foyle
“A stimulus package aimed at constructing school facilities or insulating homes does add to the infrastructure assets of the community.”

According to this theory, the pink batts scheme was a great idea, the problem was just some technical details in the implementation. There is no reason *in principle* why we shouldn’t do it all again, since it might work next time if better managed.

There are several problems with this approach:
How could it ever be falsified? What would make you change your mind? What would be an example of a negative consequence that you would recognise as result of the policy, instead of presumptively externalising the blame onto the private sector?

What is the *economic* distinction between government funding of loss-making activity that is justified, from government funding of loss-making activity that is not?

The Keynesian approach persists in believing that we can create real wealth by loss-making activity: it does not grasp the intellectual nettle and affirm that only productive activity, not wasteful activity, can create real wealth. Everything else is mere forced redistributions in a total net loss for society.

It assumes that government has a capacity to manage the economy for total net benefits that is not reality-based. If this were true, then what is the cut-off point at which full socialism is non-viable?

It does not answer, if it’s true that these government-funded projects are not loss-making, then why would they not attract private capital? The only reason can be that a given project does not return the same as private capital. In other words, it’s *relatively* loss-making. We are back to the fallacy of thinking that making losses is the road to riches.

It provides a blank warrant for endless spending, waste, fraud and redisbitution. The reason we’ve got it isn’t because it it works, it’s because it gives a spurious legitimacy, a get-out-of-jail-free card to politicians to perpetuate this destructive smoke-and-mirrors, pea-and-eggcup game with other people’s hard-earned property.

(cont.)

You also share the Keynesian assumption that government has nothing to do with the original problem. For example, central banking provides a government monopoly control of the money supply and abilities to print money at will, and expand credit at will. The original justification of central banking was that it would stabilize the economy: it would do away with inflation and depressions. But since the Federal Reserve was introduced in 1913, the US dollar has lost 94% of its value, we have had the most wasteful depressions ever, and permanent institutionalised unemployment.

So do the interventionists re-think their original assumptions? No! Each time the predictable, and predicted, results of their interventions appear, they re-double the interventions. So they added the Federal Deposit Insurance Guarantee, and Fannie Mae, and Fannie Mac, and thousands more regulation of the finance markets. And then, surprise surprise, the interventions don’t work. But do they reflect that maybe their theory is wrong? Not a bit of it: they persist in externalising the blame, and the facts are no defence!

Whichever way you look at it Keynesian theory fails.

The argument against these interventions is precisely that they create unintended negative consequences that are worse than the original problem, *when considered from the interventionists’ own standpoint*. For example, if we print (supply) money out of relation to its market demand, we should expect that this will affect the marginal utility, which will cause structual malinvestment, which will cause bubbles and unemployment. If we make it illegal for people to employ others at the the market rate, we will expect unemployment. And that is the result of these interventions that we actually observe.

On the other hand, if the interventionists were right, these problems shouldn’t exist in the first place. Government already had a monopoly control of money and credit, already had an industrial relations portfolio, already regulated employment, already had a plethora of regulations and bureaucracies at all relevant times.

So whether we look at the observed data using sound economics, or Keynesian theory, Keynesianism proves wrong.

Foyle, You overlook the fact that if we had a tax system like we had in the 1950-70 period, which encouraged full employment, none of those incidents carried out in the Rudd government, would have been needed. I don't doubt that Rudd might have wanted to go to that earlier tax, but was blocked by those with other ideas, Wayne Swan, Shorten, Julia etc and had to try for the projects which he thought might have good results, it wasn't Kevin Rudd who did or organised those who carried out the botched insulation jobs, maybe you can guess who did. From what I have seen of Wayne Swan, I would say that he wanted to follow the US right down until they struck the point of the countries depression, Unfortunately he hasen't got either the intelligence, integrity or common sense to really go for a system that had proved to work properly for both the countries economy and the working community and their families.

merv09
I don't disagree with you on the tax item.
Prof Bill Mitchell argues that tax is a means of keeping noses to the grindstones. For many years I received 28c from my last dollar earned after tax and super and we managed to raise five children and live reasonably well.
Peter Hume
Are you arguing that the welfare of the citizenry went backwards by installing batts and building school facilities? Society just received less benefit than it should have, but certainly more than it would have had the government instead funded a massive increase in total unemployment payments. You don't seem to understand why the government chose the alternate that it did under the circumstances it faced. As Prof Stiglitz said, under the circumstances, the Australian Government did an excellent job.
Since about the time of the first oil shock central banking has not been allowed to work.
The Australian Reserve Bank now has virtually no control over the creation of money. Under pressure from incompetent or malicious bankers, governments removed the statutory reserve requirements and, under the Basle Agreements, bank regulation, such as it is, switched to capital adequacy ratios. The American forced this change as it allowed their dollar to continue as the reserve currency and allowed the USA to continue to import America's oil needs by printing dollars or rather creating bank balances. This money led to the GFC.
As early as 1972 an Australian, Neil McInnes asked in a series in the AFR, "What do we do with these worthless American Dollars/"
Capital adequacy ratios led to the gouging bank fees now prevalent. Under this arrangement all excess bank profit flows to each banks capital adequacy base which allows more lending (money creation). So banks just grind everyone to obtain more profits whereas, as I said earlier, banking and other service costs, in a decent society, should be held as low as possible.
The banks have even devised ways to add money they borrow overseas to their capital adequacy base and again expand their loan book.
The world's finances and Australian banking need substantial reform.

It just goes to show you that you can not trust business to handle govt money; The pink batts is a prime example, sound quite simple get in a roof and throw some bats around, how much training does that need. We can employ 20 drongoes and really make a quid

Well we are agreed that the current state of regulation of money, credit and banking is unsatisfactory.

I see you haven’t answered my question as to the economic distinction between loss-making government-funded projects that are justified, and those that are not?

The benefit from the pink batts and BER was of a redistributive kind – some people were given other people’s wealth. It was not a net social benefit, it was a grand waste.

That should be obvious. The fact that anyone would think buying $100,000 buildings for a million dollars just goes to show the window-breaking mentality I have described.

The only way Keynesianism could make sense is if the government got the money from a moonbeam. Once we realize the government gets the money by taking it from its private owners, the only rational conclusion is that the opportunity cost was greater than the benefit.

The starting point of your analysis is how was Rudd to fix the problem of unemployment arising from the GFC? This assumes it was his business, and he could do it, in the first place. If so, where does governmental competence to manage the economy cut out? Why would that not amount to a blank warrant to make any intervention?

To the extent the problem was caused by the unhampered market - (it wasn’t) - the quickest, fairest remedy is to let loss-making businesses go broke, and productive businesses to re-deploy their resources. There is nothing government can do to quicken the process.

To the extent that the government was causing the unemployment - (it was) - the remedy was to stop doing it, not to add waste and injustice. For example, making employment illegal at the market rate obviously causes unemployment. There are whole branches of government whose purpose is to do nothing but make employment illegal at the market rate – e.g. industrial relations. The fact these interventions were considered non-negotiable shows that Keynesianism, on analysis, rests on the Marxist belief that employment entails exploitation which depends on labour theory of value crapola.