In my own area, one that comes to mind is an increase in postgraduate scholarships and ARC grant funding (obviously, I have a direct interest in such).

Bloody hell, everyone’s looking for a handout now! The inconvenient truth for lefty, do-gooder academics is your funding came directly from the resources boom, and that funding has all but evaporated.

As I have pointed out many times here, no one gave a damn about the non-resources export sector as the dollar soared past 98c. We sure as hell weren’t offered any bailouts of the likes Kev is now giving to construction, car manufacturing etc.

When you allow your economy to become little more than quarry, you have nothing to offer the world when the commodities cycle turns sour. Combined with staggering levels of private debt and a chronic current account deficit, Australia is headed for banana republic territory.

Have no illusions people, we are headed for a monster budget deficit as the demands for handouts grow ever larger, and government revenue shrinks. Expect the Future Fund to be well and truly raided by the time this little “downturn” is over.

As to the question of why NSW is a basketcase: Perhaps if we weren’t sending our GST dollars north of the border we might do a little better! The clowns in Macquarie St don’t help either.

As far as I can see, we’re going to hit a serious downturn anyway you skin it, and there’s no amount of immediate stimulus to any sector of the economy that’s going to stop that, because we can’t live on consumer spending alone. So it’s time to buffer the most vulnerable from the deprivations on the way, and invest in long-term renewal of our infrastructure, tackling key climate change points along the way.

And what’s not to like about the vision of all our major cities with Paris or Tokyo – level public transport systems of efficiency, elegance and cleverness?

For bigger projects to help out all the workers getting laid off in the west, any very fast train / rail freight routes still needed could be looked at.

Personally it just makes me want to cry thinking about the $10.4 billion spent on trying to get people to buy more christmas presents, not least because the most disadvantaged as usual got nothing (unemployed and students) or less (carers) than farking ‘working families’. Thank god most of them didn’t listen and sensibly paid down debt. But think what more stimulus that money could be providing right now, for eg, to the panicking building sector if it had been offered instead as payments to insulate houses, put in energy efficient / solar hot water / water efficient devices. Would have lowered bills, created plenty of temporary relatively unskilled jobs (eg insulation installation) and had long-term benefits to the most disadvantaged.

Or how about create community gardens and farmers markets to help people access cheap and healthy food & support the rural sector. Or, or…. $10.4 billion would have bought an awful lot of real lasting good and longer lasting stimulus than the lump sums, poorly targeted, did.

I can only hope that most of the population at some point experienced the same nauseating cognitave dissonance I did listening to Mr Razor Gang urging people to spend spend spend. Can we get off this joke of a pyramid scheme now please?

One of the reasons I have more faith in Obama than in many other politicians (and I hope not to be too disappointed) is that he seems to be someone genuinely prepared to listen to a diversity of advice and then reach independent judgements about the right way to proceed. I just can’t see him lurching from one desparate move to another. I think we are very lucky that it is he, rather than McCain taking the reins in the US….

Really good,insightful posts. As for “KR obviously doesn’t know much about economics” I agree and neither does Swan but for me that’s a strength Little knowledge being dangerous etc.

Much prefer that Ministers listen to advice from up-to-date professionals rather than rely on ‘knowledge’ that is completely out-of-date.

Let me give you a little example:

Even if you had a really valuable public infrastructure project to start early last year, unemployment was so low and the economy so hot in WA and QLD that it would have been pointless and wasteful to compete with the private sector for those resources.

However, this year the opposite is true. It is called resource levelling, and gets taught at undergraduate level in most engineering courses. If you have a copy of Microsoft Project, you can fiddle with it yourself without the need for an engineering degree. Not a hard concept for a Government to be able to grasp.

Governments ought to be able to do just a little planning so that their projects are slotted in with private sector activity.

It is the Howard Govt’s apparent inability to work out that you actually need to schedule projects as the resources are available rather than when the electoral cycle says you should throw money at stuff that demonstrated to me its quite average economic management credentials.

http://larvatusprodeo.net/2009/01/21/spaminated/

Mark, your points are very valid.

I’d say that Treasury will have done quite a lot of work already to prepare options for the government. I have no doubt that KR will have asked PMC to have done the same some months ago. But as you say, other departments/ministers will be making their proposals and KR and the cabinet will make their decision with one eye on what is likely to be most beneficial and another on the politics. Good policies will be interlaced with the bad (like increasing the FHOG for existing homes), and politically marginal groups probably won’t get much assistance (sorry students and the unemployed). If we are really lucky, there might be some tax reform thrown in, but I wouldn’t hold my breath.

What I am particularly interested in is what advice the government have received about how quickly infrastructure projects can be brought online. Unfortunately I don’t think they will care too much about the efficiency of some of them, as long as they can begin quickly.

KR obviously doesn’t know much about economics, but he does trust good bureaucrats – Henry and Gruen are pretty smart guys and non-ideological – so hopefully the cabinet follows much of their advice.

Just quickly on the RBA – there are holidays and holidays – senior RBA management will have been getting daily briefing on economic devlopments in Australia and overseas – even circumstances had required it, I’m sure they would have been back in their offices in no time….

I think there’s also an issue about “evidence based policy” here. Obviously from LO’s list of pluses and minuses of various stimulatory measures @ 28, policy makers would be being presented with something of a conundrum as to which to choose and in which mix (assuming an in principle decision has been taken, which I think is a reasonably safe assumption). All manner of players are going to have preferences (personal, ideological, related to departmental interests, etc.) – what concerns me a little is Rudd’s ability to be… dare I say it… decisive when the options aren’t clear cut. I don’t think there is much evidence that he understands much about economics – though he does seem to have taken on board the tedious process oriented micro-reform/federalism stuff from the Keating era (probs because it accords with his own bureaucratic predilections and enthusiasms). If I’m right about that (and I’m not excluding the possibility that he might have enhanced his understanding), then we face the risk of either a dumbarsed decision being taken on basically political grounds and/or indecisiveness for too long.

On the latter, I think some of the criticism of the RBA for going to the beach over Christmas has some force. And while I don’t begrudge Rudd a holiday, and Julia’s been doing a good job, nothing was going to happen while Rudd was away and speed may be of the essence in putting together a stimulus package. How quickly will he get back up to speed, particularly if there are conflicts and stoushes among the various advisors and advisory bodies (as there may well be)?

I was reading through your post, and thinking about the idea of how the Australian economy would look if NSW were performing at the national average.

I think there are few things you need to consider.

You would need to be able to separate out the effect of exogenous shocks and the effect of things under policymakers’ control. For example, the mining boom necessarily sucked resources (people and capital) out of non-mining states and into WA, QLD and even SA. To that, you can add the overhang from the Olympics, the shock from the unwinding of the tech bubble (IT was more important in NSW) and now the unwinding of the bubble in financial services (more important in Sydney than Melbourne), and the structural imbalances in the NSW housing market (larger than anywhere else). To that you can add the underinvestment in infrastructure. And on top of that, you can add budgetary constraints – NSW has been a net loser of revenue to the other states in recent years, despite its economic underperformance. The broader problems of vertical fiscal imbalance mean that the NSW government would have had to borrow significantly to invest in new infrastructure – something they weren’t prepared to do. Another thing to consider is that the inflation rate in Sydney has not been particularly depressed – suggesting that it is the potential growth rate that has fallen this decade – that is also backed up by the weak productivity performance over that period.

Governance obviously plays a role in many of these problems – but some others are beyond the control of policymakers in NSW. All in all it is a complicated set of problems that will require a close partnership between the Commonwealth and the state government.

One more quick thing – as the commodity price boom unwinds, you may well see the over-performance of WA and QLD shrink somewhat over the next few years – especially in per-capita terms.

* Delayed hangover from the Olympics (I understand most Olympic cities get one, but maybe Sydney just managed to postpone it somehow)
* That Sydney is hitting physical constraints. Sydney is much worse placed to become a really large city than Melbourne, because from the city center there is a lot more angle taken up by sea. It might be better if the transport hub was at Parramatta. Combine this with the mountains and bays and you either need a much higher population density than Australians think is their birthright, or to expand for vast distances. Melbourne is less dense, but still doesn’t need to spread as far in any one direction. Maybe this has really caught up with Sydney, discouraging housing growth in particular.

If the first point is correct this should be easy to turn around (probably will happen naturally). If the second one is right then we need to be thinking very, very hard about regionalisation.

But there might be something about the NSW State tax regime that could do with a reform, and where Fed government funds could be used to temporarily top up the foregone revenues from NSW Treasury.

Looks more like throwing good money after bad. Anyway, Rudd has a centralising instinct. He’ll find some way to move the gig from the Mandarins in Sydney to the Mandarins in Canberra.

Of course, Australia has enormous net private liabilities to the rest of the world, which carries its own risks – but that is a subject for another day!!!