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Could anything be more contradictory?

Assistant Treasurer, Josh Frydenberg has just returned from the World Economic Forum meeting in Davos with some pearls of wisdom that have come from a suppository of wisdom that would put Tony Abbott’s suppository of wisdom to shame, i.e., the Troika, otherwise known as the EU Commission, the International Monetary Fund and the European Central Bank.

They say a little knowledge can be a dangerous thing. Josh Frydenberg came back with a little knowledge. He says that expectations of global growth as expressed to him by those he met at Davos are “less sanguine” than he had been expecting. He could have discovered that simply by reading Bill Mitchell’s blog, or maybe even by sticking his finger up in the cold, Swiss night air.

davos

Ms Christine Lagarde, IMF (Photo: todayonline.com)

The lesson Frydenberg should have brought back with him is that the decision by the Troika to inject One Trillion Euros into the banks of its member states, after 6 years of austerity, is that austerity hasn’t worked; that austerity stifles growth.

What Frydenberg has failed to ‘discover’ at Davos is that the IMF and the ECB have consistently bungled management of the Eurozone economic recovery right from the beginning by demanding impossible targets from those members who have debt levels that will never be repaid.

They expected Greece, Spain, Portugal and Ireland to work miracles while Germany produced worthless surpluses.

The options for the new Greek government are to ignore current austerity deals and start spending its way back to growth, strike a new deal with the EU Commission, or leave the Eurozone, default on all debts and start again. Every which way, Greece is the winner. The decision by the Troika to provide billions of Euros each month to the banks of its member states over the next year is an admission of failure. The banks, in return, will give them bonds with a note attached reading: Thank you for the money. Here are some bonds which have an asset value of zero. If things go as expected, we will buy these worthless bonds back from you some time in the future, but don’t hold your breath.

But, back to Frydenberg.

In the same interview he said, “It means we need to keep making the case publicly as to why we’re doing what we’re doing, and that is, trying to fix Labor’s budgetary mess that we inherited,” he said. “If we don’t bridge that structural deficit we’re only going defer the pain.” It’s funny how any LNP member thinks that anything they say can be justified so long as they include a swipe at Labor’s economic management. pigs

But it was his subsequent comments that cause a chill to ripple through the blood. “It’s reinforced in my mind why we need to successfully tighten our belts in Australia, because we just don’t know when the next GFC will hit,” Mr Frydenberg said. Good grief, could anything be further from the reality.

He’s just returned from a meeting where he had been told that one trillion dollars is going to be pumped into the Eurozone economy to get it moving after six years of austerity, and he’s telling us that we should continue our austerity program. Could anything be more contradictory? I can just see Bill Mitchell banging his head on his desk as I write.

How many roads must a man walk down before he can see that the present ‘belt tightening’ of the Australian economy, let alone any further plans, will most likely hasten a recession here that will further reduce revenues and increase the deficit, but with no compensating, value-adding improvement in our GDP?

If Frydenberg continues to look backwards at what he thinks is ‘Labor’s budgetary mess’ he will never grasp the root of the problem. If the most recent inflation data tells us anything, it is that our economy is retracting and needs stimulus. robot If he thinks that structural deficits can be ‘bridged’ he has an odd grasp of economics. Structural deficits are re-constructed, not bridged.

And therein lies the problem with neo-liberal thinkers. They get themselves caught up using words they don’t really understand.

They are like robots acting on pre-fed data that only serves the interests of their programmers.

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52 comments

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  1. June M Bullivant OAM

    Thank you John for such a good explanation, Abbott is trying austerity, on the poor no less, doesn’t he and his ilk know it is the poor people who keep the country turning other, the rich and famous are few, the poor are many. The rich can only buy so much, the poor have to buy the staples, a lot of them work for the minimum wage, but they pay taxes, unlike the rich they can reduce theirs by so many ways, I felt sorry for Ziggy Forest the other day, he lost 2 billion, poor Ziggy, he was advising the government how the poor should live. And Mr Abbott is not going too well with his policies, he has put a lot of people offside.

  2. Sue-Ellen Smith

    Your last line beautifully and chilling summarises the truth about neoliberal thinking, if you can call it thinking

  3. CMMC

    Great read, as usual, JK.

    I suggest an editorial gimmick straight out of Murdochistan, make sure the words ‘Abbott’ and ‘Recession’ get into the headline, and be liberal with phrases such as ‘the Abbott Recession’ and ‘Abbott’s recessionary policies’ etc.

    Abbott=Recession
    Abbott=Recession
    Abbott=Recession

  4. M-R

    A perfect example of the level of incompetence amongst this guvmint’s inner|outer cabinet members.
    Is there a single one of the useless BASTARDS who has the faintest idea of what he’s doing ?
    I don’t think so …

  5. jagman48

    Thank you John.

  6. Kelvin

    Austerity worked so well in Greece, when the GFC hit home Greece had debt to GDP of 107%, now after having so much pain inflicted, with 25% unemployment and a continuing shrinking economy, debt to GDP is 214%. So austerity does not work. Abbotts mob don’t understand even the most rudimentary economic principals, hence the blow out in deficits since coming to power. Good to see the LNP continuing with incompetent ministers.

  7. gerard oosterman

    I think we should go back to re-runs of Rin Tin Tin and Zorro. We were told that spending encourages growth and that stopping spending will stifle growth. Australia’s debt per GDP is still minute, so, for Abbott to damage the economy by reigning in spending just shows what the mindset of this Government is about., Ah well, jou can always give a Knighthood to someone.

  8. DanDark

    Everytime I write a comment it vanishes mostly, so I don’t bother re typing it now…
    If it works good, if it dosnt, it dosnt matter, I give up…..

  9. Margaret McMillan

    It’s hard to go past the thought that they are deliberately ruining the Australian economy for some perverse reason of their own.

  10. L D Fischer

    So true John, great article …. looks like another LNP dud has hit the deck and of course in the role of Assistant Treasurer….. why is it that the Liberals cannot come up with anyone in the Treasury portfolio who actually knows what they are doing …. geeess!!

  11. kasch2014

    Tragedy is – money is not a resource, most people / politicians, marketing, spindoctoring and banking etc., pros, are ignoring that – being frightened, obedient, $ worshipping trolls, and ambitious to succeed in the race to the grave. Fear, greed and ignorance rule. Money, the world religion, makes idiots of us all ….

  12. Ricardo29

    Great article, send it to Frydenburg.

  13. FreeThinker

    Excellent post John, which exposes in the contradiction you so clearly identify in the poverty of thinking among parliamentary members of the Liberal- National Party coalition.

    The personable and ambitious Josh Frydenberg sounds like he has become a mere cypher for the dis-assembled utterances of the Treasurer Joe Hockey, both of whom in turn are strongly influenced by the self- appointed guardian of so-called economic policy in this country, the ironically named Institute of Public Affairs, that brain-child of Rupert Murdoch’s father, some 70 years ago.

    It is dismaying to hear Frydenberg mouthing the same shallow platitudes about the need for fiscal belt-tightening across the Australian community.

    This from a government which has decreased foreign aid dramatically, generated little in the area of national infra-structural development that the nation so sorely needs in many areas, is intent on destroying green energy industries, has balkanised scientific research and the knowledge generating enterprise of universities, wasted billions in the detention and persecution of refugees to the tune of at least $400,000 per person incarcerated, and now through the appointment of Scott Morrison to the Human Services portfolio, threatens to penalise those on disability and unemployment pensions.

  14. David

    I have sent it to the dead head Frydenberg. he seems to be competing with Dutton for front bench No 1 lame brain

  15. John Fraser

    <

    It may be cruel to say this …… Josh Frydenberg had relatives in Auschwitz and he attended the Auschwitz 70 year remembrance.

    All politicians need to fill in their travel documents with a little bumf to get paid their allowances.

    Just look at his colleagues … Abbott (signing his own book) Barney (Indian marriage via Gina) former colleague Minchin (the Minchin Protocol) etc etc ….. but with the exception of former colleague Peter Slipper who apparently diddled the taxpayer for $990 and they pursued him at a cost of over $500,000 to the taxpayer.

    Poor old Josh ….. you know the Abbott government has problems when Hockey has disappeared up his fundamental entitlements and Corman who has unreliable English at the best of times now has trouble mangling it enough to save Abbott.

  16. Anomander

    Another fantastic post John, but like most of those on AIMN – bloody depressing.

    Hang on. Did I read that right? – a “decision by the Troika to inject One Trillion Euros into the banks of its member states”.

    Much the same as the US Quantitative Easing – printing and handing trillions of dollars straight to banks to encourage economic growth.

    These very same banks who, through lack of regulation, accountability and oversight, caused the financial crisis in the first place because of their greed. These very same banks who already make billions a year in profits.

    Wouldn’t it be more efficient to just hand the money straight to the people so they can spend it and stimulate the economy from the bottom-up rather than relying on the flawed trickle-down effect?

    Hmmm… I seem to recall one government in particular actually doing that and although there were widely praised and lauded by many respected overseas economists, they were condemned by a bunch of pig-ignorant economic vandals.

    We spent how much sending this cretin to Switzerland so he could come back and repeat the same trite shit he said before he left? These feckwits are clearly incapable of learning.

  17. John Armour

    If he thinks that structural deficits can be ‘bridged’ he has an odd grasp of economics. Structural deficits are re-constructed, not bridged. And therein lies the problem with neo-liberal thinkers. They get themselves caught up using words they don’t really understand.

    Well, don’t keep us in suspense John.

    Aren’t you going to explain what “structural deficits” are?

  18. francesco

    Honestly John, How can you expect the innumerate to grasp the significance of inequality & social damage caused by austerity politics? There are only two schools of thought re: economics, the Keynesian and Chicago School and those on ‘Team Strayla’ don’t know about the first one and their lack of knowledge is compounded by the nonsense they are feed by the IPA and other right-wing stink-tanks. Young Josh is just parroting what he’s been told to say!

  19. Möbius Ecko

    I see that some here are saying this government is proposing to reign in spending. Problem is it isn’t, it’s increased spending and forgone revenue and thus increased the deficit to more than double what was handed to them.

    So they aren’t really practising the austerity they preach, in true Tea Party fashion they are foisting austerity on one sector of the economy to shift the money to benefit a far smaller sector.

    This government is spending at a greater rate than the previous one and whilst doing so increasing debt. The question for this government’s economic (mis)management is not on where they are proposing to save but on where they are proposing to spend, for that’s their failure. Not that they aren’t spending, they are, but where is their spending going.

  20. Kaye Lee

    Hockey’s wife was head of the global finance division of Deutsche Bank. Frydenberg, in 2005 he took up a position as a Director of Global Banking with Deutsche Bank in the company’s Melbourne office.

    Josh, like so many of the Libs, comes from a privileged background but he does have good credentials and seems like a smart, personable man. Sadly, he is also ambitious and seems more than happy to unquestioningly regurgitate what he is told to say. He was the tour guide for Tony’s real team Australia – the travelling band of billionaires who accompany Tony on all his trips.

  21. David

    More I hear and read Freydburger ranting on about his vacation to Davos, impression I get he is either reading from noted written for him by his companion secretary or is using the conference handouts to paraphrase. Oh I do the idiot an injustice…one piece is certainly his…repeat of the already done to death Tory lie ‘Labor’s budgetary mess’.

  22. Kaye Lee

    In the hope that Josh reads this, if you are given a job to do and then spend the next three years blaming your predecessor for your inability to achieve anything then you were never up to the job in the first place. Stop the blame game – it indicates you have NOTHING to offer.

  23. Harquebus

    Inflating the money supply by reserve banks, currency printing, does not produce growth. The erosion of purchasing power that it causes only gives the appearance of growth.
    Some more that I have read on Davos.
    http://www.zerohedge.com/news/2015-01-24/davos-%E2%80%93-arrogance-officialdom
    http://www.zerohedge.com/news/2015-01-22/billionaire-lectures-serfs-davos-americas-lifestyle-expectations-are-far-too-high

    Davos is a corporatist racket


    http://www.theguardian.com/sustainable-business/2015/jan/19/davos-climate-action-democracy-failure-jorgen-randers

    The Bilderberg Group’s meetings are far more interesting and informative even though they are very secretive.

  24. David

    He is also one of Abbott’s golden haired children. Says the right thing, loyal as a new born vulture and follows in Abbotts wake in the truth department.
    Just as Hitler had his superior white race, Abbott has his educated in the correct schools, wealthy background, Tory to the teeth sees no evil in his leader and will follow to Abbotts death throes, young Turks.

  25. O'Bleak

    These dolts simply cannot accept that the mining boom is over and that Howard and Costello blew it on middle class welfare, handouts and concessions that could never be sustained in the long term. Until governments accept this and act to reinstate the levels of taxation to those necessary to sustain society’s essentials including quality public health, infrastructure improvement and education then Australia will continue to fumble about in pointless argument. Abbott exploited Gillard’s minority government to endlessly whinge at every attempt to correct the deterioration in revenue with which Labor had to contend. Now the coalition believes they can simply belt those at the bottom who received the least of this largesse whilst allowing the wealthier to retain that which they should never have been granted in the first place. It’s enough to make you weep, to think of the billions they pissed up the wall on buying votes and now they’d like us to believe that Howard was a great P.M. and Costello an ace treasurer. How much of this money could have been held in trust for the country as insurance in less prosperous times? The short sighted managed to squander the lot and still claim to be the better economic managers. What a pathetic joke.

  26. Jexpat

    John Armour wrote: “Aren’t you going to explain what “structural deficits” are?”

    John Hewson recently addressed that… in a roundabout way:

    “The former Liberal leader, economist and now professor with the Crawford School of Public Policy at the Australian National University, underlines the point: “The tax cuts Howard and Costello gave are now costing [the budget] about $30 billion a year, and the deficit’s $40 billion.”

    Without those cuts and the $9 billion Hockey gave – unasked for and against the will of treasury – to the Reserve Bank, says Hewson, “the deficit problem wouldn’t exist”.

    http://www.thesaturdaypaper.com.au/news/politics/2014/12/20/how-john-howards-tax-cuts-undid-his-protege-tony-abbott/14189940001389#.VMmIM0JURE5

  27. lawrencewinder

    “They are like robots acting on pre-fed data that only serves the interests of their programmers.” Yep!
    Perhaps some-one (with a sense of humour) should have given him Keynes’ “Treatise on Probability” for xmas.

  28. Kerri

    @DanDark I have experienced similar problems if trying to comment via face book. I now get the email. Hit comment before reading article and then conduct all reading and commenting directly from the webpage.
    @Ricardo29 & David ; Frydenberg is my local member. He is or was also a member of my ski club when growing up. Dare I suggest that maybe that was why he went to Davos and didn’t get much out of it?
    I have written to young Josh a couple of times (both wasted effort) his first reply was a form letter along the lines of thanks for your email, I try to answer all emails, we are working to….. That is, no answer to my questions simply the usual politispeak babble. Second email reply was longer but again not specifically addressing the issues I questioned. I suspect he is not very bright, but over ambitious and boot licking.
    John Kelly the usual excellent article informative, sensible and educational.
    One comment though I do believe Wayne Swan also deserves some credit for the GFC bail out. He was an excellent treasurer. Would love to see him back in the job to end all this “punish the poor” nonsense.
    The big banks here and OS are like the LNP. They want to get richer by swindling those who can’t afford it and taking even more of the money they don’t have and driving them into intolerable debt. I have been wondering for some time whether the masses will revert to the black economy so that those imposing austerity can’t get their hands on anything.
    As I was saying to my doctor yesterday after a 6 minute medicine appointment which went entirely as I wished with him writing a prescription, a brief conversation about my drugs and the ineptitude of the government.
    His final comment was “I don’t know why they are picking on GPs?”
    My reply was nit picking economics. 20c here a $ there but don’t take the millions from the big companies.
    I am not sure of his voting tendencies but I am sure, that like most of his colleagues they will not be the same as they were last year!

  29. Kerri

    @O’Bleak I disagree with how Howards middle class welfare should have been spent!
    In times of plenty you spend on infrastructure!
    Better hospitals. Public transport. Environment. Schools. The Elderly and Disabled.
    You look to a future beyond your own re election.

  30. Steve

    I very fortunately have just sold my business, before the inevitable recession hits with full force. The writing was on the walls from the two months before the budget, but sentiment in the consumer market had been rippling for over a year ever since Tony and his fools started to talk down the economy. 10 years of paying myself less than the minimum wage, employing Austalians as well as I could afford, building a brand and at one point being the top retailer in Australia for the main products we sell (which is an extremely well known, world famous brand). And if I have managed to get back what I’ve invested, I will count myself very fortunate indeed – I don’t think that will happen in the final counting, but at least I haven’t lost the house which I know that many other small businesses who are currently going through exactly the same thinking as I am are worried about. At least Labor were smart enough to stimulate the economy when times were tough, and do so quickly. The current idiots won’t, because that would mean admitting they were wrong. And that simply isn’t in their DNA. And the cost of stimulating an economy in recession will be significantly more expensive than boosting one before it hits the proverbial fan, and guess who will get the privilige of doing that, and the resultant blame. And round we go again.

  31. John Armour

    Jexpat,

    If you think “John Hewson recently addressed that… in a roundabout way” I’d say you don’t know either.

  32. Rosemary (@RosemaryJ36)

    I am becoming increasingly curious about the education levels – not only of the current government which are clearly not what they appear to be – but also for those in the Australian population who voted this government in! Clearly the present Education Minister believes in keeping people uninformed and dumbed down in the hope of being re-elected. Hopefully by now Tony Abbott does not even dream of being re-elected and Malcolm Turnbull is probably thinking about creating a new liberal democratic party. Gough Whitlam may have tried to do too much too quickly but he had vision. All this mob thinks of is destroying anything that works and blaming the wrong predecessors for the mess we are now in! Howard and Costello sold the farm. The ALP kept Australia afloat throughout the aftermath of the GFC and were praised for their efforts by the whole developed world – except the Australian coalition!

  33. John Kelly

    @John Armour, I am always happy to be put to the test, John, if only to display my knowledge or lack of it, or to learn something new. A structural deficit differs from a one-off deficit in that it is projected to continue through the forward estimates. We have had them since 2007 if my memory is correct. They can’t be ‘bridged’ but they can be both constructed and de- constructed. I would like a mark out of 10, please.

  34. Florence nee Fedup

    I suspect, with this government, it is nothing to do with the economy or austerity. It is all about dogma, belief that government has no role in peoples lives. Should be allow to struggle the best way they can. Government should be as small as one can make. Market will take care of all. If ones fails, not government responsibility. Along with small government, should be small taxes. Taxes interfere with their ideology of free markets.

  35. diannaart

    The 1 percenters love a good austerity measure – makes them feel like they are doing something at no cost to themselves and keeps the riff-raff in their place. Perfect solution. Unless you are so stupid as to not be exceedingly wealthy.

  36. stephentardrew

    John great article as usual. No arguments need however dissemination of the facts is the problem.

  37. John Armour

    John Kelly,

    Sorry, no Koala stamp for you today John.

    The simplest explanation I can give is that the structural balance is a hypothetical re-calculation of what the underlying cash balance would be if there was full-employment, the object being to strip out the effects of discretionary policies to see if they are expansionary or contractionary.

    That could be useful as it isolates the effects of the automatic stabilisers from the business cycle but the problem is that since central banks dropped the ball on full-employment and embraced the concept of the NAIRU, the definition these days of the “full employment point” is 5.3% rendering the whole exercise of calculating the structural balance pretty meaningless.

    In practical (and political) terms what it does is makes a small surplus look expansionary (turns it into a ‘structural deficit’) and turns a small fiscal deficit into a ‘cash splash’. This has a chastening effect on progressive governments and makes them think twice about using fiscal policy to counter rising unemployment.

    As sometimes discussed here, there are agents within the economy who need a buffer-stock of unemployment to keep the workforce disciplined and tractable.

    It’s good to know just what a structural deficit is (that is, bullshit) but more important I think to understand that when it’s invoked it’s usually in the context of promoting some aspect of the neo-liberal agenda.

    Once again, if we’re going to take the fight up to “The Right” on what they think is their patch we have to know what we are talking about.

    Apart from this quibble, that was a great article John, totally nailing the contradiction in Frydenberg’s enlightenment at Davos and his atavistic embrace of crass politics as soon as his feet touched home soil. Clearly he crossed more than the International Date Line on his way back.

    PS. Bill Mitchell has written quite a few articles on the structural balance. Just google for them.

  38. bkpyett

    And why are we still looking for a Malaysian plane in the Indian Ocean that is costing millions?

  39. Loz

    Reading this article and the comments from Josh Frydenberg makes me weep. Are there any Libs within this government that have any intellectual ability or even just plain common sense. Or are they all so ambitious that they will tread the party line regardless of whether they think it is right or not. Thank you John for another good article.

  40. David

    Loz..you are on to it….’they all so ambitious that they will tread the party line regardless of whether they think it is right or not’. You got it in one.

  41. John Kelly

    @John Armour, yes well that’s what I meant….sort of. I’ll check with Bill to make sure. But your explanation was much easier to understand.

  42. totaram

    Loz and David and all other commenters:

    As everyone knows, and I suspect that Josh Frydenberg himself also knows, what he spouts is all spin. He will go to a presentation by Bill Mitchell if you like, and come back telling us it reinforces his view that what his govt. is doing is the right thing.

    As posts above have mentioned, just the other day he was telling all and sundry that some great-aunt of his was killed at Auschwitz, and how terrible that was, without a thought about people being locked up by Scott Morrison in almost identical circumstances (I admit there is no plan to exterminate them – yet).

    I don’t think you should credit these people with any “good faith” in anything they say. They will happily say that black is white if it suits them, and then blame you for not understanding what they really meant etc. etc.

    By now, anyone who takes anything they say seriously is just gullible in the extreme. All hope of a reasonable discussion about what is good for Australia is lost. They will lie and spin to get their radical right wing agenda through and when they say “it’s good for Australia” that is code for ” our donors and backers”. What is good for them is good for everyone – by trickle- down theory (which they know is all lies but hey, as long as you can keep spouting it, why not?).

  43. Audioio

    “The Assistant Treasurer is basically Minister for Tax. The Budget has a revenue problem and this government will shy away from far-reaching tax reform. Therefore, the battle will be joined at the level of detail: the government will want to close lurks and loopholes while the lobbyists who pushed for them will want them kept open. The Assistant Treasurer will need an eagle eye for detail and a firm commitment to what’s right for the country: the 2006 version of Arthur Sinodinos would have been perfect.

    “Unfortunately, we’ve got Josh, who has glided through life with a superficial charm designed to disguise his boredom with detail. He’s an errand boy. Nobody wants this guy in the trenches when it gets tough, and this is one tough job. He doesn’t complement Hockey’s weaknesses, he compounds them.”

    Andrew Elder. http://andrewelder.blogspot.com.au/2014/12/a-slight-change-of-emphasis.html

  44. David

    totaram be assured I take everything a Tory says as crap 🙂

  45. eli nes

    Imagine these twits in the GFC hockey would have been right our economy would be like greece?????
    Why is little billy not laughing at the frydenbergs? Can’t he find a labor pollie who doesn’t rort the system to expose the travel rorts???

  46. gjk08

    Another great article.
    Bro, AJK

  47. Möbius Ecko

    Indeed eli nes, Hockey in opposition tabled his policy to get through the GFC, and for just $4b less than the government outlay, it more or less followed the now proven failed US and European models, for which they are still suffering from. On top of that Hockey made a huge deal out of the fact that his policy cost less than the government’s, though in the overall numbers of the GFC it was a pittance, and his was less wasteful, without actually detailing how it was less wasteful.

    So yes Australia with Hockey during the GFC would have been far worse off, and this is a case where hindsight is insight.

  48. Jexpat

    John Armour:

    Of course I know what structural deficits are- just as Hewson does, which is why he placed the blame for the present situation squarely where it belongs: with John Howard’s tax cuts for the wealthy.

    Howard was fortunate to have a prolonged boom- one that exceeded the usual expectations of the business cycle (and was apparently, in some economist’s thinking “the new normal’) and thus he based his expectation of future revenue streams on that boom never going bust.

    When it did- and when low and behold, when there came an, ahem, rather dramatic downturn in the business cycle, the deficit spending- entirely rational under the circumstances, there weren’t sufficient revenue flows (absent repeal of high end tax cuts or closing corporate loopholes) couldn’t be recouped under usual and foreseeable conditions.

    That in turn set the LNP to use what Naomi Klein termed “the shock doctrine” -creating hysteria around “structural deficits” and demanding broad ideological cuts to government spending (investment in infrastructure and R&D, the public service, public health and the social safety net). It also spurred a hue and cry for increasing and broadening the already highly regressive GST).

    We could go on, but I reckon this gives the general picture.

  49. John Armour

    What precisely is “the present situation” Jexpat? A “deficit problem”? The distribution of the tax burden is a political issue and not related to any kind of deficit problem if that’s what you are saying. If there is a deficit problem it’s that it’s not big enough to close the output gap.

    I can only assume that’s what you mean by “the present situation” because further on you lament the loss of tax revenue to cover the deficit spending in the downturn. That kind of thinking is not applicable where the government is the monopoly issuer of the currency, a reality I hope most readers of this blog would now understand.

    You may indeed understand the text-book definition of a structural deficit but you ignore the far more important implications of the ideological underpinnings and seem to accept that this hypothetical re-construction of the underlying fiscal balance actually means something, that it has some analytical usefulness.

    By extension you must also believe that the Howard budgets from ’02 onwards (when Treasury identified the beginning of the “deterioration”) were increasingly expansionary right up to the last budget in 2007, whereas they were contractionary (as most fiscal surpluses are) and only made possible because of the explosion of private sector debt. The Current Account was always in deficit.

    You can only believe all that if you accept the RBA’s measure of full-employment as having 5% of the workforce idle because the whole concept of the structural balance starts with the ‘non-accelerating-inflation-rate-of-unemployment’, the NAIRU.

    If you don’t think having 600,000 fellow Australians on the dole is such a good idea then maybe it’s time to question the usefulness of the structural balance.

    BTW, it was not the LNP banging on about the ‘structural deficit’, it was Labor following the release of that Treasury report in 2013 that I referred to above. Given the findings of that report it would’ve been an ‘own goal’ for the LNP to even mention structural deficits, although I wouldn’t be surprised if Hockey had done so if he thought it might make him sound clever. The LNP kept the message simple and just attacked the underlying cash deficits and the accumulated so-called debt.

  50. Jexpat

    John: “where the government is the monopoly issuer of the currency” as you note, it still cannot (despite what MMT adherent insist) simply “print money” as a means to deal with it longer term fiscal imbalances without causing currency depreciation and inflation.

    The obvious solution is to set taxes and create revenue flows in a manner that least affects aggregate demand, and places the burden on those with the most ability to pay (and who also have likely enjoyed the most fruits of a stable government with a relatively healthy economy).

    As to what’s been deemed structural unemployment, regardless of growth in the labor force, there will always be some people out of a job, especially given the increasing prevalence of low security contract work in Australia. How that number should be calculated is controversial. As is its use in setting fiscal and monetary policy.

  51. John Armour

    I don’t know where you get the idea that MMT adherents advocate “money printing”. They avoid it like the plague. It’s a term invariably employed by those who don’t understand the implications of fiat currency regimes to attack MMT!

    Such exchanges usually end with idiotic references to Zimbabwe and Weimar.

    Seeing taxation as a “revenue flow” also misses the point. The purpose of taxation is the affect aggregate demand, not minimise it. Any sensible discussion of tax policy has to begin with that understanding.

    The level of unemployment is only “controversial” to those running a political agenda, like using u/e as a buffer stock to control inflation (the NAIRU ideology) when It’s actually very simple: anybody who wants a job but can’t get one.

  52. Pingback: Could anything be more contradictory? | THE VIEW FROM MY GARDEN

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