Archive for August, 2011

Wisconsin’s recall election: Voters react to anti-union Republicans

by Dr Scott Denton

For Republicans, Wisconsin is steeped with tradition. A little white school house in Ripon, Wisconsin, is the equivalent of the Australian Labor Party’s ghost gumtree in Barcaldine, Queensland: they are both foundational images of the Party’s past. It was in Ripon where the Republican Party was founded in 1854. While notionally over time a ‘red’ state, Obama won there in 2008 with 56 per cent of the vote and Bush only just lost there in 2004 (only by 11 000 out of almost three million voters). In November 2010 voters elected Republican Scott Walker as Governor of Wisconsin.

In July and August, voters in Wisconsin again went to the polls in recall elections that will determine the fate of Walker and his fellow Republican Senators. Walker has been a controversial figure in Wisconsin politics since he was elected and this recall election, pushed by the Democrats, aimed to see them defeated in the state senate. Prior to the recall election, the Senate was held by the Republicans by a margin of 19 to 14. With six Republican Senators facing recall elections, Democrats hope to regain control of the chamber by winning three Senate districts.

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Legal challenge to the Malaysian solution

by Jo Coghlan

The Malaysian Solution is not a solution for anyone: especially children. High Court Justice Kenneth Hayne has granted a temporary injunction against the Gillard governments from processing recently arrive asylum seekers to Malaysia under the agreement referred to as the ‘Malaysian solution’.

The Malaysian Solution is an agreement between the governments of Australia and Malaysia that expels from Australia to Malaysia 800 asylum seekers who have arrived in Australia by boat in return for 4000 refugees from Malaysia over the next four years. The arrangement is part of the Regional Cooperation Framework established at the Bali Process Ministerial Conference in 2011. The Gillard government’s rational is that the arrangement: “demonstrates the resolve of Australia and Malaysia to break the people smugglers’ business model, stop them profiting from human misery, and stop people risking their lives at sea.” The cost, to be paid by Australia, is estimated at $216 million plus $76 million to fly the asylum seekers to Malaysia.

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Economics for Dangerous Times

by Paul Collier

These are dangerous economic times. The Keynesian framework within which the policy response to the Great Recession was forged in 2009 is no longer adequate. The OECD may have reached the limits of crude fiscal stimulus and monetary expansion.

Fiscal credibility has eroded:  the financial brink on which Spain and Italy now teeter has seen the borrowing costs of their governments rise to exceed those of the government of Sri Lanka, while unprecedentedly US government debt has lost its triple-A rating. Even where monetary expansion is still feasible, as in the USA and the UK, interest rates are so low that it is hard to see how this would produce much of a stimulus. Yet over recent months the risk of a double-dip recession in the absence of further stimulus has evidently increased.

In the UK the incipient recovery of 2010 has stalled – the past nine months have seen virtually zero growth at a time when the economy should have been bouncing back from the deep recession of 2009, and hence growing faster than usual. The UK started from a genuinely difficult policy dilemma. Meanwhile, and less excusably, the USA and the Euro-Zone have each conjured up considerable risks of a return to recession through distinct yet persistent policy dysfunctions.

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Turn Left for Growth

by Joseph Stiglitz

Both the left and the right say they stand for economic growth. So should voters trying to decide between the two simply look at it as a matter of choosing alternative management teams?

If only matters were so easy! Part of the problem concerns the role of luck. America’s economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China increasingly offering high-quality goods at decreasing prices, all of which combined to produce low inflation and rapid growth.

President Clinton and then-Chairman of the US Federal Reserve Alan Greenspan deserve little credit for this – though, to be sure, bad policies could have messed things up. By contrast, the problems faced today – high energy and food prices and a crumbling financial system – have, to a large extent, been brought about by bad policies.

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A Financial System Adrift and Imperiled

by Lex Rieffel

“None of the mature democracies in the world have come close to a sovereign default in the Bretton Woods era.” —From Restructuring Sovereign Debt: The Case for Ad Hoc Machinery (Brookings Institution Press, 2003)
What was true then is not true now, and the world is worse off because of it. 

In the primer on sovereign debt restructuring that I wrote eight years ago, I gave three reasons for why mature democracies had become immune to default: they had deep domestic capital markets (allowing them to sell bonds denominated in their own currency to foreigners); they had political systems that facilitate smooth transitions from one government to another; and they had an abiding nation-wide commitment to macroeconomic stability.

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