Ask the economists: Stimulation needed now
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With the government’s $42 billion stimulus package now the subject of political squabbling in the Senate, not least of all over Kevin Rudd’s dubious linking of the funds to the Victorian bushfire tragedy, Crikey thought it was time to shift the focus back to the raw economic equation. Last night, the Standing Committee on Finance and Administration delivered a preliminary report into the package claiming that “without timely implementation of this plan, the Australian economy could stall” with ATO chief Michael D’Ascenzo testifying that if the proposed March and April tax bonuses were delayed they couldn’t be delivered until after tax time in June. The Greens and Xenophielding are pushing for changes on housing and energy that probably have more to do with protecting special interests than reviving the nation’s flagging economy while Malcolm Turnbull wants a pared-back solution with tax cuts subsuming spending. The Senate is due to vote on the package tomorrow afternoon. So, should the Senate pass the strategy in its non-amended form or fall in behind something like Turnbull’s chastened proposal? If so; what would that entail? We asked a group of leading economic wise heads for their considered views: Prof John Quiggin, University of Queensland: The government has the broad direction right and I really think Turnbull’s floundering on this issue. The likelihood is that we’re going to need more rounds of stimulus rather than less in the future and in that context locking in permanent tax cuts is really the worst thing you can do. One minor but important amendment the Senate should consider is the home insulation scheme that needs to be adjusted if the government’s actually serious about reducing carbon emissions. We need a corresponding lowering of the emissions target which is essentially a hand-out to big emitters.
Alan Oster, NAB Chief Economist: No package is perfect. I don’t have a problem with what the government is trying to do. I think they’re basically trying to keep the consumer afloat until they can get on with the infrastructure spend in the middle of the year. I also don’t think that this fiscal package is finished and there’s going to be much more in the next budget. We’re expecting a budget deficit of $50 billion, but based on the current package the government says the deficit will be $35 billion, so I think they’re a long way from finished. Tax cuts have different effects although the “helicopter drop” that the government’s undertaking now will have a temporary effect that’s upfront. The tax cuts’ stimulatory impact will be delayed.
Brian Redican, Senior Economist Macquarie Bank: It’s imperative that the parliament pass the package now — there’s increasing urgency to stimulate household spending as soon as possible. In terms of improvements, there are some arguments floating around that tax cuts could boost confidence, so alongside giving people the money to spend, tax cuts would make them more likely to spend rather than save. But what’s more important is the overall amount and timeliness with which the package is introduced.
Tony Meer, Deutsche Bank Chief Economist: With a budget of incoming expenditure of $300 million, everyone’s got a bias about what the stimulus needs to be used for, but the reality is that there is limited evidence, there is no absolute. The reality is that there’s now a package on the table which involves a significant amount of money going into the economy when we probably need it. We’ve seen ample evidence that the first round of fiscal stimulus worked, including the retail numbers and today’s housing finance numbers. You can pontificate about which individual approach is right but the reality is we’re faced with the most dire global economic environment that anyone currently working has ever seen. The simple fact is that it’s appropriate to be making policy responses against that unprecedented negative trend. It doesn’t matter whether the package is passed this week or next — because one week won’t make any difference. But the reality is we now have a significant package on the table and we’ll see various amendments that will reflect the political bias of the individuals and parties involved. But I would assume that a large majority of the package will be passed as it’s initially been canvassed.
Assoc. Prof. Steve Keen: The short answer is yes, the Senate should pass the stimulus package, but it won’t stop the crisis. There are two reasons for that. One is that the government’s fighting a “great deleveraging”, so the private sector is going to be drastically reducing its debt levels, probably for the next 10 to 15 years. In the Australian case, we’re talking debt levels of about $2 trillion. If the public tries to reduce its debt levels by 5% that’ll strip $100 billion out of the economy. Pouring $42 billion back in is only part of the whole. Secondly, the Japanese tried stimuluating the economy for 15 years and the government’s debt-to-GDP ratio went from 50% to 175% — the economy there is still in a depression. This crisis is too big to fiscally stimulate our way out of. But trying to do that is better than not doing anything and Malcolm Turnbull’s stuff about “maybe half a package is just as good” shows that he still doesn’t get it. |
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19 Comments
NEWS FLASH: A survey banks and left-wing academics found unanimous support for Rudd and the “urgent” and “necessary” implementation of a “stimulus package” in the “national interest”.
JamesK’s left wing academics/ bank economists conspiracy is something of a revelation. James either has amazing inside knowledge or is talking his usual twaddle. Chances are its the latter.
Forceful Keynesian responses are the only realistic ones available and the Senate should stop playing games and let the government deal with a crisis that has not fully hit us yet but is clearly worsening daily.
James, I do admire your fund of airy generalities, even if they are invariably irrelevant and evasive.
Unfortunately, you have still not got around to defending your contention that the Rudd stimulus is not Keynesian (you know, because of the optimism thingo and that awful Marxism business you so briefly and tantalisingly mentioned).
Come on James let’s hear it.
Is that the theory? It doesn’t amount to much, does it? You are such a disappointment James, I had such high hopes.
James, let’s deal with one thing at a time. When it’s more than one you become quite bamboozled.
You deny that the Rudd stimulus is Keynesian because Keynes was an “optimist” and Rudd has something to do with Marxism. This is a very original theory and I think you have a duty to elaborate it to those, including me, who can’t quite make any sense of it. Look, don’t get me wrong, I think it may be an absolutely brilliant theory straight out of left field but you do need to explain it to lesser mortals such as myself otherwise people might start thinking that you are an ignorant, slightly demented crackpot.
I can’t be any fairer than that. Simply explain your theory and why the Rudd stimulus is not Keynesian and I will be the first to give your startling originality the recognition it deserves.
Willfully dishonesty is your trademark David Sanderson……
Oh and an apparent inability (when it suits?) to understand the written word.
I mean, really, it is just not credible that you could also be that obtuse.
Why would anyone listen to these people? Many so-called economists contributed to the problem in the first place, and I don’t recall any of these guys predicting the situation we’re in now, I hold little confidence any of them have any idea how to get out of it. Of course, spending the tax payers money is the easist option on the table they can swallow.
Looking at their answers….
If the crisis is going to happen anyway and deleveraging is expected to go on for 10-15 yrs, a short-term spending spree is going to delay the enevitable by a few months, not prevent it. It would be more “prudent” to look beyond the short-term and invest in the medium-longer term strategies rather than bickering about who gets what in the handout.
Each of the correspondents lose the argument with themselves. . They all all seem to agree that the $42b stimulus package won’t have much effect but say do it anyway! Terrific! Fact is, the system is being forcibly deleveraged by market forces and the Government should do nothing for the time being. Rudd has actually made things worse.
Kevin Rudd the closet Marxist. Who’d have guessed?
JamesK should give us the benefit of his extensive learning and explain to us why the stimulus is not classic Keynesianism.
JamesK is clearly awed by Rudd’s mastery of the dark arts. By supporting the banks he also bought the opinions of all the bank economist. Amazing, but possibly also paranoid, ridiculous and untrue.
Xenophon should not be treated as a siamese twin to Fielding. That’s misleading.
True both like publicity stunts but that’s independent fodder everywhere. Fielding’s base is the right wingish Assembly of God ‘family values’ agenda.
Xenophon as best I can tell is more a Aust Democrat style anti gambling liberal. Anyway that’s my take. My guess is X trends more to the Green side of say green stuff. Interested to hear any different.
Your comfort is pontificating Sanderson.
Intellectually bereft, dishonest but a pontificator none the less.
David Sanderson is not engaging in an argument.
Either he doesn’t know how to argue and deludes himself that this drivel is an ‘argument’ or his self delusional arrogance is such that although he knows he has no answer either to the premise or the logic of the argument in which he is supposedly engaging, he chooses buckshot.
“Chances are its the latter.”
James, you have run away during this discussion like an amphetamine-fuelled rabbit. To describe it as cowardice would be to give it too grand a name. It is just a ridiculous inability to face up to any intellectual challenge.
I know you are addicted to having the last word because you hold the childish belief that it makes you the ‘victor’. You are welcome to have it as it will make no difference to what you have shown here. You have confirmed more fully than ever that you are an empty blowhard, a spouter of wild assertions and even wilder abuse but pathetically unable to defend all that bluster except by offering more extreme versions of the same.
Your weaknesses are probably more worthy of pity rather than condemnation except for the fact that they result in Crikey forums being heavily infected with your pointless and time-wasting effusions.However, your weaknesses make it impossible for you to understand that so I guess we shall just have to continue to put up with them.
If in the mood I will continue to try and help you understand just how empty and baseless your pronouncements are. Don’t bother to thank me.
I have pointed out to David Sanderson, on several occasions now, that his remarks demonstrate him to be either a stupid or dishonest. There is no “chance” about it, I know it to be the “latter”.
Typical of the Left at its most dishonest is the old chestnut: “There is no alternative but to………..”
John Maynard Keynes was the antithesis of Marxism and he was an optimist. He would be turning over in his grave at the misappropriation of his economic philosophy by our nutter Prime Minister and his blindly sycophantic lackeys like David Sanderson. That there are sensible alternatives is not a matter for consideration but for a denial.
Given Kevin Rudd’s extraordinarily generous support of banks, it is unsurprising to list bank economists who support this craziness. However, there is another sober voice in today’s Australian newspaper joining a chorus of concern expressed by many who are actually independent:
http://www.theaustralian.news.com.au/story/0,25197,25037353-7583,00.html
James, it pains me to have to point this out to you but defining the word ‘misappropriate” does not in any way explain why the Rudd stimulus package is not Keynesian or how it is a “misappropriation of his economic philosophy”. Needless to say it also does nothing to explain how optimism and Marxism are relevant to your assertions.
Look James you may well be right. I may be as thick as half a dozen short planks tied up with string. Maybe even fifty or a hundred. When you’re in the short plank business you lose interest in counting after a while. But I don’t think anyone could see your odd mixture of hysterical assertions, definitions, random quotes and torrents of industrial strength abuse adding up to anything at all.
Definition: ‘misappropriate”
1. to put to a wrong use.
2. to apply wrongfully or dishonestly
I had thought that David Sanderson was just boringly biased, partial, prejudiced, unfair, unjust and unreasonable.
He is.
But also apparently as thick as two short planks.
Conceivably I really am making much too much allowance for David Sanderson’s cerebral repertoire.
Perhaps he really is, merely, the embodiment of the proverbial intellectual cripple’s substitute for intelligence.
Presumably a self delusional elaboration of the entirely self-taught skill.
‘A half truth is a whole lie’ seems to pass Mr Sanderson by……….
And apparently, whilst behaving like a prejudiced, unjust and unreasonable shyster, David Sanderson “can’t be any fairer than that.”
Quite possibly that is true.
Elizabeth Kenny, an acclaimed Queenslander, but altogether different from our current PM and his duplicitous lackey, summed up the closed mind well:
“Some minds remain open long enough for the truth not only to enter but to pass on through by way of a ready exit without pausing anywhere along the route”
I am amazed that anybody would actually admit to being an economist these days.
Have they got a new set or Tarot Cards?