Society/Culture This Country Beats France

[bit_pattern]

Its not simply gambling. The stock market provides a mechanism for companies to raise equity. This assists capital formation.

Companies fail. That is the nature of capitalism. However, it has been shown time and time again the private sector allocates capital far better than governments.

Not only that but if a private company fail it (should) only affect equity and debt holders of that company.

When politicians waste billions as per the broadband folly taxpayers cop it in the neck whether they like it or not.

That's all good and well but I just don't think that tying up what should be the nations saving in risky ventures is a good idea and the hit that many peoples super took over the last year or so is evidence of that. I mean, how would the average Joe who has put their money into a super fund that it is investing in, say, risky debt? The GFC was a rude wake up call. I'm certainly glad for my mum that she decided against investing in super.

 

[medusala]

That's all good and well but I just don't think that tying up what should be the nations saving in risky ventures is a good idea and the hit that many peoples super took over the last year or so is evidence of that. I mean, how would the average Joe who has put their money into a super fund that it is investing in, say, risky debt? The GFC was a rude wake up call. I'm certainly glad for my mum that she decided against investing in super.

Why can Joe Average not make the decision for himself (as your mum did)?

 

[TheBloods]

The market ahsn't done a real good job either. My mum and my uncle both inherited a reasonable sum of money a few years back, due to circumstance she sank her money into a part ownership of a property to help out a friend, he put his into super, her property hasn't lost value (although it hasn't gained anything either) whereas his super has taken a 25% hit. As you well know, I'm no economy-speaking guy, but it seems to me pretty ludicrous to be selling off all of our raw minerals to foreigners while pouring our savings into the stock market.

I've always like the idea of having a super fund that governments can draw on to invest in infrastructure rther than just gambling it on the stock market, that seems to me a better way to build wealth.

The market's done poorly this time around but it goes up and down in a cycle, but through the cycle the market will normally significantly outperform a government, which should stick to essential services and certain less significant items.

We sell our raw material to foreigners who give us cash and they turn them into finished goods. It's unlikely we can run too many manufacturing plants these days. The stock market is not a gamble - it's for raising equity and there is some underlying rationale to it, even though it loses its way at times. We do need to find further investment though, but that is something the market should invest in, not the government (some assistance can be useful though). Pouring our money into property is even less sensible than investing in the stock market.

Governments should invest in infrastructure, but they should have to raise money specifically for each project and explain the rationale for it. Giving them a pool of money to play with is usually a recipe for disaster.

 

[bit_pattern]

Why can Joe Average not make the decision for himself (as your mum did)?

Simply because of the nature of super, being compulsory and all, obviously its purpose is supposed to be a savings scheme so that people don't have to rely on the pension in old age, it's not much good to anyone if it all gets wiped out in poor investment decisions and people end up on the pension anyway. I mean, in terms of investing an inheritance then, yeah, do whatever the hell you want. I just get the feeling that it is a bad idea to have the nations saving tied up in an increasingly an shaky financial system in that way.

I'm not overly versed in the whole issue, as I'm sure you well know, but how much say does the average Joe have over how his super gets invested once its being paid into a fund? I've never paid too much attention to it, because for the most part I've worked crappy, high turnover jobs. I don't even know where most of my super is.

 

[TheBloods]

That's all good and well but I just don't think that tying up what should be the nations saving in risky ventures is a good idea and the hit that many peoples super took over the last year or so is evidence of that. I mean, how would the average Joe who has put their money into a super fund that it is investing in, say, risky debt? The GFC was a rude wake up call. I'm certainly glad for my mum that she decided against investing in super.

Investing in BHP, the major banks, Telstra, Fosters, Coles, Myer, David Jones, Rio, and numerous other blue chip companies are risky ventures? Where else should that money go?

 

[bit_pattern]

The market's done poorly this time around but it goes up and down in a cycle, but through the cycle the market will normally significantly outperform a government, which should stick to essential services and certain less significant items.

Yeah but to build infrastructure essentially a governmetn will have to borrow. Why not just borrow from itself?

We sell our raw material to foreigners who give us cash and they turn them into finished goods. It's unlikely we can run too many manufacturing plants these days.

And then we buy the finished product that they built with our resources. Again, I'm happy to defer to your and Med's authority on financial matters but that sounds to me like a recipe for transferring our wealth to others for not much gain. I certainly can't think of any resource-based economies having much in the way of power or independence in the historical experience. power goes to the manufacturer.

Pouring our money into property is even less sensible than investing in the stock market.

No argument from me there

Governments should invest in infrastructure, but they should have to raise money specifically for each project and explain the rationale for it. Giving them a pool of money to play with is usually a recipe for disaster.

Could there not be a system where the funds are there administered by an independent body from which a government could raise capital after providing sound rationale?

 

[TheBloods]

Simply because of the nature of super, being compulsory and all, obviously its purpose is supposed to be a savings scheme so that people don't have to rely on the pension in old age, it's not much good to anyone if it all gets wiped out in poor investment decisions and people end up on the pension anyway. I mean, in terms of investing an inheritance then, yeah, do whatever the hell you want. I just get the feeling that it is a bad idea to have the nations saving tied up in an increasingly an shaky financial system in that way.

I'm not overly versed in the whole issue, as I'm sure you well know, but how much say does the average Joe have over how his super gets invested once its being paid into a fund? I've never paid too much attention to it, because for the most part I've worked crappy, high turnover jobs. I don't even know where most of my super is.

Everybody can have some say in where their super is invested. Super was a Keating initiative and it was one of the best ideas of the past few decades.

The equity market is not a "shaky financial system". It's a direct ownership investment into companies. Fixed income debt is not a "shaky financial system". It's a direct obligation from companies or government entities.

The decline in the past couple of years has unfortunately been tremendously bad for retirees and those soon to retire. The rest will recover. There is no better alternative though.

 

[medusala]

Yeah but to build infrastructure essentially a governmetn will have to borrow. Why not just borrow from itself?

You mean from taxpayers?

And then we buy the finished product that they built with our resources. Again, I'm happy to defer to your and Med's authority on financial matters but that sounds to me like a recipe for transferring our wealth to others for not much gain. I certainly can't think of any resource-based economies having much in the way of power or independence in the historical experience. power goes to the manufacturer.

Look at the trades of term in the last decade re manufactured goods vs commodities. Those countries in the west with a big manufacturing base have been getting killed by Asia. Australia has no competitive advantage in that area.

Could there not be a system where the funds are there administered by an independent body from which a government could raise capital after providing sound rationale?

Independent government bodies are rarely truly independent IMO. Who controls appoinments to the board etc?

Nonetheless what makes you think that the return on such a scheme would be any greater than that from someone with an individual super account?

I am no great super fan. I think it is merely a payroll tax and does little to increase savings in any event. Far, far better I think to cut out the super tax breaks and dramatically reduce income and other taxes.

 

[bit_pattern]

Well, as I said, I'm in no real position to argue with you guys and I've just about had my fill of all things financial for the night but you've both raised interesting points, definitely food for thought.

 

[pmad87]

I would like to see the recidivism rate for that prison. Surely that is the most important factor against which to measure a prison's success.

 

[TheBloods]

Yeah but to build infrastructure essentially a governmetn will have to borrow. Why not just borrow from itself?

Governments do not have money. They only hold onto taxpayer money - so if they don't borrow their only other option is tax.

And then we buy the finished product that they built with our resources. Again, I'm happy to defer to your and Med's authority on financial matters but that sounds to me like a recipe for transferring our wealth to others for not much gain. I certainly can't think of any resource-based economies having much in the way of power or independence in the historical experience. power goes to the manufacturer.

You are right to some degree. Value add is necessary. Pure manufacturing is difficult. We do need to do more, but emulating an enormous sovereign wealth fund is not it.

Could there not be a system where the funds are there administered by an independent body from which a government could raise capital after providing sound rationale?

Government may as well just raise it directly from the market.

 

[bit_pattern]

Governments do not have money. They only hold onto taxpayer money - so if they don't borrow their only other option is tax.

Which, as Meds points out, super payments essentially are. Why can't those be harnessed by the government? (at least that's what I was getting at, I know what your reply will be now though because of what we discussed last night)

 

[Hawk Dork]

I would like to see the recidivism rate for that prison. Surely that is the most important factor against which to measure a prison's success.

Norway has one of the lowest incarceration rates in Europe at 66 per 100,000 inhabitants, compared to 738 per 100,000 inhabitants in the U.S.

http://www.globalpost.com/dispatch/europe/091017/norway-open-prison?page=0,1

"The biggest mistake that our societies have made is to believe that you must punish hard to change criminals," explained Oeyvind Alnaes, Bastoey's then-prison governor. "This is wrong. The big closed prisons are criminal schools. If you treat people badly, they will behave badly. Anyone can be a citizen if we treat them well, respect them, and give them challenges and demands."
http://www.globalpost.com/dispatch/europe/091017/norway-open-prison

 

[Hawk Dork]

Norway would be far, far better off with no future fund and lower taxes.

I think theyr'e doing better than any country on earth by not.

 

[pmad87]

Admittedly I am involving myself in a debate in a subject I'm not overly familiar with. I've largely pieced my knowledge of economics together from a combination of my dad (now retired accountant who manages our family's super), friends who study commerce, as a side issue in philosophy and law (which i study) and this board. But I have two questions for the more economically inclined:


1.

Why can Joe Average not make the decision for himself (as your mum did)?

Surely it's naive to think that everyone is going to have the intelligence to make important investment decisions by themselves. If my understanding of the current financial crisis is correct, it was a misunderstanding of the way risk should be quantified in the sub-prime derivative market by management types who didn't properly understand the mathematics that people underneath them were supplying them with that led to the problem. So if even these people can misunderstand markets, how is joe average supposed to compete?

2.

Its not simply gambling. The stock market provides a mechanism for companies to raise equity. This assists capital formation.

Companies fail. That is the nature of capitalism. However, it has been shown time and time again the private sector allocates capital far better than governments.

Not only that but if a private company fail it (should) only affect equity and debt holders of that company.

When politicians waste billions as per the broadband folly taxpayers cop it in the neck whether they like it or not.

A friend recently told me that "free market capitalism is like Newtonian physics, it works; but in a limited range of cirumstances". This made sense, at least to my mind which hasn't been initiated into the esoteric nature of far reaching market capitalism. When consumers have a real choice, everything seems to work well. I can walk into the supermarket and find about fifteen different breakfast cereals all within a reasonable price range. If a lot of people don't like one, they'll switch to another and that company will either have to make a better cereal or fail. Seems like a win-win situation for everyone.

But there are situations where consumers don't really have any choice and yet we still use private companies to run these enterprises. Im thinking largely of public transport and toll roads. If you want to get the 7.05am train into the city, that's the only choice you have. There's only one track and one train and you need to be at work on time. (For those that say "but you could drive", even assuming you can afford a car the cost of petrol is usually astronomically higher than public transport. It would be like there being only two cereals in the supermarket with one costing $50 a box and the other $5. The cheaper cereal is going to have to get pretty bad before people start switching over. It's a choice, but hardly a good one and not the type we should be advocating as an admirable aspect of a first world country).

With toll roads it's a similar story. One company runs it and charges whatever they like, a cost that not only goes to meet operating expenses such as maintenance on the road but also wages to a board and dividends to shareholders and probably a profit for that company to invest in something new. The motorists have little choice but to use that road because the road is only in one place and an alternative route is probably going to cost more in petrol. Yet if the government ran the road the people using that road would have an easy way to change things, they could just vote against the government. And political parties are desperate to win elections so as long as there are enough people making noise they will respond.



BTW, for all of those people on here talking about super, I assume very few of you manage it yourselves, but I suggest you investigate how much your fund manager is taking in fees. I won't be surprised if a lot of people coming up for retirement who haven't taken much interest in their super are very angry when they see how much money has been effectively stolen from them.

 

[TheBloods]

I think theyr'e doing better than any country on earth by not.

It's arguable whether they are doing better than any country on earth.

 

[TheBloods]

Surely it's naive to think that everyone is going to have the intelligence to make important investment decisions by themselves. If my understanding of the current financial crisis is correct, it was a misunderstanding of the way risk should be quantified in the sub-prime derivative market by management types who didn't properly understand the mathematics that people underneath them were supplying them with that led to the problem. So if even these people can misunderstand markets, how is joe average supposed to compete?

I'm not sure of the arguments against superannuation. It's an excellent method of ensuring people have savings to support their retirement and the economy has savings to fund growth. The main problem with it is the large fees. Industry super is normally better in this respect.

But there are situations where consumers don't really have any choice and yet we still use private companies to run these enterprises. Im thinking largely of public transport and toll roads. If you want to get the 7.05am train into the city, that's the only choice you have. There's only one track and one train and you need to be at work on time. (For those that say "but you could drive", even assuming you can afford a car the cost of petrol is usually astronomically higher than public transport. It would be like there being only two cereals in the supermarket with one costing $50 a box and the other $5. The cheaper cereal is going to have to get pretty bad before people start switching over. It's a choice, but hardly a good one and not the type we should be advocating as an admirable aspect of a first world country).

With toll roads it's a similar story. One company runs it and charges whatever they like, a cost that not only goes to meet operating expenses such as maintenance on the road but also wages to a board and dividends to shareholders and probably a profit for that company to invest in something new. The motorists have little choice but to use that road because the road is only in one place and an alternative route is probably going to cost more in petrol. Yet if the government ran the road the people using that road would have an easy way to change things, they could just vote against the government. And political parties are desperate to win elections so as long as there are enough people making noise they will respond.

The examples you cite are public-private partnerships. The government brings in the private sector to run them on contract. This is to alleviate public sector funding requirements and to tap into private sector expertise. The public can still vote against the toll road - the government can choose not to renew the contract when it falls due. Or it can not vote for the government in the first place. If there is no toll road, then the public is still going to have pay for the road - things aren't free if the government owns and operates them.

They're not good examples of problems with private companies as they're not truly private.

 

[Hawk Dork]

It's arguable whether they are doing better than any country on earth.

Name names?
Which country would you rather Australia to be like?

 

[pmad87]

I'm not sure of the arguments against superannuation. It's an excellent method of ensuring people have savings to support their retirement and the economy has savings to fund growth. The main problem with it is the large fees. Industry super is normally better in this respect.

I'm not necessarily thinking of super here. But I suppose it comes down to who you trust more to make decisions for you: a company, or an industry fund, or the government, or yourself. I know I would prefer myself, but for people who don't have the time/patience/expertise I really think the least likely to screw you over (in australia at least) is the government.

The examples you cite are public-private partnerships. The government brings in the private sector to run them on contract. This is to alleviate public sector funding requirements and to tap into private sector expertise. The public can still vote against the toll road - the government can choose not to renew the contract when it falls due. Or it can not vote for the government in the first place. If there is no toll road, then the public is still going to have pay for the road - things aren't free if the government owns and operates them.

They're not good examples of problems with private companies as they're not truly private.

When you say alleviate public funding, I guess you mean that companies have more captial to invest and governments might find themselves cash-strapped. But the company must be making a profit, so why can't the government make exactly the same profit without having to spend money on stupid things like rebadging every few years?

 

[Hawk Dork]

I would rather have the Norwegian Model implemented.

 

[TheBloods]

Name names?
Which country would you rather Australia to be like?

What about Sweden, Denmark, the Netherlands, Switzerland, Austria, Liechtenstein, Belgium, Luxembourg, Monte Carlo. And they haven't benefited from massive oil revenues.

 

[TheBloods]

I'm not necessarily thinking of super here. But I suppose it comes down to who you trust more to make decisions for you: a company, or an industry fund, or the government, or yourself. I know I would prefer myself, but for people who don't have the time/patience/expertise I really think the least likely to screw you over (in australia at least) is the government.

The most likely to give you more money over time is an industry fund.

When you say alleviate public funding, I guess you mean that companies have more captial to invest and governments might find themselves cash-strapped. But the company must be making a profit, so why can't the government make exactly the same profit without having to spend money on stupid things like rebadging every few years?

Because the government has to find the money to invest in the project (which the corporate has) and the government has to find the expertise to run it (which the corporate has).

 

[medusala]

Surely it's naive to think that everyone is going to have the intelligence to make important investment decisions by themselves.

Who claims that? If I need to fix a leaking pipe I wont do it myself but I do get to choose who does the work

So if even these people can misunderstand markets, how is joe average supposed to compete?

Average Jo should not be inovlved in such complex products

A friend recently told me that "free market capitalism is like Newtonian physics, it works; but in a limited range of cirumstances".

Why anyone would think this I dont know. Boom and bust is an integral part of the system. You cant regulate away fear and greed.

When consumers have a real choice, everything seems to work well.

I agree, hence my view that people should be able to choose how they invest rather than have the govt do it on their behalf.

 

[pmad87]

Because the government has to find the money to invest in the project (which the corporate has) and the government has to find the expertise to run it (which the corporate has).

I suppose this is probably a topic now for another thread, but i guess it comes down to how much more expertise the corporate has, in both capital raising and management. I'm sure you will say a lot more than governments, but I see no reason why this HAS to be the case. Are governments also getting themselves out of liability when things go wrong in these partnerships?

 

[TheBloods]

They have the expertise because that's what corporates do. It's not what governments do. The liabilities depend on the arrangements, but often the government can reduce the downside as the corporate takes more risk.