Alex Mitchell is one of the political writers I’ve always enjoyed reading. Today he excels himself in The New Matilda, with a post on other journalists–specifically economic journalists–that really goes for the jugular.
Overall I think Anatole Kaletsky is on the more important track, to destroy the unjustified credibility of the academic neoclassical economists whose theories justified the nonsense that gave us this crisis, and whose inane theories “the bottom feeders” repackaged for popular consumption through the media (see Fabulous attack on neoclassical economics by Anatole Kaletsky for my commentary, and Economists are the forgotten guilty men for the original article). But those bottom feeders also deserve to be whacked over the head too, and Mitchell does this in great style.
A blogger reminded me that though I give Kaletsky some praise above, he was a UK version of the local bottom feeders that Mitchell has in mind, repackaging academic neoclassical papers for popular consumption and generally being Panglossian about the likely severity of this crisis until a recent “Road to Damascus” moment. But that said, he deserves credit for the rising tide of “I got it wrong” comments that he has made in The Times. I’ve yet to see one by the local crop–with the possible exception of a piece by Michael Pascoe in which he acknowledged that his “don’t panic” advice at the beginning of 2008 was wrong, and the best investment strategy that year was in fact to panic (and withdraw all your funds from the stock market).
Here are a few excerpts from Mitchell’s piece to whet the appetite, but I highly recommend reading the whole article on The New Matilda site. Over to you Alex:
Note to economics writers: your beloved free market is dead. Now tell us the real story about the global financial crisis, writes Alex Mitchell.
For many years it was my conscientious belief that the worst practitioners in the media were celebrity reporters who did little more than rewrite press handouts supplied by agents for limelight-seeking B-grade actors and pop stars.
I’ve now revised my views and am convinced that the media’s bottom-feeders are the economics writers.
In so-called normal times, these erudite commentators wrote very little and not very often. Indeed, they rarely came to work and weren’t seen around newsrooms. They sat at home in their book-lined studies mousing their way through international websites looking for ideas for something to write about.
Having plagiarised a letter from The Economist, an editorial from the Washington Post, an article from the Far East Economic Review or the in-house report from a leading investment bank, they appeared in print, glowing with wisdom.
But when the world economy turned nasty, these charlatans and hucksters were quickly unmasked and regular reporters started asking each other: has that bald-headed egomaniac on three times my salary got any clothes on or not? Answer: No!…
Are the economics writers warning of these implicit dangers? No, they’re hopelessly at sea giving risible interviews to the ABC trying to convince listeners that their beloved free market will be resuscitated, if not this year then next.
I can’t help wondering who is his most specific role model here; I do have my suspicions…
February 24th, 2009 at 11:14 pm
Funny,the following was written by a baby boomer (Bob Dylan) and has such resonance today.
Irony….. an outcome of events contrary to what was, or might have been, expected.
The Times They Are A-Changin’
Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.
Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’.
For the loser now
Will be later to win
For the times they are a-changin’.
Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’.
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.
Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’.
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.
The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’.
And the first one now
Will later be last
For the times they are a-changin’.
February 25th, 2009 at 12:28 am
Dr. Keen, you seem a little bitter…
February 25th, 2009 at 1:44 am
“Overall I think Anatole Kaletsky is on the more important track, to destroy the unjustified credibility of the academic neoclassical economists whose theories justified the nonsense that gave us this crisis, and whose inane theories “the bottom feeders” repackaged for popular consumption through the media”.
You think that’s what Kaletsky is about? There is more joy in heaven over one bottom feeder that repenteth?
When I read your original ‘Fabulous’ post I assumed you were being, at least partly, ironic, since you’re presumably familiar with his previous pronouncements. For those of your readers who have not had the pleasure of reading his articles, a few quotes;
“The masters of political economy should, however, leave us confident that in a capitalist system “something will turn up”, as Mr Micawber put it – a much more reasonable expectation, in a market economy, than most people realise. And pretty soon what will turn up will be the world economy”, since “these qualitative economic theories tell us that the creative force of the profit motive, backed by the expansionary power of ultra-low interest rates and government deficit spending, will eventually prevail.”
“Economic paralysis seems like an immovable object. But dramatic interest rate cuts can shift it”
“It is right to flood the world economy with newly printed money – as long as we know when to stop”
“Punish savers and make them spend. Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively.”
Slightly worrying was “but what I think is of little importance, especially as I have been wrong about so many aspects of this crisis – as have most conventional economists and policymakers, whose views I broadly share.” However, in his latest article (subsequent to his apparent Damascene conversion) he tells us that “the policies needed to save the private banking system are obvious: stronger deposit guarantees; government insurance for toxic assets and against catastrophic credit losses; partial forgiveness of mortgage loans; binding commitments on lending to non-financial borrowers.” So that’s alright then.
An interesting snippet from his last article before that announcing his conversion; “At Davos last week I put [this argument] to three Nobel laureate economists who happened to be in a room at the same time. They looked at each other in bafflement and then responded in unison: “That’s a good point””.
If you were of a cynical turn of mind you might think that the reaction in the circles in which Kalesky moves to this ludicrously pompous preening may have had something to do with his subsequent ideological somersault.
Beware sheep in wolves’ clothing.
February 25th, 2009 at 4:28 am
Yes, I realised after I had posted that piece that I should have pointed out that Kaletsky was once precisely the sort of writer whom Mitchell was targetting.
However even his old stuff doesn’t compare to that of a colleague, Gerard Baker, who wrote in The Times of London on January 19, 2007:
Welcome to ‘the Great Moderation’ Historians will marvel at the stability of our era.
“Economists have coined a term for this remarkable period of stability. Taking their cue from the Great Depression of the 1930s and the Great Inflation of the 1970s and 1980s, they have called the current era the Great Moderation.”
Yeah, right. That piece, and its timing, was so bad that it tops my “Priceless” list in the Brickbats page.
In his byline, he is described as “United States Editor and an Assistant Editor of The Times. He joined in 2004 from the Financial Times, where he had spent over ten years as Tokyo correspondent and Washington Bureau Chief. His weekly oped column appears on Fridays”.
So yes, beware sheep in wolves clothing as you put it; but also too, give a sheep credit for admitting to the subterfuge in the first place.
I’m still waiting for any of the established economic journalists over here to admit they’re lambs chops disguised as jaws of steel.
February 25th, 2009 at 7:47 am
Apologies for the once again off-topic post, I am not sure if there is an appropriate place for it. Please of course feel free to delete if this is not apt.
I was wondering what you guys thought about the following idea: It seems to me that as well as the financial crisis, we have a number of ecological crises facing us pretty soon down the road. Primarily water distribution and aquifer depletion I think, and the resulting food shortages. It occurred to me that the right system of incentives could be put in place to minimise externalities and change the economic conditions in such a way that there would be a much greater likelihood of new technologies being developed, and less resistance to challenging the current establishment (eg the oil industry and so on)
Seeing as that in all probability banks will in the near future be either nationalised or highly regulated entities, where credit extension will be much more conservative, I would assume that the way forward is going to be much more technology oriented.
It occurred to me then that perhaps a way forward even for this financial crisis, would be to embrace tight regulation on the banks and financial institutions, to help create new systems of incentives that encourage switches to renewable energy and so on.
So my question is, if you accept the above premises, what do you think about the idea of under these conditions moving en masse to a Hydrogen economy, using the same infrastructure for both water and energy distribution (H burning for energy results in water, desalinasiation by wind power for water production and H production, etc)? If this were to be strongly encouraged, if not decreed, would this provide the stimulus necessary to both get out of the crisis and have a sustainable future?
February 25th, 2009 at 9:00 am
It’s an interesting topic Frank, and here is as good a place as any in the blog. I’d caution two things though:
Firstly hydrogen economics are nowhere near as good as most people think, because hydrogen is such a volatile chemical and so hard to store. My systems engineer colleague Trond Andresen has done a convincing analysis that shows that when you compare end-to-end efficiency, a hydrogen economy is less effective than using current high end battery technology (I’ve asked him to post that file on the web). The reason is that the energy conversion costs (solar to H20 hydrogen/oxygen splitting, freezing to near absolute zero, and exploding back again into water in the engine) and material losses via leakage (hydrogen atoms can escape almost any container because it’s the smallest element; leakage can be reduced but not eliminated) make even plausibly high efficiency conversion processes less effective than straight solar to electric to storage in batteries and energy release that way.
A web-accessible analysis is available at Why A Hydrogen Economy Doesn’t Make Sense.
Secondly, cutting energy consumption significantly may be better served by changing our whole mode of transport, rather than changing the type of vehicle that clogs up our roads. On this front, another of Trond’s passions, the hypothetical low cost magnetic levitation transportation system Skytran is well worth a look: check http://www.unimodal.com/.
Having said that, I have argued in public forums (and yesterday on ABC Statewide Drive) that revising our energy and transportation systems may be the only Third World War we can afford to employ the unemployed and restart innovation after this crisis. So I’m more than happy to see the topic discussed here, especially if our engineer bloggers engage their brains on this one.
February 25th, 2009 at 9:17 am
20 years from now the dominant economic school could be Keensianism, btw Steve do you know when the new podcasts will be up
February 25th, 2009 at 9:59 am
Hi Steve & all.
Reading the full article I could not help noticing the mention of the ‘economic Illuminati’. For anyone not sure of this the following link is a good description.
http://www.thetruthseeker.co.uk/article.asp?ID=1
When in business my mother once made the comment to me re business/life. “He who rides the tiger cannot dismount”. How true it is.
Cheers CK.
February 25th, 2009 at 10:06 am
Re Energy, Algae Biofuel looks to be a very realistic means of fueling trucks and trains etc that can’t be powered by batteries currently.
According to Wiki 1/7 the area of the current US corn crop is all land area required to completely replace foreign oil there.
The best bit is Algae can be grown on infertile land or at sea and can be fed with waste from factories like pulp mills or from treated sewage.
To me it seems that this could be an ideal use for desert areas where brackish water is available…Parts of Australia come to mind. It’s not like there is any shortage of this type of land.
I believe we are on the cusp of revolution here. All that is needed is leadership….
February 25th, 2009 at 10:12 am
Nope ickers, just amused. I expected to cop flak when I started making my fears about a recession public, and if they hadn’t come, I would have been disappointed. But I also expected a turnaround as the cheerleaders for the never-ending boom began to see their dream fall apart. Kaletsky’s was the first prominent newspaper economist to make that argument about academic economics, and Mitchell’s the first to have a go at the newspaper economists themselves.
It’s all good fun, in a way. I just hope that a few of them have the integrity to admit they got it wrong at some stage. I’ll reserve my bitterness–or acerbic commentary–for those that don’t do so. But it’s still some time before one could expect that in the Australian context.
February 25th, 2009 at 1:22 pm
Consumer sentiment is collapsing in the US to record low levels;
http://www.calculatedriskblog.com/2009/02/on-consumer-confidence.html
http://1.bp.blogspot.com/_pMscxxELHEg/SaSCHnfgDrI/AAAAAAAAEnQ/72wKXC4gKeM/s1600-h/ConsumerconfidenceFeb2009.jpg
Let’s see if KRudd’s and Steven’s efforts at data and news spin can prevent a similar debacle here.
February 25th, 2009 at 1:46 pm
When I heard on the radio whilst driving this morning the report of what Bernanke said to the Senate Hearing ( yesterday), the following reflects my reaction ( between laughing/crying).
But I couldn’t have put it as well as
CHRI MAYER for The Daily Reckoning Australia
“Didn’t anyone notice the “if?”
–Stocks in the U.S. were up overnight. Here in Australia, the blind are following where the deaf boldly lead. But is anyone listening? Or is everyone too busy hoping?
–What we’re talking about are Ben Bernanke’s comments. The news headlines read that he predicted the recession will end later this year and the American economy will recover in 2010. But that’s not exactly what he said.
–Here exactly is what he said, “If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability–and only if that is the case, in my view–there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.”
–If you wanted to put it another way, it might go like this: If our plan is successful to solve all the problems, then all the problems will have been successfully solved according to the plan.
–How inspiring is that? Does it give you confidence that these guys have any idea what they’re doing?
–What the system needs is more instability, not less. That is, prices and asset values need to fall to their real level to restore confidence. In this sense, a proper recession is the cure for uncertainty and instability.
–Yes, we know this is in direct contradiction to what elected officials are telling you. But think for a moment of a man who’s done nothing but eat greasy and fatty foods for a year. He’s on his deathbed. His arteries are clogged with fat and cholesterol.
–Now you couldn’t improve the man’s health by telling him to feel better about himself. “C’mon big fella. Buck up! Have another cheese burger. With bacon. And avocado. This whole being morbidly obese and killing yourself thing is all in your head. You gotta get your mind right!”
–You could tell him all that. But it would be bad medical advice. In the same way, our financial mal-practitioners have mis-diagnosed the economy. Confidence is not the problem. Bad credits and loans are the problem.
–You restore confidence when you directly address the problem. Investors get out of cash and back into shares or property when they have demonstrable proof that the banks aren’t hiding/lying any longer.
–Or, as Murray Rothbard puts it in America’s Great Depression, “The completion of liquidation removes the uncertainties of impending bankruptcy and ends the borrowers’ scramble for cash. A rapid unhampered fall in prices, both in general, and in particularly in goods of higher orders (adjusting to the mal-investments of the boom) will speedily end the realignment processes and remove expectations of further declines.”
–But instead of realigning with economic reality, our policy makers are acting as if it is possible to sustain all the bad investments made during the credit boom. They want to save homeowners, shareholders, bondholders, and pretty much anyone who stands to lose from the risks gone bad.
–That is not possible. Someone has to pay for the bad bets made in subprime loans, Eastern Europe, or the developing world. That someone is probably a) the guy who took out the mortgage he can’t repay, b) the bank who made the loan to the guy who took out the mortgage he can’t repay, c) the investor who bought the bond sold by the bank who made the loan to the guy who took out the mortgage he can’t repay.
–Evading responsibility for one’s actions doesn’t solve anything. Making other people pay for them doesn’t help much either. Of course we’re all going to pay for it one way or another, through more bailouts or the general contraction in credit and growth that has to come during the “realignment process.”
–But those appear to be the two choices: allow failure, which allocates resources from the bad debts and losers to those who can produce real wealth. Or, try to “stabilise” any inherently unstable situation (perpetuating asset values after the credit spigot has been turned off).
–Not that we’re absolving market institutions for getting us into the problem. The credit ratings agencies essentially sold investment grade ratings on issues they didn’t or couldn’t understand. AIG sold default insurance on CDOs to make an easy buck. It’s now become a black hole for taxpayer capital.
–But that is fictitious financial capitalism at work, or at waste if you prefer. That kind of financial capitalism is dead, and good riddance. But don’t mistake that episode of mismanagement and theft for conclusive proof that “capitalism” has failed. That would be a big mistake.
–But the commies are feeling their oats these days. Yes, the commies are back in the DR mailbox. They’re in the paper. They’re even on TV. We saw a report on them last night and how their explanation of the financial crisis validates what they’ve been saying all along. “
February 25th, 2009 at 2:50 pm
Finally, something in the popular press (Mr Mitchell’s piece) we can believe in…!! thanks Dr Keen!It might just be starting to happen…….the truth might be coming to the ‘press’ near you!!I can see the ‘headline’ in the ‘TELLI’: Deep Recession In Australia,Rudd government set for new battle with hard economic landing!
February 25th, 2009 at 3:06 pm
al49er:
Sorry, Murray Rothbard = witch doctor. This is not to defend Bernanke or any of the rest of the crap that has been going down. But there is a world of difference between the fallacious liquidationist argument and the valid, if difficult, restructuring argument.
February 25th, 2009 at 3:18 pm
Hi j.c.halasz.
The Rothbard reference was 1 par out of 18. The point of my sharing it here is to highlight how they don’t get it ( or do and don’t acknowledge) whilst maintaining the stupid qualifying statements.
I think this Chris Mayer said it well and I would think that if Paul keating, Pauline Hanson, Julia Gillard or Malcolm Fraser said it.
February 25th, 2009 at 4:24 pm
It bemuses me to once again watch a fumbling attempt to explain what the hell is going on in the economy.
Last nights interview of Dr Fank Gelber of Bis Shrapnel by Ali Moore on Business Lateline was if not sickening inadequate was truly ill defined.
Seems we’re all in a soup bowl together with our helmsmen positively sure those dark foreboding clouds ahead aren’t a financial tsunami but just a mirage of our poor oversea fellows bobbing in some other bleak ocean.
What’s the damping factor? Why is there a credit squeeze? How do you know that this new thing, precautionary saving by people who fear unemployment is actually happening? But quite willing to prescribe, that it won’t be to 2012 before we see clear skies again. How???
February 25th, 2009 at 5:12 pm
Anyone please care to comment on the chances of Obama’s plan to cut the u.s. defecit by 2 trillion?Economically Possible? or political spin? Any comments would be welcome.
February 25th, 2009 at 5:51 pm
tommyt,
Hard to imagine Obama’s Administration cutting back expenditure in the face of this kind of collapse;
“‘Bottom Falls Out’
“Just when you think confidence can’t go any lower, the bottom falls out of it, and you can be sure the rest of the economy is not far behind,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, which had the lowest forecast. “If consumers’ spending matches their flagging spirits, this recession is going longer and deeper.”
http://www.bloomberg.com/apps/news?pid=20601068&sid=av4BHgGPQ5Es&refer=home
If Obama parks up several carrier battle groups, raises taxes, pulls out of Iraq and Chaostan ,reins in US Govt spending accross the board- he may have a slim chance. If not I would consider this just another pathetic attempt to appease the markets, probably the bond market which is growing more restless at the onset of the approaching tsunami of new US Govt debt issues- which Hillary is over in China begging them to cough up for.In short, just more BS.
February 25th, 2009 at 6:37 pm
I used to read the Sydney Morning Herald (SMH) from cover to cover, particularly the business section. Now it takes me a few minutes to scan.
What’s going on?
Like I’m sure most of you guys do. I read publications and blog sites from around the world.
Yesterday the SMH printed a story quoting Craig James as saying that Oz may avoid a recession. But when I read reports on Japan, America, The UK, Europe and China, the stories are positively apocalyptic. Has anyone noticed how virtually useless reading the local papers have become?
How long will it take Australia and its MSM to wake up to what is here and what is coming?
February 25th, 2009 at 6:52 pm
Hey Steve,
If it’s not too hard to manage, could you put links to your/other latest media on your media page ?(e.g. you on drive “Having said that, I have argued in public forums (and yesterday on ABC Statewide Drive)”).
It seems a little behind at the moment.
Thanks.
February 25th, 2009 at 7:10 pm
I had a look at the link showing the inefficiencies of a Hydrogen economy. My own opinion is that it probably depends where you are in the world. If the mere consumption of Hydrogen produces water, then it’s use doubles up as a water distribution network. For a country like Israel that spends a fortune on its military largely because of its ultra-paranoid attitude to its fragile water distribution system, this could result in an immeasurable cost-saving. Another thing is that to be honest, I like the idea of an internal combustion engine running on Hydrogen. You get to have a clean motor and still get the loud BRRRUMM that we all love
Put a price on that one! Also, with the battery model I have reservations about the potential demand for resources like Lithium and the costs there.
However, it raises interesting questions about what kind of political system we could end up having:
How does a government put a value on current externalities? First, the government would have to be largely *driven* by scientific input. This would be one set of input used to tax/subsidise. The other is that the populace would need to be somehow (directly?) involved in quantifying their preferences. I mean for example, if H2 internal combustion engines were noisy, but electric motors not, and people preferred quiet roads, they would need to somehow express that – somehow be able to state how much a silent highway is worth to them (for example).
February 25th, 2009 at 7:57 pm
Frank
What we are talking about is energy. The efficiency of a hydrogen powered internal combustion engine, from the hydrogen generation to the road, is less than 25% as against the 90% of a battery powered electric motor. This means that you would need to burn 3.5 tonnes of coal when 1 tonne would do for an battery powered vehicle. The battery powered vehicle itself has no emmissions whereas the hydrogen powered vehicle may have some nasties aswell as the water.
The fuel storage is also a very big problem with unavoidable leakage from a very heavy vessel causing all sorts of hazards. I would not like to drive a hydrogen powered vehicle for fear of explosion.
You raise an interresting point about value of the information and technology. Since the rise of managerializm the west has lost the plot handing this over to Japan and the rest of Asia for free. Now we pay for it.
February 25th, 2009 at 8:46 pm
Hi BrightSpark1
My research shows me that Hydrogen storage is actually safer than petrol/gasoline storage. However, current Hydrogen tanks for Hydrogen cars and buses (by the way we have a number of Hydrogen fuel stations in Europe, but not many)
are made of carbon fibre. These tanks are much stronger than standard fuel tanks. Tests with these tanks included for example a 50mph head on collision directly into the tank resulting in no damage or alteration to the tank. Also, hydrogen flame does not generate radiant heat so you would actually need to be physically IN a hydrogen flame to be burnt. Also, hydrogen does not get absorbed into skin or materials causing a wick effect.
Regarding energy efficiency, yes the efficiency of an electric motor powered by charging of a battery with energy from solar power is probably a better system than H2. However, this is narrowing the picture too much. It would be necessary to work out where the rare minerals such as Lithium would come from for the batteries, how they would be mined, and how sustainable that is. It would be necessary to compare the direct charging system with hybridising fuel consumption with water distribution.
But finally the most important thing, I think one important aim for the future should be to create a system of incentives that relies on and encourages energy *abundance* rather than scarcity. In this context as long as there were no detrimental externalities and as long as the process was sustainable, large degrees of efficiency should not need to be an important consideration.
February 25th, 2009 at 8:53 pm
…or I should say, that if heat lost to planet as wastage became an important externality, then the incentive should be there to capture it.
I suppose this, in combination with some governmental system for assessing externalities,should allow for ‘the market’ to decide the way forward.
February 25th, 2009 at 10:09 pm
Yes al49er I hate how the news bulletins I watched were reporting a recovery based on the meaningless comments by Ben Bernanke. I guess he is trying to confuse people into postivity while ensuring he can’t be accused of being wrong – “Ah but notice I only said ‘If’ you see!”
I guess when you no longer have any idea you can only resort to gibberish
February 25th, 2009 at 10:27 pm
Hi all, and to Al49er – welcome back!
For those of you in Super Funds you might find these excerpts interesting/disturbing. ‘Super Fund Whiplash’, Alan Kohler from the Business Spectator site: http://www.businessspectator.com.au/bs.nsf/Article/Delayed-wealth-destruction-$pd20090225-PKRKJ?OpenDocument&src=sph
‘Australia’s super fund managers are the Wizards of Oz, quaking behind a curtain of unlisted asset valuations and waiting for Dorothy to pull the curtain aside and expose their pitiful reality.’
‘It’s simply because investments in direct property, direct infrastructure, hedge funds, and private equity are valued only periodically, often just once a year. What’s more, market valuations are not used, but rather discounted cash flows and net present value of income flows using capitalisation rates’.
‘After all, super is mandatory in this country. So far super funds have been a refuge from the horrors of the sharemarket for which politicians can take credit, but that will change in 2009 because their diversification into unlisted assets over the past decade will start to work against them. Those in the superannuation business talk about little else these days.
‘It’s simply because investments in direct property, direct infrastructure, hedge funds, and private equity are valued only periodically, often just once a year. What’s more, market valuations are not used, but rather discounted cash flows and net present value of income flows using capitalisation rates.’
‘So it is imperative that super fund members get out while they can. The risk of staying in a superannuation default fund is now incredibly high.’
‘If you can cash your fund in, do so; if it’s too early to retire, then switch to a 100 per cent listed option within the fund. You will be overpaid by at least 10 per cent for your default fund units and make an instant profit of that amount.’
‘… every super fund CEO and chief investment officer knows what’s buried inside their funds and they know what’s coming at them this year.’
‘In many cases, geared hedge and private equity funds are now worthless because underlying asset values have fallen 50 per cent behind a 60 per cent gearing ratio. Many of these will only hit the super funds’ core fund valuations on June 30 this year, when the unlisted portfolios are valued and audited.’
‘I repeat: get out while you can.’
There have been some other ‘rumblings’ about the state of Super Funds, but I think Kohler’s article sounds a clear warning.
February 25th, 2009 at 11:41 pm
It’s interesting comparing the discussions here (or in Oz I guess) with those on some of the European discussion forums. Here it seems to be the case that most informed people are fully aware of the fact that we are in a full blown Depression, the system is broken, and needs replacing. On the other hand, the uninformed are given to believe the output of the ‘columnists’ and ‘mainstream economists’ you talk of here. However, we don’t see it as mainstream economics, but propaganda – attempts at social control to buy time while the leaders scramble for some solution.
February 26th, 2009 at 12:05 am
Frank – you’re so right!
I’ve all but given up trying to tell people about Steve’s site and get them to see what’s happening, and about to happen.
It’s ‘heads in the sand’, as they seem to think if they don’t think about it, it’ll all go away!
And when I see those ads on TV from my former Super Fund company that ‘…we’re confident that over time the good returns will return’…
http://update.mlc.com.au/market_watch/2009/02/16/total-control/
‘In the quest to defy our basic human instincts, our advisers are best placed to sustain our faith in our long-term investment strategy. Advisers are there to help us tune out noise from newspapers, friends, and even our own emotions, to help us focus on our own performance, and our own financial goals.’
I’m left almost speechless!
February 26th, 2009 at 12:27 am
I remain optimistic though. Not in terms of money, but in terms of shift in emphasis to technology, optimisation and sustainability. These concepts have so far been bandied around mainly by corporates as nothing more than PR, but now I think we will enjoy a shift to quality. Personally I think the world of money and business can go to hell – I’d be happy getting water from the well, killing forest animals and sleeping with nubile young maidens from the next village, just so long as there’s an internet connection.
February 26th, 2009 at 1:50 am
Frank – now I AM speechless!
February 26th, 2009 at 7:27 am
Hi utilitarian,
Unfortunately my media group at UWS aren’t providing me with the daily links they used to send my way–I think they’ve got overwhelmed by it–and I’m finding it difficult to keep up with my workload while maintaining those blog links as well. If someone on the blog is willing to take over that task, I’d be more than willing to delegate it, but on my own I won’t be able to keep good enough track of that or the “Gems” and “Brickbats” pages–which I still put some effort into keeping up to date.
February 26th, 2009 at 7:46 am
Another thing on the alternative energy theme. One news article just out is that the Iranians are about to test run their new nuclear reactor. For those who insist that Iran is some kind of rogue state, this is causing concern because they believe it gives them a theoretical option of nuclear weapons. Some may agree with this, some may not. The interesting thing about nuclear energy is the amount of security that goes around it.
What occurred to me when I read the article was that if people had gone to lengths to make cheap alternative energy sources then perhaps the Iranians might not have even considered the nuclear option, knowing full well the furore it would cause (despite the fact Iran has oil, it is surprisingly short on petrol/gasoline and it is locked into subsidising petrol at increasing cost – they hope to disengage somewhat from petrochemicals).
It seems as though the only energy sources we really invest in are those that somehow necessitate the use of the military or further a political aim. We have the US with OPEC and the petrodollar and its recent escapades in the middle east, Russia with Gazprom and all the conflict over pipelines (Georgia, Ukraine), Israel and its water infrastructure/natural gas, and all the secrecy and shadowy goings on around nuclear energy.
This relationship between energy and the military is costly and sinister, but from an economic standpoint there are probably compelling reasons for them to be there. Without the dollar surpluses of USD trading by OPEC, the Arabs wouldn’t have such easy access to some of the best military hardware around, and the Americans wouldn’t have their USD as a reserve currency. The military industry and its periphery is probably as important to countries like the US as the automotive industry. There is probably also the ‘fiscal stimulus’ effect of using the military which adds to the appeal.
So based on the above, really this financial crisis is an opportunity to be seized. There are too many powerful interests and incentives not directly related to energy efficiency or social good that are locking us in to these energy. If things could *just get a little worse* then the military and other powerful players could hopefully be a little more resigned to the fact their budgets won’t be renewed to the extents they hoped.
Perhaps it would be wise then to try and quickly move away from oil and nuclear, causing a huge stimulus to the economy in terms of new manufacturing and so on, before the military start instigating fiscal stimuli of their own!
February 26th, 2009 at 8:04 am
And one other thought before you guys in Oz wake up …
The main difference for me between the 30s depression and this one, is that the build up to the 30s depression was very quick, whereas this depression took a long time to accumulate.
What this means to me is, and I have watched this develop and can physically see it in the workplace, is that inefficiency and wastage has been accumulating into systems for years.
For so long people have been focused on ‘growth’, rampant spending, acquisitions, product development, new services, gizmos and gadgets, and all the while they’ve been asking the operational side of their business to ‘get it done yesterday’, ram it through, patch the system, make it work, we’ll sort any problems out under maintenance.
I think this is an opportunity. In the 30s there were new projects in the form of new infrastructure like metro systems and national grids that helped keep some employment up but only in localised areas. This time though we have an opportunity to system-wide optimise. I think we can cut costs and open up opportunities in most medium to large businesses, which should help reduce the levels of unemployment.
There is so much that can be done better. For example, why is this technology popular:
http://www.google.com
when this is not:
http://start.csail.mit.edu/
?
February 26th, 2009 at 11:07 am
Hello Frank
The real problem with technology in the west is that there are very few people in all levels of society who understand it in any way. In recent years in the west young people have been discouraged from studying science and engineering and so, now, ignorance of technology at anything but the user level is ubiquitous.
This has resulted in the downgrading of all aspects of technological participation.
We have an economics discipline which has ignored advances in control systems theory.
We have managers who know nothing about the technology that their companies are involved in.
We have business analysts who nothing of the technology of businesses that they analyse.
We have these ignorant managers making naive decissions on technological matters.
We have a skills (renamed “competency”) based training, (with no education), system in place for techicians and tradesmen. This is identical to the system that was dropped in the early 19th century because technology was changing too fast way back then. In reality, now, very little training is required, but much more education is needed, to enable participation. This has been forced by ignorant people in a belief that they were improving “competition” and “efficiency”.
All this has been very wasteful and has even resulted in, and is causing loss of life. It has caused this economic debacle.
But these idiots do not even know enough to understand that they are the cause of the problem or even that they have a problem.
What about Bernanke’s gibberish with the presses inability to see through it!
February 26th, 2009 at 1:10 pm
Amen Brightspark1.
I watched a documentary on ABC about decrease in scientific studies and increase in superstitious believes overall.
And since we are talking about alternative energy (implies fear of dangerous, human induced global warming), I wonder if anyone is aware of our own Prof. Bob Carter from James Cook University who is going against the mainstream of climate change alarmists.
He has a website where he logs his struggle of debunking some (or most) of the predictions made by climate change alarmists. Check his videos if nothing else.
Whatever your convictions/believes are for this subject its worth to find out what his angle is on this subject.
http://members.iinet.net.au/~glrmc/new_page_1.htm
Anyway, maybe we don’t have to go to an extra effort reducing our co2 output by 2020 – the GFC migh just take good care of it.
February 26th, 2009 at 1:35 pm
Job cuts, share price falls, stimulus packages, budget deficits, disinflation, and yet business investment up…
http://www.bloomberg.com/apps/news?pid=20601081&sid=aRa2URxatHHM
Does anyone have any more background on this?
February 26th, 2009 at 2:19 pm
Can anyone direct me to where I can get the information on the spread of debt held by the Australian population?
bfg – I’m Curious too. I can remember the ABS numbers on employment where fuzzy last reporting. This was due to a reduction in those surveyed which lead to a larger window of possible states.
Where did the numbers come from?
February 26th, 2009 at 2:27 pm
As one of the “engineering types” I would have to highly disagree with Frank on the merits of hydrogen. Car buffs absolutely love the idea of it due to the fact that it remains noisy, they can still look at their internal combustion engines and lavish over them. Noise however in a machine is a bad sign – it indicates inefficiency in the conversion process.
Lithium is quite abundant, and can be recycled (however lithium is quite cheap now and so there is not much need as of yet). This is what batteries are made out of. Also there are new batteries that can be charged quite well in about 20 minutes enough to power a car. I think Toshiba have done a bit of work on this. The powertrain is very efficient (e.g electric motor). In my opinion what limits charging times is not the battery but the electricity wiring and the current it can carry. This IMO is a lot more doable than overcoming hydrogen’s challenges.
Now for hydrogen. To create hydrogen economically there are two mainstream methods. Either electrolysis or hydrocracking.
Electrolysis: This method requires a large amount of electrical energy and the process of converting water into hydrogen at a rate appropriate requires expensive catalysts. Practically at this stage efficiencies of 50% to 70% are possible. Then the efficiency of an hydrogen combustion engine (lets say 40% and this is very high for one of these dinosaurs) makes the overall energy input to output efficiency at 30.1%. Not much better than a car, would definitely overwhelm power plants and such. Now why do all this when you can chuck the power straight into the battery and get 90% efficiency (not including power generation in any of the above numbers).
Hydrocracking: Even worse than electloysis (which the power can be sourced from anywhere) you discard half the energy of natural gas to make hydrogen, then you burn it to make it worse. Natural gas is not renewable – this is how most hydrogen is produced today.
With fuel cells the efficiency gets better but still you know how expensive platinum is right? For prototypes like the Honda Clarity as shown in Top Gears latest episode (which cost $1 million to build btw). Just look at how much platinum there is in the world and I’m not so sure fuel cells will be scalable for every car.
February 26th, 2009 at 2:33 pm
ueberbaer – I heard reports that it could be to the contrary. With a reduction in manufacturing there will be a lowering of the particulates in the atmosphere, and it is known that this pollution reduces the ability of the atmosphere to retain temperature. We might just find ourselves in a worse situation.
February 26th, 2009 at 2:50 pm
Effit – “And in the long run, that’s what’s most important”
Thanks for that link, shows them getting close to why things happen doesn’t it. If they actually can acknowledge that there are reasons why markets cycle down then with that crack in their heads the truth might sneak in. Well I hope but I doubt it.
I’m to cynical to believe even my supposal. I know they’re just trying to stop people removing their cash as they need it themselves to survive. Every business needs turnover.
February 26th, 2009 at 3:21 pm
dobther – what is the source for this theory?
“With a reduction in manufacturing there will be a lowering of the particulates in the atmosphere, and it is known that this pollution reduces the ability of the atmosphere to retain temperature”
February 26th, 2009 at 4:02 pm
ueberbaer – Page thirteen of Nancy J. Sell’s, Industrial Pollution Control has some information on it.
February 26th, 2009 at 8:17 pm
Hi mvk
I’m not specifically advocating H2 as a way forward against say switching to a battery based world, but what I am looking for is the most realistic way forward that can reduce externalities and get us onto a sustainable path with abundant energy.
I don’t know if switching to H2 is more short term feasible than switching to say wind/wave/solar/geothermal. I know that gas pipes have to be lined for example, because H2 can diffuse through and degrade steel and rubber.
Another thing to consider is a bit of possibly counterintuitive thinking: what set of incentives or what system is necessary to develop energy sources that are highly abundant? When we have abundance of anything, its value is only reflected in what new things it enables and what it adds to existing things. This added value in the future would have to be captured to pay for its development now?
February 26th, 2009 at 8:20 pm
Sorry above “I don’t know if switching to H2 is more short term feasible than switching to say wind/wave/solar/geothermal.” should say “I don’t know if switching to H2 is more short term feasible than switching to say wind/wave/solar/geothermal to battery”
February 26th, 2009 at 8:22 pm
Brightspark1
Yes have you seen the film “Idiocracy”? It’s a fairly simple bit of mind-numbing entertainment but serves to demonstrate consumerist demographic trends quite clearly!
February 26th, 2009 at 8:30 pm
Brightspark1
I wonder how much technology itself has had a role in this.
http://en.wikipedia.org/wiki/The_Two_Cultures
In the past, in companies like banks or insurance companies, before the days of IT and software, information processing was done by people scribbling into books in large rooms, and storing things in big filing cabinets. All these processes were orchestrated by management who were process oriented thinkers. They got people and filing cabinets and assembled them into functioning businesses. I remember talking to one old guy from an old finance institution, and I asked him “When the client came to the front office and asked to process a claim, how did you record a unique identifier for the claim?”. The unique identifier had to include both some unique number and some data about the claim itself. He said they actually had some physical machine – you pressed some buttons and pulled a lever and it spat out a number.
Today businesses have split into the “Two Cultures” above. The process oriented thinkers and management are now confined to the world of “IT”, and the business now means “Sales, Marketing and Finance”. The process oriented thinkers have the overview of the operations but have no authority to optimise them, because they are treated as “mere engineers”. The business people focus on “growth” because that is what the credit boom has encouraged and that is all they know.
What will happen now is that people will get fired, but only up to the point when know-how and maintenance skills can no longer be fired. Then the management will no longer be able to meet cost cutting objectives. Then the people who actually know the processes, know the systems, know the machines, will get to start optimising.
February 28th, 2009 at 4:46 pm
My apologies Prof. Keen – my comment was meant to be taken in jest. Unfortunately my sense of mirth often gets the better of me, causing me to forget how easily misinterpretations of such comments occur through the medium of the internet…
I have personally had a little experience with “rocking the boat” at an institution during my time as an undergrad (though in a different way to yourself), and was quite disturbed to discover how The Club closed ranks to protect its own interests. I’m sure you’ve expereniced much worse than what I have, and consequently I’m in awe of your dogged determination to keep up the good fight against the academic establishment for so long.
If you’re still looking for help maintaining your media/gems/brickbats pages, you’re welcome to contact me to discuss what’s required – I’ve certainly the time and IT skills to help out. However if economics knowledge is needed, I’m not your man.
February 28th, 2009 at 4:54 pm
Ah, the litter bitter one–yes, that was a bit oblique… sorry to have misread it!
I do need some help on that front, but it relates mainly to trawling the media and finding articles that are worth posting to the media, gems or brickbats pages as appropriate. I spend about 1-2 hours each morning doing that, but I really can’t afford the time right now. So would anyone(s) be willing to take that on here in future?