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Monthly Archives: June 2010

Listen to your local news source for further details. I’ll be studying for my make-up admin law exam. See you all on Tuesday, guys!

http://ninthjustice.nationaljournal.com/2010/06/kagan-to-call-for-restraint-on.php

The call for judicial deference by Kagan has been interpreted as a criticism of the activism of the Roberts Court. I wonder if it actually ties to her more robust view of Executive power under the Caltex doctrine.

http://ninthjustice.nationaljournal.com/2010/06/kagan-parries-in-confirmation.php

Why anybody would be surprised that Kagan was less than forthright during her Judiciary Hearings I don’t know. She was secretive as hell during her entire professional life, I can hardly see why she’d change tack now.

But more importantly:

The motto “Equal Justice Under Law,” she argued, means that all who come before the court “regardless of wealth or power or station” get “a fair shake.”

… of the sauce bottle. Now that Rudd has been forcible exorcised by the factions from the Prime Ministry, has he now taken up residence in the virgin body of General Kagan?

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Poll Bludger has an excellent summary of all the insta-polls conducted just after Gillard won the leadership.

Basically, a lot of dubious polls have been released all showing a strong bounce to Labor after the Gillard ascension, but of these only three can be said to be methodologically competent (Nielsen, Galaxy and a Morgan poll).

These are all eminent pollsters, so I’m sure the proper forms were followed – unbiased questions, etc etc. But at the end of the day, you cannot eliminate behavioural responses. In this case, I’m not sure how reliable these polls can be given that they were conducted on the day of an event. Lay observers who weren’t watching the coverage non-stop would not have picked up on the nuances. For example, the news coverage didn’t really pick up on the opposition’s line that “this is not a way to treat a Prime Minister” and that Gillard was a puppet of the factions. All they saw was the smh.com.au headline, which was “First Female Prime Minister!” So of course there’ll be a huge bump for Gillard.

I also wonder how thoroughly the poll can be conducted on a weekday at short notice. Aren’t polls usually conducted on weekends? If you poll on a weekday, aren’t you overwhelmingly be likely to get stay-at-home mothers and the unemployed? That sounds to me like the doctor’s wives electorate which is always more pro-Labor.

The wide variation in swings between Galaxy, Neilsen and Morgan evinces this point well. There’s a 55:45 thrashing in the Nielsen and a mere 52:48 win in the Galaxy. Morgan’s state poll in Victoria shows a slight win for the Coalition. All the polls show a swing to Labor but such a huge variation within the space of a day shows deep methodological flaws.

Nonetheless, I think we can extract from these numbers a few principles:

1) Gillard herself is not on the nose. People don’t instantly remember the education revolution and Naplan testng controversies associated with her former ministry. People don’t instantly associate her with the Rudd governments failings (even though she was in the thick of it).

2) The major increase in the Labor primary vote has been stolen from the Greens vote. As I’ve always said, people don’t vote for the Greens because they like their policies. Greens don’t have concrete policies, they have waffly values that you sort of feel from their campaign. They gain votes through deft manipulation of those emotions – and policies and actual action only gets in the way of that.

The implication of this is that swing voters who vote for the Greens have nothing particularly strong to link them to the Greens. It’s just this ephemeral feeling combined with a more concrete distaste for the major parties. Gillard’s ascension severs this weak link.

That link would always have been severed for many (but not all) of those swing voters on polling day, just as for the Liberal Democrats in the UK.

3) There is a strong, but not certain, implication that voters do not dislike the Rudd government’s policies per se but merely their style of government or a fear that they’ve run out of inertia.

But once these implications have been made, no more can be said. The Opposition’s arguments have yet to sink in. Those unused to the subtleties of politics probably haven’t quite grasped the full consequences of Rudd being overthrown by the factions. I think, after the week is through, the Opposition’s arguments may sink in further, and the numbers will drop substantially (though there will still be a strong bump towards Labor).

Personally, I don’t think the argument that “we didn’t vote for Gillard” isn’t a strong one. The argument that Gillard is a factional tool is a potentially potent one, but one that Gillard can dispell with the independent streak that she has shown so far, and with the inner strength we always knew she had.

Edit: Andrew Norton provides empirical evidence suggesting that women may not necessarily vote for Gillard more than men (in fact, quite the contrary).

And here’s firmer statistical data, which (in my opinion) backs up my assertion that Green voters do not side with the Greens because of Greens policy but because of a broad notion of values or as a protest vote: http://blogs.crikey.com.au/pollytics/2010/06/08/labor_green_preferences/

[Please see ‘How to Save a Life’ post below for explanation]

Topic 3: Foreign Investment Review Board

I don’t know terribly much about FIRB, so I won’t attempt to summarise the articles in any great detail.

Basically, the FIRB has always existed and basically every country has one. Noone really paid much mind to it until Chinalco because approval was almost automatic. It was just a technicality you had to do, like the Registrar General of lands. You don’t expect her to reject you if you’ve got all the ticks signed.

Applying the characterisation approach (Fairfax v FCT per Kitto J) the FIRB has a broad, unstructured discretion. It simply has the power to deny every application if it is in the national interest to do so, though the national interest is undefined. For example, it only applies to acquisitions over $15m (or something). There is no right of appeal.

I can think of two major issues with FIRB

1) Uncertainty

This unstructured and unconfined discretion more or less strikes out of the blue to destroy carefully negotiated and near-completed deals. It destroys business confidence in Australia. It sounds like protectionism (though, as I emphasised, every country has one).

2) Relationship with China

Think of the context of when the Rio/Chinalco deal happened – Stern Hu etc etc. Think of the effect that has on Chinese investments with Australia when most Chinese businesses are state owned and the Chinese have difficulty distinguishing between different groups in Australia. For example, they assume the Australian government is responsible for Australian media criticism of China.

I couldn’t find a good article on the economics of things. But I didn’t search particularly hard, cause I have to head out soon.

Links

How FIRB Works

http://www.freehills.com.au/5564.aspx

How the guidelines work: http://www.theaustralian.com.au/business/firb-officials-flash-of-light-on-investment-guidelines/story-e6frg8zx-1225781834317

http://www.firb.gov.au/content/other_investment/other_investment.asp

Criticism of how FIRB works: http://www.theaustralian.com.au/business/opinion/firb-flouting-investment-law-patrick-colmer/story-e6frg9kx-1225783110621

Recent deals involving FIRB

Arrow: http://www.theaustralian.com.au/business/firb-approves-34bn-arrow-takeover-deal/story-e6frg8zx-1225860809561

Centrex: http://www.theaustralian.com.au/business/mining-energy/firb-to-approve-chinese-investment-in-centrex-project/story-e6frg9dx-1225794082713

[Please see ‘How to Save a Life’ post below for explanation]

I’m in two minds (and always have been) about the RSPT. On the one hand, the tax is distortionary and problematically structured. On the other, it has great benefits – namely capturing the (temporary) profits from the resources in the ground and (theoretically) reinvesting them into productive infrastructure or the rest of the economy. And it also acts as a nice way to close the gap in the two track economy.

I think what mostly pisses me off is the socialist way that the Rudd government and Greens have been marketing the tax. They call it a tax on the rich, as though that is the only justification required. They justify it by means of a ‘super-profit’ mechanism defined as the minimum profit that you would expect of a completely riskless project (as opposed to one of the riskiest real investments there is).

Topic 2: Resources Super-Profit Tax (hereinafter ‘RSPT’)

It’s hard to get good information on the RSPT. The standard of journalism in Australia is very low when it comes to deeper analysis.

Here is a basic summary of all the RSPT’s feature’s by the CBA’s Commsec:

http://petermartin.blogspot.com/2010/05/this-resource-super-profits-tax-how.html

Here is a non-basic summary of all the RSPT’s features. Your taxpayer money paid for this: http://www.futuretax.gov.au/documents/attachments/Announcement_document.pdf

An even shorter summary of the RSPT (SMH, I didn’t read it because I assumed it was crap): http://www.smh.com.au/business/the-resource-super-profits-tax–what-is-it-20100511-usnu.html

The rationale for the RSPT, as Ken Henry designed it, is not to tax “super-profits” (that is a political argument, invented by the ALP government). It is designed to do two things 1) replace the inefficient State royalties system 2) capture a “fairer” share of the profits from those minerals

The calculation of the RSPT is as follows

RSP Tax = 40% x [Profit – ordinary expenses – all expenses involved in prospecting and buildign the mine – risk free rate]

2) Fairer share

As you may know from property, all minerals in the land are owned by the States. Mining companies pay fixed royalties to extract those resources. Those royalties do not increase if the price of metals increases. Therefore, because the price of metals has vastly increased, the royalties are a pittance in comparison. We are not capturing a fair share of those profits. The idea is to replace those royalties with this tax but in exchange, the government will guarantee all the costs of building and investing in the mine.

If you think of this in finance terms, its all a matter of risk-shifting. Currently, the government gets a fixed (risk-free) royalty. The mining companies take all the risk. The RSPT is switching that around (the government takes a bigger share of the risks, as well as a bigger share of the profits). It takes those risks by paying for the prospecting costs etc via the very generous tax deduction for all prospecting costs etc (see the calculation).

Effectively, the government is taking 40% of the profits, but paying 40% of the expenses. It is like a JV where one partner uses the full might of the Law and the police forces to barge into the investment and enforce the rights it gave itself.

1) Inefficient State royalties

I left this till second, cause it makes more logical sense this way. Having said that – we’re assuming the prices of all resources skyrocketed. Not true. There are more minor minerals which aren’t affected and which are severely disadvantaged by this current state royalties system. This fixes that. I’m not too aware of the details.

It’s also inefficient because of Vertical Fiscal Imbalance (you did Fed Con!) States have no money, so essentially they’re grabbing what they can. Their rate of tax is higher than the (theoretical) economically optimal point because they’re so desperate. And that’s economcally inefficient.

Questions to think about:

Is it appropriate to shift all that risk to the Government? Isn’t the argument for privatisation to shift that risk off government balance sheets and to the private sector who can most stomach risk and distribute it most efficiently?

Isn’t this just like buying at the peak of a stock market, just before a crash? The government is taking on all this risk because its confident there is no risk of a crash – it just sees all these profit (just like stupid investors see huge dividends, without realising there’s a risk that next year there won’t be huge dividends).

What are the implications on public policy if trenchant lobbying by powerful industry groups like the miners can actually influence governments into backing down from policies? How safe is fiscal policy then? (See the Club Troppo article in Deficits email).

Most critically, what effect will this sudden tax have on marginal projects?

Why should miners bother getting out of bed for a 6% risk free rate of return? (The answer is that they wouldn’t. But this RSPT is giving them more than a 6% rate of return – it all depends on a lot of very complicated factors. The effective tax rate on the projects could actually be as low as 13% on some projects.

But isn’t tha a problem? If the rate of return is heavily dependent on the tax rate, which is dependent on a whole lot of arbitrary factors, doesn’t that rerank the priority of projects? Under classical finance theory, you have $X to spend. You rank all the projects in terms of NPV then spend $X until you run out of money. But this RSPT has a heavily distortionar effect by changing the rate of return based on a whole bunch of arbitrary factors arising from a tax calculation.

As you can see, I’m personally quite critical of the RSPT. I don’t disagree with the proposition that we should tax the mining companies more. But the structure is distortionary. And at the end of the day, if it reduces investment in future projects then the Australian people (who own those resources) lose out.

It was sort of hard to find a good economic analysis online that supports the RSPT. (Don’t get me wrong, there are economists supporting this, and Ken Henry is a very eminent economist. He’s actually a Howard appointee who Labor criticised for being too much of a Liberal supporter, but I can’t find any right now and I don’t care enough to bother searching more).

I guess the main thing to focus on is this: Perhaps this tax is distortionary but all taxes are distortionary. Is it better to increase taxation on mining a little in order to decrease taxes for everyone else? Is it better to have that money go into an infrastructure fund that will boost productivity in future more than the distortionary effects slow productivity now?

The infrastructure argument is a very strong one, in my mind. Many countries which are heavily resource dependent fail to adequately capture the profits from their brief time in the sun. And then the resources dry up and their countries go kaput. The exceptions are those countries which intelligently invested those resources (eg. Norway had a successful infrastructure fund from memory). Dubai attempted the same by turning itself into a tourist and financial hotspot for the Middle East. Perhaps, if you are going to defend the RSPT in your interview tomorrow, you should run that line.

Another good argument is that it is a discretionary fiscal tool to manage the two track economy. If WA’s economy is overheating but NSW and Victoria’s economies are still too cool, what better thing to do than douse it with a bit of icy cold tax? In practice, I think that’s unrealistic. Tax rates aren’t like yo-yos or interest rates. You can’t just yank them up and down when you feel like it. But as a blunt instrument, it can slow down the mining economies right now, giving monetary policy more room to manevour.

Here’s a post I made on these last two topics a few months back. Please note the time stamp on that post and the title. It may not be the most coherent post ever. https://thejackalscodex.wordpress.com/2010/05/13/insomnia/

Articles:

Here is a persuasive argument against the RSPT: http://petermartin.blogspot.com/2010/05/swan-on-resource-super-profits-tax.html

Here is a good article, but I don’t think it adds much to what I had to say already: http://www.theage.com.au/business/coinvestment-idea-sets-stage-for-cgrade-mining-boom-20100514-v4ni.html

Here’s an article (sort of) defending the RSPT. http://www.stubbornmule.net/2010/05/resource-super-profit-tax-everything-correctly-explained-r-s-p-t-e-c-e/

Here’s an article in the New Matilda – more about the politics of things than the economics, but it has good data on effective tax rates. http://newmatilda.com/2010/05/26/digging-figures-mining-profits

And various articles from Club Troppo, which as I mentioned is a good economics blog in Australia. http://clubtroppo.com.au/2010/06/09/is-the-kpmg-report-on-the-resource-super-profit-tax-reasonable/

http://clubtroppo.com.au/2010/05/28/winners-and-losers-of-the-resource-profit-tax/

http://clubtroppo.com.au/2010/05/27/the-long-and-the-short-of-the-new-resource-rent-tax/

One of my friends had to do a job interview where it was possible he would be asked to talk at length about a public policy issue of his choice. Since he still had finals, I offered to help him do research. I figure, now that he’s done the interview, there’s no harm in simply publishing the email I sent him.

This implies no warrant of certainty in the accuracy or thoroughness of my research, I did it in an hour or so at about 11pm. Any citation of SMH is not an endorsement of the quality of that paper.

It’s a bit more discursive than what I usually write and describes the basic macroeconomic theories more thoroughly than I might otherwise have done, but I think its informative. The first topic is “How should governments fix massive budget deficits”. I thought the US v UK approach was particularly interesting – since the UK was taking a more thoroughly supply-side approach.Since writing that email, I found this article by Malcolm Maiden in the SMH. It attributes the differences between the US/Australian approach with the Eurozone approach to a historical difference during the Great Depression (the US faced recession and is unafraid of inflation, whereas the Germans faced hyperinflation are fear debt more). More interestingly, he highlights differences between how market confidence might act differently between the continents for this reason.

Topic 1: Budget deficits:

I’m not sure how much time you’ll really have, so I’ve decided its easier just for me to summarise the information you need to know, then to give you the links to read yourself. The important links are bolded, read all of them if you have time, but I think reading this email is sufficient.

Budget deficits and recessions can be complicated because there is disagreement between Keynesians and supply siders. Keynesians believe that economies can be fixed by stimulus packages and the government pumping money into the economy. Supply siders believe that you need to pump money into the economy, but for the economy itself to decide how that money should be spent. Therefore, you should use tax cuts, which put money in the hands of consumers. They will either save it or spend it – either way, they know best what they need, which means they can allocate it between saving/spending most effectively. The response of most governments post-GFC was Keynesian – and there is evidence that it does work (http://blogs.crikey.com.au/pollytics/2010/05/12/the-most-important-chart-in-the-budget/#). The problem was that most of those stimulus packages were not big enough.

It is important to add that we are in (sort of) unprecedented territory because in many countries, they threw large amounts of stimulus money at the problem and it wasn’t quite enough. That means we both have weak budgets and weak economies. Both theories sort of assumed that once the problem was fixed, the economy should start running again. And when that happens, taxes flood in and fix the problem.

So, if you can’t rely on that, then governments have two choices.

1) They can choose to take on more debt. BUT this undermines the government’s AAA rating. When you have a huge amount of debt, and your rating goes down, your interest rates skyrocket and all sorts of problems occur.

2) You can use austerity measures (reduce spending, increase taxes, sell assets) but these have their own problems. Under a Keynesian analysis, austerity measures, if introduced too soon can starve the economy. [But of course, not under a supply-side analysis, which suggested you should have done that in the first place].

Exactly which of the two choices you should take depends on exactly how close you are to losing your AAA rating. Let me illustrate with a few real world examples. (See the Moody’s article for details)

1) NSW and Qld

NSW has long been the tight-ass of the fiscal community. Bob Carr really wanted to preserve the State’s AAA rating – but as a result, he didn’t spend enough on crucial infrastructure. As a result, hospitals are crumbling etc etc. And when it came time to use that AAA rating during the GFC, the government found out that it was quite useless. In other words, NSW should have spent more earlier. As a result, NSW was forced to privatise many assets (or attempt to) to fix the budget crisis – the electricity system, various roads and the Ferries. (Qld is in a similar position, flogging off $8bn of assets – see the John Quiggin article below).

2) California

California is the State to watch in terms of fiscal incompetence. By sharp contrast to NSW, it has always been a reckless spender. In fact, it is mandated by its Constitution which has been amended countless times through the horrid proposition system. (People can vote to pass laws – eg. to mandate that 25% of the budget must be spent on education). The Governor is actually only able to change about 25% of the Budget because the Constitution (and various laws passed through propositions) mandate the other 75% be spent on X. When the time came that he needed to spend even more money to fix the economic crisis, Arnie had less than no money left. He had no savings, and taxes were falling (because a lot of State taxes are land property taxes – and of course the GFC was caused by falling land prices).

3) US

The US is in a special case. I don’t think its in danger of losing its AAA debt rating (but don’t quote me on that) but it is in a special position because so much of its debt is owned by China.

4) Greece, Spain, Portugal

These countries actually have had their debt ratigns downgraded, so their only choice is to take austetiry measures (or be bailed out by the EU).

If you look across all these countries, you’ll find that (generally) two things caused these budget crises.

A) structural budget deficits

Budgets go up and down. The average budget, so to speak is the point that the budget hovers around. Some countries, like Australia have strong economic discipline and excellent economists. Thanks to Keating and Costello, we do not have structural budget deficits (though we may have temporary budget deficits for a year or two during recessions). Other countries – Greece, the US, California have structural budget deficits. They spend so much that even when the economy is really strong, and taxes are flowing in, they can only just get into the black.

B) Bad luck

Some economies are based around one thing, and if the downturn hits that one thing very hard then your economy collapses. If the downturn had destroyed the metal price, we would be in big trouble. As it happens, it hit property and financials. Which means California and Spain (property) were in big trouble, as well as London and the US (financials).

Very short term policy

This NYT article on the very short term US dilemma on whether to cut rates this month has some excellent analysis: http://www.nytimes.com/2010/06/23/business/economy/23leonhardt.html?ref=federal_reserve_system

It should be all you really need, but just in case, here is an article from the NYT’s Dealbook blog (which is the blog which finance markets read – very good, technical information, but conveyed in terms normal people can understand: http://dealbook.blogs.nytimes.com/2010/06/24/fed-leaves-rates-citing-overseas-threats/?scp=5&sq=federal%20reserve&st=cse)

Moody’s (debt rating agency) warns the US debt rating is not certainhttp://www.nytimes.com/2010/03/16/business/global/16rating.html?ref=unitedkingdom

For more generally how to fix deficits:

Here is an Australian perspective (Club Troppo is a well respected economics and politics blog): http://clubtroppo.com.au/2010/06/12/independent-fiscal-policy-i-told-you-so/

And here is a US perspective from Paul Krugman (Nobel Laureate and hardcore left-wing Keynesian): http://www.nytimes.com/2010/06/21/opinion/21krugman.html?ref=federal_reserve_system

QUT Economist, John Quiggin on why Qld’s assets sales to fix its budgetary positin makes no sensehttp://johnquiggin.com/index.php/archives/2009/12/21/qr-sale-plan-off-the-rails/

The NYT on the novel approach of the UK which we discussed (basically following supply-side theory)

http://www.nytimes.com/2010/06/23/world/europe/23britain.html?ref=unitedkingdom

The UK has been problematic because much of London’s budget depended directly or indirectly on the Financial sector (through bankers salaries or through the money they spent which stimulated the economy). When that collapsed, so did a major portion of the UK budget.

This is another very good article placing the UK in the context of deficit cutting in the EU generally. It also goes deeper into the economics of things. http://www.nytimes.com/2010/05/26/business/global/26austerity.html?ref=unitedkingdom

NSW Budget:

Most of the analysis said that it regained the surplus because tax revenues increased along with the economic recovery (rather than economic brilliance).

Recovery helped by privatisation of Lottos: http://www.smh.com.au/nsw/lotto-sale-helps-budget-into-black-20100608-xsjr.html

Recovery helped by rebounding property sector: http://www.smh.com.au/business/property/property-recovery-leads-surge-into-surplus-20100607-xqw0.html

Ross Gittin’s analysis (to much the same effect)http://www.smh.com.au/opinion/politics/what-keneally-and-co-achieved–and-what-they-didnt-20100608-xs6m.html

The majority of articles talk about stuff in he budget that improves infrastructure and housing (like the stamp duty rebate). Personally, I rather liked the NSW Budget for that reasons. Here’s an article generally on the NSW Budget: http://www.theaustralian.com.au/business/opinion/roozendaals-nsw-budget-outlook-is-almost-rosy/story-e6frg9p6-1225877027812 and http://www.theaustralian.com.au/politics/state-politics/nsw-state-budget-at-a-glance/story-e6frgczx-1225876969862

Update: Since I wrote that email, I saw this article by Malcolm Maiden in the SMH.

Gillard’s acceptance speech was very great but it didn’t feel historic. She was definitely Prime Ministerial, she showed poise and toughness – especially in handling the press. One could really sense that she was channelling CJ Cregg, the best press secretary (whether real or fictional) the US has ever had.

But at the same time, listening to her speech I didn’t feel her channeling Martin Luther King. There was no sense of history, of Australia once again leading the way in the gender fight with the first female Australian prime minister. In fact, when asked how she felt about being her historic role, she gave quite a muted reply. And much of her speech gave the impression of an inexorable attempt to cover every major policy area – Industrial Relations, global warming, economics. And whilst she attempted to define herself in this first speech – as someone who cares about people who work hard – the language was just so generic that didn’t shine out.

Nor did the substance of her speech glitter. But I think it bears out my prediction. She (more or less) stuck to the policies of the Rudd government of which she was a part. In terms of substance, there was little in the way of difference except in emphasis. She will be more aggressive in pushing the climate change argument, but essentially the underlying policies remain the same. The great difference was in style. There will be a shift in internal government function to a more consultative approach with both Cabinet and factions, but more importantly a shift in consultation with industry when formulating policy. And – as I predicted – she shifted stance on the RSPT, but without sacrificing revenue.

Even though in substance, her policy is the same, this is a major paradigm shift in how people will view the policy. I think because the government’s policies are quite strong at their core, all they ever needed was tweaking around the edges anyway.

Whilst Gillard’s speech was great, but not excellent, Tony Abbott’s first press conference was downright shocking – and I say this as someone who considered voting for him. The consensus around these things is that you can’t be too vigorous in attacking female politicians because it looks badly. Some people say that Abbott has a ‘woman problem’, others don’t. I’m in the latter camp – there’s little evidence in the polls to suggest his vote suffers amongst women (at least not to a greater extent than Coalition politicians generally). But surely the very least you can do is show grace at her election – either because she won a leadership ballot, or because she won a leadership ballot as Australia’s first female Prime Minister.

If that is indicative of Abbott’s approach in this election, Gillard may even pick up seats at the next election. But even if I’m wrong, I am absolutely certain about this next prediction – this will be a fun election to watch. Gillard v Abbott. haha

For those uncognisant, there has been continual speculation about whether Julia Gillard will challenge Kevin Rudd ever since his falling poll numbers leading up to the next election. For the more observant, people will have noted that this speculation never got traction because Julia Gillard consistently and trenchantly refused to accept it. This goes all the way back to when she first supported Rudd to be Leader of the Opposition, rather than throwing her own hat into the ring when she probably had the numbers to be LOOP in her own right. And it goes all the way to the last minute, last night when Gillard adamantly refused to stand as Labor leader.

Yes, yes, people will say “but leadership contenders always have the leader’s back”. That’s right – they always say it, but never mean it. But I think journalists can really sense the difference between mere words and substantive action. With Costello for instance, even though he may not have genuinely wanted the leadership, had a strong support base that constantly undermined Howard’s leadership behind closed doors. As Virgil said, Rumour has a hundred tongues, a hundred mouths and a voice of iron. And yet, not a single rumour appeared of Gillard’s behind the scene moves to take the leadership. The Sun Herald was confident enough to make its front page story that there was absolutely no support for Julia Gillard. The Opposition even stopped their attacks. And that is precisely why Gillard’s sudden leadership challenge was so very surprising. This is a leadership challenge unlike every other – even though there was speculation, no one truly believed that speculation because there was little basis for it aside from Rudd’s poor polling numbers.

The most recent bout of speculation began when NSW right-wing power broker, Mark Arbib, sent a delegation to Victorian right-wing power broker, David Feeney, and also when Bob Hawke was overheard asking if there was a possibility Gillard would be asked to stand. It came to a head because of an own goal by Rudd. He asked his Chief of Staff, Alister Jordan, to find out what support Gillard had.

This backfired for two crucial reasons. Firstly, the pact that Rudd and Gillard made had been broken. Rudd had openly questioned her loyalty, when Gillard herself (reportedly) believed she had done everything in public and behind closed doors to support him. Gillard has had a strong record of supporting Labor leaders to the very end – Simon Crean, Mark Latham. But this angered her enough to request a meeting between her, Rudd and senior (left) wise owl John Faulkner. Secondly, Rudd’s approach of delegating this very important task of canvassing votes to his own office, rather than to a powerbroker or doing it himself really pissed off the Parliamentary Labor Party. It was always his style – but it was that very thing for which he had been criticised the last few weeks – running all policy through his office rather than through Cabinet or through government departments.

I say all this, because the first and most important theme that I am picking up from this whole debacle is the honesty and loyalty which is the hallmark of Gillard’s challenge. I don’t know if Gillard was genuine in that loyalty – but everything I am getting from the media is that she hid it very well. But if she was hiding it – she was playing a very long game – from as early on as when Rudd was first nominated for the Labor leadership (and perhaps even as far back as Simon Crean). For myself, I suspect Gillard is honest. If even Mark Latham could speak so highly of Gillard’s integrity, I think she is truly a good person.

This theme of loyalty to the end, I think is crucial, to how this will all play out in the lead up to the election later this year. This is very different from other leadership spills in recent history. Other spills always involve a heated and contentious battle between an ambitious deputy and a incumbent leader. It is a battle of two opposing forces. But this was a matter of the leader’s forces switching sides to a reluctant deputy.

Some are of the view that this leadership spill was unnecessary – that Rudd would have won the next election and this is just a distraction, that this will break the Government’s plan. I respectfully, but very strongly disagree. Firstly, the government’s momentum was disrupted after the ETS back down. The momentum was absolutely destroyed by the Mining Tax, an issue that would not have gone away. This leadership spill actually acts as a circuit-breaker that will heal that disruption.

Secondly, a leadership challenge is only disruptive if the new leader wobbles or if the old leader acts as a Fourth Column. The latter seems unlikely to happen. By his actions and his general contempt for the rest of Cabinet and the Parliamentary Labor Party, Rudd has lost many friends within the Party. He never had a factional base – as the commentariat reiterated time and again, he had support only as long as the polls supported him. He has no chance of coming back. He seems to recognise this by his (reportedly) gracious speech to Caucus and by choosing to stand aside rather than to challenge the spill.

Rudd fired a warning shot yesterday night that Australia would shift to the Right under Gillard, but the Australian at least has interpreted that as a pitch that he would be the left-wing candidate rather than an attempt to undermine the future Gillard Prime Ministry. In any leadership spill, there will be some robust argumentation. Even if that was an attempt to undermine Gillard, by any standard it was a pretty weak attempt. Nothing is a certainty of course. Rudd has become used to being in charge, and I think he never liked the job of selling his own policies. He just wanted to craft them. I think he’ll try to keep some role in policy making. Whether he can stomach a secondary role, is a different question. But watching his farewell speech, you can really see into his character and into that compassion that has always driven him. I don’t think I can see it in him to undermine his government, whose policies he believes so strongly in.

Look, attempting to predict the future is always difficult in politics. But Gillard, as everyone has been announcing ad nauseam is an excellent communicator. But, like Rudd, she is an excellent administrator. She has handled two major portfolios with great skill – deflecting two major controversies (Naplan testing and flaws in the Education Building revolution). And she has shown particular skill in tackling Tony Abbott himself. I think Gillard is not only the best person to take Labor into the election, I think she will win the next election.

Gillard has a strong political argument to undo some of the errors that the Rudd government has made. Perhaps there’s no substance behind that argument because she was a member of the ‘Kitchen Cabinet’ of four. The Coalition will certainly argue that, but Ministers are always responsible for past policies. What matters is that she can dump those policies and move on. There will be criticisms for perhaps a few weeks, but those criticisms will not linger. They will be swamped by the even bigger news of a new government and of her media honeymoon.

There’s good reason to think a Gillard government will be different in substance by a Rudd government. It will no longer function as a government of four – insider reports suggest that Rudd was still resisting allowing Cabinet having a say in the decision making process, but that Gillard was willing to shift back.

The King is dead, long live the Queen. For what little its worth, I give my congratulations to Julia Gillard, Australia’s first female Prime Minister. And I give my thanks to Kevin Rudd who, with great skill, shepherded Australia through the Global Financial Crisis, who ratified the Kyoto Protocol, apologised to the Aboriginal people, withdrew from Iraq but reinforced our forces in Afghanistan.

For some reason I no longer adequately recall, I am on the ACLU’s mailing list. Although I broadly agree with their political views, they tend to push the boundaries of judicial activism with their lawsuits, so I find them a bit off putting. In any case, here is their position on the legislative repeal of the Don’t Ask, Don’t Tell policy. Since no theories of state were harmed in the making of this statement, I can thoroughly endorse it.

Following the recent votes by the House of Representatives and the Senate Armed Services Committee to allow for a repeal of the discriminatory and counterproductive policy known as “Don’t Ask, Don’t Tell,” (DADT) you may be asking yourself, “Where do we go from here?”

The next showdown over the issue is likely to take place on the floor of the Senate, where opponents of repeal have vowed to try and strip the repeal language currently contained in the National Defense Authorization Act (NDAA) from the legislation—or offer a “poison pill” amendment to make it difficult or impossible to actually move forward with a policy of open service for those who are gay, lesbian and bisexual.

It’s important to repeal DADT for at least three reasons. First, we need to get rid of it because of the damage it does to so many decent Americans who volunteer to serve. Since DADT went into effect, more than 13,500 openly gay individuals have been kicked out of the military.

Second, we need to get rid of DADT because it is a blot on the Constitution. In the Congress that passed it, the single justification for DADT was not that gay members of the Armed Forces couldn’t do their jobs. It was rather that heterosexual service members would be so unnerved by the mere presence of gay people that they would be unable to perform their duties. As long as DADT endures, the idea that your rights can’t be taken away just because someone else doesn’t like you is hardly secure.

Third, our work to build real equality in the law and in the hearts of Americans won’t succeed as long as the federal government has a law on its books that says discrimination is ok, at least some of the time. Laws like that are a profound statement that a group doesn’t deserve equality.

Although we have had some amazing successes in recent weeks, critical votes remain on the horizon and challenging obstacles will need to be overcome before we see the repeal of DADT and open service for gay, lesbian and bisexual service members.

With final exams creeping up on me, like an axe murder behind an innocent child, I’ve not been following the news much. My sole source of news is the Colbert Report. And being educated by a Frenchman is close to being not educated at all.

I’ve no idea where the DADT repeal process is at. Apparently Perry v Schwazenneger is close to being handed down. And apparently the Massachusetts AG is challenging the constitutionality of DADT in the SCOTUS – though not on equal protection grounds. But I have no details on either.

If you would like to inform me of what has been happening in the wider world, let me remind you that this blog has a comments section.

Here is a wonderful article by Stanley Fish. For some time, Fish was my favourite opinion writer. He never stuck to a particular ideological line, but he was always insightful and persuasive, even if he is occasionally a postmodernist. For some reason (I have no idea why) I haven’t read any article by him recently and I had totally forgotten about him.

You won’t get any arguments from me when people say that we should get the careerism, standardised testing and postmodern teaching fads out of high schools, but I sometimes wonder how practical Fish’s approach is. Compulsorily broadening people’s education never seems to quite work. People have to want to study those subjects – and encouraging that seems a more productive course of action.

And I worry about filling a syllabus with unnecessary courses. One of the primary reasons (it appears) that Americans are falling behind in science and math compared to other countries is because even though they spend just as much time at school as other students, so much of their time is spent on courses like Sex Ed, gym etc that they don’t spend as much time on science and math. I think the statistic is that by the end of high school, an American high school student will have done an entire year’s less maths than a Japanese student.

And we’ve all experienced those useless courses that the syllabus occasionally forces down our throats. I’m sure they were great ideas in theory, but in practice, noone took them seriously. Sounds like the Legal Profession (a supposed legal ethics class that taught us nothing about ethics and bored us so much that even thinking of being ethical sends shivers down the spines of any lawyer).

But most importantly, the standard of a course is marked by the standard of the teachers. When I learned Australian history in year 10, I was so bored by the Federation course that suicide seemed a real option. When I relearnt it during Public Law, our lecturer did it so brilliantly, I absolutely loved it. How many brilliant lecturers can there be? I think the reason Latin teachers or Constitutional law professors are so brilliant (generally speaking), is because there is no other career option for them so only the best and the brightest teach it. If you make Latin compulsory, you’ll get second-rate teachers teaching the course, diluting its efficacy. Compare that to Finance lecturers (who are invariably crap at teaching) because the brilliant ones go into business.

Now I’m hardly an expert in Middle East relations, but I’m hard-pressed to think of an incident in which one side of the Israeli-Palestinian conflict was an incredible douche-bag, without the other side being incredible douche-bags too.

So it was delightfully surprising to me, when a few days ago, the full might of the news media came crashing down on Israel like the hand of Mohammed (blessings be upon him) himself. It was undoubted, they said, that Israel launched an unprovoked attack upon an aid shipment in international waters without, to emphasise, provocation.

I mean how gullible can people get? Obviously anyone who is piloting a ship into Israel in the dead of night is not going to be totally innocent, especially when breaking a express blockade of the area. And I had strong suspicions that any journalist on board the Palestinian ‘aid ships’ would be strongly favourable to their cause as well (as lefty journalists are wont to be). [Of course, this ignores the greater incentive for news organisations to create as huge a media storm as they could before the real facts start flowing through. It would be gullible and remiss of me to not mention that as well].

Even those facts that did come through didn’t make much sense. Why would Israel be stupid enough to attack unarmed ships in the night with gunfire without any provocation? Why would they do it in international waters? It makes no sense from their point of view. And there were 5 ships… so why did they only go guns blazing onto one of those 5 ships? Many of the facts didn’t fit the story put out by the media and by their evil puppetmasters in Palestine.

Apparently I was wrong. Now, it turns out, the journalist on board wasn’t wholly dedicated to the Palestinian cause because his version of events seems pretty unbiased.

A few facts:

  • the ‘aid ships’ refused orders to turn back before heading into Israeli waters
  • The Israeli’s previously threatened lethal force during that demand
  • The Palestinians attacked first with fire hoses (those are a lot more powerful than cartoons make them out to be) and they threw Israelis into the ocean.
  • Now clearly, Israel overreacted and probably technically breached international law (which, as I’ve always said, isn’t real law), but it’s hardly the only guilty party here.

    And why is the media only representing the Palestinian point of view? The only explanation I’ve heard for the Gaza blockade is because Israel is starving out the people so they will turn against Hamas. What is Israel’s explanation? Again, the facts don’t entirely make sense. It can’t be a true blockade because Egypt also has a border crossing into Gaza.

    I’m not staunch advocate for Israel. They have a tendency to shoot first, then let the US do the thinking later. They are a religious state with absolutely no separation of church and state, freedom of speech etc etc. But I do firmly believe in objectivity and fairness. Israel’s point of view is seldom heard, except when the media reports the generic whackjob response of ‘Israel’s very security is under threat so all violent actions Israel takes are proportional in that context”