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February 28th 2010 print

Peter Smith

Midnight Batts

Peter Garrett was neither at fault nor accountable apparently. Well of course now Kevin Rudd, having briefly and manfully accepted the blame himself, has now thought better of that and demoted Mr Garrett. But should he be singled out for blame?

Should Wayne and Ken be sorrier than Pete?

Peter Garrett didn’t get it or pretended he didn’t get it. People have been killed and injured and houses have burnt down. He blamed the shonky insulation installers and a deficiency of oversight at a State level. He was neither at fault nor accountable apparently. Well of course now Kevin Rudd, having briefly and manfully accepted the blame himself, has now thought better of that and demoted Mr Garrett.

Where does this leave Mr Garrett? Well it leaves him without much credibility but hold on, before we move on, should he be singled out for blame? After all, he was not responsible for the economic stimulus packages. He didn’t decide that billions of dollars should be spent as quickly as possible on whatever came to mind. In a sense he was given a poison chalice. Of course he showed a singular lack of insight into how impractical and reckless was the insulation scheme but then again his background did not especially equip him to think analytically. The same excuse cannot be afforded Wayne Swan or Ken Henry. They are both culpable and arguably more so than is Mr Garrett.

The Treasurer and the Secretary to the Treasury are responsible and accountable for the outcomes of the stimulus packages. Stimulus packages come out of the Treasurer’s office and the Treasury. Lest there be any misconception that the Treasurer had undue influence, Dr Henry is on the record a number of times supporting the stimulus. For example, in a Senate hearing in February 2009 on the $42 billion stimulus package (which included the allocation for ceiling insulation), he said that the state of the economy called for ‘a very substantial fiscal stimulus’ with a ‘clear need to act now’.

Everything about the stimulus packages from the cash handouts, to the building of un-required and unnecessary school buildings, to public housing, to free ceiling insulation, and the rest, was about getting money out there, and as quickly as possible, to boost demand. What demand? The answer to that is any old demand will do if you believe in the Keynesian fiction that spending money is the same as making money. But part of the fiction too is that the demand must be spread around to have maximum effect on employment. The only way to splurge and spread large amounts (billions of dollars) of taxpayers’ money is to spend it wastefully on various construction projects around the country that would not pass muster in normal times.

Think about it, what else can the money be spent on. Anything of any worth and substance takes too long to organise. Remember that the money has to be spent quickly; so that the Government is not caught short looking silly as the economy recovers of its own accord while wasteful stimulus expenditure is continuing on. The Government also needs to be able to claim credit for the recovery and to avoid, so far as possible, any suggestion that its policies are crowding out private sector activity and putting pressure on interest rates. There is no time to put in place systems to properly vet insulation installers for instance, or to assess whether insulation products of sufficient quality are available, or to insist on two quotes for any given piece of work. Sure Mr Garrett’s department was warned but acting on the warnings would have really slowed things down. Slowing things down was not in Mr Swan’s or Dr Henry’s script. “Just got to get that money out” and when it all goes wrong, poor old Peter Garrett is to blame.

Making a profit in business year after year is hard. While many businesses thrive others go under. This competitive process is the key to our collective prosperity. Now throw in government, willy-nilly making billions of taxpayers’ (our) dollars available to anyone who throws up a shingle saying: “I am from the Government – Free insulation”. And surprise-surprise, fly-by- night operators, who would not survive in the free market, spot their chance. How in the world is this just Mr Garrett’s fault? Why have Mr Swan and Dr Henry managed to escape scrutiny and blame? If some of those school buildings leak or lean, because of shonky builders spotting their chance, will Julia Gillard alone be responsible?

Stimulus spending is wasteful because it results in a misallocation of resources and makes it more difficult for the private sector to recover. It mistakes spending money for making money; something we would never do as individuals or as businesses. The insulation experience simply demonstrates in starker terms than usual how silly and misconceived it all is. Exactly how has this economy been improved by sticking insulation into thousands of houses at taxpayers’ expense, much of it badly done, and by constructing redundant school buildings? Of course it hasn’t been improved at all; it has been damaged. It would have been better to drop the money from helicopters.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics