The long-forgotten supply side needs to be recalled

When I was the Chief Economist of the Australian Chamber of Commerce and Industry, this is what you never saw: Business Calls for Stimulus Spark. In normal English, this says, “Business Calls for More Money from Taxpayers”. There may be no better way to subvert an economy than through public spending. Modern macro is an economic death cult. It’s now more than a decade since the stimulus programs that followed the GFC were introduced, and still our economies remain stalled and stagnant. So let me take you to the words of Australia’s greatest Treasurer:

Mr Costello said fiscal and monetary policy had run out of puff and supply-side reforms such as deregulation were now the key to improving efficiency and ­restoring growth, as retailers pushed for a fresh look at lowering the company tax rate.

Despite the IMF again slashing its growth forecast for Australia from 2.1 per cent to 1.7 per cent — well below the government’s 2.25 per cent forecast — Mr Costello said he did not agree with the school of thought that it was “all doom and gloom out there”.

“We need to turn to another arm of policy which has been long forgotten and that’s the supply side,” he told a Citi investor conference in Sydney.

“After 10 years of deficits and 28 years of continuous growth, we could really get a boost by dealing with some of the imbalances that have built up in the economy.”

While the Morrison government has been under pressure to ditch its commitment to a budget surplus and pump-prime the economy by going into deficit, Mr Costello said he did not believe this held much appeal.

Remember the Costello approach? Cuts to public spending, continuous years of surplus and zero public debt. Worked like a charm. Just let me take you back to my days in ACCI. One of the questions I would ask the entrepreneurs who used to wander through our office is whether they had expansion plans sitting in their drawers that they would put into place if they had the extra revenue. And the universal answer was yes. The American economy has possibly never been as robust as it is today, and all of the efforts have been made on the supply side. That’s where the action is. Public spending as an economic stimulus is a dead end.

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