This is the poor benighted James Callahan in 1979, England’s Prime Minister at the time who gave way to Margaret Thatcher, having learned a lesson or two along the way about just how much junk science Keynesian economics actually is:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
I don’t wish to entirely absolve our own Treasurer but really, it’s economic theory and the misguided policies it keeps providing to governments. It’s those folks at Treasury and the faulty economic models they so wholeheartedly believe in and apply, theories which are taught across the world in virtually every introductory text, that is the problem.
Had Swan arrived to be told that we must sit tight and not try to spend our way to prosperity, perhaps just a bit of extra spending here or there but nothing massive, he might have done the right thing. Instead he was told to spend up to the hilt so that is what he did. That he is finding out, in just the same way as James Callahan, that the only way it can work is by ever greater doses of the same bad policy is merely a very very expensive lessons for him and for us all. One can only hope that the next Labor Treasurer, twelve or more years from now let us hope, will have internalised the lessons that have been so painfully taught.