The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, January 27, 2010

Randomistas (updated)

That’s the name given to Professor Andrew Leigh and his cohort of economists who use ‘randomised trials’ to test the efficacy of public policies. It’s a pretty simple yet nonetheless powerful approach. Leigh’s a fantastic young Australian economist who tackles loads of interesting topics (eg, the relationship between the incidence of rain and traffic accidents). Here’s a question for Andrew: for those of us—present company included—who do not have time to read your many papers on income inequality and taxation, could you possibly post a literature review (aka a summary)?

In the spirit of the randomistas, some other inchoate thoughts include: Michael Stutchbury had a disappointing op-ed in the Oz the other day on the RBA’s independence. This just lends more weight to concerns that Stephen Kirchner and I have had about the media’s integrity when it comes to appraising the central bank (the argument goes that key commentators’ reliance on the central bank for inside information creates a critical lacuna). Stutchbury is a very smart guy but drops the ball woefully on the analysis front when it comes to all things related to the RBA. The claim that the RBA was ‘ahead of the curve’ during the GFC is just baloney. This was one of the only central banks in the world that directly and indirectly raised mortgage rates 6-7 times in the middle of the GFC. Home loan rates peaked at 9.6% in August 2008. In early 2008 Glenn Stevens was giving speeches maintaining that conditions were recovering and Asia was set to avoid the worst of the fallout. It was only after much domestic criticism, and what I understand to be a few Board tensions, that the RBA did a belated 180 degree turn. The point that Stutch does not tell his readers is that the reason the RBA had to cut rates so rapidly in September was that it had been raising them relentlessly since 2002, and aggressively right throughout the GFC. That is, the RBA was actually way behind the eight ball vis-à-vis other central banks. By the third-quarter of 2008 Australia’s non-farm economy was in recession largely due to the RBA’s very contractionary monetary policy settings. In short, the RBA was lucky that (a) the real economy consequences of the GFC were not as bad as expected, and (b) Australia’s variable mortgage rate regime gives it so much flexibility to rapidly influence the cost of capital.

Moving swiftly on, Crikey’s Bernard Keane must rank as one of Australia’s best political commentators. The guy is ridiculously bright and generally contributes to a material elevation in the industry’s overall IQ. Writing for Crikey is a twin-bladed sword, however. It is well-read, bold and has all the benefits of a heterodox, anti-establishment online business. Yet it still carries a bit of baggage due to its occasionally questionable content (ie, they run articles that would not likely be published in the mainstream media). Anyways, Keane has harnessed his fierce faculties to produce this excellent piece on the ramifications of Obama’s new banking policy for Ruddie et al (pay-walled).

Finally, we have some interesting data releases coming out this week. All the major index providers—RP Data-Rismark, APM and the ABS—will be reporting the fourth quarter house price results. RP Data-Rismark are the only supplier that publish on a monthly basis. We know that the October and November numbers were strong, so the December quarter outcome is likely to be positive. On the other hand, I expect the month of December to be weak in line with the traditional seasonality at this time of the year (the indices are not seasonally-adjusted).

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