Rudd needs to heed warning from Garnaut

Comments on Michael Stutchbury “Garnaut warns PM on stimulus”, 9/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/garnaut_warns_pm_on_stimulus/

Garnaut is a highly reputable and respected economist with experiences in advising the highest office in the land. His view on the government stimulus is pretty much spot on.

Having said that, I personally think that some of Garnaut’s view may be questionable, like those about structural deficit and adjustments in Australia in the near future. That argument is convenient to put, but ignores the nature of the fact that government and consumers have imperfect information.

Now let’s get back to the government and Rudd. The main problem with the Rudd government is that the Prime Minister has a narrow and distorted view of the economic history of the past 30 years, as reflected in his essay in the Monthly in February 2009.

While the great financial crisis and the great recession shows some problems with ineffective regulations or supervisions in the US, especially the mal-practice of sub-mortgage lending and excessive gearing, it is far fetch to say it is the consequence of neoliberal economics in everywhere.

It is unclear whether Rudd really interpreted the economic history incorrectly or merely uses the crisis as an excuse to implement big government and strong government interventions. Different causes may have different consequences.

If he wrongly interpreted the history, then there is a chance that he may realise it one day and correct it.

If strong government interventions are his belief, then there is little hope that he will get the government’s economic policies and some other public policies right. And that would be a pity.