A primitive economy.

[artme]

Yes Fred, one of the reasons I sat and watched/listened to Howse was because I know a little
of his history, down to being a keen singer of "The Internationale".

I was quite stunned by the approach he took but it was an enlightened one considering his left
wing leanings and thorough backgrounding in the union movement since the age of 18. maybe
your road to Damascus conversion analogy has some substance to it.

Already the hackles have been raised by government and industry spokes people. I think his idea
of a grand compact may have already been scuttled.

One point I did wonder about was his oblique reference to the state of industrial relations in the USA.
He views that as the labor force and the bosses getting on for the good of all. I wonder!

[artme]

Bill, I believe much of the rise of the Japanese after the war was to do with
the drive by the Americans to change the whole nature of the country.

Maybe we should pick a barny with the US so they can help us to re-construct!!

[Big Shed]

Bill, I believe much of the rise of the Japanese after the war was to do with
the drive by the Americans to change the whole nature of the country.

Maybe we should pick a barny with the US so they can help us to re-construct!!

Phew, Japan paid a very high price to get that re-construction aid

[Evanism]

Is Australia in danger of becoming one of the world's primitive economies??

Australia is an emerging economy. We might be economically strong but we have the hallmarks of a primitive emerging economy...I.e no manufacturing industry, reliance on raw material exports, minimal trading partners (3 cover 90%), unskilled labour (mining), a large current account deficit and a rapid uncontrolled rise in consumer prices (housing).

We are subject to the successes of our partner economies for exports.

We won't BECOME one of the great primitive economies, we ARE a primitive economy.

We have lost, or are going to lose, most of our manufacturing ability and much
of our computer work is now outsourced. It looks as though our ability to can fruit is going to be lost.

This is simply a reflection of the anti-business, protected market duopolies that really govern this country. There IS NO competition. Small business is disincentivised. Technology in all forms is driven off shore. Those businesses that do remain are reliant on subsidies for their very existence. Licensing and rent-seeking behaviours dominate business and investment. Protectionist policies guarantee monopolies. Taxes are complex and finally, socialism is the underlying support structure for all businesses that are not mining oriented.

The ASX reflects this.

This is the country that was the third to launch a satellite, the one that first developed
digital technology, only to have it shelved because of a timid government. We have
skited much about our solar research and development, but has it got us anywhere?
We seem to be too bloody stupid or laid back to adopt more green technology.At one
time we had an aircraftindusrty

What do we do at the moment? I contend that we are a nation of hunter/fisher gatherers.
We dig blood y great holes in the ground to gather coal , ion ore and iron ore. We fish the
ocean. We gather wheat and wool and we gather up cattle for export.

How do we overcome this position??

Australia is doomed. Let me restate this...Australia is utterly, completely and irretrievably doomed.

It cannot be fixed...it can be delayed and it will look "fixed" but the market will force the recorrection.

The real rot set in in the 80's. This is studied at Uni in economics. Australia has an insanely complex tax system, intense bureaucratic inertia, a paralysed government (regardless of party, it's a reflection of our system) an ageing population, a demographic nightmare and personal levels of debt that are the highest in the world.

It is discussed at almost infinite length on the many free newsletters from The Daily Reckoning. Authors have published on this too, especially Harry Dent. While they are "doom enthusiasts" they outline their positions with clarity and conviction.

You would be right to think my words are pretty strong and they are. I'm typing this with a cool head and not trying to look like I'm ranting. BUT, it's time people opened their eyes and saw what was really happening...not from the government news, papers and TV, but from businesses, household debt (look at the huge number of debt management ads on TV. Hhhmmmm?????) and rapid industrial contractions we are seeing daily (mine closures, infrastructure pullouts, Holden, ford, Toyota, spc....that's only this week). Just read the financial news and ask yourself "why". Ask why all these things are happening.

Join your own dots.....you can feel it in your guts. You know you can.

The volume of money heaved around by our government during this process will be spectacular. All levels of Government will be bailing out everything left right and centre. Families will be issued with enormous cheques. Taxes on the wealthy will hit 75%. Government tax collection will be fuelled by angry mobs demanding "they" pay "their fair share".

Unemployment will go stratospheric, we will experience a very rapid series of hyperinflation/debt-deflation events, followed by a long term unstoppable bi-flation recorrection (basic item prices rise, capital items universally deflate).

These last two events will level the playing field, but it will be written about for a thousand years.

It makes me sad and I hope it doesn't end this way. But, hope won't solve the problem, only the markets can and the markets are now controlled by interventionist agendas.

[artme]

An interesting view Evan. Not sure I agree with all you say but the general pessimism you express is certainly warranted.
Where are the subsidies you talk of? One thing this country has done , and other countries have not, is to abolish subsidies and tariffs.

I think a number of things have cost this country dearly over last 40 years, and governments on both sides are to blame.
We are going to have to grit our teeth and suffer a huge amount of pain and angst if the country is to be sorted out.

Looking at Economies like China, planned, and India -not so deliberately planned - we can see that both have benefited
from very low wages and a vast workforce. These are luxuries we don't have.

Brasil is an interesting case. It has a young population and a low wage large workforce. It is moving ahead rapidly despite massive
corruption and a staggering burden of bureaucracy. For instance they have the 3rd largest aircraft manufacturing operation in the world.
Of course they help themselves with tariff barriers and huge imposts for sending money out of the country _ something like 23% for overseas bank transfers.

Argentina has a crap economy but at least they manufacture motor vehicles on a pretty fair scale.
Chile, like Australia, relies heavily on mining for its income. I can't say much about other Sth. American countries except that Paraguay is quite stable.

The big benefit for these countries is market size and the fact that they have pretty good trade agreements.

Another affliction for this country is greed. Many years ago now I saw a (4 Corners ?) program in which the case of an electronic control box for a Caterpillar
diesel engine was used to illustrate this point. The manufacturer in the States got $12. The part here cost $480.!!

[steamingbill]

Australia is an emerging economy. We might be economically strong but we have the hallmarks of a primitive emerging economy...I.e no manufacturing industry, reliance on raw material exports, minimal trading partners (3 cover 90%), unskilled labour (mining), a large current account deficit and a rapid uncontrolled rise in consumer prices (housing).

We are subject to the successes of our partner economies for exports.

We won't BECOME one of the great primitive economies, we ARE a primitive economy.

Hey Evan,

Until I read the above I always thought we were something more than an emerging economy, maybe a declining economy, however if it is the case surely Artmes question becomes "How does an emerging economy grow ?"

I guess most emerging economies would have far lower wages and standards of living than we do ? Are the rest of the Commonwealth countries similar to us, that is emerging economies that used to be stronger ?

Do we need a heap more people to give us a critical mass that will make and buy things from itself ? We've got the raw materials and the potential to feed ourselves.

I get the daily reckoning and stopped reading it as I thought it was all "scary scary scary but wait ! buy our newletter and YOU will be okay."

I dont particularly follow politics so forgive the naive question - Where should I look to find the relevant policies and wise thoughts on this issue from the various political parties ? WHats the right terms to put into a google search ?

Australian Labour Party Manufacturing Policy - this gives some interesting hits

Australian Liberal Party Growing the Australian Economy -this too gives some hits

Off to play with Google for a while ............. EDIT ........................... I found this http://www.innovation.gov.au/industr...ufacturing.pdf

Am wading through the exec summary, its a bit verbose for a summary ...................

Bill

[Evanism]

"we're from the government. We are here to help".

These according to Ronald Raygun are the 9 most terrifying words in the English language.

Steamingbill, the government is never the answer. Regardless of policies, whether benign or otherwise, will be overtaken by greed, manipulators, rent seekers and favouritism. Churchill said basically this when he said that democracy is the least worst form of government (as well as a 5 minute conversation with the average voter will show how bad an idea it is).

Government is ultimately a means of trying to correct the failures of the market.

I don't subscribe to politics, as a generalisation, simply because they become mainstream. They try to accommodate everybody and this fails. Democracy is a terrible system of delivering outcomes as it leads to public debt and entitlement.

Look at The Greens. Their basic idea when they started was simple: stop destroying stuff, look after the environment, it matters. Now they are basically communists pretending to be environmentalists. They will fail.

Like greenpeace. Same thing. The originator left as it was taken over by "Ratbags". They tried to ban Chlorine. It is an atom. They honestly tried to ban part of the periodic table.

Liberals are trying but will ultimately fail because they cannot accommodate small business, creative destruction and the evolution of ideas. Their mindset is narrow. I can tell you more but this isn't the place.

Labor, well, less said of them the better. Communism is a proven failure. Handouts leads to corruption and free public money....well, we all saw the result of the kids in charge of the candy store.

How does an economy emerge? Simple. Almost trivial.....IT MAKES THINGS.

It makes high end, technological items that met a market demand at a market price.

This isn't about iPhones when I mean tech. It's biochemistry, sciences, technical manufacturing, aerospace, consumer goods, education, art, design, focus of mind.

It isn't about consumerism, but As BobL pointed out: limiting rent seeker behaviour (lawyers), education, hard work, savings (there is a trap there too), manufacturing, economic diversity, non reliance of government subsidies.

Once these are genuinely put in place then genuine growth occurs. A society grows and becomes richer, both materially and monetarily (not "dollars", whatever they are), culturally sophisticated and resilient.

Unfortunately, we...the west, us...Australia, have become lazy with the easy option of selling the stuff we rape from the land. We are not the clever country, or smart, or sophisticated. We are a farm. A hole in the ground. A woodchip supplier!

This country has been taken over by The Bogan. A selfish, uncultured, uneducated, entitled, government handout recipient. Opinion without education, rich without effort, uncultured ("I dun gon to Bali!") and expectant that the government will provide all their answers...like mum and dad would....

We have lost our way.

There is too much inertia to correct it willingly. The market will do it. It will be a white hot seering agony that will burn everyone in the process. Some will become rich, but the vast majority will become vastly poorer. The market can be held back for a time, it can even be controlled to an extent, but it can never be tamed. It reverts all back to the mean.

It is a reflection of nature itself. We can no more control the market any more than we can ban chlorine.

Ergo, Australia is utterly doomed. Doomed to be the worlds quary. Forever suppliers to the Chinas of the world and the buyer of Other People's Stuff.







.

[rob streeper]

It sounds as though the feelings in Australia are similar in many ways to the popular sentiments among the middle class here.

I just finished a very interesting book by Vaclav Smil entitled 'Made in the USA: The Rise and Retreat of American Manufacturing'. Smil presents a chronological perspective of the origins, rise and decline of the manufacturing base of the US. He attributes part of the decline to the commonly accepted idea that off-shoring of low skill manufacturing is part of the normal development of an advanced economy but he also details the precipitous declines in many areas of high tech manufacturing. He points to the tax advantage that the US government confers on overseas corporate profits as a major force in the decline.

I see other drivers, the most fundamental of which is: High tech manufacturing relies on the existence highly skilled and highly educated workforce and producing such a workforce takes time. In addition, high tech manufacturing depends heavily on intellectual property, discoveries and know-how that is the product of the skilled workforce, call it 'intellectual capital'. Producing intellectual capital also takes time and is subject to the vagaries of happenstance.

Capital on the other hand is seeking the maximum return in the shortest possible time. For example in the form of quarterly revenue and earnings reports. The creation of a skilled workforce and intellectual capital takes years to decades or in some cases generations. For instance, Gregor Mendel did his pioneering experiments on inheritance in peas between 1856 and 1863. Watson and Crick published the structure of DNA in 1953. The first wave of biotechnology companies came around in the 1980's. Would any modern investor put money in a century long development cycle?

Investors in the US have been driving a steady trend of disinvestment in research in many areas, it is just too uncertain and has too long a time scale to attract their interest. The drug companies here have been dumping R&D programs and personnel for at least 15 years. These functions are now being outsourced to India and China along with raw materials and finished product manufacturing.

As a result students in the US are often finding that their skills are not wanted as the market for them has disappeared while they are in school. The US is heavily focused on extractive industry, especially hydraulic fracturing for gas and oil. There has been a shift in employment from productive occupations to so called service jobs - unfortunately the bulk of this service is waiting tables, stocking shelves and other customer service occupations. The average wage in the US has now regressed to levels of the 1980's. The middle class is dying. Walmart, one of our major retailers and the biggest private employer in the world, recently lowered its projected earnings because they expect the recent government decision to decrease food aid to the poor will cut into their bottom line. It has also been reported that Walmart pays its workers so little that many rely on public assistance and food aid to get by.

Overall, I see that the dictates of capital are driving the US economy down and likely yours too. I feel that the US is headed to a more primitive economy, much like that described by Charles Dickens.

[artme]

Rob, from what I read and the commentary I hear on TV and radio you have confirmed my general thoughts about both economies.

I wonder what influence on the flow of capital and the constant chasing of ever higher profits is provided by TV reports and the greater
access to detailed stock market and financial analysis. Couple this with an ever increasing desire to be rich and famous and we are on a
very slippery slope indeed.

[rob streeper]

Rob, from what I read and the commentary I hear on TV and radio you have confirmed my general thoughts about both economies.

I wonder what influence on the flow of capital and the constant chasing of ever higher profits is provided by TV reports and the greater
access to detailed stock market and financial analysis. Couple this with an ever increasing desire to be rich and famous and we are on a
very slippery slope indeed.

I think the advent of high speed information technologies is the key enabler for high returns of investments. Even a century ago there were stock tickers that enabled traders to work off of the trading floors and now we have high speed traders who operate on milli/nanosecond timescales. These companies actually jockey for prime real-estate that is closer to the exchanges so that they can get an edge on others by being just a little closer and therefore faster.

I also see the loosening of capital controls, such as the North American Free Trade Agreement and the Trans-pacific Partnership as methods by which capital can more easily transit and thereby overcome national boundaries and laws.

I wonder if the money managers' model may be to raid the economy of a country, extract all of its accumulated value and then flee the jurisdiction.

In the early 2000's our then vice President, Dick Cheney, re-denominated a significant portion of his assets to euro's from dollars. This happened when the euro was still trading at about $0.80US. Shortly thereafter the euro was up to $1.25US. Now of course he didn't exploit his position to get some inside information now did he? All perfectly legal.

[BobL]

In terms of Exports there is a BIG difference between the US and AUS.
In the following diagrams the main manufacturing areas are coloured in pink and blue, the rest is basically primary products.
This is 2010 data so if anything the Australian situation is probably even worse



There are many similarities in other aspects of the economies like, huge imports of trashy stuff from China, wasteful energy usage and rampant consumerism.
As well as major manufacturing industries the US also gets external income from services and other products like education, software and entertainment so it has a much more diversified economy than AUS.

[Evanism]

I wonder if the money managers' model may be to raid the economy of a country, extract all of its accumulated value and then flee the jurisdiction.

This is the Carry Trade. It's a huge part of how the banks operate here. They have a massive dollar position that regularly unwinds violently so they hedge with other currencies. When they increase in value, the banks sell, often causing another violent price change. The AUD is one of the most traded currencies in the world, which is madness. We are a country of 23 million.

We have also had a spectacular example of a raid.

It was called the Myer Debacle. Effectively, one of our biggest retailers was privatised, stripped for cash, loaded up with debt, floated and an enormous sum was creamed off and sent to tax havens on the very day of the float. Offices were closed and private jets left the country the next morning. It was one of the most spectacular acts of corporate bastardry I've ever witnessed.

It put a tear in this capitalist eye. Purely magnificent.

[rob streeper]

In terms of Exports there is a BIG difference between the US and AUS.
In the following diagrams the main manufacturing areas are coloured in pink and blue, the rest is basically primary products.
This is 2010 data so if anything the Australian situation is probably even worse



There are many similarities in other aspects of the economies like, huge imports of trashy stuff from China, wasteful energy usage and rampant consumerism.
As well as major manufacturing industries the US also gets external income from services and other products like education, software and entertainment so it has a much more diversified economy than AUS.

Hi Bob,

I agree, in many of the ways in which economies are quantified the differences between Australia and the US are enormous. As I mentioned in my above post, there is one element that is not well accounted - the intellectual capital of society. I know my definition is crude but I think the concept captures the essence.

I am reminded of a documentary I watched recently. In it a US factory owner was interviewed. The company formerly made plywood. The business functions were outsourced to China and the equipment was sent over to them too. The company employees trained their Chinese successors. The owner said that he was selling product cheaper than it could be made here and indeed at the cost to make it in China. He made his money however through a 17% subsidy (kickback) from the Chinese government. Thus his equipment and the experience of his employees had effectively been exported to China. I don't believe that the accounting presented above includes such exports.

Smil wrote that one of the major US exports to China was waste paper. Now one could argue that waste paper is the byproduct or waste product of an intellectual service economy but through a different lens it could also be seen as a scrapper/scavenger collecting the refuse of a dying economy.

Australia is different. Your country is closer and you have a lot of the feedstocks that Chinese industry needs. I see similarities in that extraction is extraction, whether it is the intellectual capital of a society or it is coal and iron ore.

Cheers,
Rob

[rob streeper]

This is the Carry Trade. It's a huge part of how the banks operate here. They have a massive dollar position that regularly unwinds violently so they hedge with other currencies. When they increase in value, the banks sell, often causing another violent price change. The AUD is one of the most traded currencies in the world, which is madness. We are a country of 23 million.

We have also had a spectacular example of a raid.

It was called the Myer Debacle. Effectively, one of our biggest retailers was privatised, stripped for cash, loaded up with debt, floated and an enormous sum was creamed off and sent to tax havens on the very day of the float. Offices were closed and private jets left the country the next morning. It was one of the most spectacular acts of corporate bastardry I've ever witnessed.

It put a tear in this capitalist eye. Purely magnificent.

Sad thing is that everybody excepting the capitalists and the politicians they employ get the hind tit and the bail-out-bill as happened here with our "too big to fail banks".

[BobL]

. . . I don't believe that the accounting presented above includes such exports. . . . .

Unless outsourcing a process to another country generates a net direct $ return from that country (e.g. licence fees for using IP) I can't see how that is considered as an export.

Aside from giving away IP voluntarily there's lots of illegal IP transfer, software and media piracy comes to mind.

Not that I am a Microsoft fan or that BG needs any more money, but at one stage in the late 1990s there were something like only 9 times more Windows PCs being sold worldwide than there were Windows licences.