Ross Gittins seems to think libertarians have quietly watched as the Rudd government has bungled its response to the north Atlantic banking crisis and massively, irresponsibly expanded public debt (”Libertarians silent on insulation bungle”, March 1). Nothing could be further from the truth.
I gave this evidence to the Senate inquiry into the stimulus package in February last year: “In my opinion, the package does not contain enough stimulus relative to the spending that it contains, and the spending that it does contain is of poor quality. This kind of stimulus package has a very poor track record of success, and economically we cannot really expect it to succeed.”
I gave evidence again in September: “We have actually seen a very poorly implemented policy of a substantial amount of taxpayer money that has basically, to a large extent I believe, been wasted.”
In December, I told a visiting OECD delegation that, in addition to wasteful spending, three people had died in connection with the insulation program and many houses had burned down due to poor insulation practices.
Individuals do not need the nanny state to look after them, but that does not absolve government from responsibility for its actions. To ask the question, ”And whatever happened to individuals accepting responsibility for their own affairs?” is simply astonishing. The Rudd government established a policy that was poorly thought out and poorly executed. Individuals responded to incentives created by that program. Kevin Rudd has accepted responsibility on behalf of his government.
The claim that libertarians have not warned that the stimulus package was wasteful is simply ignorance.
This is somewhat different to the original letter that I sent. But some toing and froing lead to this. In the last draft the editor dropped my comment about lazy journalism.
Update: I got three responses to my letter. I’ve blanked out the names.
Like so many economists, Sinclair Davidson (Letters, March 2) seems determined not to pollute his non-interventionist ideology with information from the real world.
He warned a Senate committee and an OECD delegation that the stimulus spending was wasteful. Consider this: the government provided money to individuals and organisations to spend to stimulate the economy. They either spent the money, saved it or paid off debt.
Since excessive debt and low bank cash holdings were at the heart of the financial crisis, the two latter options both worked to alleviate the crisis. If this money saved individuals or organisations from going broke, there was a massive cost saving to the government, the public and the banking system.
But what happened to the money that was spent? Every dollar that helped keep a person in a job saved the government the cost of providing the dole, and gave that person money to spend to help save other jobs. Part of this money then comes back to the government as income tax. And every time the rest is spent, and spent over and over again, 10 per cent comes back as GST.
Not only was it not ”wasteful”, it worked a treat. It probably helped keep a lot of economists employed.
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Sinclair Davidson fails to address the ”hard case” that Ross Gittins describes. It is easy to criticise the government; indeed, the real challenge is to do a better job of it than Kevin Rudd. But to properly criticise the home insulation scheme, one cannot absolve home owners or the private enterprises involved of all responsibility.
By focusing on when he began asserting that the economic stimulus package would not be effective, Professor Davidson supports Gittins’s argument that libertarians are uncomfortable discussing how to deal with shoddy work performed by cowboy businessmen.
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It was refreshing to read that Sinclair Davidson testified twice to Senate inquiries that the government’s stimulation package was ineffectual. It is a rare thing indeed that an academic admits publicly – nay, draws attention to the fact – that his prognostications were demonstrably wrong. Well done, Professor Davidson.
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very good. And other libertarians had also warned of the consequences of rushed and poor quality spending.
Samuel J
2 Mar 10 at 6:54 am
No Debt didn’t massively and irresponsibly increase.
Most of it was due to the economic downturn not the stimulus.
That is easily read from the budget papers. That is why the projected debt will probably show a halving in the next budget papers.
Moreover a stimulus package which occurs in a GFC has not happened before so there is NO record at all.
What has happened previously is that fiscal policy was used when it did not need to be used and monetary policy had no credit crunch impairing its effectiveness.
Yeah it didn’t succeed.
We now know thanks to Possum that the insulation program higher quality standards meant less fires.
no comment on more classrooms being built at all.
What is astonishing is that ‘Libertarians do absolve any individual of any responsibility of their actions.
Snoopy merely got two quotes and left it at that.
Questions on warranties, insurance of company, experience of their employees et al. no.
Perhaps Sinkers would have made better use of his time asking the OECD on cyclical and structural deficits of member counties and what effect either have.
Butterfield, Bloomfield & Bishop
2 Mar 10 at 10:10 am
“Most of it was due to the economic downturn not the stimulus.”
Please cite where the constitution mentions automatic stabilisers.
Here’s the thing Homer. You reckon we turned a 17 bln surplus into a 43 bln debt because of the recession that almost/sort of happened/perhaps in NSW?
What deficit would we have if not for the stimulus? Forgive me if I infer that the surplus would have simply been wiped, and we can balance the budget over the business cycle. Or that Howard could have given years of surpluses back as meaningful tax cuts that would have made a recession relatively worse in scenario B (tax cuts) but completely better off than scenario A (what we lived through).
“We now know thanks to Possum that the insulation program higher quality standards meant less fires.”
You’re delusional. The marginal effect is extra fires. Has the value of marginal analysis lost its meaning to you?
“What is astonishing is that ‘Libertarians do absolve any individual of any responsibility of their actions.”
That is because, you tea totalling moron, that we didn’t create the bad macro and micro policies in America, nor did we advocate the horrid “stimulus”.
Semi Regular Libertarian
2 Mar 10 at 10:19 am
No constitution is needed
Marky you merely have to read budget parers and be able to add up but numeracy isn’t a strong aspect at Catallaxy.
what sort of deficit would we have had without the stimulus. Who knows. We would still be in negative growth now but never mind you crackpots believe the economy is self-correcting.
Producers might power up because consumers will buy the goods won’t they?
No Marky a lot more insulated homes and less homes means at the margin less fires.
wow last paragraph has nothing to do with anything well done.
Butterfield, Bloomfield & Bishop
2 Mar 10 at 12:04 pm
Where is the proof that the tax and spending multipliers are stable?
“We would still be in negative growth now but never mind you crackpots believe the economy is self-correcting.”
Clearly it is. You’re assuming that the growth path gets shocked and can never change.
“what sort of deficit would we have had without the stimulus. Who knows.”
In other words, you’re making this shit up.
Semi Regular Libertarian
2 Mar 10 at 1:41 pm
We had negative Growth, Homer, you imbecile. IF you factor out government spending on shit like Pink batts, which is a perversion of consumer demand there was negative GDP.
The only reason it didn’t register is that the government basically covered it up with bullshit spending which is now increasingly financed with borrowed money.
You are far too incompetent and dishonest to be posting on economics threads.
JC
2 Mar 10 at 2:31 pm
No of course it can change.
the change via monetary policy has problems because of the credit crunch. We see that when we look at interest rate sectors. Unlike the early 90s it was only one segment of housing that rose.
the sectors that rose had one thing in common. they were affectewd by the stimulus.
Now we see private spending coming in as expected.
on the other hand under your scenario it simply magically happens. Nevermind economies can be quite tepid for some time .
In terms of the deficit we have a fair idea of the structural deficit without the stimulus. The problem is the cyclical deficit would blow-out.
How big it would have got depends on how far into negative growth and how long and then what sort of recovery if any.
Who knows.
Butterfield, Bloomfield & Bishop
2 Mar 10 at 3:00 pm
What credit crunch, Homer? You keep talking about a credit crutch. Which credit crutch, dopey?
JC
2 Mar 10 at 3:32 pm
This is ridiculous.
Homer sez:
We had a credit crunch and we didn’t have a credit crunch.
We can measure how successful the stimulus was but we don’t know what the baseline scenario is.
“Unlike the early 90s it was only one segment of housing that rose.”
That’s not true.
“Now we see private spending coming in as expected”
As is expected in the more austere policy prescriptions as well.
“Nevermind economies can be quite tepid for some time.”
Literally wasting borrowed money improves tepidity and avoids hysteresis?
Semi Regular Libertarian
2 Mar 10 at 3:46 pm
[...] one thing for libertarians to make such a claim (and Gittin’s is right they’ve attacked the spending but utterly ignored the failure of the private home insulation sector to do a safe/competent job [...]
Foiled Logic from Costello | Chasing the Norm
3 Mar 10 at 10:04 am
It was refreshing to read that Sinclair Davidson testified twice to Senate inquiries that the government’s stimulation package was ineffectual. It is a rare thing indeed that an academic admits publicly – nay, draws attention to the fact – that his prognostications were demonstrably wrong. Well done, Professor Davidson.
Arrogant little prig. The WSJ would disagree with you!
Abu Chowdah
3 Mar 10 at 3:39 pm