Saturday, 14 February 2015

The strange case of the smiling car salesman and the trillion dollar deficit. - The AIM Network

The strange case of the smiling car salesman and the trillion dollar deficit. - The AIM Network


The strange case of the smiling car salesman and the trillion dollar deficit.

Not content spewing forth the ubiquitous puerile bovine excretum from the pages of Labor’s debt and deficit disaster and other mandatory slogans,
Treasurer Joe Hockey last week apparently took complete leave of his
senses, going off-script and announcing to the world that Australia
would soon face a trillion dollar deficit. That’s right, $1 trillion. By
2037, based on our current debt trajectory, we will owe one thousand
billion dollars.

Give me strength.

The comment is absurd on so many levels and for so many reasons. The
idea that Australia needs to balance its budget or risk burdening future
generations with insupportable debt is utter nonsense for starters.
Australia is a monetary sovereign. WE PRINT OUR OWN MONEY. As long as we
don’t borrow in a foreign currency or go back to a fixed exchange rate,
Australia cannot run out of
money. The only way we can go broke is if inflation gets out of control,
or demand for goods and services overtakes supply.

I realise this idea may be difficult for some to come to terms with,
so let’s leave this aside for the time being and examine Hockey’s claim
at face value. $1 trillion sounds like an awful lot of money. The
announcement was no doubt intended to shock, but it shouldn’t, really.
Hockey’s argument is fallacious. Never mind the fact that the he has
doubled the deficit in a mere 16 months in office, nor that our ‘current
debt trajectory’ cannot be described in any meaningful way; The fallacy
is not in the figure itself, but in how we are meant to interpret it.
Hockey’s forecast doesn’t allow for inflation, nor is the amount
properly expressed as a percentage of GDP, which by my quick reckoning
would put it at significantly less than it is today.

Statistical analysis is bat-shit boring for most of us, so let’s just
look at some simple data points for illustration. 2037 is 22 years
away, a calculation which Mr. Hockey might find justifiably challenging
using just his fingers, but having achieved modestly in maths at public
school I was able to work this out in my head. Using the magical google
machine I was also able to dig up some relevant credible facts and

In 1993 Australia’s GDP was $312bn USD. In 2014 Australia’s GDP was
$1.52 trillion USD. That is 500% growth over a 22 year period.

In 1993 average weekly earnings were $AUD 592. In 2014 the indicator more than doubled to $AUD 1445.

I don’t expect someone of Hockey’s political stripes to be fully
caught up on modern monetary theory, but that’s not the point. Surely
it’s a reasonable expectation that someone appointed to the high office
of treasurer should not to be so challenged by simple arithmetic? If
you’re going to make projections 20 years into the future, would you not
look back at the last 20 years? Even according to the Liberal book of supply-side economics and associated lies and half truths,
a $1 trillion dollar deficit in 22 years time is unlikely to exceed
today’s 29% of GDP. For the love of god, strong liquor and loose women,
can somebody please hand the man a calculator?

I realise I have glossed over a lot here. There are plenty of numbers
that show how income inequality has increased over the last 22 years,
whether it be the obscene salaries of CEOs, or a hyper-inflated property
market pouring money into the pockets of the already wealthy. This does
not bode well for future growth. The mining boom is over. Primary
production will not carry us into the future. Coal and iron ore are a
dead end. Austerity is the path to poverty. Investing in redundant and
outmoded technologies is counterproductive. Good economic stewardship
requires investment in science, technology and innovation. People are
the most precious of all resources. Ultimately it is demand and not
supply which will create jobs. And a hundred million other gratuitously
poignant platitudes.

I was going to use this post as an opportunity to rant about zombie
economics and argue the case for bigger deficits and smarter spending,
but the more I think about this latest retarded outburst from our
dumb-as-shit treasurer, the more inclined I am to bang my head
repeatedly on the desk in front of me and lose my train of thought.

No doubt under Hockey’s mismanagement Australia could be expected to
go broke in a very short while. But not for the reasons he argues. To go
back to my earlier point, Australia can and will run out of money if
demand for goods and services outstrips supply. That’s why we need to
invest today in infrastructure to deliver goods and services efficiently
into the future. With the bond rate parked near 2% it’s a perfect time
to ‘borrow’ money to fund, say, 10 year projects. Of course I’m thinking
of projects like a full-fibre NBN (and I could argue at length why this
should take precedence over an 8 lane intra-city expressway.) The
greater shame tho is that our governments nowadays don’t seem to stick
around long enough to see these projects through. But I digress.

2014 saw car manufacturing leave our shores forever, leaving a $20bn
hole in the economy and up to 100 000 jobs on the chopping block. Holden
had asked for $500m to continue building cars in Australia, a paltry
sum for a guarantee of direct employment for 400 engineers and 2500
factory workers, plus indirectly providing jobs for tens of thousands in
the supply chain. Before being less than politely shown the door by our
smiling used-car-salesman-in-chief last February, Holden had promised
as a condition of ongoing funding to produce two new models by 2018.
Surely I am not the only one who greeted the release of the Chevrolet
Volt at this year’s Detroit Auto Show with a raised eyebrow? With
electric vehicle charging stations already being rolled out across our
major cities, perhaps Mr Hockey would care to tell us how shutting down
Australian car manufacturing was in our long term best interest, and why
he put a free trade agreement with Korea ahead of 100 000 Australian

Don’t talk to me about intergenerational theft, Mr Hockey. If
Australia finds itself unable to service a debt burden roughly
equivalent to today’s in 20 years time, it won’t be Labor’s fault. It
will be the fault of the short-sighted economic vandals who bled the
country dry and failed to invest in innovation and jobs right now.

For more on the subject of the deficit red herring, see this excellent article from Kay Rollinson:

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