Regulation gone crazy 6:17 PM

Well Christmas has come and gone and now its sale time.

Awhile ago we posted a blog regarding the absurdity of predatory pricing. While the content of the blog was 100% accurate, the blog itself was very much tongue in cheek. After all how stupid would a regulator need to be to go down that road … surely no one would … not given the ready availability of so much good economics.

Well they have, and as anticipated the outcome is nothing short of absolute lunacy.

Where did they do it? Where else, but that bastion of anti capitalism, social democracy and good cheese. France!

Sales in France are governed by specific legislation. Laws supposedly designed to stop unfair competition and protect small shopkeepers from those "all year" sales by large stores who can afford to sell some items at a loss. In France out of the sales period, it is an offence to knowingly sell goods at a loss, again a measure designed to protect small shopkeepers from large retail groups

Trading laws stipulate that there are two periods for sales in France. Winter sales from January to February and summer sales from June to July. In each case, the sales last for five weeks. All goods on sale must have been in the shop for a minimum of thirty days prior to the sale date. No buying in cheap stock and selling it as a sale item. Reductions’ must be visibly displayed in percentage terms. labels must also show the old pre sale price and the new sale price. Retailers are allowed to reduce their prices three times in the sales - after the first fortnight, and again in the final week.

Outside the official sale periods, retailers are allowed two weeks in the year, to use at their discretion, for extra sales such as pre-Christmas sales or spring sales. Shops are allowed to run "special offers" on certain items of stock throughout the year i.e. - a rack of cheap "end of line" clothing. Shops that are closing down, or refitting are allowed to hold sales - "everything must go" with written permission from local authorities.

Yesterday morning many shops (with permission from their local trading authorities) were open at 7am. Needless to say that the starting date is a national one decreed by the government. (thanks to fabfrog.com for these nuggets of info).

It never ceases to amaze me how blatant anti competition laws are often dressed up as pro competition rather than what they truly are …. Articles for Government sponsored cartel governance arrangements.

Aside from mad Frenchmen, its also worth noting that the American fiscal stimulus bail out framework has just started to produce some dodgy results

Bailout hearing

More follies 6:28 AM

Sorry ... couldn't help myself ... heres another folly from 2007

aint goin to go to econ

Start Friday on a high note (Roy) 6:13 AM

Start Friday with a laugh.

I've recently discovered the spring follies that American business schools seem to love producing. Youtube is fantastic.

Here is a link to a 2009 spring folly from Columbia School of International and Public Affairs.

the most beautiful girl in the lobby

Santa Hates Me (Roy Rodgers) 3:32 PM

Santa hates me ...

I've never done anything to Santa. I've always had a good word for the bloke. Despite a general distrust of altruistic institutions, the cult of personality and total aversion of the welfare state I have always made an exception for Santa.

I know he wears a big red suit and rules his own little fiefdom of socialist oppression where little elves (obviously deprived of their full nutritional requirements) are made to wear bizarre little uniforms and toil endlessly in factories producing purely consumptive goods that bear no reference to any sane economic output.

I've never been to the north pole but sure as hell there is a statue right in the middle of town. A nice big one of Santa toiling away. Just like the statues Mao was so fond of. Just like the statutes Stalin loved to build, just like the ones Saddam Hussein commissioned.

Despite all this I have stood by Santa... but no more ... this year Santa crossed a line that should never be crossed ...this year the bastard stuck a copy of "the capitalism delusion" by Bob Ellis in my Santa sack.

To be fair it wasn't actually Santa but my father who did the deed, and to be fair he did offer the critique that the only improvement the publishers could have made was to print it on extra soft double ply. However, at the end of the day he is still responsible. And while he is currently revelling in the hilarity of watching me foam at the mouth every time I read a passage from Bob's masterpiece, my father will rue the day he decided to take the micky on this one.

Bob's masterpiece

After reading a couple of pages I was beginning to come to the obvious conclusion that Bob, god bless his soul, was just another in a long line of delusional nut jobs who spend their lives rallying against the progression afforded the human race by the somewhat radical idea that people should be free ... free to choose what they want to do, when they want to do it and how they want to do it ... somehow, through some sort of twisted illogical process, people like Bob equate freedom with the extension of monopoly powers of coercion to a centralised state that then by definition has to direct people on what to do, when to do it and how to do it.

Here's a hint Bob ... the thing about free markets is that they are free. The thing about socially democratic economies or socialist economies is that they are not free.

But rather than rant and rave I thought there may be some value in having a look at exactly what Bob is saying and providing some rational evidence based discussion on Bob's little gems.

Before we start there are a couple of things that should be mentioned, so that the conversation will make more sense.

• Bob appears to define capitalism as free markets, he also appears to take that definition to the extreme of free markets = no government (anarchy by any other name).


• Bob's grasp of economics is fairly loose, the manner in which he fails to grasp some very basic economic principles and theories make the discussion particularly unsophisticated.


• Bob does not appear to have provided any evidence anywhere for any of his musings, I suspect the research conducted for the book consisted of reading some Naomi Kline and watching Mike Moore's 'Sicko' (both acknowledged in the prelims) ... so don't expect any well informed or defendable arguments.

Before we start, its worth noting that most of these types of books are based on a core fallacy that is the fallacy of the false dichotomy. The arguments put forward will be framed in the following manner ... capitalism is crap ... it did this, it did that, it lead to this outcome, it lead to that outcome. It then follows that because capitalism is crap.... socialism must be good.

Well not really ... obviously no country has ever existed free of government and as anyone with any interest in politics knows, the difference between social democracy and liberal democracy is not one of absolutes but rather is one of degrees of government intervention. Liberal democracies have an explicit faith in their own people to make choices that benefit themselves and everyone else if they are by and large free to do so. Socialist economies think people are stupid and must live at the behest of vastly more intelligent cubicle dwelling planning bureaucrats. Liberal economies focus on market-based outcomes and will tolerate government intervention where markets cannot be established. Socialist economies favour planned outcomes and will tolerate markets where plans don't seem to be working (i.e. most of the time).

So it is worth mentioning that for all his bluster on the evils of capitalism, Bob never once outlines how his beloved socialist system would do it better. And that is the point most libertarians make ... we realise the world isn't perfect and allowing people the freedom to do as they wish when they wish to, may sometimes lead to outcomes that appear to go against the grain of what experts view as our collective aspirations. However, no matter what the outcome, you can reasonably assume (based on past experience) that it is better than the alternative that some pimply 30 year old wearing a polar fleece vest in a government cubicle somewhere in the wasteland of the civil service could provide (the socialist alternative, Bob's alternative).

Bob's little gem for the day

The best place to start is the very beginning, page 1.

If i were to say to you don't worry about the tsunami the free market will sort it out, you might think me a little mad.

Bob's problems start here with the very first sentence of the very first chapter. No the free market can not undo the tsunami but I personally would not think Bob mad at all to suggest allowing people the freedom to allocate their resources as they see fit in response to the tsunami as opposed to a centralised response, would provide for an effective response. Centralised disaster management has come under alot of scrutiny and criticism in recent times, especially given the what can only be labelled government failure in response to Katrina and the destruction of new Orleans. One of the primary criticism of centralised disaster responses is that it is often slow and ineffectual, primarily due to information problems.

Or if I were to say the Chinese earthquake, it isn't a problem. The issues arising from a schoolhouse falling in and the one child of a one child family being killed and his father having had a vasectomy and his mother wanting another child to replace him are issues that markets will easily fix, you wait and see

This is the second sentence and again Bob has a few problems. All of the schools that collapsed during the earthquake were government owned and run. They were designed and built to government specs, and as any architect who has worked in China will tell you, those specs are quite considerable. Further to this the fact the father has been neutered is a requirement of his socialist government's one child policy. So Bob's problem is that he seems to have put forward an example of the ineffectiveness of free markets that has absolutely nothing to do with free markets but is totally down to the absurdity of a socialist government. Of course that's not to say that the earthquake would not have had such horrible consequences for a market based economy, but one thing we can say with certainty is that the notion of compulsory neutering is not consistent with notions of a free market, and the prospect of thousands of childless families would not be as big an issue in a liberal free market economy.

Or if I were to say to you the killing of three hundred children by Israeli bombardment? And the destruction of fifty thousand buildings? Don't worry. The deregulated free market unguided by government interference will quickly fix all that.

Bob ... what in the name of sweet Jesus are you trying to say? The decision by a socialist leaning government to bombard it's neighbour over an apparent dispute centred on contested land and the demarcation of national boundaries, tied into an ongoing conflict between two sets of religious fundamentalists ..... has absolutely nothing to do with the free market. And the contention that the adoption of open boarders, open markets and free trade has no role to play in any future peace is idiotic.

The next little gem isn't the fourth sentence, but it's close. It's the central point of Bob's fourth paragraph.

.... or the killing by machete of eight hundred thousand harmless Rwandans, are well within the power of the free market to sort out ...

Well Bob ... given the blatant ineptitude of the centralised response provided at the time by the United Nations who sat idly by watching the slaughter ... one would have thought that, contrary to your dribble, this is a perfect example of an instance where free markets would not have hurt, if a defendable system of adequately defined property rights had been in place then maybe just maybe the world could have avoided the macabre result of tribal feuding and nepotistic governance that Africa so often produces.

What can we say about Bob and his book?

Well, based on the first four paragraphs .... I think he's an idiot. Let's hope as we get further into the book that he is a least an amusing one!

Five minutes on a friday or monday (Roy Rodgers) 6:25 PM

So its Sunday and I've spent the last 2 hours in at work trying to cattle prod the biggest most mindnumingly boring financial model to work. The only way I've been able to stay conscious is by running youtube on the second screen.

If you have five minutes spare I though you may enjoy sharing in the fruits of my youtubing.

The following tunes are mostly parodies of the GFC.

My favorite

Total collapse of the street

Every breath Bernanke takes

Worth a listen

The market crashed on me

Lyn on the docs bout my pay

The subprime mortgage blues

The bailout rap

Here comes another bubble

Regulate

Totally unrelated but nevertheless amusing ... heres a couple for the lads (theres even a mention of porters 5 forces)

Consultants vs bankers

Baby got WACC

More Ramirez 5:55 PM

SORRY I CANT KEEP IT IN ANY LONGER ... I MUST RANT (Roy Rodgers) 6:16 PM

WARNING The following blog contains explicit language, sexual references and is unfair in its treatment of the intellectually disabled.

I don’t know if its just me but I pretty sure I saw Lindsey Tanner saying the most incredible thing yesterday ... he said that Kzedong and the gang of four had decided to maintain protection for the Australian publishing industry on the grounds... wait for it ... on the grounds that the protection was rendered ineffective by Internet competition.

Please smack me in the head ... no not enough ... smack me again ... I just don’t get it.

Saying the current arrangements are ineffectual is an argument for giving them the arse, not for keeping them. And it also begs the question as to why publishers and authors fought so hard to retain protection if at the end of the day it was ineffectual and therefore provided them with no benefit.

This decision totally contradicts the advice given by the Productivity Commission, seems to ignore the last 30 years of microeconomic reform, and is at total odds with the idea of increasing productivity within Australia.

Surely they realise that protecting inefficient businesses (and if they cant produce at a market based competitive price they are inefficient by definition) helps no one. Consumers pay more and the sector itself suffers in the long run as it becomes fat and lazy. SHIT ME ... its not as if this is rocket science, its basic industrial policy. Exactly of the sort that has seen Australia’s productivity skyrocket from the mid 80s to now.

The massive increase in productivity attributable to microeconomic reform over this period is the basic foundation upon which our current wealth is derived. The reason we can all afford foxtel and all have 50 inch LCD tvs is because we stopped doing this crazy protectionist crap.

While Kzedong is currently reviling in the perception of his macroeconomic prowess (which is another blog in and of itself) he is starting to rack up an impressive list of microeconomic blunders that include the:

• The implementation of price caps on gas (amazingly absurd)
• Grocery watch (otherwise known within the hallowed halls of commonwealth gov as grocery botch)
• Fuel watch (what can I say)
• Supporting protection (see Tim Winton)
• Rolling back labour market reform (thanks Julia)
• Providing public guarantees for privately generated risks (to a select few)(see the bank guarantees)
• Funding the liabilities of private companies (see James Hardy)

The idiocy of all this stuff is generally dealt with in the first year of an undergraduate economics course. Its not rocket science, its basic science.

The depressing things is that they seem hell bent on making these mistakes and the amazingly uncritical responses they seem to be getting from the media indicate that we are going to experience alot more of these before the electorate responds.

Here's what Kzedong had to say for himself when questioned about this latest microeconomic lunacy relating to publishers.

"When it comes to our micro-economic reform agenda, it is vast, it is comprehensive, it is across the entire regulatory agenda of the commonwealth and the states ... It is proceeding apace."

SMACK me in the head ... hard .... do it again .... once more just for fun ... I don’t get it.

There is no way Kzedong can be that self delusional. He is shaping up to be the biggest architect of anti-reform in the history of the country. Don’t get me wrong, i don’t think hes doing it intentionally, its simply the result of pursuing an unprincipled populist approach to governance. That and he is in the words of Peter Walsh (former Labour heavy weight and one of the primary architects of the Hawke/Keating reform agenda} economically illiterate.

http://www.theaustralian.com.au/politics/pm-kevin-rudd-branded-an-economic-illiterate/story-e6frgczf-1225797124334

Lets not be too harsh ... what do you expect from a prime minister with no formal economics training and an arts degree majoring in Chinese language and Chinese history (after all the Chinese are such bastions of economic knowledge).

The uplifting thing is that its consultants like myself and my mates that get paid to fix these things up when they comes to tears (and they will all come to tears). So while I lament the idiocy of the current regime I also thank them for providing me with enough coin to pay the kids tuition at Melbourne Grammar.

Apart from furnishing consultants with a future work stream, one of the other major unintended benefits of this decision is that it allows you to readily identify the economic retards in cabinet. The question of whether to remove protection is such a black a white easy question that anyone who opposed it must by definition be economically retarded.

Its the economic equivalent of a basic physics question, something along the lines of taking someone up to the 13^th floor and asking them whether they would like to test the theory of gravity. Jumper = retard. Maybe retards a bit strong. Jumper = arts student.

So which little campers are sitting up the back of the bus? Apparently those in the cabinet most vehemently opposed to the removal of protection were:

• Arts Minister Peter Garrett,
• Attorney-General Robert McClelland
• Industry Minister Kim Car
• Finance Minister Lindsay Tanner,
• The chairman - Kzedong.

Well boys ...here is your head protection and there’s the back seat.

As an interesting aside, I’m sure the complete dismissal of the Productivity Commissions recommendations is causing Gary Banks and the lads a fair degree of heartburn. The sale of quickeze at the newsagent down in Collins Place has probably gone through the roof.

The interesting thing is that, while the PC is independent and its commissioners are holders of public office, it is still a government body that depends by and large on the support of government to exist. The PC depends on inquiries, inquires are its reason for existence and it follows that its existence is dependent on government feeding it its inquiries. These inquires cant be generated independently they need to come from the Treasurer.

It is far from clear that there is a space in the new regime for genuine independence. Like any good little dictator Kzedong has been very successful in muzzling discontent in the public sector. If the chairman decides the PC needs to go (or to be brought to heal) he can do this quite effectively by simply starving it of attention ...no inquires, no terms of reference = no reason to exist = budget cutbacks = bureaucratic death = bye bye PC.

While the PC may currently be a little nervous about its place in the world it should at least be applauded for standing up for common sense and economic rationality. It s inquiry report by law must be tabled in parliament, and in doing so it provides the opposition with a wealth of well thought out, authoritative analysis of why the government’s policy on protection is shit ... its like a little pre Christmas present for big mal (lets hope he has the brains to use it).

In closing ... Amazon have some terrific sales on at the moment.