Tuesday, 3 February 2009

Economy in trouble? Call in the Keynesian Cops...

The more dire the financial situation the worse the plan emanating from what passes for political leadership in Canberra.

Hot off the back of yesterday's grim news that:
THE global recession will cost Australia $115 billion in tax revenue and plunge the Budget futher into deficit, Prime Minister Kevin Rudd revealed today.

"The truth is the global recession in general and the collapse in China's growth in particular has produced a $115 billion fall in Australian tax receipts to the Government," Mr Rudd said.

"That means an impact directly on our budget, that means, therefore, of course, a temporary budget deficit."

Mr Rudd said the Government would do anything it could to protect economic growth and jobs but did not outline any new measures to stimulate the economy.
"We are going to move heaven and earth to try and support growth in the economy," he said.

So what did he do to try to 'move heaven and earth to try and support growth in the economy'?

Did he order that Treasurer Wayne Swan, Reserve Bank Governor Glenn Stevens, Treasury Secretary Ken Henry and anyone else involved in running Australia's economy read a copy of Milton Friedman's Free To Choose?


Instead he called in...

...the Keynesian Cops.

Having pissed $10 billion of taxpayers' money up against the wall in December in a Keynsian bid to avoid recession the prime minister now takes another crack at spending our way out of trouble:
KEVIN Rudd has framed the deterioration in the nation's bottom line amid the global financial crisis as the deficit Australia has to have.

Announcing the Government's decision to pump $42 billion into the economy, the Prime Minister said nobody liked being in deficit.

But, he added: “This is not a question of choice. This is what we are required to do.”
No, Mr Rudd.

What you are required to do is ensure that Australia's economy rebounds as quickly as possible.

Putting another $42 billion into the economy on top of the $10 billion already frittered away is a travesty.

The remedy is simple. Always has been. Always will be.

Reduce business taxes and then allow the market to right itself.

The problem with that solution, of course, is it means that the government doesn't look like it is 'doing something'. It's important for governments to be seen doing things when the economy is in trouble, which is why Keynesian pump priming is such a popular solution, especially among left wing governments that don't understand where money comes from and don't mind borrowing from future generations to pay for today's populist politics.

Keynesian economic theory is, unfortunately, being put into place all over the globe. President Obama has a huge 'stimulus' bill and Gordon Brown is trying the same thing.

All that will happen in that the agony will be prolonged.

Australian voters' minds, like all voters' minds the world over, do not retain important information for very long. That's how a disaster like Rudd can get elected in the first place.

Back in 2005-6, then PM John Howard was trying to get agreement from the states for his $10 billion plan to rescue the Murray-Darling.

Unfortunately the states, which were all run by Labor governments, wanted to make sure that Howard did not get a win in the lead up to the federal election and therefore this much needed infrastructure plan didn't go ahead.

If it had then the bulk of the stimulus effect would have been hitting the economy by now. Not that I'm claiming Howard could see what was coming but it is worth contrasting Howard's responsible plan with Rudd's $10 billion December debacle that resulted in licensed clubs booming with huge increases in poker machine revenues.

Tax cuts for business and not handouts for pokie players are what is urgently needed right now.

(Nothing Follows)


Kaboom said...

Jayzus, JackLac,

If you keep up like this, you will almost be an Honorary member of the Austrian School of Economics.

Look up the thoughts of Ludwig von Mises one day - I guarantee that you will be enlightened.

No neo-con bullshit there, just hard facts.

Jack Lacton said...


I never considered how the economy worked up until I was about 30 and I was lucky enough to start with Milton Friedman once I got interested. I had been taught Keynes in school but was too young to understand the practical implication of what was being said.

Austrian economics explains every single aspect of why booms and busts happen and the Ludwig von Mises Institute's web site is a frequent stopping point for me.

However, it's quite difficult to explain to people that it's supply that drives an economy and not demand. Therefore, I've come up with a few easy ways to explain it, which I should post here one day.

Kacie said...

Hey I've enjoyed reading bits and pieces of your blog lately. I linked to your blog from mine a couple days ago... I have an award for you since you have a lot of interesting posts... u should check it out and pass it on!

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