Rafe’s roundup Dec ’12

Update. Grace Collier on productivity and the conflicted nation.

While our small business sector struggles to interpret and comply with awards, the Fair Work Ombudsman sends out industrial inspectors to punish them for failing. These inspectors cannot give definitive advice to business about how to comply. Their role is not to help prevent breaches, it is to investigate and prosecute. No one in Fair Work Australia will tell a business what and how to pay their staff, yet a company that gets it wrong will be relentlessly litigated, even into bankruptcy.

Our big listed companies groan with inefficiencies. Chief executives squeal about the Fair Work Act while their human resources people do dumb deals with unions.

Employer organisations complain about unions and want them regulated, but not too much, because they are covered by the same rules and don’t want to change too much themselves. They want the government to legislate what unions can ask for instead of learning how to say no and mean it.

We disapprove of how union officials can misappropriate money but don’t ask – yet – about the many dodgy ways union officials can acquire money. A union official spending several thousand on prostitutes is of intense interest, but a union official raising a million dollars by selling people’s workplace rights is a political smear that must not be examined.

The same people beating their breasts as worker advocates try to beat any exposers of the AWU (cash for workers’ rights) scandal into silence.

Ray Evans on the modest member, Bert Kelly. A review of the new biography by Hal Colebatch (junior).

This year marks the centenary of the birth of Charles Robert Kelly (born December 22, 1912) who, in 1958, at the age of forty-five, became the federal member for Wakefield. He was a reluctant politician. His family had farmed Merrindie, a South Australian property with an annual rainfall of about twenty inches, since the 1870s. The farm was more than 2000 acres but only half of it was arable, and keeping it profitable required hard work and a great deal of farming know-how.

When Sir Philip McBride retired as the member for Wakefield two people, one from the grave, persuaded Bert to run for pre-selection. His father W.S. (Stan) Kelly (1882–1969), had been a full-time member of the Tariff Board, then based in Melbourne, from 1929 to 1940. WS, as he was called, was increasingly concerned with the rise of protectionism during the 1950s, and he urged his son to take up the anti-protectionist cause in parliament.

The other was Charles Hawker, the crippled war hero who became the Member for Wakefield in 1929 and was killed in an air crash at Mt Dandenong in October 1938. Had he lived he would almost certainly have succeeded Joe Lyons as Prime Minister. He was a frequent visitor to the Kelly home and had told Bert that he should be ready to take up the burdens of political life when the need arose.

My review of Hal’s biography of his father.

Hal Colebatch (senior) was one of the living links to sustain the ideas of free trade through the wilderness decades until Bert Kelly and his helpers appeared to sponsor the Liberal “back bench dries” of the 1970s. Among the others were Stan Kelly (father of Bert), A H Lewis of the Commonwealth Bank, the economist Ed Shann, the historian Keith Hancock and the journalist and bohemian Brian Penton who helped to prepare an English translation of On Socialism by von Mises when Penton was in London in the 1920s.

A very interesting leak from an impending IPCC report.

What is so bad about communism? US school kids ask the Conservative Teacher.

This sort of sentiment coming from these young people should not be surprising. The educational establishment is heavily dominated by Democrats and their liberal values ever since conservatives conceded the raising of our young to them, and according to a recent Gallup poll Democrats and those who lean Democrats have a 53% favorable view of socialism and only a marginally higher positive view of the capitalism at 55%. Democrats, who appear to dominate the teacher ranks, are just about as supportive of socialism as capitalism, and over the last several decades students must have adopted these values as well and today a good number- maybe half- of our future generation believes in socialism.

Karun Phillip on the fiscal cliff.

My position: The reason there is lower growth than possible (and not many new middle class jobs) is because of the collapse of the credit* distribution system. We can choose either the Republican or Democratic position or any compromise, but it does not matter because higher taxes will not close the deficit and are not helpful for growth, and lower taxes for the wealthy are pointless if the real problem is that the credit distribution has collapsed. {*”credit” implying money , bank loans, bank assets, whatever you want to call it}

Yes, there was a “distribution system” for money until 2008. It involved a long chain of money producers and money distributors. The small banks and boutiques who used to decide on which loans to give were (are) called Originators. They would make decisions based on whatever their local knowledge or expertise was (is).

They would then pool the loans together and sell the loans to “Conduits”, which are the way large banks used to be able to make large numbers of diverse loans without necessarily having local knowledge and expertise of everything in the world that needs credit (loans) to build.

The Conduits would then restructure the pool of loans into Securities, which they then sold to “Fixed Income Investors”, and it just requires a little bit of math and a computer to figure out how to restructure and re-allocate risk to match the supply of loans with the demand for investments. Safe investors invested in de-risked parts of the pool, and aggressive investors invested in riskier parts of the loan pool.

In 2007, the SEC’s accounting arm, FASB, introduced a rule named “FAS 157″ saying all these securities have to be “marked-to-market”, meaning that even if you (as a bank or investor) did not want to sell the Security you hold, you must mark it as worth what your neighbor might have sold it for. This causes you to put up a higher amount of capital to cover the security you already own and do not want to sell. It is like if your neighbor sold their house at fire-sale prices, your bank tells you that although you paid all your installments, you now have to pay more equity into the home loan immediately, or be foreclosed. [So much for lack of regulations causing the crisis. RC]

This caused what my friend Jeff Miller called the “death spiral”.

The SEC is the US Securites and Exchange Commission. In case you are short of holiday reading you can browse their rules.

Karun is a contact from the golden years of the Hayek email discussion group where I met Larry Boland, Jack Birner and some of the Austrian economists, like Peter Boettke.

Good things at Jo Nova and Tim Blair. Not to mention the Bunyip. BoltA appears to be posting even though he said goodbye the other day when he went on holiday. Guess the bloggers holiday is a bit like the bus drivers holiday.