The premiers’ new clothes
My mum used to sometimes buy fancy new clothes and never wear them, the stated reason being she didn’t want to damage them. The theory didn’t make sense when I was ten, and it makes even less sense now.
It appears that Queensland Premier Annastacia Palaszczuk and Western Australia Premier Mark McGowan are starting to treat their economies like a new Diane von Furstenberg.
On Wednesday, Palaszczuk’s chief health officer Jeannette Young warned that “if the tourism industry wants a realistic scenario, then they should be preparing for September”. She then warned (without any real justification) of “terrifying” consequences, stating “when we saw that curve going up, it was just going straight up — it was no different to what was happening in New York, or Spain, or London or Sweden”.
The having health officials making economic decisions is problematic for a number of reasons. Most critically, health bureaucrats are being judged based on how close to zero they can get caseloads.
That’s certainly important, but it’s absolutely not the only measure of success. The lockdowns were never intended to be a competition to see who could be the first to get to zero cases (returning infected overseas travellers means that’s likely an impossibility anyway), but being able to avoid a health system calamity and give time to ramp up testing and tracing facilities.
That’s largely been achieved, so the challenge is now how do states keep cases under control, while ramping up as much economic activity as possible to avoid what is likely to be a serious recession, or potentially even worse, given the increasingly dire numbers coming out of the US in recent days.
Tourism contributed $12.3 billion to Queensland back in 2017-18 and is responsible for more than 100,000 jobs. In Queensland, a total of six people have died as a result of the virus.
It seems Palaszczuk is very concerned about keeping her new dress clean, no doubt with an eye on Queensland’s October election less than five months away.
Perhaps someone should remind state premiers that voters without jobs are unlikely to care if the number of cases is single digits or zero.
Winner winner
Among the many victims of COVID-19 in the business world (a list that is likely to grow very significantly in the months to come) there have also been pockets of winners.
In particular, COVID-19 has acted as a significant accelerant in encouraging shoppers to switch online.
This is beneficial in two ways. First, the obvious one: online platforms have witnessed an explosion in revenue as many of their competitors have been closed (or difficult to access).
More interestingly is the benefit wrought through a drop in what online businesses call CPA (cost per acquisition).
One of the first things investors look at when valuating an online business are its unit economics. That is, how the lifetime value of customers (how much gross margin a customer will pay to a business over their lifetime as a customer) compare to the cost of acquisition. The bigger the delta (or gap) between the two, the more valuable the business.
This is why software as a service businesses like Atlassian are considered to be so valuable — the lifetime value of customers is very high because they tend to remain customers a long time.
Australia doesn’t have a big pool of publicly listed e-commerce businesses, but Kogan and Temple & Webster are two key ones. Both have had a very good crisis.
Kogan’s share price has rocketed from $3.45 in March to $9.56 now, as hundreds of thousands of new customers have used the site for the first time (with many enjoying the experience and likely to become repeat customers). Temple & Webster has increased from a pre-pandemic $2.70 per share to more than $4 now. Wesfarmers reported extraordinarily strong growth at its recently acquired Catch.
The theme is also occurring across the online world, as COVID-19 accelerates the switch from offline to online. The corollary to this growth is fourteen US retailers have filed for bankruptcy in this year already, including iconic brands such as J Crew, JC Penney and Neiman Marcus.
What was litigained?
As the federal government looks to tighten rules on overseas-based litigation funding of class actions, my old friend Stephen Mayne launched an impassioned defence of class actions, claiming they “have been an excellent innovation in Australia … significantly improving disclosure and acting almost like a private ASIC, which has been necessary given the relatively poor performance of ASIC”.
That’s certainly one view on class actions. Albeit a strange one.
Another view is that class actions are a tax on shareholders paid to lawyers and do absolutely nothing to improve executive malfeasance and reduce the scourge of agency costs.
A recent Myer class action is a classic example. The case was finally settled earlier this month (after both sides presumably accrued millions in legal costs).
It involved former Myer shareholders suing the company after former CEO Bernie Brookes announced in September 2014 that Myer’s profit would be higher than the prior year’s $98.5 million. The following March, Brookes told the market that profit would actually be $75 million to $80 million, which caused shares to drop by 31% (they then continued falling for years to come).
What then happened? One group of Myer shareholders (those who owned shares in September 2014) sued another group of shareholders (those who own shares when the action was lodged).
There was no net gain to anyone — even if the plaintiff shareholders had been successful, the culprit had years before walked away not only scot free, but with tens of millions in lucre (and later went on to have a disastrous time at South African retailer, Edcon).
The class action did nothing to curb executive malfeasance — it’s like telling a thief to give back their balaclava but allowing them to keep the loot.
All that happened was lawyers got richer, and shareholders got poorer.
A spokesman for the tourism industry writing from somewhere in Syd-bourne insisting that the outer states open their borders to the pestilential denizens of the south-east conurbations. No conflict of interest here.
To misquote Keynes – “In the long run we are all dead so who gives a shit how many die in the short run.”
To misquote Keynes – “In the long run we are are all dead so who cares how many die in the short run?”
Don’t know about you Syd, but I reckon I’d need a few of them to remain alive – so I can have a comfortable existence..
Adam,
Elimination v control/containment of COVID-19 is a matter of science, not economics. And we have a hard, certain, scientific way of knowing if we are headed for elimination, containment, or catastrophe. The R0. Crikey! keeps saying people should follow the science, so let’s do so.
It’s graphed daily (on a seven day rolling average) here:
https://www.abc.net.au/news/2020-04-10/coronavirus-data-australia-growth-factor-covid-19/12132478?nw=0
Right now it’s 0.99, which is a bit higher than it’s been over the past fortnight due to the increase in numbers coming from Victoria.
If it’s less than 1, then elimination is inevitable, and the lower it is the faster that happens. If it’s 1 (which it is almost, but just not quite) it goes on forever. If it’s greater than 1 it spread increases unchecked, until enough of us are either immune or dead and it can’t spread anymore.
Elimination seems even more inevitable in WA, SA, Tas, Qld, NT, and the ACT. Their R0 numbers are even lower.
So elimination is within our grasp. I for one am sick of wearing N95 masks and all the other crap I have to to stay safe at work. So I say go for it. Then I’ll take a well earned holiday in Queensland.
Given that it was Morrison who first started the ‘opening the borders’ thing in his usual bullying rhetoric, the resistance was inevitable.
The example you give of Myer shareholders’ class action is not really representative of what Joshy is having a go at, it is little people trying to win against big people or companies (or the govt) who have deep pockets. Good on Stephen Mayne for being impassioned!
Queensland’s Premier Annastacia Palaszczuk probably imagines she’s Jacinda Ardern, but that fantasy won’t save her. She will indeed be a political causality of the cover lockdown recession – one of the first of many in Australia and the rest of the world. Few elected governments anywhere will survive. Come September in Qld, few people are going to remember that 100 people, mostly in nursing homes and with pre-existing conditions died. That’s something that wouldn’t even been reported by anyone pre-Covid – save in the death notices of local newspapers (back in the days when local newspapers still existed). But they will know the catastrophic unemployment rate, well above the fudged one JobKeeper will still be so artfully disguising. They will know about the thousands of local small (an large) businesses in their neighbourhood that have shut down for good. They will know that their kids leaving school or uni have now little to no chance of finding work outside riding rented e-bikes for Uber Eats…
Few governments ever survive recessions (Keating’s in 1993 an exception, but only temporally). Everyone will be using the capital D word to describe the economic carnage of 2020 by then and even if people do still think this is “one we had to have”, it will be so savage, so deep and so painful – they’ll hardly be thinking about rewarding a government that so casually closed down huge chunks of the economy. By then both the Qld border closure and the end of immigration (Hanson’s dream has finally come true!) will mean construction is cactus too – and the hundreds of thousands of tradies in its supply lines and their families will looking for someone to blame.
So Labor going to put up its hand and say “it was us wot done it!” Good luck with running that line…
“covid lockdown recession”. of course…
“100 people, mostly in nursing homes and with pre-existing conditions died. ”
Reminds me of another comment posted here recently …ahhmmm, what was it again ??
Oh yeah ; “a bunch of old farts who were going to cark it anyway” thanks for the prompt ED.
Mac, perhaps you don’t understand how weird your comment is? I don’t get some of your references, or even who you think you think you’re talking to?
Unfortunately, I know this response will prompt yet more obsessional stalking of this website on your part – but I am going to say this: The two statements you are attempting to correlate bear no resemblance to one another. One (mine) is a statement of fact (though I have to update the number of dead to 102). The other one (yours I assume) is a glib and smug judgement that uses language which on the face of it, puts a lesser value on the lives of the elderly.
Elsewhere you have said I “don’t get your position” and that is certainly true, I don’t. The only comments of yours I have ever read are these attempts at “gotcha” to mine. I don’t trawl this website compulsively looking for comments I can make clever-dick responses to – if you do make more sensible comments elsewhere, I have not seen them. But your use of language like “old farts” in an attempt to smear my position just sounds offensive – so on that, I will judge…
Let me state my view on the topic here, “health vs jobs”, clearly. The fact that any lives at all have been lost to this virus is a tragedy. That a disproportionate number of the deaths have been concentrated amongst the vulnerable (the elderly, certain minorities, the very poor, those with other illnesses), the very people who the very considerable resources of any rich country should have been most protecting – makes it even worse.
Instead of bailing out well-connected corporations and trying to keep some sectors of the economy on life-support while cynically letting other industries go totally down the gurgler (“unimportant” ones like arts, media and entertainment – the one I was formerly employed in), we could have thrown those billions (trillions!) of dollars at the health and aged care systems – and tried to support those most at risk. But then modern capitalism has never valued the lives of the elderly or the vulnerable – the so-called “non-productive” ones, the “leaners” as someone in the LNP once offensively described them.
Or in your words Mac, “old farts who were going to cark it anyway”.
And while Josh was being nasty to plebs, he stuffed up by a mere $60 billion with Jobkeeper estimations and reported cost!
And yet, therehe was with PK this evening explaining that the error was good news coz it was less being “borrowed” and thus less to repay.
BTW, he again assured us all, in that depressed & depressing voice like a dead fish slapped on wet rotten wood, that the dole WILL revert to starvation levels “once this is over”.
This morning on the ABC Dr Norman Swam said that, while he was worried about a 2nd wave of C19 infections as lock down is eased, he was terrified by the inevitability of C21.