So when, precisely?

canstock2535302To tell you the truth, I am getting a bit sick of these ‘market’ economists, whose main jobs is to market their employing organisations, and their soft/left remarks:

  • No, Australia doesn’t have a budget problem;
  • There are no comparisons with Europe;
  • Sure, fiscal consolidation in the medium terms is a good idea;
  • But don’t go cutting if growth is below trend (which is itself endogenous).

These economists are not in business, they have no skin in the game and their pronouncements are so broad as to be asinine.  And when cuts or savings are proposed or made, they will be the first to declare them ‘unfair’.

(See Eslake banging on and on about the uncontroversial deductability of costs associated with investment in an income producing assets [aka negative gearing] and superannuation ‘concessions.)

The real trouble for the government is that the rich and not so rich are paying all the income tax revenue, bracket creep is a real problem and entitlements are massively skewed towards those in the bottom half of the income distribution.   It is not possible to take entitlements away from ‘rich’ people they don’t get in the first place and it’s not really possible to hit them with higher rates of income tax, lest work effort and location decisions be affected.

You can also see this mushy Keynesian ‘vibe’ infecting the press gallery (not a good time to be cutting the deficit is the standard line eg. LaTingle) and the government itself (eg. MYEFO remarks).

But here’s the thing: it is always a good time to commence the process of fiscal consolidation (bear in mind the automatic stabilisers are always in place) and without a determined plan, it will not happen.  Let us not forget that those European countries that are now fiscal basket-cases were once where we are now, particularly in the immediate post-Maastricht era.

To sum up: you really might expect more of professional economists, even those trained in Tasmania.

ECONOMISTS  have questioned Tony Abbott’s repeated warning that Australia risks “succumbing to the European disease” if the Senate refuses to pass the government’s controversial budget measures.

As financial markets braced for the fallout from Greece’s election on Sunday, which saw victory for the far-left Syriza party, the Prime Minister said that Australia faced Europe’s problems of debt and rising ­unemployment.

“If we aren’t capable of making tough decisions, this country, even this great country, could succumb to the European disease,” Mr Abbott said yesterday, reiterating similar remarks he made last week. “Without tough ­decisions, the risk is that we will become a second-rate country living on our luck.”

Saul Eslake, chief economist at Bank of America Merrill Lynch, and Ivan Colhoun, a chief economist at National Australia Bank, agreed the government had to repair the budget over the medium term, but suggested the analogy with Europe was misguided. “It’s drawing a very long bow — whether you’re talking about public debt, size of government, unemployment — I struggle to see much in common,” Mr Eslake said.

“There are parallels only in the sense that various European countries didn’t put their fiscal house in order, and Australia, for about 10 years now, has also not been doing so.”

Mr Colhoun added: “It’s an overstatement of the threat. Most economists don’t buy the budget emergency line. It would take a very long time for Australia to end up in Europe’s debt, deficit and growth situation.”

The European Central Bank launched an unprecedented €1.1 trillion ($1.5 trillion) bond-buying program last week in a desperate attempt to shake the eurozone out of chronically slow growth and high unemployment by weakening the euro and lowering interest rates.

Mr Eslake said that it would become more difficult over time for Australia to enact budget ­reform, and he was disappointed the government had not been able to sell its message of the ­importance of budget repair.

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20 Responses to So when, precisely?

  1. Peter S

    Well argued Judith. Enjoyed very much.

  2. .

    I can appreciate why Judith is frustrated.

    I am in business for myself, and as an economist (and breathing, living human being) I can see plainly that Greek austerity, when finally applied in 2013-14, saw a reduction in the unemployment rate and sovereign bond rate.

    The Greeks have voted against prosperity.

    Australian socialists are cheering on the total destruction of the Greek economy – so 50 year old hairdressers can retire on a ponzi scheme funded by the rest of Europe.

    As I am only a man, I cannot and will not beg that they are forgiven for their ignorance and one track minds.

  3. blogstrop

    Tony Abbott once said Climate Change was absolute crap, and one of those show-pony economists once said that the budget was stuffed. They were both right.
    It took relentless attacks on the carbon tax to bring it undone, and it will take relentless attacks on those who are now the deniers if the debt and deficit are to be repaired.
    But last time a conservative government fixed up the previous Labor one’s financial mess, everyone got so carried away with Rudd (the fiscal conservative furphy) that we threw out the competent government and let him and the rest of that crowd in.
    Hard decisions are never popular, and the hard decision the electorate has to take is not to get rid of the LNP before they’ve had at least two terms. This time they obviously need time to sort themselves out, then they can get to grips with the national issues.
    Another Federal Labor government in 2016 would be an even greater madness than the last one.

  4. stackja

    the government had not been able to sell its message of the ­importance of budget repair.

    Thanks to the ALP/Greens and the MSM.

  5. Roger

    This is good, Judith.

    You really should stick to economics.

  6. stackja

    #1582192, posted on January 27, 2015 at 1:34 pm
    Another Federal Labor government in 2016 would be an even greater madness than the last one.

    Chif banks
    Gough loans
    Hawke/Keating deficit
    RGR bigger deficit
    Next ALP goodbye the Australia economy and probably the nation.

  7. H B Bear

    La Tingle should stick to mashing pumpkin.

  8. Didn’t take Ireland long at all to end up with European debt levels from Australian ones. Our government has its foot in the same snare.

    Socialising the losses is what does it.

  9. Alex

    dot, the libertarian thing to do for Greece is to quit the EU and default on the debts, not pay them off with compulsorily acquired taxes over 100s of years.

  10. Judith Sloan

    The EU should let Greece go, write off the debts and let them work it out. They will revert to third world status and none of their entitlements will be able to honoured. But that’s what they voted for.

  11. .

    What’s libertarian about defaulting on your debts?!

  12. Art Vandelay

    The Greeks have voted against prosperity. Indeed:

    “Democracy is the theory that the common people know what they want, and deserve to get it good and hard”

    H. L. Mencken

  13. notafan

    The Greeks think they will be able to print all the Euros they need , ‘government money’ which is the same thinking as some of the left here in Australia
    They want to start taxing the shipping magnates who will promptly dump the Greek flag of convenience for another.
    In Australia that will be the mining tax, the big corporates and carbon and we know what the miners did.
    The Greeks have to think like housewifes and only spend what they make and not expect more taxes to be paid from a shrinking economy (or handouts from the EU).

    Unlike households Greece know when they stop paying the mortgage the bank won’t take the house, so what have they got to lose?
    They have promised higher wages and pensions and expect working Europeans to fund them.
    They are exactly like the Australian left, more Gonski, more NDIS more pension, more waste.

  14. Diogenes

    The EU should let Greece go, write off the debts and let them work it out.

    No not write off debt, that will just encourage the next debtor state. The EU needs to do something that will “encourager les autres” Do like the allies did after ww1 and seize the personal property and bank accounts held in debtor nations of Greeks and Greek businesses outside Greece, and apply that to the reparationsrepayments.

    There are some islands that are probably more European than Greek (the tourist ones) seize & occupy them until the debt is paid like the frogs did the Ruhr .

    The Elgin matter could be amicably settled ie they are valued at x million pounds – we will wipe that off what you owe us. Same for all the other cultural items the greeks claim to own and are clamouring for (implicit in that is that when the Greeks are “flush” again they get to buy them back at market value).

  15. Biota

    These economists sound a lot like the ‘nothing to do with Islam’ crowd. They won’t wake up until they are run over (if ever), and then it will be a long way back.

  16. notafan

    I thought the Elgins were paid for at the time. Greece is on a hiding to nowhere with that one.

  17. OldOzzie

    The following comment in a Stratfor Article – The New Drivers of Europe’s Geopolitics sums up the problem

    Two Versions of the Same Tale

    The story is well known. The financial crisis of 2008, which began as a mortgage default issue in the United States, created a sovereign debt crisis in Europe. Some European countries were unable to make payment on bonds, and this threatened the European banking system. There had to be some sort of state intervention, but there was a fundamental disagreement about what problem had to be solved. Broadly speaking, there were two narratives.

    The German version, and the one that became the conventional view in Europe, is that the sovereign debt crisis is the result of irresponsible social policies in Greece, the country with the greatest debt problem. These troublesome policies included early retirement for government workers, excessive unemployment benefits and so on. Politicians had bought votes by squandering resources on social programs the country couldn’t afford, did not rigorously collect taxes and failed to promote hard work and industriousness. Therefore, the crisis that was threatening the banking system was rooted in the irresponsibility of the debtors.

    Another version, hardly heard in the early days but far more credible today, is that the crisis is the result of Germany’s irresponsibility. Germany, the fourth-largest economy in the world, exports the equivalent of about 50 percent of its gross domestic product because German consumers cannot support its oversized industrial output. The result is that Germany survives on an export surge. For Germany, the European Union — with its free-trade zone, the euro and regulations in Brussels — is a means for maintaining exports. The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.

    If you accept the German narrative, then the policies that must be followed are the ones that would force Greece to clean up its act. That means continuing to impose austerity on the Greeks. If the Greek narrative is correct, than the problem is with Germany. To end the crisis, Germany would have to curb its appetite for exports and shift Europe’s rules on trade, the valuation of the euro and regulation from Brussels while living within its means. This would mean reducing its exports to the free-trade zone that has an industry incapable of competing with Germany’s.

    The German narrative has been overwhelmingly accepted, and the Greek version has hardly been heard. I describe what happened when austerity was imposed in Flashpoints:

    But the impact on Greece of government cuts was far greater than expected. Like many European countries, the Greeks ran many economic activities, including medicine and other essential services, through the state, making physicians and other health care professionals government employees. When cuts were made in public sector pay and employment, it deeply affected the professional and middle classes.

    Over the course of several years, unemployment in Greece rose to over 25 percent. This was higher than unemployment in the United States during the Depression. Some said that Greece’s black economy was making up the difference and things weren’t that bad. That was true to some extent but not nearly as much as people thought, since the black economy was simply an extension of the rest of the economy, and business was bad everywhere. In fact the situation was worse than it appeared to be, since there were many government workers who were still employed but had had their wages cut drastically, many by as much as two-thirds.

    The Greek story was repeated in Spain and, to a somewhat lesser extent, in Portugal, southern France and southern Italy. Mediterranean Europe had entered the European Union with the expectation that membership would raise its living standards to the level of northern Europe. The sovereign debt crisis hit them particularly hard because in the free trade zone, this region had found it difficult to develop its economies, as it would have normally. Therefore the first economic crisis devastated them.

    Regardless of which version you believe to be true, there is one thing that is certain: Greece was put in an impossible position when it agreed to a debt repayment plan that its economy could not support. These plans plunged it into a depression it still has not recovered from — and the problems have spread to other parts of Europe.”

    My own observation was that Italy, Spain, Greece and France immediately became too expensive when they went to the Euro Standard and, this view seems to be corroborated by this article in zerohedge

    Lazy Greeks At Fault?? These Two Charts Suggest Otherwise!

    With this comment in that Article standing out

    Very interesting. It appears that while Germany was actually second to the bottom of economic growth through the 10 years leading up to the Euro, subsequent to implementation of the Euro German economic growth exploded. That’s great, except that the four other comparative nations performed very poorly upon taking on the Euro.”

  18. OldOzzie

    Just further on my comment above – Australia has a floating currency and that will hit Australia if it gets too far out of whack with Debt

    But Abbott is correct when he says

    “If we aren’t capable of making tough decisions, this country, even this great country, could succumb to the European disease,” Mr Abbott said yesterday, reiterating similar remarks he made last week. “Without tough ­decisions, the risk is that we will become a second-rate country living on our luck.”

  19. Pyrmonter

    Another Cat may be able to enlighten us, but … apropos of Eslake, is any of his commentary “sour grapes” as a former aspirant to political office (former President or VP of the national Young Libs of the early 80s)?

  20. Pedro

    The sequester and it’s aftermath disposed of the “not a good time” claim pretty clearly. The focus is needed on the supply side more than anything.

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