Perhaps Keynes’s critics were right after all

The financial crisis ended in 2009. What we have had since is a Keynesian stimulus crisis. It is this tremendous level of public sector spending on non-value-adding goods and services that has sunk our economies across the world. If anyone still thinks that C+I+G is the basis for good economic policy advice, they ought to have their heads read.

So The Australian today adds the latest installment on our own deteriorating economic circumstances. Here is the first para:

THE high Australian dollar and a slowdown in the non-mining sectors of the economy have claimed their first mass casualties, with Qantas and steelmaker OneSteel announcing job cuts and banking giant Westpac eyeing cutbacks.

Now this is truly terrifying. If the rollback of activity really hits some kind of high level, the 5.5% predicted for the end of the year will be a best case outcome.

Build a carbon tax onto what is already a crumbling private sector and see where we end up. Our productivity is being wasted at phenomenal rates in valueless public expenditures, destructive forms of taxation and punishing addition to our regulatory environment. In what way is it surprising that things are falling apart.

And then there is Europe. I think I saw a story yesterday that the aggregate growth rate across the EU during the last quarter was 0.2%. The Australian anyway gives the narrative even without the number. The story is bad enough:

Data released last night indicated European economic growth was slowing dramatically and that Germany’s economy, the continent’s powerhouse, had stalled amid the worsening sovereign-debt crisis.

About American there is nothing more to say. Obama’s economic policies are laying waste to the world’s strongest economy.

There will come a time that governments will have to start listening to us critics Keynesian theory and of these idiotic stimulus packages which ought by now to be recognised as proven forms of economic suicide. If they wouldn’t believe it in 2009, it is about time they started paying attention now.

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16 Responses to Perhaps Keynes’s critics were right after all

  1. Rafe

    So many factors are feeding in that it will be hard to partition the contribution of each – the world situation, regime uncertainty, our own stimulis-fed debt, the re-regulation of the labour market (that really scares me), the general level of over-regulation, the serious erosion of quality in the public service – that will cause problems for years to come even when the administration tries to put in place better policies, and the pervasive unhelpfulness of the chattering commentariat.

  2. m0nty

    You really do talk a lot of cobblers, Steve. Qantas is restructuring due to competition with Asia, OneSteel is struggling with the high Aussie dollar, and Westpac has had a few bad debts but still posted a profit of $1.55 billion. And I think it’s tomorrow that BHP is going to smash its own record for an annual corporate profit in Australia.

    None of this is to do with stimulus. You are obsessed.

  3. The scale of the fiscal stimulus has led to higher interest rates sooner and put unnecessary upward pressure on the exchange rate. The decision is not all stimulus related but to suggest that the government’s overblown fiscal splurge is irrelevant to this decision is clearly in error. Neither should the negative impact on business confidence from a dithering, error-prone minority government be discounted.

  4. Token

    I’ll agree with you to a point M0nty, Steve & Rafe did not include in their discussion how the penalty provisions and award ‘modernisation’ is making the cost of labour uncompetitive.

    Added to what they are talking about and yes companies are realising on a cost / benefit matrix, it is cheaper to move operations offshore as soon as possible.

  5. AndrewL

    If you have a hammer, everything looks like a nail in the coffin of Keynes, eh Steve?

  6. Steve Kates

    Is it the high dollar in Europe? Is it the new industrial relations laws in the US? If you wear a blindfold, everything that matters becomes invisible.

  7. Jim Rose

    the lack of awareness of exchage rate crowding out is rather disappointing.

    ‘what’s that’ is the usual response when it is raised.

  8. Don

    This is over the top in my view too.

    Keynesian activities didn’t create the US and European bubbles and nor will it fix the aftermath. We are heading back to an equilibrium of activity everywhere.

    Thank god we have the emerging markets to provide some real demand to cushion the fall.

    Decades of living on debt was never going to end well and had nothing to do with Keynes; but I agree everyone is pushing on a string with fiscal waste and need to take some pain.

    Australia is the one with the catch up to play I think.

    I hope we dont transfer the over indebted private balance sheet to the public. The over leveraged boomers need to suck up some pain.

  9. .

    You really do talk a lot of cobblers, Steve. Qantas is restructuring due to competition with Asia, OneSteel is struggling with the high Aussie dollar, and Westpac has had a few bad debts but still posted a profit of $1.55 billion. And I think it’s tomorrow that BHP is going to smash its own record for an annual corporate profit in Australia.

    None of this is to do with stimulus. You are obsessed.

    Your incompetence reaches levels so high it becomes dishonesty. Fiscal stimulus and associated financial flows of amortisation don’t put pressure on domestic appreciation?

    What a load of cobblers.

  10. Jim Rose

    “Keynesian activities didn’t create the US and European bubbles and nor will it fix the aftermath. We are heading back to an equilibrium of activity everywhere.”

    The low-interest rates of the early to mid-2000s were motivated by the Keynesian bogy of all bogymen – deflation.

    The unusually low interest rates decisions were made with careful consideration by monetary policymakers.

    They were purposeful deviations from the interest rate settings based on the usual macroeconomic variables that delivered the great moderation.

    The Fed used transparent language saying, for example, that interest rates would be low for “a considerable period” and they would rise slowly at a “measured pace”.

    These actions were discretionary government interventions in that they deviated from the regular way of conducting policy in order to address a specific problem, in particular a fear of deflation as had occurred in Japan in the 1990s.

    Interest rates at several other central banks also deviated from what historical regularities, as described by a Taylor rule, would predict. The housing booms were largest where the deviations from the rule were largest.

    HT: John Taylor http://www.stanford.edu/~johntayl/FCPR.pdf

  11. .

    Early footage of the next generation of classical economists.

    You tool. There are no “classical” economists around. There are New Classicals and Neoclassicals.

    You then have the temerity to insinuate opposition to mathematically impossible, empirically failed Keynesian policy as infantile.

    Fuckwit.

  12. sdfc

    The RBA raised rates because the economy recovered relatively quickly from the slowdown that resulted from the GFC. Pure and simple.

    Blaming it on the fiscal stimulus is acknowledging that deficit spending played a large role in the speed of that recovery. We know that from the national accounts.

    Arguing that rates should have remained low an argument in favour of higher unemployment.

  13. Don

    So Jim, Greenspan was a Keynesian?

  14. Winston Smith

    The only reason Keynes is the State Economic Religion is because his theories allow Government to do what Government does best – spend money like a drunken sailor.

    Discuss.

  15. Scott

    Let’s see, lots of government spending leads to inflation concerns, inflation concerns mean high interest rates, high interest rates mean a high dollar, a high dollar means less tourism (for example), less tourism means less people flying to Australia. Less people coming to Australia means a visit from Oprah which hasn’t really worked. A wise strategy for Qantas? Take part of the airline overseas where the business is. It’s called diversification.

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