AJFA - you mention "first year economics textbooks' as if there's a global consensus.

There's not.

Yes - in the Anglosphere Keynesianism and social democracy are out of favour.

But in Sweden, Holland, Denmark, Finland, Norway - it's a different story. These countries have mixed economies, robust progressive tax systems, strong industry policies, extensive welfare states and social wages... And these countries are successful economically by most peoples' measure.

There ARE different ways of doing things. Different strategies can succeed or fail depending on the means we use - and the values we use - to measure.

Regardless of what 'First Year Economics textbooks' say - They are not 'final' or 'absolute' authorities.

There is a different way - and depending on your values, a better way.

Tristan, Paul Keating rightly viewed Australia as having vastly different circumstances to northern Europe. Australia is in a much more precarious position as we don't have natural trading partners like the EU does. This means that business by nature is more difficult (at least until the resources boom) and paradoxically why protection is so wastefull. However this does not mean that action by government in the economy is inherently bad, but it does mean that governments must think first before acting and have a rational basis for it, such as a 'spillover'. i.e. that the market would not fund education to the extent necessary to have a modern economy. If you think 'spillovers' are everywhere you are deluded though, they are rarer than proponents of any government action admit. What is clear though is that education is in general a much better economic growth driver than infrastructure ...... infrastructure projects often end up as 'roads to knowhere' or worse 'roads in marginal seats' .... perhaps now 'school halls in marginal seats' which have little educational benefit.

The stimulus is an emergency measure and in my view is not a basis for normal government. We'll see if Rudd agrees with his 2 per cent spending target, which in my view they won't have the guts to do in practice, especially as now the resources boom will mean that the defacit (as opposed to the structural defacit) will more naturally close.

Corin,

As I said, $900 handouts were OK. I'm sure that helped a lot of cafes, restaurants, hotels, theme parks and other businesses going. However, as the Stutchbury article shows, the gross waste and inefficiency of the halls and pink batt schemes were readily foreseeable. But it appears the govt was more interested in buying our votes with our money.

Tristan,

Whilst Sweden is a high taxing, high government spending nation, that's about as far as it goes. Sweden has a lower minimum wage than Australia, and less protected work conditions. The government there privatises businesses. So while you may dream of nationalising Telstra, the Swedish government has no such plans with Sony Ericson. Finally, the govt there supports free trade (unlike the Rudd govt).

Also, unemployment in Sweden is currently at 9%, and at 30% for those aged between 15-25 years. That's far higher than unemployment rates in Australia.

So the example of Sweden does not support your argument. Likewise with the other countries you mention when the facts are scrutinised.

Surely the home insulation and school halls debacles would make you consider that governments are not suited to playing such an active role in the economy?

AJFA, I accept that Michael Stutchbury has been proved right on the stimulus and indeed I thought say in January 09 that the recession would be pronounced and it wasn't. I accept that I was wrong like 90% of economists. What I got right is that the Fair Pay Commission needed to freeze minimum wages and it did. I think Swan/Rudd/Gillard thought hard about a wage-tax-trade-off as in January 09 they were opening discussing the need for wage restraint. They should have done this and award wage earners are worse off because they did not (Shame). I think since about October last year, some of the stimulus should have been phased out faster. I do think that we'll see a drag on growth though as the stimulus is removed so this is a balance, but one that needs to be found. I think interest rates will be raised for a period of relatively weak labour demand (as low head line unemployment masks a great deal of capacity in the existing employed workforce - see hours reducing). This likely period of elevated interest rates is a result of widespread policy measures and IR is one part of this. I think we'll see once the AIRC/FWA sets the minimum wage again that we'll have a substantial lift in wages and this would not be great - for those wanting work, more work and those owning mortgages. The main problem with Rudd Labor is a lack of debate about this and where to go from here. If inflationary pressures do build in a time of relatively weak labour demand, they'll probably be forced to act (to sppress wage pressures) and the unions won't like it.

Withdrawing the stimulus would however give the RBA reason to not raise interest rates. The sooner the stimulus is wound back the better. I think it's quite clear that Australia has beaten recession. Both sides of politics should look at making deep expenditure cuts over the next few years to get the budget back into surplus.

Concerning your earlier comment that you don't believe the govt has the guts to stick to its 2% spending growth target, I couldn't agree more. If there's anything notable about this government it is its inability to take any genuinely tough decisions. Rudd wants to be all things to all people, and he loves using the money of taxpayers to achieve this.