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The MSM asleep at the Wheel

Last week Mainstream Media (MSM) political commentators were united in their condemnation and their mockery of PM Tony Abbott following his bizarre announcement that HRH Prince Phillip would become an Australian Knight.

They also seemed equally united in their condemnation of Abbott’s overall performance and the prospect of an imminent leadership challenge following the Queensland election. Better late than never, I suppose.

In fact, the media’s unity on these two issues is similar to their united front on Labor’s economic prowess, particularly between 2010 and 2013. At the time, they gave Tony Abbott and Joe Hockey unquestioning prominence while the two amigos recklessly hacked away at Labor’s economic record.

The only difference is that they were dead wrong about the two amigos and also about Labor’s grasp of the issues.

rudd When Kevin Rudd became Prime Minister in 2007 he inherited a gross ‘debt’ of $58 billion; quite trivial by today’s standards. At the time, he and Labor were treated lightly by the media until the GFC exploded and suddenly, the big question was: what would they do about it?

But up until this time, the media had been asleep at the wheel unaware of what really had been going on. For the ten years or so prior to 2007 they had been happy to drink the wine of what they perceived as good fiscal management by Peter Costello who had been delivering surplus budgets year in, year out.

But they should have known that in a national economy, the three principal sectors of management, i.e. government, private and external, the respective balances of each will always play against each other, while their aggregate total must balance when combined. If two are in surplus, one must be in deficit. If two are in deficit one must be in surplus and the net result must always equal zero.

A simple formula expresses this as follows:
(I – S) + (G – T) + (X – M) = 0
where I is Investment, S is Savings, G is Govt. Spending, T is Taxes, X is Exports and M is Imports.

During Costello’s time no one ever queried that up until 2007, while he bathed in the glory of government surpluses, external income was in deficit, and private debt, particularly household debt was skyrocketing.
costello

Costello’s surpluses were made possible because of the availability of easy credit, e.g. home equity based loans, banks offering credit cards to anyone breathing, and even some who had stopped breathing. Costello took advantage of the ignorance of the MSM and the people with his surpluses and actually gained their admiration in the process.

As we all remember, soon after the GFC struck, the Rudd government announced a stimulus program, one much criticised by the then LNP opposition, which put the budget into deficit. This created excess reserves in the banking system necessitating the issuing of bonds to ensure the central bank could control the overnight cash rate.

This necessary monetary process was misconstrued and presented as borrowing to finance the government’s spending when it was nothing of the sort. It quite falsely became the “debt and deficit myth” the LNP used so effectively to discredit Labor.

Following that stimulus, the external sector (trade) remained in deficit but the private sector (business) stopped borrowing and began paying down debt.

Fast forward to today and we find that household debt has remained at its historic high. Meanwhile, the business sector have been using accumulated profits to reduce debt and buffer themselves from deflationary forces in the absence of attractive investment opportunities.
china At the same time, successive years of deficit budgets caused by China’s economic slowdown coupled with an over-valued Australian dollar has had the effect of limiting further deterioration in unemployment.

That’s the good news. Now for the bad news. Joe Hockey’s austerity budget threatens a seismic shift in these balances.

The move to austerity will actually force the private sector towards higher indebtedness (deficit) by running down savings because there won’t be the flow of money to enable current levels of saving.

If the household part of the private sector starts saving and/or begins to pay down household debt (credit card and mortgages), the economy generally will begin to contract, business will slow, unemployment will grow and the deficit will also grow from further reduced revenues. The December 2014 inflation rate announced last week confirms this trend.

This means that the private sector will bear the burden of balancing the economy on a scale that will drive the country into a horrible and prolonged recession.

This is exactly what is happening at the moment in Europe.
davos

This is why the European Central Bank has decided to issue $1 trillion euros of fiat currency to be deposited into the reserves of the member banks. This is why austerity doesn’t work, at least in these circumstances.

The question arises therefore, why is it that the Australian MSM economic experts are not pointing out this fact? Are they once more asleep at the wheel? Or, is it just too hard for them to acknowledge Labor’s better understanding of the way the economy works?

It is my opinion that neither they, Joe Hockey nor Mattias Cormann understand any of this.

35 comments

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  1. M-R

    Of course they don’t: they’re children. WICKED children without the faintest idea of what they’re doing.

  2. flohri1754

    Extremely important points that need to be repeatedly stressed. What will it take to awaken the majority of LNP voters to the myth of Liberal financial competence?

  3. DanDark

    When Tones goes and he will by end of February, they will have a new leader who was not elected by the people, they will talk about mandates, and that’s why they were voted in to fix the debt mess labor left,
    nothing will change as far as their backward thinking policies and lies, they will flounder, and flip flop,
    reboot, scrape barnacles and will be in No mans land till an election is called by the middle of the year I reckon.

    Leaving Tones in the job is political suicide for state and federal LNPers, and his speech at the press club today will leave him open for more ridicule and condemnation,
    if I was Peta I would cancelling it, because everything Tones does or says is dumb and has no logic.
    His parents should of encouraged him to join the circus as a clown,
    because anything Tones says or does cannot be taken seriously…..
    I have my popcorn ready for the” horror movie right there on my TV” today..

  4. corvus boreus

    http://4.bp.blogspot.com/-8QcbQnT_Jew/VM6JH-4tgtI/AAAAAAAAob8/L4jaPdRwTSk/s1600/abbott%2Bleadership%2Bspeculation%2B1.jpg

    I like this photo. It looks like a shot from “Breaking Bad”. Tones has a shifty, haunted look, as if he is an embattled king-pin (with long-suffering lawyer scurrying behind), who is expecting a red dot to suddenly appear on his chest at any moment.
    The two flanking heavies with the shaved heads, dark shades and sharp suits look like the two bad-arse twin-brother assassins with silver skulls on their shoes. They do not ask questions.
    But what is the role of the man with the clear spectacles and exceptionally well-disciplined hair walking at the front of the posse?

  5. stephentardrew

    Great article John precise and to the point.
    The media are lazy bunch relying upon worn out platitudes rather than solid research.
    We are in a crisis of confidence and yet they still bleat on with neo-con rubbish.
    The proof is as plain as day.
    Supply side economics is a failure.
    From Regan and Thatcher to the present now that’s been a great success hasn’t it?
    How so much failure can be called success is beyond me.
    Yet regardless of the obvious facts they keep regurgitating the same old crap.
    Maybe the media just reflect the ignorance of the general public.

  6. Robert H Armstrong

    Brilliant analysis, concise and correct. The MSM is gone for all money, and i stopped my subscription to The Age Years ago, mainly because of Mark Kenny. You’d never see an article like this in the MSM.

  7. Rosemary (@RosemaryJ36)

    Where are the educated economic spokespeople in the MSM?????

  8. stephentardrew

    On election night one statement by Wayne Swan got my attention.

    From a former post.

    “Swan talking about demonising deficit and debt.”

    Maybe, just maybe, he is getting the message.

    Hopefully it’s a good sign.

  9. sandrasearle

    John, you have done some really great articles on this subject, well done. I am of the older generation, but probably for the first time in my life I have started to fully understand how finance & economy of govts. should work. Thanks for that.
    What I would encourage for everyone is to really read it until they get the hang of it. Then post it on all social media. The “electronic graffiti” can work its magic yet again.
    As for the MSM, they are just parrots.

  10. Jexpat

    Joseph Stiglitz
    September 2, 2013

    Australia, you don’t know how good you’ve got it

    “While other countries fell into the global recession, Australia maintained strong economic growth, low government debt and a triple-A credit rating. With this record, you might expect the federal election to be focused on how to convert the strength of today’s economy into resilience for the future. But instead the political spotlight has fallen on the perceived problem of government debt, with alarming proposals to bring austerity ”down under”.

    For an American, Australia’s anxiety about deficit and debt is a little amusing. Australia’s budget deficit is less than half that of the US and its net debt is less than an eighth of the country’s gross domestic product.

    Most countries would envy Australia’s economy. During the global recession, Kevin Rudd’s government implemented one of the strongest Keynesian stimulus packages in the world. That package was delivered early, with cash grants that could be spent quickly followed by longer-term investments that buoyed confidence and activity over time. In many other countries, stimulus was too small and arrived too late, after jobs and confidence were already lost.

    In Australia the stimulus helped avoid a recession and saved up to 200,000 jobs. And new research shows that stimulus may have also actually reduced government debt over time. Evidence from the crisis suggests that, when the economy is weak, the long-run tax revenue benefits of keeping businesses afloat and people in work can be greater than the short-run expenditure on stimulus measures. That means that a well-targeted fiscal stimulus might actually reduce public debt in the long run.

    Australia may have successfully dodged the global crisis, but some politicians seem to have missed the lessons it taught the rest of the world….”

    More: http://www.smh.com.au/comment/australia-you-dont-know-how-good-youve-got-it-20130901-2sytb.html

    Joseph Stiglitz is a professor of economics at Columbia University and a recipient of the Nobel Prize in economics.

    The corporate media by in large was having none of it. Nobel prizes don’t count for much when what your bosses want to hear comes from ideologues and charlatans.

  11. eli nes

    understanding is irrelevant because we, and the autocuists, are too dumb but the portrayal as belief is crucial. “the “debt and deficit myth” the LNP used so effectively to discredit Labor” is still ready to go and needs discrediting through hockey and cormann baiting into reactions like the poor don’t drive far and a cigar is nice after intercourse with the poor.

  12. townsvilleblog

    No John, I believe that the MSM are deliberately leading the public in the wrong direction, which is why social media is so very important. The Murdoch press in particular told us on Saturday morning that the polls said 52% LNP, 48% ALP, that’s not how things panned out at all, but some people unconcerned with politics may have read their paper’s and thought that they would just vote LNP because they were going to win anyway, hopefully it is a good sign that people have had enough of extreme right wing austerity policy and it is time for the right wing of the ALP to pull their collective heads in.

  13. townsvilleblog

    Joseph Stiglitz, where is America mate, I can’t find any such place on a map or in an atlas, I’ve had a gut full of yanks referring to this fantasy place that is only one country in North America, along with many other countries.

  14. jagman48

    It is not in the best interest of the MSM to explain economics. They are in terrier mode and are baying for blood. Anybodys blood. Stuff em.

  15. Graham Houghton

    Corvus boreus, the sharp suit? Maximilien François Marie Isidore de Robespierre.

  16. Lee

    Good article, John. It’s a shame the conservatives are only interested in what is in it for them.

  17. Kerri

    @townsvilleblog
    Have you actually listened to Joseph Stiglitz?? Have tou actually read anything by him???
    He is HEAVILY critical of US monetary policy!! He was warning Australia NOT to go down the US path!,,!
    He is in favour of looking after the little people to make sure the economy stays fluid!!
    He says “Invest in PEOPLE” not business!
    Don’t be bagging the Stiglitz!! He has more nouse than anyone over here!

    Also can someone clear this up for me??
    I thought Wayne Swan was voted the world’s best Treasurer by his peers because he did a good job of saving us from the GFC?? Yet everytime the GFC comes up on this site it is ALL PRAISE KEVIN,!! I like Kevin Rudd and I think he could have been a good PM if he had been better organised and more willing to delegate, but it is my understanding that Swan was the Treasurer who saved us from the GFC.
    Yet he seems to be robbed of that praise?
    I am willing to be persuaded otherwise with evidence?

  18. whatismore

    The premise of this article is reinforced by their pathetic performance at press club.

  19. Marg1

    Great article John

  20. John Kelly

    Kerri, you are right on both counts. Wayne Swan was the architect of the stimulus and he was voted world’s best treasurer. Many of my earlier articles have pressed this point. Swan makes Joe Hockey look like a vicarage kindergarten toddler.

  21. corvus boreus

    wharismore,
    Definitely.
    There was no attempt to do any secondary interrogation of claims.
    The assembled press refused obvious opportunity to bring into question the validity of the oft quoted ‘debt and deficit’ figures.
    Neither did they follow up Abbotts defense of questioning of his repeated breach of his given word as being the result of changes made due to unexpected circumstance with any mention of his own explicit vow never to use such an excuse and the significance of this further contradiction of statements and actions.
    Each appears to scribble their own formulaic little semi-dixer, then await their turn, and even the reasonably talented appear too stultified by routine and environment (or intoxicants) to think on their feet and throw in a reasonable follow up probe into a blatant breach of fact.
    A very informative demonstration of why we are so well mis-informed by MSM.

  22. Jexpat

    Kerri:

    I think when Stiglitz made reference to the “Rudd government,” he was including Swan in his assessment.

    Unfortunately, even Swan bought into the right wing media hysteria and fed its irrational debt obsession, pivoting the narrative and government policy toward “surplus” prematurely (much as the RBA and the ECB insanely raised interest rates at the time).

    But at least he wasn’t as profoundly stupid as Obama- who did all that and worse: he repeatedly used (and hence legitimised) the same phoney household = governments language that the Republican party spouted off to oppose stimulus measures and attempt to destroy what little remained of the US social safety net.

  23. Ross

    Watched the PM’s press club address today, managed to keep my lunch down, just.

    The best you could say for the questions from the so called journalists present was he got a slap with a wet lettuce leaf, absolutely pathetic. No one pulled him up on his economic histrionics, just an extremely soft set of tame questions easily swatted over the fence.

    It’s like watching one of those wind up toys, just wind him up for the same puerile rubbish, ad nauseam, Labor debt, stop the boats, carbon tax, carbon tax, stop the boats, Labor debt, on and on.

    A tip don’t keep heavy objects to hand when watching our Tones, the TV is in mortal danger.

  24. stephentardrew

    The country has obviously had enough yet he still gets treated with kid gloves.
    They battered the hell out of Julia the bloody cowards.
    They are not journalists they are fawning grovelers of misogynistic stupidity.
    What a damnable injustice by a bunch of cowards.

  25. lawrencesroberts

    The M.S.M. could have had him today at The Press Club but they did not have the balls.
    Long live The Electronic Graffiti.

  26. totaram

    Graham Houghton: I fail to understand what you are on about. Robespierre is long gone.

  27. Kerri

    Jexpat agree with the surplus obsession? John Kelly has educated me well to better understand the waste that is a surplus. I wasn’t referring to Stiglitz and Swan but rather to the Australian habit of crediting economic decisions to the PM of the day! And Yes! Swan may have achieved a better trust with the people if he had explained the worth of a deficit but maybe he is unable to elucidate as clearly as John Kelly does here!
    And Well said Stephen Tardrew! Couldn’t agree more!

  28. paul walter

    That reminds me of QA.. when Joyce brought up the surplus nonsenses, a neoliberal article of faith, no one had the groin to refute him on that. Joyce also denied that Rudd’s fiscal stimulus policy was a factor in keeping this place out the mess so many other places found themselves in for being led into Europonzi schemes, followed by divisive Austerity programs designed to get huge banks playing casino games out of trouble- and shift balance of power away from democracy and accountabity.

  29. John Kelly

    Watching Q&A last night and listening to Joyce whine on about where will the money will come from, I’m thankful I didn’t have a cricket bat handy because I might have destroyed my TV. I thought Swan attempted to discredit Joyce on the “debt” rubbish but he didn’t go nearly far enough and passed up a golden opportunity to tell the viewers how things really work.

  30. David K

    John, that’s the nature of our current politics. Anything that can’t be explained in a sound bite will be howled down.

  31. hannahquinn

    It is only the independent economists going anywhere near this. The MSM is too ‘short term focused’ on their next headline and talking with each other – in order to be, or to seem to be, an insider. I couldn’t say whether Hockey or Cormann understand any of this, but if they don’t, woe-betide Australia. If they do, woe-betide Australia. Either way, they are utterly incompetent at best.

  32. John Armour

    I thought Swan attempted to discredit Joyce on the “debt” rubbish but he didn’t go nearly far enough and passed up a golden opportunity to tell the viewers how things really work.

    Sadly John, Swan doesn’t “get it” either. Don’t expect help from that quarter anytime soon.

    Swan has this mantra in his head “if we’re going to be Keynesians in the hard times, we have to be Keynesians in the good times”, believing we have to balance the budget ‘over the cycle’.

    The budget couldn’t give a stuff.

  33. paul walter

    Worse than that, David. They don’t want us to know, especially when it comes to things like FTA’s, how they are applied and why.

  34. corvus boreus

    In my prior round condemnation of the media performance at the press club address, I would like to make a notable exception for the conduct of Mark Reilly from Channel 7 (“you’re not saying anything, Tony”).
    He had sufficient foresight to assemble numerous cited quotes of Tony repeatedly promising “collegiality and consultation” over the years, which he employed to embarrassing effect (“do go on”, “OK..”) in questioning the validity of Tony’s given word.

    He could have topped it by asking a follow up question about “shit happens”, and whether Tony was willing to discuss context yet.
    That might have brought the goanna out again.

  35. Pingback: The MSM asleep at the Wheel. | THE VIEW FROM MY GARDEN

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