Wednesday, 23 July 2014

Sinclair Davidson will never change

Sinclair Davidson having gotten badly bruised and battered by the Kouk in the tobacco wars returns to his absurd stagflation prediction today.
First THIS is reasonably okay on the definition and history of stagflation.

Please note there is nothing at present that remotely looks  like the 1970s at present. Also note that one key ingredient of stagflation is the level of wage increases. This both leads to the price and unemployment levels being much higher than  would otherwise be the case.
I let us examine the figures as the RBA views terms of inflation.
In six monthly annualised terms, the path for underlying inflation over the past two years has been: 
H1 2014: 2.5% H2 2013: 3.1% H1 2013: 2.1% H2 2012: 2.7%  ( courtesy of the Kouk).
According to the RBA a rise is rates in unlikely.They said this about the labour market
"Labour market conditions had improved a little since late in the preceding year. The level of employment was around 0.9 per cent higher since then. The unemployment rate had been steady at 5.8 per cent for the third consecutive month, although the participation rate had declined over that period. Employment growth in household services continued to be strong over the past six months, while employment in business services had also picked up. Members observed, however, that total hours worked had not increased for a considerable time. Forward-looking indicators of employment had recently been mixed and while these indicators were higher than at the low points of the previous year, they remained at levels consistent with only moderate growth in employment in the months ahead.
The recent national accounts data indicated that unit labour costs were little changed over the past year, reflecting low growth of wages and above-average growth of productivity. Members noted that while labour productivity had been boosted by a sharp improvement in the mining sector, productivity growth had improved across a wide range of industries in recent years. Business surveys and liaison suggested that wage growth was likely to remain subdued for some time, consistent with the modest improvement in the labour market to date."
how we can have both falling real wages and stagflation is something Davidson talks about!
The market is expecting a rate decrease not an increase. 
So according to Davidson inflation near 3% and unemployment around 6% is stagflation. wow that is some re-writing of the definition.
It is amusing to see Davidson asserting growth in Government spending is the main reason for Stagflation.
If this was the case then how come there wasn't a boom in Wayne Swan's last budget where NOMINAL spending fell not Real spending. This was easily the tightest budget we have ever seen. It decreased GDP whereas for example Hockey's budget was adding to GDP! Remember also Davidson absurdly argued this budget ( Swan's) was expansionary!
On a final note this would be easy to point out on Catallaxy but unfortunately Davidson does not believe in free speech. You rarely if ever get different points of view over there.
So add hypocrite to being ignorant on Budgets, National accounts, CPI figures etal