    “We don’t understand it, there’s a property shortage but prices are going down,” bleats the property expert in a recent interview.

    Property booms are always excused with claims of “shortages”. The US, Ireland and the UK in recent years property markets all collapsed despite business and political leaders claiming there was a “property shortage”.

    The shortage meme happens because the property spruikers, economists and finance writers focus on the wrong curve – they look at the supply curve and assume prices are going up because there isn’t enough property to go around.

    What drives speculative booms is easy credit – demand driven by access to money drives speculation, not supply shortages.

    Australia’s long term property boom which started in the late 1960s and went onto steroids in the late 1990s has been driven by access to credit. Banks were prepared to lend to property buyers, who were increasingly speculators, and government policies favoured those speculating on property over investing or building businesses.

    The crisis of 2008 was the end of the easy credit era and the Australian property speculation boom is over. For the policy makers, politicians and economists the basis of the 1980s corporatist ideology is crumbling around them.

    No ideologue lets go of their beliefs easily – that’s why Western governments who bought into the corporatist worldview are pumping trillions of dollars into supporting zombie banks and releasing constant stimulus packages to prop up the property market.

    Like the communists of the 1970s, today’s corporatists are looking at choosing the statistics that suit their ideological views.

    To support their beliefs they look at the wrong curve and then wonder why the world isn’t working as they thought it would.

    Times have changed. Have you?

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  • Cargo cults and your business

    Cargo cults and your business

    “We need an interest rate cut” thunders the business media.

    “Give us GST relief” plea the big retailers.

    “China will boom forever” assert the government economists.

    “Big corporations will buy us out for a billion dollars” pray the hot new start ups.

    “I’ll win the lottery this week” thinks the overworked cleaner.

    We’re all waiting for the big saviour that’s going to rescue us, our business or the economy.

    It could be a big win, a big client or a big government spending program to rescue us.

    Sadly, should we lucky enough for that saviour to arrive, it may not turn out to be all we expected.

    There’s many lottery winners who curse their win while many disaffected founders who watch their startup baby fade away neglectful new owners.

    For a lumbering department store, tax changes will do little to save them from market changes their managements are incapable of comprehending.

    Interest rate cuts are great for business when customers are prepared to take on more debt but in a period where consumers are deleveraging a rates cut will do little to stimulate demand.

    The clamour for interest rate cuts are a classic case of 1980s thinking; what worked in 1982, 1992 or 2002 isn’t going to work the same way in 2012.

    What’s more, the Zero Interest Rate Policies – ZIRP – of the United States and Japan are a vain attempt to recapitalise zombie banks saddled with overvalued assets rather than an effort to help the wider economy.

    China is more complex and there’s no doubt the country and its people are becoming wealthier and there are great opportunities.

    The worry is most of what we read today could have been the wishful thinking written about Japan thirty years ago. Lazily selling commodities to the Chinese while they create the real value is not a path to long term prosperity.

    In business we have a choice, we can pray for luck or we can make our own luck.

    Some choose to join the cargo cult and pray, or demand, that someone else does something. Others get out and do it.

    John Frum gravesite image by Tim Ross through Wikimedia Commons

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