Rudd government to lower Australian living standards

Gerard Brookes has been knocking it out of the park lately in his critique of the reckless spending of both the Australian and US governments.

The only outcome can be reduced living standards into the future.

There is no other outcome possible.

In an effort to avert the nonexistent danger of another Great Depression the Labor Government has decided to spend like a squad of drunken Obama's. The real increase in government spending for this financial year and the next will be in the region of 18 per cent, with outlays running at about 29 per cent of GDP for this year. This lot is beginning to make the feckless Whitlam and Cairns — the latter being Whitlam's cretinous Treasurer — look like a pair of pikers.

Unlike some commentators I haven't bothered to wade through that monstrosity called the budget because most of it doesn't matter. For example, revenue and growth figures are utterly worthless. You would be better off reading tea leaves. One thing and one thing only matters here: sound economic principles. In this respect the budget — like the great majority of budgets everywhere — is a disgrace, just like most of our economic commentary.

It is being argued that this spending is basic Keynesian counter-cyclical fiscal policy and is necessary to keep unemployment below the 10 per cent level. For Swan this is a sacred duty and one that extends to eliminating long-term unemployment. As part of this duty he and Rudd plan to ruthlessly raid Australians' superannuation funds in an effort to offset part of their $58 billion deficit. This is what they call responsible fiscal management. The rest of us call it stealing. Not only does this proposed act of grand larceny reveal an absence of anything resembling ethics it also exposes their total economic illiteracy.

Allow me to return to my basic premise that what really matters are sound economic principles. For starters, the financial crisis is not a crisis of capitalism but of dangerous economic fallacies that central banks have been indulging in and which their staff learnt from their economics lecturers, not all of whom were Keynesians. These banks caused the world's money supply to explode by massively expanding credit. Much of this credit eventually turned up as "idle deposits" which were then immediately labelled by central bankers, treasury official and the usual band of useless economic commentators as "surplus saving".

It would have been obvious anyone actually versed in monetary economics and the history of economic thought that these so-called surplus savings were — like "excess investment" — a symptom of inflation. Let me put it this way, when savings exceed investment it is inflation. And that is exactly what we got on global scale.

Irrespective of what our economic pundits say Australia was fully embroiled in this world-wide lunacy. For example, from March 1996 — when Howard was elected — to last October currency rose by 129 per cent, bank deposits by 201 per cent and M1 by 185 per cent. It was this reckless monetary expansion that fuelled the boom and the government's surplus, not decent economic management. Booms, which are never good things, always come to an end. This brings us back to sound economic thinking.

Every boom creates distortions. When the boom busts these extortions are revealed as idle capital and rising unemployment. Moreover, before the bust makes itself fully felt it first emerges in manufacturing. I spent ages pointing out that Australian manufacturing was contracting and that this was evidence that the boom was coming to an end which meant that it was only a matter of time before the rest of the economy was hit and the rate of unemployment rose. The likes of Terry McCrann disagreed, writing nonsense about a "dual economy". Well, I was right and they were wrong. (And yes, I am one of those people who will tell you "I told you so").

The first thing to note is that there is nothing Keynesian about Rudd's spending binge. Nor can it halt a real rise in unemployment. This is not what Keynes was about. When Keynes spoke of deficits and borrowing he didn't mean that the government should borrow a pound from Fred the butcher to put Bill the bricklayer to work. This would be nothing but a transfer of purchasing power from one person to another via the government.

The essence of Keynesianism is that the central bank should expand the money supply. Even our economic pundits should be able to see that running down the surplus adds nothing to the quantity of money. Moreover, any stimulatory effects will be very short-lived. Unfortunately our economic Solons cannot even work that one out. Government borrowing for the sake of keeping people off the dole is self-destructive. It increases the national debt without providing a genuine net return to the country.

In a free market the emergence of a large pool of unemployed after a bust is always a temporary phenomenon so long as governments allow labour markets to clear. (This is a fundamental economic fact that Australia's so-called free market economists failed miserably to convey to both the public and to politicians, partly because the don't understand it themselves). Nevertheless, the government insists on running up a massive deficit which is bound to eventually raise interest rates and crowd out genuine productivity-raising investment.

In a pathetic and thoroughly immoral attempt to lessen the impact of their own profligacy Rudd and Swan are targeting pension funds. Now pension funds are savings. Without savings capital accumulation is not possible. It therefore follows that taxing these funds amounts to taxing future living standards. The same goes for venture capital and capital gains. Once again, it is entrepreneurship that drives an economy and savings that fuel it, not politicians and bureaucrats.

Ultimately the government will have to turn to the Reserve to pump up the money supply to increase what Keynesians call demand and what real economists call inflation. But using inflation to escape a recession is like trying to cure a drug addict by pumping him full of cocaine. The sad truth is that no one in our think tanks, the Reserve or the Treasury have any genuine understanding of the dangerous economic forces that are now at work. And this is why they keep getting it wrong. No wonder they are afraid of an open debate.

Economic blatherers on the left are blathering on like professional blatherers about how saving jobs has to be the government's top priority.

It's drivel, of course, because they're the wrong jobs and need to be washed out of the system.

That's what a recession does.

Australia has much more pain to come directly because of the policies of this government, the worst in Australia's history.

The US is going to be stuffed for more than a decade as a result of what Mr Obama as done...

(Nothing Follows)