Hi Saltpetre,

Re: “many of these positive factors … were in place prior to the GFC”.

Correct. Reforms enabling Australia to survive downturns were implemented in the 1980s. Keating predicted those would fireproof the economy for 40 years.

Re: “There was a healthy surplus to facilitate at least the start of the Rudd stimulus.”

Depends how the surplus was achieved. Selling productive assets – and losing rivers of revenue – were puzzling decisions.

Re: “who should we credit for this visionary, expeditious action - Kevin Rudd or Wayne Swan?”

Senior Treasury officials, Swan, Tanner, Wong, Rudd and Gillard, in that order.

Re: “I still have difficulty … finding any significant fault with the Howard government.”

Failures included selling off assets you should have retained, selling them for too little, selling gold reserves at near rock bottom prices just before the steep price rise, losing $4.5 billion gambling on foreign exchange market, handing out money to the wealthy, allowing infrastructure to run down and failing to invest appropriately the huge mining boom revenues.

The funds Howard/Costello left were a fraction of what they should have. Australia should not have slipped so far back in the global rankings with all your advantages.

Re: “What shocks may we yet expect from the continuing troubles elsewhere?”

God question. And who is better credentialed to manage future upheavals?

Re: “And, with Abbott and Hockey at the helm? Or is your bet on Gillard?”

Gillard will win the election if the focus is on economic performance, ministerial integrity, the environment, social justice and international affairs. If it remains on Kevin Rudd, the fragility of the hung parliament and the opinion polls, Labor will lose.

Australia’s doom is that there is no chance your media will focus on matters of substance.

Re: “I suspect this is a rhetorical question, but Julie Bishop is Deputy Opposition Leader and Shadow Minister for Foreign Relations.”

Yes. Extraordinary from this distance to see how often senior Coalition figures tell such appalling lies – as in this article – and just get away with it. Bizarre!

Cheers, AA

If we in the West do not initiate A Glass Steagall Act that separates derivatives from our real productive economy,then expect to lose most of what you own.Even if their derivative exposure was just $ one trillion,this would mean we have to bail them out at over $ 90,000 for every working person.

$ 19 trillion means a bailout of over $1.7 million for every working person in this country.This is the amount that our RBA will have to create from nothing to bail them out.Since we don't have the money,the RBA will create endless cyber money just like they are doing in the Europe and the USA.It is nothing but a thieving scam.It is called hyper-inflation.

Banks are not too big to fail.Our civilisation is too important to fail.Our Govts can create all the money we need for our economies to function.We don't need private central banks.

Let the banks fail since they created the problem in the first place.

Thanks for that, Alan in France (aka Austin), and cheers to you too. We live in interesting times indeed.

Arjay,

It seems unlikely that our banks (and possibly our government) would lose all they have invested in those derivatives, even in worst scenario, and I expect they have good reason for those investments. All the same, there is cause for caution in these troubled times. I hope they don't get too far ahead of themselves and get caught out in the as yet unfinished hard landing awaiting some in the EU.
Discretion in these times remains the better part of valour.

Robert
You do realise, don’t you, that the Federal Reserve is a creation of the Federal Reserve Act, which is an Act of Congress?

Also if you read the US Constitution, you’ll see that the feds have no more right to print money than they have to set up the Federal Reserve: Article 1, Section 8, and Tenth Amendment. But you can’t send the feds to arrest the crooks: they are the feds!

I think the theory in your link is 80 percent right. The error is to neglect the fact that *government* at all times exercised a monopoly of money and credit, created the Fed and its banking cartel, and legalises and compels the fractional reserve banking fraud which channels trillions from the productive class to the plutocrats. It’s a government control of the money supply phenomenon – you know, what you’re in favour of?

“What Has Government Done to Our Money?” by Murray Rothbard
http://mises.org/books/whathasgovernmentdone.pdf

“The Mystery of Banking” by Murray Rothbard
http://mises.org/Books/mysteryofbanking.pdf

Saltpetre
Me? Combative?

Smatterafact I knew a guy called Hume once. His father was related by marriage to my cousin who was also a Jardine. Nice chap. He defended your freedoms as well as his own so it was a case of unrequited principles I’m afraid. He never tired of hoping people would used reason to see through their superstitious beliefs that government creates net benefits for society by printing money and handing it out to banking cartels of its own creation. By the way, is your real name Saltpetre?

mac
the issue is whether Keynesian stimulus policies really do counter recessions - make society wealthier – or not.

Alan argues by reference to the authority of economists who say it works. They reason that, since Australia spent billions on stimulus policies, and fared relatively well in the GFC, therefore the government spending money on school buildings saved Australia from a worse recession.

The counter-arguments are as follows. As for the authority of those economists, that’s an appeal to authority, which is a logical fallacy. If their theory is wrong, then their authority is wrong.

The question is whether the theory can be logically defended. If it can’t, then all the authority in the world won’t make it true.

Besides, if someone else assembles authorities who disagree, then what? Pistols at dawn? A head-count? What kind of theory of knowledge is this? At best authorities enable only probabilistic knowledge; at least logic enables categorical disproofs.

About the empirical evidence, to argue that stimulus policies worked because after they happened, the economy got better, involves logical fallacies. Just because A happens before B doesn’t mean A causes B. Also, Alan’s approach could only be sound if all other things were equal, or all other variables and contingencies were controlled-for as between the nations compared. They aren’t, so it’s a non sequitur.

Besides, the USA did trillion-dollar Keynesian policies, so why doesn’t that disprove Alan’s theory according to his own empirical methodology?

In a nutshell, the argument is that massive corrupt wastes such as the Building the Education Revolution or TARP don’t make society richer, they makes us poorer, both morally and economically. Australia prospered despite, not because of stimulus policies.

Notice how none of the Keynesian apologists have ventured to defend Keynesian theory itself, but only, in effect, to assert empirical guesswork that it’s correct?

But if it’s correct, we’re back to the idea that we can make society wealthier by destroying whole cities, as Keynes asserted. And why only stimulate during recessions? Why not permanently make society wealthier - make poverty disappear - by permanently digging holes and filling them in again? If the theory's defenders can't answer these questions, I think we should conclude it's nonsense.

The argument is, wealth is always the result of savings and work, never the result of destruction, waste or consumption per se. Alan’s argument would only be valid if the government got the money from a moonbeam. It doesn’t. What it “injects” into the economy it first takes out, in a net loss-making process.

Please see Chapters 1 & 2 of "Economics in One Lesson" by Hazlitt,
http://www.hacer.org/pdf/Hazlitt00.pdf

Hi JKJ,

Re: “The question is whether the theory can be logically defended. If it can’t, then all the authority in the world won’t make it true.”

Correct. It can. The authorities pretty much agree.

Re: “Just because A happens before B doesn’t mean A causes B.”

Correct. So we examine all possible causes. Then go with the evidence.

Re: “Alan’s approach could only be sound if all other things were equal, or all other variables controlled ... They aren’t, so it’s a non sequitur.”

It may be a non sequitur. But not necessarily. Research determines that.

Re: “Besides, the USA did trillion-dollar Keynesian policies, so why doesn’t that disprove Alan’s theory according to his own empirical methodology?”

The US experience does validate the theory. Australia splurged 3.3% of GDP. Next highest was the USA which allocated 2.4%.

Yes, Australia got through the GFC best of all developed nations. The USA also did pretty well. They didn’t recover as quickly as Canada or Switzerland, which may be special cases. But America certainly fared better than European nations whose stimulus spending was lower and slower.

Re: “massive corrupt wastes such as the Building the Education Revolution …”

No. The opposite is true. Australia's BER was not wasteful. Nor were the other stimulus programs. The money went where intended. Almost all within the timeframe required.

Re: “Australia prospered despite, not because of stimulus policies.”

No. Evidence supports because of.

Re: “Notice how none of the Keynesian apologists have ventured to defend Keynesian theory itself, but only ... to assert that it’s correct?”

Yes. It’s a rapidly changing world. Theories are constantly being refined and rejigged. John Maynard would not recognise today’s world. Nor would Henry Hazlitt.

Re: “But if it’s correct, we’re back to the idea that we can make society wealthier by destroying whole cities …”

No, not at all. Destruction and rebuilding provides short term employment, but does not build the nation’s wealth. Well-targeted infrastructure spending does both.

Re: “If the theory's defenders can't answer these questions, I think we should conclude it's nonsense.”

Correct. But they can.

Cheers, AA