Swan's long last legacy - a 3 D creation

Comments on John Daley "Surplus hopes pinned on heroic assumptions", 15/05/2013, http://theconversation.com/surplus-hopes-pinned-on-heroic-assumptions-14240
Leaving the budget measures details aside, Swan should and will be remembered for his three D creation to Federal public finance: deficits, debts and defeat.

The Labor Government inherited a budget surplus and a future fund showing a net government wealth/assets of tens of billions. He, however, has so successfully turned them into consecutive budget deficits - the first D creation. Through those deficits, he has created his second D - a huge debt a long lasting legacy of Swan's incompetent management of the Federal budget.

Of course, that is not all and through his management of the RSPT he created the downfall of Rudd prime ministership and his MRRT and carbon tax disasters that turned a projected surplus to a 12 fold budget deficit. Through this, Swan has completed his third D creation, that is, the guaranteed defeat of the Gillard government in September.

Swan and the government has developed and used a deceitful trick of saying revenue write down by inflating revenue estimates.

Of course, no one should forget his dishonest manipulation of the accounting standard by shifting spending and revenues across years just to create a projected budget surplus for 2012-13 that is not 1200% larger in the red.

What a treasurer! What an achievement! One has to marvel?!

Question of least consequence?

Comments on Rob Burgess “The real reason to bash Swan”, 9/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Wayne-Swan-Federal-Budget-2011-Treasurer-deficit-s-pd20110509-GNSW3?OpenDocument&src=sph

Question of least consequence, are you kidding?

Rob Burgess argues that questions about “how big is the deficit, could it have been smaller, and how long will it take to erase”, are the most likely source of the bashing for Swan’s fourth budget at the budget night, but they are also the question of least consequence.

I would question why?

One should ask a serious question of why those are the only main reasons for increasing budget deficits for 2010-11:

“From the MYEFO figure of $41 billion, the budget deficit is now expected to come in at $51 billion. Roughly a third of the blowout is from funding natural disaster relief in Queensland, Victoria and WA. The remainder is largely split between a drop in capital gains tax (housing falling, shares drifting) and weaker corporate tax receipts as the China-led terms-of-trade boom continues to punish non-resources-related businesses.”

Why shouldn’t one ask about the quality of budget in the first place? That is, why didn’t the government expect some possible impact on its revenue sources when it made that budget? Or was the government too optimistic than warranted at that time?

Besides, has there any positive side story of revenue impact that that should be included, or there has been none during 2010-11?

If one looks from this aspect, then those are not least consequence questions any more.

How to fix USA Inc.'s Red

Comments on Mary Meeker “USA Inc.: Red, White, and Very Blue”, 24/02/2011, http://www.businessweek.com/magazine/content/11_10/b4218000828880.htm

It shouldn't be that difficult at all if the USA Inc can change its own thinking and behaviour to a more realistic level.

First, for example, if it does not continue the thinking it still has the means to keep its military dominance to the degree it has got now and reduce its military spending so just to be the same as the current world second largest military spending, then it can save a lot its taxpayer's money and contribute significantly to repairing its budget deficits.

It will not cause any security and defence danger to itself at all.

Secondly, it could take urgent actions in tackling climate change and reducing carbon emissions by applying a carbon tax and gradually increasing the tax.

This tax has dual functions: a. to join the other nations in action to limit adverse climate change or at least to act as insurance for the future of its citizens; b. it can raise revenue and reduce budget deficits.

They are only two of many options that the USA Inc has. The only question is: is it prepared to do the right and reasonable things?

Miserable Swan that cannot fly, nor swim in economic fields

Comments on Wayne Swan “Rollback is part of the plan”, 10/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26050760-5017272,00.html

The Treasurer seems never to be able to grow up to a normal person, but unfortunately he is in charge of what he cannot manage nor understand, that is the economy and budget.

To just using one point in his little article, he said the stimulus has been designed to withdraw automatically. Let's assume what he said was correct with the original design for the moment. But the economy has already proved that the Treasury forecast was out of order with what has been happening, so why the original design based on that earlier forecast is still correct? Isn't it a common sense that when things are different from one's assumptions, then one needs to change the strategies according to the new reality as opposed to sticking with the original plan?

Mr Swan, you need to get some common sense, not to mention the skills to manage the nation's budget and the economy.

Besides, the nation’s top economic advisors need to get real as well and provide good economic and budgetary advice to the government of the day. It is their advice that has also contributed to Mr Swan’s confused mind.

Andrew Leigh is proud of the wrong arguments

Comments on Andrew Leigh’s own blog on the 21 economists’ letter, June 2009, http://andrewleigh.com/?p=2104

With due respect, I think that letter is full of nonsense. I sent part one of my comments on that letter to AFR, though the letter facility, but I don't know if they will publish that. I have posted in a blob as:
http://mrlincolns.blogspot.com/2009/06/21-prominent-aussie-economists-half.html

I am preparing part two of my comments on that letter which will focus on more specific points of that letter. When it is finished I will advise you.

I think that letter has problems with simple logic. It is confusing at the best and deeply misleading at the others. The first part of my comments deals with the letter's quote of Krugman and Blanchard. To quote from famous economist to start off the letter is weak at the best and to use them as supports for own illogical arguments is laughable. You and other can have a look how those quotes are problematic, from part one of my comments.

I provide the following brief comment, to give you a flavour why that letter is wrong. The main point is that the letter misses the point of the current debate on the government debt. The main issue is not about whether it is necessary to have a debt, but what level of it. Related to it is whether every government fiscal measure is necessary and effective in stimulating the economy and cost effective.

The 21 prominent Aussie economists HALF RIGHT AND HALF WRONG

I have just read the open letter by 21 prominent Australian economists on the AFR, 3 June 2009.

Those economists are prominent and reputable. There is no question about that. I personally respect them very much.

But with respect, I beg to disagree with some of the opinions in their letter.

For some reason, I did not follow the AFR recently and missed this important letter from these economists.

The title of the letter shown on the AFR is "debt no problem, for now".

The title itself is correct and not wrong, although it could be a little misleading.

The letter and the title is correct in saying that debt itself is not necessarily a problem. Very few would strongly question that.

But the letter missed the point of the debate. The debate has not been about having debt or not per se. It is really about what kind of debt and how much of debt and whether some of the debt is necessary.

The letter starts with quotes of Paul Krugman and Olivier Blanchard as follows, to quote:

In Paul Krugman’s words, right now, “knowledge is our only defence against catastrophe”. A natural reaction would be to retreat to timidity. But that would repeat mistakes that exacerbated the Great Depression by giving in to our fears and phobias. International Monetary Fund chief economist Olivier Blanchard has a similar blunt message: “Above all, adopt clear policies and act decisively. Do too much rather than do too little.”

Paul Krugman is a well known American economist, the 2008 Nobel laureate in economics for his contributions to the theories of international trade. Olivier Blanchard is well known France/American macroeconomist, with many publications on macroeconomics, including two famous textbooks on macroeconomics.

Their opinions are important and have many followers, presumably. That was probably why the 21 prominent Australian economists start their letter with those quotes to set the scene for their arguments.

Let’s look at the quotes of those two famous international economists.

First, Krugman’s “knowledge is our only defence against catastrophe”. Is that correct? I doubt it. Why? Let me explain.

Yes, it is obviously true that knowledge is important for all things. It is especially important at present when the world is in a great recession. I don’t doubt it a bit. But one would realise that it is at least equally if not more important that it not just the knowledge we have but also how we use our knowledge that matters.

Further all current knowledge is not necessarily always enough to enable us to solve all the current urgent problems. We may need to consider how to use our knowledge and to develop new “knowledge” that will be useful in our current and future endeavour. This is why I only half agree with Krugman’s point.

The knowledge of the 1930’s great depression and the experience with Keynesian macro policies including both fiscal and monetary tools is useful in combating the current great recession. Indeed, it was the collective government policy actions of most world large economies that prevented this great recession became another great depression. Credit to whoever when credit is due. Let’s acknowledge it.

The sentence following the quote of Krugman in the letter says that “A natural reaction would be to retreat to timidity. To be frank, I don’t know how one can draw that conclusion or make that statement. It sounds much like what the prime minister and the treasurer have said again and again. The point is confusing or ambiguous at best and deadly wrong more broadly, because that is not the only other options available and not a natural reaction. It may be natural to some, maybe well including these economists, but that is not necessarily natural to many others.

The point is not action or not, not a question of boldness or timidity. In a word, it has never been a black and white two extreme world. It is not a binary choice. It is a spectrum with many feasible options available. Some options or actions are better than others. More on this point later on.

Is out current knowledge enough or good enough for us to deal with the current financial and economic challenges? Probably not. Just ask the question why the Federal Reserve in the US has been using so called non-conventional methods in their monetary policy approach to the current financial and economic problems. It is not too difficult to understand that our conventional economic theories are insufficient and provide no effective policy prescriptions to the current problems, so policy makers have to resort to new methods.

Yes, one can argue that is also based on current knowledge. I agree with that, but only just. It is based on our knowledge that the current knowledge is not good enough for a ready solution to the current problems.

We need to apply our existing knowledge wisely. We need new knowledge. We need new economic theories that are more targeted to the current economic woes.

Second, let’s talk about the quote from Blanchard. There are two parts of that and I will deal with each of them. One is about “adopt clear policies and act decisively”. Is that necessarily correct? No, it is not in this case, unfortunately.

Are clear policies necessarily the correct ones? One has to wonder. Think about the IMF’s policies towards some of the East Asian countries during the 1997/8 Asia financial crisis. They were, or must have been clear by those important IMF officials, or in their minds. They also acted decisively in forcing those countries that were receiving IMF assistance at that time. Were they correct or right? No, they were not. Most economists and even IMF realised that point sometime later on. Some economists recognised that at the time.

This example from IMF, the one Blanchard is its chief economist now, experience states the obvious that clear policies and decisive actions, irrespective what they are, are not necessarily correct actions to take. They may be necessary, but not sufficient. It is not good enough for policy advisors of economists just say to governments that they adopts clear policies and act decisively. They need to say what those clear policies are. And they must get those clear policies the right policies to suit the occasion.

Another point of Blanchard’s quote is about whether governments should do too much or too little, that is, biased on the upside or down side. Again, is it good enough for policy advisors to give green light so blindly to governments’ spending their way out of recession? No, it is irresponsible! Some government if not many of them, tend to over spend and spend on unproductive projects. So it is important to know how much governments should spend and what they should be focused on.

Fiscal policy is never to be as simple as the symbol of G in the GDP equation in economics textbooks; when G is higher, GDP will be higher. Fiscal policy is much more than that. It is about both the total amount of G as well as its composition. The latter is more important than the former in most if not all circumstances for any good governance.

The proposition of biasing towards too much than too little appears to suggest that they only focus on the total amount rather the composition and quality of G. That is not good enough and any good government should be able to do better than that.

I will elaborate on the main points of that letter in another blog article, so to make this article not too much - to practise the point I argue in this article. To be frank, it is already too long.

Rudd government must learn rapidly from mistakes to get the budget right, but it may be already too late

Comments on Paul Kelly’s “Moment of truth for Labor”, The Australian, 9/05/2009, http://www.theaustralian.news.com.au/story/0,25197,25449742-12250,00.html

It could be called “the end of the beginning” of just clever politics, or the beginning of the end of the honeymoon period of the Rudd government. The latter followed 12 years of the Howard era, which presented the Australian public with a dilema: ever more prosperous and the elimination of national government debts on the one hand, and the public had some big disappointments and deep political illusions, including Tempo, children overboard, the association with George W Bush’s advanture into the Iraq war and the proven lies of weapons of mass-destruction, refusal to rectify Kyoto, the too ideologically driven IR laws, to name a few, on the other. People wanted a change, and they wished to see new faces in politics, for better or for worse. They certainly got that. Rudd appeared on the scene as the Labor lead in this environment and people embraced his team enthusiatically, just as the Ameriacans did the same to Oboma a year later. People naturally have given more generous tolerance to the Rudd government and hence a longer period of honeymoon.

It is hightime that the Rudd government has to lift its games so not to disappoint the public too much. Clever politics alone will never be enough. After some spectacular failures, real deeds that can withstand the test of history are badly needed. If the Rudd government does not perform in its making of this budget, that will be added onto its failures or inability to govern over the past six months or so, including the two cash handouts in the disguise of fiscal stimulus that is more and more clear that they were wastes with little stimulaiton to the economy but to unnecessarily blowing up the hole of of the bedget and it is increasing very rapidly, the debacle of the national broadband network processes and the humuliating failure in its approach to ETS.

The two cash handouts along has shown how inexperienced the government has been in managing the economy and its budget. On top of that, you have a unblievable escalation of the costs for a national broadband network from less than $10 billion in total and a government contribution of about $4-5 billion, to $43 billion in total and a potential government contribution of the whole lot. Both the cash handouts and this NBN fiasco were made in the face of dramatically declining government revenue, as a result of world wide financial and economic crisis that has not been seen since the great depression. Are Rudd and his ministers economically competent enough to manage the economy and its budget? So far they have shown to be negative. That is why I say they need to list their games veryrapidly and to show in this budget they can learn and will learn very fast. Otherwise they will completely lose the public and will be a one-term government and prime minister.

It is in everyone’s (baring its political foes) interest for the government to succed in managing the economy and its budget. It is too much at stake. The public need to watch the government very closely and must do so much more critically from now on.

Yes, it is true that the 2009 budget is about two competing ideas: stimulus and sustainability. In the context I just outlined above, I found it hard to understand that the government could be given a AAA rating for stimulus. Stimulus does not mean throwing money at everything or anything. It means policy effectiveness. If some stimulus is ineffective in stimulating the economy/demand, it is not stimulus, isn’t it? On that account, the government has failed miserably in its two cash handouts.

More disturbingly and worryingly, the NBN fiasco with several and potentially ten fold increase in the costs to the government appears to suggest that the government will fail in the second aspect, that is, sustainability. However the government still has time to change its strategy to NBN and correct its mistakes. The public can also forgive the cash handouts for they are sunk costs already. If the government does not learn rapid eough, the public may not always be so forgiven. I am really worried that the government does not seem to learn, but I hope I was wrong. The question the public will seek a answer to: will the Rudd government translate its clever politics due to enormous political goodwill by the public to also smart economics, that is, to manage the economy and its budget well?

Victorians show deficit not inevitable: PM and Treasurer!

Comments on “Judicious regime oversees steady state”, by George Megalogenis, The Australian, http://blogs.theaustralian.news.com.au/meganomics/index.php/theaustralian/comments/judicious_regime_oversees_steady_state/

This is really a piece of excellent news, especially when we all have been submerged in the helpless rhetoric that we have been so familiar with, that our PM and federal treasurer have presented to us repeatedly over the past months that deficit will be inevitable, but blamed for international factors and they have nothing to do with it.

The contrasts between the Victoria budget and the budgets of NSW, Queensland and the Federal government (some are coming) are astounding! We should congratulate the Victorian government and applaud its remarkable performance over the past many years from both sides of politics. I think they deserve a Nobel prize for that.

Perhaps where our PM comes from could be an indication of how well he will perform during his prime ministership - Queensland. That would be unfortunate for Australians. But he has so far appeared to be in the race to overtake his State counterpart in budget management.

It is all the results of ideologies and popularism. It would be a real blessing for the Australian people if we always have PMs who manage the taxpayers’ money prudently. John Howard, notwithstanding his strong ideologies, compared much better to his successor in this area, perhaps by a factor of many times.