Blogging politics, culture, sociology and life from Brisvegas
An interesting thing happened on the way to Christmas last year — the $10.4 billion Economic Security Package not only worked, but worked nearly exactly as Treasury had forecast it would.
“The bonus cheques had an obvious effect,” said Commonwealth Bank economist Sara Hoeing. “If there were any doubts about the efficacy of government stimulus packages and consumers’ willingness to spend, this news is a clear rebuttal.”
Please read the comments policy. If you would like an icon beside your comment, please register a Gravatar.
There is a Comments Preview function below the typing box which activates when you start typing.
Larvatus Prodeo is an Australian group blog which discusses politics, sociology, culture, life, religion and science from a left of centre perspective. more»
Congratulations to the ABC Melbourne radio fill- in jock who spent her entire morning, a couple of weeks ago, bagging the package and presenting it as known failure. Love your, cautious, unbiased journalistic work ethic.
Ah, yes, but Possum and Peter Martin aren’t gooses like Gerry Harvey or MT, are they?
Well was there ever any serious doubt that chucking $10 billion at consumers would increase spending to some extent? I’m sure the same thing will happen in the June quarter. The important point is whether that’s the best use that can be made of a staggering amount of money. I’m not persuaded.
Unless the government intends to keep giving us all a bonus every few months indefinitely, I just don’t see how their program amounts to a coherent strategy.
And now spending has apparently returned to pre-stimulus levels.
I know we’re “all Keynesians now” but how exactly does blowing $10 billion on imported household goods and clothing help the economy in the long term? Surely it just stirs things along until the next stimulus package, and the next one, and the next one.
This is very likely to be a long recession. Can we afford (Keating’s) 6-7 years of stimulus packages?
What triggers my smuggest smile? Especially after the classist/ageist ‘They’ll spend it all on the pokies!” brigade, headed by Fielding & Barnaby, splashed their prejudices all over Tory State & local Rags, with a comparison of November 2008’s and December’2008s total spending on pokies, trumpeting December’s higher total as proof that the bonuses were gambled (No, I didn’t see a Dec 2007/ Dec 2008 comparison; did anyone?)?
That they now have egg all over their classist/ ageist ugly mugs!
Yet if they actually anonymously mingled around shopping centres, food malls, Santa queues, public functions like “Carols by candlelight” etc, they’d have known that “How I spent my bonus on Xmas/ surprise trips for the grand/kids/ saved it for “back to school” were definitely the topics. Pity they don’t check their facts before mouthing off with their own prejudices!
Can we expect apologies from Fielding & Barnaby? Only after Hell’s been frozen solid for a century, is my guess.
Ken and carbonsink, the main point is to stimulate confidence, which will have a flow on effect on investment and employment decisions. Like it or not, consumption is a big part of GDP, and it doesn’t matter all that much whether some spending goes to imports – it’s not as if there’s a “domestic economy” and an “import economy” firewalled from each other – it’s the total level of economic activity which is important.
Meanwhile:
New figures show Christmas spending on the High Street fell to a 14-year low. The British Retail Consortium (BRC) report shows sales were down by more than 3 per cent compared to last December. http://uk.news.yahoo.com/4/20090113/tuk-sales-figures-confirm-christmas-slum-dba1618.html
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $343.2 billion, a decrease of 2.7 percent (±0.5%) from the previous month and 9.8 percent (±0.7%) below December 2007 http://www.census.gov/marts/www/marts_current.html
I find this evidence stimulating! Might go out and buy a neoliberal a cup of shut the hell up…..and a donut.
Yes Mark I know it’s supposed to be partly about inspiring confidence, and it’s not doing it very effectively. People aren’t stupid, they know one-off payments won’t have any lasting effect on economic activity.
We are going to have a recession. Increased government spending, funded by debt, is going to be an essential part of getting through it. But let’s at least get as much future value as we can from that spending and not squander it on ill-conceived programs costing tens of billions of dollars.
Twice in the last 30 years unemployment has topped 10%. Treasury estimates that in 2010 it will be 7%. Yet the government keeps talking about the greatest crisis in our lifetimes. Rudd’s rhetoric and the figures do not add up, and I’m afraid that inspires anything but confidence in me.
That’s not actually right, Ken, and this is where there’s a save/spend fallacy in a lot of the discussion. If people use a one off payment to pay down debt, then their disposable income increases accordingly and they can spend more (and that’s reinforced by the drop in rates). In addition, a lot of people seem to be forgetting that on top of the one off payments there will be tax cuts operative from July and a change to the LITO.
I’d also point out, as I did on the other thread, that it’s not a matter of cash spending or infrastructure. The package provides both. The idea is to keep things afloat while the infrastructure spending comes online.
deecee @ 5 – Dec 2007 to Dec 2008 pokies spending was up about 13% or $8 million in South Australia. This in a year when overall pokie spending was down 7-8%. But given the size of the package thats not that bad.
Still, “success” is defined as 10% of the money spent, will have to wait and see if we find out where the other 90% ends up.
But, but… from Peter Martin’s blog:
It seems confidence has already returned to pre-stimulus levels.
Hear, hear!
Yep, and that’s why we’re doing it again.
I note that the point I made that infrastructure spending follows is being ignored. Does anyone have a suggestion about how infrastructure spending could start immediately? Or any alternative for keeping things ticking over in the meantime?
Mark I’m not disputing that the measures will do some good. Of course they will. I’m contending that (1) for the staggering sum involved, they could have been an awful lot better; (2) they don’t do much to resolve the structural and attitudinal problems in our economy (random minor spending on schools is not really investing in productive infrastructure for the future) and (3) the accompanying government rhetoric does not appear consistent with the forward estimates, which do not suggest we are facing any kind of national emergency.
BTW spending on school buildings will not start immediately or anything like it. You can’t just knock together a new assembly hall at the drop of a hat. There will be long delays while schools queue up to have plans approved and then call tenders.
That’s where I disagree, Ken – the physical infrastructure of school education is very important for educational outcomes as most teachers would probably tell you. The contribution of the introduction of school libraries and science blocks in the 60s and 70s directly supports some of the human capital we’re living off right now, as we’ve run down the inputs into younger folks’ education.
Again, and I’ve made this point before – almost all state schools would have urgent plans costed and ready to go in the nature of things. A tendering process need not be all that protracted at the local level if the administrative arrangements are right.
I don’t have the figures to hand, but I think you need to check the projected rate of non farm growth if the stimulus package weren’t introduced. The ag sector is doing quite well at the moment. From memory, there’s a significantly negative number factored in for GDP if we don’t do this.
One thought Mark would be to stop the hacking back of government departmental budgets. I know everyone loves to loathe government, but the blunt fact is that most community services are outsourced by govt departments, so cutting back on government dept spending actually equals reduced services, and reduced resources / jobs in the services sectors effected.
To give just one example from my new field, the federal government provides grants for settlement services to be provided for humanitarian entrants & other vulnerable groups of new migrants (identified largely by english speaking ability). This program like all others is currently facing the prospect of cuts in line with government cutbacks a la Tanner. It would make much more sense to approve all the grant applicants currently in that are eligible and worthy for funding – this would be a big injection for that sector, employ more people, and importantly provide vital services and support to a particularly vulnerable community sector that is bracing for a backlash of anti-immigration sentiment, and part of the first group to be laid off in economic bad times.
I’m talking a few million here, but virtually every government dept has these programs which are currently facing cutbacks or even the axe as departments scramble to meet Tanner’s targets. Yet the last resort it to cut public sector jobs, so the first thing to get cut back is actual services. Rudd could pump millions into such programs with relative rapidity, shoring up employment and services, and helping strengthen the community for the crisis to come.
Was there an estimate on how many jobs the package was suppose to save? And any indications on how well it’s been fairing at that level?
Mark I don’t want to hog the thread but the schools spending I’m talking about is the $12 billion for every primary school in the land to build something according to the following priorities:
21st century libraries, new multipurpose halls (or in the case of very small schools, sheltered outdoor learning areas), and the construction of classrooms, replacement of demountables or refurbishment of existing facilities.
I’m not quite sure what constitutes a ’21st century library’ in a primary school but I have real trouble believing every primary school in Australia has an urgent need for something in that list, let alone a set of architect’s plans ready to give to a builder. Why would they pay someone to draw up plans for a building they had no reason to think would ever be funded? However you may have evidence that I’m mistaken.
The government envisages construction starting ‘by December 2009′, which is not really immediate, especially if ’starting’ means getting the surveyors in. However the point is not important – it’s virtually impossible to start ANY infrastructure project of any consequence ‘immediately’.
The government claims its program ‘will support up to 90,000 jobs over the forecast period.’ That’s delightfully vague, but even giving it the most generous interpretation it’s not much to show for such a massive amount of spending. On my calculations it will make less than one percentage point difference to the unemployment rate … i.e. without the package, we would have unemployment of 8% by June 2010 instead of the now-predicted 7%. Not much to show for $42 billion in my opinion.
Anyway there’s not much value in arguing the point forever I suppose.
Ken, I have a few friends who are teachers and from what I’m told state governments invite submissions for capital works on a regular basis and so full plans are drawn up but not that many are actually funded. I think you’re radically underestimating the deterioration of most public schools.
myriad – yes I agree that’s a good idea.
I’m in Canberra, and I just spent the last couple of hours watching the proceedings in the public gallery.
The House was quite raucous debating this package. Julia Gillard seems very adept at driving the tories into a howling frenzy. It was quite amusing to watch.
The Senate was near empty and quite subdued. However, I got to watch one Coalition senator Trew (sp?) laying out the case against this package.
He decried it as… wait for it… “Keynesian economics!”
Said that the clear failure of the previous package had “proved” that this type of economics didn’t work, and then recommended that everybody read a recent opinion article (by some crackpot historical-revisionist economists) in ‘The Australian’ entitled “New Deal prolonged the Great Depression”. It really was beyond a joke, if I had been asked to parody a Friedmanist ignoramus I could hardly have done a better job.
Well, we now know who the Liberal’s constituency is, and it’s a very small one – supply-side cultists like the wingnut editors of ‘The Australian’. With a party dominated by fringe ideological zombies like this Senator – who couldn’t be more out of touch with the public if they tried – I expect the tories will be in disarray for a while yet.
Russell Trood, I think, yeti. Senator from Qld.
Btw, Ken, here’s what Swan has to say about the economic impact:
http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/008.htm&pageID=003&min=wms&Year=&DocType=0
“I’m not quite sure what constitutes a ’21st century library’ in a primary school”
One that isn’t in a demountable building, for a start. My nieces’ school library is in a demountable building and they’ve had plans redy to go for the last 5 years – just no funding.
I would also note that the school funding is not restricted to the provision of new buildings but also for “it will allow schools to engage in urgent maintenance and upgrade buildings and facilities.” and “Every school will receive up to $200,000 for these minor works”
http://www.news.com.au/business/story/0,27753,25006116-462,00.html
There’s a stack of schools in Queensland where there’s no aircon in classrooms and people have to swelter through 30 plus heat in summer as well, Pollytickedoff, which is hardly conducive to learning. Not to mention the fact that this money will go to schools in Indigenous communities as well.
Last year, or the year before, the Victorian Government did a maintenance audit of all state schools, so they should have a school by school list of maintenance priorities.
Mark,
Lack of heating, lack or airconditioning, threadbare carpets, classrooms that haven’t had a coat of paint in years, inadequate science facilities etc etc etc.
We’ve all heard the stories of run down and ill maintained schools and how that affects children’s learning experiences. The schools package addresses some of those immediate problems as well as allowing for new buildings for libraries, school halls etc.
When Hannah’s Dad wrote yesterday that parents/teachers etc already had wish lists I’d bet that it was mainly the $200,000 for “minor works” that he was referring rather than a wish list of new buildings.
Yes, I think that’s right, Pollytickedoff.
I’d rather see the money invested in education than in infrastructure for private biz to make moolah when times are good.
Polly the minor maintenance comes out of a separate pot of money. Most of the money is in the allocation I mentioned at #18.
“Polly the minor maintenance comes out of a separate pot of money”
So what. The way you have been writing you would think the other pot didn’t exist at all. And as I already mentioned some schools already have plans for extra buildings but haven’t had the funds to do so.
I think thats where the politics has crept in. Rather than directing the funds
to where their most urgently needed and the state govts would certainly have a prioritized list of capital and maintenance works for schools, *every* school is going to get the funds whether they really need it or not.
“up to $200,000″
“*every* school is going to get the funds”
Every school may get funds but not every school will get $200,000. They will get what they need to do the work required. If that is only $50,000 of works then that is all they will get.
Don’t you remember what happened to the last politician who promised to target funding to schools in need ?
Further to Mark’s cogent replies to the “Unless the government intends to keep giving us all a bonus every few months indefinitely” mantra, the cash injection, except for the profit component of imported goods, STAYS in circulation and IS circulated constantly. Even the grossly misrepresented pokie losses are revenue for clubs/pubs who then pay tradesmen, cooks, bar staff etc. They then use their earnings to…
You get my drift.
The $10.2B is still out there circulating (until the GST and income taxes return it to the treasury).
I’d just like to clarify something on imports.
In the national accounts, the volume of imports is netted off to obtain final GDP. That means that you have to be careful about reading too much into the retail sales numbers. In principle, it is possible that the majority of the stimulus was spent on imports, and hence “leaks” from the domestic economy. I good way to think about it is to compare two types of consumption spending. In the first case, the entire stimulus is spent on household appliances/consumer durables imported from overseas. In the second, the entire stimulus is spent on accomodation, cafes and restaurants and personal services – which have very small import components. The latter would have a larger impact on measured GDP.
The upshot is that we won’t know the impact of the previous stimulus on the aggregate that matters most – measured GDP – until the December quarter national accounts are released in March.
Of course, in practice, the stimulus will have been spent on a variety of things, some of which are imported, and some not, but one can’t pretend that leakage to imports doesn’t influence the impact of the stimulus.
I won’t criticise the education spending too much, as I have little doubt that many schools have inadequate infrastructure. But, we should also ackowledge here that there is no empirical evidence linking the level of education spending to better school outcomes, and hence labour productivity. Mark is probably right that it one of the few areas where spending can be rolled out quickly, but we shouldn’t kid ourselves that it will deliver the largest LR multipliers from government spending.
On unemployment benefits, it is true that the marginal propensity to consume of the unemployed is most likely higher than for other segments of the population. But one also has to remember that the replacement rate (ratio of unemployment benefits to average wages) effects incentives to search for employment. That might not matter much right now when few new jobs are being created – but it will matter in the upwsing. The Henry Review will examine the adequacy of unemployment benefits, but I would be amazed if he put his name to any policy that significantly increased the replacement ratio in Australia – there is pretty good international evidence linking the replacement ratio to higher average unemployment rates. More likely is an overhaul of the interaction between all welfare benefits and incentives to work, including greater search incentives and lower effective marginal tax rates. A lot of people on this blog probably won’t like the final policy, but I’m fairly confident that policy will go in that direction.
If the unemployment rate increases significantly, I also hope that the government is considering upscaling and redesigning labour market programs.
On insulation – in general I think it is great idea. But people should also understand that because it will not be additional to the emissions cap, the policy will put downward pressure on what is likely to be an already relatively low carbon price. So, one impact will be to dull the incentives to move away from fossil-fuel intensive electricity generation.
That is an important thing to understand about stimulus packages – if not carefully designed, they can interact with other policy goals in counterproductive ways.
There’s no reason why unemployment benefits have to be a fixed fortnightly payment that is the same for everyone. There might be an argument for linking them to pre-retrenchment average weekly earnings; or they could be progressively reduced from (say) the minimum wage upon retrenchment to a lower figure after 8 weeks. I hope the Henry Review is considering such changes.
However there are other changes that could be made immediately. One is to increase eligibility, as discussed here in a recent thread. Another is to pay an instant lump sum of (say) $5,000 to anyone laid off from their job, in addition to any employer entitlements. These measures would surely be as useful as and more socially beneficial than giving people on $1500 a week a gift of $950.
Well, Ken, it would be nice for a start to get rid of the rules that you have to spend all the money you have in the bank above 2.5k before claiming benefits!
http://www.centrelink.gov.au/internet/internet.nsf/payments/newstart_iat.htm
“Another is to pay an instant lump sum of (say) $5,000 to anyone laid off from their job…”
Ken, it might be enough that people are able to hold onto their redundancy pay rather than have to run through it all before they are elgible for a payment.
Agreed, that’s what I was referring to when I wrote ‘One is to increase eligibility, as discussed here in a recent thread.’ I don’t see why the government has to wait for the Henry report to do obvious things like that.
I doubt that they do have to wait. It would be a good thing to do!
Quick question. Who contributes more to this lagging economy, a young tax paying single who goes on a domestic beer, fish and chips fueled bender spending $950 with their unemployed mates, or a similar person spending $950 on a plasma TV?
In terms of measured GDP – the former because Australia does not manufacture plasma TVs and hence a smaller share of the value-added is done in Australia.
Ha! Maybe the alcopops tax was a bad idea after all – could impede a binge-drinking led recovery!
Hey Ken, I find it curious that while you sensibly object to someone on one and a half grand a week being given a gift of $950 you would give a special pass to the same fella when he loses his salary in the form of a higher dole payment for a while.
That two tier system reminds me how centrelink once treated the professional and the unskilled in a different manner.
Mark @ 36 – I think there is a maximum waiting period of 13 weeks regardless of the amount of liquid assets that you have as long as you don’t exceed the general assets test which is quite generous (~$170k for single homeowners, more for couples and renters)
I saw my name mentioned in #25 re ‘wish list’.
A couple of things .
You can get a variety of items on a wish list, from small to huge, from several sectors of a school community. Note that last word, I’ll come back to it.
All but one of the schools I worked in were inherently bloody ugly soul-less places. And a lot of work went into rectifying that by lots of people,staff and students in particular.
Gardens, patios, ponds, art displays, sports grounds etc. At least 3 schools I was at embarked on tree planting exercises [not just for the sake of trees as such but to provide shade, shelter, ambience], play areas, shelter sheds, sheds for storage, a whole host of ’small’ wish items. Communities [there's that word again] chipped in with expertise, materials, labour what have you.
Ask me what I wanted as faculty head and I would give you a pre considered list on the spot.
At the ‘upper’ levels of management I doubt if there is a school where the principal/school council boss couldn’t reach into the filing cabinet and produce within 2 minutes plans for a costed architect designed item, such as auditorium, gymnasium, multi-purpose building [wet area, stage, sound set up], that sort of thing for a variety of functions.
Ready to go, lacking only approval and money.
And in many cases, particularly low socio-economic suburban schools and small rural schools, the community would have access to such facilities, in some cases dependent on such.
Sports clubs, adult education [whatever your local name is for such], the whole gamut of community groups.
Library/resource areas in particular.
Unless you have been involved in this sort of thing, and I would be surprised if many here have not been involved as parents, community leaders, teachers, local businesses, then you may not be aware of how pervasive and integrated into a community schools can be. Particularly primary and rural schools.
They can be, usually are community hubs.
[Which just made me wonder what sectors constitute this population at this place??]
Forget for the moment the economics, consider the impact, socially, on a local community if a school, outa the blue, can go ahead with a physical building that has ramifications for most, old and young, in the community.
I dunno about all the rest of the ’stimulus’, I would like to see some personnel added to the package [and I'd like to put a commercial in for the 'ancillary' staff in schools, the backbone of schools and more important than principals, and its a smart principal who knows that] and other quibbles, but really this development of schools idea is bloody genius.
I like it.
…those guitars that are like, double guitars, you know?
Oh shit, my daughter just moved out. I think I’m no longer getting quite the fistful of $ I thought I was. Am I even getting anything now that I’m not actually a working family, but just a worker with bloody high rent?
Seriously, she just moved out. What timing FFS!
I would also suspect you could donate even $50K to each and every Parents and Friends/Citizens organisation in the country and be sure it would be spent very quickly and in the vast majority of cases on something critically required by the school. Even conservatives like me would support that. At the state primary school my children recently left they didn’t even have the budgetary capacity to replace the flyscreens nor maintain bars of soap in the toilets. That’s not the responsiblity of the P&F/C but demonstrates how cash strapped some schools are and therefore guarantees any injection of cash has a very high chance of being spent on something sensible although these two examples argue for a permanent increase in budgets not one-offs.
Mark thanks for links about the pre Xmas stimulus package and how it compared to Treasury estimates. The jury is still out in my mind on the package but I would not have seen those results if I hadn’t visited this site which I guess goes to show it is important for all of us to visit the other sides sites frequently.
I understand Rudd’s logic with wanting to hold up retail sales the trouble he hits now is the positive boost to the national pysche rightly or wrongly has been competed out by the “it was a waste” commentary. I think Rudd needs to explain it better in terms of its all about getting through 2009 in reasonable shape. The bottom can’t be much more than 6 months away so if we can weather the storm the damage shouldn’t be too ugly.
Ultimately I think this issue comes down to whether you believe in the simple merits of maintaining aggregate demand through the “storm” by any means necessary versus a natural aversion to “wasteful” non-lasting expenditure. I can see both sides of the argument.
I read somewhere the other day Brian Caldwell saying that in addition to the Rudd money schools need a further $25 billion over 10 years to give us a truly modern system.
Given that they don’t want to spend any money on recurrent expenditure it’s clear that the Govt want to do something about their cherished ‘education revolution’ which the straightened fiscal situation would normally preclude.
I think Turnbull’s harping about tax cuts is partly because he knows that Rudd would never agree to them under in the current exercise. Indeed it makes more sense for the Govt to wait for the tax review rather than pre-empt it in a piece-meal way.
A multi-purpose hall might seem a pointless luxury to some, but our son’s secondary school had one and it’s hard to see how the school could have built such an admirable sense of community without it.