More economic incompetence coming our way

Modern economics is so incompetent to deal with the problems of our economy that it is simply breathtaking. This is the headline at The Oz: “Reserve Bank paves way for further cuts in official interest rates”.

His comments come against a backdrop of deteriorating economic data: house prices and building approvals are falling, while the national economic growth rate dropped from 3.4 per cent to 2.8 per cent, it emerged this week, surprising economists.

Speaking at the Australian Business Economists annual dinner, Dr Debelle said the federal government had room borrow and spend to stimulate the economy, if needed.

These people do not, of course, have any idea why the economy is floundering. They have kept rates low since the GFC and public spending has never been higher. Of course, a major part of the problem is that rates have been too low and public spending has been too high, but they would be the last people to know. Look at what he even said:

“Fiscal space is really important; we still have that in Australia,” he said, backing former Treasurer Wayne Swan’s controversial $52bn fiscal stimulus of late 2008 and early 2009, which saw $900 payments to households, help for first home buyers, discount roof insulation and a school hall building boom.

“Fiscal stimulus in Australia in my view was absolutely necessary and was a critical factor behind Australia’s good economic outcomes,” he said.

Unbelievable. No idea how an economy works but they will bludgeon it again until it finally responds to treatment. And there is not much doubt we are heading into an economic sinkhole that Treasury and the RBA have between them created.

The GFC is now a decade past and we, along with pretty much everyone else, have never had even an inkling of a robust recovery. Amazing.

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37 Responses to More economic incompetence coming our way

  1. Neville

    Keynes-hypnotised Inbeciles. Never heard of Hayek, Mises, Ricardo …

  2. Natural Instinct

    Why are you complaining about Steve – they have it figured
    .

    The transmission of monetary policy refers to how changes to the cash rate affect economic activity and inflation. This article outlines the stages of transmission and the channels through which it occurs. The effects of monetary policy are hard to quantify, though the housing market seems particularly important to the transmission process in Australia. A lower cash rate stimulates household spending and housing investment, partly through increasing the wealth and cash flow of households. A lower cash rate also tends to result in a depreciation of the exchange rate, leading to higher net exports and imported inflation.

    .

    While this is a simple textbook description, the effects of monetary policy can be also seen in practice. Some estimates from work at the Reserve Bank suggest [not exactly a ringing endorsement] that lowering the cash rate by 100 basis points leads to economic activity, as measured by GDP, being ½ to ¾ percentage point higher than it otherwise would be over the course of two years. Inflation typically rises by a bit less than ¼ percentage point per year over two to three years.

    .

    More generally, estimates suggest that it takes between one and two years for changes in the cash rate to have their maximum effect on economic activity and inflation.

    I wonder if any post implementation reviews are undertaken by Board Members? e.g. why is this quarter cut going to be any different to the quarter cut we did last year, which did nothing discernible?
    .

    At the time of writing, the authors were in the Public Access & Education section and Economic Analysis Department, respectively. This article has an associated ‘Explainer’ as part of the Reserve Bank’s education resources, which is specifically targeted at senior high school students.

    Get ’em young I say…

  3. Jannie

    Just wait till Labor and the Unions get hold of the keys.

  4. Bruce of Newcastle

    In terms of business cases interest rates aren’t too low, because below the level of the very biggest companies the rate that businesses pay has almost nothing to do with the RBA rate.

    In turn the actual business rate is based on risk.

    Risk for small business is especially horrendous.

    And the government is making that risk worse and worse. Electricity prices through the roof. Taxes upon taxes, mostly crazily levied on inputs. Red tape exploding. Green tape exploding even worse. Pressure from SJWs who the police refuse to prosecute. Crime activity so bad that a small business can be robbed twice in a week, again with the police doing little if the perps are a protected “victim group”.

    Government spending is too high, yes. But that is nothing to the dead hand of government bureaucracy on businesses and ordinary people.

  5. John Constantine

    When ERA announces the cost of rewilding the tiny Ranger mine site is rising towards a billion dollars.

    We require no financial guarantee to do rewilding of windmill Rort sites.

    We require no financial structure to meet the rewilding costs of the chicom mines the peoples liberation army slave labour gulags use to churn out solar panels.

    Rewilding costs for uranium, but not ruinables.

  6. W Hogg

    We did briefly have a recovery – at the peak of Gillard’s 100 year commodity boom. Naturally they reacted by destroying the mining industry because profits.

  7. egg_

    The ‘lazy manager’ syndrome (sack staff to cut costs – in the short term)/import voteheards to ‘boost’ the economy?

  8. egg_

    We require no financial guarantee to do rewilding of windmill Rort sites.

    Like the Lake George eyesore?

  9. Tom

    So only now they wonder whatever happened to the recovery that was supposed to follow the
    2007-08 GFC. The treachery of the LNP’s surrender is that it never even intended to reverse the new effective $200 billion+ tax on the economy run up by the Liars between 2007 and 2013 as federal government spending exploded from $220 billion in 2006-07 to $500 billion+ in 2019-20 with another half a trillion in government debt (when the Costello-Howard regime had been debt-free). Turns out all that brochure bluster about small government was a great big lie designed to gull the gullible. The Lieborals believe in nothing. 2017-18 government spending.

  10. NB

    ‘bludgeon it again until it finally responds’
    Every time I hit it, it moves! So I’ll hit it some more.

  11. Nob

    Chernobyl seems to have re-wilded itself rather successfully.

  12. Petros

    Thanks Steve. For us non-economists it is reassuring that your comments make total sense to me, unlike the usual waffle we get from the MSM on economics. Is it all a giant Keynesian ruse to eventually collapse our economies to then install Marxism 3.0?

  13. Destroyer D69

    Re the $900.00 household payment , remember that there was a minimum income requirement to qualify for it. Basically, if you had a low income, you did not qualify….. Also in the case of a responsible worker who had planned savings set aside for a retirement income support , the return from these savings has been reduced by 98%.

  14. mh

    His comments come against a backdrop of deteriorating economic data: house prices and building approvals are falling

    Yep, Australians need to borrow more because currently there is only a $1.8 trillion aggregate debt on housing within the banking system.

  15. max

    Have Hope: Our Opponents Are Economic Imbeciles.
    Gary North – January 05, 2016:

    ECONOMIC IMBECILES
    All around us are economic imbeciles. We find them in the major university economics departments. We find them on the financial media sites. We certainly find them in Congress. Above all, we find them on the Federal Open Market Committee. These people believe that a government committee, filled with tenured bureaucrats, is better equipped to solve economic problems than the competitive free market is, where people have their own money on the line.
    They really are economic imbeciles. They may have IQ’s that got them through college or graduate school. But, in their understanding of cause and effect, they are imbeciles. They do not understand that they are imbeciles. They preach to the choirs that surround them.
    Why do economic imbeciles get a hearing? Because voters desperately want to justify the fact that they have used the state, and especially the federal government, to confiscate wealth from each other. They want to believe in their hearts that they are doing the morally right thing by sending out a thug with a badge and a gun, who tells the hapless citizen to fork over his money, or he will go to jail. We have an entire political and economic system which rests ultimately on this threat.
    Anyone who falls intellectually for this kind of immorality is not a reliable judge of much of anything. When this person goes looking for an expert opinion to justify the fact that he is a thief, he is likely to find that only third-rate logicians, who cannot follow the chain of reasoning, are going to come forward in the name of organized theft.
    It starts with a moral problem. It starts with a violation of the commandment not to steal. We have a modern civilization that is built on a systematic violation of this commandment.
    The overwhelming majority of voters today are convinced that the present economic order in no way violates this principle. Virtually all of the pastors in the pulpits are convinced of this. They don’t preach against the organized theft of modern Keynesianism. They don’t think it’s part of their calling to point out the obvious ethical implications of the system of government that compels people to support other people, merely because the other people don’t want to go out and get a job.
    Or maybe other people do want to go out and get a job, but they find competition from outside the country difficult to deal with. So, they call upon economic imbeciles to justify their desire by establishing trade barriers against imported goods.

  16. Keith MacLennan

    I always thought Keynes said governments should save money in the good times to spend on the rainy days?

  17. MPH

    QE is coming, M3 to the moon with RBA buying government bonds and Australian RMBS, Aussie dollar into the toilet, bit hard to make real investment returns but the AUD asset price inflation will be spectacular. Have to bail out the bankers right?

  18. Craig Sargent

    Remember when the Treasury put out a fraudulent report in an attempt to show that the fiscal stimulus worked (Excluding data points to create a positive correlation) ?

    Pity no one was held accountable for that fraud.

  19. H B Bear

    Don’t tell me there is no return from Gillard’s “investment” in tin sheds for schools?

  20. Dr Fred Lenin

    It seems economics positions like political ones requirev absolutely no knowledge of the subject . Our politicians have no qualifications to run the country and economy, a two bob law “degree” qualifies you for nothing but scheming and lying without shame . Put a bunch of capable housewives in charge ,watch how things change, you wouldnt find them giving money away for useless purposes like foreign aid importingwelfareists,pandering to queers or fauxberiginals and the like ,and globalist interference would not be tolerated . We could get rid of the politicians and half the piblic service saving squillions .I suggest an introductory period of twenty years ,with options th renew for further periods of the same legnth .
    The country would be in capable hands for the first time ever. The unemployed pollies public servants and economists could be on work for the dole , picking up waste paper and dog shit and killing cane toads with golf clubs , supervised they could do this ,I think?

  21. Jock

    The RBA and the Government and the RC have manufactured a credit squeeze via regulatory intervention requiring more bank capital and better lending criteria as well as putting the featr of god in bankers. At the first whisper the policy might be working by capping asset inflation they panic. And DeBelle , who knows that interest rates are a blunt instrument uses the old Ken Henry Go hard Go often to describe what the RBA should do next. Mind you he is keen to do two other things: get the Aussie down and transfer wealth from Super to mortgagees.

    What is really striking though is the admission that he knows bugger all about dangerous debt levels. The bit to beat was that Swan was right! If he is not kicked to death at the next RBA Board meeting then I want the Board sacked. I have never heard such infantile cowardly drivel in my life.

  22. yarpos

    HB Bear , how would you fo ROI on school building infrastructure? I guess that would apply, even if you didnt like the program. A pox on schools for getting plsces to do their thing out of the weather. Outrageous.

  23. Seza

    Tarpons, it wasn’t the actual infrastructure we were against, but the cost of the jumped-up carports that made the builders of the COLAs very rich.

  24. Squirrel

    “Reserve Bank paves way for further cuts in official interest rates” – the RBA and their accomplices have blown a stupendous asset price bubble on which the entire economy, financial and taxation systems rest.

    Anything more than the slighest, gentlest, most gradual deflation of that bubble will be catastrophic. They know it, and they, and all the others who are up to their ears in this wanton idiocy, are running scared.

  25. egg_

    the cost of the jumped-up carports that made the builders of the COLAs very rich.

    Some of our very own Cats were involved in same and advised of the corner cutting etc. involved in the Labor scam.

  26. Bruce

    As even that murderous old bastard, Vladimir Illych Lenin (nee Ulyanov) rhetorically asked:

    “Who? Whom?”

    Expanded version:

    “Who is doing what to whom and who is payng for it?

  27. Norman Church

    There is a great way to test whether Comrade Swan’s fiscal stimulus program was either necessary or effective.

    Look at what NZ did in response to the GFC.

    NZ achieved a better outcome without engaging in fiscal madness and without the benefit of a boom in commodities prices.

    QED

  28. Skuter

    It’s almost like the RBA is gearing (pardon the pun) up to muddy the waters as the ALP imposes its disastrous negative gearing and CGT changes. Why has no one remarked on the fact that the deadweight loss from CGT is amongst the highest if any tax..

  29. .

    Craig Sargent
    #2880415, posted on December 7, 2018 at 12:11 pm

    Remember when the Treasury put out a fraudulent report in an attempt to show that the fiscal stimulus worked (Excluding data points to create a positive correlation) ?

    Pity no one was held accountable for that fraud.

    But, they’re the government, and it is different.

  30. .

    Skuter
    #2881011, posted on December 8, 2018 at 12:55 pm

    It’s almost like the RBA is gearing (pardon the pun) up to muddy the waters as the ALP imposes its disastrous negative gearing and CGT changes. Why has no one remarked on the fact that the deadweight loss from CGT is amongst the highest if any tax..

    Welp, that’s very astutue.

    Dr Kates is correct. Look at the Obama stimulus – which was meant to work be causing inflation – it actually caused deflation because it depressed output growth after the GFC collapse.

  31. Neil

    Economic incompetence? Just imagine if a Liberal party Treasurer said something like this

    https://www.budget.gov.au/2012-13/content/speech/html/speech.htm

    The four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, resilience of our people, and success of our policies.
    In an uncertain and fast‑changing world, we walk tall — as a nation confidently living within its means.
    This Budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time.

    Wayne Swan 8/5/2012

  32. sdfc

    Dot

    Dr Kates is correct. Look at the Obama stimulus – which was meant to work be causing inflation – it actually caused deflation because it depressed output growth after the GFC collapse.

    Deficit spending is by definition inflationary. The economy’s problem was the biggest sector had balance sheet issues.

  33. .

    “By definition”

    …and things do not occur all at once.

    Obama engaged in inflationary policy, which so depressed output it led to inflation.

    The economy’s problem was the biggest sector had balance sheet issues.

    MMT crackpots always say to take on more debt. Until the Peso shits itself and the banks collapse for good.

  34. sdfc

    Obama engaged in inflationary policy, which so depressed output it led to inflation.

    That’s not an argument and it doesn’t make any sense anyway.

  35. .

    It is an argument, it is factual and it makes sense as soon as you realise economies operate in real time; and that Keynesian policy fails virtually all of the time.

    Good to see you’re almost acknowledging your MMT crackpottery.

  36. JohnA

    These people do not, of course, have any idea why the economy is floundering. They have kept rates low since the GFC and public spending has never been higher. Of course, a major part of the problem is that rates have been too low and public spending has been too high, but they would be the last people to know.

    I have been calling that “iatrogenic behaviour” for a long time. The cure is what is causing the disease.

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