The Government’s Economic Credentials in Freefall

December 27, 2014
Written by: John Kelly
62 Replies

If you want more evidence that the present government is doing its best to wreck our economy, a stark example was revealed just before Christmas, one that should satisfy the most hardened of LNP supporters. It further illustrates their lack of understanding of how our economy works.

When reporting the national accounts figures in early December, Joe Hockey stated that, “We have falling commodity prices and we have weaker wage growth.” We all knew about the falling commodity prices and why that was happening but little has been said about weaker wages growth and why that has an impact on demand.

The LNP believes higher wages lead to higher costs and therefore higher unemployment. That’s why they oppose them at every opportunity. But wages growth as at September 2014 was just 2.6% for the year, which translates to a drop of $2.3 billion in tax revenues from the 2014-15 budget estimates. No wonder Hockey was looking so despondent when presenting the national accounts. And guess what? Unemployment is increasing.

You would think it was a no-brainer. Higher wages means higher tax revenue as well as greater demand for goods and services which then feeds into more employment opportunities. But, it seems our three amigos, Abbott, Hockey and Abetz, don’t see it that way. The irony is that if they had their way, the wages growth figure would be even lower.

In an address to the Sydney Institute last January, Eric Abetz chided employers for being too willing to give in to excessive wage demands. In addition to that he said, “Employers and unions must be encouraged to take responsibility for the cost of their deals, not just the cost to the affected enterprises, but the overall cost in relation to our economic efficiency and the creation of opportunities for others.”

On the face of it one would say this is perfectly reasonable. But the subsequent actions of the minister throughout 2014 suggest a different outcome in terms of economic efficiency. On July 1 he cancelled the Commonwealth guidelines for cleaners on government contracts that guaranteed them $22.02 per hour.

When their existing agreements expire they will receive the minimum wage of $17.49 an hour, a 20% cut. That means they will pay less tax.

The offer of 1.5% to the defence forces, the one that got Jacquie Lambie all fired up, was going to be the benchmark for pretty much every other wage offer that would be put on the table. In addition, Abetz own staff were offered a 0.5% increase. Other government agencies will get nothing.

All of these decisions are contributing to low wages growth that will continue to impact on tax revenues. As Bill Mitchell, director of the Centre of Full Employment and Equity at the University of Newcastle told Peter Martin of The Age:

“It’s as if they don’t join the dots. They’ve got a range of little narratives that they pull out at different times to suit different needs. One is wage restraint. That’s to placate business. Another is the health of the economy. Another is fiscal deficits. They don’t seem to realise that they are connected,” he said.

This is the reason real wages are stagnant and consumer buying power isn’t moving. This hasn’t happened since the late 1990s when Peter Costello began producing surplus budgets and starved the economy of money.

On that occasion consumer demand continued to grow but was financed not by wages growth, but by a massive increase in private sector debt, namely household credit card debt. Households were borrowing to meet their needs.

Credit card debt today suggests that not much has changed. If wages growth is constrained to the present 2.6%, credit card debt will continue to rise and tax revenue will continue to fall. Ultimately this will lead to a private sector debt bubble and a recession. It’s not rocket science.

It is pretty obvious that the average man and woman in the street already realises this. Their opinion of the government’s economic credentials is in decline. An opinion poll taken in November reveals that Tony Abbott’s popularity with all voters, but particularly women, suffers in all areas of management, but particularly in the area of the economy.

“While 29 per cent of men rated as good the government’s performance on economy and finances”, only 16 per cent of women did,” writes Jacqueline Maley of The Age.

Perhaps Abbott’s recent reference to the carbon tax and women’s concerns about household budgeting missed another more crucial factor, i.e. wages growth or lack of it. The problem is neo liberal ideological paranoia. So much of what they believe centres on the private sector thriving.

But the private sector is not thriving and if it is allowed to continue this way without some injection of government spending similar to Kevin Rudd’s 2008 stimulus, the economy will implode. That’s not rocket science, either.

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Graham HoughtonDecember 27, 2014 at 11:44 am

So there we have it, 2015 will be the year Australia goes to the wall. Let’s get the wheels in motion for removing this bunch of fools and ideologues and replacing them with something, anything, with commonsense and the ability to think critically and clearly about a way out of this looming disaster. We desperately need this because the current government is digging its own grave deeper and deeper and it’s taking us all with it. https://www.communityrun.org/petitions/stop-this-government-s-madness

John KnightDecember 27, 2014 at 11:46 am

Henry Ford, who was no left winger, understood the principle that his workers needed to be paid well enough to be able to buy the Ford cars that they were producing in the factory.

I enjoy your articles. Are you the John Kelly who is 724297?

Cheers,

John Knight (225721)

John KellyDecember 27, 2014 at 11:55 am

I don’t recognise the numbers, John.

KerriDecember 27, 2014 at 12:06 pm

Thanks John Kelly. You have educated me so much on economic principles and have led me to take a far greater interest in the economy. To my surprise I actually get most of it. I am a 56 year old housewife of 22 years and secondary Drama and Geography teacher of 11 years before that. So how come I get it and the Rhodes Scholar doesn’t???? I am no mathematician either. In year 10 I was advised not to continue with maths. Was Joe given the same advice?? The problem with these guys is as Dr Phil espouses, they don’t know what they don’t know. In other words they are too stupid to recognise how stupid they are!

john o'callaghanDecember 27, 2014 at 12:26 pm

Good article,and they say fools and their money are soon parted,well the fools who voted this Government into power are now surely realising the errors of their ways.””

ConcernedDecember 27, 2014 at 12:41 pm

The ASX200, the capitalist’s benchmark, has stood still all year while the US and NZ markets have thrived. Do the LNP understand anything about finance?

Sharyn LaceyDecember 27, 2014 at 1:29 pm

They only understand what their masters tell them to

diannaartDecember 27, 2014 at 1:38 pm

…“While 29 per cent of men rated as good the government’s performance on economy and finances”, only 16 per cent of women did,” writes Jacqueline Maley of The Age…

Yeah, strange that. Not the slightest bit of gratitude for stopping the carbon tax – which is apparently all women dream of while doing ironing.

AdamDecember 27, 2014 at 2:12 pm

The question: Who do they want to serve? For their masters they are doing an exceptionally good job! But the idiots who vote liberal against their best interests are grinding my gears…

DavidDecember 27, 2014 at 2:38 pm

My major concern is, will Shortens gently does it, be generally seen to be nice and lovable approach continue to work for him and Labor in 2015 and beyond?
He and his advisers have obviously decided to go with the ‘I am not the destructive, negative Abbott in Opposition’ approach. He agrees with Abbott on matters of security and terrorism, admonishes almost firmly but gentlemanly the budget cuts, well most of them, remains silent on the treatment of Asylum Seekers and the Opposition are speaking as one on Abbotts broken promises.
Problem I see….. Are the polls reflecting that approach or are they a direct result of Abbott and his Govts bastardy? and Labor are the fortunate recipients.
I tend to believe the latter. I guess time will tell

paul walterDecember 27, 2014 at 3:14 pm

Yes, of course their economic credentials are in disarray, their policies are based on ideology and fantasy not to be easily contradicted by ethics or mathematics.

John KellyDecember 27, 2014 at 3:42 pm

@ David, you raise an interesting question and one that we would all like to have the answer to. I suspect all opposition leaders are judged as being either “no worse than” or “untrustworthy”. In my opinion, Shorten will never be judged as untrustworthy after what Abbott has done over the past 12 months. At the moment he is in the “no worse than” corner, but the polls are all Abbott’s own doing, This makes Shorten the default choice for PM, just as Abbott was default choice when Labor were self-destructing in government. Having said that, if Shorten could step up to the plate with some sound, believable economic policies that reflected a superior knowledge of macroeconomics, he would become the preferred choice by design, like Whitlam did. He is capable enough and likeable. Labor just needs to be brave enough.

DavidDecember 27, 2014 at 3:48 pm

Cheers John

musicinhillsDecember 27, 2014 at 3:49 pm

In year 10 I was advised not to continue with maths. So sad, it tells us who we are as Australians, very lazy minds, I doubt if any one in this country can simply add up or take away, mathematics is a real problem for Australians, and now were paying for it.
Why the rest of the world is not making jokes about Australians as they do the Irish is a mystery. Oh and sorry Kerri I am not having a go at you I used the line by who ever your fool teacher was. We think it is too hard, initially, and that’s were we are kept. Thinking people are a threat to, honesty, trust, transparency, unethical Capitalism, and Corporation run Governments.

TotaramDecember 27, 2014 at 4:36 pm

@musicinhills.
Very well said. The number of ways in which some school teachers “dissuade” students from taking an interest in mathematics is quite amazing, even when many of these ways are unintentional or even well-meant. Quite a pity really.

But, as you may have noticed by reading this piece, basic macro-economics does not require any advanced mathematics and can easily be understood by anyone who is prepared to set aside the constant neo-con brainwashing that occurs on a daily basis in the media. The problem is that even our politicians of all stripes haven’t “got it”, or if they have, they can’t openly say they have. Until enough people are disabused of this “need to bring the budget into surplus at all costs”, we are going to have problems.

revolutionarycitizenDecember 27, 2014 at 4:48 pm

Wage growth plateaued in December 2012 and hasn’t recovered since.

Also, the ADF pay is determined by a remunerations tribunal, not by the government of the day, and this isn’t the first time they’ve been given an effective pay freeze, they got one under Gillard as well. Not to mention they’re among (if not the) highest paid soldiers in the world today.

Debt, personal, business and mortgages as a percentage of GDP has declined sharply since 2008 making fears of a private sector debt bubble rather far fetched.

We are in recession, have been for quite a while, had it not been for the iron ore and coal prices we enjoyed since 2008 our GDP growth figures would have been consistently flat to negative for the previous six years. The dramatic drop off in the industrial sector was a clear indicator that the “real” economy had hit the skids some time ago.

Fred MartinDecember 27, 2014 at 4:52 pm

The stupid LNP are locked into “supply side” economics instead of “demand side” economics. They don’t seem to realize that it is useless to produce lots of goods if no-one can afford or wants to buy them. I note that at least the Labor people listened to Joseph Stiglitz (Nobel laureate in Economics) when he was in the country.

John KellyDecember 27, 2014 at 4:58 pm

RevolutionaryCitizen, can you give me your source for the “Debt, personal, business and mortgages as a percentage of GDP” claim?

revolutionarycitizenDecember 27, 2014 at 5:10 pm

JK, I got it from here http://www.propertyobserver.com.au/finding/residential-investment/14910-australias-housing-bubble-is-finally-ending-steve-keen.html

It is echoed elsewhere.

It could perhaps come with the caveat that the consumer side of GDP growth has been far out-stripped by the mining sector, meaning that if you separate the two it does look relatively grim for consumers who are still carrying a relatively high debt burden.

One interesting statistic that would be great to find is the asset/capital gain value versus the household debt burden. Because if it remains in the positive it really doesn’t matter, when it becomes the negative like in the sub-prime crisis, then it becomes a very big problem.

Matters NotDecember 27, 2014 at 5:23 pm

RC you are linking to an article that was published on 10 January 2012. Perhaps it’s a little ‘old’?

And it’s from Steve keen. The ‘pundit’ who likes to go for long walks up big hills.

Further I suggest you click on some of the links in his article.

revolutionarycitizenDecember 27, 2014 at 5:25 pm

“This makes Shorten the default choice for PM, just as Abbott was default choice when Labor were self-destructing in government. Having said that, if Shorten could step up to the plate with some sound, believable economic policies that reflected a superior knowledge of macroeconomics, he would become the preferred choice by design, like Whitlam did. He is capable enough and likeable. Labor just needs to be brave enough.”

Shorten will never be PM. Tony Burke maybe, not Bill Shorten.

And I wouldn’t be holding your breath waiting for anyone in Labor to make with the smart economic choices, they just don’t have it within them.

Whitlam only became Prime Minister after conservatives held the office since 1949 right up till he was elected in 1972, he then only lasted 3 years in the office. He was loathed then, his party revolted around him, his entire government was scandal plagued before being replaced by another conservative Andrew Fraser who would be PM for 8 years. Whitlam was so disliked Paul Keating spent his entire time in office systematically undoing every Whitlam reform. So why do the left love Whitlam so much? He was a failure, a complete failure who got fired for being a failure.

Labor and courage don’t go too well together either, even the mighty Gillard rolled over and played kitty for the Greens for crying out loud, a party Labor should have smashed long ago.

revolutionarycitizenDecember 27, 2014 at 5:43 pm

“RC you are linking to an article that was published on 10 January 2012. Perhaps it’s a little ‘old’?”

It was illustrative of the trends within the economy, It is also highly unlikely that within the two years since publication the trends would have reversed to a point beyond the peaks given. This is especially true in the debt to GDP ratios for in the non-government sector, given that from 2012 to 2014 it was again the natural resource sector that was growing at a much faster pace than the rest of the economy, meaning that personal and bushiness debt ration would have likely remained the same or declined further as the resource sector became even more of the over-all economy.

“And it’s from Steve keen. The ‘pundit’ who likes to go for long walks up big hills.”

That he may do, but as an associate professor in economics I am inclined to a degree hear his opinion.

“Further I suggest you click on some of the links in his article.”

Have done so, and have looked at other sources of data as well. Which suggest most strongly that once the inflows of capital for the mining sector collapse (as they will) and the value of exports remains stagnant (iron ore isn’t going to recover to $120p/t) the real GDP growth outlook for years to come will be flat to negative.

Unemployment can be a lagging indicator, since 2008 we’ve seen the largest fall in manufacturing on record, years of stagnating consumer spending, relatively weak housing, exporting sectors out-side of resources haven’t grown (our second largest export being education) which may point to any good news in the past year being a temporary up-tick before the slide continues into the new year.

Add to that, if Europe slides deeper into recession next year, and if that leads to a decline in consumer demand in Europe for Chinese products we will pushing the proverbial up-hill to avoid a rapid market correction…

DanDarkDecember 27, 2014 at 5:43 pm

I doubt Smokin’ Joe could even spell the word Economics let alone know how it all works
He has proved his incompetence ” baffle them with bullshit” is all Joe knows, he has been doing it his whole life.
Sloppy Joe is a snivelling little shit and has never grown up, he thinks the whole world revolves around him,
Eleventy is a spoilt prat, and regularly spits the dummy, when he is ” wrongly” misunderstood by the public and media when he insults people,
Sweaty Joe is just a tosser and gobs off about things he knows nothing about on a regular basis.
So whilst Smokin Joe was digging ordinary Aussies graves he has dug his own grave quicker,
and now he is lying in it 🙂

John KellyDecember 27, 2014 at 5:57 pm

RC your source is so old (Feb 2012 which really means 2011) it has even been replaced by Steve Keen himself at: http://www.businessspectator.com.au/article/2013/11/12/property/i-will-be-wrong-house-prices
On this blog you will note Mortgages are rapidly on the increase and the bubble is growing. Beyond that, you have not told us anything we don’t already know.

lawrencewinderDecember 27, 2014 at 5:59 pm

Blinded by the IPA’s ideology these nincompoops want to see the destruction of civil society …makes their task simpler.

revolutionarycitizenDecember 27, 2014 at 6:10 pm

“On this blog you will note Mortgages are rapidly on the increase and the bubble is growing.”

But still not beyond their previous peak. And as long as the base asset value doesn’t decline the only issue will be stagnant consumer spending as servicing debt becomes more expensive.

I doubt we’re in for a Sub-Prime styled correction of asset values, not whilst our market is being under-pinned by largely external real estate investors.

Of-course there could be some trouble if interest rates started climbing quickly back to their pre-GFC levels, but that looks unlikely.

Annie BDecember 27, 2014 at 6:10 pm

@revolutionarycit ……. ( your comment December 27, 2014 at 5:25 pm )

I have read some hog-wash on blogs, but this one takes the cake. ……. You have outdone yourself.

……

….“And I wouldn’t be holding your breath waiting for
anyone in Labor to make with the smart economic
choices, they just don’t have it within them. “ ……..

I have to take it that you are joking ? ……….

NOTHING could be worse than the fiscal ( and other ) mismanagement being made by this current Government. ……there are no smart economic choices from Abbott and Co. – that’s for sure.

Exactly how would YOU know what Labor has or has not got, within them – seeing as how you can’t see past the LNP and it’s garbage. …….

Hmm …. no – you are not joking are you ….. which makes your comments – all of them – even sadder, if possible.

btw ….. you wouldn’t have meant “Malcolm Fraser” by any chance would you, who followed Gough Whitlam ? …..

You’ve committed an Abbott gaffe … and I am wondering which Andrew Fraser you were thinking about —– the Coffs Harbour ‘Nationals’ MP. ?….. or some other Andrew F ?.

Do get your facts straight …… and while you are about it ………. GET YOUR FACTS STRAIGHT.

Kaye LeeDecember 27, 2014 at 6:13 pm

“Debt, personal, business and mortgages as a percentage of GDP has declined sharply since 2008 making fears of a private sector debt bubble rather far fetched.”

This is so typical of conservative debating. Choose a year when private debt was so high it caused a global financial meltdown and then say oh look it has declined since then. Somewhat like choosing 1998 as your baseline for deciding whether the planet is warming. I assume they will use the same strategy when deciding the “baseline” for polluters for us to have to pay them to upgrade their factories.

TrevrDecember 27, 2014 at 6:14 pm

Well Joe Balony, the treasurer who can’t and won’t count except as a object of universal derision, doing the bidding for the Abbott/ Credlin/Longnamie/American Tea Party brand of Political longevity and wreck a good country along the way.

Well Abbotts chickens come home to roost and shit all over Australians who can least afford it.

Abbott’s grand plan to first talk down relentlessly the Economy and then execute in power a blame the opposition mindset as his plan for coasting to a second term has most likely aborted itself and like all abortions is not a pretty sight.

Now that the Minister for Menace has changed hats and continued his special brand of compassionate christianity of Lies on Lies and plans to resucitate the Abbott rabble economic fortunes in a winner lose all approach on how to influence people and win friends, NOT..

Abbott’s a disgrace. The non-Gov’t he lords over is a national disgrace and save for the backward folks of Queensland and Western Australia he stands a snow flake chance in hell of manufacturing a second term.

Queensland and WA have a special place in world history.

Queensland developed the Laws that became Aparthied in South Africa and WA further specialised them before they went to South Africa.

Western Australia has the dubious dis-honour of being denied statehood by Britain due to the incidence of wholesale slaughter that erupted with the Invasion.

So appalled were the British with the behaviour in their name of the Invaders that repeated requests to the governors in the Swan colony and Albany were made over many decades before that WA Colonies smarted up enough to hide the slaughter but the stench remains till this day and the WA Gov’t is right now hell bent on disenfranching the first people all over again because the Abbott rabble defunded outstations, homelands and sacred sights managerment.

The more things change , the more it stays the same.

Shame Australia for the ongoing treatment of the countries first people and shame for the ignorance that fills the minds of the average Western Australain with their heads firmly embedded in the sand with arses up to the sky,!

rossleighbrisbaneDecember 27, 2014 at 6:17 pm

“Whitlam only became Prime Minister after conservatives held the office since 1949 right up till he was elected in 1972, he then only lasted 3 years in the office. He was loathed then, his party revolted around him, his entire government was scandal plagued before being replaced by another conservative Andrew Fraser who would be PM for 8 years.”

Andrew Fraser, eh, revolutionary citizen. So it seems your knowledge of history is as incorrect as your knowledge of economics.

Andrew? Andrew? Who’s this Andrew Fraser?

Ok, ok, I know, it’s just a simple mistake and how would you be expected to know the name of one of our Prime Ministers. After all, it was years ago. and it’s not like we hear about him in the news any more!

rossleighbrisbaneDecember 27, 2014 at 6:19 pm

I suggest that you look up the Dunning-Kruger effect, revolutionary citizen, I believe there’s a picture of you under the definition.

Peter BallDecember 27, 2014 at 6:21 pm

another outstanding piece by John Kelly , but the poor old Liberals don’t believe in Rocket Science , they believe in Ideology, and because of this they will destroy Australia and tell us its good for us , of course the Murdoch Press will back Abbott to the hilt as will the other Liberal lickspittles who post comments on these pages

revolutionarycitizenDecember 27, 2014 at 6:32 pm

“This is so typical of conservative debating. Choose a year when private debt was so high it caused a global financial meltdown and then say oh look it has declined since then.”

Australia’s debt position didn’t cause the GFC. Nor was it debt in isolation either. There were numerous policy decisions by government, inter-woven with poor banking standards and other faltering economic factors in the US of A and elsewhere that caused the GFC. The GFC was in reality the end result of measures and reforms undertaken by the US Government after the hit their economy took from the dot.com bubble bursting, one of those measures was legislating that banks had to lend poor people money in order to inflate their property market.

We didn’t do that, nor is anyone suggesting we do that.

Ross, ever just get someone’s name wrong? Made a type? If that’s all you’ve got…

Annie, this government has adopted the exact same fiscal strategy used by the former government (current opposition), we know this because all of them are students of the exact same school of economics. Not only that, you assume there is some great difference being made by Hockey, when in-fact there isn’t, Hockey’s spending projections are almost exactly where Swan’s were, if I were Swan I’d howling “plagiarism” from the roof-tops for all to hear. So using your logic, if this government is bad so was the last one and the next one is going to be equally as bad…

Pingback: The Government’s Economic Credentials in Freefall. | THE VIEW FROM MY GARDEN

Kaye LeeDecember 27, 2014 at 6:46 pm

No, we didn’t start the problem because we had financial regulations in place to help shield us but nevertheless our private debt was at a peak so why use the highest year for a basis of comparison? And why is this government hell bent on unwinding the regulatory practices that helped to shield us from the worst of the crisis?

Joe Hockey is telling us to spend spend spend…why is that? Has he finally realised that demand is what drives an economy? How does that gel with stagnant wages,rising unemployment, and his obsession with growth?

nettythe1stDecember 27, 2014 at 7:06 pm

Indeed .. it’s not rocket science. I don’t have any economic qualifications. But, watching the falling commodity prices, rising unemployment, combined with the austerity measures this ‘Government’ is trying to force on the population, my concerns have been growing that we are heading towards a recession. Eleventy just doesn’t get it. How on earth he got to keep the Treasury portfolio in the reshuffle is beyond me!

rossleighbrisbaneDecember 27, 2014 at 7:19 pm

“Made a type?”

Should that be typo? But hey, it doesn’t matter that you got the name wrong, because you’re right about everything else, aren’t you? Like I said, look up Dunning Kruger effect.

rossleighbrisbaneDecember 27, 2014 at 7:24 pm

By the way, your understanding of the GFC is so superficial as to be laughable. The problem was caused – not by “lending to poor people” – but by the whole system where assets were leveraged against one another. There are several very intelligent articles on it, trying reading something beyond the three word slogans and the simplistic explanations of the economically illiterate.

Kaye LeeDecember 27, 2014 at 7:26 pm

netty,

I did economics in 1st year at uni with Tony Abbott. I went on to study science and mathematics. He continued with economics. Somehow, I don’t think he listened in the lectures and we know reading isn’t his forte.

The Abbott government ministers are out of their depth. They stupidly sacked the public servants and defunded advisory bodies that could have helped them. They have invested everything in taking advice from the likes of Maurice Newman, Tony Shepherd, Dick Warburton, and Tim Wilson (who would no doubt be chuffed to even get a mention since all he is is an aging Young Liberal from the IPA).

They are floundering so badly that they have become impossible to defend….just ask rc and NoS. Deflection is all they have left.

rossleighbrisbaneDecember 27, 2014 at 7:37 pm

Here are some of the real reasons and future concerns from the GFC.

http://www.forbes.com/sites/stevedenning/2013/01/08/five-years-after-the-financial-meltdown-the-water-is-still-full-of-big-sharks/

Jennifer Meyer-SmithDecember 27, 2014 at 7:37 pm

Advice to Abbott

Micro-Finance Grants & Micro-Credit Loans to unemployed & under-employed people on Newstart to get them into viable, sustainable, accessible self-employment when no other jobs are available.

These MFG’s & MCL’s MUST be OVER & ABOVE Newstart, Disability Pension and other welfare benefits until a realistic and reasonable period of time for the new sole practice enterprises are able to get up and running and providing the sole practitioner with a liveable wage. Newstart is a necessary safety net, but soul-shrinking.

So Tony Ole Man, listen to my words of wisdom and provide these essential funding sources DIRECTLY to the welfare recipients WITHOUT restrictive eligibility criteria and benchmark expectations. This will get the economy booming with more taxpayers, less welfare outlay over the medium term and more production and employment opportunities for secondary beneficiaries.

If you won’t listen Tone, Labor will and you will be revealed to be double the fool you are now.

nettythe1stDecember 27, 2014 at 7:48 pm

Kaye 🙂 Hope you avoided him punching a hole in the wall near you! You forgot to mention Twiggy Forrest. As an ex Commonwealth Public Servant, I am appalled at the outsourcing for advice! Fiscally irresponsible and ignoring the role of the Public Service. Recommendations written before the Terms of Reference!

DavidDecember 27, 2014 at 7:59 pm

Revo do I take it the spirit of Christmas has passed you by, or large quantities havn’t? Peace and goodwill to you too.

CMMDecember 27, 2014 at 8:08 pm

Oh yes, “It was lending to poor (read:coloured) people that caused the GFC”.

Classic Fox News/Tea Party spin.

My brother works in Local Government Financial Admin and his Southern NSW Shire Council invested millions in Collateralised Debt Obligations.

Many Councils around the nation have been thus stung. They just took them too long, boozy lunches and the fix was in.

BsrkrDecember 27, 2014 at 8:56 pm

This is to be expected from a group that hates government and see its role only as a means to enforce contracts and defense…. These guys are taking their ideologies from the US rabid right wing Republican extremes. .seriously read the heritage Foundation and you see where these guys wants to take Australia

Jennifer Meyer-SmithDecember 27, 2014 at 10:57 pm

These guys might want to take Australia in a direction that supports Big Business, private control and international investment.

But, it is short-sighted thinking which will bring THEM and maybe us undone.

We all need a vested interest to believe in.

To divide both lines of thought into separate lines and focuses of achievement, proves the limited understanding of the contractual consulting strategists.

Abbott, Abetz, Hokey Pokey and Cormann, y’all still have time to listen to reason to work out achievable goals for Aussies to want to produce.

Unfortunately, I don’t think you guys know how to listen to reason or decide what is the best course of action.

Graeme FinnDecember 28, 2014 at 12:23 am

The ‘blame the poor’ angle to the GFC has usually singled out the CRA, The Community Reinvestment Act in the USA. This banned redlining where loans were refused on the grounds of the postcode that people came from. The act said that if a person could provide proof of their ability to pay for a loan then the lending establishment should not refuse it and the government would also back the loan. Pre GFC the default rate on these loans was under the average rate of defaults. The act itself stipulated that no loans should be provided (with the government backing) if they could not show they could repay the loan.

This was completely different to the nodoc, lowdoc and ninja loans which were made due to lax regulation of the financial organisations that lent these knowing they were going to churn them into the collateral debt AAA ‘investments’. It was fraud, clear and simple. They knew what they were doing and basically got away with it.

There is, and was no government legislation that forced financial organisations to loan money to people who couldn’t repay it. That is just another right wing lie that refuses to die despite being proven wrong so many times before. Like global warming denial, they refuse to let a debunked lie die if they like the sound of it.

MikeDecember 28, 2014 at 1:10 pm

@revolutionarycitizen
You forget to mention Wayne Swan championing Australia through the GFC whilst contending with Natural disasters & Flappers in opposition “which is disasterous on it own which time has now proven” only to have Australia to come out the other end with a tripple A rating, “YES AAA” Seriously what good have the LNP ever done?
please don’t reply with a GST as any dumb f*ck could have thought of that, Oh and a dumber one to think of raising it

Wun FarlungDecember 28, 2014 at 2:20 pm

Don’t mention the GFC and Wayne Swan in the same sentence Mike or else you’ll start the ‘budget emergency’-‘debt/deficit disaster’-‘labor dysfunction’ broken record

MikeDecember 28, 2014 at 2:58 pm

Too right Phil, that’s pretty much typical of how conservatives survive “come in spinner” the team needs ya

Gregory TDecember 28, 2014 at 3:35 pm

A good read, that puts this governments ineptitude in perspective.

https://www.thesaturdaypaper.com.au/news/politics/2014/12/20/how-john-howards-tax-cuts-undid-his-protege-tony-abbott/14189940001389#.VJ-DPYA0N9

DanDarkDecember 28, 2014 at 4:41 pm

Half way down the page on the right is the Bludger tracker, there are some interesting graphs and a break down of the polls state by state, Tony and co are on the wrong end of them 🙂

http://blogs.crikey.com.au/pollbludger/2014/12/27/newspoll-quarterly-breakdowns-october-december/

Win jeavonsDecember 28, 2014 at 6:02 pm

As a retired maths teacher (20 years ago) I believe that much of the problem lies in teachers who don’t like or understand math infecting their pupils with the same attitude. This was specially a problem at primary level, may still be so. I loved to show my students the beauty of the subject, and was never more delighted than when they could see it too.

John FraserDecember 28, 2014 at 11:03 pm

Good work John Kelly.

I note that the coward "revolutionarycoward" has come slinking out of his hole.

samDecember 29, 2014 at 5:20 am

Well written John Kelly.

The phrase ‘secular stagnation’ is bandied about by politicians of late. Of note was the last time this happened in the 1930’s depression before the ideas of Keynes were implemented the rhetoric was EXACTLY the same as the liberal party. (make workers poorer, lower conditions and pay to improve employment even though this statement in itself contains an obvious floor 😉 ).

If Liberals are not removed from power and replaced by a compenent Labor whom recognises the crisis (has been happening for the last few years) and at least starts running an expansionary fiscal policy (it would have to be bigger and better than the Rudd/Swan version) Australia will either continue stagnating or go into recession (negative GDP growth).

An important event recently in the US… getting the right people into places where they can affect real change:
https://twitter.com/StephanieKelton/status/548573888779943936

The change of the guard for economic matters is happening slowly but it will have to happen.

*university students demanding to be taught economic pluralism around the world (not just the failed ideology of neo-liberalism).
-> this will mean no longer using micro-economics multiplied up to macro level to determine macro policy literally ‘rational agents consuming irrespective of choice or what other agents consume to infinity’.
-> Current mainstream economics does not model banks, money flow (stock flow consistency), debt or sectorial dynamics.
-> post GFC for all intents and purposes NOTHING changed in the mainstream they learned nothing from the GFC. (eg: what LNP, Labour, Tories/ EU IMF world bank pick your country/government). Its all Quantative easing, inflating asset prices for more economic instability all over again.

But prepare for a rubbish economy/if not (depending on events unfold) a bad recession in Australia in the next 12-18 months.

LeeDecember 29, 2014 at 2:52 pm

Good article John.

HarquebusDecember 29, 2014 at 8:02 pm

It is only matter of time and governments all over will have to tax the rich. They will have no other choice.

Annie BDecember 30, 2014 at 12:07 am

@RC ( your comment : December 27, 2014 at 6:32 pm )

Annie, this government has adopted the exact same fiscal strategy used by the
former government (current opposition), we know this because all of them are students
of the exact same school of economics. Not only that, you assume there is some great
difference being made by Hockey, when in-fact there isn’t, Hockey’s spending projections
are almost exactly where Swan’s were, if I were Swan I’d howling “plagiarism” from the
roof-tops for all to hear. So using your logic, if this government is bad so was the last one
and the next one is going to be equally as bad…

1) …… I didn’t mention Hockey. ….. Joe Hockey may be Treasurer, but there are many who have input into the decisions made by a Treasurer putting forth his 1st budget – or his umpteenth budget. So – Wrong on that one, RC.

2) ….. I don’t ‘assume’ anything. …. Hockey did his thing – other treasurers have had their say over the years, and the prevailing economic outlook, always contributes to those budget predictions. It’s all a question of how it is seen by any current Government……….. and what they want to do about it – for good or bad. …. in this Governments’ case it is for bad.

However, based on a lie ….. Hockey has gone ahead with his draconian ideas of cutting just about everything that is essential to Australias’ welfare – and the Government now has added FURTHER to the ‘inherited’ ( it’s all Labors’ fault ) deficit by adding $68 billion to the deficit through changes to Government spending.

3) …. Economics are what they are …… but please don’t try and tell me – or anyone – that absolutely EVERY school of economics is identical …… because they are not. Depends on a myriad of factors, way too long to go into here. “Students of the exact same school of economics” ???????? That’s a rubbishy statement.

4) …. Your final comment ” So using your logic, if this government is bad so was the last one
and the next one is going to be equally as bad…. I think you have hung yourself on that one. All of them are bad ? …. and so you include the current Governments’ mis-handling of budgetary and cutting measures in that ???? Good one RC.

Notice ( as Mike December 28, 2014 at 1:10 pm ) said ………. you have ( deliberately I say ) overlooked the triple A rating that Labor managed, while it also managed to pull us through the GFC with no ill effects. ….. One of the few countries to avoid that upheaval.

Again I say to you ……… wake up to yourself ……… and GET YOUR FACTS STRAIGHT.

……..

** Why do I have the odd feeling that RC will take not one bit of notice …. ?????? ….. Maybe, because he simply cannot face facts ?

samDecember 30, 2014 at 9:17 am

@Harquebus
Yes the tax the rich idea is a novel one. Its not what people think though.

(taxation of upper income scale is to drain excess inefficient spending capacity from the private sector, taxation to drive certain behaviour and of course acceptance of issued currency).

Tax revenue does not actually fund anything though.
Never has in any modern fiat money system.

The aggregate taxation revenue number when it is all added up is just reconciled against a forward projection of expenditure. Point being the money is not ever actually ‘transferred’ from an incoming bank account to an outgoing bank account. (unlike private business, local governments which are income restrained and operate like a household. At the federal/central bank level this does not hold true).

I think the whole point of the article (and others written by Mr Kelly) is exactly this. The government does not have to balance money generated versus money spent over any given period ever. And all historical evidence points to bad outcomes for the Australian economy when a government tries to ‘save’ more than its ‘spends’ over any given iteration.

http://neweconomicperspectives.org/2011/06/mmp-blog-2-basics-of-macro-accounting.html
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2014/05/Australia_federal_budgets_real_GDP_growth_1953_2014.jpg
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2014/05/Sectoral_balances_to_2014_15.jpg

Unfortunately the people advising every major political party are likely to advise a Mercantilist position, and/or a combination of limited stimulus followed by a style of austerity. (Liberals are going to bundle it up with their ideological attacks which are the core policies of the party of course) 🙁

http://bilbo.economicoutlook.net/blog/?p=9281

There is also a great book by the Federal Reserve Bank of Chicago explaining modern money mechanics which is almost identical to how the RBA operates in Australia instance.

HarquebusDecember 30, 2014 at 11:32 am

@Sam.
As I said. They will have no choice.
http://hiddensecretsofmoney.com/videos/episode-1

AlphonseJanuary 4, 2015 at 12:02 pm

Dud sloganeering conservative pseudoeconomics is a world problem. Hockey parrots the same nonsense as Osborne, and look where it got the UK – especially the big “fiscal responsibility” hit in 2010:

http://krugman.blogs.nytimes.com/2015/01/02/britains-success-story

Yes, Labor should take the conservative shibboleths head on, whether they’re coming from the government or the media, who are similarly infested (and it’s not just Murdoch who can’t see past “debt and deficit”). A good start would be the stupid household analogy, and the question: why does small business need fewer employed customers with less disposable income?

AlphonseJanuary 4, 2015 at 1:00 pm

It’s also worth harping on these aspects and jumping on any government talk or media question or comment that denies or ignores them.

1. Costello, advised by the the same Treasury, could never forecast a budget balance with any more accuracy than Swan. In his upswing economic climate he consistently underestimated surpluses. The salient point is the mis-estimation and its major cause – revenue and social security trajectories – not whether the balance is preceded by a plus or minus sign.

2. Propensity to spend. An increase in income at the bottom end is reflected by near-100% recirculation through the real economy, whereas a lot of any increase in income at the top end goes into IBDs (ie others’ credit card and mortgage debt), the tax minimisation industry and its revenue depredations, and the international hedge fund and derivatives casino. Growth in inequality has reached a point where inequality is retarding, not underpinning, growth in economic activity and the Abbott government’s policies have unremittingly been to increase inequality.

Too much to hope that the economics-as-a-morality-play mob will ever listen though. It’s a psychological pathology to contrast one’s righteous and partly admirable “self-reliance” with the actual or supposed indolence or wickedness of “leaners” and “losers”. And it dovetails so nicely with the equally system-oblivious household debt analogy

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Graham HoughtonDecember 27, 2014 at 11:44 am

So there we have it, 2015 will be the year Australia goes to the wall. Let’s get the wheels in motion for removing this bunch of fools and ideologues and replacing them with something, anything, with commonsense and the ability to think critically and clearly about a way out of this looming disaster. We desperately need this because the current government is digging its own grave deeper and deeper and it’s taking us all with it. https://www.communityrun.org/petitions/stop-this-government-s-madness
John KnightDecember 27, 2014 at 11:46 am

Henry Ford, who was no left winger, understood the principle that his workers needed to be paid well enough to be able to buy the Ford cars that they were producing in the factory.

I enjoy your articles. Are you the John Kelly who is 724297?

Cheers,

John Knight (225721)
John KellyDecember 27, 2014 at 11:55 am

I don’t recognise the numbers, John.
KerriDecember 27, 2014 at 12:06 pm

Thanks John Kelly. You have educated me so much on economic principles and have led me to take a far greater interest in the economy. To my surprise I actually get most of it. I am a 56 year old housewife of 22 years and secondary Drama and Geography teacher of 11 years before that. So how come I get it and the Rhodes Scholar doesn’t???? I am no mathematician either. In year 10 I was advised not to continue with maths. Was Joe given the same advice?? The problem with these guys is as Dr Phil espouses, they don’t know what they don’t know. In other words they are too stupid to recognise how stupid they are!
john o'callaghanDecember 27, 2014 at 12:26 pm

Good article,and they say fools and their money are soon parted,well the fools who voted this Government into power are now surely realising the errors of their ways.””
ConcernedDecember 27, 2014 at 12:41 pm

The ASX200, the capitalist’s benchmark, has stood still all year while the US and NZ markets have thrived. Do the LNP understand anything about finance?
Sharyn LaceyDecember 27, 2014 at 1:29 pm

They only understand what their masters tell them to
diannaartDecember 27, 2014 at 1:38 pm

…“While 29 per cent of men rated as good the government’s performance on economy and finances”, only 16 per cent of women did,” writes Jacqueline Maley of The Age…

Yeah, strange that. Not the slightest bit of gratitude for stopping the carbon tax – which is apparently all women dream of while doing ironing.
AdamDecember 27, 2014 at 2:12 pm

The question: Who do they want to serve? For their masters they are doing an exceptionally good job! But the idiots who vote liberal against their best interests are grinding my gears…
DavidDecember 27, 2014 at 2:38 pm

My major concern is, will Shortens gently does it, be generally seen to be nice and lovable approach continue to work for him and Labor in 2015 and beyond?
He and his advisers have obviously decided to go with the ‘I am not the destructive, negative Abbott in Opposition’ approach. He agrees with Abbott on matters of security and terrorism, admonishes almost firmly but gentlemanly the budget cuts, well most of them, remains silent on the treatment of Asylum Seekers and the Opposition are speaking as one on Abbotts broken promises.
Problem I see….. Are the polls reflecting that approach or are they a direct result of Abbott and his Govts bastardy? and Labor are the fortunate recipients.
I tend to believe the latter. I guess time will tell
paul walterDecember 27, 2014 at 3:14 pm

Yes, of course their economic credentials are in disarray, their policies are based on ideology and fantasy not to be easily contradicted by ethics or mathematics.
John KellyDecember 27, 2014 at 3:42 pm

@ David, you raise an interesting question and one that we would all like to have the answer to. I suspect all opposition leaders are judged as being either “no worse than” or “untrustworthy”. In my opinion, Shorten will never be judged as untrustworthy after what Abbott has done over the past 12 months. At the moment he is in the “no worse than” corner, but the polls are all Abbott’s own doing, This makes Shorten the default choice for PM, just as Abbott was default choice when Labor were self-destructing in government. Having said that, if Shorten could step up to the plate with some sound, believable economic policies that reflected a superior knowledge of macroeconomics, he would become the preferred choice by design, like Whitlam did. He is capable enough and likeable. Labor just needs to be brave enough.
DavidDecember 27, 2014 at 3:48 pm

Cheers John
musicinhillsDecember 27, 2014 at 3:49 pm

In year 10 I was advised not to continue with maths. So sad, it tells us who we are as Australians, very lazy minds, I doubt if any one in this country can simply add up or take away, mathematics is a real problem for Australians, and now were paying for it.
Why the rest of the world is not making jokes about Australians as they do the Irish is a mystery. Oh and sorry Kerri I am not having a go at you I used the line by who ever your fool teacher was. We think it is too hard, initially, and that’s were we are kept. Thinking people are a threat to, honesty, trust, transparency, unethical Capitalism, and Corporation run Governments.
TotaramDecember 27, 2014 at 4:36 pm

@musicinhills.
Very well said. The number of ways in which some school teachers “dissuade” students from taking an interest in mathematics is quite amazing, even when many of these ways are unintentional or even well-meant. Quite a pity really.

But, as you may have noticed by reading this piece, basic macro-economics does not require any advanced mathematics and can easily be understood by anyone who is prepared to set aside the constant neo-con brainwashing that occurs on a daily basis in the media. The problem is that even our politicians of all stripes haven’t “got it”, or if they have, they can’t openly say they have. Until enough people are disabused of this “need to bring the budget into surplus at all costs”, we are going to have problems.
revolutionarycitizenDecember 27, 2014 at 4:48 pm

Wage growth plateaued in December 2012 and hasn’t recovered since.

Also, the ADF pay is determined by a remunerations tribunal, not by the government of the day, and this isn’t the first time they’ve been given an effective pay freeze, they got one under Gillard as well. Not to mention they’re among (if not the) highest paid soldiers in the world today.

Debt, personal, business and mortgages as a percentage of GDP has declined sharply since 2008 making fears of a private sector debt bubble rather far fetched.

We are in recession, have been for quite a while, had it not been for the iron ore and coal prices we enjoyed since 2008 our GDP growth figures would have been consistently flat to negative for the previous six years. The dramatic drop off in the industrial sector was a clear indicator that the “real” economy had hit the skids some time ago.
Fred MartinDecember 27, 2014 at 4:52 pm

The stupid LNP are locked into “supply side” economics instead of “demand side” economics. They don’t seem to realize that it is useless to produce lots of goods if no-one can afford or wants to buy them. I note that at least the Labor people listened to Joseph Stiglitz (Nobel laureate in Economics) when he was in the country.
John KellyDecember 27, 2014 at 4:58 pm

RevolutionaryCitizen, can you give me your source for the “Debt, personal, business and mortgages as a percentage of GDP” claim?
revolutionarycitizenDecember 27, 2014 at 5:10 pm

JK, I got it from here http://www.propertyobserver.com.au/finding/residential-investment/14910-australias-housing-bubble-is-finally-ending-steve-keen.html

It is echoed elsewhere.

It could perhaps come with the caveat that the consumer side of GDP growth has been far out-stripped by the mining sector, meaning that if you separate the two it does look relatively grim for consumers who are still carrying a relatively high debt burden.

One interesting statistic that would be great to find is the asset/capital gain value versus the household debt burden. Because if it remains in the positive it really doesn’t matter, when it becomes the negative like in the sub-prime crisis, then it becomes a very big problem.
Matters NotDecember 27, 2014 at 5:23 pm

RC you are linking to an article that was published on 10 January 2012. Perhaps it’s a little ‘old’?

And it’s from Steve keen. The ‘pundit’ who likes to go for long walks up big hills.

Further I suggest you click on some of the links in his article.
revolutionarycitizenDecember 27, 2014 at 5:25 pm

“This makes Shorten the default choice for PM, just as Abbott was default choice when Labor were self-destructing in government. Having said that, if Shorten could step up to the plate with some sound, believable economic policies that reflected a superior knowledge of macroeconomics, he would become the preferred choice by design, like Whitlam did. He is capable enough and likeable. Labor just needs to be brave enough.”

Shorten will never be PM. Tony Burke maybe, not Bill Shorten.

And I wouldn’t be holding your breath waiting for anyone in Labor to make with the smart economic choices, they just don’t have it within them.

Whitlam only became Prime Minister after conservatives held the office since 1949 right up till he was elected in 1972, he then only lasted 3 years in the office. He was loathed then, his party revolted around him, his entire government was scandal plagued before being replaced by another conservative Andrew Fraser who would be PM for 8 years. Whitlam was so disliked Paul Keating spent his entire time in office systematically undoing every Whitlam reform. So why do the left love Whitlam so much? He was a failure, a complete failure who got fired for being a failure.

Labor and courage don’t go too well together either, even the mighty Gillard rolled over and played kitty for the Greens for crying out loud, a party Labor should have smashed long ago.
revolutionarycitizenDecember 27, 2014 at 5:43 pm

“RC you are linking to an article that was published on 10 January 2012. Perhaps it’s a little ‘old’?”

It was illustrative of the trends within the economy, It is also highly unlikely that within the two years since publication the trends would have reversed to a point beyond the peaks given. This is especially true in the debt to GDP ratios for in the non-government sector, given that from 2012 to 2014 it was again the natural resource sector that was growing at a much faster pace than the rest of the economy, meaning that personal and bushiness debt ration would have likely remained the same or declined further as the resource sector became even more of the over-all economy.

“And it’s from Steve keen. The ‘pundit’ who likes to go for long walks up big hills.”

That he may do, but as an associate professor in economics I am inclined to a degree hear his opinion.

“Further I suggest you click on some of the links in his article.”

Have done so, and have looked at other sources of data as well. Which suggest most strongly that once the inflows of capital for the mining sector collapse (as they will) and the value of exports remains stagnant (iron ore isn’t going to recover to $120p/t) the real GDP growth outlook for years to come will be flat to negative.

Unemployment can be a lagging indicator, since 2008 we’ve seen the largest fall in manufacturing on record, years of stagnating consumer spending, relatively weak housing, exporting sectors out-side of resources haven’t grown (our second largest export being education) which may point to any good news in the past year being a temporary up-tick before the slide continues into the new year.

Add to that, if Europe slides deeper into recession next year, and if that leads to a decline in consumer demand in Europe for Chinese products we will pushing the proverbial up-hill to avoid a rapid market correction…
DanDarkDecember 27, 2014 at 5:43 pm

I doubt Smokin’ Joe could even spell the word Economics let alone know how it all works
He has proved his incompetence ” baffle them with bullshit” is all Joe knows, he has been doing it his whole life.
Sloppy Joe is a snivelling little shit and has never grown up, he thinks the whole world revolves around him,
Eleventy is a spoilt prat, and regularly spits the dummy, when he is ” wrongly” misunderstood by the public and media when he insults people,
Sweaty Joe is just a tosser and gobs off about things he knows nothing about on a regular basis.
So whilst Smokin Joe was digging ordinary Aussies graves he has dug his own grave quicker,
and now he is lying in it 🙂
John KellyDecember 27, 2014 at 5:57 pm

RC your source is so old (Feb 2012 which really means 2011) it has even been replaced by Steve Keen himself at: http://www.businessspectator.com.au/article/2013/11/12/property/i-will-be-wrong-house-prices
On this blog you will note Mortgages are rapidly on the increase and the bubble is growing. Beyond that, you have not told us anything we don’t already know.
lawrencewinderDecember 27, 2014 at 5:59 pm

Blinded by the IPA’s ideology these nincompoops want to see the destruction of civil society …makes their task simpler.
revolutionarycitizenDecember 27, 2014 at 6:10 pm

“On this blog you will note Mortgages are rapidly on the increase and the bubble is growing.”

But still not beyond their previous peak. And as long as the base asset value doesn’t decline the only issue will be stagnant consumer spending as servicing debt becomes more expensive.

I doubt we’re in for a Sub-Prime styled correction of asset values, not whilst our market is being under-pinned by largely external real estate investors.

Of-course there could be some trouble if interest rates started climbing quickly back to their pre-GFC levels, but that looks unlikely.
Annie BDecember 27, 2014 at 6:10 pm

@revolutionarycit ……. ( your comment December 27, 2014 at 5:25 pm )

I have read some hog-wash on blogs, but this one takes the cake. ……. You have outdone yourself.

……

….“And I wouldn’t be holding your breath waiting for
anyone in Labor to make with the smart economic
choices, they just don’t have it within them. “ ……..

I have to take it that you are joking ? ……….

NOTHING could be worse than the fiscal ( and other ) mismanagement being made by this current Government. ……there are no smart economic choices from Abbott and Co. – that’s for sure.

Exactly how would YOU know what Labor has or has not got, within them – seeing as how you can’t see past the LNP and it’s garbage. …….

Hmm …. no – you are not joking are you ….. which makes your comments – all of them – even sadder, if possible.

btw ….. you wouldn’t have meant “Malcolm Fraser” by any chance would you, who followed Gough Whitlam ? …..

You’ve committed an Abbott gaffe … and I am wondering which Andrew Fraser you were thinking about —– the Coffs Harbour ‘Nationals’ MP. ?….. or some other Andrew F ?.

Do get your facts straight …… and while you are about it ………. GET YOUR FACTS STRAIGHT.
Kaye LeeDecember 27, 2014 at 6:13 pm

“Debt, personal, business and mortgages as a percentage of GDP has declined sharply since 2008 making fears of a private sector debt bubble rather far fetched.”

This is so typical of conservative debating. Choose a year when private debt was so high it caused a global financial meltdown and then say oh look it has declined since then. Somewhat like choosing 1998 as your baseline for deciding whether the planet is warming. I assume they will use the same strategy when deciding the “baseline” for polluters for us to have to pay them to upgrade their factories.
TrevrDecember 27, 2014 at 6:14 pm

Well Joe Balony, the treasurer who can’t and won’t count except as a object of universal derision, doing the bidding for the Abbott/ Credlin/Longnamie/American Tea Party brand of Political longevity and wreck a good country along the way.

Well Abbotts chickens come home to roost and shit all over Australians who can least afford it.

Abbott’s grand plan to first talk down relentlessly the Economy and then execute in power a blame the opposition mindset as his plan for coasting to a second term has most likely aborted itself and like all abortions is not a pretty sight.

Now that the Minister for Menace has changed hats and continued his special brand of compassionate christianity of Lies on Lies and plans to resucitate the Abbott rabble economic fortunes in a winner lose all approach on how to influence people and win friends, NOT..

Abbott’s a disgrace. The non-Gov’t he lords over is a national disgrace and save for the backward folks of Queensland and Western Australia he stands a snow flake chance in hell of manufacturing a second term.

Queensland and WA have a special place in world history.

Queensland developed the Laws that became Aparthied in South Africa and WA further specialised them before they went to South Africa.

Western Australia has the dubious dis-honour of being denied statehood by Britain due to the incidence of wholesale slaughter that erupted with the Invasion.

So appalled were the British with the behaviour in their name of the Invaders that repeated requests to the governors in the Swan colony and Albany were made over many decades before that WA Colonies smarted up enough to hide the slaughter but the stench remains till this day and the WA Gov’t is right now hell bent on disenfranching the first people all over again because the Abbott rabble defunded outstations, homelands and sacred sights managerment.

The more things change , the more it stays the same.

Shame Australia for the ongoing treatment of the countries first people and shame for the ignorance that fills the minds of the average Western Australain with their heads firmly embedded in the sand with arses up to the sky,!
rossleighbrisbaneDecember 27, 2014 at 6:17 pm

“Whitlam only became Prime Minister after conservatives held the office since 1949 right up till he was elected in 1972, he then only lasted 3 years in the office. He was loathed then, his party revolted around him, his entire government was scandal plagued before being replaced by another conservative Andrew Fraser who would be PM for 8 years.”

Andrew Fraser, eh, revolutionary citizen. So it seems your knowledge of history is as incorrect as your knowledge of economics.

Andrew? Andrew? Who’s this Andrew Fraser?

Ok, ok, I know, it’s just a simple mistake and how would you be expected to know the name of one of our Prime Ministers. After all, it was years ago. and it’s not like we hear about him in the news any more!
rossleighbrisbaneDecember 27, 2014 at 6:19 pm

I suggest that you look up the Dunning-Kruger effect, revolutionary citizen, I believe there’s a picture of you under the definition.
Peter BallDecember 27, 2014 at 6:21 pm

another outstanding piece by John Kelly , but the poor old Liberals don’t believe in Rocket Science , they believe in Ideology, and because of this they will destroy Australia and tell us its good for us , of course the Murdoch Press will back Abbott to the hilt as will the other Liberal lickspittles who post comments on these pages
revolutionarycitizenDecember 27, 2014 at 6:32 pm

“This is so typical of conservative debating. Choose a year when private debt was so high it caused a global financial meltdown and then say oh look it has declined since then.”

Australia’s debt position didn’t cause the GFC. Nor was it debt in isolation either. There were numerous policy decisions by government, inter-woven with poor banking standards and other faltering economic factors in the US of A and elsewhere that caused the GFC. The GFC was in reality the end result of measures and reforms undertaken by the US Government after the hit their economy took from the dot.com bubble bursting, one of those measures was legislating that banks had to lend poor people money in order to inflate their property market.

We didn’t do that, nor is anyone suggesting we do that.

Ross, ever just get someone’s name wrong? Made a type? If that’s all you’ve got…

Annie, this government has adopted the exact same fiscal strategy used by the former government (current opposition), we know this because all of them are students of the exact same school of economics. Not only that, you assume there is some great difference being made by Hockey, when in-fact there isn’t, Hockey’s spending projections are almost exactly where Swan’s were, if I were Swan I’d howling “plagiarism” from the roof-tops for all to hear. So using your logic, if this government is bad so was the last one and the next one is going to be equally as bad…
Pingback: The Government’s Economic Credentials in Freefall. | THE VIEW FROM MY GARDEN
Kaye LeeDecember 27, 2014 at 6:46 pm

No, we didn’t start the problem because we had financial regulations in place to help shield us but nevertheless our private debt was at a peak so why use the highest year for a basis of comparison? And why is this government hell bent on unwinding the regulatory practices that helped to shield us from the worst of the crisis?

Joe Hockey is telling us to spend spend spend…why is that? Has he finally realised that demand is what drives an economy? How does that gel with stagnant wages,rising unemployment, and his obsession with growth?
nettythe1stDecember 27, 2014 at 7:06 pm

Indeed .. it’s not rocket science. I don’t have any economic qualifications. But, watching the falling commodity prices, rising unemployment, combined with the austerity measures this ‘Government’ is trying to force on the population, my concerns have been growing that we are heading towards a recession. Eleventy just doesn’t get it. How on earth he got to keep the Treasury portfolio in the reshuffle is beyond me!
rossleighbrisbaneDecember 27, 2014 at 7:19 pm

“Made a type?”

Should that be typo? But hey, it doesn’t matter that you got the name wrong, because you’re right about everything else, aren’t you? Like I said, look up Dunning Kruger effect.
rossleighbrisbaneDecember 27, 2014 at 7:24 pm

By the way, your understanding of the GFC is so superficial as to be laughable. The problem was caused – not by “lending to poor people” – but by the whole system where assets were leveraged against one another. There are several very intelligent articles on it, trying reading something beyond the three word slogans and the simplistic explanations of the economically illiterate.
Kaye LeeDecember 27, 2014 at 7:26 pm

netty,

I did economics in 1st year at uni with Tony Abbott. I went on to study science and mathematics. He continued with economics. Somehow, I don’t think he listened in the lectures and we know reading isn’t his forte.

The Abbott government ministers are out of their depth. They stupidly sacked the public servants and defunded advisory bodies that could have helped them. They have invested everything in taking advice from the likes of Maurice Newman, Tony Shepherd, Dick Warburton, and Tim Wilson (who would no doubt be chuffed to even get a mention since all he is is an aging Young Liberal from the IPA).

They are floundering so badly that they have become impossible to defend….just ask rc and NoS. Deflection is all they have left.
rossleighbrisbaneDecember 27, 2014 at 7:37 pm

Here are some of the real reasons and future concerns from the GFC.

http://www.forbes.com/sites/stevedenning/2013/01/08/five-years-after-the-financial-meltdown-the-water-is-still-full-of-big-sharks/
Jennifer Meyer-SmithDecember 27, 2014 at 7:37 pm

Advice to Abbott

Micro-Finance Grants & Micro-Credit Loans to unemployed & under-employed people on Newstart to get them into viable, sustainable, accessible self-employment when no other jobs are available.

These MFG’s & MCL’s MUST be OVER & ABOVE Newstart, Disability Pension and other welfare benefits until a realistic and reasonable period of time for the new sole practice enterprises are able to get up and running and providing the sole practitioner with a liveable wage. Newstart is a necessary safety net, but soul-shrinking.

So Tony Ole Man, listen to my words of wisdom and provide these essential funding sources DIRECTLY to the welfare recipients WITHOUT restrictive eligibility criteria and benchmark expectations. This will get the economy booming with more taxpayers, less welfare outlay over the medium term and more production and employment opportunities for secondary beneficiaries.

If you won’t listen Tone, Labor will and you will be revealed to be double the fool you are now.
nettythe1stDecember 27, 2014 at 7:48 pm

Kaye 🙂 Hope you avoided him punching a hole in the wall near you! You forgot to mention Twiggy Forrest. As an ex Commonwealth Public Servant, I am appalled at the outsourcing for advice! Fiscally irresponsible and ignoring the role of the Public Service. Recommendations written before the Terms of Reference!
DavidDecember 27, 2014 at 7:59 pm

Revo do I take it the spirit of Christmas has passed you by, or large quantities havn’t? Peace and goodwill to you too.
CMMDecember 27, 2014 at 8:08 pm

Oh yes, “It was lending to poor (read:coloured) people that caused the GFC”.

Classic Fox News/Tea Party spin.

My brother works in Local Government Financial Admin and his Southern NSW Shire Council invested millions in Collateralised Debt Obligations.

Many Councils around the nation have been thus stung. They just took them too long, boozy lunches and the fix was in.
BsrkrDecember 27, 2014 at 8:56 pm

This is to be expected from a group that hates government and see its role only as a means to enforce contracts and defense…. These guys are taking their ideologies from the US rabid right wing Republican extremes. .seriously read the heritage Foundation and you see where these guys wants to take Australia
Jennifer Meyer-SmithDecember 27, 2014 at 10:57 pm

These guys might want to take Australia in a direction that supports Big Business, private control and international investment.

But, it is short-sighted thinking which will bring THEM and maybe us undone.

We all need a vested interest to believe in.

To divide both lines of thought into separate lines and focuses of achievement, proves the limited understanding of the contractual consulting strategists.

Abbott, Abetz, Hokey Pokey and Cormann, y’all still have time to listen to reason to work out achievable goals for Aussies to want to produce.

Unfortunately, I don’t think you guys know how to listen to reason or decide what is the best course of action.
Graeme FinnDecember 28, 2014 at 12:23 am

The ‘blame the poor’ angle to the GFC has usually singled out the CRA, The Community Reinvestment Act in the USA. This banned redlining where loans were refused on the grounds of the postcode that people came from. The act said that if a person could provide proof of their ability to pay for a loan then the lending establishment should not refuse it and the government would also back the loan. Pre GFC the default rate on these loans was under the average rate of defaults. The act itself stipulated that no loans should be provided (with the government backing) if they could not show they could repay the loan.

This was completely different to the nodoc, lowdoc and ninja loans which were made due to lax regulation of the financial organisations that lent these knowing they were going to churn them into the collateral debt AAA ‘investments’. It was fraud, clear and simple. They knew what they were doing and basically got away with it.

There is, and was no government legislation that forced financial organisations to loan money to people who couldn’t repay it. That is just another right wing lie that refuses to die despite being proven wrong so many times before. Like global warming denial, they refuse to let a debunked lie die if they like the sound of it.
MikeDecember 28, 2014 at 1:10 pm

@revolutionarycitizen
You forget to mention Wayne Swan championing Australia through the GFC whilst contending with Natural disasters & Flappers in opposition “which is disasterous on it own which time has now proven” only to have Australia to come out the other end with a tripple A rating, “YES AAA” Seriously what good have the LNP ever done?
please don’t reply with a GST as any dumb f*ck could have thought of that, Oh and a dumber one to think of raising it
Wun FarlungDecember 28, 2014 at 2:20 pm

Don’t mention the GFC and Wayne Swan in the same sentence Mike or else you’ll start the ‘budget emergency’-‘debt/deficit disaster’-‘labor dysfunction’ broken record
MikeDecember 28, 2014 at 2:58 pm

Too right Phil, that’s pretty much typical of how conservatives survive “come in spinner” the team needs ya
Gregory TDecember 28, 2014 at 3:35 pm

A good read, that puts this governments ineptitude in perspective.

https://www.thesaturdaypaper.com.au/news/politics/2014/12/20/how-john-howards-tax-cuts-undid-his-protege-tony-abbott/14189940001389#.VJ-DPYA0N9
DanDarkDecember 28, 2014 at 4:41 pm

Half way down the page on the right is the Bludger tracker, there are some interesting graphs and a break down of the polls state by state, Tony and co are on the wrong end of them 🙂

http://blogs.crikey.com.au/pollbludger/2014/12/27/newspoll-quarterly-breakdowns-october-december/
Win jeavonsDecember 28, 2014 at 6:02 pm

As a retired maths teacher (20 years ago) I believe that much of the problem lies in teachers who don’t like or understand math infecting their pupils with the same attitude. This was specially a problem at primary level, may still be so. I loved to show my students the beauty of the subject, and was never more delighted than when they could see it too.
John FraserDecember 28, 2014 at 11:03 pm

<

Good work John Kelly.

I note that the coward "revolutionarycoward" has come slinking out of his hole.
samDecember 29, 2014 at 5:20 am

Well written John Kelly.

The phrase ‘secular stagnation’ is bandied about by politicians of late. Of note was the last time this happened in the 1930’s depression before the ideas of Keynes were implemented the rhetoric was EXACTLY the same as the liberal party. (make workers poorer, lower conditions and pay to improve employment even though this statement in itself contains an obvious floor 😉 ).

If Liberals are not removed from power and replaced by a compenent Labor whom recognises the crisis (has been happening for the last few years) and at least starts running an expansionary fiscal policy (it would have to be bigger and better than the Rudd/Swan version) Australia will either continue stagnating or go into recession (negative GDP growth).

An important event recently in the US… getting the right people into places where they can affect real change:
https://twitter.com/StephanieKelton/status/548573888779943936

The change of the guard for economic matters is happening slowly but it will have to happen.

*university students demanding to be taught economic pluralism around the world (not just the failed ideology of neo-liberalism).
-> this will mean no longer using micro-economics multiplied up to macro level to determine macro policy literally ‘rational agents consuming irrespective of choice or what other agents consume to infinity’.
-> Current mainstream economics does not model banks, money flow (stock flow consistency), debt or sectorial dynamics.
-> post GFC for all intents and purposes NOTHING changed in the mainstream they learned nothing from the GFC. (eg: what LNP, Labour, Tories/ EU IMF world bank pick your country/government). Its all Quantative easing, inflating asset prices for more economic instability all over again.

But prepare for a rubbish economy/if not (depending on events unfold) a bad recession in Australia in the next 12-18 months.
LeeDecember 29, 2014 at 2:52 pm

Good article John.
HarquebusDecember 29, 2014 at 8:02 pm

It is only matter of time and governments all over will have to tax the rich. They will have no other choice.
Annie BDecember 30, 2014 at 12:07 am

@RC ( your comment : December 27, 2014 at 6:32 pm )

Annie, this government has adopted the exact same fiscal strategy used by the
former government (current opposition), we know this because all of them are students
of the exact same school of economics. Not only that, you assume there is some great
difference being made by Hockey, when in-fact there isn’t, Hockey’s spending projections
are almost exactly where Swan’s were, if I were Swan I’d howling “plagiarism” from the
roof-tops for all to hear. So using your logic, if this government is bad so was the last one
and the next one is going to be equally as bad…

1) …… I didn’t mention Hockey. ….. Joe Hockey may be Treasurer, but there are many who have input into the decisions made by a Treasurer putting forth his 1st budget – or his umpteenth budget. So – Wrong on that one, RC.

2) ….. I don’t ‘assume’ anything. …. Hockey did his thing – other treasurers have had their say over the years, and the prevailing economic outlook, always contributes to those budget predictions. It’s all a question of how it is seen by any current Government……….. and what they want to do about it – for good or bad. …. in this Governments’ case it is for bad.

However, based on a lie ….. Hockey has gone ahead with his draconian ideas of cutting just about everything that is essential to Australias’ welfare – and the Government now has added FURTHER to the ‘inherited’ ( it’s all Labors’ fault ) deficit by adding $68 billion to the deficit through changes to Government spending.

3) …. Economics are what they are …… but please don’t try and tell me – or anyone – that absolutely EVERY school of economics is identical …… because they are not. Depends on a myriad of factors, way too long to go into here. “Students of the exact same school of economics” ???????? That’s a rubbishy statement.

4) …. Your final comment ” So using your logic, if this government is bad so was the last one
and the next one is going to be equally as bad…. I think you have hung yourself on that one. All of them are bad ? …. and so you include the current Governments’ mis-handling of budgetary and cutting measures in that ???? Good one RC.

Notice ( as Mike December 28, 2014 at 1:10 pm ) said ………. you have ( deliberately I say ) overlooked the triple A rating that Labor managed, while it also managed to pull us through the GFC with no ill effects. ….. One of the few countries to avoid that upheaval.

Again I say to you ……… wake up to yourself ……… and GET YOUR FACTS STRAIGHT.

……..

** Why do I have the odd feeling that RC will take not one bit of notice …. ?????? ….. Maybe, because he simply cannot face facts ?
samDecember 30, 2014 at 9:17 am

@Harquebus
Yes the tax the rich idea is a novel one. Its not what people think though.

(taxation of upper income scale is to drain excess inefficient spending capacity from the private sector, taxation to drive certain behaviour and of course acceptance of issued currency).

Tax revenue does not actually fund anything though.
Never has in any modern fiat money system.

The aggregate taxation revenue number when it is all added up is just reconciled against a forward projection of expenditure. Point being the money is not ever actually ‘transferred’ from an incoming bank account to an outgoing bank account. (unlike private business, local governments which are income restrained and operate like a household. At the federal/central bank level this does not hold true).

I think the whole point of the article (and others written by Mr Kelly) is exactly this. The government does not have to balance money generated versus money spent over any given period ever. And all historical evidence points to bad outcomes for the Australian economy when a government tries to ‘save’ more than its ‘spends’ over any given iteration.

http://neweconomicperspectives.org/2011/06/mmp-blog-2-basics-of-macro-accounting.html
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2014/05/Australia_federal_budgets_real_GDP_growth_1953_2014.jpg
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2014/05/Sectoral_balances_to_2014_15.jpg

Unfortunately the people advising every major political party are likely to advise a Mercantilist position, and/or a combination of limited stimulus followed by a style of austerity. (Liberals are going to bundle it up with their ideological attacks which are the core policies of the party of course) 🙁

http://bilbo.economicoutlook.net/blog/?p=9281

There is also a great book by the Federal Reserve Bank of Chicago explaining modern money mechanics which is almost identical to how the RBA operates in Australia instance.
HarquebusDecember 30, 2014 at 11:32 am

@Sam.
As I said. They will have no choice.
http://hiddensecretsofmoney.com/videos/episode-1
AlphonseJanuary 4, 2015 at 12:02 pm

Dud sloganeering conservative pseudoeconomics is a world problem. Hockey parrots the same nonsense as Osborne, and look where it got the UK – especially the big “fiscal responsibility” hit in 2010:

http://krugman.blogs.nytimes.com/2015/01/02/britains-success-story

Yes, Labor should take the conservative shibboleths head on, whether they’re coming from the government or the media, who are similarly infested (and it’s not just Murdoch who can’t see past “debt and deficit”). A good start would be the stupid household analogy, and the question: why does small business need fewer employed customers with less disposable income?
AlphonseJanuary 4, 2015 at 1:00 pm

It’s also worth harping on these aspects and jumping on any government talk or media question or comment that denies or ignores them.

1. Costello, advised by the the same Treasury, could never forecast a budget balance with any more accuracy than Swan. In his upswing economic climate he consistently underestimated surpluses. The salient point is the mis-estimation and its major cause – revenue and social security trajectories – not whether the balance is preceded by a plus or minus sign.

2. Propensity to spend. An increase in income at the bottom end is reflected by near-100% recirculation through the real economy, whereas a lot of any increase in income at the top end goes into IBDs (ie others’ credit card and mortgage debt), the tax minimisation industry and its revenue depredations, and the international hedge fund and derivatives casino. Growth in inequality has reached a point where inequality is retarding, not underpinning, growth in economic activity and the Abbott government’s policies have unremittingly been to increase inequality.

Too much to hope that the economics-as-a-morality-play mob will ever listen though. It’s a psychological pathology to contrast one’s righteous and partly admirable “self-reliance” with the actual or supposed indolence or wickedness of “leaners” and “losers”. And it dovetails so nicely with the equally system-oblivious household debt analogy

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