Tuesday, February 03, 2009

Rudd's big package

It is $42,000,000,000 distributed among 21,580, 428 people or around $1,900 per capita.  It will not create but it will 'save' 90,000 jobs which is something short of $500,000 per job. Can we celebrate?

Well the budget will be $22 billion in deficit this year and $35 billion next year.  That's $55 billion of extra debt.  Australia will soon have the debt that Labor left after the Keating years and Labor will have an excuse for having created it.  On the other hand John Howard's Government - which eliminated the previous debt and drove unemployment and inflation to record lows - will be portrayed as neoliberal destroyers who forced Labor to borrow.

Update: George Megalogenis has sensible remarks about the packing. Modest employment outcomes expected - it also assumes that the international economy is on the mend.  Peter Costello describes Kevin Rudd as a closet Whitlamite.


Anonymous said...

So Harry, how come every single business economist in the country has applauded the package?

Even the ACCI reckons it's needed, and they are a Liberal Party front.

Or if you prefer s more credible business source, here is an exerpt from the Business Council's media release

"The BCA welcomes the focus on jobs and growth in the latest economic stimulus measures unveiled by the federal government today.

BCA Chief Executive Katie Lahey said the $42 billion package should be strongly supported and is highly consistent with the key recommendations in the BCA’s Budget Submission released publicly last week."

I guess all these people must be all be wrong and you are right. There can be no other explanation.

Anonymous said...
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hc said...

Bruce you are welcome to offer polite comments but, otherwise, shove off.

Mainly I asked questions Spiros - I am skeptical for reasons set out in an earlier post - but you responded with a kneejerk defense - the BCA liked it. What do you think a group reflecting partly the wishes of retailers would say?

Anonymous said...

Harry, everyone business economist, every business organisation, every financial journalist, likes it.

These people do not normally favour massive expansions of the role of government in our society.

Since they support the package despite their prejudices and instincts, do you not think that perhaps, objectively, it might be because it is good policy?

And if you think the BCA supports the package because they have got a couple of retailers as members, you don't know the BCA. The BCA is a collection of big business CEOs. They represents the interests of capital. They probably vote Liberal to a man (or woman). The BCA has great credibility as a thoughtful contributor to policy debate.

And they support the Rudd Government's economic policy.

What does that tell you?

Anonymous said...
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Anonymous said...

So Harry, how come every single business economist in the country has applauded the package?

Spiros reads Fairfax, watches the 7.30 report and obviosuly thinks that about makes it every single authority in the country.

Love the call to authority, Spiros, it's so becoming for a lefty.

Bruce, you twit, Howard inherited $100 billion in federal debts, very high interest rates used to quell the inflationary monster. Three years later we had the Asian economic crisis, which the government then handled with perfect aplomb. Just after that there was the tech crash. You idea of benign is about as dishonest as Rudd calling himself an economic social conservative democrat. sS that in the right order? No sorry, it’s economic conservative social democrat. LOl.

Honestly, it’s hard to understand what it is you’re trying to convey in that incoherent rant of yours other than feigning politeness and trying to sound like an accountant wearing eyeshades.

Look Bruce, both Rudd and Swan-dive are two economically illiterate nincompoops way over their heads. Handing the banks unlimited guarantees when one week before Swan-dive told us how fundamentally strong the banking system was shows the guy is an idiot.

There were a lot of things these two idiots could have done that would have been far more effective and less costly. They could have eliminated payroll taxes raised by the states offered tax relief to business by lowering corporate tax. There are numerous things they could have done rather than creating 90,000 jobs at $500,000 a piece. So stop the babbling and the incoherence. Rudd and Swan-dive are two complete morons and the country would be miles better without them around.

Anonymous said...

Forgive my rudimentary economics, but it seems to me HC is at least partially right.

Firstly, in the US fiscal stimulus has become a necessity because there are no shots left in the monetary gun. Notwithstanding the effects of quantitative easing, the US needs to stimulate its economy to avoid a liquidity trap, where the economy stagnates and spending is deferred as a result of deflationary expectations.

This is not the case in Australia. The RBA can still stimulate investment and consumption by cutting rates.

As I said my economics is fairly rudimentary, so I don't really understand the difference between monetary and fiscal stimulus. But I know monetary stimulus has traditionally been preferred. What has changed?

I suppose monetary stimulus allows investment to be directed by the market, which I still believe is generally better at allocating resources than government.

But let's assume that monetary policy is insufficient. Can fiscal policy really kick start an economy? Perhaps it can in the US, but for us here in Australia I don't see a satisfactory reply to HC earlier point - that Australia's fortunes will be determined by the rest of the world.

There doesn't seem to be anything we can do other than try and smooth the short-term cycle (which I suppose is about maintaining capacity and avoiding disinvestment). If the downturn is going to be protracted, is spending now really sensible (this is a genuine question)?

Let's assume that the downturn will be short term, and that there are benefit to smoothing the cycle. I still quibble with the details of the package.

Let's start with the overall structure of the package. Much of the spending is delayed, through infrastructure investments. This isn't necessarily a bad (happy for government to invest in public goods!), but what kind of short term stimulus will it provide? If the downturn is indeed short-term, then much of the spending will come after the upswing has already begun.

Moreover, I object to the fact these infrastructure projects are being rammed through without proper scrutiny under the auspices of fiscal stimulus.

Looking at the direct payments, I also have a few problems. Will the money even be spent? While I'm not totally opposed to a more progressive transfer system, I would like some due process. This is supposed to be about stimulus, so will the payment do that?

Maybe not. Traditional wisdom is that middle income earners will tend to save extra income, while lower income earners are more likely to spend it. But is this true with everybody worried about the future? If we really are convinced that things are only going to get worse, unless it is absolutely necessary today, won't we just save it?

Even if we get people to spend it, I find something intuitively inefficient about just propping up consumer spending. I'm sure there are more productive ways to use the money, but perhaps none of these provide a sufficiently immediate stimulus.

Then we come to the issue hc has highlighted about price. If the figure is accurate, then 500k per job is a lot of money. Arguably if the downturn does look as though it might be protracted, then all this money should be going to welfare safety nets and efforts and maintaining capacity over the longer term.

I also think there needs to be a more serious discussion of budget cuts. If we give the imprimatur to such large spending proposals without demanding cuts, then I am doubtful that the government will impose fiscal discipline upon itself.

As I said I'm not an economist, but I've been around Canberra too long to simply take it on faith that these issues have been considered. I want to see them explicitly deal with.

I'm also very aware of the quality (or lack thereof) of financial journalism. Not to mention the vested interests hc mentioned, the desire of lobby groups to avoid antagonizing the Government and the sheer lack of time anybody has had to analyze the package.

I'll accept that the package is good policy when issues I raised above have been addressed, but not before.

hc said...

Sorry I deleted two insulting comments by "Bruce" and this disturbed the flow of comments.

As I say Bruce on my turf keep it polite or shove off. There are plenty of other blogs.

Anonymous said...
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Anonymous said...

Spiros:"Harry, everyone business economist, every business organisation, every financial journalist, likes it"
How about Tim Colebach from the rather non-right wing Age? He seems mixed:


hc said...

Bruce, You are an unwanted guest on my blog. Please leave.

Anonymous said...

Harry when 70% of the deficit is cycical it is hardly Whitlamesque.

If anything it could be argued they have spent too little given the economic Tsunami coming toward us

hc said...

I've seen that argument anonymous. But a $55 million deficit that results from $42+$10 = $52 billion fiscal expansion does not look 'cyclical' to me.

What happens if the crisis you correctly worry about is still with us in 2011? Another expansionary move funded by debt again?

Anonymous said...

"Peter Costello describes Kevin Rudd as a closet Whitlamite."

I'm sure that will resonate with the electorate, not. Most voters under 40 won't have even heard of Whitlam, who ceased to be PM more than a generation ago. Can't the Liberals come up with more contemporary scare mongering?

And now the Liberals are threatening to block the package in the Senate. Rudd should call a snap election if they do.

The ads will be very telling:

"Under Labor, you get $950 and the economy is saved. Under the coalition you get no money and you lose your job".

How many Liberals will retain their seats? 5? 7? 10 at the outside?

JC, ROFL. Even the Herald Sun supports the Government on the package.

Anonymous said...

okay Spiros:

Please explain in you won words why a spending stimulus will work.

give us the economics of the how it will make the economy better.

Anonymous said...

JC, read the Herald Sun and you'll get your explanation. When and if you've mastered the Hun you can move onto the broadsheets, but baby steps first.