MEDIA RELEASE: No Matter Tuesday’s Result, Joe Hockey Has Got To Go

No Matter Tuesday’s Result, Joe Hockey Has Got To Go

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The Australian Taxpayers’ Alliance, a non-partisan activist body dedicated to protecting taxpayers’ rights, has called on Joe Hockey to be sacked as Treasurer irrespective of the results of Tuesday’s leadership spill.

“No matter the result of Tuesday’s leadership spill, one thing is certain: Joe Hockey’s legacy is one of consistent, abject failure, and his position as Treasurer is untenable” said Tim Andrews, Executive Director of the Australian Taxpayers’ Alliance.

“Mr Hockey’s repeated and consistent failures are at the core of the Abbott Government’s problems. He has failed to communicate the need for budget reform to the Australian people, and his inability to sell the Government’s reform agenda is inexcusable and embarrassing.

“Despite his “tough” rhetoric significantly damaging the Government’s popularity, Mr Hockey has failed to take any concrete action to reign in Commonwealth overspending.  The 2014-15MYEFO shows overspending set to skyrocket with more and more new cash-splash schemes announced, while the cuts that Mr Hockey did make were poorly thought out and disproportionate. This is the worst of all worlds – all the political pain, for none of the economic gain; public support for reform is strained and yet there is no benefit for the taxpayer.

“As well as failing to reform expenditures, Mr Hockey has failed in his core promise to relieve the tax burden, with the 2014-15 budget increasing the tax burden by a staggering $100 billion, slugging every Aussie family with multiple tax hikes. Yesterday’s shambolic announcement of a progressive company tax stifling Australian businesses with more red tape, when Australia’s company tax is already one of the highest in the world,  was just the latest in a long string of bizarre announcements that make no economic or political sense.

“There can be no doubt about it: For the sake of the country, Joe Hockey has got to go” concluded Mr Andrews.

“Treasurer Joe Hockey has failed to stamp his authority on economic management” added Professor Sinclair Davidson, Professor of Institutional Economics at RMIT University and Academic Fellow of the Australian Taxpayers’ Alliance. “A government that lacks fiscal discipline cannot govern Australia. If Tony Abbott does survive the Tuesday ballot, he needs to get serious about the economy.  That means a new team in Treasury.”

Media Contact: Tim Andrews, Executive Director, Australian Taxpayers’ Alliance.  Email: tandrews@taxpayers.org.au

Joe Hockey, Political Lies & Bank Regulation

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Economists Dr. Joe Clark and John Humphreys analyse Joe Hockey's economically illiterate calls for the RBA to 'act as referee' on bank interest rates, and conclude that they really, really hope he's lying and doesn't mean what he says:

We hope that Joe Hockey is a liar. We can understand why a politician would want to bash banks, and we can understand why a politician would want to promise more regulation to control the “naughty market”. Both of these are populist positions which hit the political funny bone, and score cheap points.

It is no surprise that Wayne Swan regularly complains about evil bank profits, and we’re sure the Greens (and other assorted reds) would eagerly agree to more regulation. But while we can understand the political desire for populism, when it actually comes to managing the rules for our economy, we can only hope that Hockey is not serious about his stated desire to have the RBA act as referee on interest rates.
We already know that Joe Hockey wanted to introduce a psuedo-national bank, and he wanted more regulation to ensure that banks gave more risky loans, and also gave fewer risky loans

Now the issue is whether banks should be able to set their own prices for loans. To be fair, Hockey has only suggested that the Reserve Bank of Australia (RBA) should nudge banks, but given his track record on not understanding finance it’s a dangerous start. It hints very much towards government regulation of interest rates, which is price fixing of some of the most important prices in the economy.

If you’re like many other non-economists (ie normal people) then you might think that the government already does set interest rates. If you’re half an inch more informed, you might think that the independent RBA sets interest rates. That’s not quite right.

The RBA effectively does set one specific interest rate — the “overnight rate” for collateralised loans to major banks. There is a big argument about whether they should even be doing that, but that’s a topic for another day. The overnight rate is an important price, but — and this is the most important thing to learn from this article — that is just one interest rate among thousands. All of the other interest rates are set by banks (and other money lenders) in a competitive market, following the laws of supply and demand.

 
As it should be.

 The law of supply and demand can be frustrating sometimes. So can the law of gravity. But in both instances, you cannot legislate your frustrations away. When the government tries to “fix” the naughty market, there are three possible outcomes. Either the government sets the price too low and we end up with shortages (so banks will only lend to the privileged few) or the government sets the price too high and we have excess supply (ordinary people can’t afford to borrow), or the government sees a divine vision from the Virgin Mary, sings kumbaya with Mary Popins, and magically picks the perfect price, even though they have all the wrong information and incentives. What do you think is more likely?

We have learnt from 100 years of trial and error (mostly error) that the government is not good at setting prices. At least, that is what we should have learnt.

Some lefties and Bob Katter still want to set prices for things like milk and vegetables, and that is silly enough. But the idea of the government (or RBA) setting interest rates is another level of crazy. The reason, as we said above, is that there are thousands of different interest rates — depending on the reason for the loan, the collateral available, the length of the loan, the size of the loan, the liquidity of the consequent financial asset, the funding profile of the lender, degree of risk aversion and time value of money, the credit rating of the applicant, and many other variables.

You could try to find a benchmark or average interest rate, but that doesn’t really help our busy-body regulators. Getting the average right means nothing… just as standing with one arm in the fire and one arm in the freezer might give you a good average temperature, but it’s not a good idea.

Specifically, some financial institutions aim at a particular market, that might be more or less risky. That means they will have a totally different strategy, with different interest rates. Will the government be micro-managing their business strategies too, or just guessing at them?

And just to make it all worse, the public choice consequences of interest rate price fixing are also quite dangerous. Instead of being driven by competition, bank strategy and prices will increasingly become political footballs. That will mean some banks will reap windfall profits by playing good politics, while other banks will be sent to the wall due to bad politics. And the lack of price competition will mean less innovation and more lobbying and rent-seeking. That’s not how we want any business sector to work, least of all the all-important financial sector.

This is not good. As we said at the beginning, we can understand why populist politicians promise to run and ruin the economy. But what we really care about is whether they mean it. The two options are that they are liars who spruik populist c**p and then become responsible when in power… or that the politicians have actually drunk their own cool aid, and plan on destroying our economy. We hope they are liars.

Joseph Clark and John Humphreys are Brisbane based economists. All of the nasty parts of this article were written by Joe, and all the witty and wise parts were written by John. Except for this paragraph.

Hockey for Liberal Leadership

Rose Torossian Rose Torossian discusses why it’s time for a leadership change.

Today, 30 May 2011, in an article by Phillip Coorey “Stop sniping, Hockey warns, as Coalition faces poll hit” words of wisdom were echoed profoundly by a man who is destined to become Australia’s Prime Minister: Joe Hockey. The only question that is left to be asked is “when?”

Hockey recognises the need for real leadership and he does so by being humble. A characteristic which has not been seen since John Howard left politics. Hockey said in the article:

“[ I ] Would say to people they should put their ambitions for the nation ahead of their own ambitions. This is not about individuals; it is about giving Australia real leadership.”

These words were music to my ears and I am certain to the ears of many Australians. For those of us (especially some politicians who are ignorant and/or arrogant) to put a nations ambition before their own is quite unheard of and utterly, it would seem, ridiculous in the arena of politics.

However, simply put to the reader, it isn’t ridiculous to Joe Hockey as he has, time and time again, always put the nations’ needs/ambitions before his own but now is the time for him to step up for the sake of the Australian people.

I think I speak for all Australians (not heavily involved in politics but concerned about their everyday living and welfare) when I say it is time for Tony Abbott to go and for Malcolm Turnbull to retire from politics or put his political leadership ambitions aside because we’re never going to have him or want him as our Prime Minister.

I cannot, for the life of me, endure one more moment of a very tired and boring Tony Abbott whose last breath has obviously left his political body. As for Malcolm Turnbull, his returned too soon. In fact, he should have never returned at all.

What it comes down to is this: Joe Hockey it’s time for a leadership change.

Rose Torossian is a freelance writer and a member of the NSW Liberal Party. She ran as the Federal Candidate for Fowler during the 2007 Federal election. She also has a Bachelor of Media degree and a Master of Arts in International Communication. She lives by the following quote: “Life isn’t meant to be easy, my child; but take courage – it can be delightful.”

The Liberal Party’s Scandinavian disease

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Robert Candelori writes on his blog about How Tony Abbott is on the wrong side of the welfare waste agreement:

When Tony Abbott usurped the Liberal leadership by a single vote in December 2009, I was a vocal supporter. Whilst I knew that he was not a classical liberal in any sense of the word (a cursory review of his book Battlelines is clear on this point), I knew that the Liberal Party would have a fighting chance at seizing back the government benches. Sure enough, he got close.

The appeal of Tony Abbott is that he is as relentless as former Prime Minister, John Howard. He does not pander to imbecilic appeals of bipartisanship, he stands for something, he is dogged in his attacks on the government (no doubt assisted by his passion for sports and personal fitness) and he can craft simple messages that cut through the inept spin machine of the Labor Party. In fact, so effective has the “stop the boats, stop the taxes and end the waste” mantra been, it has resulted in the dumping of a first-term Prime Minster, Kevin Rudd, and severely discredited his replacement, Julia Gillard, who nowadays seems to waft about without any air of authority or purpose. Let us not forget that Ms Gillard is Australia’s first female Prime Minister, and yet, not since Malcolm Fraser in 1975 has an opposition leader been so powerful.

And while, as a member of the Liberal Party, there is clearly much to like about Abbott in his quest to unseat Labor, the unfortunate side effect of an Abbott leadership is the ever-increasing number of policies calling for expansion of family payments. This is popularly termed ‘middle class welfare’ by media types, but I refrain from that description because everyone has a different definition of what constitutes a ‘middle class’ existence.

Like John Howard, Abbott is unashamed about this. Chris Berg concluded as much on Tuesday on The Drum Unleashed:

The Liberal Prime Minister had a distinct pro-family, pro-procreation philosophy which, in his view, supported the expansion of family payments. For Howard, income testing those payments would be contrary to the purpose of the policy, and at odds with the philosophy. You might not agree with that philosophy of government – free marketeers shouldn’t, and didn’t – but it was a coherent one, and one which he often articulated.

One of his first major policy announcements prior to the election was the Paid Parental Leave Scheme, which involved the imposition of a levy on businesses with taxable incomes over $5 million in order to fund six months leave for parents at full pay. The argument, so it went, was that couples would be more willing to have children if they weren’t losing their full pay. They wouldn’t be paid a minimum wage, as with the Government’s scheme, but their actual wage, making child bearing risk-free. And, it would be available to those earning up to $150,000 per annum.

I opposed this policy from the beginning. While it eventually became a revenue-neutral measure as the Coalition announced a corresponding cut in company tax, it is completely against the principles of small government. The Howard ‘baby bonus’ scheme, I thought, was already generous enough, but to give mothers up to $75,000 for six months in order to encourage procreation is quite outrageous.  It is difficult to prosecute the ‘great big new taxes’ line when the Liberal Party itself is proposing a new $2.7 billion tax, but worse still, it ignores the fact that many large companies are now offering parents, mothers in particular, their own generous parental leave arrangements.

This sort of Scandinavian largesse should not be Liberal policy. Yet, the issue flared up again in the 2011 budget recently handed down by Wayne Swan, where the indexation for many family payments for those earning $150,000 is to be ceased. So an infantile debate has raged over the last fortnight as to whether an income of $150,000 per annum is tantamount to being ‘rich’ and lo and behold, Tony Abbott is out doing doorstop press conferences proclaiming that a couple consisting of a nurse and a police officer wasn’t rich and that Labor should stop attacking families.

Once again, the Liberal Party was caught being on the wrong side of the waste argument. It beggars belief that Tony Abbott and Joe Hockey have been prosecuting how wasteful the government has been for months on end – from pink batts to school halls – yet, when the Government announces very menial cuts to the welfare budget, they both proceed to vigorously defend the entitlement mentality. This is the same Tony Abbott that has oft-repeated Noel Pearson’s statements on the floor of parliament detailing how welfare has eroded Aboriginal communities.

Wayne Swan, one of Australia’s worst treasurers, delivered a very weak budget after all the bull, bluster and media leaks about it being ‘tough’. Instead of trimming several billion away from the ballooning welfare budget (which is approximately $115 billion), he announced $350 set top boxes to pensioners, more family payments and a deficit of $22 billion. There was much low-hanging fruit for the Liberal Party to target, but Abbott and Hockey chose to defend welfare recipients on incomes in excess of $100,000.

Instead, Joe Hockey as shadow treasurer, should have been announcing a plan to cut payments very substantially to ‘middle income’ earners in return for a correspondingly substantial tax cut. That would have been well within the ambit of Liberal principles while at the same time being a very pronounced stance against so-called ‘middle class welfare’. Letting people keep their income is the best form of welfare.

The problem with Hockey, though, is that he is increasingly demonstrating that he doesn’t cut it as shadow treasurer. As detailed on the Jack the Insider blog on The Australian website, Hockey is prone to several ‘unforced errors’. Similar to the inherent inconsistencies with the proposed Parental Leave Levy, Hockey was out telling the media that Australian families would “rile” at the size of the foreign aid budget, neglecting to mention that the Coalition has agreed to increase foreign aid in bipartisan agreement with Labor. In the wake of the Queensland floods, he argued that the reconstruction effort would stimulate the economy when any credible economist would be aware of the ‘broken window fallacy’. Even yesterday, in his National Press Club response to the budget, when Samantha Maiden asked him about whether he supported tax cuts instead of welfare churn, Hockey chose to adopt ‘greasing the wheels’ rhetoric instead, casting the Australian economy in a permanent state of transition in order to justify inordinate levels of welfare payments.

While John Howard was no doubt a big spender, he had a deputy and treasurer who was able to manage the finances effectively (producing ten surplus budgets) and prosecute an argument coherently and effectively. Unfortunately, Joe Hockey is no Peter Costello. Jack the Insider posits Malcolm Turnbull as a potential replacement but laments the political situation which prevents this from being so. I agree, somewhat, with his conclusion. For one, he would be less inclined to waltz to Abbott’s tune on family payments. Equally so, Turnbull would certainly harbour ambitions to return to the leadership and Liberals will remember that his first stint ended in calamity. But, it’s hard not to view his position as shadow communications minister as a waste of talent given that he has no opportunity to spar with the actual minister, even if his arguments against the profligate NBN are economically sound. Together, Abbott and Turnbull would indeed be formidable.

The question, however, is whether Abbott is prepared to risk the unrelenting focus on the government’s mishaps through a reshuffle to promote Turnbull, which will inevitably lead to commentary about internal rumblings of the Liberal Party. It seems unlikely, as successive polls are demonstrating significant leads for the Coalition, particularly on economic management. But, that lead on the economy is coming off the low base of Wayne Swan and Finance Minister Penny Wong, who are as inept as they are indistinct.

Robert Candelori is a law student at the University of New South Wales with a passion for technology, politics & food. This article is from his personal blog which can be found here: http://rcandelori.wordpress.com/

Another Day, Another Hockey Gaffe

If we were to report on every gaffe, or extreme left wing policy idea, coming from Shadow Treasurer Joe Hockey, it would drown out all the other commentary on this site. But we can not sit idely by and not mention this doozy: 

JOE Hockey's assault on family trusts lasted less than 24 hours, after the opposition Treasury spokesman walked away yesterday from Wednesday's declaration that trusts should be taxed at the same rate as companies.

"The Coalition has no plan to alter the tax treatment of trusts," Mr Hockey said yesterday, after a blast from Nationals leader Warren Truss.

In a speech on Wednesday, Mr Hockey said the tax system should be simplified in the interests of reform. "Standardisation would . . . involve taxing trusts in their own right and at the same rate as companies," he said. "That is likely to be contentious but is worthy of serious consideration."

There are more than 600,000 trusts in Australia, which are mainly used by small businesses and farmers to legally minimise their tax burden by distributing income to family members with lower marginal tax rates.

Should We Have Taxpayer Funded Funeral Expenses?

By now, you would all be aware of the most recent contraversy within the ranks of the Parliamentary wing of the Liberal Party. Following the recent tragedy of SIEV 221, debate has erupted as to whether or not the Australian taxpayer should foot the bill for the relatives of the victims of this tragic occurance to attend their funerals.

We all feel empathy for those affected, and recognise the pain that family members must be feeling. Nevertheless, the question does remain: ought the taxpayer pay for family members of the victims to travel to the funeral. And, if so, what sort of precedent does this set? Should the taxpayer then, by logical extension, pay for all funeral travel expenses?

On one hand, Scott Morrison, the Opposition Immigration Spokesman, made the argument on behalf of the Liberal Party that "Australians attending funerals around the country were not entitled to taxpayer-funded transport costs". Yet, it would seem, Joe Hockey decided to oppose the Liberal Party's position, and say that this is indeed something that Australian taxpayers should pay for, arguing " "I would never seek to deny a parent or a child from saying goodbye to their relative." (although I remain slightly unsure as to why he he conflates 'denying' with 'being paid for by the taxpayer').

So what do our readers think? Is Joe Hockey right in deciding to oppose the Liberal Party line? Do you agree with him that taxpayers ought foot the bill? Or do you think he is simply an opportunist who is using this attack on the Liberal Party to divert attention from his own poor performance in the last few weeks?

Write your thoughts in the comments field! 

(TVA)

Give Joe Hockey The Stick

34123_10150207694470694_877110693_13454271_1893079_n Queensland economist Joseph Clark examines Joe Hockey's economic statements, and isn't impressed by what he finds: 

There's a lot to like about Joe Hockey. He's affable, a positive communicator, a team player, and a political unifier. But recently his comments and policy suggestions have illustrated that there is also a lot to dislike about him if you happen believe the philosophy of the Liberal party.

Two examples:

First was his repeated assertion that natural disasters have a stimulative effect on the economy. In saying this he is asserting that we can become richer by destroying things; that we can literally smash and destroy our belongings and become richer.

When challenged by Tim Andrews to defend his statements Hockey retreated to Keynesianism, arguing, effectively, that governments create employment more efficiently than businesses. Since a disaster increases government spending (and so reduces private spending) the net effect on employment is positive, apparently.  This short note isn't the place to discuss the merits of Keynesian fiscal policy but it is remarkable that we have a Liberal shadow treasurer making this kind of left wing argument explicitly and publicly.

The second example came from his address to the Young Liberal federal convention on the Gold Coast last month. Hockey gave a standard conviction politics speech – 'you gotta believe in something', that type of thing. But then the speech took a darker complexion. Conviction, he explained, should lead politicians to be fearless in wielding political power to achieve their goals.

This kind of quasi-fascist will-to-power talk was fairly surprising from a senior Liberal politician — classical liberalism is about reducing government power and empowering the individual. But it wasn't a knockout blow to his liberal credibility. Everybody knows Hockey isn't the sharpest knife in the drawer. The Liberal party has been very sporting in not providing an intellectually credible figure to go against Wayne Swan and his comments have to be read in that light. He might have meant something else, or possibly nothing at all.

He meant it. His example of fearless power wielding in his own career was his 9-point plan for banking reform released late last year.

Now bashing banks may reflect Mr Hockey's convictions, but it's hardly an example of political courage. Many people distrust banks and stirring up a bit of resentment against greedy hook-nosed financiers is unlikely to hurt you in the polls. I suspect he realises that.

This big government plan itself was an awful piece of policy. For those who have forgotten (or blocked it out) here are the highlights:

Point 2: Give APRA powers to monitor and control 'unnecessary risks' taken by banks (which conflicts hilariously with point 7 which is to get APRA to force banks to make riskier loans to small businesses). Australia already has one of the most tightly regulated banking sectors in terms of capital and liquidity requirements. But credit allocation is still reasonably free; commercial banks can decide where to lend, provided they are holding sufficient capital. Hockey is suggesting the regulator oversee, and override, bank decisions — even compel them to make specific loans.

Point 4 : Make Australia Post a conduit for small lenders. In order to get a loan you would apply at Australia post in a similar way that you apply for a passport. The application would then be passed on to government approved lenders. This is a very small step from having a state run lending facility (though Hockey is careful to deny that).

And the absolute worst…

Point 5: Have the government provide guarantees for residential and commercial mortgages and corporate debt. Simply: the government would take over much of the credit market. Unlike the Australia Post scheme this is a state run lending facility. The government would take on the risk of default on private debts, converting private debt to public debt underwritten by taxpayers. This has two main effects: it increases the amount markets are willing to lend to the favored groups (and decreases the amount available for everyone else), and it manipulates the price of credit risk downwards. A similar but less ambitious set of schemes in the US contributed to a massive credit bubble that collapsed in 2007.

(I'm not making this up. Go have a read.)

Here again I'll avoid the temptation to argue the economics of the plan. Perhaps a state-run banking system is best. Perhaps the communists were right after all. But whichever way you look at the plan it constitutes a massive re-regulation of the Australian banking sector, if not an outright nationalisation. And it’s part of a broader theme. Hockey pays lip service to liberal ideas about small government and individual responsibility. But his policies are all about extending the power of government and reducing the role of individuals in organising society.

I think Mr Hockey would make a good minister in a Liberal government, but treasurer is clearly not the right portfolio. Liberals needs to make the change now, before the economic credibility of the party is further undermined.

Dr Joseph Clark has a PhD in Economics from the University of Queensland, where he now sometimes teaches macroeconomics and financial economics. He is also a commodities trader for an undisclosed investment fund.

The Coalition’s New Economic Plan for Australia: Low Quality Goods, More Natural Disasters and Higher Government Spending, and Higher Prices

The Coalition urgently needs to lift its economic game, writes Milton Von Smith

As regular readers will know, I am always the first in line to give Labor a good whacking for their truly crazy and destructive economic ideas. 

And I am not in the habit of breaking the Eleventh Commandment.  But I think that you will agree that his has been a particularly bad week for sensible economics in this country.  And I'm afraid to say that the Coalition has made a sizeable contribution to this outcome. In fact, the Coalition has scored the trifecta this week – the trifecta of truly atrocious economic ideas, that is.

They have been so bad that they are making Wayne Swan look like an economic genius, instead of the dunce that we – and Swan – know that he really is. 

And all of this in the same week that Labor will apparently announce another GBNT (Great Big New Tax).  So none of this is good politics either. 

It all started out with Barnaby Joyce telling us that we should all buy low quality, flood-damaged produce from Australian farmers instead of higher quality, cheaper imported fruit and vegetables.  Never mind that we don't like low quality produce because it – ahem – sucks

No, Joyce is worried that if we consume more imports, we would encourage a "long-term alternate supply source to that of Australian produce." 

Excuse me, but isn't that exactly what we should be encouraging? 

First of all, higher quality, cheaper imports are, you know, cheaper and better.  That's reason enough in my book. 

But shouldn't we also not discourage the development of alternate supplies from other countries so that when drought and flooding rains occur again (as they inevitably will), we won't all starve to death? 

Curiously, Joyce wasn't worried about the possibility that by telling Australians to buy low quality domestically produced goods, he was encouraging a "long-term alternate supply source" to high quality Australian produce. 

You see, if it turns out that thanks to Barnaby Joyce, our farmers and grocery retailers can get away with selling damaged goods at higher prices, what is to stop them doing that forever?  That problem will take care of itself, no doubt. 

Joyce's piece of economic lunacy was quickly followed by Joe "I have a 9 point plan to wreck the Australian banking system, the details of which nobody can remember except for the fact that it was completely silly" Hockey, who chimed in with his explanation of how the reconstruction from the flood disaster would boost jobs. 

Hockey's view is classic voodoo economics, and is exactly the kind of thinking that has led to Australia's current problems with government overspending.

He objects to Tim Andrews' claim that Hockey has invoked the broken window fallacy – but Hockey's own explanation provides two perfect examples of that fallacy in action!

Example 1: Hockey seems to think before the floods there were a whole bunch of  resources just sitting around doing nothing – particularly in the banking and insurance sectors.  Apparently those idle funds will now be "injected" into the economy. 

But this is complete and utter economic nonsense.  Before the floods, those funds were being put to productive uses elsewhere in the economy, creating employment and economic wealth.  Now they'll be put to less productive uses – replacing things that have been destroyed by the floods. SImply put, the jobs that would otherwise have been created, won't be. 

Now that doesn't mean that those funds shouldn't be deployed – if insurance companies have a contractual obligation to pay out claims, then that is of course what they should do.  But nobody – least of all the alternative Treasurer of Australia – should be claiming that the aftermath of a flood or any other natural disaster will "create new jobs". 

If that was true, why on earth would Hockey support an emissions trading scheme?  On Hockey's flawed reasoning, if global warming is going to increase the number of weather-related natural disasters, then won't that create jobs, and therefore be A Very Good Thing?  

Example 2: The same reasoning applies to Hockey's bogus claims about the effects of a "net injection of funds from governments", which he says will also create jobs.  Where does Hockey think this "net injection" will come from?  Santa Claus?  No, it will come from taxpayers.  The money taxpayers would have spent or saved and which would have been used to create jobs and economic wealth in productive activities wil now be diverted, via taxes, to less productive activities. 

Again, the jobs and economic value that would otherwise have been created, will not be. Of course, Hockey is right that the priority should be not to have another GBNT – but even if that didn't happen, the spending would still be funded by GBETs (Great Big Existing Taxes), and would therefore would still be diverted from other more productive areas of the economy, reducing jobs elsewhere. 

And finally today we had John Cobb calling for milk prices to be higher.  Yes, you read that right.  Cobb even wants the ACCC to investigate the major grocery retailers for cutting their prices!  Can you believe it? 

So I tell you what, I am fed up with the Coalition this week. They need to lift their game, and fast. As far as I can tell, their new Three Point Plan for Improving Australia's Economic Prosperity seems to be:

  1. Consumers should buy more low quality goods instead of cheaper, better imports, because that might encourage imports and that is A Bad Thing;
  2. We should have more natural disasters and more government spending because they are job creators.  They put to use those otherwise idle resources which have zero opportunity cost, and magically "inject" funds into the economy; and
  3. We need to increase consumer prices for basic staple items. 

I don't know about you, but it seems to me that as far as plans go, this one could use a bit more work. 

Milton Von Smith is the Economics Editor of Menzies House 

 

Joe Hockey Responds To Open Letter

163241_10150109313093689_699633688_7443420_5915077_n Joe Hockey responds to Tim Andrews' open letter regarding the broken window fallacy:

Dear Tim,

The Broken Window Fallacy argues that spending on reconstruction will not add to economic activity or jobs where it displaces economic activity that would otherwise have taken place.  There will simply be a reallocation of resources. 

That will not be the case for the spending on Australia’s flood reconstruction.  There will be a net injection of funds from insurance companies and from the run down of individual and business savings.  There will also be inevitably a net injection of funds from governments as a whole, despite our pleas for the reconstruction expenditure to be met by cutting back elsewhere.

The rebuilding efforts will unambiguously create temporary jobs and these will add to total employment and lower the unemployment rate.  They will also add temporarily to economic activity.  There will no permanent job creation as the temporary jobs and the boost to economic activity will disappear once the reconstruction effort is complete.  In the current case the boost to temporary jobs and activity is likely to last for a couple of years, more than long enough to add to wage and inflation pressure.

Yours

Joe Hockey 

[Tim's note: I must thank Mr. Hockey for taking the time to respond to my points in detail, and not just sending a generic pro-forma reply about economic management. It is very much appreciated. I ought note, however, that I remain of the opinion that his response persists in committing the same error, specifically disagreeing with him that the rebuilding effort will lower the unemployment rate, as the "net injection of funds" still has to come from somewhere, (taking jobs away from other sectors – the whole point that Bastiat makes). But I certainly appreciated the prompt and thorough response!]

The Hon. Joe Hockey MP is Shadow Treasurer and the Member for North Sydney. 

Demolishing the four pillars

Alex-ButterworthDeregulation, not government intervention, will lead to a stronger banking sector, writes Alex Butterworth.

Australia survived the Global Financial Crisis because of our profitable banking sector. Now, politicians on both sides want to stop banks from making a profit. This is the strange contradiction present in the current debate about banking reform.

Australia’s near miss during the global financial crisis is a testament to the freedom of the Australian economy; it is not an excuse to introduce more regulation. In the US, the Community Reinvestment Acts attempted to outlaw ‘redlining’. Yet the effect of this regulation, compounded over many years, led to a credit crisis that extended beyond US borders. Indeed, if it had not been for the strong hand of the law, and the deep pockets of the US taxpayer, US banks would probably be stronger than Australian banks are today. If Australians should be taking any action, it should be to remove the regulation that holds Australian finance back, not make it worse.

Labor’s proposed banking reforms are deeply flawed. Wayne Swan’s plans to ban both exit fees and price signalling will inevitably be subject to the law of unintended consequences. As Henry Ergas has outlined, banks have a legitimate interest in informing their customers of future price trends. There are also legitimate costs associated with losing a customer, and remaining customers will suffer if banks cannot recover costs through exit fees.

The most concerning part of the plan is the creation of a ‘fifth pillar’ in the banking system. The proposed fifth pillar is the biggest government intrusion into the economy since the national broadband network.  The four pillars policy already prevents Australian banks from competing properly at a global level. We are foolish to think that preventing the ‘big four’ banks from merging, achieves a better deal for Australian consumers. By allowing these banks to merge, we would be strengthening Australia’s banking system against a future credit crunch. On the other hand, creating a fifth pillar reeks of nationalisation by stealth. It uncovers the ideological leanings of Labor and Wayne Swan, who have returned to their ‘big government’ beliefs under pressure.

While he is unlikely to call for the end of the four pillars policy, Joe Hockey now has an opportunity to step back from the bank-bashing, and advocate for deregulation.

At the centre of the debate around banking reform is the unfortunate erosion of personal responsibility. Individuals who amass more debt than they can handle, scream for the government to save them from themselves when it all falls apart. Allowing inefficient businesses to fail is an essential part of a free market. Taking individual responsibility for individual action is an equally important principle for Conservatives.

The way forward on banking reform is not further regulation and scape-goating of the banks; truly effective reform means setting our financial sector free from the burdensome regulation that still holds it back. Indeed, it was the relative freedom of our banking system that allowed us to survive the financial crisis, and it is the further deregulation of the banking system that will protect us in the future. As always, the answer is less government, not more.

Alex Butterworth is a Law Graduate at Minter Ellison, Secretary of the Pearce Division of the Liberal Party, and former Australian Liberal Students' Federation President.