A belated victory for good sense

Wayne Swan has finally announced the abandonment of the promise to achieve a budget surplus this financial year. Some observations

* Everyone with any understanding of economics knows this was the right thing to do. The idea of trying to maintain a balanced annual budget regardless of economic conditions is recognised as nonsense even by anti-Keynesians. In the absence of active fiscal policy, the standard recommendation is to maintain settings consistent with medium-term balance.

* Both parties have made an awful hash of this in political terms. Labor was silly to make the promise of a return to surplus on a specific date, and sillier to reaffirm it in ever stronger terms until very recently. Abbott and Hockey made a mess of their response. They could have used Swan’s announcement to dump their own surplus fetishism saying something like “since the government refuses to reveal the true fiscal position, we can’t promise to fix it in one year”

* With any luck, some of the appalling fiddles of the last few months, most notably the recent reallocation of aid funding to domestic funding on refugees can be reversed

* We still need a long term discussion about revenue and expenditure in the light of the global failure of market liberalism. I plan to address this in another post

Update Hockey has indeed backed off the surplus, showing more good sense than Abbott. I’m nearly alone in this view, but I think he is under-rated. Not a towering intellect, but still among the stronger performers on the LNP front bench.

33 thoughts on “A belated victory for good sense

  1. @John Humphreys

    “Nearly all the problems of the last few years are linked to government intervention (moral hazard …”

    Do you mean the moral hazard created by limited liability corporations? Do you want to do away with limited liability?

  2. @Monkey’s Uncle
    And they certainly will do…but noting that some economic commentators have not completely ruled out there may be a small surplus yet.
    Regardless of the coming plethora of articles and dissections of what is, was and might have been it seems sense has prevailed, so raise a glass and toast the silly season!

  3. Amusingly, the libertarian think tank CATO used to run the line that the Community Reinvestment Act, which John Humphreys et al argue was one of the bogeymen that caused the GFC, was unnecessary because it didn’t encourage any additional lending. See here for example:

    “Absent government intervention, would low-income communities find themselves cut off from access to lending services despite the potential presence of creditworthy borrowers? For advocates of the Community Reinvestment Act (cra), the answer is a de?nite yes.

    Despite wide acceptance of the claims made by cra’s advocates, those claims are conceptually and observationally unfounded. Economic theory and empirical evidence indicate that the reason for recent growth in lending to low-income neighborhoods is not cra, but the effectiveness of market forces in breaking down the types of ?nancial barriers that were prevalent when cra was enacted. In reality, deregulation and new technologies have promoted competition and precipitated a great broadening of the credit market. As a result, cra is not necessary to ensure access to credit by all segments of our economy.”


    Funny that.

  4. Swan didn’t abandon anything. He was never going to run a surplus ever. He was never capable of running a surplus ever. Its really a character thing.

    Its a pity we have rolled over, given up, and bailed out, in the face of banker bamboozlement. Because it means we don’t have proper monetary policy. We only have adjustments in the amount we wish to subsidise the financial sector. As a result there is this idea around that monetary policy doesn’t work. This is a wrong idea, the reality is that we don’t practice monetary policy.

    We practice a situation where we either subsidise them more, and when we don’t subsidise the banks more, the banks have set it up, that they can then rifle through the pockets of those who have variable rate mortgages. Its a tails they win, heads we lose situation. Now if we had monetary policy we would be able to see that fiscal policy is useless and monetary policy always has an immediate effect, which can be appropriate once in awhile.

  5. John Humphries has to be one of Australias worst offenders when it comes to aiding and abetting the bamboozlement of the public by the bankers. He went so far as to invite JC to write in support of the bailout. Well of course there had to be SOME SORT of bailout back in 2008. But it ought to have been to the favour of the public. Which means sending out huge amounts of cash from the mint, but at very high interest rates. This is what a bailout used to mean. This time around it manifested as straight stealing followed up by a continuous rolling thunder of stealing via unlimited low interest rate funds. Sometimes the funds can be turned around for an immediate profit in government bonds since the bankers are so privileged that they can borrow for a lower interest rate then the government will itself borrow out. There are actually a wide range of ways they steal off the public (in the NATO countries) and they are way too numerous to go into. There was never an excuse for any of this. The answer was always new cash, plus a reinstitution of reserve asset ratio policy to stop the new cash from being too inflationary. Even better still this could be coupled with a one-sided partial jubilee.

    Actually if there is going to be fractional reserve banking, which there ought not, but if there is, it would be appropriate that the bankers know that as soon as they allow a recession, they have to cop a one-sided partial jubilee. The recessions are their fault. They are the ones lending for inherently wealth-destroying undertakings.

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