The callous anti-stimulus
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The recent visit of Joseph Stiglitz and his glowing comments about how the Rudd Government handled the GFC seems to have stirred the conservative media into a campaign to discredit stimulus spending. Last week historian and apologist for imperialism Niall Ferguson turned out for The Australian to attack Labor and its claim that its stimulus package had saved Australia from a damaging recession. In fact, according to Ferguson, John Howard, the RBA, the Chinese and the mining industry did. Ferguson might not have been too flash on hard facts – evidently he didn’t check employment levels in the mining industry over the last 3 years – but then again his own views on the need for stimulus spending are of weathervane-like consistency. On Friday, in a much more measured piece, the AFR’s David Crowe attacked the Government’s claims about the impact of its stimulus packages, selecting data from Treasury forecasts and ANAO reports to argue it had delivered stimulus too late. Last week, too, Warwick McKibbin, RBA board member and long-time critic of the Labor Government over its emissions trading scheme and the stimulus, had another go at it, in comments that got a huge run in The Australian. Kerry O’Brien even had a run at the theme last night when interviewing the Prime Minister. Yesterday, 50 economists responded to the attacks on the stimulus package. The stimulus packages had two components – cash handouts to prop up the retail sector, and programs and tax breaks to prop up the construction sector. In doing so, the Government aimed at two of the biggest employing sectors of the economy, and at sectors where the spending could be rolled out quickly. There are few now who will seriously claim the cash handouts didn’t work, especially given the massive prop to consumer confidence they provided after the second stimulus package. But it wasn’t always the case. In March last year, Malcolm Turnbull, not long after the second package was announced, declared “the cash splash had failed as an economic stimulus.” Turnbull was influenced by his advisor Henry Ergas, the right-wing economist who found his own business eventually needed a stimulus package, and couldn’t get one. Ergas, taking his cue from conservative American economists, insisted that cash handouts wouldn’t be spent, but hoarded, because people wouldn’t spend a non-permanent rise in income. “Rather than once-off bonuses, the tax cuts should be locked in for a sufficiently lengthy period to genuinely stimulate consumption and encourage initiative,” said Ergas. Rarely has reality provided such a robust contradiction to academic economic theory. But that too was briefly used against the Government, when we had that bizarre turnaround by Joe Hockey after the 2009 Budget, when he went within six weeks from claiming Treasury was too optimistic in its economic forecasts to claiming it was too pessimistic and stimulus needed to stop. One of the arguments deployed against the Government was that the RBA had done the heavy lifting of stimulus, despite considerable evidence that most borrowers hadn’t reduced their mortgage repayments in line with falls in the cash rate to emergency lows. With the battle to attack the cash handouts lost, The Australian, including some of its Press Gallery journalists, began a dishonest campaign against the education component of the stimulus packages, a campaign that has twice now, once by the ANAO, and a second time last week in the first Orgill report, been comprehensively and systematically discredited by independent analyses. The ABC has enthusiastically backed up News Ltd in this campaign, with its “Online Investigations Unit” misrepresenting the ANAO report. A quote from each report serves to provide some context for the current campaign against the effectiveness of the stimulus. “Lead economic indicators, including construction approvals,” concluded the ANAO, “show that the introduction of BER P21 contributed to a reversal in the decline in non-residential construction activity that resulted from the global financial crisis.” And the first report of the Orgill inquiry, based on its consultations with construction sector companies, concluded “the BER provided the construction industry with a significant economic stimulus which prevented many construction organisations from reducing staff and/or the size of their operations to match an otherwise decreasing workload resulting from the GFC. Some indicated that without the work generated by the program they may have had to cease operation.” In the jurisdiction where costs for BER projects were greatest, NSW, Orgill identified the rapid pace at which NSW rolled the projects out as a key reason for higher costs. So the Federal Government, which has been attacked over projects being rolled out quickly, with the intention of maximising stimulus, is now under fire because projects weren’t rolled out quickly enough, therefore failing to provide stimulus. Given the current plunge - and that is not overstating it - in the housing construction sector, that the schools component of stimulus package is still providing some limited support for the construction sector as stimulus components like the First Home Owners’ Boost wind down may not have been entirely intentional, but it is fortuitous. The reason why criticism of the stimulus package is inconsistent and lacks an evidentiary basis is that it is both partisan and ideological. As Niall Ferguson’s completely contradictory positions on stimulus under Bush and Obama attest, you can be assured the hostile attitude of many commentators toward stimulus spending would have been entirely opposite if a conservative Government had engaged in the same sort of program. But ideology is at the root of opposition to stimulus spending. It is motivated by a reflexive dislike of government, the notion that smaller government is always, and automatically, better. It’s a view that demonises the public sector, taxation and regulation in and of themselves. Government of course is not innately good or bad, it is a tool to maximise community welfare, an outcome that will be achieved at different times in different ways. It is, in the view of many of us, usually achieved by keeping government as small as possible. But it doesn’t logically follow that that will be the case in every circumstance. There are, undoubtedly, types who feel that the economic downturn wasn’t severe enough, that a repeat of the early 1990s was required to grind inflation once again out of the economy, as if economic policy should be a purgative exercise designed to make the patient suffer as much as possible for previous excesses – or, in the case of the GFC, of the excesses of a few. And there are, undoubtedly, businesses – mainly large business, who are well-placed to survive a downturn – who regard high unemployment as an attractive environment, enabling them to keep down, or cut if possible, wages and conditions, skimp on training their own staff pick up talent on the cheap. For such businesses, an extended period of high unemployment is the perfect operating environment. But the basic motivation is an ideological desire to enfeeble the public sector permanently and utterly, regardless of consequences, to impose an acquired helplessness on the community in response to the vicissitudes of the free market, to ingrain the habit of standing by while economic cycles, or artificially-engineered crises like the GFC, wreak havoc on the lives of working people. Its advocates are commentators, academics, consultants and business executives who have no fear of the labour market, who have the skills to prosper in any environment, no matter how harsh. They are mortified that the GFC has been blamed on deregulation and unfettered free markets, and bitter that the public sector has led the response to it across the world, in terms of both re-regulation and stimulus spending. And its victims are people with few skills, with limited options in the labour market. Those are the sort of workers who spent months and perhaps years out of work in the early 1990s as that long, slow, jobless recovery ground on, exacerbating the impact of microeconomic reforms that began the painful process of restructuring our manufacturing sector and the finance sector mismanagement of state Labor Governments in Victoria and South Australia. It inflicted untold misery on households across the country. That recession, and the way policymakers in Treasury, the Government and the RBA handled it, changed lives - changed them for the poorer. And that is the fate the stimulus packages saved similar people from in 2009, when policymakers in the same institutions responded far more effectively. To deny it is to callously wish away the real human misery of those less skilled and less fortunate than us. |
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80 Comments
Well said!! Rather than laying waste to a generation, or more, of Australians through the corrosive emotional and social effects of unemployment — that would have resulted from following the retrospective advice of the increasingly pompous Niall Ferguson — the ALP opted for a stimulus programme that had some inefficiencies, but which kept people in work and provided a climate of certainty that aided investment and job maintenance.
Ferguson and his compadres at News Ltd seem to think that as long as capital can be put to work, people will take care of themselves.
Trickle-down theory is ok if you’re drinking champagne and not standing down-stream.
Great post, I completely agree. However, I don’t quite follow the logic of this statement:
“The reason why criticism of the stimulus package is inconsistent and lacks an evidentiary basis is that it is both partisan and ideological. “
Surely it’s possibly to be partisan and ideological and also be consistent and supported by evidence, just as it’s possibly to be devoid of ideology and still be wrong? I don’t see why being partisan implies being incorrect.
Excellent article Bernard.
During the whole stimulus debate, one question has been been routinely asked, yet failed to be answered: what would the Libs have done if they were in power during the GFC? With $110b in lost revenue, would they stick to the conservative mantra of economic policy and cut funding to maintain a surplus at all costs. Evidently, this would’ve caused untold damage to the Australian economy, and their own petty fear of budget deficits would have consigned the economy to the level of the other OECD countries. There is no evidence based on the 11 years of the Howard government that they would not have stuck to that failed conservative economic mantra. We evidently dodged a bullet.
Surely the whole partisan approach to history reached a new low when John Howard even disputed a GFC occured.
There is no helping some people, but the dogma of the right can’t be ignored which is why Abbott cannot be trusted on things like Industrial Relations.
I’m happy to here people claim the stimulus was a waste but I’m yet to meet one person who disagreed and therefore returned the cheque.
That a campaign can be allowed to run on the lie that is the “school hall rip-offs” is a matter of head hanging shame.
They would probably have given out a milkshake tax cut and made things very much worse. My daughter for one would have lost her job in admin for a small race course without stimulus money being splashed around the country so people could go.
Then she might have lost her admin. job for a trades company, but again the stimulus spending is keeping the industry going.
I think the lieberals wanted soup kitchens so they could say the ALP are lousy managers.
Generally I agree with this, except for this statement
“One of the arguments deployed against the Government was that the RBA had done the heavy lifting of stimulus, despite considerable evidence that most borrowers hadn’t reduced their mortgage repayments in line with falls in the cash rate to emergency lows.”
The cash rate controlled by the Reserve is not just about mortgages. It is about investment in general and the supply of money. There is no doubt that the reduction in interest rates did a lot to keep investment chugging along and the liquidity of the banks high. Both these things kept people in their jobs.
Fiscal policy (the handouts), can be a little more directed, and can target specific areas of the economy such as households (hence the “Go hard, go early, go households” comment from Ken Henry)
At the end of the day, I think it was 60% Monetary, 40% fiscal that saved the day and kept employment levels maximised. Neither would have been as effective as both deployed together.
@Bernard,
Nice article. Thanks for taking the trouble to write it.
Those people who would be worst affected by a second downturn - which is still quite possible - should hope and pray that Abbott doesn’t get his hands on the fiscal gear stick of our economy.
He’s such an economic moron he would probably think “R” means “Really Good!”
I still believe the Libs would have done the same if Howard was still the PM (and Labor would have been complaining about the waste from the opposition benches). When the house is burning down, you don’t disregard the advice given to you by the firefighters.
What I find most entertaining about Ergas’ belief that the stimulus payments would be “hoarded” is that he and his mates in the Liberal Party make a virtue of promoting excessive spending.
“Short-term loans! Credit cards! Spend, spend, spend! Debt, debt, debt!” is their mantra, but when Labor hands cash out to the populace they suddenly turn around and claim the people they trained for a decade to spend recklessly will hang on to the money!
@ ShepherdMarilyn
How many jobs does your daughter have Marilyn!? At least two more than you by the sounds of things…
What frustrates me is that no one in the Labor party has ever really tried to make a defence of the stimulus as spirited as this. Swan and Tanner have had a bit of a crack, but Rudd and Gillard have never gone beyond very simple slogans. The same can be said of Labor’s unwillingness to try and explain the details of the CPRS, opting instead to simply portray it as ‘action’.
My best guess as to why is that politicians know the lemma about simple lies and complex truths. The ghost of Hewson’s birthday cake still haunts the hollow men and details, even when they help your cause, are to be avoided.
For example the point about most mortgagees not lowering their repayments when interest rates dropped has never (to my knowledge) been made by a Labor figure. My best guess as to why is to avoid seeming ‘out of touch’ with the battlers ‘trying to make ends meet’ who might not like the implication that their financial woes might not be as bad as they claim when going cap in hand to the ballot box.
Oh Noble Bernard….. hose less fortunate than us indeed! Such caring even if so overtly lacking in humility…….
They will be the ones paying for Rudd’s insanities for more than a decade to come….indeed they will.
The book: ‘Shitstorm: Inside Labor’s darkest days’ by Lenore Taylor and David Uren ( both known to be like Bernard very sympathetic to Labor) (pg. 216):
“But it is hard to resist the conclusion that the government spent more than was needed, no matter how reasonable its actions appeared at the time. The stimulus spending was designed for an economy that was expected to be shrinking at a rate of 1 per cent, not one that was growing at a pretty normal rate of 2.7 percent, which is what happened in 2009.
The government and Treasury had expected collapsing businesses to drag the economy into a long recession, but instead the shock caused by the collapse in world trade and the panic in financial markets passed after a few months, leaving the corporate sector largely intact. The government was left completing large stimulus projects that were no longer really needed.
… (pg 218)
It is the opportunity cost – the things that cannot be accomplished by either this government or the next – that weighs heaviest as a result of the government’s spending more than was needed. Had the economy behaved anything like Treasury’s forecasts for it, no-one would have begrudged the money spent. But now $75 billion has gone, with a negligible addition to Australia’s productive capacity. The debt must be serviced and in due course paid back. In the context of a $1 trillion economy, it is not a crippling burden, but there is depressingly little to show for it.”
And I also notice apart from the usual leftist ad hominem slime of Harvard academic Niall Ferguson, Bernard deems it quite unnecessary to provide counter arguments to Ferguson’;s brilliantly simple and crystal-clear 5 arguments against Rudd’s insane response to the GFC and SlimySwann’s equally insane claims since.
@JBJ - have been know to have a pop at @ ShepherdMarilyn myself but have to say your comment is well below the belt and you totally deserve the written beating I’m pretty sure you’ll be getting.
Great summary Bernard, thanks for writing it.
Australians have become a “whats in it for me?” today people and easily scared like they always have been right from Menzies day of commie baiting and yellow hoards. Sad but true.When a hollow man like Abbott is actually running for PM and having a chance of winning just about says it all for me .
STOP THE BOATS STOP THE BOATS!!!!!!! and dont do anything that might be a little bit progressive and in the Nations interest not the LNPs and their mates..
@Tom.
I have to say I look forward to it - far more than I look forward to my tax dollars going to fund Marilyn’s nonsensical ramblings, anyway.
Bernard has produced an interesting piece but it’s a bit simplistic in places. Gillard is simply dismissing the fact that the RBA slashed interest rates drastically. This reduced the cost of living and helped support the economy. Neither, can one dismiss the positive flow-on effects of the mining boom (and please, for heaven’s sake, stop referring to the “mining employment figures” — there are no reliable ones collected). And finally, you can’t disregard that the budget was in surplus when Labor came to power. If the whole saga came down to stimulus or no, then every country that deployed stimulus (many did) would have “avoided recession” too. There were a range of factors at work. But that complicates things. And some people can’t handle too much complexity. Life’s much easier when it’s black and white.
Thankyou Bernard for the post. One of the best.
Why you appear to be Robinson Crusue is something I don’t like to consider.
Do you know the old hymn with the line that reads” The rich man in his castle, the poorman at the gate?” It has haunted me over the past weeks and months. The famous Turnbull cash splash slogan ( I mean, dear boy, what would those people know what to do with a windfall?) has re-emerged in recent days.
On a recent visit to remote parts of the country, we we noticed signs of the aforementioned cash splash reaching into shabby school premises in the form of bright new,well designed ( apparently) school buildings. Signs were that the communities were proud of their new assets.
However, according to a grab heard yesterday on ABC radio( who else would bother) that indefatigable searcher after truth, Senator Abetz, was, at last, able to uncover evidence of the total wastefulness and ineptitude of the BER in Tasmania. It seems that workmen demolishing anb old building,allegedly buried asbestos on site.
Hold on for a second, Bernard. Let’s have a little balance.
Two points.
The academic debate on stimulus is far from settled. Saying it is misprepresents the issue. And secondly, a range of factors contributed, to varying levels, to australia’s comparatively strong position.
The campaign against stimulus has been shoddy, poorly constructed and partisan, but that says nothing about the validity of the stimulus. Similarly, the defence of the stimulus is poorly constructed and partisan, but that also says nothing about the validity of the stimulus.
Unfortunately the most valid way of estimating how many jobs the stimulus saved is not open to Australians precisely because Treasury has, probably to its chagrin, been used as a political device at times. Following the suggestions of Messrs Joye, Stutchbury, Turnbull and Joye, Australia would be far better served by an independet budget office (like America’s CBO or the new one in the U.K.). They would at least be able to estimate the effects in a non-partisan manner, as Julia Gillard and Wayne Swan have quoted figures that range from 175000 jobs to 500000 jobs. They would also be able to cost parties promises and avoid the ‘black hole farce’ that plagues both sides when they are in opposition. Surely it is an institutional reform that would provide better information to the voting public.
Ferguson went way too far. If stimulus isn’t a factor, then neither is the Howard government’s surplus. But had he pulled his punches and kept to a less partisan point, he made a compelling case for Australia’s economic well-being being down to:-
1) luck
2) regulation
3) Howard government stimulus’
4) monetary policy
5) China’s strength
Add in,
6)stimulus
7)and poor competition policy that lets our banks get fat on fees and charges rather than risky speculation on sub-prime mortgages,
These seven reasons provide a pretty compelling suite of reasons as to why we sailed through the GFC while others sank.
Academics, who have thought a lot more about the validity of stimulus than any of us, have been trying to measure the effects of stimulus for years. And the results are conflicting. Estimates of the government spending multiplier range from 0.5 up to 3.0 (by Barro, Ramey, Romer and others) while Alesina even plumps for deficit funded tax cuts.
My points are twofold, the debate is far from settled. Saying it is, misrepresents the issue. Other countries that have stimulated have also faired poorly (the U.S. and U.K.). My final point is a combination of factors contributed to our relative success.
My daughter changed jobs, so shoot her. I would like JGB to have my crohns disease and crippling arthritis for a year or two then get back to me.
To all those who say that Rudd wasted tax payers money, I can assume you sent your $900 back as a gesture of consistency?
As usual being a Labor apologist Bernard does not address the structural weakness in the a stimulus package. The grossly inefficient expenditure on he BER the disastrous insulation scheme and the handout of “free money” have not been addressed. Countercyclical expenditure to offset the effect of economic contraction is laudable, but it is content and pattern pattern of expenditure which has been poorly managed. It is quite probable that the Liberal Acting on Treasury advice would have had a similar stimulus package but hopefully would have been better targeted in terms of long-term benefit.
A properly targeted package would have addressed the significant infrastructure deficiencies in the Australian economy and not be wasted on plasma TVs, gammbling, expensive second-rate school buildings and home insulation of dubious economic value.
What is lost in this article is that the money spent has to be repaid. That means in the future taxation income needs to be applied to pay down the debt incurred. We will be paying for the ill judged expenditure pattern for decades and have nothing much to show for it. Had the stimulus package being spent on economic infrastructure such as railways, public transport, roads and bridges, transport infrastructure, development of green power or any other economic activity with a long-term benefit this program could have been justified.
Justifying the program on the basis that it kept people in work is spurious in the extreme. Paying people to dig holes and paying others to fill them would have had the same income driven stimulus effect but it would have been demonstrably inefficient in terms of output. Harvey Norman would have had the same throughput as would the Chinese economy in providing consumer goods which absorbed a significant amount of the stimulus expenditure in the hands of individuals.The government has not addressed the output and future benefit aspects satisfactorily. Nor have they attributed in benefits to the activities of the Reserve Bank in keeping interest rates down nor the flow on effects of the mining boom.
As usual the Labor apologists and other members of the chattering classes concentrate on what they see to be favourable to their poster girl and are oblivious to the structural weakness in the stimulus package because of their ideological conviction.
Dr Harvey M Tarvydas
Well done BK, ‘callous’ is probably understating it and while nearly every intellectually competent person has no problem with appreciating the economic miracle bestowed on Australia by a very extraordinary Australian leading an appropriately aligned political team.
The forces to which you refer, that are pushing for such a nuisance interference to simple understanding can only be described as a mental wave of contradiction being akin to mental illness.
I have with all gentle, kind and humanitarian endeavour reasoned with schizophrenics in their bad times trying to achieve a useful outcome without having to resort to force by the authorities and I can only say the political discussions referred to here are just so reminiscent of those situations.
How seriously disturbing to national mental & intellectual health is the effort by those forces when they, in all apparent innocence, promote the same adventure as the famous Rhodes Scholar leading the opposition that good ordinary Australians trying hard to care for their own prosperity and health should and will see virtue in giving $10 billion+ back annually to huge foreign mining corporations who have agreed with the Australian government that they can and should pay that much more tax because they are making unexpected fortunes from Australia while the Rhodes Scholar reads lists of necessary items that can’t be afforded for the ordinary Australian.
Mad people of that sort should be charged with crimes.
Theft of a kind (Australian assets are being sold and collecting payment for them is to be forgone) is going on here and has been for some time.
Somebody tried to something about it (the ALP) but got called names by the thieves and their accomplices, jail is what they deserve for tormenting ordinary people into feeling sorry for them and their wealth issues and preparing these ordinary people to carry out an act of throwing $10+ billion annually of their own wealth away. It’s called Inducing Insanity and Raping your wealth by putting it into their pocket not yours.
Dr Harvey M Tarvydas
You’re a nice guy GREG ANGELO but you are a political animal who only thinks you are an economist.
My experience of arcane economic debates is that the protagonists are least willing to accept the human motivations behind their dug-in positions.
And this is where Bernard is on strongest ground, attributing the irrational opposition to the stimulus to the horror among market fundamentalist ideologues that their cherished “invisible hand” had just strangled their cherished assumptions.
The Australian “debate’ over fiscal policy is being mirrored internationally, with the same hairy chested crew whose investment banking mates had squealed for government support in October 2008 now backing on their soapboxes lecturing the rest of us about thrift. The gall of these people never ceases to amaze me.
As for Niall Ferguson, he is a self-promoting Tory historian masquerading as an economist.
The greatest tragedy is the single best thing the Rudd government did was following Treasury’s advice amid the potentially biggest “shitstorm” the world economy has seen and one which our major trading partners in Europe and the US are still dealing with.
The crisis is not over yet by a long stretch. US bond yields are at record lows, Japanese-style deflation is a real possibility and a deeper, more vicious global recession looks likely. Meanwhile, in the LaLa land that is the Canberra press gallery, smart alec hacks tell us the election is about nothing and tweet vigorously about whether Gillard was using a prepared speech at the launch.
Jesus wept.
Greg Angelo, 80 per cent of the public debt acquired over the past two years was due to the shift in the economic parameters, not the discretionary fiscal spending. In other words, this would have happened to the budget balance with or without the stimulus.
So we had a choice. Amid a situtation of unprecedented uncertainty and the spectre of the collapse of the global financial system (and this at one stage was a very real possibility), Treasury advocated an emergency fiscal stimulus that involved spending as much money as quickly as possible.
With the benefit of hindsight, you may say that money was wasted. But the estimated 150,000 people now in jobs that would otherwise have been unemployed right now might think otherwise.
You also might like to reflect on what would have happened to the budget and the public debt position had our economy gone into recession as severe as those seen in Europe and the US. Budget revenues would have collapsed - due to falling corporate profits and rising unemployment, while transfer payments would have skyrocketed. Most likely, the fiscal situation would have been much, much worse.
I read complaints about the stimulus but nothing on what should have been the appropriate amount? When should it have been deployed? And on exactly what? Some concrete figures????
And more importantly, did these people show their cards at the time? So easy to sit back later on and say, yeah should’ve done this and that and complain why it wasn’t so, pathetic…..The Libs just flip flopped argument at the time based on political point scoring and for oppositions sake…
And Greg, “grossly inefficient BER”, what was the figure of inefficiency exactly? And tell me ‘what is’ a properly targeted infrastructure package exactly? Maybe stick some facts into your comments instead of hyperbole….
The stimulus saved Australia from a recession. Similar to Global Warming, the denialist will point to the 5% of the academics who disagree with the consensus and declare “it’s not settled”. Further more, the 5% tends to advance theories which does not pass muster. When you splash money around, it will create jobs. That’s what money IS!! Whether the money should be spent is a political issue, but to say the the stimulus has no effect is to deny the very basis of economics.
Economic system exists in order to serve people, not the other way around.
I think it’s a pretty bogus claim that the stimulus package didn’t work especially as if we re-call the basic cry from Kevin Rudd was “spend spend spend” particularly with the pensioner and unemployed one-off handouts.
And even if much it was on those large flat screen tellys at least that kept all those Bing Lee, Harvey Norman folk in jobs. And if much of the money went to China then that sort of blows out of the water the Libs argument if they wish to claim China saved us.
The constant attacks on the school halls and ceiling bats is a bit of a dud as well. the vast majority of that was successful and those who benefited know it-from homeowners to all the honest builders, installers etc.
The Libs should have got their act together long before this in the policy department. Abbott’s image transformation has actually been quite successful but it still won’t get him over the line. Any protest vote against Labor will go to the Greens.
When we will get over this furphy of the ‘balanced budget’ or ‘budget surplus’ scam?. Why not just tell homeowners they are idiots for having a mortgage.
And someone please explain why a future generation should not pay it’s share for my bloody hard work in helping boost the economy that they will enjoy one day ?
Why the hell shouldn’t our kids pay off our debts-most of them are incurred in building a world for them.
@ Greg Angelo
Greg, your rant lacks credibility if you’re attacking the efficacy of the 3 staged stimulus.
The cash splash was necessary to prop up retail and those who were needier. The short and long term infrastructure were specifically designed to have medium and long term flow of funding that would stop the loss of jobs and keep things chugging along.
Just sour grapes that it DID work, methinks.
And another thing ! Tony Abbott’s bizarre bonus for an unemployed person who stays in a job for 2 years is about the worst policy yet.
So someone takes a job on that basis and for no fault of their own loses it after 23 months whilst the bloke next stays an extra month and picks up nearly 6 grand. Think about it.
The current discussion of the economy and how we should deal with it is tainted in several different respects. General comments are made which assume (a) that everyone responds in the same way to government action or benefits from it, or (b) the expenditure of money on projects of various kinds was just plain wrong. But, of course, a lot depends upon the demographic of the beneficiaries. For instance, up to a certain income level, recipients of the stimulus package would spend it (as desired), with the aim of improving their lifestyle a bit or reducing their debt. Above that level, the money was “hoarded”, i.e. invested for future gain. Another instance we could look at is the call for “small government”. Well, we do indeed need small government. For instance, we need efficient government services to manage insfrastructure projects and so forth, but the “small government” does not (or should not) refer to the value of the infrastructure projects themselves. These are investments which will have a payback of some sort to the community over a period of time. Both political parties are totally ignoring the difference between the management components and the investment components of everything they do. If one takes the total expenditure on the BER initiative and subtracts the total value of the buildings which were erected or renewed, the difference is the administrative cost and if this is too high (due to “waste”) then the government should be castigated for not managing the civil servents who oversaw the program better. I suspect that the same thing would have happened whoever had been in power, because of the way ministries behave. I could go on, but you get the idea !
Hooray, as a retired NSW public servant I was and am critical of some of the methodology in administering the stimulus but generally it was the correct way of responding and it worked. Having been to North America and Europe during the peak of the GFC, believe me it worked here.
Mr Denmore: “The crisis is not over yet by a long stretch. US bond yields are at record lows, Japanese-style deflation is a real possibility and a deeper, more vicious global recession looks likely. Meanwhile, in the LaLa land that is the Canberra press gallery, smart alec hacks tell us the election is about nothing and tweet vigorously about whether Gillard was using a prepared speech at the launch.
Jesus wept.”
…so right, and if I could bother to care anymore about the buffoonery that passes as politics I’d weep too.
Did Bernard say ‘callous’? Yep, like most of the Tory tosh about the “mismanaged economy” that happens to be the literal envy of the western world, with both public debt and unemployment in single figures! FFS, do they think we’re stupid…or just enough of us in marginal seats to swing their arses onto the government benches.
Talk about cynical. Just like Abbott’s reply to the QandA question about taking money from big tobacco. It translated to: why not take the money? It’s mostly dumb working class people who smoke and die young, and they don’t vote Liberal.
Callous and cynical.
BERNARD KEANE - Are you actually familiar with the Keynes literature that the stimulus is based on?
The purpose of a stimulus is to maintain employment. The genius of the “bottles” example is that the unemployed - those with the most time on their hands and most desperate for cash to put food on the table - would be the first to take up mining the artificial cash-mine, and in spending the cash “mined” they would support those who are more gainfully employed. (These days there would be health and safety problems with such a method, but some sort of treasure-hunt would do just as well.)
In a developed economy it’s often hard to identify opportunities for fast spending. That’s why Rudd correctly said most infrastructure projects weren’t “shovel ready”. But that leaves a lot of tax breaks and local-council grants which could have leveraged the collective planning abilities of thousands or millions of people, without any requirement for government to coordinate the whole thing.
Turnbull criticised the first cash splash because much of it was saved. Later, in comparison to far more political and inefficient measures, the first cash splash looked like by-the-book Keynes stimulus in comparison.
You say, “The stimulus packages had two components – cash handouts to prop up the retail sector, and programs and tax breaks to prop up the construction sector.” Actually, there was a third component, to put upward pressure on residential land prices. To some extent, the BER may have even exacerbated this by inflating the costs of building and further squeezing the availability - and therefore the prices - of secondhand homes.
You also noted “the current plunge - and that is not overstating it - in the housing construction sector”. This plunge was no accident, because housing construction activity would normally deflate secondhand home prices.
The government could easily have rebated GST on all new building constructions if it wanted to stimulate building activity fast, much faster than the BER program. But that would have taken the squeeze off secondhand home prices and displeased the banks, who had convinced the kitchen cabinet that it might lead to a default. (Not true: unlike American borrowers, Australian borrowers cannot just walk away from mortgages, they have to repay what they borrowed no matter what happens to their house valuation. The only threat to mortgage defaults was the unemployment rate.)
Those are just a few of the reasons why McKibbin and others say the stimulus was poorly done, not good value for money - either in terms of employment stimulated, or enhancements to productivity afterwards.
Mr Denmore - got it in one. In this sort of shock, you’re going to go into deficit anyway, so it’s a question of what sort of deficit you want. Do you want one where people are still employed and paying taxes or one where your tax base is collapsing and social spending goes through the roof?
Or you decide you’re not going to run a deficit, implode the economy and replay 1929-32.
A great article. One of the best analysis of read for a long while.
I just wished that article could be splattered all over the front page of every news-paper in the Country, wishful thinking I know, but it makes me feel better to know there are people around who are Intelligent and do care about our Country Australia.
Thank you Mr.Keane,went down like a cold beer on a hot day.Cheers.Special mention for Mr.Denmore.
Gee Abbott has Kerry O’Briens measure tonight and was on fire
Game on Gillard.
Glad there is no worthwhile sport on Saturday night, the election telecast will be exciting.
My 2 cents worth - it has been observed above that the RBA slashing rates did not result in mortgage borrowers reducing their repayments, therefore blunting the effect on aggregate spending.
1. If unemployment increases, it does not increase evenly for everyone. As a general rule, (in a downturn) either you become unemployed, or you don’t.
2. Most people, if they are meeting their mortgage payments, do not reduce them when interest rates fall. They tend to leave them as they are, unless the mortgage is already in distress, or they lose an income stream (e.g. unemployment). Certainly, if you fear a downturn, you are not going to cut back the mortgage payment to buy a big screen TV.
3. This means that a good amount of the RBAs rate cuts do not get spent by the punters, but go back into the bank. Remember, the banks at this time had brown trousers on about their continued existence - not an environment in which they go forth and lend.
4. So the mortgage borrower does not cut their repayment, unless they are in strife and/or unemployed, in which case they are hardly likely to spend the interest rate cut. The banks don’t stop lending, but are very cautious about their lending in this environment. It takes time for the monetary stimulus to filter through the banks, be re-lent, and spent again.
Sounds like a Keynes moment, dosn’t it?
Imagine if government had simply made grants of $20 million each to the 560 or so local councils in Australia, for a total of about $11 billion, together with some conditions for accountability on how they spent it and a requirement to “use it or lose it” within a certain period. Broad, fast, flexible. There would be some wastage but nowhere near that of the BER and insulation schemes. Everyone would have got something out of it, whether it’s some road repairs brought forward ahead of schedule, a bit of park landscaping, some new bins, whatever. How hard would that be?
“Yesterday, 50 economists responded to the attacks on the stimulus package.”
How many of them predicted the GFC?
@Robertson
“Gee Abbott had Kerry O’Briens measure tonight and was on fire.”
If this session had been dedicated to explore the mental state of a delusional and conflicted person then it clearly established the complete absence of coherence and an absolute inability of the person in question to hold a position where rational thought is required.
GEF05
“Yesterday, 50 economists responded to the attacks on the stimulus package.”
How many of them predicted the GFC?
How many of the critics or naysayers of the stimulus predicted the GFC ? The difference of course is that the 50 economists are giving their evaluation of the stimulus with the benefit of seeing what occurred here and abroad. On that basis your question is about predicting an event but you try to imply that prediction is the same discipline as analysis.
I have a suspicion that the people who strongly advocated the dropping of banking regulations that caused the collapse are now the ones most against regulations to prevent a repeat. They also seem to be the ones who dispute the effectiveness of the stimulus.
I have to say, gocomsys, that you have considerably more patience than I do if you managed to sit through that interview in its entirety. After waiting for about three minutes for an answer to Kerry’s quite straightforward first question, and being completely unable to decode anything resembling a ‘yes’ or a ‘no’, I decided to waste no further electrons on the television and use them for something useful instead. I brewed a cup of tea. It was much more enjoyable … and understandable.
“On that basis your question is about predicting an event but you try to imply that prediction is the same discipline as analysis.”
No, the two are things are quite different, Geomac.
And just to make this clear: My implication is that the GFC is much more tortuous than most economists want us to believe, and that the simple, pat analysis by those 50 (I love the round number) is yet further proof that economists on both sides of the debate are full of reaction but short on understanding.
Kerry O’Brien was disgraceful tonight. not even clever , stupid questions and plenty of them, going over very old ground in some manic attempt to help his heroin Gillard.
Abbott kept his cool, very impressive in the face of a desperate journalist out of ideas.
I,m with steeleye in that I switched off the interview. Earlier in the day I saw Abbott evade the question regarding residing in the lodge or Kirribilli which is still unanswered. I didn,t need a repeat of the same non answers.
If those 50 economists were anything more than a hastily cobbled together collection of loose ‘like minds’ sending some letter somewhere, and had the courage of their convictions, why didn’t they each put in some money to have their letter published, so everyone had a chance to see what they had to say? Oh silly me! Happy to have their name put to some letter because someone asked them, but not put their money where their mouths were and have it published so people could decide for themselves!! Has anyone seen the letter? Last week, 6 ‘Australians of the year’ apparently wrote a letter as well. But it was only ever reported. No-one has ever seen it. One of the supposed signatories was this week in the media speaking with authority on a totally different topic. Did they send it via Australia Post or what? This purported letter writing has become boring; these letters don’t seem to be made public but become vehicles for so-called journalists to spruik their prejudices. I have written a letter with 27 eminent signatories including historians, Labor and Liberal former Rhodes scholars, senior editors and Walkley award winners decrying the demise of illuminating journalism. Bernard - are you game to read it?
Jesus Bernard,
We’ve waited so long for some genuine journalism to challenge the incessant pathetic rhetoric of Abbott on Labor’s economic management. The Murdoch press is so feral and irrational, we needed this breath of fresh air about a month ago - NOT three days before the election! All thinking people are so pissed off with both parties and the spin - the exposee
on 4 corners was not surprising - but it still made me sick.
Still we’ve got to get our minds together and look at the future.
Rather than the jilted creature Latham - who preaches anarchism rather than aiding the political debate, we need some
Journalists who will happily quote some of the more respected opinions in the economic academia without fear of retribution from their bosses.
I’m convinced, ( like the majority of climate change scientists who say we need journalists to get behind urgent action on climate change,) that there needs to be a major press outlet that is not pushing its own barrow -( for example - not
challenging the NBN because it’s got a satellite network that will be threatened by it.
Hang in there Crikey Subscribers - chill out, have a drink, have a think and we’ll get through this bad time.
cheers e.l.
It doesn’t matter which time period you select or whether its State Labor or Federal Labor, both spend heavily, waste and send the county into debt, them blame the Liberals / Nationals when they get in for cutting this and that to pay off the debt.
Australians need to wake up to this pattern.
Look at NSW for a classic example of why you dont leave Labor Goverments in power for multiple terms.
NOTHING achieved but expensive Toll Roads that go bankrupt.
$500 million+ wated on Sydney Metro - just breathtaking corrupt use of public funds
Bernard, what a delightfully one sided article. As someone who has studied under numerous of your 50 ‘economists’ in the past 10 years, let me point some things out to you.
1. Your ‘50 economists’ is a who’s who of the leftist movement in Australia in economics. The people who have signed this document frequently do not work in the area of policy economics and work in different areas of economics that are not macro economy related. I remember hearing Stephane Mahuteau say in a lecture once that he has no interest at all in macroeconomics because it bores him to death, so using him as a policy ‘expert’ on the macroeconomy is nothing short of a joke. We all know what side of the economy Quiggin’s bread is buttered on. It even goes as far as to use ACTU members who are clearly always going to support Labor as signatories. If your going to use this as ‘proof’ of anything, why not just put out a document with all the cabinet front benchers signing it and declare it as fact.
This is not to say these people are not very intelligent people, they are in fact worth listening to, but let’s not just give them the ‘economist’ tag and take their word as gospel. Fact remains these people are not all policy experts as yours and others assertions would claim and for those who actually do spend time looking at policy like John Quiggin, they are taking inherent bias into the argument in the first place and there is definitely 2 sides to the argument.
2. How about balancing the argument. Saying the construction industry received stimulus is all well and good. Of course they did. They were given a licence to overcharge for services on the government purse. I don’t take issue with small mark ups or slightly greater than normal payments to building companies by government in times of hardship. When it starts to cost $2mil for building a shed and no one in a government department bats an eye lid, you have to at least consider the possibility that that money may have been better spent further stimulating another part of the economy. What if, for example, construction wastage had been half, or, public works programs that employed construction companies and trades had been implemented as part of the spend to build some badly need public transport infrastructure! The argument is not so much about ‘whether stimulus was a good idea’ as it is ‘whether stimulus could have been put to better use’. Just ask the schools in Maxine McKew’s electrate what they think of the ‘education revolution’ spending as part of the stimulus. I think you’ll find they will tell you the spending was massively inefficient, ill targeted and extremely wasteful.
3. How about giving some credit to the state of the economy the Labor party received when first going into government. Yes, the Howard government don’t deserve all the credit because China’s emergence helped them out a great deal, but they do deserve some in cutting barriers and allowing the emergence to take its course. What’s more, even previous Labor governments deserve credit for ensuring a robust financial sector in Australia that was well insulated from the GFC. To say the only reason we didn’t go into recession just because of stimulus shows an inherent lack of knowledge of history, economics and efficiency.
4. We are not talking about stimulus being ‘not needed’. The last 18 months have seen most people roll over to at least some sort of Keynesian view. I think you would be hard pressed to find anyone who suggests the stimulus shouldn’t have occurred. But, lets face it, the point is that it could have been more effective by using less money and using a more strategic approach. Throwing money into the air and hoping it lands in the economy and not on people’s credit card bills should not ever be booked as an economy saving strategy.
Obviously you are voting Labor and that is fine. But I have to say I don’t mind when people come out and provide balance to the argument when people like you assert that the stimulus clearly saved the economy without discussing the economic history of Australia, admitting to the disgusting wastage that has occurred under this government in one short term and giving people like the employees of the RBA some credit and respect for disagreeing, after all, they work in macroeconomics!
The Coalition under Tony Abbott has lied and distorted facts from the moment he took over. I expect, I desperately fear, that in government they would do exactly the same. Lie from the first about what the Treasury-provided figures for the national economy present to them, promptly (and ‘with great sadness’) rescind the less Conservative election promises (“we just can’t prudently afford them because of Labor’s profligacy”) and go straight back to the Howard years of cutting spending until election-time middle-class bribery.
To give Tony Abbott his due, he’s made no secret of this, saying many times he’d take us “back to grown-up government”. That sort of government treated Australian citizens as gullible children.
Just so has Abbott run his campaign, and so he would run the country.
@DAMNUMALONE -
Re your point 1, you forgot to mention Steve “economics is all wrong” Keen, author of Debunking Economics: The Naked Emperor of the Social Sciences, a longstanding Crikey contributor who signed the letter.
Re your point 2, do you think a simple tax break on new-building (such as a GST rebate on the purchase of new buildings) would have been faster, broader, and more efficient than the BER and other building-related projects, as well as better for post-crisis building employment, population flexibility, and productivity growth?
Re your point 3, this summary by DFAT of Australia’s economy in June 2008, while naturally slanted towards boasting, certainly had no trouble finding things to boast about:
@ Damnumalone and Powerisnotstrength,
Instead of playing the man, why not the ball? All nice to call economists as lefties with interests, but where’s your alternative?
And Damnumalone, since you have “studied” for 10 years with these folk, how about coming up with your analysis? Or reference to a supportable study?
On the other side of the fence, all I have heard was that the stimulus “was bad” by 50 tabloid journalists….
MOOK SCHANKER,
I already mentioned two names above, Malcolm Turnbull who as Bernard said was ambivalent about the initial cash splash (and I explained why), and RBA director Warwick McKibbin. There are plenty of others, some mentioned by Keane in the article.
The act of collecting 50 economists’ signatures on a political letter - political because it comments on the government’s most significant claim, during an election end game - is a stunt which draws attention to the number and identity of the names signing it, as if weight of authority of those 50 names were more important than the quality of the argument expressed.
Nevertheless, both DAMNUMALONE and I did play the ball, at length, going into as much detail as the letter in question did. And we both avoided the use of dubious subjective expressions like “better and greener homes, better schools” which you will find in the letter.
@ Powerisnotstrength
Apologies, how could I have missed Steve Keen! Now that is someone you want telling you what is good and bad about an economy! I also enjoy that they made sure to include the input of Rajinder Cullinan, Client Services Accountant at UNSW, clearly an expert on macroeconomic policy and economic stimulus at a national level……
It’s amazing that you only need to look at DFAT to find out that the strength in the economy maybe just MAYBE came from a serious of fortunate events, rather than just a one off cash injection that apparently made the stars align in a way that no other stars have aligned before (or were able to for any other nation…)
@ Mook Schanker
I think you may have completely missed the point of my post. And misread or ignored most of my post. For example, you missed the part where I mentioned the RBA, which was an elusion to the fact that the RBA have come out and suggested stimulus DIDN’T play as bigger part as these 50 ‘economists’ have suggested in keeping Australia out of resession, which is the ‘alternative’ for which you were asking.
I think you may have also missed the bi-partisan nature in which I suggested that both previous Labor and Liberal governments contributed to Australia’s ability to ride out recession better than most.
Somehow, you also completely missed Powerisnotstrength demonstrating DFAT’s statistics on Australia’s economic growth and debt post 2008. Believe it or not, ‘the economy’ existed prior to 2008 and was not simply a creation bourne from the debt crisis.
But to make it clearer for you, seeing you seem to miss things, let me highlight to you that the point of the post was that Bernard has come out tearfully fighting like Chris Croker in ‘leave Britney alone’ fashion that there were numerous critics of the stimulus.
And in doing so, he has ignored completely the fact that this stimulus that apparently saved us from eating each other was only one factor in a number of things that helped Australia ride out recession, by using a letter with questionable credibility at best as one of his smoking guns. How dare people in the media criticize the stimulus payments. There is a letter from some people who say it worked.
I am not saying (as I made sure to point out in my first post, had you read it properly) that I am against stimulus, or that no stimulus should have occurred. To quote myself from above:
“We are not talking about stimulus being ‘not needed’. The last 18 months have seen most people roll over to at least some sort of Keynesian view. I think you would be hard pressed to find anyone who suggests the stimulus shouldn’t have occurred.”
What I am saying is throwing money in the air through the use of unchecked spending programs was not and should never been the answer. ‘We are in recession’ is no excuse for blatent wastage of tax payer money on schemes that frankly, gave us two of the most wasteful things we have ever seen in government in the school buildings scandal and the insulation debarkle. For the money we wasted on these things, we could have vastly improved infrastructure, our education system, our quality of life in each home in Australia. Instead, we haemorraged cash with no forethought and sure, SOME stimulus came out of it, but imagine if we had actually considered the opportunities we had in being able to spend unteathered, what nation building projects we could have implemented properly that would have lead us brightly into the future.
It doesn’t take 50 economists to tell you that paying $2mil for a shed is a waste of money. ‘We had to stimulate the economy’ is not an excuse to do this. I shouldn’t need to provide you a peer reviewed journal to make this point. Stimulus was needed. Wastage was not.
Imagine it this way. Suppose you’re a wheat farmer and you’re expecting an extreme, dry, windy heat wave. The experts warn you it will not only kill your crop, but may also blow your topsoil away, doing lasting damage.
To save your farm you calculate you’d need 10 million litres of water if it could be evenly distributed like rain, fast. That’s a big if - you’ve got some irrigation set up, but it’s a big area and you can’t move that sort of volume fast enough. So better make it 20 million litres, and expect some wastage - runoff into the dams, the riverbeds, sinking into aquifers, etc.
You’re better off than your neighbors. You have water in your dams and well tended soil. You’ve cleared up legacy erosion and salinity problems over the last 20 years, planted trees at recharge zones, etc, and your farm has been going gangbusters for the last 17 years.
You tell your trainee farm manager what he needs to do. First he hires some crop dusters who collect 10 million litres from your dams and drop it at 100m points across your land. Some of it runs back into the dams or sinks, but it’s fast and widespread and it works. So far so good.
Then your trainee farm manager decides to get clever. Eager to impress, he borrows money against your farm to build 60 concrete water tanks filled with a million litres of water each, and slow-release valves. He places them in locations which - it seems to you - are better suited for being easily photographed - next to nice scenery, a tree where some rare birds live, like that - than distributing runoff (on tops of hills, etc).
These tanks over-saturate some areas and cause a lot of water to just sink or run off into riverbeds and out to sea. The tree with the rare birds actually gets flooded. But the sheer overkill of the volume of water, together with a surprise rainfall which comes halfway through the heatwave (the 2009 Chinese stimulus) does the trick: you only lose a bit of your crop and your topsoil stays intact.
After the surprise rainfall, you tell your trainee manager you no longer need the tanks (which have only discharged a small fraction of the water in them so far) but he tells you they are on fixed settings and can’t be changed. When you look around more, you see some of the tanks are not even in operation yet, they’re still being built. Apparently all those tanks have caused a shortage in concrete and the contractors are overcharging your manager.
The trainee manager jumps up and down proclaiming he’s the genius who saved the farm all by himself, while you were vaccilating about how to do it efficiently. He claims he’s now ready to take over the whole farm. You’re just a nasty old man who goes around saying “no” to people. This manager has never, ever, put anything aside during a good year, but he now claims to be the only person who knows anything about running a farm. It’s time you retired and your advice is not needed any more, thank you.
@ Damnumalone,
I got your points, but to just paint 50 economists as “leftist”?
I don’t think anyone argues about the state of the economy prior to the stimulus, however the article is clearly referring to the repeated attacks (and politically) on the stimulus. So who blames 50 economists for a (political) countering about the stimulus?
And your point about stimulus waste, yes I agree. Stiglitz made a point about huge spending in a short time inevitably will have waste, but the consequences of not doing this would have been greater. Yeah sure in hindsight it’s easy to point and say it may have been put to more efficient use, better managed and so forth, but in the timeframes at the time, did anyone come up with an alternative, how much and how quickly and on what exactly? And if so, would this have been better?
As with your comment about spending instead on badly needed public transport infrastructure. Is this an even spread of the publics money? What If most of the population lives nowhere near the new public transport, how do they directly benefit? At least with schools, there’s one in every suburb, lots of people around Australia benefit and it also spreads the construction employment around Australia too. Kind of sucks if you don’t like schools though….Also as an economist you would understand the sheer amount of planning in implementing public transport. From an engineering perspectice, a feasibility study or route alignment takes many months. The licencses before you put a shovel to ground even takes many months…I suspect school buildings would also have some kind of planning as well, however nowhere near as complex as PT, decentralised in manageable small chunks, infinitely smaller lead times, but however in the end still with some waste with short build times. My point is though, it’s pretty easy to dissect alternatives isn’t it?
Also, maybe put the “waste” into perspective as a percentage over the normal cost of creating the capital assets. This has been established and is not exactly mind blowing waste is it? And we do have capital assets as well, not all bad really…..
And who knows exactly the outcomes of stimulus provided? Is there any OECD, IMF or other modelling into this?
A lot of technical discussion here,-all good. But:
The simple bottom line is that conservatives/Conservatives do not like to give out dosh. They prefer to take it.
Seriously.
ELAN - The conservative/liberal way is neither to take money nor give it. Better you should hold what you earn and make your own choices with it.
For most things, 22 million heads can do better than just a dozen - and much better than just three or four heads, in the case of the Kitchen Kabinet.
MOOK SCHANKER - Those critics claiming the stimulus should have been spent on an NBN or a rail network are misinformed. As you say, speed was of the essence and complex projects have too much lead time in a developed economy. Railway building was a great stimulus in China but not feasible here under the circumstances.
But the BER scheme should have been disqualified for the same reason. Too complex. It’s not that Gillard planned it badly; probably no one could have planned such a thing any better at the required speed. The point is she should not have planned it at all.
While it was geographically distributed, the second stimulus package was concentrated too much on just a small number of activities. The BER saturated building capacity and inflated prices, so that in many areas house building slowed to stop. What’s the point of a program that stops one kind of building - which people need - to make way for another kind of building - which wasn’t really what most schools needed? It created its own logjam, so that many of the building jobs are yet to start. No flexibility for changing conditions.
But the other thing about developed economies is they do not need a mastermind at the centre controlling every spending decision. The general principle is that many heads are better than one.
For example the government could have simply stopped charging GST on building new homes, instead of subsidizing the prices of secondhand homes. Nothing being built, no jobs - I keep on repeating that the purpose of a stimulus is to maintain employment, not to raise prices.
Cash could have been distributed to the 500+ local councils in Australia for the huge variety of things they do. Maintenance and public works could have been brought forward, and so on. Just like building, most of it would have been spent on local tradesmen using locally-produced supplies.
Sorry Powerisnotstrength, you lost me on the BER scheme saturation and stopping new housing. Why? Supply & demand of BER and new houses are independent except for a finite labour & material pool? Not enough builders? It’s a theory I would like to have some labour figures of? Just doesn’t make sense….
No GST on new homes, that’s a maybe, but would public spending somehow take the upswing of stimulus removal in a short space of time? I don’t think so, it would be more a slow burn like FHB…And would GST removal inflate prices as FHB did? And at the end of it, loads of money into private assets providing no productivity to the community, erm no thanks….
As for BER being too complex. Yes it’s a huge task but is it any less than distributing it to 500+ councils. Imagine the waste then? To be honest, I wouldn’t give my local council stuff all as they will p1ss it all over the shop…I thought the biggest problem with BER waste was at a local level, states and councils, correct me if I am wrong? So why give it to +500 councils to waste instead? And what was the waste?, 8% over benchmark prices maybe, yes p1ss poor but hardly armageddon as people go on about…..
When people make counterclaims that surprise me, I check them out myself instead of claiming with no evidence that they “make no sense” and demanding minute detail. If you think my claim “makes no sense” rather than “isn’t supported by the evidence,” then you’re not trying; you’re just sandbagging.
There’s plenty of evidence such as this Quadrant article showing an inverse relationship between public and private building activity last year from ABS figures.
Or this article reporting that while the $21,000 subsidy did lead to increased building approvals in 2H2009, many of those approvals just sat there without any actual bricks being laid, because of contention for tradesmen.
The Housing Industry Association publishes figures showing home building activity slumped during the crisis. And yet, amazingly, total building activity increased during that period, with indicative labour costs rising from $42.5 billion in 2007/08 to $45.1 billion in 2008/09. While at the same time, costs rose, not only financial but also “other” (which includes materials).
Whoop di do, the Quadrant article reads like an anti BER rant, drawing some pretty long conclusions out of the limited data presented from an ex-ACCI dude bent on Says law with just another opinion…And a few “maybe” and “mights” from the other articles and “aggravated” isn’t exactly evidence based material.
Without a doubt there is a limited labour pool to perform the work, but a flunky new house building market was already well on the cards and still is and I still cannot see evidence of how the BER was somehow responsible for killing the new housing build market….
Hello PIS.
I had a good think about your view. But no;-no-don’t agree. Glad to hear from you though.
Both Governments take. It is a matter then of distribution…………..conservatives,-…..do I really have to explain this??
Very possibly. Your second para. is a mystery. Tell you what PIS;-you explain that. And I’ll try to get you to understand how things are.
OK?
Hi ELAN,
Thank you for thinking about it and replying. That second paragraph, I tried to express a similar point in another thread that I’ll copy here, see if it computes:
Good economics is like this: Give a man a fish, and you feed one man for a day. Teach him to fish, and you feed one man for life. Find and root out economic inefficiencies affecting the sale or production of fishing equipment and fish markets, and suddenly fishing is on for young and old. Because I don’t care how much you know about fishing; somewhere out there are people who know fishing much better than you do. And somewhere out there are fishermen who can’t quite afford fishing equipment, and families who can’t quite get to the fish market after work, or can’t afford to buy the fish.
PIS, yes good economics in a perfect market where efficiency is at maximum, however such is life with many complexities and market interventions that with fishing as an example, a ‘tragedy of commons’ is a likely outcome where self interest dictates over the overall social good. It’s a moot point whether one market intervention such as BER was better/worse than another such as a tax break. Maybe we should have had no intervention in beholding to a perfect market philosophy, have no stimulus and just let nature take its course. I don’t think that would have had much support though….
Ooookkk riiight…….
” Find and root out economic inefficiencies affecting the sale or production of fishing equipment and fish markets, and suddenly fishing is on for young and old. “
— — — — —
Weelll, conservatives had a *wee whiley in Government…..and I’m still not fishing,-neither is the grandy….emmmmm, it didn’t work..
______________________________
“And somewhere out there are fishermen who can’t quite afford fishing equipment, and families who can’t quite get to the fish market after work, or can’t afford to buy the fish.”
— — — — -
What a bloody scandal!! A Fish Crisis of the highest magnitude!
All is lost PIS, I tell yer-all is lost!
We have Howard in power for *, and then the Ruddtime and the Gillardminute,-and me an’ the kid STILL ain’t fishin’,-and, AND…..fishermen can’t afford equipment/families are missing out on the markets/ and why bother anyway because what fish there has has been caught with a piece of string and a bent hatpin,..and it’s been on the shelf for two weeks.
Life is amazing isn’t it? It finds its own level.
1) People are working longer and longer hours with unpaid overtime, (and of course should be grateful) so?-the fish market is out, because they’re too knackered to go there.
2) Fishermen have no equipment-so? very few expensive fish.
3) Perfect! No money. No time. Few fish. No sale.
The lack of sales will take the pressure off the fishermen, and they will not fear competition from the ‘young and old’-because if they did not fish before, they are certainly not fishing now.
The worker does not have to feel guilty- because there isn’t much fish.
Sorted.
________________________________
Thank-you for you for your eloquent fish logic PIS. It really made me look at the problem.
_______________________________
As I said: conservatives prefer to take. The fishermen are in such a parlous state because the money has to be distributed by conservative Government to the poor and needy like private schools and ……whichever affluent but needy sector needs our help.
@ Mook Shanker
Appreciate the lack of hostility in your latest reply.
In relation to the ‘leftist’ comment, the implication was not that anyone who is against stimulus is a budding socialist, it was an observation that this was a political stunt from people aligned with the labor party, not a declaration of any sort of fact or analysis that can be relied upon. Of the people who are on that list, I can identify none (from the 10 I know, and given my background in statistics I’m going to draw an inference on the population), who are not aligned with a leftist way of thinking. This bothers me because these people are dressing themselves up to be economic policy experts by using the title ‘economist’, when in actual fact getting many of them to talk on macroeconomic policy would be akin to asking a nurse in the public sector about how to save the health sector. They may have some good ideas from past experience, but it is clearly not their area of expertise.
Bernard’s article was extremely one sided which bothered me and it showed no effort to discuss whether the stimulus package did in fact deserve to be examined, it only showed Bernard’s lack of journalistic integrity by pushing his own, clearly Labor agenda.
I heard many better alternatives. My favourite was issue ‘small business’ vouchers rather than $900 cash to people. This would have had the same effect as the stimulus, but removed the option to save. Yes, it is easier to point fingers in hindsight, but even a first year management student with a pass average could tell you that if you are going to implement any sort of program, you need a system of checks to ensure it is working correctly. Such a system would have decreased the likelihood people will misuse the system, increased employment by employing people to perform the checks and meant that the level of wastage would have been drastically reduced. It is not hard to set up a system of checks, in fact, if you can set up a stimulus package, you can design checks to ensure they are not abused quickly and with no hinderance to the overall implementation of the package.
As for public transport as ‘an even spread of the public’s money’, surely you realise very few government programs are ever going to be ‘an even spread of the public’s money’. Roads get built, some of us don’t drive. Water infrastructure is built but a lot of us have water tanks. The very nature of government programs is to target specific areas or members of the community. I think public transport does help in many aspects, because it increases the utility of people who drive, because more people use the public transport system if it is cheap and fast, allowing the people who can’t or don’t use it to drive everywhere that little bit faster as there are less cars on the road. I do take your point that education is a good spread across the community, however, I think the wastage that the program created was disgraceful. Yes, stimulus is good and education was a good place to go with it, but the implementation of the program itself was nothing short of a debarkle. And we pay these people to organise community events properly, not waste our money. There is a big difference between ‘stimulus’ and complete wastage.
And while I take your point about the planning that is required for public transport, I would counter that by suggesting there are already a number of programs that have been heavily planned and if it wasn’t for the NSW government running out of money, they would have been implemented. You can’t tell me that a government can spend $500mil on a railway and then just let it go without having at least some parts of it past a planning phase.
The point not so much that public transport would have been better than the BER, the point is that there is no reason the same stimulus, better controlled, could not have provided both, while increasing levels of employment. Yes it is easy to disect alternatives, but the prominent theme in doing that is that ANY alternative would have been better if it had been better controlled and even the BER would have been successful had the government had some sort of system of balances in place.
But they didn’t. And that is the point. Stimulus is good. The stimulus package had to happen. It just didn’t have to be so ill controlled.
MOOK SCHANKER - No, the alternative was not “no intervention”. The alternative was efficient intervention. Just as there is efficient regulation and inefficient regulation, efficient taxes and inefficient taxes, efficient vertical-equity transfers and inefficient ones, efficient hospital funding and inefficient hospital funding, and so on. To claim that any perceived difference in the one is a “moot point” is tantamount to denying there’s any difference in all the rest. The main difference between the stimulus and those longer-term interventions was the requirement for speed. But that was all the more reason for giving recipients more bottom-up discretion over how to spend the cash, rather than putting it even more than usual in the hands of top-down command.
@ Damnumalone, in essence i think we agree.
I do want to flesh out public transport planning. Yes much planning was done for example for the +$8bn Sydney Metro. However at time of the chop, no tenders had been awarded for the design, build & operate, so detailed designs were yet to be made, only conceptuals and technical requirements from Sydney Metro Ltd. If, hypothetically, Sydney Metro was to kick off tomorrow, it would take 6-9 months just for retender and contract award, then create detailed designs, then construction SOWs and award, then after that, dirt digging. This is the stark reality of PT planning, it is horrenduosly complex and expensive as can be seen from $500m spent and not a shovel raised in anger. I could go into the detail of the $500m but too tedious
Yes I’m all for the economic benefits of PT and for more spending. I just believe quickfire stimulus spending isn’t the way to go in this sector though….
PIS, “Moot point” statement refers to which would be a better stimulus outcome; a stimulus of BER or stimulus of tax break? I think you mentioned ‘tax break’ stimulus as a BER stimulus alternative and hence this is what I was referring to….
I guess by this time tomorrow it will all be a moot point. Water under the bridge. Labor has already won the election.
The Libs will blame their leader and go looking for a new one. It may be Hockey or McFarlane. Turnbull will wait six months or so for some fires to die down before he thanks the temporary leader for keeping his seat warm and takes over.
I’ll be trying to remind people of Gillard’s “moving forward” catchcry. What started out as an invitation to ignore the mistakes of the past such as “losing its way” may yet be converted - if we insist on it loudly enough - into a practice of reappraising some of the bad policies of the past. Policies which may have seemed like good ideas once, but which parties should not feel any need to continue just for the sake of defending their past decisions to the death.
When journalists jump up and down about politicians changing their minds - such as the stupid antics we saw in recent decades when some individuals first opposed a GST and then later defended it - I urge readers to pounce on the journalists, and to quote Keynes who is back in style: “When the facts change, I change my mind - what do you do sir?”
Let “moving forward” be the slogan of the new government then. It’s true, the Labor government did lose its way. I hope not only the government, but the opposition and the press gallery too, can dig deep and not just rediscover a way that was lost but open their eyes and ears to whole new ways.
If doofus wins, then lets remind him of his w*nk “action contract”
Which he is already diluting…..