When is a stimulus not a stimulus?

When it’s supposedly structural reform.

Between reading Catallaxy and The Oz, that is all I know here in the Americas about what is going on in Australia. Today’s front page: Frydenberg warns: don’t risk surplus on fiscal stimulus. A-plus-ultra good advice.

There are two potential models for resurrecting the economy, one even provided by Australia itself in 1996 when Australia slashed public spending and then proceeded to balance the budget. All this during a downturn in the economy and just as the Asian Financial Crisis was beginning.

A budget surplus along with zero public debt drove the economy into one of its best periods of rising growth and real wages in our history. Need to ask Philip Lowe and all these other economists why it worked so well. They would not have a clue.

Let me also mention this:

Anthony Albanese criticised the call to overhaul the industrial relations system, saying wage ­increases should be the main focus of IR reform.

The economic ignorance is fantastic, as if real wages could be raised merely by raising money wages.

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26 Responses to When is a stimulus not a stimulus?

  1. Louis Hissink

    An economic stimulus is similar to taking a performance enhancing drug – with the mistaken belief that the stimulated economic activity is “normal”

    Wrong, it’s unsustainable abnormal activity. And then experiencing cold-turkey when the stimulus has done its job is the equivalence of a recession when the subdued economic activity is believed to be abnormal.

    The reason private enterprise doesn’t produce in a recession is because entrepreneurs can’t make a profit due to pillaging states/governments and the thieving robber/bandit groups. Doesn’t matter how strong the demand, you are not going to produce if no profit is possible. Hence why socialist economies need to be governed by dictatorial systems to force people to produce.

    It is interference in the market that is the problem.

    Ultimately the purpose of life is to stay alive, and any additional “intellectual” life purpose ignorant blathering. It’s primarily the result of over population, and not understanding why, as a species, humans have population explosions. The increases in numbers is a biological response to anticipated future mass culling events, based on previous catastrophic extinctions, as hinted at by various religious authorities, so that sufficient numbers survive to restart the population.

  2. Rafe Champion

    Where is the H R Nicholls Society when we need it.
    And the business associations, big and small?

    http://archive.hrnicholls.com.au/archives/vol27/champion2006.pdf

  3. Rafe Champion

    A liberty quote from William Hutt in The Strike Threat System – “I want the reader to consider whether the survival of the democratic system may not be dependent upon a general recognition of the illegitimacy of privately motivated coercion in all forms”.

    The particular form of coercion that he had in mind of course was the violence of striking workers.

    The acceptance of trade union violence is one of the great blemishes on the face of the western democracies. The tolerance that is extended to trade unionists in that respect (and not generally to common criminals) reflects the hold on the popular imagination that is exerted by the mythology of the labour movement. This was very clear during the waterfront dispute of recent [now distant] memory when the liberal intelligentsia and sympathetic commentators in the media lined up to support the wharfies without blinking an eye over the potentially lethal violence that they were using. The ultimate absurdity of their stance was demonstrated by the suggestion or implication that the substitute dockworkers were equipped with balaclavas and dogs in order to inflict violence instead of the real reason which was to save themselves and their families from violent retribution.

  4. John Bayley

    A budget surplus along with zero public debt drove the economy into one of its best periods of rising growth and real wages in our history.

    You forgot to add that in order for the economy to grow, the above needs to be supplemented by small government and low tax burden. (Of course, those two go hand-in-hand.)

    High spending and even higher taxes, which is Labor’s preferred way to ‘balance’ the budget – at least in theory, because they would have never managed the balancing part of the equation – would most definitely not be a recipe for a sustainable increase in living standards.
    Apart from those of the CFMMEU and the public sector, that is.

  5. Mother Lode

    You forgot to add that in order for the economy to grow, the above needs to be supplemented by small government and low tax burden. (Of course, those two go hand-in-hand.)

    I took it to mean that in the mid-90’s, even while we still had a massive government and high taxes (although lower than now) we still managed a boom time.

    As is noted in writings elsewhere, nature is stingy and holds onto its bounty with both white-knuckled fists. But the appetite to enjoy life of the average person is so irrepressible that government need hardly do anything but get out of the way and let good times roll of their own accord.

    Right now we are watching as businesses prepare (with only token resistance) to sap even more of their productive capacity servicing new regulatory regimes policing their employees in case they utter a word that has been un-worded.

  6. Morrison snatched victory from the jaws of defeat and was given a clear message as to what Australians wanted and what they didn’t want, the same message US voters gave the Democrats. So let’s hope that Morrison does take note of what has actually worked in the past and follows those methods. Morrison has an opportunity to do what Trump is doing in the US, proving what works and what does not.

    Success will mean they can flog the Labour party at the next election with all the crap Albanese and his cabal have been going on about since the election was won and likely will continue spouting. The Labour Party is as out of touch with the electorate as are the Democrats in the US and neither seem to realise why they lost. Do both parties think they didn’t go far enough Left?

  7. Karabar

    Non-productive expenditure (of effort and creativity, of which money is only a proxy) consist of many contributors.
    Apparently ‘extinction rebellion’ is planning to ‘disrupt’ productive activity August 6.
    This tendency for criminally interfere in the business of the nation mistakenly called ‘protest’ undoubtedly contributes to a downturn in economic activity.

  8. Tim Neilson

    Frydenberg warns: don’t risk surplus on fiscal stimulus. A-plus-ultra good advice.

    True that.

    But what odds are the betting agencies giving that the Photios Party will actually follow it?

  9. Dr Fred Lenin

    If you make a budget surplus without cutting spending the surplus can only come from higher taxes ,is that not so ? But if you lower tax and cut spending you will have a positive effect on the economy , more money to spend means increased activity as I understand it . Obviously the lefty universities tgt trained these fifth rate lawyers who run the country basic econmics ,but then how ong is is since the GreenationalLieboral career politicians nderstood real life ?

  10. Roger

    Where is the H R Nicholls Society when we need it.
    And the business associations, big and small?

    Getting woke.

    Need to ask Philip Lowe and all these other economists why it worked so well. They would not have a clue.

    I say, let’s make this bright young chap head of the Reserve Bank!

  11. NuThink

    I had a rather heated argument with a trade unionist who was livid that Abbott did not save the car industry.
    I said that the trouble is that paying the “workers” exorbitant wages means that the tax payer and other industries that are profitable are paying for the good life of the car workers. He said that the more money that the workers get the more money that is in circulation and that feeds economic activity. I then said to him, if paying the workers more improves the economy, then if we really want the economy to go gang busters, just pay the workers a thousand dollars an hour, and we will have a fantastic economy, like Venezuela and Zimbabwe. I could see a light bulb in his mind suddenly switch on. Actually Zimbabwe paid workers a lot of money.

    Zimbabwe’s 100-Trillion-Dollar Note Gains in Value
    Zimbabwe’s central bank allowed its citizens to exchange the country’s almost worthless currency for US dollars. Its 100-trillion-dollar note is worth just 40 U.S. cents.

    https://www.wsj.com/video/zimbabwes-100-trillion-dollar-note-gains-in-value/E32B371E-2016-4BAC-9FDA-5CBE5DB7FE7C.html

    http://buyzimbabwedollars.com/images/ZimbabweHyperinflationChartBIGGER.png

    So you can have a lot of money and still be poor.

  12. sabena

    Why have a Reserve Bank at all?
    They have lost control of interest rates.
    Currency issue can be done by the Treasury.
    The Government’s banking needs can be attended to by the private banks.

  13. pbw

    Hi Steve,

    If you have the time, I’d like to see your opinion on the Department of Economics and International Studies in the School of Humanities and Social Sciences of the University of Buckingham.

    The university is mentioned in Keith Windschuttle’s article here.

    Sir Roger Scruton is (or was in 2017) a research fellow in its Humanities Research Institute.

  14. Perth Trader

    First up let me say I’m no economist. But it seems to me that the drop in interest rates was to save the housing industry or more , the building industry as a whole. To many households are in arrears and more are falling into arrears every month.

  15. Mother Lode

    He said that the more money that the workers get the more money that is in circulation and that feeds economic activity.

    Except that money is taken from someone else and money that they don’t get to spend.

    But now the car industry has less reason to become more efficient (since they will be subsidised) and the productive businesses have less reason to continue becoming more efficient because they get to keep less of the reward.

  16. Squirrel

    I was particularly encouraged to see that at least one of the major ratings agencies is now warning about cumulative government debt across the nation, with salient points about the dependence of our banking sector on foreign funding, and the limited scope for further signficant stimulus if a real crisis hits –

    https://www.afr.com/news/economy/stick-to-surplus-to-keep-aaa-rating-20190708-p5254x

    Bearing in mind that a substantial chunk of the surplus will be coming from volatile mining revenues, we should not need ratings agencies to warn us about the need for prudence.

  17. Rafe Champion

    Prudence and productivity!
    Discuss.

  18. Pert Trader:

    First up let me say I’m no economist. But it seems to me that the drop in interest rates was to save the housing industry or more , the building industry as a whole. To many households are in arrears and more are falling into arrears every month.

    All it will do is inflate the housing bubble a bit more.
    It’s about as helpful as subsidising a heroin addicts habit.

  19. RobK

    Prudence and productivity!
    Discuss.

    With respect, it doesn’t need discussing. Just do it.

  20. Howard Hill

    A budget surplus along with zero public debt drove the economy into one of its best periods of rising growth and real wages in our history.

    Never work again. Need to hire based on gender balance and social acceptance, we’re fooked!

  21. Prudence and productivity

    Any attempt would see the government voted out at the next election.

  22. David Brewer

    Good one Squirrel. The States, while reporting positive “net operating balances” are in fact running huge deficits for so-called infrastructure investment. NSW in particular is crowing about a budget “surplus” for this financial year of $802 million when its fiscal balance is a deficit of $11.5 billion.

    Explanation? “New South Wales uses the AASB 1049 cash result as its headline cash result.” So their colossal deficit just went “poof”!

  23. John A

    Louis Hissink #3100630, posted on July 9, 2019, at 7:03 am

    An economic stimulus is similar to taking a performance-enhancing drug – with the mistaken belief that the stimulated economic activity is “normal”

    Wrong, it’s unsustainable abnormal activity. And then experiencing cold-turkey when the stimulus has done its job is the equivalence of a recession when the subdued economic activity is believed to be abnormal.

    +1000 or double-plus-good, if you prefer.

  24. W Hogg

    Most baffling is that when presented with 3 potential hypotheses why AUS did relatively well in the GFC:

    1) We went into a debt crisis without sovereign debt, net govt shortfall or impaired US structured credit thanks to APRA reforms BEFORE the GFC
    2) We, around 2 weeks AFTER every other country who suffered deep recessions and DURING the GFC, launched a bank deposit guarantee scheme
    3) We announced a $42bn stimulus, 100% of which was to be spent AFTER the GFC

    about 97% of the country chooses “Both 2 and 3.”

    When I suggest that 1) might have had a fair bit to do with it, they typically look at me incredulously and suggest I’m some kind of loon because “every economist agrees” it was 2) and 3).

  25. Gottlieb

    The treasurer, Josh Frydenberg, has held out accelerated infrastructure spending as a possible salve for the Australian economy after growth slowed to 1.8% in the last year, the slowest since 2009.

    The Australian economy grew by just 0.4% in the March quarter, contributing to a seasonally adjusted growth rate of 1.8%. The result contrasts with real GDP growth of 2.25% forecast in the budget, meaning the economy would have to grow by 1.3% in the last quarter of 2018-19 to meet the forecast.

    Frydenberg told reporters in Canberra although annual growth had slipped from 2.4% to 1.8%, this was “within the range of market expectations” and comparable to other developed economies.

    The government should feel great shame at this astonishingly low interest rate

    Furthermore, according to http://www.progressivecorporate.com.au, He pointed to existing measures including the $100bn 10-year infrastructure package and $1,080 of planned tax cuts for low- to middle-income earners as potential boosters for the Australian economy. The stimulus is hence, very obvious.

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