Posted by: graemebird | February 5, 2009


Lets resolve this thing right away while there is still time to push for massive spending cuts in the hope that the push at least will save us the damaging effects of at least a few billions in government spending. You economists on the left and the right. You never want to resolve this matter outright. Lets do it now:


Graeme Bird :

05 Feb 2009 12:46:26pm

This 42 billion dollar wrecking-ball package is an utter disgrace. Not predominantly for Rudd but for the economics profession in Australia on both the right and the left. Moreso for the rightists since they ought to know better.

The spending is EXACTLY the opposite of what ought to be done. The prescription for recessions in economic science is fiscal triage. That is to say massive multi-billion dollar spending cuts.

For recovery we need to, amongst other things, boost business spending up to its previous high and make sure as great a PROPORTION of resources (as allocated via spending) as possible are going into this category.

In GDP business-to-business spending is not counted. So this package is ripping 42 billions of dollars worth of resources from business to business spending and putting it where the spending will be picked up by GDP. This package does not DOES NOT!!!!! increase spending. It merely takes the spending from that category where it can repair the economy and places it into other categories where the spending will not help to repair the economy.

It is simply disgraceful that the economists have not resolved this issue, even to their own satisfaction. And I welcome an open debate with any or all of them to resolve this urgent matter decisively right here while there is still time to turn spending increases into urgent spending cuts.



  1. Bird,

    You DON”T cut spending in a recession. You leave spending alone and lower tax rates perhaps even eliminating corporate taxes. You shouldn’t raise spending, but you certainly don’t cut it.

    Cutting spending is what made the depression worse. You leave it alone perhaps at nominal terms and then worry about cutting it later.

  2. Yes you MUST cut spending in a recession. Thats the absolutely critical thing to do. You must cut spending, ask people to try and bring prices and wages down or at least not push them up, and ask them to save or buy new share issues and do other helpful things like that. Since you are trying to shift all resources to business-to-business spending.

    As I have already pointed out. Increases in government spending DO NOT increase spending in total. They shift if from where GDP does not pick spending up (ie business-to-business spending) to where GDP DOES pick the spending up…… that is to say they shift it to government spending and consumer spending.

    In shifting it to government and consumer spending they rob real resources from the only spending category that can repair the economy.

    And the reverse is true. Slashing government spending does not reduce spending. Rather it sends it to business-to-business spending or at least it can be made to. It will tend to send it to business-to-business spending since people have been chastined, the right price signals have been restored, and hence they will have a tendency to save in their own interests

    So you were wrong and I am right. Now that you know this spread the word. This is an emergency. I’m not shitting you.

  3. No lying on my site Tillman. Thats even worse than your crudity and various homosexual wish-fantasies.

  4. Hurry up Cambria and spread the word. I see you have three recent posts on catallaxy and none of them are to do with this urgent intelligence.

  5. As I have already pointed out. Increases in government spending DO NOT increase spending in total.

    Increases in government spending actually decrease total spending over a time period. More spending (and borrowing) now means less spending later. So in fact this “stimulus” bill is a contractionary measure which will simply cut future spending by the total of the government’s debt repayments plus deadweight loss.

    We have to drive this point home mercilessly.

  6. Well yes thats true. But its kind of a different subject. When we are talking stimulus we are talking nominal spending. Deficit spending will systematically impoverish us sure. It will have us paying for the retirement years of the Chinese. But its almost a different subject from the initial issue of boosting nominal spending. Which is done quickly by direct cash injection. Direct cash to retire debt.

  7. Ok, but what will this direct cash injection entail? Where does it come from? Is it a government policy? If so (and if not, read no further) are you talking about printing money to retire debt or increasing taxes/spending to retire debt?

    Can you clear this up for me? It’s very important.

  8. Right. Printing money to retire debt. The only valid way to increase spending if in fact that is what you wish to do. It has to come in with a Reserve Asset Ratio or the banks will pyramid on it and go from recession to galloping inflation in short order.

    Now if the goal is NOT to increase spending then you don’t do it. If the goal is to increase spending a bit you do it a bit.

    You don’t drop interest rates since thats a bank subsidy. You want to crossover to a system where the banks have enough cash not to have a run on the banks and they are not relying on the government in any way. If you don’t have that you don’t have competitive resource allocation.

  9. You see people are confused. They want to increase spending. Ought they? Thats a separate question. But fiscal policy doesn’t increase nominal dollars spent quite apart from the systematic impoverishment in the long run that you quite rightly point out.

    The banks, because they are subsidised and coddled with regulation, pyramid ponzi-make-believe-money on top of the cash thats there. Since the ratio can be upwards of twenty to one, when they get edgy business-to-business spending can collapse. It collapses as the first thing, prior to anything listed in GDP is much affected. Now do we just let it collapse.? Or do we boost it back to its prior minimum and flatten that level out for the next few years?

    If you decide the latter there is only one way to do it and there is no other way.

  10. I guess printing money to retire debt makes more sense than any other measure.

    But shouldn’t individuals be responsible for the debt they took on?

  11. Well yes of course Fisk. But usually there is some sort of government debt around to retire. After all we have been driven into deficit already.

    “So you’re suggesting we cut the dole?”

    You are not really driving at the heart of the issue are you JC. They ought to be trying to find cuts where they can. And a high unemployment benefit will help hold up wages when you want wages to fall. But I don’t think getting rid of the dole during a time of high unemployment is the first order of business. I would have thought the obvious cuts are to be in terms of departments and public servants.

  12. Graeme, it doesn’t matter considering our award wages and the terribly desctructive welfare to work portion of our tax system.

    They should simply fund the deficit out of an across the board efficiency dividend if they are unwilling to scrap useless departments like the Office for the Status of Women.

  13. “They should simply fund the deficit out of an across the board efficiency dividend if they are unwilling to scrap useless departments like the Office for the Status of Women.”

    Don’t be ridiculous. There is no such thing as an efficiency dividend. You just fire people and close down departments. In private business increasing “efficiency” or rather “productivity” requires capital investment. The last thing we want is our scarce capital going to these departments. I’m sure you didn’t mean that but any talk of an efficiency dividend by taxeaters is just a stalling tactic to keep the stealing going.

    There is no substitute for closing down the departments. What fucking right have they got to keep them open?

    You’ve already sold out when you say this sort of thing:

    “They should simply fund the deficit out of an across the board efficiency dividend if they are unwilling to….”


    They have no fucking right to keep these departments open one more day. The people fired can have very generous tax vouchers, in lieu of redundancy. Very generous. But they cannot keep their parasitical jobs. Don’t be acting like its some sort of valid moral choice on their part.

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