The Sydney Morning Herald's Ross Gittins has a good article on how monetary policy and fiscal policy as implemented by Australia's Reserve Bank and the Dept of Treasury interact over both short and medium terms to produce low inflation and good economic growth.

Australia has seen both for a few decades, much of it built on the foundations of Treasurer Paul Keating in the 1980s.

The article, which is pretty much a summary of key points made by Secretary of Treasury Dr Martin Parkinson in his annual post-Budget speech, gives a good overall view and is worth a read for a layman's summary of how it all works.

In a nutshell, Australia's fiscal policy includes automatic stabilisers that offset periods of low or high growth, and monetary policy includes the ability to change things in the immediate short term with adjustments that can be small or large if needed.

Both of these things combined have provided stability and continued growth with low inflation.

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Now that the mop-up is taking place after the overwhelming Queensland and Victorian floods, we are starting to talk about how to fund the rebuilding.

Prime Minister Gillard won't give an unequivocal answer, but has floated the idea of a one-off tax levy and some tight budget constraints on government spending elsewhere.

My first reaction is to ask why nobody is mentioning the dreaded "debt" word.

It is a failure of Australian politics, both at the State and Federal levels, that debt has become a complete pariah. It is a hangover from the 1980s and 1990s when Labor State governments were fiscally irresponsible and had to be brought to account. But the pendulum has swung too far when the very mention of the word sends politicians running away.

There is nothing wrong per-se with government debt. It is the cheapest funding available. It is the right way to fund projects that have huge capital costs and where the benefits to the nation from those projects are realised over decades. There is no reason why current generations should pay the full cost of benefits that they and future generations will receive.

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There's been some kerfuffle in the last week when retailers mounted a campaign to lower the duty-free tax threshold. They claim they are unfairly losing business to on-line offshore sellers because buyers don't have to pay GST on imports less than $1,000. The argument is summarised in The Age here. According to that, the retailers have been stunned by the backlash against them.

The retailers just don't get it, and it shows in the major tactical blunder they made. They argued that their prices were disadvantaged because local shoppers had to pay GST, whereas on-line shoppers going offshore did not.

Their blunder was that on-line shoppers, by definition, are internet savvy and quite used to doing price comparisons on the web. These shoppers know that on-line prices are not cheaper by the 10% or 15% of the GST, but by 30% or 50% or even 75%.

Shoppers immediately called foul and filled newspapers comments.     [continued...]

New Scientist is reporting that we are running out of helium.

The good news is that it is incredibly cheap compared to its long-term economic worth due to an artificial U.S. government supply.

The bad news is that it will become incredibly expensive after 2015.

Read the article for more details, but the short of it is that the U.S. government is force-selling half its strategic reserves, to be completed by 2015. But it has changed how I see helium. I might even start to feel a little guilty when I waste it doing Donald Duck voice impressions. Or not. It will take me a while to use up a billion cubic metres.

[I was surprised at how hard and expensive it is to manufacture. After all, it's the second most abundant element after hydrogen. After thinking about it a little more, it makes sense. Helium is the second most abundant element in the universe, but it's not the second most abundant     [continued...]

The New York Times is reporting that China has surpassed Japan and is now the world's second biggest economy after the United States.

I guess that's not surprising in itself. Anyone who has bought anything in the consumer goods or electronics area, for example, knows that China has an extraordinary large manufacturing base.

The interesting thing for me is just how big and how dominant is the U.S. where the GDP is twice that of China's.

It is projected to exceed the U.S. by 2030.

Shouldn't pricing reflect added value? It's a standard economic principle that, all else equal, you will earn a higher price if you add value to a commodity.

Adding value can mean lots of things, from processing base commodities such as iron ore into steel, or taking a gizmo and painting it a nicer colour so consumers desire it more and you can charge a higher price, and so on.

So to milk. I've used powdered milk for several years now. Originally it was a cost-cutting measure (huh? keep reading...) and now it is for convenience. It's quick and simple to mix up a fresh batch and it means I've always got milk available even if I forgot to go to the shops.

As an aside, they seem to have improved the processing so if your memory of powdered milk is that it tastes funny, that's no longer the case. I can't taste the difference with fresh milk.

Fresh milk has little added-value. They pasteurise it, which they have to by law here, so no competitive advantage there. Then they transport     [continued...]