Financial reform

The Australian's leader was right to argue that any government intervention in the financial system should only be short-term, and that in the long-term the government should let market forces operate throughout the economy. Yet no-one has actually proposed that parts of the financial sector (or other industries) be taken over permanently by the government.

At present we are facing both big problems in the financial system and a rapid slowdown of economic activity. Usually, in a recession, as bankruptcies rises and collateral asset values fall, it becomes harder to obtain credit even at a lower interest rate. In this downturn, problems with the allocation of credit by financial markets are making it extra hard for some firms to obtain the cash they need to keep running, or to invest in profitable projects. This is exacerbated when foreign banks recall their loans, contracting the total amount of credit available to our economy and causing potentially severe real economic damage.

A government scheme to extend credit to firms in the short-run would thus be a beneficial intervention. It would stave off job losses and further declining economic activity by allowing firms that can afford credit, and can use it in an economically efficient way, to actually obtain it.

Crucially, however, the credit must be offered at market interest rates, and allocated impartially rather than by government decree. The scheme must also be wound back as soon as financial market conditions improve. This would not be the state doing the market economy's job--as your leader suggests--but, rather, the state helping the market to return to normality and health.

Superannuation

It's sad that so many hard working Australians have suffered large negative returns on their superannuation over the past half year. However, many of the complaints being made seem to overlook simple realities in the search for someone to blame.

The government requires that 9 per cent of incomes go into superannuation savings, yet this isn't the cause of the losses. The government doesn't dictate how super is invested; it only restricts when an individual may withdraw funds. It also provides plenty of tax benefits that mean super is taxed at a much lower rate than other incomes.

The superannuation industry itself should also not be blamed for what's happened. Balanced investments have gone badly, but the higher the return, the higher the risk. Balanced funds did amazingly well over the decade to mid-2008, but global economic and stockmarket conditions have since changed. Yet no-one forced individuals to put their super into balanced funds rather than cash--which typically earns sufficient interest to stay ahead of inflation--and most workers have the option of changing their super fund if they don't like it

Perhaps the loss in super savings isn't anyone's fault. These things happen. Trying to focus blame on others is vituperous and won't fix anything.

China

China's economic slowdown and falling demand for raw materials may be a setback for the Australian economy in the short-to-medium term, but if we step back and consider the long-term, we should be more upbeat. Prices for Australian mineral and metal exports soared so high so fast because China was industrialising so rapidly. Indeed, China's recent "modernisation" is remarkably similar to that of Western Europe in the Industrial Revolution: rapidly expanding heavy industry and construction, massive rural-urban migration and high levels of pollution.

At present the world is overpopulated, with current natural resources unable to support the existing population indefinitely. In the long-run, we all have a vested interest in a peaceful and steady rise in Chinese per capita GDP in a way that generates minimal environmental damage. When China grows as rapidly as it was recently, it depletes natural resources, emits huge amounts of pollution (including greenhouse gases), poisons or kills rivers and farmland, accelerates erosion and depletes further the world's fish stocks. China's sheer size means the whole world feels the environmental strain.

The world's environment is fragile, not least because of past and present environmental vandalism by the West. China has every right to aspire to Western standards of living, yet it is in everyone's interests that that happens in a gradual and sustainable way. The alternative is the stuff of nightmares.