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Talk the austerity talk, just don't walk the walk Talk the austerity talk, just don't walk the walk
(3 months later)
On Monday night, Joe Hockey, in a speech to the Committee for Economic Development of Australia, indicated that he realises he possibly could be treasurer by the end of the year.On Monday night, Joe Hockey, in a speech to the Committee for Economic Development of Australia, indicated that he realises he possibly could be treasurer by the end of the year.
His speech, reported by Lenore Taylor, noted importantly that the Howard government’s path to paying off the debt had bugger all to do with prudent budgetary management, and more to do with selling off assets.His speech, reported by Lenore Taylor, noted importantly that the Howard government’s path to paying off the debt had bugger all to do with prudent budgetary management, and more to do with selling off assets.
He also noted: “Protracted downturns in economic activity are very damaging in terms of lost output and lost jobs and it can take a very long time for the damage to be made good.”He also noted: “Protracted downturns in economic activity are very damaging in terms of lost output and lost jobs and it can take a very long time for the damage to be made good.”
This is spot on. It’s not just the loss of jobs, it is the length of time it takes for those jobs to return that hurts in a recession. And it is heartening to hear him say that during an economic downturn, when lower interest rates, a lower dollar or the normal increase in government spending through welfare payments for example, have not worked, something else needs to be done.This is spot on. It’s not just the loss of jobs, it is the length of time it takes for those jobs to return that hurts in a recession. And it is heartening to hear him say that during an economic downturn, when lower interest rates, a lower dollar or the normal increase in government spending through welfare payments for example, have not worked, something else needs to be done.
His view was that in such a case, “additional well-considered government action could be appropriate.”His view was that in such a case, “additional well-considered government action could be appropriate.”
This is good news, because it acknowledges reality, but unfortunately he still remains rather fixed to the view of austerity for its own sake. And thus he continues with the usual boiler plate rhetoric such as: “The solution is not more government, it is less,” and that the budget needs to be “repaired”.This is good news, because it acknowledges reality, but unfortunately he still remains rather fixed to the view of austerity for its own sake. And thus he continues with the usual boiler plate rhetoric such as: “The solution is not more government, it is less,” and that the budget needs to be “repaired”.
The best thing about austerity is its rhetoric. It sounds great: the whole, “live within your means” type of stuff plays really well. The problem is when politicians actually start believing it. The best thing about austerity is its rhetoric. It sounds great: the whole, “live within your means” type of stuff plays really well. The problem is when politicians actually start believing it. 
Ronald Reagan was one smart enough to know that the key to austerity was the talk, not the action. During his government, which still bizarrely is thought of as a champion of austerity, general government expenditure rose. Moreover, the structural balance of government budget went steeply into deficit before returning to surplus during the good times of the 1990s:Ronald Reagan was one smart enough to know that the key to austerity was the talk, not the action. During his government, which still bizarrely is thought of as a champion of austerity, general government expenditure rose. Moreover, the structural balance of government budget went steeply into deficit before returning to surplus during the good times of the 1990s:
Hockey explained that any future stimulus would not be like the last one, which, given that it worked, is not all that heartening.Hockey explained that any future stimulus would not be like the last one, which, given that it worked, is not all that heartening.
He noted: “You won’t see the Coalition sending $900 cheques to dead people. We will not be spending billions of dollars installing pink batts and then millions more removing them. And we will not be spending billions of taxpayer dollars on overpriced school halls that schools don’t want and which do nothing to raise the standard of education.”He noted: “You won’t see the Coalition sending $900 cheques to dead people. We will not be spending billions of dollars installing pink batts and then millions more removing them. And we will not be spending billions of taxpayer dollars on overpriced school halls that schools don’t want and which do nothing to raise the standard of education.”
These lines have been spouted so long it has gone beyond tiring to correct them. But let’s just note for example that the “overpriced school halls” argument works so long as you don’t read the Orgill report which found that stimulus spend achieved its aims remarkably well. Moreover, the report also provided policymakers with a strong guide for how to ensure even better performance next time.These lines have been spouted so long it has gone beyond tiring to correct them. But let’s just note for example that the “overpriced school halls” argument works so long as you don’t read the Orgill report which found that stimulus spend achieved its aims remarkably well. Moreover, the report also provided policymakers with a strong guide for how to ensure even better performance next time.
The school halls stimulus was never primarily about improving education standards; it was about keeping construction going. Schools were picked because pretty much every town has one and there would be the additional benefit of providing much needed capital works in many of the schools.The school halls stimulus was never primarily about improving education standards; it was about keeping construction going. Schools were picked because pretty much every town has one and there would be the additional benefit of providing much needed capital works in many of the schools.
And it worked. You only need to look at the growth in public and private construction during the period to see the Building the Education Revolution spend filled a massive gap that stopped construction falling about 10% in 2009:And it worked. You only need to look at the growth in public and private construction during the period to see the Building the Education Revolution spend filled a massive gap that stopped construction falling about 10% in 2009:
Moreover, the lack of an increase in prices during this period also suggests the government was merely filling the gap left by the private sector, and not competing for labour and resources or “crowding out”.Moreover, the lack of an increase in prices during this period also suggests the government was merely filling the gap left by the private sector, and not competing for labour and resources or “crowding out”.
Those who believe the stimulus didn’t work, generally fall into the camp of “it might have worked in practice but not in theory” crowd. They like to look overseas and ask how the stimulus could have worked when it didn’t work in America or the UK? This is a bit like asking why did the Australian cricket team not do as well as the English team when it also hired a coach from southern Africa?Those who believe the stimulus didn’t work, generally fall into the camp of “it might have worked in practice but not in theory” crowd. They like to look overseas and ask how the stimulus could have worked when it didn’t work in America or the UK? This is a bit like asking why did the Australian cricket team not do as well as the English team when it also hired a coach from southern Africa?
The reality is ours did work, the others didn’t (or mostly didn’t work as well). Instead of bemoaning that, we should perhaps boast about it a bit, because from the mid-1980s right though even our mining boom period, Australia GDP growth followed that of the US and UK quite clearly. Then 2008 and 2009 happened:The reality is ours did work, the others didn’t (or mostly didn’t work as well). Instead of bemoaning that, we should perhaps boast about it a bit, because from the mid-1980s right though even our mining boom period, Australia GDP growth followed that of the US and UK quite clearly. Then 2008 and 2009 happened:
Bizarrely, the desire for austerity remains in vogue in some circles. This week the Bank of International Settlements (sort of the central banks’ central bank) released its annual report, suggesting that governments need to start reducing their debt, and central banks need to start raising interest rates.Bizarrely, the desire for austerity remains in vogue in some circles. This week the Bank of International Settlements (sort of the central banks’ central bank) released its annual report, suggesting that governments need to start reducing their debt, and central banks need to start raising interest rates.
As Paul Krugman notes, this is great advice if you’re seeking a global depression.As Paul Krugman notes, this is great advice if you’re seeking a global depression.
But while it is good that Hockey has acknowledged the need for government stimulus in downturns, it remains to be seen if he thinks austerity and cutbacks are the solution regardless of levels of growth. The rhetoric of austerity always sounds sweet; the practise is rather more cacophonic.But while it is good that Hockey has acknowledged the need for government stimulus in downturns, it remains to be seen if he thinks austerity and cutbacks are the solution regardless of levels of growth. The rhetoric of austerity always sounds sweet; the practise is rather more cacophonic.
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