Costello joins the resistance

Peter Costello was Australia’s greatest Treasurer bar none. Today in The Oz there is a front page story that reminds me just how much this is so: RBA cuts won’t help the economy, says Peter Costello, with the subtitle, “Former Treasurer urges Coalition to Resist Infrastructure Splurge”. And it’s not just rate cuts that are useless.

Future Fund chairman Peter ­Costello has brushed off suggestions that further cuts in official interest rates will help the economy, while urging the government to resist calls to ratchet up infrastructure spending, saying it should tackle the “hard” issues of structural reform.

He ran the economy for eleven years, and among the best forecasts I ever made was to say that we will all live through it, see how well a policy of balanced budgets and zero debt actually works, and not learn a thing. Come the GFC, and that fiscal incompetent Kevin Rudd grabbed the stimulus tray with both hands and now, more than a decade later, we cannot get our economy untracked. And it’s not just balancing the budget that matters.

So let me bring you back to the economics of the classics and tell you what needs to be done: (1) leave growth to the private sector and (2) keep interest rates high enough to stop our resources being ploughed into unproductive projects (eg the NBN, desal plants, streetcars down George St, billion dollar train stations at places no one goes to).

The problem remains that Keynesian macro and every introductory text – except mine – pushes stimulus spending and low rates of interest, the perfect recipe for staying in the doldrums for a very long time.

And by structural reform, the proper meaning, which I assume is the same as Peter’s, is to let the economy adjust so that we are producing value-adding goods and services that will actually make a profit in the market. And if we do that, strangely enough, it will also add to the economy’s capacity to provide higher levels of public spending, even though it is a smaller proportion of total output.

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36 Responses to Costello joins the resistance

  1. BorisG

    What is the optimal level of interest rates?

  2. Frank Walker from National Tiles

    One that is free from central bank manipulation.

  3. mh

    It needs to be looked at again what Australia wants the RBA to achieve. This is the RBA website:

    In determining monetary policy, the Bank has a duty to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.

    Costello should be chosen to head an enquiry.

  4. Mother Lode

    Who is going to be the first moron to lurch in here and tell us Swanny was the greatest treasurer because he saved us from recession as defined by GDP by fiddling GDP with massive spending we are still paying off, and because a European magazine gave him an award?

  5. Bruce of Newcastle

    saying it should tackle the “hard” issues of structural reform.

    Good luck with that. The Senate cross bench are very cross, and have rejected pretty much every attempt to do any structural reform. The last such effort succeeded only through a political payoff for Tasmania to sweeten Ms Lambie in return for passing the tax cuts. And returning bracket creep is barely ‘structural’.

  6. Delta

    I’d say the best thing for the economy would be to scrap the Paris agreement and the massive subsidies to so called renewable energy, then restore the electricity grid to deliver real low cost electricity like we used to have. Then look to a gas reservation policy to deliver low cost gas to the nation because the gas companies are more interested in selling overseas (understandably at a high price) and that’s not likely to change.

    Compare with US with its very low energy prices which are the feedstock to a vibrant economy. Admittedly there are some exceptions across the US where the democrats have stuffed or are in the process of stuffing local gas extraction and or cheap local power generation but there is the ability to move to States with low cost power. Low cost energy always leads to prosperity, but if a business cannot compete internationally because of high energy prices locally then out of business it goes.

    How many of our businesses are reaching this stage?

  7. Neil

    Here is a story not many people know about. Costello managed to put $80B into the Future Fund. There was $60B in the FF itself and $20B in 3 infrastructure funds Costello started. Costello set them up so only the dividends/interest could be spent. One was called HEEF. Rudd changed the name to EIF and then changed the legislation so the capital could be spent as well and then raided it and used the money as stimulus spending. I don’t think they exist anymore or if they exist there is not much money in them

    https://newsroom.unsw.edu.au/news/general/education-investment-fund-needs-replenishing

    At its height, the EIF had close to $10 billion under management. It was effectively an endowment or a ”future fund”, where the interest was invested each year in significant university infrastructure. The fund supported new building projects at universities across the country – at the University of NSW for example, it funded the construction of a world-class centre for energy research.
    Unfortunately, from 2010, the fund was raided for the Rudd government’s stimulus package during the global financial crisis and the Rudd and Gillard governments spent much of the principal. There is no question Australia managed to survive the financial crisis better than almost any other country, but one of the collateral costs was the decimation of the EIF.

  8. Iampeter

    Peter Costello was Australia’s greatest Treasurer bar none.

    Then you must love Wayne Swan.
    Oh wait. The government Swan was a part of didn’t built the green bureaucracy, middle class welfare or generally run one of the largest taxing, spending and regulating governments in Australia’s history.
    No, no. Wayne Swan is not left wing enough to be supported by conservatives.

    He ran the economy for eleven years, and among the best forecasts I ever made was to say that we will all live through it, see how well a policy of balanced budgets and zero debt actually works, and not learn a thing. Come the GFC, and that fiscal incompetent Kevin Rudd grabbed the stimulus tray with both hands and now, more than a decade later, we cannot get our economy untracked.

    Seriously? Costello “ran” one the most leftist and over regulated economies in Australia’s history, largely helped enlarge the housing bubble, which then burst during the Rudd years.
    And if you honestly think Costello and Howard wouldn’t have panic-cut interest rates if they were still in office you are just kidding yourself. Those imbeciles may even have nationalized the banks or something similar. I wouldn’t put anything past the hopeless leftists that were part of the Howard/Costello team that conservatives, clueless as always, remember so fondly.

  9. JC

    Steve Kates

    What model are you using leading you to imply monetary policy is too loose? The the current target, which incidentally has not been met since Philip Lowe has been in office is inappropriate, then what target are you in favor of?

  10. C.L.

    Costello was the most dominant parliamentarian of the past 30 years and more on top of the treasury brief than any predecessor, including well-rehearsed autist Paul Keating.

  11. Fisky

    Productivity started to slide in 2003, which just happens to coincide with the first housing boom and the dramatic increase in immigration. We will never come out of this rut without a major reset from our current economic model of Quantitative Peopling fuelling the property ponzi economy. If Costello is serious sbout reform he should advocate a halving of our immigration level, at least.

  12. Fisky

    GDP per capita growth is now worse than Japan, despite record net migration. It seems that immigration is the ultimate productivity killer. The dumb ponzi model of debt-fuelled housing speculation stoked by record migration and the university-to-PR pipeline, have destroyed the foundation of our prosperity, ruining every sector from building quality to academic standards to wage growth and so on. An epic failure by so-called free market economists.

  13. JC

    Peter

    The meds are still not working. In any event when is computer lock up time at the psychiatric centre where you reside?

  14. JC

    Fisky

    If your economic policies are not set for productivity growth like ours, don’t be surprised there isn’t any. Everything is choked and bottlenecked in this economic shithole and immigration is not the cause.

  15. Fisky

    But commuting times have risen dramatically despite massive infrastructure spending, which is obviously the result of immigration-fuelled population growth.

  16. Fisky

    Longer commutes, smaller and more expensive homes, more crowded schools and lower wages. Thanks, immigration!

  17. Dr Fred Lenin

    Is it possible that the government has dug its self into such adeep hole of government and personal debt constructing false values of housing that rising interest rates would burst the bubble ?
    I well remember the real greatest treasurer in the world Keating presiding over rates up to 18 per cent just before the Pyramid bubble burst with drastic consequences to the greedy investors ,it was common knowlege in the racing industry they were going to sink , then a left government bailed the greedy out using taxpayers money . Politicians and public servants should never be allowed near taxpayers money ,they gave no respect for it or the people who worked hard for it .

  18. Beachcomber

    Future Fund chairman Peter ­Costello …….

    He’s another big-government Liberal Party swamp parasite. He balanced the budget books for a few years but did nothing to stop the growth of government and its reach and control over our lives.

  19. Beachcomber

    (1) leave growth to the private sector and (2) keep interest rates high enough to stop our resources being ploughed into unproductive projects (eg the NBN, desal plants, streetcars down George St, billion dollar train stations at places no one goes to).

    You must be joking. Such thinking is not permitted anywhere in the Establishment, which is totally captured by the dirigiste left.

  20. Iampeter

    The most ignorant of all leftists blame all our problems on the non-issue of immigration.
    It’s the most primitive type of collectivism.

    You know, like the early 20th century, union-member, labor voters.
    Oh…and modern conservatives.

    Keep fighting “the left,” Fisky!

  21. classical_hero

    The title thought that he was resisting President Trump.

  22. Zatara

    Arguably, the last infrastructure surge in Australia was when the US Army built a massive amount of inter-state roads in the north.

  23. JC

    Shut up Peter and hand back your computer to the orderly.

    Fisky

    Commute times would be almost as bad due to the appalling traffic engineering that has been going on. Entire roads have been halved for bike lanes. Road speed limits changing every 100 meters. Main roads speed limits reduced to horse speed. 40k.

  24. Squirrel

    The RBA is now largely just a panto/puppet show – the real decisions are being made elsewhere.

    A rational view would be that it could be cut back substantially (with far fewer economists churning out analysis and research papers which lead to nothing), but that won’t happen because it serves as a useful front for elected governments who want someone else to blame for unpopular decisions.

  25. John A

    mh #3168891, posted on September 27, 2019, at 12:04 pm

    It needs to be looked at again what Australia wants the RBA to achieve. This is the RBA website:

    In determining monetary policy, the Bank has a duty to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.

    Costello should be chosen to head an enquiry.

    No, he should head up two things
    a) a Razor Gang to purge the RBA and Treasury of economic dolts
    b) a firing squad to ensure they can’t be re-employed

  26. mh

    Seriously? Costello “ran” one the most leftist and over regulated economies in Australia’s history, largely helped enlarge the housing bubble, which then burst during the Rudd years.
    And if you honestly think Costello and Howard wouldn’t have panic-cut interest rates if they were still in office you are just kidding yourself.

    Did a housing bubble burst during the Rudd years? What bubble and where.

    How would Costello and Howard have cut interest rates? Demanding the RBA follow their orders?

  27. John A

    The problem remains that Keynesian macro and every introductory text – except mine – pushes stimulus spending and low rates of interest, the perfect recipe for staying in the doldrums for a very long time.

    Steve, I am reading your book (electronic version) via the app Kobo. I note regularly that it could do with some editing for grammar and clarity.

    How can I supply you with feedback?

  28. Iampeter

    Shut up Peter and hand back your computer to the orderly.

    Ah yes, the good old “shut up, he explained” argumentation method.
    A new trend developing among the raving, left wing crackpots, here at the catallaxy files.

  29. Frank Walker from National Tiles

    Iampeter
    #3169162, posted on September 27, 2019 at 4:44 pm

    The most ignorant of all leftists blame all our problems on the non-issue of immigration.
    It’s the most primitive type of collectivism.

    You know, like the early 20th century, union-member, labor voters.
    Oh…and modern conservatives.

    Keep fighting “the left,” Fisky!

    Shit.

    I Am Putrid said something worthwhile.

  30. Tel

    Frank, the NPC has previously argued that only 100% open borders are acceptable … and that no nation anywhere has a right to defend their borders in any way whatsoever. In other words, total abandonment of property rights.

    You risk making yourself into the “libertarian” caricature strawman if you go town that track … turn back now.

  31. Frank Walker from National Tiles

    Tel

    I am not accountable for what he says.

    Clearly border security should be based on current security risks. I don’t see anything wrong with opening up the borders to maximise trade and investment then closing them at a snap of the fingers if something isn’t right.

    Shit talkers like Fisk and Putrid would contend that makes me a militant far leftist, because I disgaree with the both of them.

    I’ll let them argue over who is the most festive gay in the village.

  32. Iampeter

    Uh-oh, brilliant political aficionado tel has got me now!
    Just one small thing: you don’t seem to even know what “immirgation” means. No big deal!

    Anyway, I’ll let you get back to your totally not-mindless-NPC-talking points discussion of The Politics.
    Don’t want to interrupt you and the raving lunatics like Frank or certified imbeciles like JC and Fisky.
    What about the balance of power, tel?
    What about Clive Palmer?
    Other word salads! Anthony Albanese! The RBA!

    What deep political insights awaits from reading posts from you exceptional individuals.

    Peter Costello!

    Hahahahaha

  33. Frank Walker from National Tiles

    Just one small thing: you don’t seem to even know what “immirgation” means.

    ???

    Then we’re speaking in different languages.

    Peter Costello!

    I can go one better.

    John Howard.

  34. Fisky

    Oh dear, I can see dotty is back to supporting open borders again! You can never trust these people!

  35. Iampeter

    Why did dot change his name and lose his mind?
    Or was he always crazy but I just wasn’t on the receiving end?

    Anyway, you keep fighting the good fight Fisky. The left can only be defeated by … um … leftist ideas.

    You’ve got it all figured out…

  36. Frank Walker from National Tiles

    Trust?

    I’m not creating a false narrative about what I actually believe to get preselected by the rabble in PHON or the WA Liberal Party Fisk.

    What are you doing?

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