Balanced budgets should be Canberra’s priority

A story on how balanced budgets have been the keystone of the Canadian recovery, an upturn in sharp contrast to the circumstances in the US to the south. The article is by Brian Lee Crowley, the head of the McDonald-Laurier Institute, and published in the Globe and Mail. From which this:

We have a lot of cases available to us to test the proposition that we will increasingly be hearing that balancing the books is over-rated. If the all-stimulus-all-the-time Keynesians are correct, for example, France should be the strong man of Europe, for its Socialist president came to power rejecting “austerity” and preaching the virtues of stimulus. Britain, which pursued a course of fiscal discipline under the coalition government of David Cameron, should be in steep decline.

Instead the head of the International Monetary Fund, Christine Lagarde, recently had to apologise to Britain’s Chancellor of the Exchequer for having wrongly warned that his austerity policies would provoke disaster, as Britain turns in one of the strongest economic performances in the EU. Overtaxed and tapped out France, by contrast, continues to be the sick man of Europe. Interviewed on British television Ms Lagarde acknowledged that Britain’s growth seems “pretty sustainable” because it depends on private sector investment and consumer spending.

Economic theory of the Y=C+I+G variety has a lot to answer for. The evidence keeps mounting that balanced budgets accompanied by limited growth in public spending are the key to prosperity even while the opposite evidence, that budget deficits and large increases in public spending drag an economy down is everywhere to be found (see the US for exhibit A on the harm debt and deficits cause). Canada and the UK have become prime examples of how private sector growth, fostered by what others choose to call “austerity”, actually does create the foundations for economic growth.

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52 Responses to Balanced budgets should be Canberra’s priority

  1. nerblnob

    I can’t say that what we’ve experienced in the UK over the last few years could be called “austerity” .

    Nothing like it, and the government has still chucked plenty at certain types of alternative energy, to no net benefit..

  2. Robert O.

    It makes sense; its a pity that the message hasn’t been understood by our Senators, but really do they have the wherewithal to understand anything complex?

  3. MartinG

    If wish Abbott and Hockey could get it through their thick skulls, you can’t tax your way out of a deficit and discriminatory company tax encourages small companies to stay small, companies at the lower end of the tax levy to get smaller and large companies to move offshore if they can.

  4. that budget deficits and large increases in public spending drag an economy down

    Well there you go!
    Here I was believing that a stock market crash, driven by greed and lack of regulation was what brought the US economy down, and with it, markets and economies worldwide.
    That crisis was obviously a figment of my imagination, as were my five figure investment losses.
    Gee Steve – thanks for setting me straight……

  5. Ralph

    G’day,

    The stock market crash has been well and truly over for some time. Its now higher then it was in 2008 prior to the crash. But the economy ain’t booming.

    ta

    Ralph

  6. MartinG

    1735099
    #1398752, posted on July 30, 2014 at 6:32 am

    Well there you go!
    Here I was believing that a stock market crash, driven by greed and lack of regulation was what brought the US economy down, and with it, markets and economies worldwide.

    What bought the US economy down was the government mandating of Freddie Mac and Fannie Mae to lend money to those who had no prospect of paying it back.

    This was done in the name of social justice by the Democrats.

  7. Bruce of Newcastle

    The interest on the $45 billion budget deficit this year would buy two hospitals.

    Next year it could buy another two hospitals. Only the deficit next year will cost another two hospitals in debt interest. So we will be four hospitals down.

    Then the following year, we’re down 6 more, assuming the deficit is the same. That is twelve hospitals worth of dosh sent overseas and to investors in 3 years. For nothing.

    Cut now. Cut deep. Before we lose more money that could be spent on useful stuff.

  8. What bought the US economy down was the government mandating of Freddie Mac and Fannie Mae to lend money to those who had no prospect of paying it back.

    That bullshit meme was discredited a long time ago.

  9. crocodile

    A quick look at the Canadian budget shows last years deficit at 17.9 bill and the current one at 5.5 bill. Balanced budget my arse.

  10. JohnA

    1735099 #1398752, posted on July 30, 2014 at 6:32 am

    that budget deficits and large increases in public spending drag an economy down

    Well there you go!
    Here I was believing that a stock market crash, driven by greed and lack of regulation was what brought the US economy down, and with it, markets and economies worldwide.

    Gee, eh? Have you compared the US recession of 1919-20 with the Great Depression of 1929-39? Sounds like NOT is the only intelligible answer.

  11. JohnA

    1735099 #1398770, posted on July 30, 2014 at 7:45 am

    What bought the US economy down was the government mandating of Freddie Mac and Fannie Mae to lend money to those who had no prospect of paying it back.

    That bullshit meme was discredited a long time ago.

    LOL! Do you hold to the proposition that socialising losses is a good thing, then?

  12. Token

    What bought the US economy down was the government mandating of Freddie Mac and Fannie Mae to lend money to those who had no prospect of paying it back.

    As the US was stuck with the crony D’rat party in power this mistake and the other systemic problems which lead to the crash have been made worse instead being fixed.

    The question is when rather than if those putrid festering boils will pop again.

  13. LOL! Do you hold to the proposition that socialising losses is a good thing, then?

    And that is exactly what has happened.
    The Masters of the Universe are still living high on the hog, whilst the taxpayer picked up the tab.

  14. MartinG

    1735099
    #1398770, posted on July 30, 2014 at 7:45 am

    What bought the US economy down was the government mandating of Freddie Mac and Fannie Mae to lend money to those who had no prospect of paying it back.

    That bullshit meme was discredited a long time ago.

    The report confirms that Freddie Mac and Fannie Mae were the catalyst for the over capitalization of the property market.

  15. Tel

    This year’s word is “Fauxterity”.

  16. Percy

    Here I was believing that a stock market crash, driven by greed and lack of regulation was what brought the US economy down

    Lack of regulation hasn’t been a problem there since approximately 1607.

  17. The report confirms that Freddie Mac and Fannie Mae were the catalyst for the over capitalization of the property market.

    It does not.
    It lists that the FMs were contributing factors.
    It does not list them as a cause.
    That is a meme that the marketeers have seized upon because they don’t have a pot to piss in.
    Greed , snake-brained spivs and amoral practices drove the process.

    The nine causes from the report -
    We conclude this financial crisis was avoidable.
    We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.
    We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.
    We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
    We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
    We conclude there was a systemic breakdown in accountability and ethics.
    We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
    We conclude over-the-counter derivatives contributed significantly to this crisis.
    We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.

    In the name of the almighty dollar, every knee shall bend. (Liberty quote).

  18. Alfonso

    “That bullshit meme was discredited a long time ago.”

    Rubbish. BusinessWeek commentary has it about right…

    “The problem developed when CDS (Default Insurance) written on the pools of home loans were found to be badly mispriced. Why? The borrowers did not meet the historic standards of the homeowner of the past. It was not the CDS market that caused the problem, it was the terrible result of the low underwriting standards and the high default rates that brought on.”

    The Community Reinvestment Act was a statist peach that contributed to the subprime fiasco… “The chief executive of Countrywide Financial, the nation’s largest mortgage lender, is said to have ‘bragged’ that in order to approve minority applications, ‘lenders have had to stretch the rules a bit.’”

  19. ‘lenders have had to stretch the rules a bit.’”

    Refer to a systemic breakdown in accountability and ethics.

    “Stretching the rules” is precisely that.

  20. Token

    LOL! Do you hold to the proposition that socialising losses is a good thing, then?

    Like all nasty bigoted leftists, he encourages governments to create the conditions which will create suffering.

    At least he is consistent, he always seems to back policies which do nothing for the disadvantaged, which lead to severe negative blowback on the poor and enrich the elites.

  21. Token

    It does not.

    LOL.

    I usually do not engage the homophobic anti-Semite bigot, but this trolling and thread wrecking is amusing as he is as convincing as the black knight of Monty Python fame.

  22. Token

    The Masters of the Universe are still living high on the hog, whilst the taxpayer picked up the tab

    Wow, somebody is lost in an action figure fantasy.

  23. Tom

    Baiting and trolling is the only reason he comes here. It’s the only blog in Australia where he’s allowed to do it. He can’t believe the management is so stupid as to allow his endless taqiyya.

  24. Percy

    Baiting and trolling is the only reason he comes here

    He’s here to convert us through reasoned discussion. The program’s working really well so far.

  25. MartinG

    1735099

    We conclude this financial crisis was avoidable.
    We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.
    We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.
    We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
    We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
    We conclude there was a systemic breakdown in accountability and ethics.
    We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
    We conclude over-the-counter derivatives contributed significantly to this crisis.

    As I said, Freddie Mac and Fannie Mae were the catalyst for the over capitalization of the property market.
    This spread like a virus throughout the global markets with banks adopting reckless lending practices.
    Derivatives were a late entrant and designed to hide the worthlessness of the issued loans.

    We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.

    I don’t dispute this. The rating agencies where negligent in the extreme.

  26. John Comnenus

    Numbers,

    The central question is whether debt fueled deficit based stimulus grows the economy. The comparison between the UK and France is telling. I think France is coming up to 50 consecutive years of deficits. That’s half a century of stimulus accompanied by exactly the kind of anti business uber regulation you support. The UK has imposed very modest austerity based on slowing the growth in Government spending rather than cutting it. The contrast is stark. France is totally screwed and the UK is growing modestly. So why isn’t France a stand out economic performer?

    If you accept that the C+I+G meme is correct then the role of stimulus based on foreign credit is exactly the same as austerity. If you believe that every dollar in stimulus grows the economy through a multiplier effect then you must equally accept that every dollar flowing out of the economy also causes a negative multiplier effect.

    Because debt is repaid with interest the net outgoings from the economy must be higher than the net increase to the economy. Therefore foreign funded deficits are a net decrease in capital over the life of the loan and over the medium to long term are a net drain on the economy as the initial capital plus interest flows out of the economy. If you believe in C+I+G then foreign funded deficit based stimulus is exactly the same as austerity.

    Deficits are medium to long term austerity measures.

  27. Mick Gold Coast QLD

    From Tom at 8:35 am:

    “Baiting and trolling is the only reason he comes here. It’s the only blog in Australia where he’s allowed to do it. He can’t believe the management is so stupid as to allow his endless taqiyya.”

    It’s lying in wait over at the Open Forum too.

    There is a certain stupidity, Tom, in sticking around to see its unwelcome, foul and dishonest presence. He wins.

    As a direct consequence I’ll not be jumping in and out to read and comment today – there’s just no joy in being here, with the unpleasant stench it brings with it.

  28. Eddystone

    I think the turnaround in the UK and no doubt elsewhere, (hasn’t NZ done something similar?) shows just how strong free-market capitalism really is.

    If the UK can recover while still throwing fistfuls of money down the toilet, imagine how well they would go if they really pruned government spending.

    For that matter, imagine how well a free-market, minimal government economy would go. (Has that ever happened?)

  29. thefrollickingmole

    Numbers.
    Government sent the “signal” that financial fraud was acceptable in the housing market.
    The regulators failed to enforce laws ON THE BOOKS, it wasnt they didnt know about it, the securitization which caused to contagion was considered acceptable by the government regulators right up until the shit hit the fan.

    In addition you had the government handing out turd sandwiches in the shape of manditory loans to crap risk people.

    Yes the financial industry bears a huge share of blame for what went on, but remember, all of it was LEGAL right up until the bust.

    Oh, and dont forget the top bloke they had on the job of oversight, the same one whjo was in a relationship with the head of (I cant recall which) Freddie or Fannie.

  30. thefrollickingmole

    And lets not forget the next round allready looming..

    Is the $1 trillion student loan debt really a crisis

    Thats a “there is no problem” article BTW, but a trillion dollars, probably 1/3 of which will be defaulted and its not a problem??? Really?

  31. Ant

    It should be constitutionally required that all governments balance their books – period.

    It should also be constitutionally required that governments can take only a fixed and limited % of GDP in taxes in any given year.

    And if they require more money than that the only way they can get it is by:

    1. Cutting something that exists elsewhere within their branch of government.
    2. Pay for it themselves.

  32. crocodile

    The UK and Canadian budgets are not balanced and haven’t been for years. The article is horseshit. The French deficit has been smaller than the UK for years as well. The UK surplus years of over a decade ago being an exception.

    https://economics.rabobank.com/Global/Publicatie%20afbeeldingen/2014/04%20April/frarnce/france2.png

    http://tutor2u.net/economics/revision-notes/fiscal-policy-4.jpg

  33. crocodile

    Fuck it, still didn’t work

  34. Token

    Thats a “there is no problem” article BTW, but a trillion dollars, probably 1/3 of which will be defaulted and its not a problem??? Really?

    This is debt is more insidious as the contracts are constructed to prevent an easy wash out.

  35. Craig Mc

    Here I was believing that a stock market crash, driven by greed and lack of regulation was what brought the US economy down, and with it, markets and economies worldwide.

    Numbers, that’s because you believe a lot of shit. In fact, if it’s shit, you believe it.

    Meanwhile:

    Toto we’re not in Fairfax anymore.

    I’m not sure what Irvine expects from the government. They can’t even get a budget actually full of spending increases passed for all the pissing and moaning from the numpties, who want it all and want it now, and the self-seeking vermin infesting the upper house. How are they supposed to pass an actually tough one, or (you can take the girl out of Fairfax…) push for higher GST taxes.

    Is she calling for Martial Law perhaps?

  36. Token

    The UK and Canadian budgets are not balanced and haven’t been for years

    What is the situation with the provence governments in Canada like the Ontario & Quebec? Are the leftist wracking up unsustainably high systemic debt while the Federal government controls it, like our states during the Howard years?

  37. Ms Dolittle

    The Masters of the Universe are still living high on the hog, whilst the taxpayer picked up the tab.

    Bet No.s is still enjoying his fully funded flat screen from poor old Clive Peters. Galling.

  38. Ivan Denisovich

    hasn’t NZ done something similar?

    Yes:

    In contrast, New Zealand was lurching into debt, had a collapsed non- bank finance sector, a tradeables sector that had been squeezed for several years, a real recession in advance of the global recession, and a structural deficit.

    So when Finance Minister Bill English announced last Thursday that New Zealand is on track to record a budget surplus (albeit tiny) in 2014-15, it stood in stark contrast to Australian Treasurer Wayne Swan announcing his sixth budget deficit…

    Furthermore:

    [Bill] English, now in his sixth year as New Zealand’s Treasurer, commendably chose not to emulate the world’s greatest treasurer Wayne Swan and kept a tight leash on public spending before and after the global financial crisis, preferring to cut income taxes and lift consumption tax. The Key government, facing election again later this year, is now reaping the rewards.

    While Australia’s economy is lumbering back to trend growth, New Zealand is enjoying a boom, its economy predicted to grow 4 per cent this year and 3 per cent next without pushing up inflation. The country’s unemployment rate is projected to fall to 4.4 per cent during the next few years as ours hovers around 6 per cent.

    http://blogs.news.com.au/dailytelegraph/andrewbolt/index.php/dailytelegraph/comments/australians_smash_kiwis_again_at_the_handout_olympics/

  39. H B Bear

    &*#@ – another Spudfest.

  40. JohnA

    Craig Mc and all

    just copy the text instead of the link and paste that into another window/tab of your browser to see the graphics

  41. That crisis was obviously a figment of my imagination, as were my five figure investment losses.

    Bahaha! Numbers wants government-mandated returns on investment. Evil Abbottbeast666 won’t tilt the rules in my favour boohoo.

    You’ll get no sympathy here, Numbnuts.

  42. Then the following year, we’re down 6 more, assuming the deficit is the same. That is twelve hospitals worth of dosh sent overseas and to investors in 3 years. For nothing.

    Cut now. Cut deep. Before we lose more money that could be spent on useful stuff.

    Too true, Bruce. The elephant in the room with regards to Asian investors buying Australian property is savings being converted from increasingly worthless US dollars into hard assets.

    The solution is to save. Why should the savers be stopped from converting their savings into real assets?

    Economic justice NOW!

  43. Alfonso

    Low info underclasses expecting zero risk investments best stick to 4 pillars savings accounts at 3% and drop the childish envy …..I’ll run my own risk reward decisions within the law, thanks anyway comrades.

  44. Makka

    You can trace the genesis of the GFC back to the Left’s repeal of the Glass-Steagal Act by Clinton and then SecTreas Rubin (ex GS).

    That Act stood in the way of Banks in the US using depositors funds for Commercial banking, lending etc. The repeal allowed access to Trillions of dollars in the banks for which they put to work by then inventing all manner of instruments- among them the now famous WMD’s. Poor regulation then allowed Banks to lend to those who could never afford it but the horse has already well and truly bolted by then.

    http://debtsofanation.blogspot.com.au/2010/04/debts-of-spenders-bill-clinton-regrets.html

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aX1CAxJtU6X4&pos=2

  45. stackja

    Makka
    #1398942, posted on July 30, 2014 at 12:09 pm

    The poor were being denied mortgages. Of course the poor could not make repayments.

  46. Marion of the Glades

    Let’s not allow pollies and others to fake it. Financial and economic failure follows from soft decisions on tax and spending. Greece being our best example: governments making no attempt to raise revenues effectively and at the same time blowing expense on soft spending decisions.
    Australia has coddled the finance and mining sectors (compulsory super, tax preferences, weak disciplines around mining and energy tenements, extremely poor competitive disciplines). We have allowed anti-competitive outcomes or at least undue market power to arise in grocery retailing, some sectors of transport and the dominant over-sized forces in banking.
    We distort household savings and investment choices with ludicrous tax incentives and subsidies.
    We do very little to ensure that competitive infrastructure is prioritised and delivered (prime example being the pathetic on-again, off-again NBN that is playing into Telstra’s hands.)
    e have been giving money away to the comfortable middle of the community for years, largely as a vote buying exercise. The latest version of that is the forthcoming PPL.
    Meanwhile, the entrepreneurs in our midst are ignored while various ideologues bray on about the points scored in what are largely undeveloped undergrad “debates”.

  47. Mk50 of Brisbane, Henchman to the VRWC

    Stalin’s butt-boy, the racist anti-semite coward and white supremacist:

    Well there you go!

    Nope, there YOU go. Again.

    Here I was believing that a stock market crash, driven by greed and lack of regulation was what brought the US economy down, and with it, markets and economies worldwide.

    Yeah, wrong as ever, as Ralph, MartinG, JohnA, Alfonso, Percy, Tom, Token, John and everyone else noted when they schooled you via a day-long cluebatting. Oh, and there was plenty of regulation, it’s just that the US Democrat party’s crony capitalists had conspired with corrupt US Democrats (BIRM) to bypass them and/or capture the regulators.

    That crisis was obviously a figment of my imagination,

    Your vapid maunderings as to the causes were, you’ve proven that beyond all doubt. Any more reality you want to deny?

    as were my five figure investment losses.

    Heh. The Stalinist is mucho interested in capitalist profit, eh? Thanks for proving that you are both incompetent and a hypocrite.

    Gee Steve – thanks for setting me straight……

    It’s gladdening that you express proper gratitude to your intellectual, cultural, political, moral, ethical and evolutionary superiors.

    Good monkey.

    See, all? Cluebatting a toll can be fun!

  48. Yohan

    Numbers, in a true laissez-faire world, one in which banking and financial markets are completely unregulated, one in which there is no implicit government guarantee and backstop for any financial business, Goldman Sachs, AIG, Franny, Freddie, Citibank and every other highly leveraged institution would not only have gone bankrupt in 2008, but they would probably have gone bankrupt decades before becoming too big too fail in the previous financial crisis of 1997, 1992, 1983, 1975 and so on.

    Only in the economically ignorant world of the leftist can you actually claim our current problems are the result of the government not regulating and controlling us enough. It is government regulation, market socialism and statism has been responsible for the economy having become so structurally distorted like it is now.

  49. 1234

    Yolan – and your laissez-faire world in which banking and financial markets are completely unregulated would be better? You must be joking. Roll out the mat for all the shonks, spivs and other assorted fraudsters. There is no true laissez-faire world, its your utopia and a distopia for everyone else.

  50. 1735099

    There is no true laissez-faire world
    Not quite true – there’s always Somalia.

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