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Archive for February, 2009

Quick reactions on stimulus package, Mark 2

February 3rd, 2009 66 comments

As expected, the government has announced a new round of fiscal stimulus, and the Reserve Bank has cut interest rates by a further 1 per cent, incidentally achieving a further devaluation of the dollar. All of that is likely to stimulate economic activity, but will it be enough and will it be in the right directions.

The magnitude of the package, $42 billion over 2 years, amounts to around 2 per cent of GDP per year, which is pretty modest given the scale of the crisis. But it follows the $10 billion package from late last years, and is virtually certain to be followed by more. I’d be surprised if the deficit is held under 5 per cent of GDP for 2009-10, and deficits are likely to continue for quite a few years. With fiscal stimulus of that magnitude and interest rates near zero, it ought to be possible to keep the inevitable recession to a relatively modest scale, assuming (a big one) that the international financial system is on the road to stabilisation.

The main concern I have with the package is that it continues a heavy focus on construction. That sector has been the first (apart from the finance sector itself) to take a big hit, but it won’t be the last. It’s great building schools, but we need to be hiring teachers, teachers aides and support staff to work in them. As I’ve mentioned before, human services are the most labor-intensive areas of the economy, and also an area that’s been constrained in the era of economic liberalism that is now coming to an end. Hopefully, we’ll see more action on this front, and on direct measures to help the unemployed in the Mark 3 package.

I also have some concerns about the idea of insulating homes. That’s great if it’s additional to the impact of the emissions trading scheme, but not so great if all it does is make it easier for electricity companies to meet their targets.

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Easter in January

February 2nd, 2009 19 comments

As many readers will have noticed, the supermarkets began selling Easter items like eggs and hot cross buns early in January, just as they were clearing out the remaining Christmas stock. I must say this is a sorry commentary on what is supposed to be a consumer society

* First off, what about those of us who want to celebrate Christmas and Easter at the same time? If the stores could get their act together and put on the Easter items a couple of weeks earlier this would be easy, but they seem to stick to the tradition of one festival at a time

* Valentines Day is only a couple of weeks away, but there’s scarcely anything in the way of Valentine’s items. Given that Valentines falls in the middle of the Easter season surely it’s not beyond the capacity of the marketing guys to come up with Valentine-themed Easter eggs, or Heart-Cross buns

* There’s no risk of going short on gluttony during Lent, but there’s a long drought from Easter to Halloween, with only Mother’s Day and Father’s Day to provide options for excess consumption. Surely they could invent an Australian version of Thanksgiving and put it in midwinter.

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Monday Message Board

February 2nd, 2009 26 comments

It’s time once again for the Monday Message Board. As usual, civilised discussion and no coarse language.

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Refuted economic doctrines #5: Trickle down

February 1st, 2009 85 comments

The idea that policies favorable to the wealthy, such as financial deregulation and favorable tax treatment of capital income, will ultimately benefit everybody has been described, pejoratively, as ‘trickle down’ economics.

The same idea been summed up, more positively, in the aphorism ‘a rising tide lifts all boats’ attributed to John F Kennedy, and a favorite of  Clinton advisers such as Gene Sperling and Robert Rubin. (It should be noted that this phrase is also used in the context of debates over free trade and over the effects of macroeconomic expansion. While it generally implies that we should focus on expanding aggregate income without too much concern over distribution, it is less sharply focused than the ‘trickle down’  pejorative.

Whatever you call it, trickle down economics is one of the casualties of the financial crisis. I’m not the first to point this out, and I’m sure I won’t be the last, but here’s a piece summing up my thoughts.

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