Abbott’s stimulus hypocrisy

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Prime Minister Abbott is making an art form of the international gaffe. Last night it was Davos’ turn. From the SMH:

Prime Minister Tony Abbott has used his contribution to the World Economic Forum in Davos, Switzerland, to criticise Labor’s stimulus spending during the global financial crisis while also calling on the US to tread carefully as it tapers its own stimulus measures.

On Thursday night, he painted a generally bullish picture of the global economy but noted the recovery remained ”fragile”.

In comments set to inflame the argument over Labor’s financial record, Mr Abbott broke with the convention of avoiding domestic point-scoring while on the international stage by claiming Labor had erred during the financial crisis because it had ignored the immutable economic rules.

According to the Prime Minister, the Howard government had helped the economy but Labor had undone all the good work.

”In the decade prior to the crisis, consistent surpluses and a preference for business helped my country, Australia, to become one of the world’s best-performing economies,” he told the high level group containing many of the world’s top business and political leaders.

”Then a subsequent government decided that the crisis had changed the rules and that we should spend our way to prosperity.”

The comments seem to suggest Australia did not need to stimulate the economy through 2008-09 under Labor, despite the near-unanimous advice of economists and Treasury to do just that.

The stimulus program has been accused of waste, such as the pink batts scheme, elements of the school halls program, and cheques sent to the deceased or to people living permanently overseas.

However, the Australian government also received widespread praise and recognition from around the world for its aggressive response to the global challenge with swift policies credited with avoiding the recession from which virtually all comparable economies are yet to fully recover.

The only issue I had with the Australian stimulus was the use of the first home owner grant, which missed a chance to de-risk households. The package may have rolled on a bit long as well but otherwise it was textbook stimulus, very much needed and will be copied elsewhere when the next crisis strikes.

Meanwhile, Mr Abbott’s seemingly intractably political Coalition is busy gutting the ability to scrutinise its own stimulus measures. From the AFR:

The nation’s top infrastructure adviser has blasted the Abbott government for threatening the credibility of Infrastructure Australia by eroding its independence and muzzling its advice.

In a scathing attack, Infrastructure Australia head Michael Deegan says changes planned by Deputy Prime Minister Warren Truss will enable the government to dictate projects to be spared from the advisory body’s scrutiny.

Mr Deegan also hit out at changes that would give the government the right to intervene in how the body – established by the last Labor government in 2008 – prepares long-term infrastructure plans and block it from considering how climate change may affect needs in sectors such as energy and transport.

The proposed changes, which require legislative approval, would damage chances of winning bipartisan support for nation-building, including the expensive capital city road projects that the Abbott government hopes will cushion the economy from the end of the resources boom, he said.

The changes and were “diametrically opposed” to providing the government and public with fearless and transparent advice.

Pork barreling here we come. Nice work if you can get it.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. “”In the decade prior to the crisis, consistent surpluses and a preference for business helped my country, Australia, to become one of the world’s best-performing economies,” he told the high level group containing many of the world’s top business and political leaders.”

    He really is a moron. Nothing to do with the mining boom coupled with massive private debt increases? And don’t forget selling off every government asset that Costello could get his hands on.

    • migtronixMEMBER

      Yes he really is a moron, sorry flawse its pretty much undeniable now — sometimes I pine for Latham only because, although a prick, he could actually talk candidly at times. I remember when Latham and Abbott used to have a entre-tet Friday nights on some ABC show back in late 90s/early 00s(?) and Abbott was always just an operator – a Howard clone…

      • Latham is my favourite polician of modern times!!!!!!!! For all his obtuseness (stretching English and trying to avoid calling him a rusde obnoxious bastard) at times he’s a really seriously intelligent bloke. Interviews with him before he became really big time on the political scens are worth watching.
        Also, if you are intelligent and you go through the political process I’d reckon you either succumb and conform or go nuts! I think it just drove Mark nuts!

      • Ditto flawse ditto. And both the press and his party BURNT him!! That was the last straw for bi-partite collusion for me, can’t believe I kept the facade going into my mid 20s – one of my biggest mistakes was ever believing the system could be made to work…

      • Frederic Bastiat

        Have to agree with you again Flawse…Lathan was so ahead of his time. His Civilising Global Capital book was a blueprint for how Labor could have thrived in Australia and held power for decades…but he is too honest for this nation.

        They want lies and rhetoric…they will get it, and the consequences that come with it.

    • Apparently Abbott didn’t make the vote for the stimulus package – he was too busy getting pissed and falling asleep! And this story isn’t even from the ABC or Fairfax so we can take it seriously.

      http://www.dailytelegraph.com.au/news/national/abbott-snoozed-through-key-vote/story-e6freuzr-1111119064644

      TONY Abbott missed the key economic vote of the new Parliament – the $42 billion fiscal stimulus package – because he fell asleep after a night of drinking witnessed by MPs from both sides of Parliament.

      Mr Abbott told Chief Opposition Whip Alex Somlyay that he missed five divisions on the night of Thursday, February 12 because he fell asleep in his office.

      His nap followed dinner in the Members’ Dining Room with Peter Costello, Kevin Andrews and Peter Dutton, where numerous bottles of wine were consumed

  2. Somehow I don’t think that’s the only problem you had with the stimulus. What the Labor’s stimulus served to do was drive up interest rates at a time when fiscal consolidation could have been putting additional downward pressure on them. By sending interest rates in the opposite direction, Labor’s fiscal policy pushed out the interest rate differential between Australia and every other advanced economy on Earth, which sent the AUD far higher than it needed to go. When you combine the fiscal splurge with Labor’s re-regulation of the labour market, policy blunders bear a substantial portion of the blame for Australia’s lack competitiveness.

    Dutch Disease has been your cause célèbre for as long as I’ve been reading this blog, so you’ll forgive me for doubting your assertion that you can’t sincerely find any faults with the stimulus beyond the FHB grant.

    • migtronixMEMBER

      +1. As if the “stimilus” wasn’t pork-barreling!! And what kind of arse backwards time are we living in that the most targeted stimilus we can come up with is a sledge hammer to the knee?

    • Absurd! I’ll take your point in that it went on too long, as I said, but I’m not so committed to fighting DD that I don’t think stimulus was a good idea during the greatest global downturn since the Depression.

      It’s staged mechanisms worked brilliantly and it was actually well managed so far as useless government spending goes. Of course there was waste but that’s the point in a crisis.

      My argument is that Abbott is hypocritical on this issue because he’s now trying to hide his own waste while attacking Labor’s. The difference is also that Abbott has time to do this right, Labor did not.

      • A politician is a hypocrite *shocker*. So are you lower rates and spread “stimulus” works about as well helicopters – look at the consequences of that nonsense… Putting people in jail would have been a much better stimulus…

      • Actually migtronix, I would argue that “helicopters” — if by that you mean dropping cash on the public — would be far better stimulus than what has happened in most countries … trillions in electronic digits credited to the accounts of utterly corrupt sociopath banksters.

      • Yes I do realize I am being a little unfair belabouring this point from the comfort of the present day, with the accompanying luxury of hindsight, but the fact stands that the majority of that keenly targeted waste didn’t actually hit the economy until the moment of acute peril had passed. With sufficient fiscal headwinds, the cash rate could have happily remained below 3.5%, and with a softer labour market wages would have been restrained. You can quibble with the political feasibility of such a strategy, I certainly would, but the economics of it seems quite plain to me. Labor had 3 opportune years to enact meaningful reductions in outlays that would have both shored up the public balance sheet and served to improve Australia’s competitiveness. (It’s late conversion to the surplus cause was of course a farce based purely on fantastical revenue forecasts.)

      • @op8red I disagree. Like rain falling from the sky goes mostly uncollected and drains out through underground rivers to the sea, money falling from the sky will pass through people’s hands and flow straight through to the banks.

      • @migtronix I wasn’t actually advocating helicopter drops on the people, just observing that it would have been better (and less costly, and less destructive in the long run) than giving trillions direct to banksters. Lesser of two evils, perhaps. Wasn’t there data suggesting a fair % of Oz “household stimulus” was used to pay down debt (ie, this used as one argument viz. why it was “ineffective” in stimulating economic activity)?

      • BS HnH…it was just another debt binge. You Labour fanatics paint it as all wise and money for noithing!!!!!! It wasn’t and isn’t and we ARE now payoing the price.
        We ended up another $100 BILLION dolklars deeper in teh foreign debt foreign ownership morass as a result.

        Really I don’t care if you argue it was a good thing but, for goodness sake, acknowledge the cost in the extrernal account and don’t argue that it was some costless big bonus to Aus.
        Australia, as even ypu concede, needs reform. You also concede from time to time that the big threat to this nation’s financial well-being now lies in the external account.

        The GFC was a time in which we should have attacked reform out of necessity. Of course it would have involved a reversal of everything that Labor got itself elected on and continued to keep trying to get elected on. So we kicked the can down the road, got into further more impossible debt and created an economy that required even more foreign funding.
        Let’s call this crap for what it is no matter which side of politics it comes from!

      • Hells bloody bells… for all that damned stimulus cost we could have been the world leaders in Thorium research and bringing practical realistic technology to the world market!
        Just ONE example. We could have built all the gas fired power stations that would have immediately and economically increased our competitiveness and reduced the Carbon emissions. Just another example of where hypocrisy reigns supreme.

      • MJV I agree.

        Flawse agree – time for the political blame game to end. Tedious and futile. There’s work to be done! Starting with DEs Adult Conversation about the economy.

      • 3d1k

        ” There’s work to be done! Starting with DEs Adult Conversation about the economy”.

        Absobloodylutely! They were such important posts. Did nobody read them? Did they read them and not understand?

        Before you can comment here you should have to fill in a form, answering questions, that demonstrates that you have both read and inwardly digested those DE posts!

      • @flawse, we didn’t even have to do anything that clever – lets face it, it was never going to happen just look how they screwed the pooch on broadband for crying out loud!

        What if we’d nationalised all the Superfunds and with that liquidity pool started a Sovereign Wealth Fund so that super would draw down on that and that fund could borrow at lower rates and lend higher making money for Australians instead of further putting them in debt?

      • Mig

        You’ver gone around in three circles and got me confused…..I’ll have to think about what you just said!
        I start with an adverse bias…there looks to be too many places for the bastards to bleed the system 🙂 That said there can be no worse outcome than all our Super going into building bloody houses and shopping centres!

    • By sending interest rates in the opposite direction, Labor’s fiscal policy pushed out the interest rate differential between Australia and every other advanced economy on Earth, which sent the AUD far higher than it needed to go.

      That was the mining capex boom my friend …

      • Ff how that got the nod I’ll never know…is it true Andrews and wife run/ran a Catholic marriage counselling business…

      • @flawse When I heard the story break out, I wondered if I had suddenly woken up in Texas. Good ol’ god fearing christian folk running the country and all that.

        Keating might have been wrong about everything else but he wasn’t about Tones …

      • 3d,

        I believe that Ms Minister’s Wife has recently left that business. So no financial interest. However, there is certainly a degree of personal interest. Not necessarily bad, since he will be committed to making it work.

    • If anyone has seen the ABC24 reporting on Abbots speech at Davos I would be surprised if they weren’t as embarrassed being Australian as I am !

      Abbot is an absolute a$$hole -lecturing World leaders about how Australia was showing the way AND cheap shots at the previous Govt -Like We’re NOW open for business !! What a prat.

      • “lecturing World leaders about how Australia was showing the way”

        It seems to be a contagious disease!

      • “It seems to be a contagious disease!”

        Unfortunately too true, I seem to remember Swan doing exactly the same thing.

  3. TheRedEconomistMEMBER

    Keating on Abbott… His words certainly ring true.

    “If Tony Abbott ends up the prime minister of Australia, you’ve got to say, God help us,” he said.

    “[He is] truly an intellectual nobody and [has] no policy ambition.”

    —————————————————-

    Mr Keating says when he was prime minister, Mr Abbott was regarded as “a sort of resident nutter” within politics.

    —————————————————-

    http://www.abc.net.au/news/2010-03-16/keating-attacks-intellectual-nobody-abbott/365906

    • As a someone who fits the liberal voter demographic, i.e. post grad degree in economics, blue ribbon liberal seat, white collar job in finance..

      I am genuinely concerned at our PM’s ability to govern so badly, with such little concern for the nation’s interests.

      Keating has hit the nail on the head, Abbott has no policy ambition, and God help us all..

      • kharn
        It IS a worry BUT really!!!!! Would anyone who went out and told the real truth about our economy and what needs to be done ever get elected? Would he get even the support of economists who basically now all believe in the ‘Cargo Cult’ and’ fairies at the bottom of the garden’
        He/she would be opposed by all academics, every powerful interest group, every self-intersted recipient of government largesse..business or social welfare.
        We’re screwed!
        The answers lie back in time.

      • TheRedEconomistMEMBER

        Kharn83

        We have a very similar C.V and often i feel like a Leper when I convey my thoughts in the workplace.

        Keating had the gumption, the ticker and foresight to have converation with all stakeholders, whether they it be business, unions or the workforce.

        He understood that a government needed to spend their political capital to reform improve this countries long term prospects

        Since then Government from both side has merely naval gazed or produced policy on the run. Policy via popularity.

        Abbotts seems to be the kid in the playgorund you who steer clear of. The one who would lag on you for there own benefit, the one who would say or promise anything to gain popularity.

        The one you alway wanted to drop their dacks, “pants em: for the poor form.

      • Would anyone who went out and told the real truth about our economy and what needs to be done ever get elected?

        Perhaps or perhaps not. But why can’t a single politician talk about the issues of the day without constantly blaming the other party for everything?

        How about we start with some tiny steps of taking some f–king responsibility?

      • “How about we start with some tiny steps of taking some f–king responsibility?”

        Joins jelmech in a sigh!

  4. It beggars belief how people can still believe in the magic pudding of stimulus.

    The Keynesian claim that there is such a concept as aggregate demand is nothing new, and he stole it from Malthus 100 years earlier.

    Ricardo and Say represented the prevailing classical orthodoxy when they dismissed Malthus and correctly suggested that supply constitutes demand.

    When you bother to read Keynes own words, it seems laughable. The idea that deflation must be avoided at all costs because all prices will enter a downward spiral seems nonsensical.

    Will people refuse to buy bread, clothing, cars and necessities if prices gently adjust downward ?

    And the insistence of Keynesian idiots to blame excess savings for every economic correction, which itself is usually in response to previous credit bubbles and misguided stimulus, shows they have no credibility and reason to back their obsession with public spending and loose credit.

    Besides, stimulus and debt are a claim on future spending and consumption.

    This week, we even have the socialist President of France proclaim that “supply constitutes its own demand”. Yet there is not a single mention here on MB !

    The evidence is mounting that loose credit, central banking and monetary stimulus do nothing to grow real value-added spending and productivity.

    The Keynesian disaster is coming to an end.

    • @Jono The biggest failing of Keynesian policy as I see it is they are using raw numbers, we must have 2% and 3% GDP growth, while removing the most important factor in the economy, the producers and consumer i.e people.

      Make everything per capita and you will go a long way to correcting some of the discrepancies. Furthermore look at demographics and you further.

      However I agree that the need for new economic thinking is becoming alarmingly urgent.

      • The biggest failing of Keynesian policy is that it entrenches usury — ie, theft-by-deception, and that of a character once directly equated with murder on the scale of crimes — as the basis for all economic activity.

      • @Op8 That is a matter of debate. Much like religious debate etc, a lot is up to interpretation.

        The policies may or may not entrench usury, but the justifying usury based on said policies is the problem. I see it as being too different things.

    • Frederic Bastiat

      Great post Jono!

      It also baffles me that Keynsians are still so undettered that their policies are failing.

      The government is effectively fighting a “War on Deflation”…imagine that, all these economic theories and models etc… and now the central banks, bankers and mis-informed economists and economic journalists are now saying that we need to increase prices to save the economy…

      Its amazing that they havent just folded…the stubborness and ignorance is infuriating.

      • It also baffles me that Keynsians are still so undettered that their policies are failing.

        Current polocies aren’t their policies.

        Bernanke was an unfetted Firedman monetarist, his famous thesis on the great depression, and his modus operandi of fighting this great recession and pure, 100% monetarist theory.

        His loose money was supposed to “trickle down”…. according to theory.

        WWII created the ‘loose’ money, which built the bombs, tanks, bullets, and workers got paid plenty, or soliders got paid plenty.

        After WWII, the same workers and soldiers still were paid plenty, and instead they bought TV’s, cars, houses.

        Taxes were adjusted to ensure price stability, with the cyclical nature taken into account to reflect surpluses and deificits.

        But the monetary policy was taken into account to ensure workers had work.

        NAIRU, a central tenet of Friemdan’s policy is the polar opposite.

        I cannot agree there is any meaningful keynesian influence in the western world.

    • Ohh dear, how keynesian policy can be misrepresented here is worrying.

      It beggars belief how people can still believe in the magic pudding of stimulus.

      Stimulus is to avert loss of latent production and loss of incomes. if ‘stimulus’ is captured by ineffective and wasteful targets doesn’t mean it was wrong.

      WWII proved full employment, 6-8% of the population was wearing khaki and engaged in wealth destruction, such as ship,s bullets, bombs, etc

      After WWII, the de-mobbed soldiers didn’t have ti displace existing workers, they just added more product. Likewise, the producers of bullets, bombs, tanks, ships, built consumers goods instead.

      The ex-soldeirs still got the same wages, the ex-bomb makers cum TV maker got the same wage.

      Aggregate demand didn’t change, product compositon did, and wealth destruction diminished.

      It resulted in the most prosperous time in history… 1945-1971… the ONLY keynesian period.

      The Keynesian claim that there is such a concept as aggregate demand is nothing new, and he stole it from Malthus 100 years earlier.

      He never claimed it was a new idea, he refined it.

      Ricardo and Say represented the prevailing classical orthodoxy when they dismissed Malthus and correctly suggested that supply constitutes demand.

      It isn’t “correct”.

      Latent demand drives new supply, it is not the other way around. No producer EVER brings new product online if there is no possibility of customers.

      When you bother to read Keynes own words, it seems laughable. The idea that deflation must be avoided at all costs because all prices will enter a downward spiral seems nonsensical.

      What’s laughable is your interprestation.

      That is not the main consequence to avert with deflation. Deflation ultimately impacts on indebted producers.

      Debt is nominal. if product sells at increasingly lower prices, then real debt servicing becomes increasingly difficult.

      In pursuit of increasing efficiency, the marginally less productive lose jobs, and they withdraw from aggregate demand.

      Supply leads to demand is a furphy if the means of acquisition is gone.

      Will people refuse to buy bread, clothing, cars and necessities if prices gently adjust downward ?

      i) If they lose their jobs, yes

      ii) If the supplier defaults and ceases production, then customers refusing won’t play a part.

      And the insistence of Keynesian idiots to blame excess savings for every economic correction, which itself is usually in response to previous credit bubbles and misguided stimulus, shows they have no credibility and reason to back their obsession with public spending and loose credit.

      Ehhh ? Name a credible party that blames excess savings?

      I agree credit bubbles are the cause, but this time it was not Keynesian.

      Besides, stimulus and debt are a claim on future spending and consumption.

      If matched by an increase in wealth, which is what stimulus spending should be targetted at then that is not a problem. it’s just a shifting on the legder.

      If, and as we commonly see, the stimulus, is targetted at cinreased consumption, then I agree that is a problem.

      That however is a fault of policy, not of the economic school.

      This week, we even have the socialist President of France proclaim that “supply constitutes its own demand”. Yet there is not a single mention here on MB !

      Hollande is now credible with you lot once he parrots a suitable, solitary line?

      The evidence is mounting that loose credit, central banking and monetary stimulus do nothing to grow real value-added spending and productivity.

      keynesians don’t endorse loose moentary policy carte blanche… not that they’re in power anyway.

      The post WWII period with full employment, burgeoning infrastructure and high R&D, all patr and parcel of proper Keynesian thought however did add value, productivity, and ultimately wealth.

      And all boats rose.

      The Keynesian disaster is coming to an end.

      Keynesian thought was starting to be dismantled in 1971, and was gone in the world by 1982.

      Milton Friedman’s monetarist policies have either been policy de facto, or policy de jure ever since.

      Blaming something that has been out of favour and without influence for 40 years is ridiculous.

      • @RP oh really? Then why has the past 30 years seen ballooning debt along with secular deflation? Dreaming here dude.

        As for all boats rising that tide went out with the closing of the gold window and we can now see who was swimming naked (the US)

      • Keynesian policy was removed from the western world in 1982, 31 years ago.

        Look at the prevailing school

      • Rusty I suggest a hybrid Chicago School and Keynesian ideology prevails – an uneasy mix which is probably why no one is ever fully satisfied!

      • it was removed because it went broke! Duh!

        😀

        There was never a period between 1945-1971 that was as bad as 2008, 2001, or 1990.

        Financial hardship is greater now that at anytime during the keynesian era.

      • Rusty I suggest a hybrid Chicago School and Keynesian ideology prevails – an uneasy mix which is probably why no one is ever fully satisfied!

        I do not agree.

        Monetarists also ‘stimulate’, however for pursuing a different outcome.

        I just wrote on it below in reply to FB.

      • migtronixMEMBER

        @RP BECAUSE OF not despite Kenysian economics! Sheesh.

        Do you seriously believe Kenysian economics had nothing to do with the surge of women in the workforce (45-71)? And you surely are aware of what that did to society…

      • As for all boats rising that tide went out with the closing of the gold window and we can now see who was swimming naked (the US)

        This looks like a subsequent edit.

        Yes, I agree 1971 was a changing point. The US effectively defaulted on its debt with that change. of course it’s going to have an impact.

        What we saw was the 1970’s where bond holders refused to wear the cost, and there was a struggle in where the pain was going to be dispersed.

      • How many times do you have to be told, we do not live in a keynesian era, nor have we for over 30 years.

        In the keynesian era, there were no downturns as harsh as the ones in the monetarist period.

        Do you seriously believe Kenysian economics had nothing to do with the surge of women in the workforce (45-71)? And you surely are aware of what that did to society…

        Erhh, female participation rates didn’t increase greatly until the late 60’s.

        You’re fighting by parroting the words of other ideologues.

        I will fight using empirical evidence.

        The middle class burgeoned in the keynesian era, work was abundant and technology progressed at an astonishing rate.

        That’s the empirical evidence, and it did it in a fashion in which the theory predicted.

        Like a vine crawling up.

        We abolished that with trickle down, and the empirical evidence 30+ years later does not support the theory.

        To fight dissent, monetarists are attempting to put the spotlight on the previous, superior, school saying they are at fault, even though there hasn’t been a keynesian direction in over 40 years.

        This is the bulwark of the desperate.

      • “hhh ? Name a credible party that blames excess savings?”

        Not sure how you define ‘credible’ However Bernanke is one…there was some professor of some university somewhere just a few days ago…IKrugman has done so but again whether I wouldn’t argue with you if you claimed Krugman was not credible.
        Suffice to say that there are quite a few that have made the claim.

        RP I think you have taken Jono apart on a matter of terminology. Perhaps you’re theoretically correct to do so. However the general reference to Govt stimulus programnes has been labeled ‘Keynesian’ Jono is just using the term in that sense.

        Jopno ” still believe in the magic pudding of stimulus.”

        RP Stimulus is to avert loss of latent production and loss of incomes. if ‘stimulus’ is captured by ineffective and wasteful targets doesn’t mean it was wrong.

        The point Jono makes is that moldern economists do believe in the magic pudding. Stimulus is regarded as having no cost. The Rudd stimulus, as portrayed here in the media, and indeed here in MB, had no cost. Therefore it didn’t matter if it was largely wasted ( let’s not for the moment get side-tracked into that) It DOES matter if stimulus is wasted because in enacting stimulus in an economy such as ours we are incurring serious debt. We should make damned sure we are getting a good return for that debt in terms of future incomes rather than spending it on straigh consumption in a society already bogged down in consumption. If your current production and consumption has been distorted by policy and unrealistically low interst rates, thereby pricing resources incorrectly, then your stimulus into that structure will be wasteful.

        That is not the main consequence to avert with deflation. RP Deflation ultimately impacts on indebted producers.
        As it should! Too low interest rates misprices resources and heavily indebted producers have indulged themselves in those mis-priced resources. Therefore it is necessary for the world to survive that they disappear. We are using inflation, and negative RAT interst rates, to keep the inefficient in business. I see it in my own industry.
        Jono “Will people refuse to buy bread, clothing, cars and necessities if prices gently adjust downward ?

        RP i) If they lose their jobs, yes

        ii) If the supplier defaults and ceases production, then customers refusing won’t play a part

        Why, except in a world based on inflation, exponentially increasing debt, and resultant over-use of the resources of the world, should people lose their jobs just because prices decline a little? How do you sustain the ever increasing debt and ever more rapid rate of use of natural resources forever? It has to end some time. Jono may be right. maybe we have reached the point where we must realise this can’t go on forever.

        Personally I’m backing that we will not realise that. We will go on with consumption and inflation inducing fiscal and monstary stimulus. I’m going to be the classic example of the misuse of resources using debt to buy houses. We’re buying them for family to live in not IP’s. Nevertheless unrealistically low inteerst rates result in my borrowing and investing in such things rather than other more productive assets.
        It will go on until it can’t.

      • Ever notice how all of these various schools of economic “thought” (*cough*) implicitly rationalise, and thus provide “intellectual” support for, the continued practice of usury?

        It is simply assumed that the national currency should be issued — whether by government or by private banks in the first instance, it ultimately matters not a whit — in the form of a debt principal, carrying a legal obligation to repay both principal and an uncreated thus non-existent “interest” component. (Non-existent, that is, unless more debt principal is issued to someone else, for the nation’s “economic actors” to subsequently “compete” over, in order have the “money” to repay the usurers.)

        All of the schools of economic thought are, in practice, little more than tools of confusion and argument, that serve to keep everyone preoccupied with intellectual masturbation, while leaving the elephant in the room unnoticed.

        We fruitlessly debate, generation after generation, the minutiae of economic “theory”, even while observing the data clearly evidencing the fact that, over decades, it is the usurer “class” that has grown ever larger, and ever wealthier — phenomenally (exponentially?) so — relative to every one else.

      • migtronixMEMBER

        @RP what turgid nonsense! The rise of participation post 71 was a DIRECT consequence of Kenysian tax grabbing!

      • “hhh ? Name a credible party that blames excess savings?”
        Not sure how you define ‘credible’ However Bernanke is one…there was some professor of some university somewhere just a few days ago…IKrugman has done so but again whether I wouldn’t argue with you if you claimed Krugman was not credible.
        Suffice to say that there are quite a few that have made the claim.

        I wasn’t aware of Krugman recently.

        In line with ‘excess savings’, is there a concurrent mention of an incorrect setting on the price of credit, hence affecting the clearance price?

        I’ve been big on the basel II legislation be a major part of what was at fault with the global housing bubble, namely in regards to the capital and reserve provisions. I can see how mispriced credit then misallocates capital… not becuase there is excess, but because of risk vs reward.

        I haven’t expressed it because I can’t quite articulate it properly.

        there is no such things as excess savings, no keynesian would assert that carte blanche.

        As I said, if their is a mispricing on credit that affects its clearance price, that’s a second issue.

        RP I think you have taken Jono apart on a matter of terminology. Perhaps you’re theoretically correct to do so.

        If it’s a debate on terminology, and I use terminology, then what am I doing wrong?

        However the general reference to Govt stimulus programnes has been labeled ‘Keynesian’ Jono is just using the term in that sense.

        Government intervention is not solely of the Keynesian domain.

        Herbert Hoover or FDR weren’t (obviously) Keynesian.

        Keynesian thought dictates aggregate demand, meaning income and spending stability through median demand channel. The middle class.

        The constant and stable spending patterns of the middle class are calibrated to be counter cyclical.

        Jopno ” still believe in the magic pudding of stimulus.”

        RP Stimulus is to avert loss of latent production and loss of incomes. if ‘stimulus’ is captured by ineffective and wasteful targets doesn’t mean it was wrong.

        The point Jono makes is that moldern economists do believe in the magic pudding. Stimulus is regarded as having no cost.

        No it is not. Completely wrong.

        Stimulus is known to, and explicitly expressed as having a cost.

        it’s considered to be least costly, and to ensure this, the cost must incur a benefit, at least in the long run.

        Consumption is never a benefit, it is always a cost.

        Investment in any field incurs a cost, but it hopes to deliver a benefit.

        Thus, stimulus via say, infrastucture spending.. it incurs an outlay, but hopefully delivers a beneft in the long run, maybe even in excess of the cost.

        But the point here is to ensure the aggregate demand is ensured.

        What we had, say with $900 KRudd cheques was the ensure incumbent suppliers were maintained.

        As I mentioned below, HN gets $900, he trickles it down… according to the theory. Incumbent stays solvent.

        Instead, as keynesian thought dictates, built a new road, port, rail and commerical estate, HN gets a competitor, and potentially displaces HN.

        The Rudd stimulus, as portrayed here in the media, and indeed here in MB, had no cost.

        It’s doesn’t get portrayed, here at least at costless.

        it gets portrayed as costing the least.

        And despite what the mining fantasists say, the stimulus is what saved Australia.

        Whether it deserved ‘saving’, is another matter. I assert it did not.

        Therefore it didn’t matter if it was largely wasted ( let’s not for the moment get side-tracked into that) It DOES matter if stimulus is wasted because in enacting stimulus in an economy such as ours we are incurring serious debt. We should make damned sure we are getting a good return for that debt in terms of future incomes rather than spending it on straigh consumption in a society already bogged down in consumption.

        As keynesian thought has a bias to.

        It would rather invest in enhanced production, than consumption.

        I also agree, it would rather consume than do nothing… which is keynes’ did holes and fill them up again argument.

        If your current production and consumption has been distorted by policy and unrealistically low interst rates, thereby pricing resources incorrectly, then your stimulus into that structure will be wasteful.

        The only thing that need be done is ensure aggregate demand, and preferably via incomes. Once your eye is taken off that ball, the populace won’t maintain distorted prices forever.

        The FHO boost was not an aggregate demand policy. it wasn’t a free, discretionary amount. it wasn’t keynesian.

        it was targetted to protect incumbents, and then the incumbents would trickle it down.

        The closest we got to of all that was more bank employees.

        That is not the main consequence to avert with deflation. RP Deflation ultimately impacts on indebted producers.

        As it should! Too low interest rates misprices resources and heavily indebted producers have indulged themselves in those mis-priced resources.

        All producers are indebted, even ones that are not operating irresponsibly. Debt deflation is a bad thing and very difficult to alleviate. To do so, only government has the fiscal resources, and the costs in most cases exceeds the cost of stimulus.

        That said, I do agree we need ‘creative destruction’… but debt deflation tends to lead to total destruction.

        Therefore it is necessary for the world to survive that they disappear.

        They can disappear, via competition.

        We are using inflation, and negative RAT interst rates, to keep the inefficient in business.

        Keynesian policy does it fiscally, it’s rather secular onmetary policy.

        Inflation and RAT, which is the domains of CB’s and inflation targetting, is the core of monetarist tought.

        Completely the polar opposite of keynesian’s. I keep making this argument.

        We’re in a school of Chicago mess, not a keynesian mess.

        I see it in my own industry.

        Jono “Will people refuse to buy bread, clothing, cars and necessities if prices gently adjust downward ?

        RP i) If they lose their jobs, yes
        ii) If the supplier defaults and ceases production, then customers refusing won’t play a part

        Why, except in a world based on inflation, exponentially increasing debt, and resultant over-use of the resources of the world, should people lose their jobs just because prices decline a little?

        Because with debt deflation, prices don’t decline a little.

        Prices decline massively. to the point, say in your industry, that the loan taken to purchase seeds, isn’t even recouped by the sale price 6-12 months later.

        How do you sustain the ever increasing debt and ever more rapid rate of use of natural resources forever?

        Higher taxes.

        if you consider that loose money feeds into higher than deserved wages, people taking home nominally more than they should, then you recoup that by taking it off them.

        It has to end some time. Jono may be right. maybe we have reached the point where we must realise this can’t go on forever.

        yes, dropping keynesian policy for monetarist polict in the 8th decade will lead to ruin.

        Remember, those that had a ruinous world in the 30’s and 40’s came back and demanded keynesian policies.

        Empirical evidence, 1945-1971 showed they work.

        Perhaps some justified trauma will set us right again.

        Personally I’m backing that we will not realise that. We will go on with consumption and inflation inducing fiscal and monstary stimulus. I’m going to be the classic example of the misuse of resources using debt to buy houses. We’re buying them for family to live in not IP’s. Nevertheless unrealistically low inteerst rates result in my borrowing and investing in such things rather than other more productive assets.

        it appears rational at this point in time.

        It will go on until it can’t.

        I’ve been saying this since I got here.

        Game theory/Prisoners dilemma says that will be the outcome.

      • The rise of participation post 71 was a DIRECT consequence of Kenysian tax grabbing!

        Empirical evidence is knocking on the door and scratching it’s head.

        1971 was when keynesian policies were starting to be unwound.

        if keynesian policy is diminishing, then your observation of increasing marginal activity must be a result of the alternative.

      • migtronixMEMBER

        Empirical evidence can only be Reliably interpreted based on causal analysis, which is what I’ve been telling and you consistently ignoring. F*ck the monetarists sideways with a barbed-wire wrapped heavy duty cattle prod too. Get rid of “legal tender”

      • migtronixMEMBER

        @RP is it possible that the gains maintained in the era 45-71 were more a function of the accountability placed on governments by the generation that had prosecuted the insane killing spree known as WWII that had been perpetrated by those governments? That your Keynesian profligacy was merely tolerated rather than the causal beneficence?

        Also – and I swear I’m not knitpicking normally I’m 100% with your analysis – you’re wrong about supply never creating demand – I present you the success of iPod/iPhone/iPad as counter examples where there was no demand, supply was released, it created its own demand 🙂

      • is it possible that the gains maintained in the era 45-71 were more a function of the accountability placed on governments by the generation that had prosecuted the insane killing spree known as WWII that had been perpetrated by those governments?

        I would say they are the same thing. The populace came back saying “we just survived this, so government is going to serve the people. We’ve used rifles, we aren’t afraid to use them again.”

        Keynesian economics serves the middle class best.

        That your Keynesian profligacy was merely tolerated rather than the causal beneficence?

        When ‘profligacy’ is used to underwrite permanent access to a productive job, then it is the causal benefice, and a most important one at that.

        Right now, and forever under NAIRU, we structurally ensure a margin of people remain unemployed, maybe even against their will.

        NAIRU ensures there are not enough jobs.

        When the power balance is “Accept the pay and consiotns I give you, or I’ll find someone else (from the pool of unemployed) will.” then workers are dismepowered.

        Under 1945-1971, when their is full employment, and the worker is able to say “Give me pay and conditions I want, or i will find someone else who will” the power structure changes,

        Enterprise is forced to compete with the best performers, or they exit the economy. Incumbents can fail.

        It is best for workers, best for wages, best for consumers.

        So in practice, a shitty employer, say a call centre operator, keep dumping on their staff. The staff quit, and if the last resort is a government program of minimum wage and contracts are on a day-by-day basis, then the base of workers can elect “This employer is not deserving to operate in our economy”. They quite en masse, and the enterprise fails.

        The workers stillmaintain aggregate demand, and another risk taker seeks out capital to start a new call centre.

        Fiscal deficit if need be to give the workers jobs, until the new cll centre employs them again, and as taxed workers, back into fiscal surplus.

        Also – and I swear I’m not knitpicking normally I’m 100% with your analysis – you’re wrong about supply never creating demand – I present you the success of iPod/iPhone/iPad as counter examples where there was no demand, supply was released, it created its own demand

        The iPhone/iPod/iPad are products that is value added.

        it is essentially a phone with more functions. This can be proven by old phones being displaced by iPhones, walkmans being replaced by iPods, a select segment of the market replacing notepads with iPads.

        if is was ‘new demand’, then people would own Nokia and iPhones, or walkmans and iPods, you get my drift.

        They are hedonic adjustments, not new supply creating demand. I understand the Ricardian principle, I believe Keynes proved that wrong.

        As I said. I producer will not create a product, or even greater volumes of the product, if there is no (latent) consumer base for it.

      • migtronixMEMBER

        I appreciate your lengthy response and certainly resonate with much/most of it – but you’re wrong re iPod/iPhone if all they wanted wa a phone Nokia would have done fine – ditto for Walkmans

      • They got a phone, plus more.

        Enterprise for existing products is either meant to do 1 of 2 thing,

        produce at increased efficiency, thus lower cost.

        or

        value add.

        iPhone was a value added phone, via greater capability

        iPod was value added via refining technology and making the media much more portable.

        The market selected the value added device.

      • migtronixMEMBER

        @RP fair enough and yes all innovation involves standing on the shoulders of giants but you’re ignoring the effect those technologies had on the existing distribution supply model. Broke it in fact!

    • Frederic Bastiat

      Thanks Rusty Penny, very informative.

      Is is possible that we are living in an era where the cCntral Banks are the Monetarist, but Government are Keynsians…giving us some god awful mongrel economic orthooxy?

      The monetarist in this is Helicoptor Ben, whereas the Keynesians are the likes of Obama, Gilalrd, Rudd etc…

      The monetarist think we need ultra loose monetary policy (money printing) to stop price deflation, whereas the Government think we need even more deficit spending to stimulate aggregate demand?

      • Thanks Rusty Penny, very informative.

        Is is possible that we are living in an era where the cCntral Banks are the Monetarist, but Government are Keynsians…giving us some god awful mongrel economic orthooxy?

        No, they can’t be hybrid. CB’s are government arms, as in they are part and parcel of the sovereign.

        They may be privately owned with a government charter, they may be non-elected, but they are an insititute of governance.

        The monetarist in this is Helicoptor Ben, whereas the Keynesians are the likes of Obama, Gilalrd, Rudd etc…
        The monetarist think we need ultra loose monetary policy (money printing) to stop price deflation, whereas the Government think we need even more deficit spending to stimulate aggregate demand?

        No, they aren’t seperate trains of thought.

        Monetarists have a trickle down fetish. What this really is, is disguised class warfare (not so hidden anymore I would think).

        it’s guises it that give the economic control to the wonderful, faultess sages of the private sector, and they can calibrate prices and production to be perfect… as long as gum’int get out of the way.

        Trickle down.

        However, as the rich are wont to do, they believe themselves more valuable that they really are, and endeavour to capture more wealth for themselves…. increased profit share.

        Also, by giving control to them, it makes sure that the incumbents stay viable.

        Keynesian direction is crawling up like a vine. With power inthe hands of the populace… middle class if you will, with proper incomes, they will always ensure demand, and producers eternally compete … either via lower costs, via productivity enhancements, or value adding.

        Consumers find them in the market, and new (and better) producers always come on line and displace poor performing incumbents.

        This last sentence is the antithesis of classists. Their entitlement can’t be preserved, and they suffer downward class mobility.

        How the middle class gets that ‘power’ is that employment.. full employment is assured.

        if the private’s sector cyclical nature seems demand for labour drop, the government employs them 9as fiscal deficit) as productive labour.

        Aggregate demand is assured from their new, temporary government jobs, the private sector goes through a cyclical readjustment, then once back on track it demand labour, which it draws from the pool of government workers.

        But the middle class is never disempowered, which is will do if it endures unemployment, and the resulting desperation leads to dminished wages and conditions.

      • RP Thank you for your time and extensive responses. I’d like to reply but you’ve rattled off a lot of stuff and I’m currently drastically short of time. Another factor is my age and I have to print stuff on paper to read it and really get a grip! (Strangely enough I was reading the ‘Scientific American Mind’ and apparently there is research that tells us this characteristic is not just confined to us old blokes. Even modern electronically wired children comprehend better from paper than a screen!)
        I can think of a couple of specific points I want to argue about but I need to frame it properly first I think.
        Anyway I will come back to this. one of the big things is working out exactly what we are talking about…what will happen and what should happen. I think that confusing those two things is often a major cause of confusion and it is easily done.

        Again thank you for your input.

    • People might continue to buy basics goods and services in a deflationary environment, but people will think long and hard about making significant investments when it is likely that the value of that an will be with less in 12 months time. It would also bring a new dimension to borrowing to purchase expensive assets.

  5. HnH
    Watch what happens when these gas projects fail to fire-up. If you think you have seen “the greatest global downturn since the Depression” you aint seen nothing yet.
    I’m back hands on in the mining industry, for a few months, as a consultant, and many of the mining companies, in QLD, are in a terminal death spiral.
    WW

      • WW
        I wasn’t begging for names as such…just your take on what is happening…fluff out the story a bit if possible. The implications are pretty huge particularly for RE in Sunshine Coast and even perhaps GC but I suspect GC much less mining dependent than Sunshine Coast.
        Cheers

  6. Eichengreen on Vox.eu did an article near the depths of 2008 showing that the path of economic activity at that time was actually worse in real terms than during the depression of the 30’s.

    Labor showed good sense in erring on the side of too much rather than too little.

    Anyone who had kids in school knows that while there may have been a throetical better possible outcome if more time was available or if state governments didn’t take large fees and if the contracts weren’t use to help major building companies who then sub contracted jobs out to the peolpe who would have likely got them in an orderly market, their schools have better facilities now than they did in 2007.

    In the US the main unemployment areas were building and construction and retail and the lower skilled were disproportionately represented in unemployment. The Australian stimulus was well targetted to keep those categories employed, their families stable and house prices stable to aviod a banking collapse.

    Abbott is engaging in revionism. The Libs disagreed with some of the stimulus and the size in some areas and cherry picked at problems but they did not oppose the great majority of the stimulus at the time.

    • Explorer
      I agree that the Libs cherry-picked fopr short term political gain. To be economically and philosophically consistent they should have certainly opposed the whole stimulus in the form it was done.
      Re the cherry picking…unfortunately I think that is the level of politics we have reached. Even worse it is the level of national psyche we have reached.
      Noboidy wants their lifestyle impinged in any way. That includes the so-called conservationists. Most calls for conservation are for other people to scarifice!

  7. The package may have rolled on a bit long as well but otherwise it was textbook stimulus, very much needed and will be copied elsewhere when the next crisis strikes.

    Where they will promptly find it doesn’t work. Its a total joke to think that dishing out $900 and overpaying for some pink batts and school halls is effective stimulus that somehow ‘saves’ an economy.