Tuesday 3 April 2012

Colebatch & West: Doom & Gloom.

Tim Colebatch is quickly becoming one of mainstream media's most reliable commentators on macroeconomic issues.

Last week, in his aptly titled [Labor Treasurer, Wayne] "Swan's Foolish Surplus Fetish", Colebatch compared Swan's still sketchy budget cuts to "hara-kiri". (See here)

According to Colebatch, Swan bases himself on the assumptions that (1) Australia is still "on the way back up", (2) budget cuts would allow the RBA to lower interest rates, and (3) they would restore investors' "confidence".

This is how Colebatch argued against point (1):
"No Australian government has ever proposed such a huge withdrawal of spending from the economy. (...)
"On Treasury's estimates, that would take at least 2.6% of GDP out of the economy in 2012-13.
"Why on earth would you do this in an economy that has added just 10,000 jobs in the past year, where the growth rate is just 2.5%, and most of that is in mining and related industries, and with Victoria and south-eastern Australia on the verge of recession?
"What Swan is planning for 2012-13 goes far beyond any previous budget cuts. In 1986, the hairshirt Hawke-Keating budget cut away 1.1% of GDP. The first Howard-Costello budget in 1996 took out 1% of the economy."
Although all these figures are equally relevant to Colebatch's argument, for my purposes, I want to draw to the readers' attention the fact that in 2011 the Australian economy added only 10,000 new jobs, as, further down, I'll have more to say about this.

Swan's third assumption (the confidence bullshit) is as nonsensical as not to be worthy of comment; Colebatch, however, didn't elaborate on monetary policy, that is point (2).

And is mainly on the issue of monetary policy where Swan's hara-kirinomics finds some level of support. [1]

Take Stephen Koukoulas, for instance:
"This focus [on fiscal policy] is where the misunderstanding occurs. It is as if fiscal policy is the only policy lever in town. It isn't.
"Monetary policy is usually not discussed by those bagging the Government's economic objective in delivering a surplus next year.
"It must be considered.
"In the most basic of basic terms, the tighter fiscal policy is, the easier monetary policy can be."
(See here)
Well, all the data cited by Colebatch are as relevant today as they were last week. And today that data showing that the Australian economy is already verging on a recession failed to convince the RBA, Koukoulas' other policy lever manager in town, to lower interest rates or, paraphrasing Koukoulas, "to ease monetary policy". (See here)


Today Colebatch produced another piece, comparing the Australian Gillard/Swan Labor government's fiscal policy to its Canadian Harper/Flaherty Conservative counterpart's. This is how the piece was titled: "Budget Cuts will Bring on Recession". (See here)

In Canada, the economy perceived as more similar to Australia's, a Conservative government is not falling for the "expansionary contraction".

I recommend Colebatch's piece.


But here is where I want to bring back the poor performance of the Australian economy creating jobs.

Is not only that the economy is not creating jobs, or that it may start shedding jobs again (as implied by Colebatch), or that there are pushes to lower wages (as documented by Matt Cowgill, here; or yours truly, here and here). Nope, that's not all, at all.

According to Michael West, it's also that there are pushes to eliminate paid public holidays! (See here)

Great news, hey!

This is gonna be a long year.


But there are a few things I don't understand or that make me curious about.

For one, according to Colebatch, "Prime Minister Stephen Harper's government is the closest thing the world has to the Howard government".

If the Gillard/Swan government is to the right of the Harper/Flaherty government in fiscal matters and the Harper/Flaherty government is the closest thing to the Howard/Costello government, where the hell would that leave a future Abbott/Hockey government?

The answer makes me afraid, very afraid.

Secondly, how are the good folks of the Fraser Institute managing with a Conservative government embracing the nefarious "S" word? What do our local right-wing think-tankers have to say about it?

And lastly, whatever happened to comments like "Ignore doom and gloom, the economy is blooming" that one could see in the mainstream media just a few weeks ago?

[1] Personally, like post-Keynesians, I have serious doubts on the direct effectiveness of low interest rates manipulation to promote investment; but, unlike them, I do give it a more important role in promoting final consumption and demand.


  1. Well spotted, Magpie. That is a refreshingly good piece of journalism. I'll keep an eye out for Colebatch's articles in future.

  2. But then, to compensate, the AFR has joined the austerity crusade.

    It's like I said the other day: consumptive's joy.