Why we didn’t see the GFC: OECD admits failures

Among their most prominent thinkers, there is no consensus as to how – or whether – governments in advanced countries can improve lackluster recoveries. All in all, the situation recalls a cruel joke:
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How many economists does it take to change a light bulb? None. When the one they used in graduate school goes out, they sit in the dark.

Recently, economists at the Organisation for Economic Cooperation and Development (OECD) published a retrospective study of its economic forecasts. This qualifies as an act of bureaucratic courage, because the record was predictably dismal. Not only did the OECD miss the 2008/09 financial crisis, but it routinely over-predicted the recovery’s strength. In May 2010, for example, the OECD forecast that the US economy would grow 3.2 per cent in 2011. Actual growth was 1.7 per cent. This is a huge error, and there were larger misses for some European economie as well. 

The OECD wasn’t alone. As the study notes, ‘groupthink’ is endemic among forecasters. The International Monetary Fund, private economists and government agencies — including the Federal Reserve and Congressional Budget Office — all committed similar mistakes.

In explaining its poor performance, the OECD cites three under-appreciated forces.

First, globalisation: The weaknesses of some economies, especially the United States’, depressed other economies through reduced trade and greater financial strains.

Second, fragile banks: Countries with undercapitalised banks fared especially poorly, presumably because the banks lent less.

And finally, economic regulation: Highly regulated societies had a harder time adjusting to adversity than more flexible societies.

All these underestimated factors made forecasts too upbeat, says the OECD. Interestingly, one item not on the list is “too much austerity.” The OECD economists found that they generally hadn’t underestimated the effects of spending cuts and tax increases intended to shrink budget deficits in Spain, Italy, Ireland, Portugal and elsewhere. Greece was a conspicuous exception.

This conclusion is surely controversial because many economists attribute the weak recovery to misguided austerity, especially in Europe. Just follow the advice of John Maynard Keynes (1883-1946), they say. When the economy suffers a massive drop in private spending, government should offset the loss by increasing its budget deficits. Europe’s budget cuts were too aggressive, they say, while US “stimulus” policies were not aggressive enough.

Perhaps history will vindicate this appeal to Keynesianism. Or perhaps not. The fact is that the United States did respond aggressively under both George W. Bush and Barack Obama. It certainly didn’t embrace austerity. Federal budgets ran massive deficits — $6.2 trillion worth from 2008 to 2013, averaging 6.4 per cent of the economy (gross domestic product). Nothing like this had occurred since World War 2. Yet, the economy limped along. Why wasn’t this enough?

It’s not just Keynesianism that’s under a cloud. The same fate has befallen monetarism — the doctrine that stable growth in the money supply can promote a more stable economy. Since 2008, the Federal Reserve has poured more than $US3.2 trillion into the economy to keep interest rates low and accelerate economic growth. By monetarist reasoning, so much money pumped out so quickly should spawn higher inflation. Some economists predicted as much; it hasn’t happened yet. Consumer prices today are up a mere 1.5 per cent from a year earlier.

If you add the last six years of US budget deficits and the Fed’s injection of cash into the economy, the total is approaching $US10 trillion. It’s hard to believe that all this stimulus didn’t aid the recovery, but the fact that it resulted in only modest growth has created an identity crisis for economists. The promise they held out was that, through suitable economic policies, they could produce long periods of stable growth and – just as important – avoid prolonged slumps and lengthy periods of substandard growth. Clearly, they aren’t delivering on this promise.

The Great Recession and financial crisis changed behaviour in fundamental ways that economists have yet to incorporate fully into their models or theories. The widespread faith that modern societies were sheltered from deep and sustained economic setbacks has been shattered, causing consumers, business managers and bankers to be more cautious in borrowing and spending. Economic stimulus may offset this caution, but if it signals that the economy is weaker than expected, it may also further depress private spending. There are countervailing tendencies.

The faith in economics was, in many ways, the underlying cause of both the financial crisis and Great Recession — it made people overconfident and careless during the boom — and the basic explanation for the weak recovery, as stubborn caution displaced stubborn complacency. To regain relevancy, economists are searching for a new light bulb — or better use of the old one. Meanwhile, most are still sitting in the dark.

Washington Post

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Found: the facelift alternative

Age-defying lotions and skin-plumping potions are all the rage today but in 2000, when Maria Hatzistefanis founded skincare business Rodial, her cutting edge anti-wrinkle formulations were ground-breaking.
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“There was a gap in the skincare market for a product that offered an alternative to cosmetic surgery,” she explains. “Nobody was making products like that.”

Ms Hatzistefanis’ background is in finance, not dermatology. She gave up a well-paid job at Salomon Brothers to spend a year researching the beauty market and meeting scientists. After countless trade shows and unsuccessful meetings in laboratories around Europe, she finally found a lab that could develop the formulas she wanted.

“From day one I always knew that I wanted to make original products, I didn’t want to copy anyone else,” she says. “We are still working with the same lab 14 years later and we still use only original ideas and concepts.”Ms Hatzistefanis started out with a single beauty brand, Rodial, which is sold through high-end retailers, including Harrods, Harvey Nichols and Space NK.

Over the past five years, the entrepreneur has rolled out Nip + Fab, which caters to the mass market. The company has doubled its revenues year-on-year and will turn over £15m in the year to March 2014.Part of Rodial’s allure is the brand’s eye-catching product names. “Some of our products sound scary,” admits Ms Hatzistefanis. “We have Snake Serum, Dragon’s Blood and Bee Venom. They are all very safe but we like to play with the names of our ingredients to create a talking point.”

Products start at £19 up to £375 for Bee Venom 24 Carat Gold Serum.

The company’s love affair with edgy names began with Snake Serum, launched in 2010. “When a snake bites you, it paralyses the muscles,” explains Ms Hatzistefanis. “The main ingredient in our Serum is a synthetic venom, called syn-ake, which performs the same way as viper venom.”

Snake Serum was unveiled with great fanfare. Adverts featured a black viper coiling around the products; Kate Moss and Victoria Beckham were rumoured to be fans and sales skyrocketed.

“There was the occasional person who didn’t like the product because they hated snakes but, mostly, it caused a lot of excitement,” says Ms Hatzistefanis. “So we thought, ‘What shall we do next?’ ”Dragon’s Blood is a bright red resin from a tree native to the Canary Islands and Morocco. The sap has been used for medicinal purposes since the times of the Roman Empire. “It helps to take down redness and irritation and I loved the name,” says Ms Hatzistefanis.

The skin plumping products are marketed as an alternative to dermal fillers, the so-called “liquid facelift”. “We added peptides and hyaluronic acid to make it really high tech and now Dragon’s Blood is our bestselling range.”

Bee Venom completed the animal-themed range. “Lots of customers were asking for it,” says Ms Hatzistefanis. “We took bee venom and the latest stem cell technology to develop a range for more mature skin.”

The business has made other bold moves in recent years. In 2012, the Nip + Fab brand launched a product called Tummy Fix.

According to the e-commerce site’s analysis, 40pc of the people buying the product were men. This convinced Ms Hatzistefanis to start researching the market for men’s skincare.“Women in London spend about £1,500 a year on skincare,” she says. “Men in London spend £1,100 – it’s not that far off.”

The Nip + Man range launched in May 2013. Products include Manotox, the men’s alternative to Botox, the Bicep Fix and the Ab Fix, with Gemmoslim to battle the bulge.

Nip + Man currently represents just 5pc of the company’s turnover, compared with Rodial, which has 55pc, and Nip + Fab with 40pc. “But it’s growing fast,” says Ms Hatzistefanis.

There has been one wrinkle in the firm’s growth trajectory, however. “A couple of years ago there was a big issue with a plastic surgeon who talked to a newspaper and said that our products didn’t do what they promised and could be harmful,” says Ms Hatzistefanis. “That was very shocking.”

Rodial’s lawyers sent a letter to the surgeon asking him to show evidence to back up his claims. A media storm ensued. “People said that we were threatening the plastic surgeon for expressing his opinion. The media called us bullies. Our integrity as a business was in question. Whenever we tried to clarify things, we couldn’t make it right. It was a really dark time.”

It took four months for the situation to blow over. Sales remained stable throughout but Rodial’s relationships with its customer base were sorely tested.

Today, the business is thriving. The products remain a firm favourite of celebrity make-up artists for the likes of Kylie Minogue and Lady Gaga, helping to generate positive press for the brand.

The company is expanding its presence in department stores such as Harrods by introducing its own beauty counters. TV shopping is another growth area and airport sales are booming. Bestsellers, or “classics”, are a rarity, with customers demanding a continuous stream of new products.

“Beauty has become more like fashion,” explains Ms Hatzistefanis. “You used to launch a range and then maybe add one product a season. Now, the customer expects something new every six to eight weeks.”As new lines are introduced, poorly performing products are phased out. This is a “brutal” process, Ms Hatzistefanis admits.

A new range called Super Acids, described as an alternative to chemical peels, is due to hit the shops this month, to be followed by a make-up range in September.

After 14 years, Ms Hatzistefanis, who owns 100pc of the business with her husband, still enjoys the cut and thrust of the beauty industry. She has no plans to sell up any time soon.

“There’s so much you can achieve with a skincare product now,” she says. “Just imagine what we’re going to be able to do in 10 years time.”


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The Big Dry through your eyesPHOTOS

Dust is part of everyday life for people like James Rogers and Jody Fraser, who work on a property near Cobar. Picture: Jody Fraser James Rogers pulls stuck sheep from a dam on a property near Cobar. Picture: Jody Fraser.
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Hand-feeding sheep in the Riverina. Picture: Caleb Thomson

James Rogers at work on a property near Cobar. Picture: Jody Fraser

James Rogers pulls stuck sheep from a dam on a property near Cobar. Picture: Jody Fraser.

Dust is part of everyday life for people like James Rogers and Jody Fraser, who work on a property near Cobar. Picture: Jody Fraser

Just a few years after the last drought broke, paddocks are getting barer. Picture: Jody Fraser

Dams across the state are drying up, leaving mud holes perfect for stock to get stuck in. Picture: Jody Fraser

A familiar but heartbreaking sight for many on the land, this messy job is a regular one. Picture: Jody Fraser

Dust is part of everyday life for people like James Rogers and Jody Fraser, who work on a property near Cobar. Picture: Jody Fraser

Flat, open plains of “Furlong”, west of Hillston. Photo: Allan Vagg

Flat, open plains at “Furlong”, west of Hillston. Picture: Allan Vagg

Feeding cattle at “Furlong”, west of Hillston. Picture: Allan Vagg

Picture: Allan Vagg

Picture: Allan Vagg

Moving sheep lift a little dust. Picture: Allan Vagg

There’s a mob of sheep under that dust. Picture: Allan Vagg

A dust storm rolls into the Riverina. Picture: Allan Vagg

Picture: Allan Vagg

Picture: Ben Holmes

Picture: Ben Holmes

Picture: Ben Holmes

Picture: Ben Holmes

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

It’s dry at Mayfield, western NSW. Picture: Kayla Barrett

Drought conditions at “Barwonnie”, Mossgiel, NSW are a not-so-distant memory. Picture: Di Huntly

Drought conditions near Ivanhoe, NSW are a not-so-distant memory. Picture: Di Huntly

Drought conditions at “Barwonnie”, Mossgiel, NSW are a not-so-distant memory. Picture: Di Huntly

Drought conditions at “Barwonnie”, Mossgiel, NSW are a not-so-distant memory. Picture: Di Huntly

Drought conditions at “Barwonnie”, Mossgiel, NSW are a not-so-distant memory. Picture: Di Huntly

Drought conditions at “Barwonnie”, Mossgiel, NSW are a not-so-distant memory. Picture: Di Huntly

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Asylum seeker data bungle: Thousands could be granted refugee status

Details of thousands of asylum seekers across Australia were revealed, Immigration concedes. Photo: Luis AscuiFederal politics: full coveragePrivacy Commissioner to investigate data breachCall for independent Manus inquiry
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The Privacy Commissioner and the Immigration Department have launched investigations into how details of thousands of asylum seekers in Australia were inadvertently made accessible online.

The breach could potentially see thousands of asylum seekers in Australia who were previously ineligible for refugee status have their claims validated, one legal expert says.

Refugee lawyer David Manne said the law was “crystal clear that identification of a person seeking protection can result in them being granted protection on that basis itself”.

“It’s a fundamental principle of refugee law that a person seeking asylum should be free to make their claim free of disclosure of their identity to the authorities in their home country,” he said, describing the reported revelation as one of the most “grave and dangerous breaches of privacy in Australian history”.

Guardian Australia reported on Wednesday that the personal details of a third of asylum seekers held in Australia – making up about 10,000 people – were revealed on the Immigration Department’s website.

Privacy Commissioner Timothy Pilgrim announced on Wednesday afternoon that he had spoken to Immigration and had “been assured” that the information was “no longer publicly available”.

Describing the breach as a “serious incident” Mr Pilgrim said he would investigate how it occurred. He added that Immigration would provide a detailed report about the incident as part of the investigation.

Later on Wednesday, Immigration Minister Scott Morrison released a statement confirming that an “immigration detention statistics report” released on the department’s website on February 11 “inadvertently provided access to the underlying data source used to collate the report content which included private information on detainees”.

Mr Morrison welcomed Mr Pilgrim’s investigation and said Immigration Department’s secretary Martin Bowles had also tasked KPMG to review how the breach occured, with an interim report due next week.

He said the “unacceptable incident” was a “serious breach of privacy” by the department.

“I have asked the department Secretary to keep me informed of the actions that have been initiated, including any disciplinary measures that may be taken, as appropriate,” Mr Morrison said.

The Immigration Minister said that immediate steps had been taken to remove the documents from the department’s website after media alerted it of the breach.

“The information was never intended to be in the public domain, nor was it in an easily accessible format within the public domain,” he said.

Mr Morrison also told Sky News it was still to be seen whether the release of the information would have implications for the protection claims of the asylum seekers involved.

‘‘All people’s protection claims are considered individually on the merits of each specific case,’’ he said.

‘‘There would be no general rule that would apply to these sorts of things.’’

A report by Guardian Australia said the information online included all asylum seekers held in a mainland detention facilities, on Christmas Island and several thousand in community detention. Children were also included.

Despite the federal government’s insistence about the need for greater secrecy when it comes to immigration and border protection, the full names, nationalities, location, arrival date and boat arrival information was reportedly revealed on the department’s website.

Guardian Australia has not identified where the database was located online and said it told the department about the information before it reported the breach.

Refugee Council of Australia president Phil Glendenning said the release of asylum seekers’ information was “outrageous” and unprecedented.

“We are deeply disturbed by this,” he told Fairfax Media.

Mr Glendenning said the breach ran the risk of exposing people who were already vulnerable to “very serious danger”.

This not only included reprisals if asylum seekers were sent back to their country of origin, but their families – either in home countries, or transit countries in between.

The Refugee Council is also seeking particular assurances about the safety of people in community detention who may have had their location revealed.

Labor’s immigration spokesman Richard Marles said the report was an “enormous concern”. “Let’s be clear – this is a government with a culture of secrecy but it is utterly unable to manage secrecy,” he told reporters in Canberra.

Coalition MP Jane Prentice told Sky News that the breach was a “shocking mistake” and that the “full ramifications” would have to be examined.

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Brisbane protest calls for Manus Island closure

Protesters outside the Department of Immigration’s Brisbane office call for the closure of the Manus Island detention centre. Photo: Cameron Atfield Former senator Andrew Bartlett addresses a Brisbane protest calling for the closure of the Manus Island detention centre. Photo: Ashley Mackinnon
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Refugee advocates have protested outside the Department of Immigration’s Brisbane office calling for the Manus Island detention centre to be closed after the death of a detainee.

The Australian and Papua New Guinea governments have announced inquiries after violent clashes between security forces and asylum seekers on the PNG island left one Iranian asylum seeker dead and 77 injured.

Refugee Action Collective spokesman Mark Gillespie said his organisation had been in touch with asylum seekers, who were allowed phone access, and staff on Manus Island.

He said details of recent events were sketchy.

“All the messages we’re getting from the asylum seekers themselves and the staff at the detention centre are saying it was more than just them trying to get out, that it was an attack on the centre,” Mr Gillespie said.

On Tuesday night, Immigration Minister Scott Morrison conceded it was unclear whether the attacks happened inside or outside the detention centre.

“I can’t give you an absolute position on that as there are some conflicting reports at the moment and once those are resolved and the reasons for those conflicts then I’d be in a position to report on it,” he told reporters in Canberra.

Mr Gillespie said the Brisbane protest was organised on Tuesday following the violent clashes.

“A person has lost their life on Manus Island and we think that’s just tragic,” he said.

“We put it out on Facebook and, in less than 24 hours, this is the turnout.”

Former Queensland Democrats Senator Andrew Bartlett, now the state convenor for the Greens, said he had “seen firsthand” the damage done during the Howard government’s Pacific solution.

“(It was a) deliberate policy of putting people beyond the reach of the law and beyond the reach of the media,” he said.

“What is happening now on Manus Island is clearly far worse than any of the harmful atrocities committed under the Howard government.

“This is an inevitable consequence of what happens when you dehumanise people, when you put them outside the reach of media and public scrutiny.”

Among the 50-strong protest was Julie Mauger.

“The government promised two things to the Australian people, that they’d stop the boats and that the PNG solution would work effectively,” she said.

“The riots on Manus and what’s happened this week has just shown that it’s simply not workable.”

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