Rudd returns to defend his economics because no one else will

There was a letter to the editor in The Oz yesterday which they have not even preserved on their editorial page so I have had to re-type it so that you can see it in full. The heading is “Conservative no radical”.

Janet Albrechtsen accuses me of executing a “canny con job” by campaigning as an economic conservative.

As Peter Costello has said, John Howard had become a serious big spender by 2007. Our election commitments tallied about 75 per cent of the Liberals’; hence my statement I would not match his reckless spending promises. Indeed, in May 2008, we budgeted for a surplus of 1.8 percent of GDP. Then came the global recession in September. We took the mainstream conservative approach, learning from the Great Depression by reaching for the proven lever of fiscal stimulus and leaving a legacy of productive infrastructure.

The economic radicals of the Liberal Party voted against the stimulus. If they had succeeded, there would have been a 15-month recession with 210,000 more unemployed according to Treasury and the OECD. Instead, we were the only advanced economy to avoid a recession. Conservative does not mean reactionary.
Kevin Rudd, Sunshine Coast, Qld

The point of a “stimulus” is to reduce unemployment, which other than trivially never occurred. And if he thinks there was no recession in Australia following the GFC, he ought to take a look at the rise in the unemployment rate which has remained more or less at the same elevated rate it reached at the height of the GFC. Meanwhile productivity growth has been dismal, and real wages have continued to stagnate.

So to remind us of just how conservative K. Rudd was, I attach for your interest two articles I published in Quadrant. First, Reflections of a Neo-Liberal, which discusses an article by Rudd published at the time giving his economic philosophy. In my response to Rudd, there was this.

To capture as least some of the rhetorical overdrive, I reproduce the two insert quotes displayed in large print across the page. The first:

The great neo-liberal experiment of the past 30 years has failed … the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy.[ellipses in the original]

And then there’s this:

The stakes are high: there are the social costs of long-term unemployment; poverty once again expanding its grim reach across the developing world; and the impact on long-term power structures within the existing international political and strategic order. Success is not optional. Too much now rides on our ability to prevail.

We are here not discussing whether some policy or another might make the economic system work more effectively. This is not about whether there ought to be a stimulus package and if so, how it ought to be structured. This is beyond the technical side of economics and into the realm of good and evil. It is a psycho-drama in which Frodo and his mates take on Gollum in a bid to save the world.

That was in April, 2009. In July I wrote another, also in Quadrant, The Neo-Socialism of the Twenty-First Century. Here are the final two paras:

We in the West once understood how to develop strong economies. Kevin Rudd’s article reminded me that such knowledge is not possessed by all. The coin of the political realm is now the creation of jobs irrespective of what those jobs actually do. The Soviet Union had no unemployment for almost all of its seventy-odd-year history, but those who had “jobs” produced next to nothing because they did not have the market to guide them, either in what to produce or over which inputs to use.

Why these questions are important was one of the major ideas developed by Friedrich Hayek, the arch “market fundamentalist” [Rudd’s phrase] to whose good advice and sound counsel our Prime Minister has closed his mind. On the surface Rudd appears to be guided by some defunct academic scribbler, but in reality looks to be making it up as he goes along.

And let me just refer to this comment by Rudd in his letter, that in trying to roll back the Great Recession, they were “reaching for the proven lever of fiscal stimulus and leaving a legacy of productive infrastructure”.

Since all that has been proven by the stimulus spending across the world following the GFC was that public spending never brings an economy out of recession, it is astonishing that no one ever seems to learn from experience. Neither here, nor in Obama’s America, nor anywhere else did public spending lead to a recovery. If anything has been proven it is that Keynesian economics is economic nonsense. This was the great Keynesian experiment, adopted across the world, and it was an absolute failure whose dismal legacy remains with us to this day.

And then to have suggested that left behind from the stimulus was “a legacy of productive infrastructure” you really do have to wonder what kind of fantasyland Rudd is living in. The Pink Batts and School Halls programs left nothing productive behind. Only left behind were the debts and deficits which remain with us still, more than a decade later.

Do NOT raise taxes and do NOT lower rates

If the Government’s suicidal tendencies continue, there will be no saving them from their own idiocies. It’s not even that raising taxes is politically popular. It is absolute voter poison. Raising taxes is guaranteed to lose you the next election.

But what makes it worse, is that raising taxes is also economic poison. The Treasurer has his eyes firmly fixed on 2055, forty years from now. I wish he would occasionally also glance at 2016 and 2017, which also happens to be when they will be trying to get re-elected.

It is bad economic management to raise taxes in a recession. Let me say this again with emphasis: It is bad economic management to raise taxes in a recession.

You have to stop looking at things from the perspective of those dunces in Treasury. All they can think of is how are they going to find the money for all of those programs you and Labor have committed us to?

If you really do think that recovery is in any way promoted by government spending, other than in a very very narrow and select range of areas, then you have not even got to first base in understanding how an economy works. Stop listening to these people and start thinking about who you really want to put purchasing power in the hands of.

It is business and the private sector that will give you growth and lower unemployment. It cannot come from any other source. And if you think that business will be encouraged by hearing that the budget deficit is fractionally lower, then you are so far off the beam that I don’t know where you think you are. Business is encouraged by making money. The economy grows through productive investment. Jobs and real increases in income are based on faster rates of private sector growth. If you think private sector growth driven by some form of government-financed activity is the same, then your whole basis of thinking about these issues is a FAIL.

And then there are the supposedly popular cuts to interest rates. Here’s a small test. Suppose interest rates went up by a quarter of a percent (which is what they should do, but won’t). You tell me: what would happen to the housing market? It would stall and possibly crash. Housing is already unaffordable. Why would you want to continue to finance a bubble that has now trapped every government so deeply, that it seems almost impossible to imagine rates going up any time soon. Although given past history, they will, in the month before the next election.