Welcome Year 12 Eco Class

Fellow economists, here is a copy of a blog I posted last year (Thursday, March 19, 2009). It is highly relevant to what we have been studying and the hyperlinks lead to an interview on the ABC.

Is Foreign Aid good for Africa?

On the 17th of March, Foreign Correspondent (yes on the ABC) had an interview with Dambisa Moyo a Zambian-born economist. This is some of the information from the ABC web site.

"In her new book, Dead Aid, she argues that official aid is easy money that fosters corruption and distorts economies, creating a culture of dependency and economic laziness.
Moyo is particularly dismissive of the ‘celebrity aid’ model popularised by international stars such as Bob Geldof and Bono and says many aid organisations and NGOs are more interested in perpetuating poverty in order to justify their own existence."

Interesting thoughts indeed. Moyo is a believer in trade and the power of the market as opposed to the aid model in which she claims the only growth occurring is in the Swiss banks accounts of the political elite.
Lastly she claims that 10 percent of Africans were living in poverty in the 1970s compared to 70 percent now.
What do you think? It would be good to hear some comments via the blog.... (PS this is not a new concept it is new for an African economist to be suggesting it though)

ECO latest info

Hola Eco gang,
thought I would make sure you are out there and thinking like the guru.

So I have a number of things for you to consider.

1) If you want the absolute up to date information, or have questions you need answered then call the HSC Advice line on 131112. It is open from 4pm to 10pm from 2-4th Nov for Economics, Check out this link if you want dates for other subjects.

2) The latest inflation figures show that underlying inflation is 3.5% and this is why the RBA put up rates by .25% in for the first time in 18months in Oct. The underlying rate is the important figure for the RBA, so whilst headline inflation is still only 1.3% and thus below the 2-3% target, the underlying figure is important as economic conditions being weak is the only thing holding inflation from soaring.
Thus Australia has an underlying inflation problem- which the RBA only has 1 way of dealing with this issue. Unfortunately this will not solve the problem (this requires micro reform regarding productivity and infrastructure investments)
SO when the RBA meets on this Tuesday (which is always put into the background some horse race) it will be interesting to see what happens.

3) The latest figures I have are as follows;
12 months ago
Growth 0.6% June 09 2.7%
Unemployment 5.8% Aug 09 4.1%
Inflation 1.3% Oct 09 4.5%
Household savings -0.4% Sep 09 +0.9%
cash rate 3.25% 7.0%
current account -$38.4bn -$72.5bn
ToT 109.0 Jun 09 120.1


Good luck.

1.5% inflation = interest rate rise??

The latest RBA meeting on the 6th of October has signalled the end of what Glenn Stevens has called a 'mild downturn'. After holding interest rates at 3% for 12 months the cash rate has now started heading up (though only slightly ) after the RBA decided to put them at 3.25% on Tuesday.
After Lehman Bros in the U.S filed for bankruptcy in Sept 2008 the RBA cut the cash rate by 4.25% over a 6 month period in a bid to prevent major credit and AD issues in Australia.
Thus the signal that Australia's downturn is possibly over has been given by the RBA. If you want to read why G.Stevens believes Australia avoided the major problems experienced in the G7 in particular then read this concise summary.
The question remains- Is Australia out of the recession? and why is the cash rate rising when inflation is still below the 2-3% target range?
Wll the answer is a pre emptive strike, a move to curb excess borrowing at a low rate of interest and to send the market a signal.
Of note is that unemployment has fallen very slightly from 5.8% to 5.7% which is a further indication of a return to expansionary conditions. What will be interesting is that Glenn Stevens also said "a degree of policy discipline will be needed". This means that he expects fiscal policy will also slow down its expansionary phase and that spending will decrease- however will this happen in light of the fact that the next Budget leads up to the next election?
It will be interesting to see what the ALP does??

Economics of climate change

The Stern review is the most comprehensive economic based report into the impacts of climate change, it also explores possible actions which need to be taken and the consequences of taking no action. Lord Stern is British economist.

The Stern Review states "our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes."

One of the considerations of climate change action by Stern is that developing nations should have the opportunity to reach the same level of living standards as developed nations.

Stern recently updated his report to say that 2% of GDP needs to be invested to avoid the worst impacts of climate change.

Stern Review

Check out this SlideShare Presentation:

Stern Review

Investigation into medical devices

A good example of the ability of self regulation to control its own behaviour has been llustrated via a recent investigation into medical devices. Trips to Germany, payment for a polo festival, doctors flown to the airport in a helicopter to avoid peak hour traffic and extraordinarily large consultancy fees. All of these behaviours have been found to exist in Australia as the pharmaceutical companies attempt to influence the purchase and supply of medical devices to patients/ consumers. Whilst the regulation of the goods themselves is controlled by the Therapeutic Goods Administration (TGAct 1989 and recent Therapeutic Goods Am (Medical Devices) 2002 the adverse situations which occur need to be reported by the supplier . The figures below show the increase in injuries and casts questions on this self regulated system.

Medical devices include a wide range of products such as medical gloves, bandages, syringes, condoms, contact lenses, in vitro diagnostic devices, disinfectants, X-ray equipment, surgical lasers, pacemakers, dialysis equipment, baby incubators, heart valves. Some of these are actually placed inside a patient and most would be reluctant to challenge a doctor about the brand specified of a pacemaker. To read the articles see the following links
Drug Mone hurts our credibility 7th Sept 09
Meals, trips used to sway choice of devices 7th Sept '09
Kicbacks, kickoffs at World Cup 8th Sept'09

The most telling criticism is to the SMH from a doctor.

Regulation needed to make device advice transparent

News that the medical devices industry is paying millions to doctors for entertainment and ''consultancy'' fees should come as no surprise, given we have heard it all before with the pharmaceutical industry (''Meals, trips and transport used to sway doctors over implants'', September 7). The latter industry self-regulates via a code with holes in it that one could drive a semitrailer through.

Both the pharmaceutical and devices industries have a duty to do everything they can within the law to make a profit for their shareholders. They do it through influencing doctors. We doctors are human and, like everyone else, we are influenced by marketing and money. The effect is that taxpayers pay for drugs and devices that at best are the most expensive choices and at worst lead to unnecessary deaths.

When will the Federal Government step in to regulate this dangerous and inefficient system?

Tim Woodruff President, Doctors Reform Society, Richmond (Vic)

Supply is important for the long term

Whilst supply side economics has taken a temporary back seat at present it will need to return in importance for Australia to shake off the underlying issues that existed prior to the recession. That is the recession we didn't have, although we are still in it. The issues of competition, low savings, underlying inflation due to skills shortage, infrastructure and a appreciation in the $A all will serve to lower our international competitiveness.
Sidenote why is the $A about to appreciate? Well the financial markets are already predicting that by the end of the year our interest rates will have risen by 0.5 and a further 1.0 next year to slow inflation. If you compare our interest rates to the rest of the world there is already a major differential. This means that if our cash rate moves first it will attract investors and speculators, leading to lower returns for our exporters.

So as Gittins has pointed out recently in PM won't be a great leader the Rudd government needs to make some hard decisions and why not now? Politically there is no serious competition and secondly the time is ripe when the economy is in the need of injections. The article points out 5 areas that Rudd has already considered; competition, innovation, skills, infrastructure and tax reform. There is debate whether all of these involve micro reform however there is a need for change.
In light of this as Henderson (Rudd will need reform for recovery) points out that flexibility is key to future growth. It is of particular interest to compare this article to Gittins' No such thing as a free market. to see a contrasting view regarding the direction of labour and financial regulation.
Which one do you believe is the direction Australia should take? It would be great to see some responses to hear your thoughts???

p.s if you are after some more reading on micro policy and another viewpoint check out Mr. Woods (VCE link to your right) in Topic 4- micro and Topic 3- Allocation of resources.