David Flint

Rudd the Keynesian

Paying people to dig holes to fill them up

Billions of dollars of the taxpayers’ hard earned money might as well have been poured down the drain. It seems that almost every Rudd government programme has been mismanaged, and seriously so. Whether it was the now abandoned roof insulation programme, the so-called education revolution, or the national broadband, the ministers seem incapable of exercising any control. It is difficult to recall such reckless profligacy, even under the Whitlam government.

The mess the environmental minister Peter Garrett presided over was not just an aberration. It is difficult to name a minister presiding over a stimulus programme who is not equally tainted. (Perhaps the new open borders programme is just  another stimulus package to channel vast sums both to the people smugglers and their growing clientele.)

The problem even extends to the Deputy Prime minister Julia Gillard, seriously touted in the media as an alternative to the Prime Minister whose fabled omniscient control is clearly without point.

Finance Minister Lindsay Tanner, whose principal role is to exercise some l oversight over the financial viability of such programmes, lamely defended the government early this year by saying: “Well the truth is if we’d sat around dotting ‘i’s and crossing ‘t’s forever then there wouldn’t have been any stimulus package.”

A favourite mantra in government and media circles is that at least the government saved the nation  from the recession. Well did it?

The stimulus package was actually the result of the government panicking when the downturn they, the Treasury and the Reserve Bank failed to see actually struck  the US and Europe. Don’t forget that when Peter Costello warned about this in the 2007 election, he was ridiculed.

But when the government realised he was right, they acted. They sought to be, if not ahead of at least up with the Europeans and Americans who were worried about their banks. But thanks to Howard and Costello ours were on solid foundations. They looked for something announceable while all the time they were in a blind panic. The announcement timed for the Sunday evening news- the unnecessary bank guarantee – led to a run on very sound mortgage and similar funds. Thousands of Australians are still suffering over that.

Then the government rushed into the most ill-conceived and poorly administered stimulus package which has ever been seen in the country.

Had they waited, it would have become very clear that trade – especially trade with China –  was going to keep us out of the sort of recession the US and Europe were experiencing , and that any downturn would be very mild here. True, it would slow down construction and retail, but with the labour market flexibility which came out of the reforms of the last three governments, this would be more easily accommodated than in previous recessions. (Since then the Julia Gillard has presided over a reversal of the reforms of the last few decades.) 

But did the Rudd government intend it to be like this? Did they mean to pour billions into the economy without even applying the most elementary rigour to ensure the taxpayers got value for what is after all their money? 

Perhaps they were deliberately following the dictum of John Maynard Keynes that in situations like this the government should stimulate the economy paying people to dig holes and then fill them up.

Before we think that perhaps Keynes was right, he didn’t exactly say this.  He merely said this would be better than doing nothing. But it would be hardly sensible.

"’To dig holes in the ground,’ paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services," he said.

But then he added:

It is not reasonable; however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

And again:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.

But he followed this with this common sense proviso:

It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

The result is that as we approach the winter of  2010, Australia has little to show from unprecedented wasteful profligacy, apart from the disappearance of the surplus, a massive debt to service and for the mainly young to repay.

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