immigration Archives - the patient investor

March 27, 2017

Is the Coalition prepared to die defending the housing bubble?

I don’t always agree with David Llewellyn-Smith but love his pithy style. Here he takes the Turnbull government to task over their housing and immigration policies.

Cross-posted with kind permission from Macrobusiness:

….Because that’s what it looks like.

We all know that the Coalition hearts the housing bubble. Everything it does spells undying infatuation:

protecting property tax rorts;

focusing only on supply-side reform and even then doing pretty much nothing;

shelving any and all policy reform that might disrupt its smooth and burgeoning progeny, plus

running a staggeringly huge immigration program despite widespread economic damage.

It’s the last point that I want to focus on today because that’s the one where Coalition bubble-love rubber hits the road for its electoral prospects.

Since the WA election, Coalition polling has been devastated. A little bounce in Newspoll has been wiped out by landslides against the government in Ipsos and Essential polls. Moreover, the carnage has been just as apparent in the Coalition’s primary vote which has hemorrhaged voters to One Nation. The latter has been unaffected by the WA election despite doing less well than expected.

The major change in politics since the state result has been a commitment by One Nation to never ally with the Coalition again. The fringe party has realised that such pragmatism is lethal to its prospects.

This simple truth seems yet to have filtered through to the federal Coalition. As One Nation takes a material portion of its vote, and that vote refuses point blank to ally with it, there is ZERO chance of the Coalition winning a federal election ever again, and probably not at the state level either. While One Nation exists in this form, the Coalition has effectively ceased to exist as a political force.

One might have thought that the prospect of NEVER WINNING ANOTHER ELECTION might be enough to trigger some soul-searching in the party. And it has done a little. Do-nothing Malcolm has switched from toying with random ideas to deploying random ideas but it’s still all at the margins and is meaningless:

18c reform won’t move the needle;

contradictory coal and hydro investment won’t move the needle;

a retrograde company tax cut won’t move the needle;

a supply-side housing affordability Budget won’t move the needle.

All together they might nudge it a little but it won’t be enough. Nothing like it.

Indeed, I’ll go so far as to say that the Coalition could do the following immensely popular policies and it would still get clubbed from office:

abolish negative gearing;

install gas reservation;

offer tax cuts.

The problem is that these are all cyclical fixes for what is a structural shift to One Nation driven by one very simple truth: Australians are done with high immigration.

That’s Pauline Hanson’s primary appeal. She makes little sense on other issues and is bat shit crazy on many. But her one great power, the one that vibrates deep in the bowels of every Australian that is marginalised by house prices, falling wages, can’t get a job, is fearful of Islam or just a bigot, or is just plain pissed off at the direction of the country, is the deep and legitimate truth that running a mass immigration program during a period of high unemployment is treasonous economics.

Thus there is only one policy shift that can change the Coalition’s fate and it is as plain as the nose on Pauline Hanson’s face: cut immigration and cut it hard.

Cutting immigration back to 70k per year or less would completely shift every electoral parameter as the Coalition:

finally had a housing affordability policy to put up against Labor’s negative gearing reforms;

finally had an environmental policy to put up against the immigration-hypocritical Greens;

could gut One Nation overnight and go to work on wiping it out by exposing the loons as weakening polls divide them.

This one policy shift would put the Coalition instantly in the running for the next election even if it were Do-nothing Malcolm that did it.

So, why does the Coalition suffer from such suicidal bubble-love that it can’t or won’t grab this lifeline?

many Coalition MPs are personally leveraged to the bubble so they’ve their own financial interests in mind;

as yesterday’s revelations about the MPs that prevented negative gearing reform showed, they are political hacks with terrible policy judgement;

they are bereft of the intellectual depth and corporate memory to contemplate alternative economic models. Cutting immigration to 70k would take pressure off eastern capital house prices enabling further rate cuts and a lower currency;

the Howard and Costello myths make this even worse,

and, the Coalition is closely wedded to the business interests in banking, retail and construction that benefit from high immigration even as the net result is negative for the wider economy.

I’ll add one more factor which appears increasingly important. Career politicians don’t care for their own political party or its nominal values as they used to. The dominant ideology of unglued self-interest comes with the wonderful fringe benefit of not having to take responsibility for anything. Contemporary Coalition MPs see party membership as a gravy train to private sector riches in board positions, lobbying roles and other forms of ‘control fraud’ in the very sectors that thrive on the bubble. So, for them, arbitraging the fate of the party for personal gain is all just a part of being a good liberal.

Backing self-interest used to work in political forecasting but does this rabble even have that in them?

November 11, 2016

Why the establishment were clean-bowled by Trump

Forget private email servers and sex tapes. Forget men versus women. This election was decided on the following three issues:

1. Globalization.

Currency manipulation by emerging economies like China and consequent offshoring of blue-collar jobs has gutted the US manufacturing sector. Accumulation of $4 trillion of foreign reserves enabled China to suppress appreciation of the Yuan and maintain a competitive advantage against US manufacturers.

China Foreign Reserves ex-Gold

Container imports and exports at the Port of Los Angeles (FY 2016) highlight the problem. More than 57% of outbound containers are empty. Container shipping represents mainly manufactured goods, rather than bulk imports or exports, and the dearth of manufactured exports reflects the trade imbalance with Asia. Even the container statistic understates the problem as many outbound containers contained scrap metal and paper rather than manufactured goods, for processing in Asia.

Port of Los Angeles (FY 2016) Container Traffic

Manufacturing job losses were tolerated by the political establishment, I suspect, largely because corporate profits were boosted greatly by offshoring jobs and low-cost imports. And corporations are the biggest political donors. Corporate profits as a percentage of GDP almost doubled over the last two decades.

Corporate profits as a percentage of GDP

2. Immigration

This is a similar issue to that highlighted by the UK/Brexit vote. Blue collar workers, losing jobs to globalization, felt threatened by high levels of immigration which, among other problems, stepped up competition for increasingly-scarce jobs.

3. Wall Street

Wall Street bankers with their million-dollar bonuses were blamed for the global financial crisis and collapse of the housing market, the primary store of wealth for middle-class families. While there is no doubt Wall Street had their snouts in the trough, the seeds of the GFC were laid years earlier when Bill Clinton repealed the Glass-Steagall Act with backing from a Republican congress. Failure to prosecute or otherwise punish even the worst offenders of the sub-prime mortgage debacle was seen by the public as collusion.

The Democrats in 2015 recognized that Hillary had been damaged by the private email server controversy and did their best to maneuver the election into a Trump-Clinton stand-off. Their view was that Hillary would be beaten by either Rubio or Kasich. Even the reviled Ted Cruz was seen as a threat. Hillary was seen as having the best chance against a flawed Trump who would struggle to unite the Republican party behind him.

Hillary Clinton and Donald Trump

Hillary Clinton was presented as the ‘safe’ candidate in the election, representing the status quo and stability. But that set her up for a fall as their strategy underestimated the anger of American voters and the risks they were prepared to take to bring about change.

While I am relieved that we can “close the history book on the Clintons”, to use Trump’s words, I viewed him as a lame-duck candidate, too flawed to hold the office of President. Fortunately there are many checks and balances in the US political system. It survived Nixon and should be able to survive this too. Especially if Trump takes a hands-off approach, along the lines of Reagan who was reputed to doze off in cabinet meetings. A lot will depend on his appointees and the next few months will be critical in setting the direction for his presidency. Expect financial markets to remain volatile until they have grown accustomed to the change. It could take a year or even longer.

December 7, 2012

Jack Kemp Showed GOP How to Appeal to Minorities

Bruce Bartlett writes that late senator Jack Kemp is a role model for how Republicans should engage with minorities:

Although Kemp pushed for a cut in tax rates for the wealthy, he was adamant that all workers must share in the benefits of lower taxes. He also focused heavily on the idea that saving, investment, technological advancement and capital formation were the essential goals of economic and tax policy, because they raised productivity, which would raise the wages of workers. Today, Republicans just blithely assume that tax cuts for the wealthy will automatically help the economy without ever explaining how or why.

The key to a thriving capitalist system is a successful partnership between capitalists and labor. Capitalists benefited hugely over the last half-century from jobs the private sector created — and from rising wage levels — through growing consumption. Without consumption they would fail. Workers on the other side of the bargain have also benefited from job creation and rising wage levels. Without them they would suffer unemployment and genuine hardship. Neither side can afford to focus on their own needs without recognizing the importance of the other’s.

Mancur Olson argued that specialized unions with narrow membership will attempt to optimize benefits to their members, be it airline pilots or sanitation workers, even if this achieves a sub-optimal outcome for the economy as a whole. In other words, they will advance their own interests at the expense of others. But he also argued that broad-based unions will not, recognizing that they cannot advance their own members’ interests if the economy as a whole suffers.

I believe the same applies to capitalists. Monopolies or cartels who attempt to maximize their own profits will damage the economy, while broader-based groups will recognize that they can only maximize profits by advancing the economy as a whole — creating new jobs and lifting wage levels.

You also cannot focus solely on lifting wage levels — as Herbert Hoover attempted in the early 1930s — in the hope that this will support the broader economy. Higher wages will slow job creation and retard the recovery. The focus has to be on maximizing the total wage bill — and consumption. At times, during a recession, this requires lower wages and more jobs. But as the economy approaches full employment, wages will rise while job creation slows.

Exporting jobs offshore may serve the narrow interests of some manufacturers but is ultimately not in their long-term interest. They may gain from cheaper labor costs but they are also exporting consumption, which will directly or indirectly hurt sales.

That Kemp was an extraordinary man is also borne out by his views on immigrants, emphasizing integration rather than exclusion:

I also know that Kemp had a far different attitude toward immigrants than virtually all Republicans today. He welcomed them, seeing immigration as one of the economy’s lifebloods. He would be extremely critical of efforts to demagogue Latino immigrants who come here, legally or illegally, just looking to earn an honest living and enjoy the American way of life.