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The Forum > Article Comments > Henry's upside-down economics > Comments

Henry's upside-down economics : Comments

By Alan Moran, published 27/5/2009

The Treasury chief, Ken Henry, simply doesn't understand how the economy works.

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Alan, while I do not disagree with the uncertainty surrounding the treasury forecasts, I really think we need to get past the notion that the federal government is revenue constrained and must tax or borrow before it can spend, don't you?

We both know that the government borrows while running a deficit for the purpose of draining excess reserves which would otherwise cause a major headache for the reserve in trying to set interest rates. They do not need to borrow to finance their spending. As you are aware.

The government has been draining out money by running up surpluses as a matter of policy, leaving running down private savings and running up private debt to finance economic growth. It seems likely that that private sector will now desire to net save again. How is the government going to run up surplus after surplus, year after year without doing the kind of damage that will cause the automatic stabalisers to drag us back into deficit again? Of course, in our system using non-convertable fiat currency, federal government surpluses are not in any way, shape or form, national savings. As you are aware.
Posted by Fozz, Thursday, 28 May 2009 7:43:38 PM
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If anyone in power understood the economy, we wouldn't have the problems we are seeing here and world wide. We are told our economy is in good shape, if that were so, why is poverty increasing, unemployment, business collapses, homelessness, health and transport collapsing along with just about every form of major infrastructure and services.

Then we have the scenario of blaming the labs or the libs, when in reality they are one and the same and have been since the late 1970's. What people are failing to understand about economic is it's complete reliance on many environments of life, sadly it has failed to consider any of them in it's modeling and outcomes. You can have environments without economies, but you can't have economies without environments. The most important environment we need to develop an economy for is the future, currently economists are desperately trying to prop up the past economic environments which we all know are past their use by date and dying. Each daily step society takes into the future, it gets further away from past practices, leaving those supporting the past without an environment to work in.

That's what Australia and the rest of the world is facing now. The author is a supporter of the past, so has no understanding of what form of economy is required for the future, just as Henry and the rest of the political and bureaucratic inept don't.
Posted by stormbay, Friday, 29 May 2009 7:57:09 AM
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According to Fozz’s theory, wealth is something that comes out a government printing press. Without this necessary and wonderful device, we would all be lying down in the gutter with our tongues hanging out, wondering how productive activity could ever be possible. Ordinary mortals face the problem that resources are scarce, but gods and politicians face no such constraints and have no cares themselves. We have only to wish for something, for the super-human fantasm of the state to grant it, which they do by forcibly taking property from A, beating him into submission if he resists, and then giving it to B. This goes by the name of ‘social justice’.

Stormbay
“You can have environments without economies”

Only if you don’t have human beings.

The purpose of economic activity is to produce stuff that people value to consume to increase their vitality or enjoyment. You seem to be under the impression that that is somehow superseded. Perhaps we should be like the old monks, live on water of the cool well in a little hut in a clearing in the woods, and live on water-cress. But you yourself could take a small step closer to a world of romantically pristine environment, uncontaminated by human noxious pests, by not using electricity and capital to post your opinions on the internet.
Posted by Wing Ah Ling, Friday, 29 May 2009 3:22:25 PM
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I spent 2 years at uni studying economics and here are a couple of helpful definitions for the uninitiated.
What's the difference between a politician and an economist?
The politician knows when he's lying.
Definition of a Economist: a dysfunctional sooth sayer. Lousy at predictions but boy can he tell you what happened.
Definition of think tank economist a dysfunctional sooth sayer still lousy at predictions but one who can tell you why it happened.

Now to the topic at hand what I and a lot of people want to know is if all these thunk tanks are so smart how come the credit crisis happened and happened because of a lack of regulations (isn't that what the authors whole reason for his efforts to deregulate)

It seems to me that we need a system that can be predicted not some dysfunctional practice that has more to do with alchemy than science.
Science when facts can be tested, predicted, reproduced and meets all the facts.

This article is more about political supremacy that fact and good of the country
Posted by examinator, Friday, 29 May 2009 4:04:15 PM
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Wing Ah Ling,

If you disagree with these fundamentals then you do not understand how our modern monetary system works. I hasten to add that while my socio/political outlook makes me consider myself a (democratic) socialist, that has no bearing on what I am describing. This IS how the system functions. It is neither "left wing" nor "right wing".

The Australian government runs a fiat money system. The currency is non-convertable - they do not promise to convert it to US dollars or gold or anything else. Australian dollars enter the economy when the federal government spends. They come from nowhere - there is no stock of previously taxed dollars held by the federal government (state governments are another matter). The government simply credits bank accounts in the commercial banking system and the sums appear. When they tax , they do the opposite. They simply debit bank accounts - the money deducted does not go anywhere. It is EXTINGUISHED.

If you were to pay your taxes directly to the federal government in cash, you would go to the central bank and give them your bag of $100 bills. They would give you an official receipt stating that you had fulfilled your tax obligations for that year. You would walk out with the receipt, they would take the bag of $100 bills you left - and tip them straight into a shredder. Once taxed by the federal government, they are no longer money. They are null.

In the federal sphere, taxes do not fund anything, surpluses are NOT national savings and deficits cannot be descibed as debt. I am approaching the word limit so I will stop here.
Posted by Fozz, Friday, 29 May 2009 5:36:50 PM
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Fozz
I don’t deny any of your propositions of fact, and believe I do understand the modern monetary economy. By all means, do tell us more.

What you say is good as far as it goes, but it does not go far enough. Because it does not go so far as to give an account of the *actual* wealth that is transferred by medium of fiat money, or money substitutes.

The argument is, in a nutshell, that the fiat money you describe is grafted onto a pre-existing system of (commodity-based) money, without which fiat money would be impossible. From then, the continuous printing of additional money is basically a legal continuous fraud by which the government dilutes the value of the prior stock of money in the hands of the population, to its own benefit, in a direct conflict of interest with the subject population. Furthermore, the act of fraud itself generates the cycle of boom and bust which benefits the political class while causing hardship and injustice to everyone else.

examinator

“ how come the credit crisis happened and happened because of a lack of regulations …. It seems to me that we need a system that can be predicted not some dysfunctional practice …. Science when facts can be tested, predicted, reproduced and meets all the facts.”

Just as it is a law of physics, for the same reason it is a law of economics that you cannot make something out of nothing. We have only to describe this law to realize it is true.

The science, and the prediction, and the facts, are all on one side of the argument, which has never been refuted.

But this truth is unpopular because it contradicts what politicians and the masses want to hear for a number of reasons.

The masses don’t want to hear it because of
1.the infantile mammalian desire for the teat – something for nothing;
2. the primitive desire of man for magic to be true. This superstitious faith is reposed in modern government
Posted by Wing Ah Ling, Saturday, 30 May 2009 2:29:18 AM
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