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The Forum > Article Comments > Rudd continues to struggle with economics > Comments

Rudd continues to struggle with economics : Comments

By Mikayla Novak, published 13/10/2011

It is fiscally profligate politicians, not markets, that need to be brought to heel.

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Garum masalah,

We have the 3rd lowest government debt in he OECD at about 26%GDP. Most developed nations are well over 50%, some are pushing 200%. Put things in perspective and you'll see our government debt is minuscule and quite manageable. Most young home-owners would love to have such a low personal debt burden.

And no-one said selling bonds is not borrowing money. That's an oxymoron.
Posted by TrashcanMan, Thursday, 13 October 2011 1:38:27 PM
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"And lo and behold, Aussie dollar jumped above parity again after the carbon tax passed through the lower house. Seems investors don't share your dire predictions for the economy."

Post hoc ergo propter hoc. Society isn't a test tube of chemical compounds, with you the scientist.

"Most of the stimulus package was funded by issuing bonds, not printing money."

So now debt is the font of all wealth? Wheeee! This economic management stuff is easy! This is great news. There's obviously no reason why government debt should not be 50 percent of GDP, right? Hell, why not make it 1000?

But come on. Are you seriously suggesting that the pink batts and BER fiascos *increased* net wealth in Australia?
Posted by Peter Hume, Thursday, 13 October 2011 2:13:32 PM
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Peter,

Do you really think the pink bats and BER issues are symptoms of anything new and unique to the current government? Perhaps you've only been taking notice recently but commercial operators have been abusing government funded programs for decades. I remember 7-8 years ago a company charged the government $200,000 to erect boom gates at each side of the West gate bridge. It's a symptom of pre-existing systemic deficiencies in the bureaucratic processes which have allowed construction companies, consultants etc to be taking advantage since day dot.

The only reason these issues all got dragged up is because there was little else to criticize.
Posted by TrashcanMan, Thursday, 13 October 2011 2:28:08 PM
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Most Greeks I know and did business with were very astute Business People and incredible workers for me it beggers belief that their Country is Broke .
T.C.Man if we follow the Greek example , and we seem to be doing just that why won't we arrive at the same destination . Are you going to tell me that WE are a lot smarter than the Greeks . In your first post you indicated that selling Bonds was not Debt have you changed your mind?
Posted by Garum Masala, Thursday, 13 October 2011 2:56:15 PM
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TrashcanMan, the only part of Rudd’s response to the GFC which might have had merit was the initial $950 per household handout. Prior to that handout, I pointed out in The Australian that counter-cyclical spending had never worked, in any country, in any era. In all cases, as in Rudd’s, the spending has peaked, and long continued, after the recovery has begun; it has been wasteful expenditure rather than addressing issues such as critical infrastructure needs which have longer-term pay-offs; it has distorted job and product markets and fuelled inflation; and the associated government debt has led to higher interest rates, higher share of government spending on servicing debt, and reduced availability of funds for wealth-creating private investment. Rudd’s intervention did not save us, it created long-term problems.

In Canberra in May 1991, I got a call asking me to be interviewed by Rudd for the Queensland Office of Premier & Cabinet. On arrival, I was asked to produce an industry policy for Queensland. The warning signs were immediate: it was to be done in six weeks; far from consulting people with local knowledge, I was not to tell anyone what I was doing; and I was forbidden to read the Coalition’s “Quality Queensland” economic development statement.

My work became Goss’s 1992 EDS, “Queensland – Leading State.” Goss and Rudd accepted my market enhancement approach – hard to believe now. (I did read “QQ,” the analysis and prescriptions were similar to mine, and I provided a similar basis for the 1998 “State Economic Development Strategy”.) Not only has Rudd not learned, he’s forgotten. He claimed in his infamous Monthly ramble that market economics was dead, government direction was the go. Well, the markets are correcting him, the long-obvious failings of the Eurozone and US pro-government policy have been brutally exposed.

Keep up the good work, Julie.
Posted by Faustino, Thursday, 13 October 2011 5:45:01 PM
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Trashcanman, here’s my January 2009 OLO post on the issue:

It’s unfortunate that none of the Rudd Government’s measured have been designed with long-term improvements in welfare, productivity, tax structure, incentives etc in mind. There have been many sound proposals in recent years for improving the structure of our tax/welfare system, encouraging initiative and innovation, etc. Now huge sums of money are being expended without any reference to such improvements. Urgency is no excuse, Treasury could have dusted off relevant proposals in a flash.

There are also questions as to whether the various spending will have any positive impact. Clearly not in such cases as further massive subsidies to expand activities in the motor vehicle industry rather than to rationalise in the light of massive over-supply in lower-cost countries.

More broadly, eminent Harvard economist Robert Barro, an expert in macroeconomics and economic growth, has recently challenged the presumption that government spending in the current crisis will have a multiplier effect, i.e. that it will generate more resources than it uses – the only rationale for such expenditure. Barro understands that Team Obama is using a 1.5 multiplier, whereby a $1bn intervention generates an additional $I.5bn of economic activity.

Barro examines other instances of massive government intervention – defence expenditure in WWI, WWII and the Korean and Vietnam wars. He finds at best a multiplier of 0.8 and argues that it is likely to be less now. People would expect wartime expenditures to be temporary, and consumer demand would not fall as much as in peacetime, where increased government spending (and eventually taxation) suggest longer-term lower disposable incomes; a military draft has a direct, coercive impact on employment; and as regards WWII, the US economy grew strongly from 1933 (aside from 1938), and the wartime growth can not be attributed solely to the war-related expenditure.

In short, the government should focus on measures with long-term benefits which can be rapidly implemented to ameliorate the recession in the short term.
Posted by Faustino, Thursday, 13 October 2011 5:47:37 PM
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