Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Last tango in Melbourne

Steven Schwartz

26 February 2021 | IDEAS@THECENTRE

As Covid-19 trudges through endless revisions of rules and regulations, Australia’s response to the virus is beginning to resemble the blackest of farces.

State premiers, untethered from parliamentary democracy, are free to issue decrees based on their impenetrable divinations. In Queensland, guests at a wedding may dance “subject to 1 person per 2 square metres.” In Victoria, the regulation requires “1 person per 4 square metres.” I am not sure exactly which dances are performed at such a decorous distance, but it is probably safe to say we have seen the last tango in Melbourne.

Midway through his most recent lockdown, the West Australian premier decreed diners must wear masks in Perth restaurants. When asked how this could work, he replied: “Use your common sense.” Good advice. Too bad there is so little common sense around.

Indeed, common sense has never been very common. In its early decades, Australia faced the bubonic plague. As now, governments prohibited free movement. As it transpired, the rats and fleas spreading bubonic plague were indifferent to the edicts of politicians. The Covid-19 virus may well hold a similar disdain for dancing at a distance.

Common sense begins with proportionality. Is there room for similar proportionality in the way we deal with Covid-19? At present, premiers take actions designed to reduce illness almost to zero, but lockdowns, border closures, and other regulations come with economic and social costs.

Ridding Australia of Covid-19 depends on the country achieving herd immunity. But herd immunity is not a treatment; it is a statistical concept. Once a certain proportion of the population is immune, infection rates decline because the disease is unable to find susceptible hosts.

Even if we successfully eliminate Covid-19 through herd immunity, we cannot assume that no Australian will ever again catch the disease. According to the WHO, Australia ‘eliminated’ measles in 2014, yet cases have been reported in Australia every year since.

The reason for measles persistence is its continued existence in other countries. Visitors and unvaccinated Australian travellers contract the illness while abroad.

No state government quarantines Australians returning home from countries with measles outbreaks. This insouciance about a highly contagious and dangerous disease is difficult to reconcile with the draconian approach taken to Covid-19.

This is an edited extract of an opinion piece published in The Australian as No dancing past the fact we’ll have to live with Covid.

RBA must explain itself

Peter Tulip

26 February 2021 | IDEAS@THECENTRE

The RBA should be required to explain its decisions.  This would make mistakes in monetary policy less likely and less persistent.

When the Governor of the RBA makes a mistake, there is currently no effective process for identifying this or correcting it.

The RBA Board is meant to provide oversight. But the Board is mainly composed of business leaders who lack expertise in monetary policy. It is unable to effectively challenge the Governor.

The RBA’s unchecked discretion has resulted in inflation that is too low and unemployment that is too high.  The persistent failure of the Bank to meet its statutory targets establishes a presumption that reform is needed.

Proper reasons for decisions would involve addressing counter-arguments and relevant research, which the Bank does not currently do.

For example, Why does the Bank disagree with the research that concludes that interest rates are a bad instrument for ensuring financial stability?  Why does it disagree with the research that concludes negative interest rates would be beneficial? Why not buy more bonds (“quantitative easing”), given that this would raise inflation and lower unemployment?  And so on.

Explaining decisions would make it easier for mistakes to be identified and corrected.  It is also necessary for accountability and democracy. The public needs to have confidence that decisions are well-based, reflect society’s values and do not unduly benefit favoured groups.

Increased transparency is against the Bank’s private interest: it would be bad publicity and make criticism easier. But it is in the public interest. So it should be required.

This is an edited extract of an article published in Pearls and Irritations as The Reserve Bank needs accountability that only external scrutiny can provide.

 

GameStop reveals anomalies

Zachary Lanigan

26 February 2021 | IDEAS@THECENTRE

Robinhood, the platform built upon democratising investment, has become an illustrative example of an intrinsic issue for the stock market: it is perceived to be a rigged game that talks big about supporting free markets but protects existing players.

In recent weeks, amateur investors aggregated on social media platform Reddit and created a powerhouse trading bloc that strongly competed with hedge funds in market-making around individual stocks.

Over the span of two weeks, that group pushed electronics and gaming merchandise retailer GameStock Corp from $19.95 to $347.51, triggering significant losses for many hedge funds who had effectively been ‘betting’ that the stock price will fall as the business continues to decline.

In a seemingly hypocritical move for a financial services company with the articulated mission to “democratize finance for all”, Robinhood announced that they would be restricting trading on GME stock options.

They argued they had a requirement to “protect investors and the markets”, but in effect their decision protected hedge funds at the expense of the individual investor.

Leaving aside legitimate questions of market manipulation, critics might argue that the financial services industry appears to be hypocritical: they are all for free markets when insiders benefit, but suddenly want regulation when existing players are challenged.

Furthermore, this GameStop debacle is yet another example of social media’s ability to incite collective action in an unprecedented manner. The social media aspect is interesting… social news aggregation and discussion website Reddit was the vehicle of aggregation for Robinhood users.

Motives behind Robinhood’s decision to block retail investors from purchasing stock remains unclear and has driven speculation that they received pressure from hedge funds themselves. The decision is also perplexing as hedge funds were still able to trade stock freely as they saw fit.

Ultimately, this is an evolving situation with no clear solution. One solution is that the SEC acknowledges the Redditors as legitimate actors and regulates both them and the hedge funds equally.

Contrarily, you could go in the other direction and deregulate both the hedge funds and Redditors and let them continue what they are doing.

We’ll see what ramifications come from this social media movement of collective action. But it is necessary to acknowledge that this epitomises qualms around the divide between the influence of corporate privilege, and the rest of us.