Saturday Sanity Break, 26 October 2019 - Economics 101
Updated: May 1, 2020
During the Global Crisis of 2007-08, Australian cash interest rates were as low as 3 %. Now at a time of a slow economy, not yet in dire straits, cash interest rates are near zero, leaving almost no monetary ammunition in case of a real crisis. Worse still, such low interest rates hammers the incomes of elderly pensioners. And newly rising house prices removes the prospect of home ownership from battlers, including many young women and men. And other asset prices including equities keep rising, making rich people richer. What does the RBA think it is doing?
Fiscal policy is in a great muddle also. As Judith Sloan says so clearly in the Oz today, budget deficits also do little or nothing to help economic growth. France and Japan have in recent decades run large deficits and have little to show for these. The Rudd government’s ridiculous introduction of pink batts, unneeded school halls and other examples of Ken Henry’s ‘go early, go consumers and go hard’ policy in the crisis of 2007-08 showed just how useless extra government spending usually is. And in any case, Australia’s economy was saved by China’s boom, a point even Ken Henry should have understood. (See Judith Sloan in today's Oz)
The Morrison government’s dogged resolve to produce a budget surplus, and (I hope) a series of growing surpluses, will provide the wherewithal for a move into budget deficits if Australia finds itself in a dire economic mess. Helping to increase government spending or tax cuts in a dire economic slump is what Keynes wrote about, not semi-automatic budget stimulus every time there is temporarily economic slowing.
Is there nothing to be done to stimulate the Australia economy then? No Sirs and Madams, policies to raise national productivity are desperately needed. After strong growth in productivity in the Hawke-Keating years, and then in the Howard-Costello years, productivity has slowed nearly to zero since then. Here is some history of productivity in the Australian economy, and suggestions for more productivity.
So there you have it gentle readers. Policies that improve national productivity are the best way, indeed the only sensible way, to stimulate Australia’s economy at this point. I suspect Josh Frydenberg knows this but many other Australian are still living in a pink haze. Spread the truth, gentle readers, Josh needs your support.
Step right up, ladies and gentlemen … Fiona Prior finds herself at the time-warped and twisted circus ‘Natives Go Wild’. More here.
Wow! England flogs the All Blacks. Springboks narrowly beat gallant Wales. The final in the Rugby World Cup is between a rampaging England and the South Efricans. Compared to that final, only the Melbourne cup will be worth watching.