Tuesday, April 23, 2013

Farewell to Reason, Something's Gotta Give.


A year and 24 days ago, Australia arguably was in a stronger economic position than it is now: there was no end in sight to the mining boom, mining investment was pouring by the hundred of billions, terms of trade were the best ever.

Although the labour market was sluggish, federal treasurer Wayne Swan (Labor) was promising a dramatic fiscal turnaround. Austerity was all the rage among the local cognoscenti.

At the time, Tim Colebatch (The Age's economic editor) lambasted, in my views quite correctly, Swan's "foolish economic fetish":
"Wayne Swan's determination to deliver a budget surplus, regardless of the state of the economy, is seriously reckless. Labor has chosen to risk sending most of Australia into recession in order to keep a promise it should never have made".
Fast forward one year and 24 days to the present.

The Australian economic position has not strengthened a single bit since last year, quite to the contrary. The mining boom seems to be over, huge mining projects were cancelled, terms of trade worsened; further, by all accounts China is set to change its economic policy to one of slower growth. Colebatch mentions each and every one of these things.

More: just last week we witnessed the collapse of half the empirical evidence for the austerian case: the Reinhart and Rogoff soap opera.

And, according to Colebatch, even the still shadow treasurer, Joe Hockey (Liberal/National Coalition), seems to be - allelujah! - wisening up to the fact that the austerity hysteria will backfire.

And what is it Tim Colebatch advises the government to do?
"Both tax rises and spending cuts will be needed to get our budgets back in balance.
"The tax rises are easy: you don't need to raise tax rates
(...)
"Second, the sense of entitlement needs to give way to restraint, almost across the board. In competition policy, the cosy deals done in easy times need to be unwound as they enter hard times. Fiscal policy needs to be tightened as monetary policy is eased
(...)
"Wage growth must be restrained, and productivity growth, in all areas, become the priority. Environmental policies should be made 'economically efficient', while 'productivity-enhancing infrastructure' is the one area of spending that should grow."

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That goes to show that you can't praise journalists, as I praised Colebatch one year and 24 days ago: a 180 degrees flip-flop in one year and 24 days. And a flip-flop in the worst possible opportunity.

The only thing that didn't change is this: austerity is still all the rage among local cognoscenti.

Man, we're so totally screwed it's not funny.

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