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September 3, 2009
I watched Joe Hockey on Lateline last night and then I heard Malcolm Turnbull on Radio National Breakfast this morning talking about the Rudd Government's stimulus package and its impact on economic growth.They both argued that the small economic growth figure of 0.6% in GDP, at a time when the global economy is still in deep recession and negative growth, had very little or nothing to do with the government's fiscal stimulus.
What then caused the Australian economy to grow marginally and so avoid a recession? According to Hockey it was: Australia's very strong economic performance under the Coalition (three cheers) ; there was no massive financial collapses by our banks (thanks to good regulation under the Coalition); there were stronger terms of trade than the last days of the Howard Government (lower dollar increases exports to China); and the right monetary policy in that the Reserve Bank cut interest rates more aggressively than anywhere else.
Hockey inferred from this that, since the government's fiscal stimulus spending had minimal impact (just the cash splash and tax rebates for equipment), it needs to be wound back significantly to ease the massive tax burden that is going to impair our economic recovery over the next few years. Debt and inflation is going to strangle us.
I scratched my head. Who accepts this account-- that the fiscal stimulus package had a minor impact (5 minutes of economic sunshine). Haven't consumers have been propped up by the government handouts? Hasn't the stimulus helped to lessen the rise in unemployment and save jobs? Hasn't it stablized the economy from the external shocks?
The Coalition has consistently denied that the fiscal stimulus has worked since last year, even when most economists in Australia accept the importance of the fiscal stimulus for domestic economic growth. The data confirms this picture. So the Coalition is in denial.
What is going on here? Keynes, it would appear, is taboo There is a rejection of Keynes' argument that an increase in government spending is a solution to unemployment. His proposed solution is to increase consumption through government through spending deficit spending an public works projects.This Keynesian counter-revolution is one in which the free market and the ideas of Friedrich Hayek are under massive assault. The Keynesians are again in the saddle, riding the whipping horses of “crisis”, “deflation” and “stimulus” to the largest takeover of the free economy in the nation’s history.
The grounds for rejecting the counterrevolution is that government intervention prevents the efficient functioning of the market---adjust to slow conditions through price and wage rate reductions, unsound investments sold off and redirecting capital into more productive and profitable uses. The market does not make systematic errors. The profit motive will cause them to be self-correcting. This happens from private businesses, investors and workers paying for their mistakes. Markets clear if not interfered with. Government should get out of the way by reducing taxation, spending, regulations, and government control of money and the interest rate.
The problem here is that many of those suffering from the global financial crisis clearly did nothing wrong; they're innocent bystanders:--workers who have lost jobs through no fault of their own, investors who have suffered huge wealth losses due to the misfeasance or malfeasance of corporate executives, and well-run businesses that were forced into bankruptcy solely because of the recession.
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The GDP growth is marginally positive — but it is still low in terms of the requirements for people to have stable employment and steady incomes. Will unemployment continue to rise? My fear is that it will.