Greek Folly - Olympic stadiums' uncertain future

I commented at the time about the colossal waste of money involved when governments get involved in "prestige" projects like the Olympic Games. Well, the chickens are coming home to roost for the poor Greek taxpayers. Read it and weep.

Brings to mind another thought. A whole pseudo-science of "cost benefit analysis" has grown up in part to justify white elephant projects like this. It's all nonsense, of course. The only real test of a project is to leave it to private enterprise. Then you'll know if the "benefits" are real or illusory. You can't fudge cold, hard cash.

The Break-Up Of The Euro?

Thinking The Unthinkable?

The recent "No" votes in France and Holland to the proposed new European constitution has sparked off political turmoil and also speculation about the fate of the Euro.

Leading politicians in Berlin have expressed concern that the tight rules governing the euro are strangling Germany's economy, by far the biggest in the 12-nation eurozone.

The country's finance minister and central bank president reportedly attended a meeting where the "collapse" of European Monetary Union was discussed.

Meanwhile, a senior member of Italy's coalition government has openly demanded a referendum which would call for the abolition of the euro and the reintroduction of the Italian lira.

As I read this, I recalled a report written way back in 1996 by David Roche. In that report he thought that there was a 60% chance of EMU (European Monetary Union) NOT happening and that if it did, there was an 80% chance of it blowing up afterwards.

It's worth quoting from the report...

There are three structural reasons why EMU could fail. First, there is no mechanism for fiscal transfers within the EU to offset the pain of adjustment of peripheral economies to the core. Second, the labour markets of Europe are not standardised or liberalised. So structural unemployment is the adjustment mechanism for the harmonisation of inflation and growth, as well as of monetary and fiscal policies. France's 25% youth unemployment rate already shows the way. But that's just the trailer to the main feature when the tide of EMU deflation sweeps along the Mediterranean shore. Third, the integration of Central Europe into the EU will provide a whole new source of cheap labour and imports, as well as competitive devaluations, for EMU members to contend with.

The most likely way in which failure will show is in a severe post-EMU recession with its locus in France.

The report ended up being wrong on a number of points (it over-estimated the economic strength of Germany and didn't forsee the impact of the emergence of China) but the scenario it forsaw is happening. Basically, the removal of individual currencies that could act as shock absorbers, has meant that employment and local economies are having to bear the consequences of misguided economic policies.

The Euro has already been exposed as something of a sham with the collapse of the "Stability and Growth Pact" that was meant to ensure that member governments acted responsibly. With the strains now emerging in the economies of the major countries of the Euro bloc (France, Germany and Italy) the chances of a breakup of EMU are increasing rapidly.

This might be the best outcome for everyone. The alternative is that...

Dissatisfaction will out, but no longer through volatility in financial markets. It will erupt in political life instead.

Unfortunately, my guess is that the politicians will cling to their dream of a European Super State and prolong the life of the single currency as far as possible. The result will be prolonged economic difficulties in the core EMU countries.

Outside of all this, the rejection of the European constitution is a major victory in the struggle against collectivism and the state. Gary North sums it up far better than I can and I commend the following article to you.
http://www.lewrockwell.com/north/north381.html

P.S. There is a precedent for a breakup of a currency union. The Latin Monetary Union initially involving France and Belgium started in 1830 and involved other countries at various times. It finally expired in 1926, which was long after it had any real relevancy.

Prosperity Consciousness In Action

Telegraph Motoring Tickled pink in a Porsche

Couldn't resist posting this wonderful article! Some might view this as conspicuous consumption in the worst possible taste. I see this as a great example of prosperity consciousness.

Some interesting points from this. Ms Salmon bought the car as a celebration of good fortune (a good practice). She also wasn't prepared to settle for something she didn't really want.

Other points, bravo to Porsche for looking after their client. But, oh dear, what about that lingering male chauvinism from the salesman! My guess is that's a big mistake a lot of salesmen (not saleswomen!) make. As a consequence, they're probably missing out on a lot of business.

Australian Budget 2005

Unequivocally Good News

I waited to comment on last week's budget in Australia in order to review the measures and also to see what the general reaction was.

As you can see from my comment above, I think this was an excellent budget. Any budget that hands back a significant amount of money (A$22bn) and avoids any new wasteful spending programs is on the right track as far as I'm concerned.

You'd think this would have been a fairly uniform reaction, but oh no! I was amazed at the quite widespread reaction in the media that somehow this was a bad budget. The general gist of things was that the tax cuts are somehow irresponsible and mis-directed. Also, that an opportunity for more government spending on things like infrastructure had been missed (thank goodness for that!).

A lot of commentary threw in the red herring of the potential leadership clash between Howard and Costello (somehow, this budget was all part of that trying to buy popularity). Other comment suggested that the budget made "no sense politically" as by the time the next election comes around everyone will have forgotten about the tax cuts.

Interesting the cyncism behind the last comments. It never seems to occur to the commentariat that the government might simply be doing what it thinks is right, albeit with a degree of rewarding it's core constituency.

Anyway, the sniping continued today with another rediculous article from the pseudo-economist and lefty propagandist Ross Gittins "Treasurer's tax cut justification a bit rich."

Yet another anti-prosperity diatribe is summed up in the opening paragraph.

While last week's budget rewarded the wealthy, the poor got more stick, writes Ross Gittins.

John Kenneth Galbraith, a now deeply unfashionable economist, identified one of the great doctrines of our age as a belief that the rich don't work because they have too little money, while the poor don't work because they have too much. Or, as John Button once paraphrased it, the rich need more money as an incentive and the poor need less money as an incentive.

On the face of it, this criticism along the lines of the old "rich get richer, poor get poorer" makes some sense. A moment's thought reveals it's simply the old politics of envy and the usual collectivist dogma.

To see just how disingenuous the above line is, let's turn things around a little. Instead of implying that somehow the "rich" are being given more, let's observe instead that less is being taken away from them. Instead of implying that money is being taken away from the poor, let's observe that less is being given to them.

Puts it in a different light. The Gittins view is based on the (unstated) assumptions that

1) Rich people are evil and don't deserve their money; and
2) Agressive redistribution of income is a good thing.

There's a lot of bleating about how the biggest beneficiaries are higher rate taxpayers. Well, good! For the last few years they've been the ones who have gained little or nothing from various budgets. They've been the ones who have been taken for granted by the Howard government and basically used as a cash cow to repair public finances and fund the increased spending under this government (which has primarily been directed to low and middle income earners).

Symbolic of this was the hated superannuation tax (oops, I mean "surcharge") on higher rate taxpayers which has rightly been abolished.

Gittins (and others) bleat about how some single mothers and people on disability pensions are penalised in this budget. Well, quite frankly it's about time. Disability pensions have got completely out of control to the extent that there is an epidemic of "bad backs" among Australians. And why should taxpayers subsidise the lifestyle choices of single mothers (or any other group, for that matter)?

I would agree with Gittins on his point that marginal tax rates on extra income for some welfare recipients are increased by the budget measures. This is non-sensical.

The measures to increase the tax thresholds are long overdue and make the tax system much fairer for those who are the producers in society. The problem with the tax system in the past has been that it is very hard for people to become wealthy simply by working hard and earning their way to wealth. The confiscatory tax system that cut in at such low levels of income meant that people made use of corporate structures and other tax shelters as much as possible. It also meant people had a bias towards generating wealth through capital gains, rather than earning income.

The idiot Gittins in his dismissive comments about the incentivisation effect of the tax changes makes no mention of this. Nor any comment about the dis-incentives of the tax structure for people to move to Australia to work.

So, overall, an excellent budget and a step in the right direction. Of course, further progress is needed in bringing down tax rates for everyone.

Tsunami Disaster - Multilateral Fiasco

Anyone Still Think International Bureaucrats Are Here To Help?

Couldn't help posting this column from Mark Steyn about the disgraceful stuff up concerning aid sent to help the victims of the December Tsunami disaster "Bolton's sin is telling truth about system"...

Remember the tsunami? Big story, 300,000 dead; America and other rich countries too "stingy" in their response; government ministers from every capital on earth announcing on CNN every 10 minutes more and more millions and gazillions. It was in all the papers for a week or two, but not a lot of water under the bridge since then, and as a result this interesting statistic may not have caught your eye:

Five hundred containers, representing one-quarter of all aid sent to Sri Lanka since the tsunami hit on Dec. 26, are still sitting on the dock in Colombo, unclaimed or unprocessed.

At the Indonesian port of Medan, 1,500 containers of aid are still sitting on the dock.

Read it and weep.

(p.s. "Hat Tip" to Tim Blair for this article).

UK Elections

May 5, 2005 - A Dark Day For the UK

I've been somewhat remiss in commenting on the UK elections, so I'd better post now I guess!

At this stage, all the opinion polls point to the Labour government being returned, albeit with a reduced majority.

What would a "Socionomic" analysis have suggested? Well, pretty much that the incumbents would be returned. Looking at the main indicators of social mood, the FTSE has been rallying since early 2003 (as a counter-trend rally in a larger bear market). The housing market has been strong although has now probably peaked. However, there's been no serious price declines so no great pain (yet) amongst the mortgage bearing classes (pretty much everyone, these days!).

So, the situation is pretty similar to that in the Australian election last year. The conclusion would be that the Labour government is going to be returned.

The Conservatives in the UK seem to have pulled themselves together after the debacle of the previous two elections, but not enough to make them electable this time. They are also struggling against a bias towards Labour in the electoral system.

It's a sad day indeed when "The Economist" endorses the re-election of Labour with the comment

Tony Blair, for all his flaws, remains the best centre-right option there is.

Now, of course, my heart and my head cries out for a different result. The Labour government is on the verge of reversing the progress made in the Thatcher years. Under Labour, the UK has made a vast lurch towards collectivism. Individual liberty and future prosperity have both been compromised under Labour, although the full consequences have yet to be seen.

Two much better writers than I spell out the situation. In today's UK "Daily Telegraph" Stephen Robinson recalls the era of the 1970s, before the Thatcher reforms and where the UK is headed Back in the Conservative fold - because I recall the 1970s.

A friend mused over lunch the other day that she was voting Labour because she wanted to go back to an era when the trains ran properly and post offices were not shutting down. But that is not my memory of the 1970s. My childhood recollections are of my English teacher - admittedly a BMW-driving bachelor with a private income - urging us all to emigrate before it was too late. My teenage years coincided with miners' strikes and three-day weeks, sugar shortages and power cuts, visits to my father's bank to get my passport stamped so I could take my measly £20 of foreign exchange on a school trip to France, and broken-down Jaguars on the hard shoulder of the M1. To those who recall the golden age of pre-privatised rail travel, I offer memories of unspeakable objects slopping around in British Rail lavatories, which I never flushed while the train was in the station, but others clearly did judging by the stink as I waited forlornly on Platform 3.

This was an age when it was assumed that governments knew best how to order our lives, an age of industrial policy, of one nationalised airline fixing exorbitant fares with another, of waiting three months for a telephone to be installed, and then being grateful.

I remember the 1970s only too well. They were the years when I was a teenager and young adult. I remember doing homework by candlelight in the depths of winter because of power cuts during one of the miners strikes. Seems almost unbelievable now, but that's where decades of collectivism and socialism had taken the UK.

The 1970s was also the last major bear market in the western world and from a Socionomics perspective it's interesting because it gives some clues as to the nature of the larger degree bear market that is developing.

My good friend Dan Denning, editor of "Strategic Investment" has this to say...

There’s a general election here in Britain on Thursday. I can confidently predict that the British people have already lost. Of the three major parties, two (Labour and the so-called Liberal Democrats) will do nothing to reduce the fact that government taxes are now 40% of GDP. The Tories, who ought to be Britain’s conservatives, promise to reduce the rate of growth in government from 5% under Labour to 4% under them.

What a sham, and what a shame. The Nanny State is slowly infantilizing (or Europeanizing) the British people. Gerard Baker refers to it in a recent piece from The Times of London, which I’ve quoted above. And recently, Theodore Dalrymple wrote on the same collectivist phenomenon in an article in the City Journal. Dalrymple writes:

Collectivist thinking arose…from impatience, a lack of historical perspective, and an arrogant belief that, because we have made so much technological progress, everything must be susceptible to human control. While we take material advance for granted as soon as it occurs, we consider remaining social problems as unprecedented and anomalous, and we propose solutions that actually make more difficult further progress of the very kind that we have forgotten ever happened. While everyone saw the misery the Great Depression caused, for example, few realized that, even so, living standards actually continued to rise for the majority. If we live entirely in the moment, as if the world were created exactly as we now find it, we are almost bound to propose solutions that bring even worse problems in their wake.

The Gerald Baker comment referred to is...

The British people are steadily being reduced to a state of cringing dependence on an ever more voracious and aggrandizing government and a political establishment of almost unconquerable scale that supports and sustains it.

I've commented about Dalrymple previously. He worked as a doctor in inner city areas in the UK and saw first hand the consequences of decades of welfare policies.

I've been watching too much of "Lord of The Rings" lately (!!) but I can't help being reminded of the comment from Theoden, King of Rohan, under siege in Helm's Deep...

"How did it come to this?"

The answer? Decades of collectivism and quasi-socialism have corrupted the will and the spirit of the people.

Mortgages, Renting and "Dead Money"

Why Renting Isn't "Dead Money"

Been a lot of comments and articles lately about the housing market in the USA and the bubble in prices that has developed in certain areas.

Two excellent articles from Gary North spelling out the economics of the market very clearly - "The Marginal Home Buyer" and "Should You Sell Your Home?"

Anyway, back to the title of this post. It always infuriates me when some moron in the real estate business or, even worse, a supposed financial commentator refers to rent as "dead money" and implies that anyone who rents rather than buys is completely stupid.

There are many good reasons for owning your own home. The "dead money" argument is fallacious and here's why.

Suppose you buy a house on an interest only basis with 100% finance. And also suppose that someone else rents an equivalent house where the rental payments are the same as the payments on the mortgage in the first case. At the end of any period of time that you care to choose, who is better off? Answer, nobody. They are both in the same position. The person with the mortgage still doesn't own the property.

What people don't seem to understand is that mortgage payments are made up of two components - the interest on the outstanding loan plus the principal repayment. It's only this last element that is actually going towards creating an asset. The interest itself (initially, the largest part of the payment) goes to the financier and is "dead money" in the same sense that rent is.

Now, as I said, there may be very good reasons to buy your own home. However, the economics are not always as straightforward as real estate promoters like to make out.