If they’re so smart why are they socialists?

I know what he means, but I wish the Treasurer would save the hubris for more certain times. Still, he does have a point:

Treasurer Joe Hockey has ramped up his criticism of “complete fools” doubting the strength of the nation’s economy as he declared Australia was a “long way off” from a housing bubble burst.

Mr Hockey yesterday slammed economic doomsday sayers as “clowns” after soaring resource exports and the housing boom delivered the best GDP growth in a year.

Asked today who the clowns and fools were, Mr Hockey replied: “You can just have a look around, just have a look around.

A market economy just runs itself if you let it. There’s not nothing to do, but there’s a lot less than our textbooks and regulators seem to understand. We are far from out of troubled times, but the trends so far look good.

AND NOW THAT I HAVE READ THE AFR: They are a bit more negative, like a whole lot more. I’m not a fan of GDP for many reasons – see Chapter 9 – but the adjustment process towards lower real incomes is part of what is required.

“Australia’s living standards are falling on a sustained basis for the first time in 50 years – this is not a short-term trend,” says Andrew Charlton . . . an ex-advisor to former prime minister Kevin Rudd.

How he knows what will turn into a long-term trend from a data point or two I will leave to him. But anyone who thought there would be no aftershocks following the stimulus and the NBN and all of the other useless value-negative projects backed by Labor should really keep their opinions to themselves.

Please, Joe, stop looking for consumer demand to lead the recovery

Joe was Great! There was not a moment in the whole of Q&A tonight that I thought he was behind, and this is enemy territory. But most importantly, this was even when the one-eyed Labor Party stooge, Tony Jones, tried to sandbag the Treasurer with a NATSEM study that had not been released EXCEPT TO THE ABC!!! And without showing the level of disgust he no doubt felt at such obvious ALP-ABC gotcha attempts to undermine the Treasurer, he simply turned it aside. He embarrassed the ABC for its obvious duplicity.

But I would have left this alone, except that there is one thing I think the Treasurer needs to tighten up on. He is trying to get there, in fact he is almost there, but his Keynesian minders or whoever it is that surrounds him, don’t quite let him see through to the point he is obviously trying to make. But if he gets there, he will be impregnable.

He was asked something like this, which I almost thought of as a friendly question, from Gai I think it was:

Why is household debt good but public debt bad?

Why are you encouraging people to borrow and spend at low interest rates when they may end up in serious trouble when interest rates go up?

Spending is not what you want. Joe, listen to me. Spending is not what you want to encourage. Growth and employment is not a the result of spending. Growth and employment are the result of VALUE ADDING production. That is, the result of production where the value of what is produced will, within a reasonably short period of time, create an income flow even greater in value than the value of the resources used up. That is the meaning of value adding.

Private households do not create value ever. A household uses up value, but it is not from households that economic growth occurs (except for the occasional plumber that gets called in). Growth comes from business. If you confuse personal spending with business spending you will never get these things clear in your head. There is personal consumption, which is the point of economic activity. And there is business activity which is continually trying to add value to the resources they use up. Please, Joe, stop looking for consumer demand to lead the recovery. It cannot be done.

One more reminder in the video below about the difference between those bad Keynesians, who used to be in government, and who thought about spending, versus you supply-siders, bless your hearts, who have replaced them, who are concentrating on value adding production.

The budget – even better one day later

As I was picking up the paper this morning, my wife said to me, it’s just like reading The Age. You may be sure she did not intend that as an encouraging sign of the times. I fear I have to agree, at least to some extent. But there were areas of redemption. The truest words on the budget commentary were by Mark Latham:

It’s all about dickheads talking about stuff they know nothing about — that’s what it’s about.

Certainly when I read (well, glanced through) the diatribe from Niki Sava, it was discouraging. Seriously, she is moving into the spot vacated by Michelle Grattan. It did take the government, and not just Joe Hockey, a year to work out that the only way to get the deficit down is to grow the private sector around it. And they finally removed the Keynesian head of Treasury and brought in John Fraser which probably has made a world of difference. I don’t know why she focuses on personalities, but with her Malcolm Turnbull fandom, nothing will satisfy her blood lusts, it seems, not even a really together budget that works economically and politically.

More to my taste was the article by the CEO of the Council of Small Business of Australia, Hockey’s ‘small-business budget’ perfect for the sector. Here is someone who know that perfection nowadays almost entirely consists of “didn’t make things worse, and perhaps made them a bit better”. I’ll give you his last two paras and you can read the rest for yourself:

The depth of announcements in the budget shows the government understands it is the little changes that make a difference. The small-business person’s capacity to start up, operate and, if desired, expand their business has been enhanced. The whole business life cycle seems to have been covered.

Overall this has been a great budget for small business and for the economy.

This is not some side-line observer but a representative of the people who are going to make the difference in how the economy goes. There is a terms-of-trade shift putting money into the hands of business. Keynesian theory also pretends that it is doing the same, except that to get the money, businesses must hand over the things they produced to people who are busy digging holes so they can be refilled. The net is not all that large for any firm nor is there any net addition to the economy. What the government has done is inject after-tax cash flow straight into the hands of producers. If you go to my second edition, right there on page 359-361 is the list of what a government should do to revive and economy. Number one reads: “priority should be to lower taxes, especially on business.”

As for the coverage by the ABC, I have only Andrew Bolt’s word for it since I never watch myself, but if his observations are anything like the reality, and I have no reason to doubt it, there are huge savings to be made on the budget bottom line that are begging to be made. If there is anyone at Cabinet level still protecting this hopeless bunch of leftists from a day of reckoning, they should be taken out, have their epaulettes removed, and sent off to be ambassador somewhere properly remote.

Macro follies – Australian edition

From The Oz: Don’t let Santa down, urges Hockey:

DON’T let Santa – or Joe Hockey – down. Get out and spend up big this Christmas.

THE federal treasurer has urged consumers to put the deteriorating federal budget out of mind these holidays.

“Don’t let Santa down, go and spend for Christmas,” the treasurer said on ABC radio.

“Household consumption is actually one of the biggest drivers of economic growth.”

Just weeks before the release of Mr Hockey’s mid-year economic review, Deloitte Access Economics has forecast a worse than expected 2014/15 deficit of $34.7 billion.

Mr Hockey is calling for calm despite the blowout, saying the Australian economy is “back on track” and showing real signs of momentum.
The government remains absolutely committed to returning the budget to surplus, he said.

“It’s not a time for panic, it is a time for a rational approach to the challenges that are before us,” he said.

My thanks to Alex for drawing the article to my attention.

What comes from listening to your enemies and not your friends

Given the star studded cast here at Catallaxy, I am almost embarrassed to mention that I found my way into The Australian this morning, but there you are. It’s a story by Christian Kerr on the various kites that were flown in advance of the budget [mixed metaphor alert] to test the waters. Here is the relevant passage from the complete story:

An obsession with kite-flying and budget cosmetics has left the government reeling in the wake of the worst received economic statement in two decades, experts say. . . .

RMIT University economist Steve Kates said that hit was harder than it could have been because of “strangely muted” messaging from the government in its first months in power.

“What they needed to do was sit down and talk about the structure of the budget and the looming deficits right away,” Dr Kates said.

He said voters would have understood the need for cuts if they knew about “landmines” left behind by the Gillard government.

“They didn’t make the case about the state of the economy,” he said. “They left themselves ­extremely vulnerable.”

He said the release of the audit commission report was left too late, meaning its recommen­dations were lost among budget speculation.

The thing about the budget is that not one person came out and said, “that’s nailed it; just what we needed”. It has been disappointment all round, a gift to Labor. It is a major question where to lay blame for this screw up of a budget. It didn’t go anywhere near addressing the problems that needed to be addressed, it’s a mish mash of policies that are defensible but only barely, and the political side has been atrocious. Reading Martin Parkinson’s comments both yesterday on the budget and today on superannuation reminds me the extent to which Joe Hockey was led around by Treasury. This was Martin Parkinson yesterday:

The Australian public needs to know that the nation faces a challenge and a tough budget was necessary, Treasury Secretary Martin Parkinson says.

Dr Parkinson said while it was not his role to comment on specific government policies, Australians “deserve” to know there is a challenge ahead.

“It’s within my responsibility as Treasury secretary to say to the community we do have to actually take this seriously to start to address the issue,” Dr Parkinson told a business lunch in Sydney on Tuesday.

“It is (a challenge) that if we start today to take sensible decisions, particularly those that are essentially structural policy changes that take place over time, we’ll be in a much better situation.

“Otherwise we’re banking the house on 33 years of uninterrupted economic growth and there’s no precedent for that.

“We’re banking on another 10 years of fiscal drag and … that has quite significant regressive impacts.”

Parkinson should have gone on Day One. Instead, a Labor man to his back teeth, he has led this government down a primrose path and into a wilderness of policies only a Keynesian could think would make a significant difference and even then, ones no Labor government would touch. Where were Hockey’s political instincts, never mind his economic judgment, when all this advice was being put to him? Doesn’t Joe read Catallaxy, and if not, why not?

Going through the books program by program

Let’s suppose we had what we need: some form of balanced budget amendment. What would the Government then do? Labor left the hole in the revenue stream relative to the expenditures it chose. So this government is going to fix it if it can and subject to the detail, I’m all for it. From The Australian, Joe Hockey to swing axe on public sector:

MORE than 200 spending programs will be slashed in next week’s federal budget as Joe Hockey vows to shrink the size of government in a “big, structural change” to save billions of dollars.

Agencies will be closed and thousands of staff retrenched over the coming months in a drastic overhaul that will start with the loss of 3000 positions in the Treasurer’s own portfolio.

The axe will fall in major portfolios including environment, transport, industry, agriculture and indigenous affairs.

Mr Hockey told The Australian that spending cuts would do the “heavy lifting” in fixing the deficit, despite growing criticism of looming tax hikes including a lift in fuel excise.

“Revenue is not doing the heavy lifting in this budget,” Mr Hockey said.

The question will end up being whether there is a constituency for a government that lives within its means. Watching Anna “I’m a Socialist” Burke the other night on Q&A was too much of a reminder of the kinds of idiocy we are up against. Labor has not learned a thing from the problems it created. If anything, it is more proud of itself than ever for its waste and misdirection. What we are going to find out over the next few months, it seems, is whether there is or is not a constituency for a genuinely smaller, more efficient government. And since it is impossible to rid ourselves of the NBN and everyone is signed up for the NDIS, the rest is now a process of going through the books program by program. I only wish they did the politics better.

Fear of spiders

The Government seems to be filled with a desire for a few changes around here. This is first and foremost from the office of the Attorney-General, George Brandis:

THE repeal of the ‘Andrew Bolt’ provisions of the Racial Discrimination Act that make it unlawful to offend and insult people because of their race will be the subject of the first legislation Attorney-General George Brandis will introduce to parliament.

The repeal, which will honour an election promise, will change the definition of racial vilification to eliminate at least two of the grounds that were used against the conservative columnist over articles about light-skinned Aboriginal people.

And then there’s this, again from the Attorney-General:

LITIGATION funders and plaintiff law firms are facing the prospect of regulatory change after Attorney-General George Brandis strongly criticised the involvement of law firms in the companies that finance class actions.

He said the litigation funding industry was under ‘active consideration right now’.

He believed the involvement of law firms with these companies gave rise to unavoidable moral hazards and conflicts of interest.

‘I am by no means satisfied about the way this is dealt with at the moment by rules of court or by self-adopted protocols by those practitioners,’ he said.

‘In the near future it is my intention to give some indications about the way I think those conflicts of interest and moral hazards should be addressed.’

And finally there’s this:

TONY Abbott will take an axe to 20 government committees and councils today in the first stage of a campaign to cut costs and slash redundant agencies.

The move comes as the government warns of a mounting bill to top up funds at major commonwealth authorities, as regulators plunge into the red in a struggle to meet growing demands.

The Prime Minister’s changes, to be unveiled today, risk a backlash from groups ranging from sporting shooters to adoptive parents as he scraps advisory councils and hands their functions back to government departments.

And let me say about these advisory councils, that my experience on them was that we were hardly ever responsible for the slightest change in anything although I would put in a good word for the Australian Statistics Advisory Council (ASAC).

But I liked this in particular from Joe Hockey:

Every cupboard I am opening has spiders in it — as illustrated by the fact that, in a meeting with the ACCC, they tell me that they are running out of money in April this year and that they are underfunded for the next four years by over $100m.

If you have this kind of arachnophobia you should avoid becoming Treasurer in a Coalition government immediately following a Labor Government, but I am sure that Joe will be on top of it.