Friday, November 25, 2011

The Sky is Falling, the Sky is Falling. Australia is in massive Debt.

Here's a response to an email a friend forwarded to me.
The chain-letter had said "we'll all be ruined", like this:
The total Government debt could end up around $200 billion.
(plus some Big Scary calculations showing our grandkids would have to be indentured servicing this horrifying debt.)
It included quotes from trusted financial commentator(s) and well known radio personalities.
Things are actually pretty good here in Australia.
Not just compared to the USA, UK and Europe, but historically to ourselves.

Post GFC, that rates as a considerable accomplishment.
Sorry to write such a long piece - it's meant to "pour oil on troubled waters", to address the concerns that previous piece might have raised.

Hope you like it and it restores some balance in your life :-)


PS: why would Shock Jocks say 'Looky, looky, the Sky is Falling'?
Because it's a Story and Fear Sells...
Saying "it's all really good here" does nothing for their ratings.
Would I lie to you? :-)

PPS: [for this blog entry] The whole email was a "call to arms" to remove the Gillard Labor government. Obvious that the Shock Jocks would be quoted - they love bashing Gillard and Co.
Not so obvious that the email probably constitutes party political advertising and if deemed so, the issuer and those authorising it should be duly noted [or it's a prosecutable offence under the Electoral Act.]

The only problem is that it seems to have first appeared in August, 2010, just three weeks before the Abbott/Gillard Federal Election. Would have had to have been part of, or inspired by, the conservative election campaign. An electronic version of the infamous "push polling".

I feel sorry for the good folk who picked up this piece, especially for those that forwarded it on or posted it to the web, either back then or again now.
What's the chances that it is not unrelated to the conservative campaign against Labor's Mining Super Profits Tax, passed just this week?? Again, either initiated by people within an Opposition political party, known or affiliated to them, or just sympathetic.

Great technique and extremely cost effective!!!

The correct way to deal with/understand these large National figures is two-fold:
  •  Debt as % GDP.  ['normalised' and comparable across inflation, country and time]
  • Debt expressed as per household or per person.
If you look for "A history of public debt in Australia" from The Treasury, there are some hard facts in there. It seems to have been written in 2010.

Federal Government Nett Debt in 2010 was 1-2% of GDP, pretty good considering it was ~20% in 1992, the most recent peakl. And outstanding compared to the "G-7" USA, UK, Germany, France, Canada, Italy, Japan (the 7 largest economies in the developed world) - running between 50-100+% of their GDP's.

If you go back to 1900, Australia had over 100% GDP of Public Debt, reaching an all-time high of around 120% GDP at the end of World War 2.

The headline figure you passed on is 10-15% of GDP, depending on the date of "could end up" - inflation devalues the currency.
[I believe the 2011 GDP is $1.3T, or A$1,300,000 Million]

Without giving a date, the author is just scaremongering.
Is he saying "things could get bad within a year" or "within a couple of decades"???
There is no current sign that we'll borrow 20% of GDP within the next year.
Federal Tax receipts are around 30% of GDP.
They would have to increase spending at a rate not even seen during World Wars.
If any Government borrowed and spent at that rate, it would cause a massive over-heating of the economy and induce hyper-inflation only seen in our lifetimes in South America in the 1970's.

Neither side of politics is that ill-disciplined/reckless nor ill-informed. Nor does it need to be done. Federal Tax revenue has declined below expectations, but not by around 60%!!!

How to deal with understanding this %GDP is to make it personal-scale.
  •  -Compare to the average wage (currently ~$55,000/year)
    • If you knew a person with a mortgage of $5,000, you'd laugh,(in Sydney at least).
      That's a whopping 9% of their income.
    • The current Public Debt 1-2% is $550 - $1,000 equivalent. Small bikkies.
    • That completely headline reckless 10-15% figure is $5,000-$7,500 equivalent. Not something to cause incredible heartache or concern.
  • Median Household Income is over $70,000/year.
    • For the 11-12 million households in Australia, our current Public Debt is under $1,000 per house.
      And as %GDP, the headline figure is under $10,000.
    • For comparison, Americans, once the world's wealthiest nation, currently owe $100,000+/household in Public Debt.
      [Avg. weekly earnings are ~US$35,000]  
   Australia is in good shape.
  •  There are around 22M of us in Oz.
    Our current Public Debt is  under $1,000 each.
    That massive debt headlined isn't so scary at $10,000 each.
You might be wondering, how can I get a maximum of $10,000 per household (10-11M of them) and the same for individuals (22M of them)?

Because only around half the GDP is from wages/Individuals.
The Federal Government collects taxes from many sources, not just wage earners. The Government doesn't have to repay its borrowings just from our pay packets, though that is a significant portion.

But, Oh My Goodness!, look at "The Australian Office of Financial Management". The official government site that counts what we owe.

It says we owe Heaps!!! [As at 25 November 2011]

Total Commonwealth Government Securities on Issue - $219,102m
How can the Federal Government Accounts (and ABS estimates) say we have 1-2% Public Debt, yet they have loans of almost TEN TIMES THAT AMOUNT!!!

It's simple accounting without any fudging.
If you had a $10,000 mortgage and earned $70,000 a year, you'd have some savings as well if you were prudent and organised.

Especially if you knew you had some large bills (Insurance, Medical, Car Maintenance, Car payments, ...) coming later.
The Federal Government owes a lot on Bonds, but has around the same amount in the Bank.

Nett Debt is that low 1-2% of GDP.

The Government issues short- and long-term "Bonds" for a variety of reasons - these are the numbers listed on the AOFM site.
There is a very active market in, and strong demand for, Government Bonds, especially for a country in such good financial shape as Australia. It would be a very, very bad idea for any Government to have Zero Borrowings.

Why? Because Government Bonds are "Risk Free". And investors love that.
Government Bonds are, by definition, the very safest place you can put your money - much better than under a bed, your Aunt Flo or a Bank! They pay the lowest interest rate around, banks and everyone else uses them as the benchmark and adds a 'risk premium' on top.

This is the Risk/Return balance:

  • if you want NO RISK, you get the lowest return.
  • If you want HIGH RETURNS, you take a real change of losing everything.
This is what happened with the 2007/8 GFC:
  •   people invested in high interest 'instruments' and didn't understand
  • they were HIGH RISK. When things changed just a little, they lost ALL
  • their investment. It's Risk/Return...
But Bonds on issue are only half the equation, we can't see what they have socked away in their Reserve Bank of Australia account (yes, they really do have a Bank and an Account there.)

We've been told just *one* side of the ledger/story.
There's no Deep Dark Financial Hole waiting for our grandchildren.

If you want to go scary places, look at the Greek and Italian Bond markets (currently ~20% and 7% I believe).
Investors think there's a high risk of losing their capital ('a haircut').

Or the USA where they borrow 10-20% of their GDP every year to cover the shortfall in Tax collections, so they can pay for the necessities of Life.

You'd think both Political Parties might understand this can't go on indefinitely, but they don't.
Hence the recent news about the "Super Committee" not meeting its deadline. Things will get ugly there. We've already seen normal folk take to the streets with the "Occupy Wall Street" movement and it franchises. They seem yet to develop a set of demands or policy platform. If they ever do, it could be the start of a major chapter in US politics.

Sunday, April 17, 2011

The Real Deal on Not-for-Profit enterprises

Philip Greenspun in a piece on Early Retirement neatly summarises my experience with a multitude of Not-for-Profits...
Non-profit organizations exist to provide their staff with great jobs and the fun of making decisions and spending money.
The folks who work at a non-profit organization are very interested in drawing a salary higher than their skills and working hours would command at a for-profit enterprise subject to competition.
They are not especially interested in efficiency or accomplishment.
If you've come from the commercial world, in which McDonald's must be ruthlessly efficient for fear of being destroyed by Burger King, working with or in the typical non-profit organization will likely drive you to insanity.
Funnily enough, this aspect, nor the consequential intense internal politiking, doesn't appear in the definitive book on the subject, The The Complete Guide to Nonprofit Management by Smith, Bucklin & Associates.
The Complete Nuts-and-Bolts Guide to Managing Today's Bottom-Line Oriented Nonprofit Organizations

This significantly revised and expanded Second Edition of the highly popular how-to book identifies and addresses the unique concerns of nonprofit organizations. Cutting through the morass of mere theory, the experts at Smith, Bucklin & Associates, Inc., a leading nonprofit management firm, get right to actual practice with dozens of real-world examples and case studies, and up-to-date, vital, "combat-tested" strategies and techniques for dealing with virtually every nonprofit business management issue, including:
* The daily role of boards of directors
* Fund development and marketing
* Public and government relations
* Educational programs and certification
* Information services
* Human resources management
* Using the Internet

Sunday, January 23, 2011

On Academic Journals

Why aren't all Academic Journal articles available fully Free On-Line?

In the U.S.A. the words of their Constitution, "Of the People, By The People, For the People", are applied in many areas.
One of which is Publicly Funded Research and Education:
If public funds were used to create, discover, invent something, then it is put into the Public Domain. Locking it up with patents or other Intellectual Property protections is seen as double dipping. [Not universally accepted, especially in pharmaceuticals and genetics.]
I haven't looked for any formal policies nor widely prescribed "mores".
This was the rationale in 1977 behind the massively successful ancestor of Linux: BSD (Berkeley Software Distribution).

A line-of-thought that resulted directly in Free and Open Source Software. (FOSS)
Even that bastion of Proprietary Software, Microsoft has used or modified FOSS.
NeXT, then Apple, based its revamped system, OS/X, on Open Software: Mach and BSD.

FOSS isn't just mainstream, it underpins The Internet and increasingly the platforms we use to access it.

The reason the ARPAnet, now The Internet, blossomed  since1969  going on to sweep all competitors before it, Proprietary and "Standards based" (e.g. OSI/ITU), is simple:
The Reference Documents and Implementations were available for Free.
Anyone could, and did, build a service/tool, improve existing code or propose, build, and distribute entirely new things - like DNS, HTTP/HTML, ...

This is exactly how the work of Tim Berners Lee and c/o, "The Web", got out there and spread like wildfire. There was no barrier to entry: download the (free!) code for a server or browser and go on-line...
This simple approach arose for many reasons, but it led to the fastest, most flexible (and in the end, the most robust and scalable) development of network and services.

The value of "The Web" and its revolutionary impact on the world (and most aspects of daily life) is incalculable - and due solely to the Nil-Cost and Full Source availability of the original source code.

All the subsequent problems and incompatibilities stem from companies attempting, deliberately or not,  to create a commercial advantage by a) creating their own "extensions" and b) not releasing the source code for those extensions.

There is a role for Product Differentiation and a necessity for commercial entities to make a profit.
The lesson of the decade long "Unix Wars" (ironically made irrelevant by Microsoft taking the market) is:
Product Differentiation doesn't mean Difference by Incompatibility.
Any Telco or White Goods manufacturer can tell you "interface Standards" are necessary and strict compliance mandatory to achieve maximum Consumer Utility and Producer Benefit.

Whatever you build, it must plug-in and "Just Work" for the end-user... Any other approach is madness and Commercial suicide...

FOSS hasn't lessened in importance:
Most of the dominant internet services, languages, tools and platforms are either FOSS projects or derived from them.
There's even a branch of Psychology and Game Theory that shows/proves in the majority of situations sharing, a.k.a. co-operation, provides not only the best outcomes for everyone, but is massively better.

It's also the reason we have countries: "In Unity there is Strength."

So why can't I get Free access to articles in Academic Journals in this Age of the Internet?
  • Universities, Researchers and Educational Institutions all heavily rely on the Internet.
    They intimately know and understand the technology and its benefits.
  • Since the early-1990's every Article has been produced electronically.
  • Since the mid-1990's, every (first major, then minor) Education and Research institution had extensive Internet and e-Mail infrastructure and presence.
  • Indeed, the current review, editorial and publication process are exclusively electronic/Internet.
  • The whole of the Content and Editorial Process is provided gratis by the Subject Matter Experts: the Academics/Researchers in the field.
  • Overwhelmingly, Academic Journal articles are written by Publicly Funded academics:
    So having already paid for the work and the writing/publishing of the article, why do I have to pay to an extortionate amount to get a copy?
I can't understand the "Value Add" of Journal Publishers.
  • There is no selling/marketing to be done.
  • Printing, Distribution and subscription collection are well known and highly-competitive fields.
  • Website, webservers and Internet links are already maintained by all Education and Research Institutions.
  • Search and Cataloguing are well known and well solved problems. It doesn't cost the Earth and many nil-cost options exist. "Google Scholar" is sufficient proof.
  • The text and diagrams of whole of the last century's Academic Journals will now fit on commodity servers costing under $10,000.
There aren't any reasons why  the Academics in Education and Research Institutions won't have thought about Fully Free publishing, there have even been attempts to establish on-line Journals.

The only reasons I can see to maintain the status quo are:
  • The commercial interests of the Journal Publishers.
  • Academics and Researchers feel no pain, they are happy with things the way they are.
  • The "Public Paywall" doesn't affect those within Education and Research Institutions: the same Public Funds that paid for the whole Journal Content, pays for their access.
But if you're not in a major institution, say just a High School or "Community College", or worse a Second or Third World backwater, you're Out of Luck...

There are convincing public and social equity reasons to remove the Public Paywall, but the people who might, Politicians, Public Servants and Academics, are not interested. Things work for them, the very privileged and unconscious minority, just as they are...

Meanwhile, the rest of us here and in the Developing World, are held out to dry.