Professor Joseph Stiglitz is over here to tell Australia how to run an economy, when it really ought to be a research tour so he can educate his fellow Americans on best practice.
What Australia has done contradicts much of what Stiglitz recommends, and proves empirical proof that he’s wrong.
This is a situation when MiltonJohn Maynard Keynes would have been sure to advise him to “change his mind”.
And while Australia is close to best practice, there are some other countries that are even better practice, and one of them, is in the vicinity.
Yesterday Fitch Ratings affirmed their AA ratings and revised their outlook to positive.
I don’t put a lot of faith in ratings agencies – which of them picked the GFC toxic debt crisis – but it does focus attention on New Zealand, which didn’t suffer the handicap of the Rudd and Gillard governments.
As a result it didn’t “Go hard, go households”, and still had growth better than the US since 2008. Its growth is not quite as good as Australia’s, but they also didn’t have mining and population booms.
NZ is facing a budget surplus and is repaying debt. It also has a polity in which all sides seem to be responsible about the economy, unlike Australia where Shorten and Palmer are happy to vandalise the place for their own personal gains.
Stiglitz should economise on his plane fare and drop over the ditch. He might take some of our own soothsayers with him as well. Everyone can learn from our cousins.
As an introductory primer her could do worse than read this short news report on the NZ budget from the ABC.
I am reasonably sure that you meant Lord (John Maynard) Keynes.
For someone who has not been prepared to publish articles opposed to your own views and who occasionally ignores strong empirical evidence you certainly seem willing to voice strong opposition to a winner of the Swedish Central Bank Prize.
About the only problem with Stiglitz’s views is that he is not well across Modern Money Theory.
The “Go hard, go hard” recipe worked for Australia. The principal problems of the Rudd-Gillard era was the managerial incompetence and inflated ego of your fellow Queenslander.
Comment by John Turner — July 9, 2014 @ 8:40 am
Stiglitz was most disappointing.
I regularly take in this delightful commentary from Bob Ellis. It says it all. Rudd’s performances and his sad personal frailties, together with the host of negative Labor legacies and outcomes, should have led to a stable and confident Coalition alternative. Why has it gone so wrong ? Here is the Article. There were many good people amongst his victims.
“Kevin Rudd and only Kevin Rudd could have worked out a scheme that left the Labor Party decapitated, headless and flapping about for a month, an Abbott honeymoon month, and then after that have somehow bequeathed it a leader that neither the caucus or the membership did not want. It is yet another hand grenade he has rolled under the bed, before sauntering out the door smugly humming Poor Wand’ring One, with an Iced VoVo in his hand. What a ghastly cunning proud vengeful person he is entirely. He has truncated thus far the careers of Beazley, Crean, Gillard, Mc Kew, Faulkner, Bedus, Kelly, McMullan, Beattie, Bradbury, Melham, Jenkins, Thomson, Slipper, Cheeseman, Adams, Roxon, Emerson, Combet, Smith, Swan and Carr, and hoped to do the same ere long to Shorten and probably, Albo.
I used to like him once, but now I curse the day he was born…It is hard to imagine a more detestable talented man. Is he CIA, I wonder ?
Why else would he give all those Liberals jobs, refuse to investigate the WMD fraud or the Wheat Board bribes of Saddam Hussein, or take up any of the good suggestions of the 2020 Summit. Can there be another reason ? I wonder what it is.”
Comment by Christopher Derrick — July 9, 2014 @ 10:03 am
John, I do not refuse to publish articles because I disagree with them. I refuse to publish articles when they are not up to scratch, even if I _do_ agree with them.
When you write nonsense saying that governments can borrow as much as they like and don’t have to worry about repaying it I am not going to publish it.
I’ve told you plenty of time that if you can find someone with a reputation to write it I will publish them, because when I do they make a fool of themselves, not of the publication.
I don’t really care how many awards a man has won – when he is wrong, he is wrong. Only a scoundrel hides behind his awards as a defence for bad ideas.
Comment by Graham — July 9, 2014 @ 4:04 pm
Graham,
I have never said that a sovereign government “can borrow as much as they like and don’t have to worry about repaying it”
If you had taken the trouble to read some of the articles that I have drawn to your attention you would understand what I have said.
In a nutshell, a sovereign government can spend first and only worry about borrowing or taxing to the extent that it is necessary to do so to remove money that would otherwise cause either of the two types of inflation, consumption goods inflation or asset value inflation. John Howard and his tax and banking policies were responsible for for house price inflation that priced those young Australians with low inheritances out of owning a home. If you do not understand the GFC and its causes I suggest you read A/P William K Black on the subject.
I suggest for starters that you and the neo-liberals among your readers read the article last August by J D Alt at neweconomicperspectives.com. In that Alt shows how from a poor start in the midst of a depression the USA Government built the most productive economy ever known and they did not worry about where the money came from. They did tax and raise loans to defer consumption until the war machine was converted to manufacturing consumer goods and that deferment led to the golden period from 1945 to 1970 when Americans could afford a high standard of living AND Marshall Aid. The USA Government did repay its loans but mainly at a time when that repayment could be absorbed without causing inflation. Business people applied pressure so that the relaxation happened somewhat too early and many workers lost much of the wealth they had accumulated during their wartime efforts.
It is a pity we do not apply, to fighting poverty, the principals that allowed the USA and Australia to fight and win a war.
Your article on inequality ignores some realities. One is that accountants, civil engineers, low grade lawyers and dentists charge out their services at $250 per hour minimum, and often much more, whereas teachers who educate the children of those “professionals” are paid about one third as much.
Overpaid people cannot spend their excess income in ways which promote the well-being of the whole population. There is plenty of evidence now that the best societies are those where inequality is held in check.
Comment by John Turner — July 9, 2014 @ 4:53 pm
name one john.
Comment by keith kennelly — July 9, 2014 @ 11:20 pm
Keith, how about any of the Scandinavian nations for starters?
Comment by Glen Coulton — July 9, 2014 @ 11:36 pm
IMO, I think there are both strengths and weaknesses on both sides.
However, again IMO, some things Stiglitz says appear a bit simplistic.
Comment by Chris Lewis — July 10, 2014 @ 9:26 am
Keith Kennedy,
I suggest you look at the German study on social justice in the 31 OECD countries as summarized in the chart published by the New York Times. The study and the chart are at the addresses shown below.
http://www.nytimes.com/2011/10/29/opinion/blow-americas-exploding-pipe-dream.html?_r=1&nl=todaysheadlines&emc=tha212
http://www.sgi-network.org/pdf/SGI11_Social_Justice_OECD.pdf
That bastion of competitive capitalism, The USA, only rated 27th, ahead of only Greece, Chile, Mexicao and Turkey.
Denmark was also rated #1 in a happiness study.
You could also read Phil Zuckerman’s book, Society without God.
Comment by John Turner — July 10, 2014 @ 9:31 am
John, I used to take the trouble of reading the articles you sent me, but they don’t make much sense, so I’ve stopped.
It is hard to take someone seriously who uses a charge-out rate by a professional as a comparison with a wage earned by someone else. You need to compare wage with wage. Dentists are well-paid, but many solicitors work for the same amount as teachers, despite generally being more intelligent and in higher demand. Same for engineers.
I understand the causes of the GFC, I don’t need to read your authors. Once one understands one doesn’t need to go on researching ad infinitum. There are new things to go on and understand. No point getting stuck in a loop.
And the housing “bubble” is partly a rational response to low interest rates (which is why it happened around the world at the same time), partly a response to a shortage of housing stock, partly caused by extremely high immigration rates, partly caused by Australia’s success in not going into recession.
John Howard didn’t cause it. Neither did his banking policies.
Comment by Graham — July 10, 2014 @ 9:54 am
NZ did a number of things we have yet to try.
They vastly simplified their trade practices act, which is now just forty pages long.
NZ Has just one parliament, and no upper house!
In other words, no road blocks in the path of progress or government mandates.
They privatized absolutely everything that could be privatized, and now pay through the neck for almost everything.
Hence there’s been a huge exodus across the Tasman, as the first consequence, improving the average IQ on both sides, in the process.
NZ is a very small economy, that only needed a very modest increase in its terms of trade to look better, and as a result of vastly enhanced inequality, and lower taxes, they have encouraged well heeled retirees to settle or stay there?
Their FTA with us works better for them than us, particularly, now we are shutting down our car industry; meaning, with their FTA’s with places like Korea, they can import much cheaper cars now than they could ever buy from us; even Holden cars, now made in Korea.
They have some natural gas, which they’ve employed to stimulate the economy/power transport, rather than simply sell it at bargain basement prices overseas!!
They were smart enough to retain their trams and electric trolley buses!
So they burn more locally produced fuel moving people around than we do!
We on the other hand, blessed with a huge range of alternatives, now import 91% of our oil, at a cost to the economy of around 26 billion!
Applying the usual multipliers, that’s a cost to the economy of around 180 billions, or put another way, the cost to our economy of really dumb policies!
NZ is not a place you would want to get sick in, as public medicine is not as good as say, third world Cuba!
If you can afford health cover, you’re probably okay?
Of the things they’ve done that I would like here!
A single parliament would be first cab of the rank and save us around 70 billions PA as the first consequence, without ever affecting services.
I’d want to completely harmonize out trade practices act, and vastly simplify it, to say just 38 pages!
I’d want to keep much more of our natural gas to power up our economy! [An ideological no/no to tea party types!]
Even if that required we restart our own currently mothballed oil and gas corporation!
We are ALLEGEDLY smarter than the Kiwis, except say in some furiously contested sports.
I’d want to also lower taxes.
However, reform our tax act, to allow only one, stand alone expenditure tax, which set at 18%, would in effect, be a real impost of around 11%, given what that reform would hand back.
A reform that would encourage high tech and well heeled self fund retiree migration queues, particularly as current avoiders were finally included in the net, allowing the rate to be lowered/wound back to around 5% variable?
However, my way is a way that increases and promotes more equality rather than less!
Household disposals finally free of the GST, fuel excise, PYAE etc, would improve by around 25%, making a 15% non contributory super, immediately doable! And still allow savings or economy boosting discretionary spending to rise as much as 10%.
All very doable courtesy of current avoiders, which not only includes the 95% of corporate Australia, now headquartered offshore, but many giant multinationals, with budgets bigger than many sovereign nations, and which were informed, 40% of, pay no company tax to anyone!
To reiterate, we are smarter than our Kiwi cousins! Allegedly!
The volume of people wanting to leave NZ and settle here probably speaks volumes about NZ and their so called economic success!
I’m am also mindful of the Great Depression and what caused it.
It really started of as a manageable recession that was turned into the worse economic downturn in memory, by the application of similar contraction (tea party) policies.
Imagine if we all did just that!?
Luckily for us, it’s not giant economies like America or China, emulating, I’m okay Jack, the rest of you can just go and visit the nearest taxidermist, so called success stories, just like NZ or Chile.
Sorry Graham, but yet again I find myself mostly agreeing with a more economically literate John Turner.
Q: How does one know when a tea party advocate is really on the level?
A: He or she dribbles out both sides of his/her mouth.
Alan B. Goulding.
Comment by Alan B. Goulding — July 10, 2014 @ 10:48 am
Dear Graham,
I don’t get where you are coming from. On most measures except a surplus NZ is a very poor cousin to Australia’s economic performance. Just look at productivity. The NZ Productivity Commission freely admits that taking into account all the relevant factors productivity should be 20% above the OECD average instead it is 20% below. In the five years before Labour the annual labour productivity growth was at 1.15%, from 2008 to 2013 it was at 1.45% despite the GFC. Stiglitz has lauded the stimulus spending that saw Australia miss the deprivations that other nations have suffered from the crisis and his recent comments in Australia seem reasonable;
http://www.theguardian.com/business/2014/jul/09/australia-american-path-to-inequality
I think he is right to be warning us about the perils associated with particular policies and surely qualified to do so. What specific issue do you have with his position?
Comment by Steel Redux — July 10, 2014 @ 2:31 pm
Graham,
I was quite aware that I was comparing a charge out rate with a wage but in my view nowhere near two thirds of the charge out rate goes into overheads in the practices mentioned. I also used a low figure for my charge out rate estimate. A tax accountant I no longer use was charging $280. The last time I had dental attention the charge out rate was over $500 per hour.
For ten years valuers in the USA complained that they were being pressured to increase valuations. One of my family, in Australia, gave up working as such because of that pressure. George Souris described just such practices and un-prudential lending as reflexivity.
The then Chairman of the Reserve Bank, Ian McFarlane, started pressing for increased regulation of the Australian Banks as early October 1998 when he stated, “More and more people are asking whether the international financial system, as it has operated for most of the 1990s, is basically unstable. By now I think the majority of observers have come to the conclusion that it is…” “The intellectual underpinning of the free market position …The Efficient Markets Hypothesis – is very weak. In all the exchange rate tests of which I am aware, the hypothesis has been contradicted by facts.” Howard ignored that advice as he confirmed in a radio interview on 18 February, 2000. I have a record of a letter I sent to Howard warning of adverse effects on the young four month before MacFarlane spoke out.
Are you aware that when Lehmann Bros collapsed the Labour Government rescued all Australian Banks from default (on 15/16 September 2008 if I recall correctly).
You seem willing to ignore the best economic analyses currently available. These arise from the groups supported by Warren Mosler and include the Economics Department of the University of Missoui, Kansas City.
Comment by John Turner — July 10, 2014 @ 3:18 pm
Graham, you seem to derive satisfaction from putting John Turner in his place. Are you quite sure that your difficulties in understanding what he says reflect badly only on him? To some of us, he sounds like a man who has thought rather more deeply about how economies work than quite a few of our familiar economic commentators and most of our politicians.
You did not take the opportunity to respond to his statement: “Overpaid people cannot spend their excess income in ways which promote the well-being of the whole population. There is plenty of evidence now that the best societies are those where inequality is held in check.” It would be interesting to know what you make of his view, especially as several overseas economists are now warning that growing economic inequality is a direct consequence of mindless privatisation of services and the unthinking acceptance by conservative governments of the mistaken assumption that balancing a national economy and managing a household budget are the same thing.
Comment by Glen Coulton — July 10, 2014 @ 11:40 pm