Peter Costello was Australia’s greatest Treasurer bar none. Today in The Oz there is a front page story that reminds me just how much this is so: RBA cuts won’t help the economy, says Peter Costello, with the subtitle, “Former Treasurer urges Coalition to Resist Infrastructure Splurge”. And it’s not just rate cuts that are useless.

Future Fund chairman Peter ­Costello has brushed off suggestions that further cuts in official interest rates will help the economy, while urging the government to resist calls to ratchet up infrastructure spending, saying it should tackle the “hard” issues of structural reform.

He ran the economy for eleven years, and among the best forecasts I ever made was to say that we will all live through it, see how well a policy of balanced budgets and zero debt actually works, and not learn a thing. Come the GFC, and that fiscal incompetent Kevin Rudd grabbed the stimulus tray with both hands and now, more than a decade later, we cannot get our economy untracked. And it’s not just balancing the budget that matters.

So let me bring you back to the economics of the classics and tell you what needs to be done: (1) leave growth to the private sector and (2) keep interest rates high enough to stop our resources being ploughed into unproductive projects (eg the NBN, desal plants, streetcars down George St, billion dollar train stations at places no one goes to).

The problem remains that Keynesian macro and every introductory text – except mine – pushes stimulus spending and low rates of interest, the perfect recipe for staying in the doldrums for a very long time.

And by structural reform, the proper meaning, which I assume is the same as Peter’s, is to let the economy adjust so that we are producing value-adding goods and services that will actually make a profit in the market. And if we do that, strangely enough, it will also add to the economy’s capacity to provide higher levels of public spending, even though it is a smaller proportion of total output.