Econbrowser has a map which shows GDP density .

This is Australian section of the map. No surprises, Australian wealth is highly urbanised.

From The Consumerist an interesting, but utterly logical, article: How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

From the article:

Using a back-tested paper portfolio and an actual case, the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the stock market, generating a 40% return.

From 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.

Past performance doesn't indicate future results. ACSI only goes back to 1994. However, these startling findings help vindicate one of our central claims: investing in customer service and satisfaction is good for your bottom line.

Via Laurent Guerby and Finance VOX is a paper on an options based contract from 1298. In reality it makes sense that the medieval era would develop a financial technology such as this, as so much of the costs of a transaction were unknown.

Options trading is basically where two parties agree to conduct a transaction, within a time period, once certain criteria in the future is met. Since water and horse transport were not so reliable as the transport ships and petrol semi-trailers of the modern economy, it makes sense to have these kinds of contracts.

From the article:

This paper studies a contract signed in 1298 between a famous merchant genois, Benedetto Zaccaria, and two financial genois them-also, Enrico Suppa and Baliano Grillo. This contract is a genuine turn of force. This contract impassioned us and its reading, for it holds some beautiful surprises.

In particular, the reader will be able to note how much the options, real or financial, are omnipresent. They constitute the spinal column of the contract and allow him to fulfill the many functions of which the demands of the time needed clearly.

Once you get past the 'great man' or 'great dates' telling of history and delve into the day to day lives of the vast majority of those who have made a living on this planet, then you end up amazed at the sheer depth and breadth of human innovation. This is another example.

Futures trading came out of Edo (Tokyo) at the end of the Tokugawa Shogunate. It was actually a response to over-taxation, and the daimyo's, in order to generate revenue, forward sold rice at a fixed price to the markets.

Apparently, around the same time, the Edo markets developed the department store. Where merchandise was organised under the one roof by department; ie clothes, food, etc. Presumably, prior to that, it was merchants selling just one type of merchandise from the one shopfront.

Edo at about that time had approximately one million people in it and was three times larger than Osaka. It was a bustling metropolis with plenty of wealth - especially as it was the city of the Tokugawa.

It is interesting to note that after 1850 Japan got caught in treaties which prohibited trade barriers being put up. It was not until the early 1900s that they could turn to protectionism; yet in that time, Japan went from Shogunite isolationism, to an industrialised trading nation.

One of the ways it dealt with that, while still seeking protectionist advantage, was through the tyranny of bureaucracy and inspection. Exporters had no difficulty getting their goods there, but getting them to market was different. One of the tales is that nails were hammered into baseball bats to make sure they were wood. Effectively destroying it as a sellable good.

It appears however that Japan was able to modernise in the late 19thC under a free trade policy.

The Meiji Restoration in Japan deposed the Tokugawa from dominating Japanese politics. The Tokugawa were just one of many competing daimyo, other powerful ones included the Chosu and Satsuma, who combined to overthrow the Tokugawa. The daimyo donated their lands to the national government and their domains became local government. One of the benefits of abolishing the old Shogunates was that all the tolls and tariffs between them were removed; it enabled the free movement of goods and labor at a national level.

The same thing happened in Europe as the medieval city-states grew into what we know today as nations. The tolls and tariffs on roads, waterways and political boundaries were slowly abolished and the free movement of goods, labor and capital inside that political domain occurred.

As the state expanded, and with it the reach of the economy, guilds lost their hold on labor. This is the same pattern that unions are experiencing as globalisation limits their ability to dictate wages, benefits and shares of output. The borders are economically porous, and as a result innovation and advantage are rewarded over political barriers and monopolies.

One of the benefits of Australian Federation was that it enabled free trade colony wide. Prior to federation only New South Wales had been a free trade colony, the rest were protectionist. This led to absurdities such different sleeper widths for rail tracks in order to protect industries and services.

While Federation, and the consequent domination of the Victorian Liberals led by Alfred Deakin, led to Australia practicing protectionism - something that took eighty years to be flushed from the Australian system - it did enable the free movement of goods, labor and capital on the Australian continent.

It is interesting to note that the European Union has expanded the zone of a free economy beyond national borders in an exceptionally meaningful manner. More than the bilateral Free Trade Agreements (misnamed, they are managed or restricted trade agreements, not free trade) can or could.

But the EU has done so without a monopoly on politics. The EU is probably best described as a Confederacy where the constituent political units only have to adopt EU 'rules' if they want to.

One of the greatest things I have seen in my lifetime is the old and unused border crossing between Germany and Belgium.

Photo: Border crossing. Steve Parker.

Australia has always had a toe in globalisation simply because of the supposed geopolitical isolation, so Australians would look to foreign shores with awe and a glint of adventure. With the global economy integrating, the back-packing right of passage has become one of seeking economic opportunity.

The Lowy Institute's report on the Australia Diaspora in 2004 noted that it has become increasing white collar and even gold collar. While the diaspora may get public attention from time to time, gone unnoticed has been the increasingly globally integrated nature of the Australian workforce.

Australia has hit a population of twenty-one million. I have argued in the past that Australia should have population of sixty million, while the Imagining Australia folks have argued for forty million. That size of population is necessary for economic and political power.

Some are quite happy with Australia being in the quaint little back suburbs of Asia and watching the big boys pass us by, but without the economic and political weight, our policies will be stuck in the flotsam and jetsam of international policy.

For instance, why do we have an FTA with the US that heavily restricts trade and adds news layers to our legal system rather than negotiating an open borders treaty with the US?

Why wasn't Australia able to negotiate something truly wonderful such as what France, Belguim, Holland and Germany have done where they have the unrestricted movement of capital, goods and labor?

I am of the opinion that economic liberty is incomplete unless there is freedom of movement for labor as well as goods and capital; the FTA would have been a perfect opportunity to establish that style of relationship.

One of the reasons Australia was not, apart from it being rushed through on the last election campaign, was because Australia was not powerful enough, and the US did not have to treat us as equals.

Despite that, Australia is a leading nation in the rhythm of globalisation, we have nearly five percent of the population, or ten percent of the current workforce, outside of the country and working in other nations at any one time. We also have twenty-five percent of the current workforce as foreign born.

In this environment nativist or nationalist policies, such as the citizenship test, really have no place. The citizenship test is an electoral prop - not a policy. It goes against the increasingly integrated nature of the Australian workforce; at home and abroad.

The challenge for nation-states is going to be giving these global wanderers political voice, such that they don't become permanently stateless.

It is possible that at any one time one million Australians overseas have been purged from the Australian electoral rolls, and are not citizens of the country they are working. It is also possible that two and a half million people living in Australia who are foreign born face a similar issue.

Nation-state are based on political exclusivity for citizenry, presumably on some homogenising attribute, which makes that nation-state politically and socially stable. Globalisation has blown that out of the water and provided a liberal future where political stability is not dependent on nationalism or cultural homogeneity.

If nation-states are to survive under globalisation, and stave off a stateless political-underclass, they are going to have to find a way to give the diasporas full political expression - which includes voting rights.

What a mess in Fiji. The WSJ is writing that the Fijian economy is declining because of it, tourism is down, and sugar exports are in danger, not to mention NZ taking hardline trade sanctions against Fiji. Australia has held out the carrots of aid, which have been ignored. There is also disquiet amongst Fijian elites who want the sanctity of the juducial system returned.

An interesting statistic from the WSJ op-ed is that the 2000 coup led to a 7.7% contraction of the Fijian economy. So far this year the Fijian economy has contracted 2.5%. Bad government is bad for business.

I can recall when India and Pakistan were threatening to lob nukes at each other about six years ago. Out-sourcing from the US to India for tech industries was relatively new back then, and when American companies feared the region would become unstable through warfare, they immediately cancelled contracts and backed out investments.

The message was clear, and Indian business leaders went straight to the government; political instability is bad for business in a globalised economy. India quietened the sabre rattling, an accommodation was achieved and Indian technology companies went back to trading with US companies.

Zimbabwe and North Korea are two stunning examples of this effect. The problem is that a dieing economy doesn't touch the leaders. They can still import Harley Davidsons and Cadillacs even though the North Korean country from satellite at night is pitch black - courtesy of no electricity for lighting outside of Pyongyang.

Fiji is not the wealthiest place either, and the economic woes from the political instability Bainimarama has introduced with his coup, will only exacerbate those issues. Very foolish.

Setting price controls is self-defeating and won't solve anything. Inflation is an issue. The deflationary China Effect has meant that white goods and manufacturing has dampened average inflation; yet industries like food, energy, health and education have been rapidly escalating in price.

Big Picture has called the recent inflation in agricultural products Agflation:

The absurd list of what doesn't go into "core" inflation is long, and ever more ridiculously, getting longer: Wheat, Oil, Copper, Gasoline, Gold, Silver, Corn, Soybeans, and Cotton.

Oh, and education and medical care never seems to have much impact, regardless of the extraordinary price gains they have seen over the previous decade -- the past 5 years in particular.

Then there is the actual cost of Housing, not properly reflected in the BLS Consumer Price Index (CPI).

But other than all these items going up in price, there is no inflation.

Nicholas Gruen estimated that inflation in Australia for Jan-June 2006 would have been around 5.2% if it was not for the China Effect.

Outside of Chinese manufactured goods we have a heavily inflationary economy.

It appears the Reserve Bank will up interest rates in a couple of weeks out of concern that inflation is becoming too high. One of the statements from the Prime Minister is that the core inflation is still between two and three percent. The problem with core inflation is that it is an inflation reading with all the stuff that is inflating taken out. Also known as inflation ex-inflation.

Barry Ritholz has an interesting post on the history of core inflation as a metric. It comes from the US Federal Reserve in the 1970s when America was facing heavy inflation pressures. The Chairman of the Federal Reserve asked for inflation with the volatile energy figures taken out of the CPI. Then as each differing part of the economy went into wild inflation they removed those from the CPI too. Quote of a Quote:

As a result, the Fed failed to spot the breadth of emerging inflationary pressures throughout the economy. It looks unlikely to make the same mistake this time . . . Prices took off in the 1970s largely because of serious policy errors. Policymakers now understand that rising inflation harms growth, and independent central banks are more likely to stamp on inflation swiftly

Statistical Process Control Engineers use exponential weighting on their time series charts when their system is out of control or on the point of going out of control. It dampens the volatile readings and brings them into some kind of order for the eye. Core inflation is a similar device. Because the inflationary components of the CPI are being stripped out of the number it will mostly give a figure lower than the CPI.

It was New Zealand in the 1980s that pioneered a policy of focusing on inflation first and foremost in monetary policy. Nearly all independent reserve banks follow those policies now.

Global dynamics have placed Australia in a curious economic position. If it was not for the China Effect we would have had much more serious inflation issues before now. This is not just true of Australia, but the US, Europe and any other nation that imports Chinese manufactures.

The other curiosity is when Japan's economy went deflationary they set their interest rates to 0%. It was only in July last year that Japan raised their interest rate to 0.25%. This has meant the world has been awash in cheap Japanese money to finance all manner of growth including housing speculation.

Chinese goods are only going to get more expensive as the labor force becomes more specialised and experienced. Japan wont be in a deflationary funk forever so cheap interest rates won't be permanent.

However, nearly every other aspect of economic life has been inflating heavily; energy, housing, food, education and health. In the US they have all been in double if not triple digits over the last decade - outstripping the CPI handily. Australia has been no different though education and health is partially hidden to the consumer in Australia, but not the Treasury which has noticed the inflation in those sectors and isn't happy about paying for it.

The institution of an independent Reserve Bank is an excellent one. It is also good that the Howard Government is not interfering with it politically in order to get political outcomes. A temptation they have not been able to stay away from in other executive departments. I don't see any cause for concern (IANAE), the oddities of an awakening China and a delfationary Japan won't exist forever, and the Reserve Bank is good hands to have monetary controls in.

Via ucb:

The hop shortage became noticeable around July, when a market glut and hop reserves stored in extract began dwindling.

The bulk of U.S.-grown hops are produced in the Yakima, Washington, area. Farmers weren't getting a profitable return and got out of the market, switched crops or went bankrupt. The same was happening in Germany, the world's No. 1 hop-growing country.

In the United States alone, there were an estimated 515 hop growers in 1950; 75 in 2000 and just 45 today, Ward says. In 2006, about 2 million pounds of hops were destroyed in an S.S. Steiner warehouse in Yakima, equaling about 4 percent of the U.S. hop crop.

All the while, beer sales are increasing worldwide by about 1 to 2 percent annually. The craft brewing industry is growing yearly by 12 percent. That economic reality is pushing hop growers back into the fields.

As someone notes in the article, "The cure for high prices is high prices."