Lessons for the first female Fed Chair from a first female Prime Ministership

Janet Yellen and Julia Gillard should get together. Ms Gillard, who served as Prime Minister of Australia from 2010 to 2013, would have timely advice for Dr Yellen, who will take over as the head of the US Federal Reserve next week.

Gillard was subject to a campaign of unrelenting gender-related criticism and attacks from a large swathe of the media. She handled it, but she is a career politician. Dr Yellen is not a career politician, but she is about to step into a role that is intensely politicised [1, 2, 3]. The chair of the Federal Reserve is the object of non-stop scrutiny, the subject of countless opinion pieces.

Yellen has already been called “the most powerful woman in the world,” and “the most powerful woman in US history.” The role of Federal Reserve Chair creates winners and losers – meaning it creates friends and enemies.

Her tenure will not be smooth sailing. Her confirmation by the senate was relatively narrow at 56-26:

The stage is set for a battle that will, one way or another, involve gender. And the most vocal stakeholders in the Fed’s decisions are the wolves of Wall Street. Not people used to having a woman for a boss.

According to the 2013 Catalyst Census: Fortune 500 Women Executive Officers and Top Earners, which counts the number of women in upper management in Fortune 500 companies, women are 17.6% of executive officers in the finance and insurance industries. Source.

Wall Street’s preferred candidate for Fed chair was Larry Summers, a former Treasury Chair who has argued women are genetically inferior at science. He missed out on the top job in favour of the lady.

Yellen’s job is going to be difficult and controversial. She will not only have to answer for her own mistakes, she will have to answer for those of Bernanke too, since she backed his policies. It is difficult not to make mistakes as Fed Chair. Bernanke and Greenspan both made screw-ups in relation to easy money, house prices and the GFC.

The stage is set for a great big gender battle. So, what can Gillard tell Yellen?

1. Being qualified won’t save you from criticismImage

Gillard was perfectly technically qualified to take the role. She had been a very capable Minister in the Education portfolio, and also a stand-out performer in Parliament. 

Similarly, Yellen – with experience as the head of the Reserve Bank of San Francisco and academic roles – is considered  the most qualified candidate ever for the role of Fed chair. [Hardly a coincidence – McKinsey has found “women are often evaluated for promotions primarily on performance, while men are often promoted on potential.”] 

2. Expect attention on extraneous details.

Julia Gillard’s glasses. Julia Gillard’s bum. Julia Gilard’s absent handbags. Julia Gillard’s jackets. Julia Gillard’s house. Julia Gillard’s earlobes. Julia Gillard’s fruitbowl.

Dr Yellen will find many aspects of her life are now public property.

In fact, she has already found this. From an article in The Scotsman:

“The 67-year-old was dressed in the same black suit she wore a month earlier when President Barack Obama announced her nomination, enough for her to be targeted by bloggers Warren Rojas of Roll Call and Patrick Tutwiler of FishbowlDC.

“Good thing the Fed Chairman is only the most powerful position in the world, and not a walk down the red carpet,” Tutwiler wrote. “Otherwise we’d be worried.”

Rojas said it had yet to be seen whether Yellen was the “financial genius our sputtering economy so desperately needs”, but “at least we know her mind won’t be preoccupied with haute couture”.”

It’s not just clothes, partners matter too. While Gillard’s partner was a former hairdresser, Yellen’s partner is a former Nobel Prize winning economist. Nevertheless, Time Magazine is apparently obsessd with Dr Yellen’s homelife. The fact that these women’s partners matter suggests something is different about their tenure. Who even knows what Mrs Bernanke does?

3. Expect the unexpected.

When Australia’s first female Prime Minister was criticised for having a “big arse,” it came from trailblazing feminist icon Germaine Greer.

Australia’s first female Prime Minister was also the only one to enjoy, while still in office, a satirical comedy about her homelife, including bedroom scenes, featuring left-leaning comedians and run on the national broadcaster. Dr Yellen can probably count herself lucky if she only shows up on SNL.

 

4. Stand ready to be accused of playing the gender card when you defend yourself.

Gillard was filled with “murderous rage” over the sexism she faced. When she complained, she was accused of starting a “clumsy and manipulative gender war.”

An ugly gender war could easily happen even though WSJ and Bloomberg will be sure not to print anything directly criticising Dr Yellen over her gender.

That sort of criticism of Yellen will start in the blogs. Yellen will be asked about it. Her reaction will be immaterial. The mainstream media will feud over what the correct reaction is. Is she getting distracted? Is she missing a chance to make social change? Is she giving the issue air to try to draw attention from her failings? Is she refusing to make a comment that would put the argument to rest, to try to draw attention from her failings?

5. Blaze a trail, take the heat, and leave a better world behind.

Julia Gillard’ prime ministership taught millions of Australians the meaning of the word misogyny, put gender issues on the front page week after week, and lifted awareness of the many insidious ways in which discrimination can occur.

But the process is not a happy one. It is bitter.

In Australia, Ms Gillard was replaced by Tony Abbott, whose views on gender are, shall we say, unreformed

And the damage of a rolling multi-year debate about the role of gender in American business and public life could even be enough cruel the chances of one Hillary Clinton. The better world may take some time to come about.

The story of McCafe: when competing on price can fail

US McCafe is failing, according to an article in Bloomberg today that quotes McDonald’s executives conceding Starbucks has them on the ropes. It also cites market analysts who say the attempt to move into coffee is hurting their burger business.

This is despite a McDonalds latte costing only around $2.50, compared to around $3.50 for a Starbucks latte. But that price is hurting them – McCafe in the USA is seen as too cheap, too nasty.

From that Bloomberg article:

“Pushing coffee is “probably a good idea if they can get their customer to buy more of it,” said Peter Saleh, a New York-based analyst at Telsey Advisory Group. “I don’t think they’re going to be attracting the Starbucks customer to go there — I really don’t.””

Why is McCafe unpopular? For the same reason people won’t buy a suit at KMart – because coffee is a social signifier.

Coffee is not just a drink over there. It is redolent of sophistication. And Starbucks is Louis Vuitton. It would be shocking if a celebrity was papped without at least one mermaid-emblazoned frappuccino.

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Frappucino Styles

If you think that there’s no prestige in something produced by a global chain, look in your cellar. See any Moet? Look in your wardrobe. See any Nikes? Just because in Australia we think we value independent coffee does not mean we can sneer at “masstige“.

But this is not just an American story or a business story. It’s a personal story. Melbourne is a coffee town. When McDonalds launched the McCafe in 1993, they launched it in Melbourne.

I remember when they opened a McCafe near my school. I drank their $1 cappuccinos, and it was good. There may not be a lot of quality there, but there was a lot of value. I have a soft spot for McCafe that I will never have for Starbucks.

And McCafe Australia is thriving.

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Wait! What? Why is McCafe succeeding here but not America? I thought we were the sophisticated ones!

Pradoxically, the success of McCafe in Australia is because of our well-developed market.

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I bought this McCafe latte today in the interest of research. At $3.55, it was too hot and overpriced. The longer I sat the better the coffee tasted – the beans were fine. But sitting in McDonalds – with the TV blaring and the bland-on-bland decor –  palled fast.

Latte-sipper was an insult once, a signifier of being a toff or a snob or a Vaucluse doctor’s wife. Now baristas are taking complaints that their latte ‘had shit mouthfeel’ from blokes with prison tattoos.

This is not despite, but because we have a more developed coffee culture.

They call it product life cycle. Something new starts off as being for just the few. A mobile phone, for example was once a sign you were or aspired to be Gordon Gekko. But if that product is good it will spread to all comers. They call that maturity, or saturation. The reason Australia can support both Seven Seeds (“carefully sourced single origins” $4+) and 7-Eleven (“freshly ground beans: $1) is that the market for coffee is … everyone.

Melbourne has had espresso for fifty years, since the first espresso machine was installed in Lygon St, at the venerable University Cafe.

Maccas has strived to keep themselves just out of the reputational gutter. In 2011 they issued a public apology for their coffee and pledged to train up baristas.

That depth of history means there is a strong bottom end as well as a strong top end in Melbourne’s espresso market. (But no room for a brand that peddles a unique combination of expensive and ordinary. In 2008 Starbucks announced it would close three-quarters of its 80 stores and it is still waiting to make an official profit.)

Not like America, where Starbucks is expanding into tea (and also expanding people’s body sizes. Starbucks offers a drink that, at 30.9 ounces, is larger than the human stomach.)

What American McDonalds needs to do is this:

Stick at it.

Eventually US coffee culture will mature. Espresso drinks will become a staple not a luxury. Then their years of offering McCafe will pay off.

As for me, after visiting a McCafe today in the name of research, I pledge to stick with Melbourne’s independent scene for the rest of my life.

Paid Parental Leave – worth cutting eligibility to $100,000?

Tony Abbott’s paid parental leave policy is one of the most expensive pieces of social policy Australia has been offered recently. It is a $5.5 billion scheme funded by a 1.5 per cent levy on big business. It proposes full replacement salary to new mothers, for six months, up to a maximum of $150,000.

But nobody thinks the PPL scheme is well-designed or good value for money.

The jaw-dropping part of the scheme is the $150,000 salary cap, which works out at a maximum rate of pay of $600 per weekday. That’s wildly expensive childcare – even in Sweden, people taking parental leave get only €105/day.

If this policy had been proposed by the Motoring Enthusiasts, the Greens, or the Palmer United Party, everybody from Janet Albrechtsen to Ross Gittins would be arguing they had no concept of how the economy works and were demonstrably unfit to govern. Arguably, Albrechtsen, Gittins et al would be right.

But would cutting the generosity of the scheme deliver a big saving? The Coalition thinks not. This quote is from an article by Phil Coorey, of the Australian Financial Review.

“The difference between a $100,000 and $150,000 salary cap is not seen as a major impediment to reaching a deal because about 90 per cent of women of child-bearing age earn under $100,000.

The Coalition has been looking at ways to make its policy more affordable and dropping the salary cap to $100,000 was not deemed worth it in terms of savings.”

The truth is that while plenty of Australians make over $100,000 – over 837,000 people, statistics say – only 18 per cent of them are women.  And of course, earning power tends to increase with age.

Screen Shot 2014-01-29 at 10.53.24 am
Number of women earning over $104,000, sorted by age and state. (Incidentally, in WA and QLD, women aged 15-24 are more likely to make the big bucks than those over 65. One guess why.)

Women’s earning peak happens after their fertility peak. Earnings peak around age 40, while the most common age to give birth is 32.

Screen Shot 2014-01-29 at 10.11.29 am

That means only 5,400 women earning over $104,000 would be eligible for the payment each year, according to my calculations. [Don’t thank me for making the data category end at $104,000, thank the ABS.]

Births, categorised by state of residence and age of mothers
Births, categorised by state of residence and age of mothers

[This link will take you to a big google drive spreadsheet where you can check my calculations and see some interesting graphs.]

The Greens are proposing a similar policy to the Coalition, but with a $100,000 eligibility cut off.

So what would be the saving of cutting eligibility to $100,000?

Assume the average claimed salary is $130,000. The net cost of 6 months extra pay is $15,000. 5,400 births @ $15,000 =

Just $81.2 million, or 1.48 per cent of the total cost of the $5.5 billion scheme. (Likely a conservative estimate, given some assumptions I had to make.)

That’s a rounding error in the Australian Government’s social policy budget. Do we just blink and move on?

I say no. The Commission of Audit is currently moving through the Government’s books, trying to find savings everywhere. They are likely to have a very fine-tooth comb. An $80 million saving is one they would pocket with delight. The government also has a social welfare review running, looking at Newstart and the Disability Support Pension.

Politically, $80 million seems like a small price to pay to garner headlines and combat a “women problem.” But from a policy perspective it makes sense to cut the rate. If you frame the question as “how can the Australian people best spend a spare $80 million,” the answer is never “funnel it via the government to the very rich.” 

Realistically, Paid Parental Leave is unlikely to be introduced in the same format it was sold to the Australian people.

If I was advising the government, I’d say: pledge to introduce it slowly. Start off paying up to a salary cap of $60,000 and say you intend to ramp it up by 10 per cent a year.

Then wait.  Something will come up for which there is great public support. It might be rebuilding after a flood. It might be sending troops off to the South Pacific to help restore stability somewhere. It might be a surge of support for pre-K education. Then you can raid the PPL cookie jar to fund that.

Farewell, America?

Aussies love the United States.

Ezekiel
Sure, go on and eat that atheistic All Bran. Enjoy being regular in HELL.

I’ve been three times in the last four years. And I’m not alone.

Screen Shot 2014-01-28 at 11.00.59 am

Part of the attraction is flights that are suddenly very very cheap. When the Qantas/United duopoly on the Sydney-LA route was broken in 2008, the price of flights halved.

home of the brave
Life, Liberty and the Pursuit of Horned Things.

When V Australia entered the market in 2008, their killer price offering was $1899, 16 percent below the existing lowest price. I’ve since seen return flights below $1000.

You can still buy a flight Sydney-LA for just a little over $1300 if you are bold and foolish enough to trust your travel to United. [My last trip to the States involved an unscheduled night in Sydney when someone crashed a luggage cart into our United Jet. Their initial compensation offer was accommodation in Woolongong and a flight 3 days later…]

California is... different
California is… different

At $1300, the appeal of a trip to the US is strong. The politics may be stuffed, but much like China, that doesn’t ruin it as a place to visit. I have been there more than any other country, without feeling like I’m running out of towns or states I want to go to.

mericuh
Where freedom is just a bail bond away!

But, sadly, the best time to visit America is now past. The weird period in global financial markets is over, and US quantitative easing is heading (slowly) for the exit. Our dollar might be lucky enough to get back over US90c, but the word parity can now safely be taken by currency writers and put in the top cupboard, along with “gold standard” and “the great moderation“.

Late last week, the Aussie dollar dipped to a its lowest level since 2010: US86.5c.

Screen Shot 2014-01-28 at 11.39.58 am

 

The effect of the falling Aussie dollar is already showing up in the ABS inflation statistics. There is likely to be a lag too, so that might not be the end of it.

Screen Shot 2014-01-28 at 11.45.21 am

 

So, it’s farewell America.

America, the wind beneath my wings
You were the wind beneath my wings. *sniff*

So what are our alternatives?

New Zealand is also going to feel more expensive than it has in years.

Screen Shot 2014-01-28 at 11.56.22 am
AUD v NZD

 Europe is just as bad.

Screen Shot 2014-01-28 at 11.59.02 am
AUD v EUR

But luckily, the second-top holiday destination for Australians has  a currency that’s even less popular than ours. In November 2013, Indonesia pipped the US as our second-top travel destination. I predict that by November 2014, there will be daylight between them.

Screen Shot 2014-01-28 at 12.03.33 pm
AUD v IDR

Or, I suppose, if things got desperate, you could always take a holiday in the place where the exchange rate is always 1:1.

sydneyI hear it can be quite nice.

Debrief – failed prediction

In a post I wrote ten days ago, I made an attempt to predict the future.

“I went to the website of a certain sportsbetting company and put $100 on Daft Punk to win this year’s Hottest 100 with the song Get Lucky,” I revealed.

I can now report I lost that $100 backing my own judgment. The song in question came 3rd in the Hottest 100. I had never even heard the winning song before.

Hopefully I have traded that $100 for some useful perspective and humility.

That is going to be an important theme this year as I play my part in the Good Judgment Project. I’ve been assigned to a team and just finished my training.

The training emphasised the importance of putting time and effort into exploring both “inside” and “outside” views of a prediction.

In the case of the 2013 Hottest 100, I over-emphasised the “inside” view. I was so sure Get Lucky was the best track I had heard all year, that I didn’t go and run any real analysis of what sort of tracks won the Hottest 100.

If I had done that “outside” analysis, I would have found a dearth of French disco tracks and a preponderance of  acoustic / folk tracks, such as Mumford and Sons’ Little Lion Man, which topped the poll in 2009.

I may also have noticed a lot of Australian tracks, like Gotye’s Somebody That I Used to Know (#1, 2011) And of course, the killer combo, acoustic/folk tracks by local artists like Angus and Julia Stone’s Big Jet Plane (#1, 2010).

With that sort of analysis to hand, Vance Joy’s win with Riptide is not so surprising.

It ticks all the boxes… except actually having an emotional reaction to it. It doesn’t tick that box.

So, anyway, my forecasting record is reduced to ashes. But, like the legend of the phoenix, all ends with beginnings. One is not going to make progress without making a few mistakes. The important thing is to shine a light on them and try to improve.

China Series Part 5: Is democracy over-rated?

This is the fifth in a five-part series on China. You can see the preceding parts here One, Two, Three, Four.

The achievements of China in the last two decades are incredible.

The share of China’s population living in poverty has fallen from 84 per cent to 13 per cent since 1980.

A nation with an average income of $205 in 1980 now has average income of $6000.

If the world’s aid programs had lifted 400 million people out of poverty, aid policy makers would barely be able to get out of bed for the pile of OBEs, Pulitzers, Nobels, Honorary doctorates, emmys, grammys and groupies littering their house.

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Beacon of hope (retired)

These crucial policy changes in China have come while “leading” democracies have spent billions of dollars on wars of whimsy in the middle east, blown up their financial systems, had great big shouting matches over threats to shoot themselves in the leg (i.e. government shutdowns), and put the greatest policy development efforts into “stopping the boats”.

When governments make policy with the “assistance” of the editor of the Daily Telegraph, the appeal of technocratism is huge.

That’s one reason why Australia’s biggest policy success of recent times has been monetary policy. It is set by an independent body, the RBA.

That’s also why Infrastructure Australia was set up, to try to wrest control of important billion-dollar investments out of the hands of here-today, gone-tomorrow MPs.

Just yesterday I read this story at the Federalist about the death of expertise, by Tom Nichols, a professor of National Security Affairs in the US.

“People in political debates no longer distinguish the phrase “you’re wrong” from the phrase “you’re stupid.” To disagree is to insult. To correct another is to be a hater.”

He cites the Dunning Kruger effect, which Wikipedia describes thus:

“unskilled individuals suffer from illusory superiority, mistakenly rating their ability much higher than is accurate. This bias is attributed to a metacognitive inability of the unskilled to recognize their ineptitude”

Are we too stupid and arrogant to be allowed to manage our own government? They say you get the government you deserve, and when I look at Australian governments at federal and state level, I conclude we must have been very bad indeed.

So. Should we look into benevolent dictatorship? The argument is an easy one to make when you are browsing World Bank statistics.

But one morning in late October, as I was about to pass under the Gate of Heavenly Peace in a cloud of smog, we saw a big bunch of protestors being dragged off to one side by Chinese police and secret police. I’d lived in China in 2003 and never seen this sort of thing before.

Then, minutes later, while we were inside the Forbidden City, a car blew up where we had been standing just before, killing five and sending dozens to hospital.

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That was frightening. The Chinese government blames the East Turkestan Islamic movement, based out in the majority-Uyghur west of China. They seek independence for a sliver of China near Russia. The Chinese goverment’s behaviour out there has been described by Amnesty as “years of attempted erosion of the ethnic identity of the Uighur people of the region by the ruling Han majority.”

You can’t as easily get away with that in a country with a free press and representative democracy.

Perhaps the most enduring image of Tiananmen square, for me, is these fire extinguishers, which are dotted around. When I saw them, I thought “What for? This square is made one-hundred per cent of stone. There is nothing flammable here.”

Image Then I looked around. Realised what the flammable material was. And I started to feel a bit sick.

China Series Part 4: City-shaping

This is Part 4 in this week’s China Series. You can see the previous parts here: Part 1 Part 2 Part 3 

China has learned many valuable lessons from its growth. Among the biggest: you can’t just respond to demand for a certain kind of transport.

beijign traffic sunset
Too much of a good thing

Beijing built a series of ring roads between the 1980s and today. There are six in the city.

Loads of new tarmac coincided with a boom in wealth. That meant an explosion in car ownership and traffic that got out of control.

Screen Shot 2014-01-23 at 11.48.34 am

China has tried to respond with rules to limit traffic and car ownership, such as quotas. But they have not always worked.

killer smog
Killer smog, 2013

beijing subway interior

But that does not mean Beijing has given up. When I was in Beijing in 2003, there were just three subway lines. Now there are a dozen.

New stations are popping up everywhere like a game of whack-a-mole. On our holiday in 2013, we picked up a subway map (actually it said subwang) at our accommodation, and it was already out of date.

beijing subwang

This is something Australia could learn from. When you build a road to solve a traffic jam, that road will likely last until the collapse of the civilisation it supports.

Sydney’s George St is now over 200 years old. There are just a handful of examples of freeway removal worldwide. A road lasts longer than a building, longer than the technology that uses it, longer by far than the average road engineer.

What you are doing –  in the long run – is not “solving a traffic jam” but shaping your city.

People like to talk about induced traffic from new roads – “if you build it they will use it.” I don’t doubt this is partly true, but I think the long-run effect of a new road is far greater than whether or not you get your traffic jam back within 18 months.

This is why I am so excited about the prospects of improvements to rail networks. They can also last a very long time, and have long-run positive effects, not least of which is discouraging the building of more roads.

train stations beijingBut while Beijing’s improvements are underway (see right), Melbourne’s are just on paper.

The city-shaping effects of an efficient metro system in Melbourne would be huge. But a great deal of political change will have to happen for it to get built.