Peter Costello has a good article in the Age today.
Once you announce there is $2.7 billion of free insulation to be distributed, you can hardly be surprised when contractors materialise from thin air to take up the business. If the government’s plan is to shovel out money as fast as possible, then safety and training is not going to be their priority.
Nor was it a priority for the government when it announced the scheme on February 3 last year. The government declared: “The insulation program is expected to create a significant number of new Australian jobs. These jobs require limited retraining and so the benefits to the community can be realised quickly.”
What a tragic miscalculation that proved to be. The retraining was so “limited”, four young men tragically lost their lives and thousands of homes are now at risk. So where did the idea to insulate houses come from?
Costello tells us it emerged out of the bureaucracy and he opposed it when in government. Okay. New government comes in gets sold the idea and implements it. I understand that too. Lots of new governments implement the dumb ideas the old government rejected. It’s called inexperience – everybody suffers from this at some point in their life. So while I agree with Costello, I can’t help think about the super levy surcharge and the ban on nuclear power in Australia.
Costello opposed it did he.
He didn’t oppose too much given his last budget had a structural deficit at over $8b. Since this was larger than the previous year and given we were in a commodity boom and had no excess capacity this led to inflationary pressures.
This is from the man Sinkers leads us to believe saw the GFC coming but did nothing.
Butterfield, Bloomfield & Bishop
3 Mar 10 at 11:56 am
Debbie:
What are your thoughts on the current structural deficit and which spending would you cut to get there?
By the way I agree with you. Costello didn’t cut spending when he should have got a ax to that side of the budget. An ex and machete.
JC
3 Mar 10 at 12:02 pm
clearly the structural deficit is no longer adding to economic activity.
The question is how quickly should it be reined in.
At this stage it looks okay but this of course can change. The stronger the economic activity the quicker you reduce the deficit.
the National accounts would suggest the economy is not recovering that quick as yet.
Butterfield, Bloomfield & Bishop
3 Mar 10 at 12:07 pm
Shorter Homer: Only runaway spending by Labor governments is good
jtfsoon
3 Mar 10 at 12:08 pm
Structural deficits lead to inflation?
This is bit of s atretch to believe when we had consecutive surpluses growing in real terms for a number of years.
Semi Regular Libertarian
3 Mar 10 at 12:11 pm
hahahahahaha Get off your knees Debbie, you clown. It’s disgusting.
Which psending would you cut, you bozo.
JC
3 Mar 10 at 12:12 pm
Here’s the thing too Homer – Rubin advocated a balanced budget over the cycle. Costello never ran a deficit.
Unless you’re saying you follow Rubinomics with the conjecture that Rubin was wrong.
Semi Regular Libertarian
3 Mar 10 at 12:14 pm
this is what Homer is really about
Boom time? we must curb the ‘structural deficit’ by never cutting taxes
Recession? we must increase govt spending
jtfsoon
3 Mar 10 at 12:17 pm
Libertarians constantly advocate the fiscal theory of the price level as complimentary to standard ecoonomics. It explains crowding out and monetisation. It gives rise to the balanced budget over the cycle mantra. (Homer’s yet to explain how years of consecutive budget surpluses during some downturns but generally good times isn’t exceeding running a balance of the cycle).
Yet Homer is at odds with everyone – not the orthodoxy that reject the fiscal theory, but also the proponents of the fiscal theory who think it is part of the mainstream.
Lonely out there old bean?
Semi Regular Libertarian
3 Mar 10 at 12:19 pm
it’s all about him. The only reason he supports all this spending is so he gets a peace of the ill gotten gains.
He’s like a modern/western version of the dudes you see hanging around UN food trucks in Africa.
JC
3 Mar 10 at 12:19 pm
oops piece
JC
3 Mar 10 at 12:21 pm
“It explains crowding out and monetisation.”
It also fits in well with rational expectations and Ricardian equivalence, and shows a link between the real and financial economy.
Homer instead says that in itself it is utterly correct and all other heterodoxy and orthodoxy is incorrect.
Semi Regular Libertarian
3 Mar 10 at 12:21 pm
This is from the man Sinkers leads us to believe saw the GFC coming but did nothing.
The “GFC” for Australia was a lot like the Chilean tsumami. As predicted by the IMF, it ended up being a 10 cm ripple. So we know that Rudd’s toilets and the work of the Garrett incineration squads were an absolutely useless waste of money. As the IMF also pointed out, Australia was safe because of the fiscal and regulatory solidity inherited by batt man, Rudd.
C.L.
3 Mar 10 at 12:24 pm
I mean really you can even draw a link between rising inflation at the end of the Howard era and with Rudd with the increase in real outlays versus a reduction in revenue raising capacity – and then say the small inflationary bias from the RBA has in fact paid for Homer’s much vaunted “structural deficits”.
Instead, Homer believes there is no monetary inflation phenomena.
So Homer, what is the transmission method of the increase in the general price level? Is it through taxes? Does this imlpy that taxes actually reduce net incomes and welfare?
No to both apparently. Apparently the solution to a structural deficit (where none can actually be shown over two minor business cycles) is – fiscal stimulus!
Semi Regular Libertarian
3 Mar 10 at 12:27 pm
Thank you, John Howard.
GST to fund Rudd’s $50bn health takeover.
I’m sure nothing will go wrong. As a PR move, Kevin has pulled a health policy out of his bottom in a fortnight and the insulation scheme proved that his dash is electric and his administrative skills hot.
C.L.
3 Mar 10 at 12:58 pm
Statman I know numbers are hard for you to understand but the spending isn’t runaway in fact it is getting smaller. That is why it is subtracting from growth at present.
It is the structural part of the budget that mainly affects the economy.
If you have a structural deficit over 1% of GDP in a boom of all booms hey presto you boost inflationary forces.
the transmission mechanism is easy. you are pumping in money and there is no spare capacity so where does it go?
errr prices
Costello never run a deficit!
Unlike you I won’t pin his first budgets on him but err 2001.
In a large commodity boom it is rather easy for a very large cyclical surplus to overwhelm a structural deficit.But it is the structural deficit that matters.
and no you ain’t mainstream you are cuckoo.
Glen Stevens, Ken Henry , OECD, IMF and myself are all mainstream.
We do not deny the undeniable nor make stories to rationalise why you get it wrong so often
Butterfield, Bloomfield & Bishop
3 Mar 10 at 1:30 pm
Glen Stevens, Ken Henry , OECD, IMF and myself are all mainstream.
Big company you keep, homer. Tell me, when you’re around the fire with Glen (sic) Ken, his smother, the OECD and the IMF dudes, do you ever talk about the good times when the only place to try out Keynes was Germany in the 30′s.
Does that discussion ever come up?
JC
3 Mar 10 at 1:35 pm
Yes Homer, I would call continuously paying down a debt never running at a deficit.
“the transmission mechanism is easy. you are pumping in money and there is no spare capacity so where does it go?”
They’re pumping in money without monetisation or some other mechanism? Where is the long run view here? Well golly gee Homer. A structural deficit affects short run AD does it? May I ask how?
So let me get this straight – you accept that structural deficits cause inflation but you also reject the fiscal theory of prices.
“But it is the structural deficit that matters.
and no you ain’t mainstream you are cuckoo.”
Funny that you are entirely alone in your extreme hypothesis about the structural deficits, which rejects the fiscal theory of prices.
“Glen Stevens, Ken Henry , OECD, and the IMF are all mainstream.”
Yes they are. They don’t share your bizzare and indefensible ideas.
Semi Regular Libertarian
3 Mar 10 at 1:39 pm
Homer – you also said that someone from NSW and C’th Treasuries and the IMF was a “crackpot”, because he didn’t believe in your magic pudding economics.
Keep digging.
Semi Regular Libertarian
3 Mar 10 at 1:40 pm
More important, do you swap wombat yarns around the fire? Ken would be hard to top, though, am I right? What about Stevens? Does the “boring protestant” go on about Calvin or something?
C.L.
3 Mar 10 at 1:41 pm
Homer ‘Simpson’ Paxton:
“the National accounts would suggest the economy is not recovering that quick as yet”
“Glen Stevens, Ken Henry , OECD, IMF and myself are all mainstream”
http://www.smh.com.au/business/economic-growth-picks-up-steam-20100303-phhk.html
Gross domestic product, the broadest measure of the nation’s economic activity, rose 0.9 per cent in the final three months of 2009 to bring the full year’s output to $1.2 trillion – or $55,103 for every Australian.
Today’s increase follows a series of strong economic data, including rising retail sales and a swelling labour market, and will add to pressure on the Reserve Bank to follow up on yesterday’s rise in official interest rates with further increases in coming months
jtfsoon
3 Mar 10 at 3:37 pm
Yep,
Jason, can’t you see that we need more stimulus because now it is contractionary and that means a higher structural deficit, and therefore more inflation as AD contracts and expands outwards?
No? Neither can I!
Semi Regular Libertarian
3 Mar 10 at 3:53 pm
Monbiot talking sense in the Guardian
http://www.guardian.co.uk/commentisfree/2010/mar/01/solar-panel-feed-in-tariff
ken n
3 Mar 10 at 4:25 pm
Marky,
It is pretty easy.
The economy is at peak capacity and you increase the structural deficit even more. you cannot boost production so you boost inflation.
It is mainstream. It is what the RBA looks for, what TReasury does what the OECD and IMF talk about.
Statman is still crying about his absurd spending is out of control.
Oh yes if it lower now than last year it will have a negative effect on the economy.
See Japan and Posen chapter 2
Butterfield, Bloomfield & Bishop
3 Mar 10 at 5:53 pm
“The economy is at peak capacity and you increase the structural deficit even more. you cannot boost production so you boost inflation.”
Aggregate supply can shift outwards (as per economic growth vis a vis the accumulation of capital), or, AS IT ALWAYS TEMPORARILY DOES WITH FISCAL STIMULUS ANYWAY [as the new capital requires more labour to service and install it, expanding labour supply and thus AS].
Of course you’re still holding that denying monetary processes are “mainstream”. Which ignores that an increase in AD increases the demand for holdings of money.
You can cut me a cheque for educational/consulting services.
Semi Regular Libertarian
4 Mar 10 at 9:54 am