Misreading the obvious the norm for Australia’s economic advisors
The Australian Prime Minister’s Chief Economic Advisor gave a speech yesterday. It was, in effect, a warning about the economic dangers of President Trump’s policy proposals. It is discussed here, but let me especially bring to the surface one of the comments from the post: Martin Parkinson misses the point (again).
#2211865, posted on November 18, 2016 at 12:34 pm (Edit)
I was at this speech and reported on it in an earlier thread.
The Parkinson speech was, in my view, an ill timed full throated plea for Trump to reverse policy. It was clearly the Government’s position and I suspect Parkinson fully supports it.
The question and answer session is not captured in the link. The first asked why Parkinson thinks this populism thing is happening Brexit – Trump etc?
Parkinson called the response ‘inchoate’ and he didn’t understand why it was happening, but he certainly recognised it was going on. But really it isnt that hard to understand if you look at what Parkinson said in his speech.
During the speech Parkinson noted the following as a key benefit to Americans of US trade and economic diplomacy:
“To give some context, US residents’ ownership of private foreign assets has risen from 6.5 percent of US annual GDP in 1950 to more than 140 percent of annual US GDP, or $25 trillion today. In other words, openness to trade and to investment abroad has directly contributed to a massive increase in the wealth of individual Americans.”
US economic and trade diplomacy created a truckload of wealth.
In the answer to why the revolution question, Parkinson noted that 60% of US workers real wages are equivalent to what they were 30 years ago.
Now I’m not Einstein, but even I can see the obvious connection between those two data points and popular anger.
The last question totally dumbfounded Parkinson, it was from a CEO who asked what impact Parkinson thought the Trump tax plan would have by going from the highest corporate tax rate in the G20 to the lowest.
Parkinson was stuck in a very long pregnant pause whilst trying to work out how to respond. Clearly the answer is obvious, but how does it fit with the narrative that Trump will wreck the world economy? In the end Parkinson conceded it is likely to create strong jobs and wealth growth and that Treasury modelling suggests that half the benefit of those corporate tax cuts will go to the workers.
At the end of the lunch I thought how ridiculous is Parkinson? He tells us on one hand that he doesn’t know why people are voting Trump and Brexit noting that lots of wealth has been created. Later he acknowledges that wage earner has seen none of this wealth, in fact they are going backwards fast, and then finally that Trump’s tax plans will create more jobs and better pay.
Now I don’t have a PhD in economics from Princeton but even I can connect those three dots.
Parkinson’s speech unintentioanlly proved that the massive wealth accumulation from US trade policy has gone to very few people, that most workers have seen none of it and that Trump’s tax plan will help spread that benefit to a lot more workers. It really suggests, unlike Parkinson, that the average Trump voter understood what is going on, what Trump was offering and voted for their best economic interest. That is the average Trump voter voted the smartest way they could given the choice.
If I were Turnbull I would be very circumspect about taking too much advice from Parkinson who assembled and looked at all the evidence only to miss the most obvious conclusion.
A little later down the comments he added the following:
Parkinson’s further remarks to the tax cuts question defy belief and indicate a complete lack of self awareness.
Parkinson advised, in his most serious tone, that the deficits that result from tax cuts are ok if the money is invested in long term productivity improving infrastructure, but bad if they are spent on recurrent expenditure.
There are three things wrong with Parkinson’s statement:
1. what a damning statement about Australia’s idiotic and wasteful fiscal policy over the last decade or so. No contemporary Australian is in a position to tell any other government anything about wasting deficits on recurrent expenditure.
2. Parkinson doesn’t get that company tax cuts are going to companies and not the government. You don’t get to direct private consumption (yet).
3. The company owners will decide what to spend the additional profit on. I bet they get better and more relevant productivity improving development through private sector investment than any massive infrastructure waste government would deliver, say like the NBN.
This whole speech, in hindsight, was just embarrasing and appropriate indicator of the Govenrment’s complete inability to come to grips with Trump’s private sector driven economic growth approach.
And then he immediately added this in the very next comment:
Everyone, including Parkinson, assured us those jobs aint coming back.
Why what was that I read yesterday? Ford is moving a truck plant from Mexico to Ohio and Apple is looking at producing iphones in America.
Trump is on a roll and he isn’t even in office yet.
Is it too early to call: BEST PRESIDENT EVA!
And then finally he added this.
I felt like standing up and telling Martin that in the private sector wages have been flat compared to the public sector where wages are on average higher and they keep growing regardless of performance and that is before you add the outrageous level of superannuation and the obscene recent pay increases the politicians and top ‘public servants’ gave themseleves as if they have been doing a good job running the country.
The only thing saving Parkinson from a Trumpageddon event is the fact that the US Trumpageddon event is about to create a massive private sector led economic recovery in the USA and some of that will flow to Australia.
These morons will never learn that you can’t tax your way to growth which means you can’t government spend your way to growth either.
If he says anything else, I will add those in later.