The Greens oppose the CPRS not because it is too weak, but because it will point Australia in the wrong direction with little prospect of turning it around in the timeframe within which emissions must peak, says Senator Christine Milne.
A deficit might be the most decisive thing
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While the Prime Minister, his Deputy and the Treasurer continue to rain “decisive” down on us, the D-word the media is demanding is “deficit”, and the Rudd&Co-phrase-counter stolidly remains at zero for it. Damn but they’re good at sticking to their scripts. The resistance to budget deficits reflects the mentality instilled first by Paul Keating and later by Peter Costello, that budget surpluses are a proxy of good economic management. Both of them had excuses, in a way: in the 1980s, we were still captive to the “twin deficits” theory that blamed the current account deficit on budget deficits. Sadly, the current account deficit disobligingly remained and in fact worsened even as Keating racked up consecutive budget surpluses. Eventually — despite a prolonged media obsession with the satanic monstrosity of foreign debt and how each man, woman and child in Australia owed thousands to them furreners — we got over that. And Peter Costello, while making much of having “paid off Labor debt”, could do nothing after 2001 but sit back and watch the mining boom inflate his revenue to the stage where the Coalition nearly ran out of ways to waste it. What was a Treasurer to do — resign in protest at the amount of money flowing in? The surplus fetish is also part of the myth of control that politicians like to peddle. Like the Liberal Party’s suggestion that a vote for them is a vote for lower interest rates — a claim terminated with extreme prejudice in recent months — the idea that surpluses can be conjured at will by any half-decent treasurer ignores the basic problem that the budget is driven by factors outside their control. There’s not much, short of significantly raising taxes, that a government can do to replace revenue lost to a slowdown, and no means other than slashing unemployment benefits to prevent the operation of automatic stabilisers that puff up expenditure. So the current word games and debates about whether the Government will have the courage to plunge into the red are rather misleading. Unless Lindsay Tanner discovers some horde of cash forgotten about by bureaucrats, the Government will have little say in whether it goes into deficit. Not that the Coalition would let you believe that for a second. But the real issue is the quality of spending, which Glenn Stevens was careful to discuss in his gracious extension of permission for governments to go into debt. The Howard Government ran big surpluses, but its expenditure was the equivalent of a junk food diet, heavy on one-off cash handouts to politically-preferred constituencies like pensioners, on systemic income support for the middle class via baby bonuses and child care support, and on “regional development” projects that were politically-targetted and lacked any form of cost-benefit analysis. Not much has changed — the Rudd Government is blowing most of this year’s surplus on one-off handouts to pensioners and grants to local councils to build, well, pretty much anything they like. The only difference is that at least there’s a macro-economic case for such a stimulus. The Howard handouts came in the middle of a boom. The Rudd-Gillard mantra before and after the election was about quality spending — spending to retrieve our falling productivity growth through better infrastructure and a more skilled workforce. The simple problem is that the Government’s capacity to do that will be dramatically curtailed by the automatic operation of the budget in a recession. The issue then becomes whether infrastructure and skills investment, which will yield long-term benefits for the economy, should proceed anyway, funded by debt, or whether we delay it and wait for the good times to return. That means the government has to be absolutely sure it has a good understanding of the costs and benefits of such investment. It has Infrastructure Australia to handle that task in relation to hard infrastructure. Who or what is making that assessment about investment in health, education and training? The demands by Julia Gillard and Nicola Roxon for much greater performance information from the state education and health sectors were a good call before the budget collapsed. Now they’re absolutely essential to enable us to know where to target expenditure. Without them, we may as well be giving more handouts to pensioners for all the long-term benefit it will do the economy. |
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11 Comments
Jono, we have been living in a Friedmanite world for a long time; to say it is Keynesian failings that got us here is absurd.
Costello’s budget surpluses in times of greed and money flow is exactly what Friedman would have done; keep the money supply tight, and inflation will remain low. Although I was a Keynesian as an economics student, I watched how its implementation helped break stagflation - the old rule that you could never have both low inflation and low unemployment. The fact is that Costello, pushed by Howard’s pork barrel, let inflation out of the bottle, just in time for the global meltdown. It’s what you get when you mix two opposing theories together and expect magic. Sorry Davo, but it’s not so straight forward.
The global decline was due to other factors which you wouldn’t find in either camp’s manual… it was poorly managed lending which was packaged up and sold around the world based on misleading statements. Throw in Bush’s tax cuts to the rich and you have an inflated property market serviced by those who can’t afford them… they needed tax cuts, not waiting for the gracious ‘trickle-down’ from the wealthy.
I also don’t see why we are handing out grants to those who mismanaged their shareholder wealth. And the reason the markets are not reacting to Keynesian tactics is because they know the fastest way out is through a lot of pain… mortgagee sales, retrenching execs and letting companies fall. It’s just that whoever allows that will be politically crucified. And that’s why you have vultures like Turnbull and Hockey carping from the skies, hoping for a carcass to scrounge off and feed on. We are damned either way.
Phylli Ives - we already *are* following Keynesian ideas, thats what got us into this mess into the first place. All this credit expansion created by central banks trying to keep interest rates low in the past is coming home to roost.
FDR and the New Deal didn’t bring America out of the great depression. It prolonged and deepened the depression.
FDR tried price fixing and trade barriers, and none of it helped. He tried to keep the price of farmers labor high, and it failed.
Now Bush/Obama, Paulson and Bernanke are trying to keep the prices of property and shares high. The amount of rushed legislation passed in the last year is astounding. Bernanke and Paulson are all Keynesian fools. Trust me, if you’re a fan of Keynesian ideas, you’ll be very pleased with Bernanke. None of his efforts have worked and he is running out of bullets, but he can always rely on one weapon - the printing press.
After this round of deflation, expect hyper-inflation and the end of the US dollar as the world’s reserve currency.
Perhaps the world leaders and the Prime Minister should go back to the history books and read about the Keynesian theory and FDR’s New Deal which brought the US out of the Great Depression. Of course we don’t have a great depression yet but they should definitely look ahead.
I was a bit sceptical from the start about the scheme to place pensioners at the centre of the nations economic engine. You can’t ride on the back of a pensioner, as they are generally too frail, and our most best trading neighbours frown on live exports. So fattening them up, laudible as it is before Christmas, earns no money. Now we have to find out if the government, even a labour-branded government, knows the difference between Keynesianism and plain old pork barrelling.
I hope we can avoid any more insolvent industries claiming that their dog ate their balance sheets and, if the government would just give them one more chance they would do better next time. Even more so, no more of the inane pabulum of the housing Minister seeking to pump air into a housing market which resembles no so much a balloon as the final moments of a certain famous zepellin. Those with debt must keep it; its theirs, they bought it fair and square. The Governments job is to look for future opportunities which will generate income and support spending, not prop up debt. It also mightn’t hurt if the banks dropped business lending rates before credit cards, housing loans, car loans and other forms of non-investment.
Howard would have given a hand out to the rich and told the poor to get stuffed. Now I am poor and I am going to buy a new couch with my money. I have not had one since 1987 and it is pretty sad and tired.
So why is Crikey whining about poor people getting some money to spend when a surplus is just grand larceny and over charging on taxes in the first place?
I am not convinced that a tax break is a good thing. Governments may have a patchy record of directing investment, but they and corporations are the only mechanisms we have of collectively directing resources. Individual tax cuts will just go on individual debt - which tends to be cars, houses etc and no broadband networks, industrial research, transport etc. People have generally argued that corporations are much better than governments at targeting investment and, of course, government’s record is patchy. But then, the present crisis is proof positive that the corporate sector is equally capable of disasterously misallocating resources. If they want to disasterously misallocate their own resources, then fine, but I think the government is going to have to get into the business of targeted investment to protect the tax payer from them simply using the federal budget as a bailout. What we have to avoid is welfare for corporations, and individuals, who have gotten into financially unviable positions. The believers in the free market really should start believing in the part where badly managed firms fail.
Re Simon; I’m not sure the RBA shares as much blame for the credit bubble as the banks and, of course, us punters. The RBA and the government failed to stop it, but the banks created the bubble and we collectively bought the mortgages. There certainly wouldn’t have been any time in the past five years where the general public would have welcomed the RBA stopping house prices rising.
Do you know people the unemployed will thank NO one if their is cash left in the bank, Its a bit like watching your children starve while you make sure the bank book is in credit. So the opposition and co can carp all they like , And also more people working means less unemployment cheques and more GST so the deficit makes sense to me. I really think that Mr. Rudd knows this but its good to keep talking about a good bank balance makes every one happy, but really everyone knows what the real story will be. Thank
god we have the labour party now. I heard a liberal say the pensioners will just save it i can tell you my list is a long as a piece of string i have spent 20 times on essentials so there. Shows you how out of touch the liberals are.
Jono: the biggest boom in history - 1945- 1973 was fuelled by Keynesian policy. It was only when the free-traders took over Treasury and the parties that it ended - the rise of Thatcher, Reagan and later Hawke, and satan’s own John Howard - the biggest failure in Australian history (and that’s saying somehting - a bigger failure than even McMahon or Parkes) got control of the books, and basically robbed everyone… so perhaps the Depression did get worse, but FDR adn Keynesianism also brought us out of it.
And next ime your house gets robbed (which I hope it doesn’t), don’t call the police. After all, they’re paid with ‘stolen’ money.
The difference between being “decisive” and having to go into “deficit” is having deep pockets and strong hands rather than a “life vest” which is full of holes, i.e. a life vest which contains a “lie”.
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I’m all for the Government handing out colourful pieces of plastic with numbers printed on it to the unemployed and other needy people, just not to corporations who have failed in their ability to price risk and show no signs of being able to do better on the public teat. However, if we go deeply into deficit and the government is not spending on anything that produces income then the distracting artwork on the dollars handed out will be the unemployeds only consolation, because the purchasing value of those dollars is going to decline sharply.
I guess it depends on the deflation vs inflation argument, but printing money which goes on unfinanced consumption - however necessary - is not going to get anyone better off in the long term. If keeping money in the bank is akin to letting your children starve, inflation is akin to feeding them nothing but sweets. They still starve.
What a hypocrite, first you attack the Liberals for claiming that they can control the economy, then you go about blindly defending the Labor government for its ‘stimulus’ to pump-prime the economy out of recession.
This is absolute nonsense, we don’t need to go into deficit, and we certainly don’t need meddling politicians to spend our government into debt so that our grandchildren will be paying it off. Why should the taxpayer be bailing out zombie industries like the car industry or banking or even childcare providers ?
Government spending is always badly targetted, the only form of economic stimulus that goes towards productive investment is a tax cut, where people’s stolen property is returned to their rightful owners. It encourages people to work harder because they are rewarded for their labor.
Instead our government opts for corporate welfare.
And another solution - we should shut down the RBA who helped fuel the biggest credit bubble in this country’s history. Bring about sound money, with no fractional reserve, redemption of specie payments and no lender of last resort.