Every government’s greatest wish: to spend like a drunken sailor

Next to my own article at Quadrant Online is a new one by Peter Smith, one of the few economists I think of as worth the time to read: This Can’t Go On Much Longer. His point is that you can print money from now until forever, but eventually you will cause enormous damage which will remain unrecognised until after the deluge has struck.

I will go to economics and ask where is the money coming from and what are the implications of governments spending so much of it. I note that some commentators have referred to Modern Monetary Theory for guidance (watch for lefties coming out of the woodwork to promote it). Consult my article in the last July/August issue of Quadrant if you want to know about this theory; but, sufficient to say, it sheds more obscuration than it does light.

Governments are giving vast amounts of money to businesses and individuals to try and make up for their loss of revenue and income. Is it a good policy? Yes, it is. Governments have shut economies down and, thus, there is no option. Otherwise, people would starve and businesses across the board would collapse. At the same time, the character of giving matters. Some is sensible; some wasteful.

A formula being used in the US, and maybe elsewhere, seems by far the most sensible. Small and medium sized businesses are being given loans to cover their costs, including their wage costs, which will be forgiven if they keep all their employees on. Support to large businesses is also vital to ensure they do not collapse; and support to individuals thrown out of work.

Even on my own high street, there are all kinds of businesses in great difficulty, some even shutting down, never to return again, in many instances because landlords are not reducing their rents. Others will return, but many others won’t. Back luck to them, but also bad luck to you since your personal wealth is being depleted by these typical actions of governments, actions costless to them but not to us. This is how Peter ends:

So, what am I saying? I am saying that the normal implications of government overspending do not apply. This situation is unique. Think of it as an enforced sojourn, albeit on hard rations in solitary confinement. Most everything shuts, we sit on our hands, and the government gives those made destitute free money to pay bills and buy food and medicines. When the sojourn is over, we will have suffered a sharp loss of production but can make up for that over a period of time.

The trick is to ensure that business collapses are kept to a minimum; that most are in shape to start up again, and that individuals are kept whole. Every day will make it harder for some businesses and people to bounce back. This means the sojourn can’t go on much longer; only a few more weeks at most. Trump knows this, and could provide a lead for other countries, including Australia; if the hate-filled American media don’t deter him from acting as speedily as we need. And need it we do. Morrison, in the announcement I referred to, mentioned restrictions being in place for six months.

It’s every government’s greatest wish to throw around money at everyone and everything. Just think of Kevin Rudd and Barack Obama in the wake of the GFC. It then took near on a decade to return to where things had been in the US, and that only because of Donald Trump. Here we never got back to where we were in 2009. If you think this will be different, well good luck to you. We are being systematically robbed, and it will continue right up until the day the community at large finally says they have had enough.

EN PASSANT: From the comments thread at QoL:

Peter,

This is the economic destruction of the West (and Australia) that the globalists, climate Cultists, Fabians, Totalitarians (of every ilk) and Socialists have dreamed about since forever. Greta can now go back to skool as the capitalist world has deliberately suicided at the behest of our politicians.

It appears to be relatively easy to prophesise our future, so here are some of mine in this Orwellian Brave New World:
a. The Chinese are already buying stocks in key American (and Australian) companies.
b. They are offering big loans and support to those supporting their Belt & road initiative – like Victoria. All you have to do is bow and kneel. How easy is it to just bow and scrape in order to be saved?
c. The ‘Oz stimulus package’ will turn out to be a massive ‘hot shot’ heroin overdose that will economically ruin Oz.
d. The Oz $$ will become valueless
e. The Chinese will call in their markers and will take key assets as payment (Ports, Communications, Infrastructure, and whatever else they want that destroys our sovereignty). The Greens, the Left and the ABC will cheer this on as a ‘good thing’.
f. Emergency ‘Social Control’ measures will become more draconian and possibly permanent
g. Pollie pensions and benefits will NOT be cut …

Welcome to the future …

As usual, my solution requires ‘risk-taking’, which my children condemn as cavalier. When their arguments have no effect on me, they then (justifiably) ask, ‘But what about Mum?”
Anyway, I think that applying a harsh Triage approach has statistical merit and would contribute to achieving the prime practical objective of decreasing the ‘Rate of Increase in Infection’ through the period of Peak Hospitalisation Demand. This would maximise the number remaining at work and minimise the permanent damage to business and industry.

However, as we import so much from China our industries will probably collapse anyway as materials are already in short supply. The owner-builder next door has stopped as he cannot get – wait for it – roofing screws.We have destroyed the Australia I knew because 1,800 people are known to be infected and 16 have died.

The look of self-satisfaction on ScoMo’s face at the destruction he and Parliament have wrought on Oz beggars belief. Why not add a super-tax to our last productive industry and finish the job? Kill off mining and we will have destroyed Oz to save the planet.

This entry was posted in Economics and economy, Western Civilsation. Bookmark the permalink.

20 Responses to Every government’s greatest wish: to spend like a drunken sailor

  1. BoyfromTottenham

    And pray what is the alternative, Mr Kates? Have the government do nothing and let tens, or maybe hundreds of thousands of small and medium sized businesses in the retail, travel, entertainment, restaurant and accommodation sectors go bankrupt, throwing hundreds of thousands of employees on the dole queue? And as a consequence have tens or hundreds of thousands of landlords to these enterprises and their employees have to decide whether to evict their tenants, with little short-term possibility of finding others? And possibly the domino effect may not stop there!
    I agree that the US and EU response to the GFC simply kicked the can down the road by throwing vast amounts of taxpayer money at over-indebted companies, transferring their private debts instead to the hapless taxpayer and letting the perpetrators off scot-free. But this is clearly not the case now.
    We all know that this corona virus is an extra-ordinary global event ( a real ‘black swan’), for which none of us were or could have been really prepared, but like WW2, once the enemy starts shooting at us it must be fought as best as we can. Or we can copy France and drop our (hardly used) rifles and admit defeat. Pray tell me would you rather a Churchill or a Petain as our PM?

  2. PeterM

    The GFC was a wonderful gift for Mr Rudd. I think it probably extended his PMShip by at least twelve months!

  3. mundi

    So the government just announced JobKeeper…

    This has got to be the most insane policy in the history of earht.

    The government is going to pay people $750/wk to subsidise their wage. This is bad enough… but get this:

    They are NOT required to work. Infact you have to NOT work to get the payment.

    Thats right… a full time minimum wage employee will work 40/hrs per week and get the same amount as someone ‘stood down’ and not required to come to work at all.

    We have entered banana republic territory. Everything the cat warned us about Labor is now true for the Liberals.

  4. Docket62

    We are being systematically robbed, and it will continue right up until the day the community at large finally says they have had enough.

    And then what? We overthrow the government?

  5. Faye

    Best to follow what President Trump is doing to fight this ‘invisible enemy’. He has more insight and foresight than any other leader on the planet. He believes that its peak will be at Easter in two weeks and by end April hopefully to plan an exit. PM Morrison keeps saying it will take six months to end. That would be horrendous.

    President Trump is about to change the way the world functions between nations having just learned how onerous present systems are, along with America’s own internal practices. We need, too, to be enlightened on how China acted at the beginning of all this with the resultant harsh penalties, if deserved.

  6. Caveman

    This is Policy on the panic. I give you the keys to my car with an empty tank, how far you gonna go.

  7. Sean

    My concern is that maintaining the structure as it stands won’t make sense in 6 months time (or we can’t know what it will be). All this money going to international flight staff and certain tourism industries that will only really come back once the world situation is sorted. It could be a whole bunch of malinvestment when these people should eventually be getting new jobs and getting Newstart now.

  8. RobertS

    Sky is bagging the ABC bigly tonight.
    Morrison should announce a 50% cut to the ABC.
    Deafening applause!

  9. mundi

    Don’t worry about 6 months.

    The JobSeeker bill had 3 month extensions written into it.

    Scomo can already push these payments out past Jan 2021 without even needing to go back to parliament.

  10. BorisG

    Back luck to them, but also bad luck to you since your personal wealth is being depleted by these typical actions of governments

    Yes and I am concisously prepared to pay that cost, in increased taxes or devalued money.

  11. Mak Siccar

    Adam Creighton in the Oz goes the full Labor – tax the oldies to the hilt!

    Coronavirus: Perks and loopholes can’t endure as we run up debt ADAM CREIGHTON

    12:00AM MARCH 31, 2020 9 COMMENTS

    The young and poor have little say in society but they are incurring the bulk of the costs from the shutdown.

    Whether it’s their incomes, their schooling or their ability to enjoy life, the sacrifices that students and so-called generations X and Y are making for the over-75s are very significant. Unlike the Spanish flu 90 years ago, it seems coronavirus is of little threat to the vast majority.

    The $320bn the government and Reserve Bank have allocated so far to staunch the self-imposed economic carnage will have to be paid for. The plunge in tax revenues could well be as significant as the increase in outlays, leaving a gap that will test governments’ ability to borrow. There’s already $400 trillion of debt sloshing around the world.

    And the bill will come long after those whom the younger generations have tried to protect have died. It’s reasonable to give some thought now to how the costs will be shared.

    Policies that were thought fair and reasonable only months ago will start to look unfair, even absurd. The government will face stark choices about how to allocate the burden. Will it crush the productive sector of the economy with even more income tax?

    Everyone will suffer in degrees during this crisis, but it’s only fair that those who are being saved, ­especially if they are financially equipped, pay a disproportionate burden of the cost.

    (It’s true retirees have seen huge falls in their superannuation balances, but once a vaccine is found in a year or two, their accounts are likely to roar back to life.)

    The Commonwealth Seniors Health Card, which is a benefit for retirees who are too well-off to quality for the Age Pension, should be immediately dumped.

    How can we have people ­queuing up for soup in Sydney’s Martin Place (as was the case on Sunday night), while taxpayers fork out hundreds of millions of dollars a year to ensure cheap medicines and transport for those who can easily afford them anyway?

    Scrapping the seniors and pensions tax offset, which provides a tax-free threshold of about $33,000 for over-65s and about $58,000 for couples, is also a no-brainer. Naturally, these two changes will cause some discomfort for those affected, but nothing compared with the chaos ­recently foisted on millions.

    It’s obvious the superannuation guarantee should be suspended for the rest of the year, as I’ve argued repeatedly. The government is forgoing almost $20bn a year in tax by keeping it when it needs the revenue urgently.

    Rather than taxing younger generations or workers to oblivion, it’s best to ­curtail generous arrangements, at least temporarily. These tax increase would have relatively little or no impact on disposable incomes; indeed, in the case of suspending the super guarantee, take-home pay would increase for millions of workers.

    Other options might include a significant inheritance tax imposed, say, for the next 20 years to help defray the gargantuan tax burden that has just been put on everyone who is not going to die in that period.

    Tax-free earnings on superannuation in the retirement phase should cease, at least temporarily. Currently, the earnings of superannuation funds for retirees face zero taxation.

    Everyone else pays 15 per cent tax. It should be the same for everyone (as the Henry tax review recommended, by the way). Fifteen per cent is still a lot more generous than marginal income tax rates.

    Cancelling the refundability of franking credits — for everyone, not just self-funded retirees — is another option.

    To be sure, this would cause real pain, given some retirees quite reasonably have structured their affairs around them. But this is a crisis.

    There are some economic bright sides for younger people. If a house price crash eventuates, those with jobs and to obtain credit will be more easily able to afford a home.

    Whether house prices fall for long remains to be seen, though. In times of uncertainty, gold and property tend to be relatively attractive assets and immune from inflation.

    And significant inflation may well be on the horizon. The borrowing lobby in society is much more politically powerful than the lending lobby. That is, the constituency that benefits from inflation (anyone with debt) is greater than those who wouldn’t.

    What’s more, a niche group of economists reckons the central bank can give us all money directly — say, $10,000 each straight into our bank accounts — without undermining the economic system.

    It’s known as Modern Monetary Theory and, understandably, it is becoming popular.

    “There’s no such thing as a free lunch” was branded into me through years of economics study. It’s hard to imagine that we can just make new money out of thin air without serious long-term costs to the economic system, or certainly respect for it.

    Why would anyone bother working or saving?

    The fiscal situation is looking so dire a future government might well give MMT a try. It’s so ­seductive. They should be wary, though. A great inflation has unpredictable consequences, which history suggests can be terrible.

    Nevertheless, if inflation does break out, the burden of the economic shutdown would play out very differently. It would remove the government and private debt burden, obviating the need for the various tax increases suggested above. Anyone with significant cash or deposit holdings would be wiped out.

    For now, however, this is all academic.

    As in an ordinary war, the young are doing the heavy lifting and face a massive tax burden. It could be a bit less burdensome if reasonable, temporary tax increases were imposed for the over-65s to help defray the costs.

    It’s important to keep perspective. Roughly 165,000 people die in Australia each year; about 3000 from influenza.

    Meanwhile, the economy is being destroyed — real and permanent damage — for uncertain benefit.

    If we totally shut down the economy, as many are advocating, when does it reopen? And if it reopens and the virus emerges again, is it shut down once more?

    It’s patently not possible to keep turning an economy on and off every few months without ­destroying civilisation.

  12. rickw

    Stop insulting drunken sailors! They get way more for their money than these Government fools!

  13. Tel

    Government breaks your legs, then gives you a crutch and says, “Without me you wouldn’t be able to walk”.

    Now on closer inspection we realize those crutches they gave out were made from other people’s legs.

    Devastating government debt, ballooned to infinity and beyond, passed forward for the unborn to pay. In such a short time we have turned a modestly recovering economy into a pile of crap and now we have morons throwing more crap in the pile. I cannot think of one single thing they have done that was good … every single thing they did was bad, and the thing they could have done to help were the things they deliberately avoided doing.

  14. Mark M

    “Westerners who haven’t seen any real threats for a long time have developed a condition – termed “affluenflammation”… a pathological habit of inflating negligible threats.
    When this inflation of feelings is applied to a real threat, namely a pandemic, they lose their composure”

    By Dr. Luboš Motl, Czech theoretical physicist, who was an assistant professor at Harvard University from 2004 to 2007.
    https://www.rt.com/op-ed/484041-west-suicide-covid19-response/

    Example: ScoMo.

  15. Mark M

    How about you guys audit where the $4 Billion goes to?
    I bet it ends up with mates, rather than where it is needed.
    Leopards don’t change spots …

    https://www.qld.gov.au/about/industry-recovery

  16. nfw

    So you don’t really ave to work to be paid these subsidies? Just like the public service I suppose. Still waiting for Peter Big Man Dutton to arrest those hoarders who started this panic buying (here’s a clue Big Man, they were Chinese citizens, employees of a Chinese real estate firm buying up Australia in one example) by tracking down the bus companies from which they hired the buses; for all politicians to stop taking any pay and allowances in this time of “national emergency”; public servants to be laid off as they are “not essential”; and the government assistance for self-funded retirees (remember we were told to look after ourselves as government wouldn’t do it in the future? What a joke!) whose investments have been ruined and will continue to be so for quite a while but still have to pay taxes, utilities and other government imposed charges while renters get off Scot free. Wonderful, a socialist dream come true.

  17. Bruce

    @Docket62:

    “And then what? We overthrow the government?”

    Nope!

    The BUREAUCRACY will overthrow the “people”; totally and completely. The LSM will gleefully facilitate and promote it.

    The “dumbing-down” and ruthless “pacification” of the entire community has been done for a reason.

    Once again, per Rahm Emanuel: “Never let a crisis go to waste”.

  18. John Bayley

    Everything the cat warned us about Labor is now true for the Liberals.

    This has been the case for the past 15 years or so.
    Only the ‘rusted on’ haven’t noticed, or they have continued to claim that ‘…at least they [Liberals] are better than Labor!’
    No, they are not.

  19. Iampeter

    It’s every government’s greatest wish to throw around money at everyone and everything. Just think of Kevin Rudd and Barack Obama in the wake of the GFC. It then took near on a decade to return to where things had been in the US, and that only because of Donald Trump.

    Except Donald Trump has just signed a bill that makes all previous spending trivial in comparison.

    The cognitive dissonance of conservatives and Trump supporters is a sight to behold indeed.

  20. JC

    Plodes has a decent point. There’s no way to over cook the spending omelette.

Comments are closed.