Weekly GFC Roll for May 29th 2009

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Thanks again to blog member Evan Harris for compiling this weekly list, and for blog members passing on their suggestions. If you see any article or blog entry that you think deserves recording for posterity, send the link to gfcwrap at gmail.com.

And a reminder for any blog members in Sydney that I'll be speaking at Politics in the Pub tonight at the Gaelic Club in Devonshire St Surry Hills, starting at 6pm.

The Pool Room – Week Ending Friday 29th May

Australian-Related Links:

Housing & Housing Finance: The View From Australia & Beyond, Luci Ellis [RBA Research], Dec 2006

Blog member Tom contributes some RBA howlers. From the “Rising Indebtedness” section: “The most important lesson to draw from recent international experience is that a run-up in housing prices and debt need not be dangerous for the macroeconomy, was probably inevitable, and might even be desirable.” “These relatively benign outcomes point to the underlying robustness of the financial systems in these economies.” Priceless.

The Australian Experience with Inflation Targeting, Guy DeBelle (speech), 15 May

Oh God. A neoclassical disciple of interest-rate setting defends the religion against upstart infidels. The first line of the conclusion sums up the dogma: “Inflation targeting in Australia has coincided with a period of low and stable inflation, and a prolonged economic cycle with a high average rate of growth, which has only recently come to an end.” So if we exclude the greatest financial meltdown since the Great Depression (many say worse) then the experiment since 1993 has been a great success!

Size of First Home Owners’ Loans Inflating, news.com.au, Nick Tabacoff & Joe Kelly, 25 May

The FMOG keeps the real estate Ponzi scheme alive at the expense of young people who are taking on a larger debt burden in a period of job uncertainty. Sourced from Bubblepedia.net.au.

 Bendigo Banks $ 615m Exposure To Great Southern, SMH, 26 May

Bendigo markets itself as a “Community Bank”. So how does it benefit the community to offer its customers leveraged loans to invest in dedicated tax-avoidance schemes? And how does it benefit the community to acquire Macquarie’s margin lending business? More like the Community Bubble Bank.

 The Great Mortgage Gamble, Robert Gottliebsen, Business Spectator, 26 May

Excellent article examining the different lending strategies within our robust and conservative banking cartel. Sourced from Bubblepedia.net.au.

Global Bust Hits Home: Prices Diced For Iron Ore Exports, SMH, 27 May

Deflation watch – cuts of up to 44%. These cuts are bad news for our Terms of Trade. Michael Strutchbury writes a sensible article bemoaning our inability to save in the extraordinary commodities boom of the last few years.

Councils To Pick Up Toxic Return, Clancy Yates, SMH, 29 May

“Councils across the state - from Canterbury to Coffs Harbour - put up to $625.6 million into toxic debt products through Lehman and its predecessor, Grange Securities.” All investments were rated AAA by those “tough customers” at S&P. Earlier in the week they had the temerity to ask the courts to see Lehman’s insurance policies but the courts turned them down. They will only recoup between 2 and 13 cents in the dollar. Any connection to councils charging like wounded bulls to make up lost revenue? “In a stand-off between big businesses owed money by Lehman and dozens of councils and charities, the big end of town won the day.” Lehman executives bonuses were paid out by administrators ahead of council claims.

Business Investment Plunges, Chris Zappone, SMH, 28 May

“Investment by companies plunged a record 8.9 per cent in the first three months of 2009, the sharpest reversal in more than 12 years.” Time for those green shoots pundits to declare that everything’s turned around since the lows of Q1, so there’s nothing to worry about.

Housing Recovery Soon: Housing Industry Association, Chris Zappone, SMH, 28 May

“The HIA projects the total number of completed homes in Australia will rise from 129,500 in 2009 to 139,200 homes in 2010” That doesn’t sound like much of a recovery to me. The Big Picture enjoys fighting its way through the nonsensical press releases from the [US] National Association of Realtors.

Suncorp’s Calamity Painfully Emerges, Ian Verrender, SMH, 28 May

“The slump in commercial property markets, particularly in Queensland, has started to bite. Troubled loans rose to $1.241 billion in the nine months to the end of March, up from $986 million to the end of December. Bad debts have risen to $491 million.” And the differences in wholesale funding costs, backed by the Federal government, are resulting in less competition for the cartel – never waste a crisis.

Rising Bond Yields A Sign of Good Times Returning, Charlie Aitken, The Australian, 28 May

Charlie “pastries” Aitken is back! The whole world bemoans the threat of exploding US treasury yields on the US property market and the broader economy (lots on this below) but Charlie says this is great news! Mike Shedlock begs to differ offering a polar opposite interpretation (also below).

Sales slide at an end, says Myer, Jamie Freed, SMH, 29 May

Remember the quote: “I think this is the start of a very slow burn up in retail... and particularly department store retail.” Remember the company: Myer. Remember the CEO’s name: Bernie Brookes. Remember the date: 28 May. All locked in so we can make use of this quote over the next few years.

Global Economy:

Lost Vegas [25min video], Vanguard, 13 May

Absolutely sensationally brilliant must-watch video examining the collapse of Las Vegas. Contains excellent analysis of the root causes of this crisis. Email it to your friends.

[Californian] Government Plans To Completely Eliminate Welfare, LA Times, 21 May

“... for families, medical insurance for low income children and cash assistance for college students.” Bet those Austrian economists will love this one. Also read the comments below to gauge the mood of the US. It looks like some readers have been listening to Alan Jones: “How about drug testing all individuals on welfare?”

Inflationisms Seductive Battle Cry, Doug Noland, 22 May

Brilliant piece by Doug Noland of Prudent Bear. I suggest you skip through to the last section.

San Francisco Fed Concerned About Consumer Deleveraging, Zero Hedge, 22 May

Contributed by blog member Chris. “Regardless of how many treasuries are issued, and how much additional debt the U.S. incurs, the demand side for credit is just not there, sticking banks with basements full of shrink-wrapped packages of hundred dollar bills, that will sit dusty and unused for years.”

CSL Expansion Plan Thwarted, Eli Gleenblat, SMH, 26 May

“The US Federal Trade Commission has indicated that it is likely to block a planned $US3.1 billion takeover of Talecris Biotherapeutics.” When was the last time a US corporation was unable to purchase an Australian company based on a pro-competition argument? It looks like CSL needs to invest more in lobbyists as this result just doesn’t make the grade.

Case-Shiller: [US House] Prices Fall Sharply In March, Calculated Risk, 26 May

“Prices are still falling [2% in March] and will probably fall for some time.” But don’t worry as US Consumer Confidence leaps to an eight month high! The reality gap goes unreported in the oz media.

The Worst Is Over For the Economy, Yahoo Finance, 27 May

“The stimulus is kicking in and the housing, manufacturing, employment, and consumer-spending trends are beginning to improve...” Thank GOD for that.

Mortgage Market Locks Up, Mike Shedlock, 28 May

Explains the ominous links between a steeper US treasuries yield curve, US mortgage rates and the US housing market. 

Mortgage Delinquencies, Foreclosures, Rates Increase, Bloomberg, 28 May

US housing market bottoming? It doesn’t look like it to me. “The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent.” “Prime fixed-rate home loans to the most creditworthy borrowers accounted for the biggest share of new foreclosures at 29 percent.” “The figures show that the mortgage crisis has shifted from subprime to borrowers holding the safest type of mortgages.” As Calculated Risk notes: “We’re all subprime now!” On the same news day, The Australian reported via it’s Dow Jones feed that demand picks up in the US economy.

Global Banking/Finance:

Credit Where Credit is Due, Mike Whitney (“they said you’d never make it”), Counterpunch, 19 May

Brilliant, must-read article discussing the structural problems behind claims that the economy will re-bound at the end of the year. “The problem is the breakdown in the securitzation markets which has cut off the flow of easy credit to consumers and businesses.” It is crucial to understand that the credit securitisation market, headquartered in Wall St and the pinnacle of a vast and corrupt pyramid selling scheme, determines the price of your house, the balance in your superannuation fund and impacts Australian GDP more than any other metric. Add in immense de-leveraging and you’re left with a very bearish forecast, irrespective of short-term bounces in the stock market and government smiley faces.

The $1.4 TRILLION Commercial Real Estate Tidal Wave, Clusterstock, 24 May

Nothing like a catchy headline. Lots of “mays”, “mights” and “coulds” but if the little boy who cried wolf is warning of an actual wolf this time around then it will be interesting. The comments below the story also had useful information.

JP Morgan $29b WaMu Windfall, Bloomberg, 26 May

Alarmingly honest account of how dodgy accounting standards allows Wall St banks to fabricate profits. “One of the beauties of purchase accounting is after you mark down your assets, you accrete them back in.” Remember that it was bogus “surprise profits” claims in early March (coordinated with a positive media and government blitz) that started this bear market rally. As always, it pays to look at the fine print.

Deep Thoughts From Bob Janjuah, Zero Hedge, 26 May

Seems like a sensible analysis of stock market expectations to me. Makes strong predictions for a continuation of the bear market rally through to July then a 30/40% crash. Long gold and oil.

The Greatest Swindle Ever Sold, The Nation [US], 26 May

Excellent summary of the corruption behind the TARP. “Here, then, are six of the most blatant and alarming ways taxpayers have been scammed by the government's $1.1-trillion, publicly funded bailout.” Here, here.

The $4 Trillion Housing Headache, CNN Money.com, 27 May

From blog member Lyonwiss, “after 32.2% of house price decline (Case-Shiller index) since July 2006, the US mortgage debt to GDP at 73% has hardly budged from its peak of around 75%”. That’s debt deflation for you.

It Is Failing: ALL OF IT, Karl Denninger, 27 May

Denninger has called the end of civilisation a few times now (most notably on March 5 this year) but in this post he notes that the 30-year fixed mortgage rate increased by 30% in a single day. This will have huge impacts on the US economy as the Fed has already set interest rates to zero so can not manipulate retail mortgage rates down further to stimulate the economy. Zero Hedge provides an analysis of bond supply and demand: Time for QE2.

Bond Carnage, Muddled Inflation Thinking & Fed Options, Naked Capitalism, 28 May

A more in-depth look at this week’s top story. Key quote: “if the Fed were to step up purchases systematically, it could very well wind up owning the market. How many investors would decide to sell into its bid? So QE would indeed create inflation, but might not control bond yields as much as the Fed hopes unless it is willing to buy whatever it takes to hold a given interest rate.” Note that Vockler’s surging interest rates in the early 80s was a major catalyst in bankrupting of the US savings and loans industry. The banks had sold 30-year fixed mortgages at, let’s say 10%, but their financing pipeline came from short-term rates. So when the wholesale mortgage interest rates rose to 20% they became instantly insolvent.

Regulators Should Require Bond Bank Buffers, Bloomberg, 28 May

You scratch my back, I’ll scratch yours. The Fed/Treasury didn’t create $12.8 trillion and give it to the banks for nothing. This is shadow QE: the Fed buys Treasury bills with the stroke of a keyboard; the Treasury bails out the banks; banks use the bail out money to bail out the Treasury and Fed. Problem solved. There’s been some chatter in the blogosphere about the Fed using shock and awe to push the yields back down. Watch this space.

Geopolitical:

Loud Paradigm Shift Rumblings, Jim Willie, Goldenjackass.com, 22 May

I’m a bit nervous linking to Jim Willie as he often comes across as an unhinged crank. But this is a great post, so long as you take a few claims with a pinch of salt. It presents a very compelling view of the state of the US relative to other emerging powers. If you have a spare six months, you could also check out an annotated version of the same article on Market Skeptics (complete with razor blades and pain killers).

China Unveils First Sovereign Credit Rating Standards, China View, 23 May (via Market Skeptics)

One to watch. “The sovereign credit rating standards would be able to evaluate the willingness and ability of a [foreign] central government to repay its commercial financial debts as stipulated in contracts.” How will they rate US government debt (like “tough customer” Moodys)? Or Australia’s for that matter, now that we’re running $70b deficits. How would China rate Westpac’s latest bond offering?

Russia’s First Persian Gulf Naval Presence Coordinated With Tehran, DEBKAfile, 26 May

More bad news for the USD: “... this is the first time a Russian flotilla will have taken on provisions and fuel at the same Gulf ports which hitherto serviced only the US Navy.” Kind of important, don’t you think? But don’t worry; readers of the mainstream press were kept up-to-date on breaking Russian news when a small girl was found behaving like a dog.

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64 Responses to Weekly GFC Roll for May 29th 2009

  1. sPurf says:

    Philip & Tel,

    Just to clar­ify a few points about your “greedy doc­tors” argument.

    Philip the link you posted refers to Gov­ern­ment actions to restrict med­ical grad­u­ate num­bers. When have you known Govt. to put in place poli­cies to increase the wages of their employ­ees? I am not sure which pro­fes­sion you work in but I doubt you think that their should be unlim­ited entrants into Uni­ver­sity for the degrees you have. I am com­fort­able know­ing that it isn’t easy to get into Med­ical School, Spe­cial­ist train­ing etc. Show me where good Doc­tors have been trained by using a Neo­clas­si­cal com­pet­i­tive model?

    The AMA is with­out a doubt one of the weak­est Unions in Oz. If you have ever been to an Enter­prise Bar­gain­ing nego­ti­a­tion for Salaried Hos­pi­tal Doc­tors you would realise this. For exam­ple, the NSW Award for Staff Spe­cial­ists has clauses such as an expec­ta­tion to per­form “rea­son­able over­time and on-call” with no pro­vi­sion to remu­ner­ate for this. This allows hos­pi­tal bureau­crats to force Doc­tors to work out­side their ros­tered hours with­out extra pay and using this as a jus­ti­fi­ca­tion for not hir­ing extra staff. Ask any hos­pi­tal doc­tor whether they would like more or less doc­tors work­ing there and you may be sur­prised with the response. Addi­tion­ally the AMA does not nego­ti­ate for nurses, that is the ANF and they are com­par­a­tively a supe­rior Union and con­sis­tently achieve good out­comes for their members.

    Extolling Med­ical Tourism as a method of dri­ving med­ical costs in Oz down is the same as advo­cat­ing Chi­nese slave labour to make our undies. You maybe sur­prised to learn that in India the ratio of Doc­tors wage to Aver­age Wage is much larger than the same ratio in Oz. If you want a fairer com­par­i­son you should get health care from coun­tries who pay their doc­tors like every other civil ser­vant (East­ern Europe) and then tell me which sys­tem you would pre­fer? Or maybe your “alter­na­tive ther­a­pies” will fix you right up after your car acci­dent or from your appendicitis.

    Using Neo­clas­si­cal mar­ginal cost of labour the­o­ries makes guys like Jayant Patel seem like heroes. I think you will agree pay­ing greedy local doc­tors an incen­tive wage to work in regions that can’t attract them is a supe­rior and cheaper solu­tion given how expen­sive that deba­cle cost and is still cost­ing tax­pay­ers, not to men­tion the suf­fer­ing of the patients who received his eco­nom­i­cally com­pet­i­tive care.

  2. MMitchell says:

    Hav­ing had a look at Kari’s site, I the fol­low­ing arti­cle seems a good sum­mary of some of Karl’s major ideas:

    http://www.karipolanyilevitt.com/documents/budapest-address-Kari-Polanyi.pdf

  3. MACCA says:

    Reuters also pick­ing up on the move to short dated US Trea­suries. And pos­si­bly not because of a pickup in infla­tion expec­ta­tions , as Setser points out.

    The Fed sounds wor­ried– and so should it be. Ris­ing long bond rates will quickly derail any chance of a US recovery.

    http://www.reuters.com/article/ousiv/idUSTRE54U1NZ20090531
    Fed­eral Reserve puz­zled by yield curve steepening

    But the Fed is not really sure what is dri­ving the sharp rise in long-dated bond yields, and espe­cially a widen­ing gap between short and long term yields.

    Do ris­ing U.S. Trea­sury yields and a steep­en­ing yield curve sug­gest an eco­nomic recov­ery is more cer­tain, mean­ing less need for safe haven gov­ern­ment bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money sup­ply by buy­ing more U.S. Treasuries.

    Or does the steep­en­ing yield curve mean investors are wor­ried about the dete­ri­o­ra­tion in the U.S. fis­cal out­look, or the poten­tial for a col­lapse in the U.S. dol­lar as the Fed floods the world with newly minted cur­rency as part of its quan­ti­ta­tive eas­ing pro­gram. This might be an argu­ment to aug­ment to step up asset purchases.

    Another pos­si­bil­ity is that China, the largest for­eign holder of U.S. Trea­sury debt, has decided to refo­cus its port­fo­lio by lean­ing more heav­ily on shorter-term maturities.”

  4. Philip says:

    Suit­ablyIron­ic­Moniker,

    Health and med­ical ser­vices are demand inelas­tic. An increased sup­ply of health and med­ical pro­fes­sion­als of course would cost the gov­ern­ment or pri­vate health insur­ers more as an aggre­gate mea­sure, but this doesn’t mean much because lower wages mean that insur­ers gain on a transaction-by-transaction basis. The point is that increased com­pe­ti­tion in highly-paid ser­vices would serve to drive down wages, even if it results in only small decreases, and pure effi­ciency gains would be real­ized as well.

    A good overview:

    Baker, Dean. 2003. “Pro­fes­sional Pro­tec­tion­ists: The Gains From Free Trade in Highly Paid Pro­fes­sional Ser­vices”, Cen­ter for Eco­nomic and Pol­icy Research, Wash­ing­ton D.C.

    http://www.cepr.net/documents/publications/protectionists.PDF

    sPurf,

    Nowhere will you find that I said there should be unlim­ited uni­ver­sity enroll­ments for any pro­fes­sion. My pro­fes­sion is ICT, and it is rea­son­ably easy for peo­ple to receive an edu­ca­tion is this area. Med­ical enroll­ments are small because of the lim­ited sup­ply of med­ical edu­ca­tional place­ments at uni­ver­si­ties and the dif­fi­cult score needed to gain a placement.

    Given that this severely restricts sup­ply, it doesn’t make sense for gov­ern­ment to go one step fur­ther and restrict sup­ply even further.

    The rea­son why so much of our man­u­fac­tur­ing is done by Chi­nese slave labor­ers is because they can do it much more cheaply than Aus­tralians can. Recent trade agree­ments, such as the Uruguay round of the WTO, have gone a step fur­ther to facil­i­tate the flow of goods between coun­tries. They sharply limit the abil­ity of coun­tries to impose safety or envi­ron­men­tal stan­dards on imported prod­ucts – in effect requir­ing that such stan­dards can be sub­ject to scrutiny by a trade panel, which has the power to assess whether the rules put in place by gov­ern­ments are acceptable.

    Inter­na­tional trade nego­ti­a­tions have made no com­pa­ra­ble effort to stan­dard­ize rules in order to facil­i­tate trade in highly paid pro­fes­sional services.

    Con­jur­ing up an exam­ple of a rot­ten apple like Patel serves no use­ful pur­pose. One of the rea­sons why he has gained pub­lic­ity is because he is an excep­tion, not the rule. Com­pe­ti­tion is not going to start cre­at­ing med­ical mon­sters, what he did was due to a lack of ethics.

  5. sPurf says:

    Philip,

    The restric­tion described in that post refers to the 20% of grad­u­ates who are rural bonded. These grad­u­ates must work in rural areas after grad­u­a­tion for a min­i­mum of 7 years. Despite this there are still sig­nif­i­cant doc­tor short­ages in these areas as it is hard to attract peo­ple to these areas when Gov­ern­ments refuse to pay beyond the rate payed for the same or rel­a­tively eas­ier work in Met­ro­pol­i­tan areas. The short­fall is made up my cheaper over­seas grad­u­ates (cheap as the costs of train­ing are free) who are given restricted visas pre­vent­ing them work­ing any­where else. Fur­ther sav­ings are made by clas­si­fy­ing many of them as trainees rather than spe­cial­ists even if there is no train­ing tak­ing place. Iron­i­cally, these areas of need are often more demand­ing and with less sup­port than well staffed areas and send­ing peo­ple with lit­tle domes­tic knowl­edge is a recipe for dis­as­ter. It may be easy to see Patel as jut a bad guy with a “lack of ethics” but the real­ity is more com­plex. Also say­ing that he is the excep­tion rather than the rule is also naive…I could tell you some hor­ror sto­ries. Sure, he is prob­a­bly some­one you wouldn’t have a beer with be he isn’t the Unabomber either. The major issue is that his employer didn’t want to know that he was under­qual­i­fied for the posi­tion and chose to ignore con­cerns that were raised later. If there wasn’t a moti­va­tion for Gov­ern­ments to be “eco­nom­i­cally com­pet­i­tive” they would have ensured that they secured a senior spe­cial­ist able to work in remote and chal­leng­ing cir­cum­stances. This would obvi­ously cost more than the Patel option.

    Ulti­mately I think it is very dif­fi­cult to apply a com­pet­i­tive model to some pro­fes­sions. Would you apply this to the Police or the Mil­i­tary? Maybe out­source law and order to a com­pet­i­tive mili­tia? In many ways they are sim­i­lar to the med­ical pro­fes­sion as nei­ther pro­duce eas­ily mea­sur­able prod­ucts and there­fore dif­fi­cult to see who is more effi­cient than another. For exam­ple one GP can see an aver­age of a patient every 5 min­utes and while another takes 30 min­utes. The first GP will charge Medicare less per patient but I would hardly call him or her more efficient.

    If you delve a lit­tle deeper you will see that most med­ical organ­i­sa­tions want more not less doc­tors trained.

    http://www.amaq.com.au/index.php?action=view&pid=&view=5117

  6. Philip says:

    sPurf,

    Clearly we share con­cerns about the pro­fes­sion­al­ism of doc­tors. I don’t think its naive to call doc­tors like Patel an excep­tion, because I believe that the major­ity of doc­tors, as in any other pro­fes­sion, are hon­est, eth­i­cal and will do the right thing.

    It may be dif­fi­cult to increase com­pe­ti­tion in some pro­fes­sions, but clearly there are steps the gov­ern­ment can imple­ment to increase the sup­ply of doc­tors. The most obvi­ous is to allow more overseas-trained doc­tors into Aus­tralia, on the basis of hav­ing been cer­ti­fied to Aus­tralian stan­dards. Of course there will always be bad apples that get through but prop­erly imple­mented cer­ti­fi­ca­tion will ensure that this will be kept to a minimum.

    I think that state-imposed trade restric­tions are based upon labor quo­tas, not cer­ti­fi­ca­tion, though I could be wrong.

    It would not sur­prise me in the least if uni­ver­si­ties, the fed­eral and state gov­ern­ments, and the AMA have con­structed agree­ments to restrict sup­ply over the decades while at the same time cry­ing about shortages.

    Uni­ver­si­ties impose tough restric­tions in terms of a ter­tiary score to get into med­ical place­ments, usu­ally >=98. How­ever, there really is no great dif­fer­ence between a high school stu­dent that achieves 90 or one that achieves 98. It is to ensure that sup­ply is restricted and that hun­dreds of eager stu­dents are turned away. I’m sure the argu­ment can be made that if med­ical entry scores are low­ered it will result in less-intelligent stu­dents get­ting in, but I don’t see how it could apply to stu­dents who score >=90.

    It is gen­er­ally point­less to take the word of any orga­ni­za­tion at face value because the lead­ers will always pro­claim they have the best inter­ests of soci­ety at heart. The ques­tion that must be asked is what are their policies?

    Under-supply results in doc­tors deal­ing with too many patients, which may com­pro­mise qual­ity of ser­vice. With more doc­tors in the coun­try, then the demand can be dis­trib­uted more evenly between doctors.

  7. evan says:

    Another fan­tas­tic video (under 20mins) from deepcapture.com:

    http://www.deepcapture.com/naked-short-selling-redefining-systemic-risk/

    In places like India they pay off politi­cians with paper bags full of cash (lit­er­ally). In the west they do it this way:

    http://www.washingtonpost.com/wp-srv/politics/special/whitewater/stories/wwtr940527.htm

    (The arti­cle is from 1994 and will only make sense after watch­ing the video and under­stand­ing the role of REFCO.)

  8. sPurf says:

    Philip,

    I could only spec­u­late whether col­lu­sion is going on between Govt and Unions with regard to doc­tor num­bers. I can hon­estly tell you that doc­tors on the ground do want more staff and don’t think much about this push­ing wages down. Junior staff are still doing shifts that for all intents and pur­poses are ille­gal and senior staff are hav­ing to forgo leave to main­tain ser­vice lev­els. Doc­tors still have the high­est sui­cide, drug abuse, divorce rates etc of any profession…obviously all that cash they are rolling in doesn’t hug you back.

    The first step is to cre­ate more posi­tions on the ground and then find staff to fill them as we they are all employed by the Gov­ern­ment at the end of the day and sub­ject to either State Awards or to the Medicare Sched­ule. It is the Gov­ern­ment that also decides Uni­ver­sity entrance num­bers. Unless this par­a­digm is changed it mat­ters lit­tle how many peo­ple are com­pet­ing for the job as the suc­cess­ful appli­cant will get payed the same no mat­ter how tal­ented they are. Whether they come locally or from over­seas is a mat­ter for debate…but I will warn you that a GP from India will always strug­gle in rural Aus­tralia just like an Aus­tralian GP will strug­gle in India. The dif­fer­ence being that few Aus­tralian doc­tors will put them­selves in a posi­tion over­seas that they are not com­fort­able with as they aren’t as finan­cially “moti­vated”. The amount of train­ing required to put such a doc­tor to a level which would be equiv­a­lent to a local grad­u­ate would be to long and expen­sive to be “eco­nom­i­cally” viable. Hence why you end up with the Patel situation(s)…that is a doc­tor doing a job not because they are best qual­i­fied but because the employ­ing author­ity needed a bum on a seat.

    Except for UNSW, most Med­ical Schools are now either post-graduate or use a range of assess­ments (psy­cho­me­t­ric etc.) for entrants and rely­ing on lower TERs / GPRs (as low as 80% I think). The pre­vi­ous par­a­digm was a larger intake with higher fail­ure rates dur­ing the degree but this was aban­doned as it was felt to be unfair and didn’t result in bet­ter graduates.

  9. ak says:

    Philip,

    Unfor­tu­nately I can see a poten­tial prob­lem with your pro­posal. As an IT pro­fes­sional and a migrant I can say that it is rel­a­tively easy to get a visa. True, the queue is much longer than in 2003 but it is still much eas­ier to get to Aus­tralia than to other coun­tries. The points-based sys­tem is sim­ple and prob­a­bly much less cor­rupt than in the US (think about get­ting a Green Card).

    So why should we fix some­thing what is not fun­da­men­tally broken?

    I don’t want to com­ment on doc­tors but for a psy­chol­o­gist it is still rel­a­tively easy to get a reg­is­tra­tion in Aus­tralia pro­vided that that the diploma meets the EU standards.

    Now let’s con­sider the fol­low­ing sce­nario:
    We allow for unre­stricted immi­gra­tion of all pro­fes­sion­als to Aus­tralia. Due to rel­a­tively high salaries, the nat­ural beauty of the coun­try and quite tol­er­ant and accom­mo­dat­ing soci­ety half a mil­lion doc­tors, engi­neers and other pro­fes­sion­als arrive every year. We don’t need local grad­u­ates. Salaries can go down and there is per­fect com­pe­ti­tion. How­ever the demand for trades­peo­ple like plumbers or builders can only be sat­is­fied by the locals. We don’t need 1 mil­lion Pol­ish plumbers and builders here, do we? So Aussie plumbers can earn more than the doc­tors. (Not a joke, I saw it in 1988 in Poland).

    OK so in 20 years time all the doc­tors speak Mandarin/Hindu/Russian/Polish and all the plumbers are locals.

    Is this what we want?

    Dis­claimer: I worked as a farm hand 16 years ago in Nor­way so I highly respect phys­i­cal work.

  10. Philip says:

    ak,

    I never claimed that our immi­gra­tion pol­icy should sup­port com­pletely open bor­ders to any pro­fes­sion. What I did say is that com­pe­ti­tion should be increased for highly paid pro­fes­sions, not a purely free market.

    Dean Baker is the only econ­o­mist I know of who has per­formed an analy­sis of this type of pro­tec­tion­ism (per­haps there are oth­ers). His rough analy­sis pre­dicts that if the sup­ply of four pro­fes­sions (doc­tors, den­tists,
    lawyers, and accoun­tants) were to increase 15% in the US, the con­sumer gains would amount to $US160 — $US270 billion/year, with a pure effi­ciency gain of $US12 — $US20 billion/year.

    Allow­ing a 15% greater sup­ply doesn’t amount to a per­fect flow of labor across bor­ders, yet the gains are enor­mous. Slow­ing open­ing the bor­ders to the most highly paid pro­fes­sions in this coun­try is prob­a­bly the best policy.

    Even by neo­clas­si­cal stan­dards, cor­po­rate exec­u­tives don’t deserve what they earn (usu­ally hun­dreds of thou­sands or mil­lions) until there is a purely free mar­ket in the sup­ply of cor­po­rate exec­u­tives. Since they are the most well paid, pol­icy can start with this pro­fes­sion. Then it can move onto man­agers, lawyers, etc.

    In clas­si­cal times, it was assumed that cap­i­tal was fairly fixed and labor was free to move about. These days it is almost the oppo­site. What passes for “trade” is quite non­sen­si­cal and only half the story.

  11. sPurf says:

    Philip,

    You seem to assume that doc­tors can come into the coun­try and once they have been cre­den­tialed they can then put up a shin­gle and start prac­tic­ing. The real­ity is that there is lit­tle free­dom to start prac­tic­ing out­side the con­text of a cre­ated posi­tion by the Gov­ern­ing author­ity. Dean Bak­ers analy­sis may float in the US “user pays sys­tem” but it doesn’t work when a 3rd party (Gov­ern­ment / Insur­ance com­pa­nies) con­trols both the num­ber of doc­tors and how much they are paid. As I have explained, bring­ing more doc­tors into the coun­try with­out fund­ing more posi­tions will just result in unem­ployed doc­tors with no improve­ment in wage efficiency.

  12. Philip says:

    sPurf,

    In that case, reform on the demand side will have to be changed as well.

  13. Tel says:

    Addi­tion­ally the AMA does not nego­ti­ate for nurses, that is the ANF and they are com­par­a­tively a supe­rior Union and con­sis­tently achieve good out­comes for their members.

    Oh yeah, that explains why nurses get paid so much bet­ter than doc­tors do, and why the quota lim­i­ta­tions on nurses get­ting into uni­ver­sity are so tight.

  14. sPurf says:

    Tel,

    I am not sure if you are being sar­cas­tic with that state­ment but I can’t see how you can con­clude nurses are paid more than doc­tors. A casual perusal of any state award makes this obvi­ous, NSW Health allows you to view the Awards if you are inter­ested http://www.health.nsw.gov.au

    What would be the logic behind the AMA…an organ­i­sa­tion funded by doc­tors, to have nurses paid more than their members?

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