In the Weekend AFR Brian Toohey’s article “Fix the budget and forget national debt” pointed out that the budget deficit, with net debt projected to increase to 13.8% of GDP in 2013-14 before falling to 3.6% in 2018-19, was a non-issue. On the contrary he said:
The average for major advanced economies is likely to be 80 per cent of GDP in 2014. If anything, there is a good case for not letting debt fall much below 10 per cent to help fund infrastructure of benefit to future generations.
Not long ago companies would have called it making sensible use of a lazy balance sheet.
My thought was, what a pity the Liberals have once again trashed sensible policy discourse for for sake of political expedience.
Ironically on the opposite page to Toohey’s piece was a completely muddle-headed editorial suggesting that if Rudd/Swann’s strategy of an early stimulus worked that somehow proved it was not necessary. Cossie would have smirked with pride on reading that.
Now we have the news that the latest Herald/Nielsen poll shows the Coalition has pegged back the Labor lead to 53-47 per cent, down from the 58-42 gap in the previous poll.
So has Turnbull found the big lie that brings home the political bacon? If so it would make him a worthy successor to Howard in terms of the recent past, a leader of whom the Coalition could truly be proud.
Rather than indulge myself in anger, and it does make me angry, I wondered what Rudd could do about it. There was a danger signal for me last week when Kelly Higgins-Devine on local radio introduced a segment on the debt by saying that the unsuspecting ‘gereration Y’ were about to inherit mountains of debt from us. Maybe the meme had stuck.
George Megalogenis has an interesting post on politics and debt. He sees value in the American idea of an independent budget office. This would be an institutional change that might restore policy discussion to sensible terms. Probably it won’t happen, possibly just because it was proposed by the Opposition. Megolinis’ suggestion is this:
Get the Treasury to report at budget time and in its midyear review what the budget structure looks like for the long term. Not in the back of the budget papers, but on the same page as the main budget numbers. Treasury should be asked, in effect, to state what it believes is the appropriate budget buffer.
That way the tabloid and broadsheet, the policy boffin and the poll-obsessed, can ask both sides of politics to explain how their promises can be sustained over the long term.
To back up the Treasury advice, the Reserve Bank should also report every six months on whether the stance of fiscal policy is affecting monetary policy. That is, whether interest rates would be higher or lower if the government spent, or saved, one more billion.
This would spare us all the nonsense of the 2004 election campaign when Howard and Costello pretended they could keep interest rates down just as they were beginning to turn on the fiscal tap.
Might be worth a go. Anything to prevent the Liberal habit of trashing normal democratic political processes. But I’m afraid it is the nature of the beast. It’s what they do, and they’ll find a way of doing it.
I actually think its more likely to be the pension age going up to 67, and (to a lesser degree) the measn test on private health, with debt coming in 3rd.
As to how to counter it: if the Libs want to conveniently airbrush the GFC’s impact on the deficit – then do it to them on interest rates.
Because after all, it is a fact that interest rates are lower under Labor.
Interest rates, lower under labor
that’s: high interest rates under the liberals
and: low interest rates under labor
High, over there
Low, over here.
You really wanna play dumb, Talcum?
Then again, the Morgan Poll immediately pre-budget came up with a very bleak result for Turnbull.
Is it any more than an idea? Otherwise it’s hard to believe they haven’t all committed seppuku in the last six months.
And if I was Brian Toohey’s mortgage holder, I’d be re-examining the terms of the loan.
I think it’s net debt that’s going to peak at 13.8% of GDP? Neither party can claim any greater integrity than the other on this whole fiscal responsibility issue. The bottom line for the country is how much debt do we rack up before Rudd and Swan get brave enough to cut the welfare feeding tube to the middle and upper classes.
I wouldn’t draw any conclusions until we see a string of polls saying the same thing, as I’m sure the pollbloggers would tell us with accompanying statistics.
In any case, 53/47 is still pretty comfortable.
Its the debt truck lie that’s done it all right. The rise in the pension age will stay whoever’s in power. And taking money away from the bourgeoisie, OMG! How dare Mr. Rudd do that! He should have gone for broke, scrapped all of Howard’s middle class welfare and upped unemployment benefits.
As to how comfortable Rudd’s lead is – to early to say, but I do fear a downward slide. The sleeper in all this is still climate change.
I did hope for better things from Viscount Turnbull, way back, but won’t momentarily forget he’s a Liberal again.
You are right, PDAA, thanks, I’ve fixed the post.
I am not sure the 80% of GDP figure for other countries is the right comparison. Sounds to me this is the aggregate public debt number not the deficit. The US government deficit for example is projected to be something like 13%.
Australia’s total public debt is 15.4% as at 2008. This is obviously better than the 80% quoted by Toohey. Nonetheless the question here is not whether deficits are a bad thing per se: the issue is what the optimal level of debt is. Ex ante, we do not really know what the optimal point is. As such, the Liberals are running an entirely legitimate campaign that the level chosen by Rudd and Swan is excessive. This needs and will be augmented with an analysis of whether the money is being spent productively (i.e. it is one thing to use deficits to build productive capacity in the economy, it is quite another to subsidise cash hand outs).
As for Megalogenis’s point (and he and Toohey btw are the pretty much the only commentators worth their salt in this country), he is right. One has to worry whether the Treasury are a bunch of partisan hacks, looking at their 4.5% growth rate projections.
Yes, no doubt too early to tell, but nevertheless I’m appalled but not surprised at the expediency of the Libs.
I was talking to Mark the other day. He thinks the Labor leadership are tuned into the electorate in a way the the Libs have simply lost and hence rated them no chance in the next election.
Hope he’s right.
Ilya, I’ve fixed the post as per PDAA @ 4, so the Toohey quote now refers to debt rather than deficit.
Mmmmm. It might be blowback from earwaxgate.
The Government have numerous sticks, legislative and political, with which to beat the Coalition of the next 12 months, before the next election.
-It seems that Turnbull is backflipping on alcopops, which is good. Comments by minister Roxon makes me thing they might even adopt the cigarette tax hike keep the private health rebate means test too.
-The CPRS. The passage of this legislation is going to highlight the Coalition’s backward position on global warming.
-Paid parental leave. To start paid parental leave in 2011, the Government would have to introduce and pass legislation next year. The Coalition cannot hope to oppose this policy and win any kind of election. Massive wedge, and one that Turnbull might just fall for.
At any rate, the poll result is very interesting, and I am looking forward to the sitting of Parliament until the next election.
The relationship between deficit levels and poll results is a ‘vibe thing’.
If Rudd and Swann can carry off a large increase in deficits with aplomb, the Libs won’t get any political purchase.
If Rudd and Swann (continue to) look like the little boys with their hands stuck in the cookie jar, then the Libs will make political capital.
The correct strategic line is “national interest” versus “vested interests”.
Actually Paul, what Rudd should have done is what Howard did. Implement policies that resulted in the lowest unemployment rate in Australia’s history. The best thing you can give the unemployed is a job, not handouts.
… or cram Australia into the Wayback Machine and a return to a time when cheap capital washed around the world funding Howard’s lazy pork-barrelling.
What? You’re saying there’s no such thing as a “Wayback Machine”?
In that case, I guess there’s no alternative to the choice between unpalatable options.
Paul, you could always ask Therese “Neoliberal gazzillionaire” Rudd for a fiver.
Why do the Liberals always lie? Because they have never had anything else.
Ah, nice to see that the average conservative around here is more profoundly ignorant about economics and less restrained in showing said ignorance than I am.
‘Milton Keynes’ is a reference to the old boy Bank of England governor in ‘Yes, Prime Minister’ who boasts that his reading of the dismal science never got as far as some fellow called Milton Keynes.
Anyway, I think the public’s concerns about the 67 figure is the only one that the punters realise is a legitimate one in the long run. Everyone realises that it’s one thing to be upset about the broken promise about the Medicare rebate for upper income earners, another to start arguing that means-testing social services (which is what it amounts to) is bad for the nation’s finances.
And I wonder if the Newspoll result is an outlier. We’ll find out soon.
Toohey is the one suffering faulty logic, ie just because other countries deficits are worse than ours doesn’t make ours good or necessary. Likewise it is also very relevant to examine what it is being spent on.
We have a situation where the ALP has encouraged people to buy wide screen tellies but discouraged them from financing some of their health costs and providing for their own retirement. Joe Blow has noticed this!
Maybe it is different over east but over here in WA I am very surprised by how many people are receiving the stimulus package and are againt it. Ordinarily I would have thought the adage of getting betwen a taxpayer and cash was very unadvisable but the difference between this and say Howards tax cuts is they were in a time of prosperity and people felt the country could afford it. Now they don’t.
The ALP should note Meglogenis’ conclusion on the deficit numbers, and fire a few back:
“This is the bit the Coalition will want to ignore. Labor’s spending in 2011-12 is worth $13.2 billion, of which $6.95 billion came from the budget. The remaining $50.2 billion gap is largely Peter Costello’s doing. He left behind a budget structure that couldn’t return to surplus in recovery.
The problem is neither side of politics is prepared to recommend cuts deep enough to close the structural deficit.”
Hey, Milton Keynes,
[gulp]
Ilya@8 is mixing gross debt, net debt and current deficits together. For short term consequences, it’s current deficits that matter. For long term consequences, its net debt that matters. Gross debt is pretty irrelevant to both.
This bit about us having too much debt is quite surreal. We have actually suffered through not having enough – the gibe about “lazy balance sheet” is spot on. At 13.2% it’s an historically low figure for Australia anyway, and it will be amongst the lowest in the developed world. Our children will be better off if we spend money now in order to ward off a depression – from their point of view paying slightly higher future taxes sure beats them growing up in poverty.
There’s a good short paper putting our national debt in historic perspective here (warning PDF). Note especially Charts 2 and 5 (pp 5 and 8).
Milton Keynes is a dismal English “planned community”.
Please forgive any tautologies in the above.
Isn’t a big part of it the fact that the Liberals are deliberately blurring the distinction between public and private debt? Since the “debt truck”, the Lib government paid off government debt while encouraging the private market into a bubble economy. Now private debt has ballooned to the extent that it’s the real danger, as I see it, but it never seemed to be much on the political radar in the newspaper pages – except for a few op-edders like Kenneth Davidson etc.
Larveologists, of all people, should realise that not all private sector ideas can be applied to the public sector and vice versa.
Bankruptcy being one of them.
Ask Iceland about national bankruptcy.
I think people are starting to realise that debt and deficit today means less services in the future when it has got to be paid back. I dont think the idea of borrowing money to send out cash to people willy nilly really went off either. Turnbull’s cig tax idea has also struck a chord out there as well.
http://www.iceland.org/info/iceland-crisis/iceland-not-bankrupt
The big lie that works? Working on the backbench perhaps. This poll may well be the first sign that (dare i say it) the honeymoon is over, but at 53-47, the Liberals still have a lot of work ahead of them if they want to win the next election. They will also need a fair bit of luck.
I would agree with Katz though that Rudd and Swan have a hint of hand-caught-in-the-cookie-jar. Surely they can only talk about tough decisions and then not take many tough decisions for only so long before the government looks to be about political management first and the country second.
As an aside, in the musical/documentary The American Ruling Class one person interviewed suggests substituting ‘my own personal interest’ when someone says ‘the national interest.’ I wouldn’t want to be that cynical all the time, but it does make much more sense.
I expect when we will find out around 10:30pm when Newspoll results appear on the net and Lateline
Clearly Brian is an anarcho-prodeist.
Megalogenis also points out that Treasury said the budget went into structural deficit way back in the Howard years.
The Libs will do their best to play on economic ignorance about deficits. The way for the government to respond is to be photographed in front of as much earth-moving equipment as possible.
Every journo in the quality press knows that the deficit is overwhelmingly as a result of revenue collapsing – capital gains have gone negative, commodity prices down, general economic activity down. So why aren’t they more aggressive in calling Hockey and Turnbull what they are – big fat liars?
And I’m no economist, but I’ve yet to understand why deficits are something to be worried about. Gittins wrote an interesting piece the other day reminding us that the recession has barely even hit, and already we’re talking about balancing the budget. Paul Krugman has warned about pulling back spending too early, as Roosevelt did in ’37. In fact, you could make a case that public spending should be even higher at the moment.
All that rhetoric about this being the worst economic calamity since the Depression – it’s actually true. We’ll be paying for Thatcherism/Reaganism for a long time.
I have to shake my head about what gets picked up by the public, though. A co-worker nearing retirement shook his haid and said to me: “Rudd’s raising to pension age to 67″. I told him it it wouldn’t affect him as it only comes in fully in 2023, and it was done to pay for a base rate increase in the pension – something Howard never got around to, offering only easy one-off bonuses.
[Adrian you can't be rude to Ginja on this blog - Ed]
P.S. I’m never entirely certain what “structural deficit” means. Like other economic concepts used in the last thirty years – for example the NAIRU – it probably has awful reactionary implications.
Please be advised that whoever posted the above comment, and I have my suspicions, is definitely not me. Legal action will be forthcoming.
Today’s Essential Report poll has Labor increasing its lead over the Coalition by 1 point to 61:39.
Hannah’s dad, yes, and it was the Herald/ Nieslen that produced the rogue 52-48 poll last year. Which, I think we can all agree, was way off.
Im waiting for a solid poll trend.
I think Possum has it best
G @ 31 “I’m no economist, but I’ve yet to understand why deficits are something to be worried about.”
You and most other socialists.
NAIRU is a second year undergraduate thing. If you take the time to try and understand it, it isn’t that difficult.
Good luck.
On the pension thing:
I understand that when the OAP was first introduced only about 30% of the old farts lived long enough to actually collect it.
“To ensure that those who were most in need of the pension received it and also to limit the cost to the government, the 1908 Act also provided that the Commonwealth old-aged pension be means- and asset-tested. An individual who had an income of more than £52 ($104) per year or owned property valued at more then £310 ($620) became ineligible for the pension. See animation
In 1910, around 34 percent of those over 65 were receiving the old-aged pension. The average life expectancy of an Australian was only 55.2 years for men and 55.8 years for women, which meant that not many people lived long enough to receive the pension. Today, the average life expectancy of Australian men is 77.6 years and 83.5 years for women. Since more Australians are living beyond 65 years of age, unprecedented numbers are becoming eligible for the aged pension. In 2004 the number of aged pensioners reached 72 percent.” http://www.skwirk.com.au/p-c_s-14_u-127_t-352_c-1220/invalid-and-old-age-pension-schemes/nsw/invalid-and-old-age-pension-schemes/australia-to-1914/social-legislation-1901-1914
Now you know why they are lifting the age requirements.
Huggy
adrian @ 34, I can confirm that it was definitely someone else @ 32, although his name may well have been Adrian. I’ve deleted the comment. Apologies to Ginja as well as to you.
Huggy Bunny watch it! You’ll be an old fart one day!
I still don’t understand why Teh Left hasn’t taken Rudd/Swan to task for the heroic GDP growth projections in the budget (c 4.5% I believe). It’s a pretty important variable in the budget papers, and yet the political fiddling that it discloses doesn’t seem to merit much discussion outside the business sections, etc. I do not recall the treasury processes being so corrupted under Howard but then I wasn’t really paying attention so I’m happy to be corrected on that point.
BBB
Interesting to see how many of you still see things getting much worse. Don’t know if this is a WA vs Eastern States thing? I’d say we have already seen the very worst and the shrinkage part of this recession is either over or soon will be. The next part will be the harder longer part of there will be growth but not enough to soak up new job entrants etc. I would say there is the very real danger that most of the stimulatory parts of the budget will arrive late and quite unnecessary requiring interest rates to go back up again.
Wait, it’s worse than that. The absurd above-trend growth rates for the forecast/projection years follow low-balled estimates for the next two years. It’s difficult to envisage a set of numbers more carefully calculated to bring electoral joy to the ruling party. It’s pretty obvious we have a thorough corruption of Treasury processes here. On reflection I do recall the Howard years being very dodgy on this as well; every year was another revenue-estimating failure such that – shock, horror – Howard/Costello found themselves with (i) mountains of cash to hand out and (ii) enough in the kitty to bang on and on about consecutive surpluses. Bring on the the CBO or IFS or whatever the Australian one would be called.
BBB
Patricia, Oh I am an old fart already. Old enough to collect the OAP but the Wizards won’t let me retire.
Bastard,s they keep me chained up in this tower with only a computer and broadband and a couple of blonde assistants who drive me crazy with the endless clickety clack of their high heels across the damp stone floor. Oops the one with the little white pills is here, have to go.
Huggy
Andos @ 12, I don’t think Turnbull would fall for a wedge on paid parental leave. Wilson Tuckey might.
When I was helping with the Breastfeeding Association stall on Saturday, I’d mention our advocacy work on paid maternity leave and the response was always a victorious smile. This policy (even if I don’t think it’s adequate — I reckon we should all get a year off to breastfeed) is very, very popular with women.
The best Turnbull can hope for is a deep recession.
There is a backlash against the cash handouts. People don’t understand what they were for. The elation at getting to buy the plasma has gone; now they blame their consumer’s hangover on the government – and are happy to go along with Turnbull’s debt whinge.
Chookie
I’m very much for an extended maternity leave provision linked to breast feeding – so, for example, the policy might be that, as long as you can provide a doctor’s certificate testifying that you are breast feeding, you can remain on maternity pay for up to a year.
Given the proven, long term benefits of breast feeding for children, it should more than pay for itself – and it would encourage reluctant breast feeders to persevere with overcoming their difficulties.
I note with .. er, um .. a sense of having stepped back in time, that Malcolm latest
Turnbull accuses PM of waging class war in budget is a blast from the deep past. Will someone tell please him it’s been C21 for nearly a decade!
Must admit, even though I couldn’t give a crap about that tiny level of govt debt, and even though most of it is GFC related anyway: I did think the $900 handout was kinda stupid.
Not as stupid as the Costello tax cuts though. They need to be overturned.
Newspoll: 56-44 from 55-45 last fortnight
http://www.mumble.com.au/federal/newspoll0905201.pdf
A little more here:
http://www.mumble.com.au/federal/newspoll090520_budg.pdf
including
Yep, I figured: ALP vote up. Poor Talcum, 5 minutes of political sunshine from a rogue poll.
“5 minutes of political sunshine from a rouge poll”
Isn’t that a song my Cold Chisel
Well, latest Newspoll has Labor up – in primary vote, too. ACNeilson does tend to jump around a bit.
Perhaps the public sussed out that Turnbull and Hockey are just big bags of wind, after all. Is that teeth gnashing I can hear from The Australian and every right-wing talk-back station?
Nice try Talcum – but it seems punters HAD heard of the GFC after all.
Back to the tactics room! *whip noises*
I’ve just watched Tony Jones banging away at Rudd trying to make something horrific out of the opinion polls and the whole debt thing. Rudd just kept leg glancing him away and kept putting out his message. He didn’t ignore Tony’s questions like Clem Jones used with interviewers way back then. You’d think that guys like Jones and Kezza would learn that you aren’t going to trip up a competent politician with tactics like that.
BBB @ 43, Labor Outsider on another thread said he knew of an insider who knew for sure that the Treasury growth figures were fixed. But I don’t even know who LO is and the message is inevitably third hand. Now you’ve got it fourth hand from me. We need something a bit more direct before we jump up and down. I can also tell you that Treasury say that it’s going to rain, simply because they don’t know it’s not, so they’ve forecast a rebound in rural production.
DeeCee @ 50, you forgot to put in the link. I expect you mean Turnbull accuses PM of waging class war in budget. As discussed elsewhere, Turnbull is proposing to tax the poor so that the rich can have their private health insurance rebate. So now he calls it penalising success. Boring!
This isn’t necessarily directed at you Brian, but I do love it when Teh Left gets all indignant about sin taxes and their effect on the poor. It’s the internal conflict that it usually unmasks: instinctively a lefty knows full well that taxing poor people is immoral, and yet the instinctive desire to control the poor (for their own good, of course) is also strong.
BBB
BBB, truly I do not know of what you speak! Are you referring to the notion that God is dead and has been replaced by 60,000 social workers perchance?
“instinctively a lefty knows full well that taxing poor people is immoral, and yet the instinctive desire to control the poor (for their own good, of course) is also strong.”
And yet it was the left/progressive movements that lead the charge to politically enfranchise the poor/non-property owners while the classical old right worked like stink to counter this and satisfy their instinctive desire to exploit the poor (for their own good, of course).
Before you start spluttering BBB, I’m suspect I’m more of of a capitalist than you are. I certainly welcome any moves to lift the overall quality of life community infrastructure, funded through sumptuary or consumption taxes. It makes for a richer rockpool into which I can drop my bait.
Or to put it another way, name any government of any political stripe that couldn’t resist “Beer Cigs Slug!” (There’s a band name)
Sometimes a greedy government is just a greedy government regardless of ideology.
I certainly wish as a heavy drinker and smoker in the top tax bracket that it would ease up a bit but then again Australia is an awfully decent place in which to live and everyone’s gotta pay for that somewhere down the line.
So six of one, a dozen of the other (I have a very good accountant).
I vented spleen on wrong thread. My growing disillusionment with Rudd has nothing to do with their pissweak budget or the monster defecit. However, listening to the Coalition (and they still have my ear, if only for the amusement factor, which is more than I can say for the Govt’), you’d think the defecit was going to completely ruin the kiddies lives’. They’ll be slaving in the salt mines for no personal gain, (’til at least their 67.)
I really don’t think Labor can afford to feel the least bit smug about the next election, unless they are forced into a double dissolution in the next six months. Garden variety wisdom from the small minded business sector is that things were going swimmingly under a Howard/Coalition Govt’ and ever since Labor got in things have gone badly. Its not a particularly enlightened view and given the GFC it doesn’t make much sense, but nobody ever said anything about a seething mass of venal small business owners as being remotely like enlightened. Seems Mally is dumbing down his rhetoric to suit just this demographic.
Sorry, I’m testy. I’ve got a Sun square Mars/square Sun today. I’ll go now.
“And yet it was the left/progressive movements that lead the charge to politically enfranchise the poor/non-property owners while the classical old right worked like stink to counter this and satisfy their instinctive desire to exploit the poor (for their own good, of course.”
Are you agitating for an anti-Tory consensus? Because if you are, then sign me up. And I wasn’t necessarily having a go at lefties for instinctively wanting to control the poor as a particular group within society. This issue is really control of the population as a whole; it’s just that the disconnect arises when the visceral need to control (hence ‘disincentives’ to commit some social sin like smoking) comes up against the instinctive but also perfectly rational desire not to take money from poor people. In my experience the wash-up is a preference for higher sin taxes, but then I tend to mix with inner-city types living behind The Latte Curtain who cannot be expected actually to sympathise with the working class.
“Before you start spluttering BBB, I’m suspect I’m more of of a capitalist than you are.”
Well let’s not get into a p*ssing contest. If you are a garden variety small-l liberal capitalist (even if leaning towards – hush now – social democracy) then you’re broadly OK with me.
“Sometimes a greedy government is just a greedy government regardless of ideology.”
This is quite right. It is the nature of the state itself that is often the problem, not simply the political leanings of whoever managed last to gain control of it.
BBB
Umm no, BBB. What’s conflictory, is the Teh Right slamming the alcopops tax rise as nanny-statist, and then remaining altogether silent on the Liberal Party’s proposed tobacco tax rise.
From Jeremy Sammut:
“It is a case study in the nanny state’s dishonesty, its penchant for soft targets and soft measures, and its standard practice of beating up the irresponsible behaviour of the minority into a social problem to justify interfering in the lives and choices of the responsible majority.”
(The most ridiculous was when he dragged in the *original* Ute Man, for some anecdotal support of his “presumptions”. In Jeremy’s words, Ute Man is the “modern-day Alfred P Doolittle”, except he’s a “responsible drinker”, who “can stop at one or two, or none”, and is a “pillar of respectability”.
Not, of course, simply a paid shill for Independent Distillers Australia.
That was right after Jeremy cited the Access Economics report, commisioned by the Distilled Spirits Industry Council of Australia, which establised that hospitalisation rates for 12-24 year olds hadn’t decreased since the tax on pre-mixed drinks was raised.
They achieved this by simply excluding ICD codes such as X45 (“Accidental poisoning by and exposure to alochol”). The reason they offered was that X45 is “defined as ‘accidental’, rather than purposeful”.
Those friends-of-friends you knew at high school who had their stomach pumped? None of them were included, because they didn’t *deliberately* poison themselves.
Or, Y90, excluded because “alcohol use might be only ‘suspected’ and/or the level unknown”. An example of Y90 would be Y90.7 (“Blood alcohol level of 200-239 mg/100 ml”).
This neatly ruled out any and every teenager/young adult with a blood alcohol reading who crashed their car, or was involved in a car crash. Or, for that matter, fell down a flight of stairs, or got into a fight…
etc etc FFS etc)
From Malcolm Turnbull:
“But you know this would be… this is what I would call a very classy problem if in fact we put up the excise on tobacco and tobacco consumption declines by more than we’d anticipated, more than people had anticipated. Well there are a lot of other savings in the system. That takes a lot of pressure off the health system, the public health system. Tobacco is the single most preventable cause of illness and death in Australia so if by some miracle everybody stopped using tobacco tomorrow, we would have a much healthier country and a much less expensive, much less pressured health system.”
“When we’ve stopped dancing for joy and we’ve stopped adding up all of the savings in our health system that will come as a result, I’m sure we’ll have plenty of time to work out other angles.”
And you, BBB, see nothing conflictory in any of this?
Needless to say, you can believe, without being the slightest bit “conflictory”, that (a) there is degree of hypocrisy, or at least cognitive dissonance, amongst some on Teh Left when it comes to sin taxes (for the reasons already given), and (b) the Liberal Party is now being hypocritical when it comes to sin taxes.
Keep up the brilliant logic, Sally R.
BBB
“I still don’t understand why Teh Left hasn’t taken Rudd/Swan to task”
For much the same reasons that the Right never took Howard to task over anything, including lying. Indeed many who share you political leanings could only ever venerate the man, at least the Left are capable of firing a few shots at their leaders.
Newspoll has Labor slightly improving its numbers, up to 56/44, but with Rudd’s aproval rating down. So, what do make of this? Probably that one poll in isolation means nothing.
Yes, I remember those on the right, including Mr Boingo incessantly demanding Mr Howard’s head over any number of issues from children overboard to the AWB fiasco, the Iraq war, and the rise in middle class and corporate welfare.
They are the paragons of virtue, consistency and dogma free clear thinking, as displayed so obviously by Mr Boingo.
BBB that won’t fly. You need to be more clever than that. Reframe the narrative. Here, I’ll give you a start. “Alcohol in moderate consumption has health benefits whereas tobacco has been proven to shorten lives. Turnbull is trying to help those smoking, help save their lives. The ALP on the other hand are only interested in sin taxes on a vice that improves the life of the average Australian rather than causing them bad health.”
There you are then. All you need to do is correalate the GFC with ALP performance and try to tie in the current Labour scandal in the UK with Rudd and you’re well on your way to the comfy seat on The Insiders.
I don’t detect any bad faith in BBB’s comments.
““Alcohol in moderate consumption has health benefits …..”
.
There is no safe level of consumption for alcohol. Read the studies and the weight of evidence is grinding to the conclusion that alcohol is the next target for restriction and social engineering aimed at reducing or removing it’s use.
It shouldn’t be missed. Tobacco use will fade away in those places which engender an attitude that it’s use is perverse and antisocial aparet from damaging the user’s health.
I just think BBB could better capitalise on the hypocrisy and turn it around.
Snoring’s bad for you, too. Apparently it can lead to brain damage. Just sayin’.
If Malcolm Turnbull snores …
Well done ABC News for running with Neilsen and ignoring Essential.
When does Viscount Turnbull call for a tax hike on eggs? Or are they back in fashion with the health experts, a source of badness for no one?
So does that mean we won’t be having anymore n’ah n’ah n’ah we’re so popular and you’re stinky-poos posts at LP? Oh dear. And they were such fun.
Murph,
Sorry, mate – but your position on alcohol (notably wine) is not supported by the evidence. Moderate consumption of wine is positively correlated with a longer life – and teetotalers live shorter lives than moderate wine drinkers. Have a read.
OK, it is not the wine that may be doing it (uncertain) but your contention that “[t]here is no safe level of consumption for alcohol” is clearly incorrect.
Razor, explain to me why deficits are the end of civilization?
The big reason why you would worry about deficits is inflation. Well, at this point, modest inflation would probably be good for the economy as it would encourage people to spend and invest. And there doesn’t seem to be a definite link between inflation and deficits (if there were, folks in the US would have been pushing around wheelbarrows full of cash Weimar Republic-style under Reagan and Bush 2).
The other is the idea that public money “crowds out” private investment. Most serious economists tend to smirk at that one. Currently private investment is hiding under a bed somewhere.
Perhaps private investors could be made nervous by large public deficits? The ’97 Asian financial crisis washed over the whole region – from Korea to Indonesia – and seemed to have little to do with public finances. It stopped at our shores because investors seemed to conclude we were a western country and different from the region. In any case, our public finances are now better than any comparable country.
The lamest thing I’ve heard from the Right is that we’ll have to pay a large interest bill on our borrowings – as if falling into a Depression wouldn’t be expensive.
Aside from being some kind of superstitious symbolic thing that makes Libs sleep better at night, why should the rest of us worry?
P.S. I’m fully aware of what the NAIRU is. Aside from being another dispoven economic concept – see Clinton years – it’s Marx’s old reserve army of unemployed, right?
Speaking of public debt and the rank hypocrisy of the right, it seemed that debt was the saviour of Western civilsation when the greatest president that the world has ever known was in power for eight long years. Perhaps razor can point us to the posts where he desribed the US growing debt burden in the Bush years as the end of the world as we know it.
It stopped at our shores because investors seemed to conclude we were a western country and different from the region.
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I thought it stopped at our shores because we’d floated the dollar. And inflation encourages people to invest?
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debt was the saviour of Western civilsation when the greatest president that the world has ever known was in power for eight long years.
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True.
And Newspoll had Labor’s primary UP 4%
Sin taxes are needed to pay for extensive medical treatment needed a few decades later.
BBB, geez, what word would you have used? I was being generous
The extent of my disagreeing with you was limited to “Umm, no”.
“(b) the Liberal Party is now being hypocritical when it comes to sin taxes.”
Of course they are. My point was that Teh Right is being hypocritical by not writing about it, or expressing their instinctive indignance, because, you know, they should be against it, but on the other hand, it might just be a vote-winner for the team.
I agree with Katz, btw, and wasn’t trying for bad faith either. But, to accuse of hypocrisy on *this* issue, however good-naturedly, and not expect it to boomerang…
Jovial Monk,
That is only true if you have socialised medical costs.
Adrian, a floating currency was a big help, but the Asian economic crisis swept up countries that were barely even linked to each other economically. Australia was closely linked to many of those economies yet we got off scot-free.
You’ve got to acknowledge the obvious – we’re a western country that will be given more slack by overseas investors than our neighbours.
But it’s interesting that Turnbull has implicitly acknowleged – with his ciggies stunt – that the budget will only be balanced with tax increases. It’s also interesting – as Lindsay Tanner said – that the only tax increase he offered was one least likely to hurt well-off Liberal voters.
The right-wing commentariat is always urging Labor to take on members of its constituency to prove how tough, independent and concerned with the broad public interest it is – like teachers’ unions. Where’s the call for Turnbull to do likewise with his supporters?
Adrian and Ginga,
I have never argued that debt is the end of the world as we know it. In fact I have strenuously argued with John Quiggin about his chicken Little-ing over Australia’s level of private and foriegn debt.
Public debt is a problem when it is used to fund current spending. Debt used to build infrastructure and paid off over the life of that infrastucture is a good thing. Unfortunately, both politicians and bureacrats rarely stick to that simple rule – let alone actually identify the specific capital raised and the repayments made for it – it all goes into the big cement mixer.
As for your digs about the deficits of the Bush administration – that was in my view his greatest shortcoming and contributed to the defeat of the Republicans due to disillusionment for those who believe in small governemnt. Apart from that he is a great guy and was a wonderful President. (ps – he should have got Condi to run for POTUS, hopefully she still will.)
Ginja – “The other is the idea that public money “crowds out” private investment. Most serious economists tend to smirk at that one. Currently private investment is hiding under a bed somewhere.”
Crowding out – Government goes to the market and borrows at 5%. Corporates are borrowing at 7%. Governemnt goes to the market to borrow more but no one wants to lend anymore to the gov at 5%, so the governemnt now raises the i rate to 5.5%. Corporate borrowers now have to pay 7.5%. They have been crowded out of the 7% rate – a number of investment projects will no longer proceed because they have been crowded out. It ain’t that difiicult. As for the economists who smirk at that I’d like to see some evidence.
Private investment is hiding under the bed? Only something like $40 billion has been invested in capital raisings in the Australian market in the last few months.
[Impolite sentence deleted - Ed]
Ginja – a floating currency was a big help, but the Asian economic crisis swept up countries that were barely even linked to each other economically. Australia was closely linked to many of those economies yet we got off scot-free. You’ve got to acknowledge the obvious – we’re a western country that will be given more slack by overseas investors than our neighbours.
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Ya reckon? Japan and Korea had much larger economies than ours and produced much more. Australia’s supposedly a farm and a quarry. Are all the investors irrational white racists or something? I think investors might’ve seen us as safe because we had our shit together.
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But it’s interesting that Turnbull has implicitly acknowleged – with his ciggies stunt – that the budget will only be balanced with tax increases. It’s also interesting – as Lindsay Tanner said – that the only tax increase he offered was one least likely to hurt well-off Liberal voters.
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Well massive spending requires the money to come from somewhere and that’s the way they get it. Turnbull’s plans not interesting really. It’s inevitable. It’s the way it works innit?
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The right-wing commentariat is always urging Labor to take on members of its constituency to prove how tough, independent and concerned with the broad public interest it is – like teachers’ unions. Where’s the call for Turnbull to do likewise with his supporters?
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Hardly surprising. By right-wing commentariat you mean News Ltd mostly and News Ltd’s policy is to intimidate governments that reside on the centre-Left so they that they have to move further right and blah blah blah. I know that. But I also know that this country has heaps of debt and that it has not seriously looked at servicing it. That’s what got the States in the shits.
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We’re like someone who just keeps on getting a new credit card when the old one is maxed out. Sooner or later the Repo Men come calling.
Razor, name one serious mainstream economist who thinks “crowding out” is a serious problem and I’ll revise my view. It seems to be one of those nutty supply side-ish ideas that came along with Milton in the late ’70s – and like so much from that period has been discredited.
Capital raisings: could it have something to do with all the problems caused by the reluctance of banks to lend? The retreat of private capital last year? If governments weren’t stimulating, I shudder to think how far private investment would have retreated.
Adrien, I don’t know if investors are racist, but is South Korea as economically integrated into SE Asia as Australia?
I come back to my main point, why are we supposed to be terrified of public deficits? Anyone?
Ginja,
Feldstein is not a “serious mainstream economist”? He was President of the American Economics Association. That’s one – now revise your view.
Martin Feldstein worked for Ronald “vodoo economics” Reagan. He has a definite ideological bent – privatising social security, for example.
You’ll have to do better. Name an economist without an ideological barrow to push.
I’m not an economist, I’d honestly be interested to know.
Ginja,
So – you are defining “serious mainstream economist” as one that agrees with your ideological viewpoint and you are telling me not to push an ideological viewpoint?
LOL!
Yeah, anyone can play that game. For example: name one serious mainstream economist who opposes the neoliberal programme, Ginja. To save you (some) time, the following three really obvious candidates have ideological barrows to push (based on their published views) and are therefore ineligible for the title ‘serious mainstream economist’: Krugman, Stiglitz and Sen.
BBB
See Ginga the answer is of couse we don’t need to be afraid of deficits as long as the Libs are in charge apparently. Oh and I’m disappointed that noone picked up my red herring about alcohol being good for you. (It can be but the studies were based on the consumption of red wine, not on ‘alcopops’). I could definately see the libs using it as a useful diversion.
(Apologies for the mis spell Ginja. Need more coffee.)
Andrew Reynolds, Martin Feldstein is a respected economist – otherwise he wouldn’t have been given a seat on the board of AIG.
But if the whole “crowding out” theory is led by empirical evidence – not ideology – there should be lots of others to back him up.
I’m impressed by people like you, Andrew: all around you are signs that neo-liberalism, Thatcherism, Bushism – whatever you want to call it – has failed spectacularly, yet you continue with the one true faith.
AR @ 77 links to a study the abstract of which goes:
Please note “associated with” not caused by. Further in we learn that wine drinkers ate more fruit and veg, less red and fried meats and undertook more exercise.
I’m not interested to read the full study because I can’t believe that from those conclusions the matter is settled. You’d have to look carefully at research design, what the study was capable of proving and what not, and then have the study replicated in other places. Then identify and demonstrate the causal mechanisms.
I have heard of research that says all alcohol during pregnancy is harmful to some degree, but don’t have any links.
Also on a previous thread someone quoted research showing that smoking didn’t cost society more money over a lifetime because they died younger.
I think we’ve got a way to go before we can make confident generalisations and then they may prove less useful than looking at a combination of factors in particular settings.
If your economy is running at near full capcity, government borrowing will indeed be crowded out. Keyne’s insight, though, was that this could only be true when its near full capacity, and there are systemic reasons why a capitalist economy will not always be runing at full capacity. In a recession if business won’t borrow enough to spend at a level that keeps resources employed then someone else has to.
The Chicagoistas are getting hell from the rest of the economics profession (even the rightwingers) at the moment over the absurd “crowding out” line they’re running – to the degree that most have already backed away from it. It’s being derided as “the Treasury view” because it’s the same one the UK Treasury tried to run in the early 30s (they lost the debate with Keynes badly then).
The other mechanism which might lead to fiscal boost being ineffective is Ricardo-Barro equivalence. It’s theoretically sounder but is generally held to have been empirically refuted (basically because the population is not economically rational enough for it to hold). Even Barro agrees.
Sums it up perfectly, DD!
But back to the main point.
Why the terror over deficits? Every day political journos – who generally have no background in economics and have done precious little reading to bring themselves half-way up to speed – talk in grave tones about the deficit. The ABC, sad to say, has been one of the worst offenders. We’re all supposed to solemnly nod along and be concerned. But isn’t there an obligation at some point to explain just why we’re supposed to be so terrified?
I mean, is there a link between the deficit and teenage pregnancy rates I haven’t heard about? I’m willing to be terrified, but someone tell me why.
“I mean, is there a link between the deficit and teenage pregnancy rates I haven’t heard about? I’m willing to be terrified, but someone tell me why.”
Mmmm, tricky. Maybe it’s about “holes” and not the one that immediately comes to mind.
RWDB’s claim that there is a hole in the government budget. Young women are generally very savy about controlling their fertility but one thing that they do not expect is a rare hole in a condom and the possible resultant pregnancy.
Does that “link” help?
Ginja – what would you rather your taxes went towards? Paying interest and debt repayments, or services and new stuff? I know what I’d [refer.
Australia is seen as the best economy in the developed world to be in at this point in the GFC. Why? Because of the sound state of both it’s banks and it’s previous nil federal debt.
Where would we be if the Howard Government had not paid off the previous debt, or had spent lots on things like infrastructure and welfare? We certainly would not be in such a good economic postion as we are. In fact if you look back at the pre-GFC economy when it was booming – the debate was all about inflation and the problems of government spending too much.
It is basically a matter of not being able to have your cake and eat it.
The situation the Australian Sattes are a great example. WA proabably has had the best economic run of all the states. The previous ALP Government had been bathing in revenue – an historic boom. WA’s share of GST revenues is being cut because they are in such a good position relative to the other states. WA kept getting told it had surplus budgets, but the surpluses got spent. Now we have $19bn in debt and the Government is not in a position to make major expansionary infrastructure spending a priority because they are hamstrung by existing debt, and Power charges are rising 25% this year and need to rise 100% over the next few, plus water is going up along with other charges. Not very expansionary bu tthey are cleaning up the mess left by the ALP. And all other states are in a worse position. And the one linking factor of all states – ALP big spending – big borrowing governments. They have been prolifligate in the good times and now are unable to really do what is needed in the bad times. This despite having been fortunate to now have their own dedicated growth stream of revenue via the GST.
Razor, you are utterly and completely wrong. Howard only got rid of the deficit (the rather alliterative 8 Billion Dollar Beazely Black Hole) by selling infrastructure (Telstra) – without that, we’d probably have had a deficit through most of the last govt’s time in office, given his profligate habits. If instead of pissing the surpluses away on tax breaks to the wealthy and barrels of pork for rural rentseekers he’d spent it on useful infrastructure, I would have applauded him.
David – you haven’t addressed the points I raised so I don’t see how you think I’m wrong.
Razor, which would you prefer?
a) The government balance the budget, which would almost certainly plunge us into a depression.
b) Accept a deficit as an “automatic stabilizer” and a way to support jobs and economic activity during a period of contraction in the private sector.
If you’re sane and you dismiss a that means you’re just carping for the sake of carping – like Turnbull and Hockey.
If right-wingers hadn’t pushed deregulation to such dangerous extremes – and yes, the centre-left gave in to the neo-liberal Zeitgeist too often these last 30 years – we wouldn’t be in the mess we’re in.
I wish Libs would stick to reality on public debt. You’d think debt was only ever piled up by Labor governments, and they did so just to go on an irresponsible splurge. You’d never guess we had 3 serious international recessions affecting us in the last 30 years. Unlike the last recession, Rudd’s spending upfront will probably mean we have a much shallower recession, and that will benefit the budget long-term.
Would you concede that the budget would be in a better position had Howard not gone to the last election promising massive tax cuts?
Brian (@97),
… which is why I said it the way I did. You attempted to state that, effectively, the debate was closed – that alcohol was bad for you and that no level of consumption was safe. IMHO this is clearly not the case if some people who drink some alcohol have longer lives than a largely equivalent group of people that do not drink alcohol.
I thought that I had paraphrased the results of the study in such a way that I did not go outside the boundaries of their conclusion.
AR, that was Murph you were disagreeing with.
I’m a bit tired right now, but I’d agree that you were within the bounds of what the study said. I was mainly highlighting that correlation was not causation. Also that the real causes of longer life were still uncertain, which granted, you said.
I’m not sure 100% that Murph is wrong, but his case isn’t looking good and needs to be supported by evidence.
Ginja – you refuse to make any attempt to answer my questions to you so I am probably wasting my time but here goes.
No. I am not demanding a balanced budget -who is? But, more responsible use of the surplus and less debt would have been nice. The cash splash has been largely wasted. Some did get well spent – but very poor bang for the buck. Most of the infrastrucutre spending in the budget is not in the 2010FY which is the deepest part of the recession – isn’t that pretty dumb?
A deficit is an “automatic stabilizer” if departmental expenditure is kept constant and unemployment benefits claims rise. Spending above that is not automatic – it is deliberate policy.
The genesis of the Credit Crisis was in lending to people who couldn’t repay. Why did this practice start? Social Democrat policies to get the poor into home ownership. Funny how we don’t have a sub-prime problem in Australia despite our deregulation.
Your propostion that the budget would be in a better position if tax-cuts hadn’t been offered by Howard is pretty lame. What would have happened to the surplus funds? Would they have been saved (for Rudd to blow)? Or would they have already been spent on the socialist nirvana of increased pensions and infrastructure? If it was such a bad thing why didn’t Kev07 go to the election not promising them? Why didn’t he do what Peter Garret said and just change everything after victory? FFS we had the best economic circumstances in the western world and yet you think they were doing a bad job? And Kev07 didn’t seem to have a problem with it seeing he was a mini-Howard declared economic conservative.
I have taken the time to answer your post. Perhaps you might try to answer some of the questions I raise.
Apologies, Brian, but I would agree with you that you cannot be sure he is wrong (what can we really be sure of), but as yet he has no evidence.
No probs, AR. I find murph usually does have good reasons to say what he says, so I’d be interested if he can lay his hand on anything.
Razor, you are gullible, swallowing a line concocted by Republicans desperate to spread the blame (funny, you don’t mention Bush’s contiribution as part of his “Ownership Society”).
Republicans tried to blame poor people – re black people – for having the temerity to want to own their own homes. They also blame Freddie and Fannie – read “Fannie, Freddie and You” by Paul Krugman 14th July 2008. Why not blame inequality and the lack of strong union movement in the US for needing a subprime market in the first place? Why not predatory lending?
There was massive over-borrowing by everyone, not just poor people. Why not blame the wealthy with their margin calls?
The “cash splash” was not wasted. Retail figures suggest that it has been more successful than many expected. Remember, about a million people work in retail. How would you have gotten major public works “shovel ready” in a few months? Magic?
The infrastructure spending is all pretty smart – school buildings (labour intensive, spread evenly geographically), broadband, road, rail, ports (productivity).
Kevin Rudd did go to the last election offering less tax cuts for higher income earners and less spending generally. Rudd was forced into matching most of Howard’s cuts. This kind of thing happens all the time – Libs hate Medicare, but they have to pretend they like it in public.
As Ross Gittins points out, Howard gave large tax cuts every year in his last 8 years in office. Gittins also points out that we’re only now starting to realize the extend of Howard’s generosity to his well-off supporters.
“Republicans tried to blame poor people – re black people – for having the temerity to want to own their own homes.”
No they don’t. It is good that anyone wants to own their own home, but they need to pay for it like everyone else.
Forcing lending institutions to make loans that weren’t based on normal belt and braces lendning criteria of ability to repay plus asset backing was the problem. When the banks then worked out a way to package the bad loans with the good and get the nod from ratings agencies – that’s when things went pear shaped.
Why are you bringing up race?
Razor, are you referring to the Bush administration’s push for Fannie and Freddie to move into dodgier loans in its first term, or are you referring to the 1977 Community Reinvestment Act?
I found this Crikey article very helpful in explaining the history behind the dodgy lending and GFC.
Thanks Chookie.
If the Community Reinvestment Act has been around over 30 years, why did things hit the fan in 2008? Why not 1978? Or 1982? Or 1994? Or 2002?….you get the idea. Just maybe there were other reasons. Perhaps Republicans throw out these kinds of red herrings because they know their credulous supporters aren’t too strong on facts and logic. It’s sad when Aussie right-wingers fall for them.
Why bring up race? Simple, race is a huge issue in the US (duh). Republicans only have to say “poor” and their supporters know who they’re talking about. Blaming poor black people for taking loans they couldn’t repay – ideal for talkback radio (like Howard’s dog-whistle politics). Because the last thing we want to do is blame the Right with its deregulation obsession and wealthy corporate types.
P.S. People on low incomes probably could have paid for their homes if Republicans had not blocked a federal minimum wage increase from 1997 until they lost control of the Congress.
Republicans thought it was acceptable to have a minimum wage of $5.15 an hour. That’s not a typo – $5.15 an hour! They truly are evil.
But Ginja, it’s a well known fact that them lazy paupers won’t shift unless you pay them starvation wages, whereas them energetic rich folks need lots and lots of money to get out of bed. It’s proven Ronnie Raygun economic wisdom.
Ginja,
That would be true if the CRA had been unamended for 30 years. It has not. It is constantly tinkered with and there were major changes all through the years 2002 to 2008. Combined with the changes to Fannie’s and Freddie’s mandates and the simple fact that, due to implicit government support, they were able to operate at capital ratios that were completely and utterly mad and I find it difficult to support the idea that the government is totally and utterly blameless in all this.
I say yet again – I find it beggars belief that most people seem to have the idea that when one of the most regulated industries in the world has problems that it cannot be that there are too many contradictory, misdirected regulations – it must be that there needs to be more regulations, even if they are completely contradictory and misdirected.
From 2002 to 2006 a Republican Congress could have blocked such amendments. President Bush could have vetoed them. Hardly a smoking gun that “social democrat policies” caused the GFC.
There is a mountain of evidence that middle and upper class Americans were up to their necks in dubious loans. It was a house of cards that was just waiting to come down. Why don’t right-wingers target credit default swaps and other types of financial jiggery-pokery?
Right-wingers who choose to deny this, or to deny that they, with their corporate-funded think tanks, were the driving force behind deregulation these last thirty years – the real cause of the crisis – are simply being intellectually dishonest.
And by deregulation, I mean not just regulations that were done away with, but regulations that were never enacted because right-wingers had made regulation a dirty word.
The idea that government policies designed to help a very small slice of homebuyers managed to pull down the entire financial edifice is close to being a conspiracy theory. If the entire financial structure was sound, it could have easily weathered this.
P.S. Andrew, that last paragraph is just plain wrong.
It was the failure of the “shadow” banking sector – finacial entities that act like banks but are barely regulated compared to banks – that caused a serious problem to spin out of control.
More reading is required.
Ginja,
I did not say that social democratic policies did it (although they may have been) I said that regulation did.
As for it being any “shadow” system – I find it odd that you look at the thrifts, banks and others that originated the lending; Morgan Stanley, JP Morgan and AIG (that wrote many of the CDSs and CDOs), Fannie Mae and Freddie Mac and other such institutions that underwrote much of as being part of any “shadow” system. That is one heck of a shadow.
As for there being any real “deregulation” over the last 30 years – if you are looking for reading material I challenge you to read all of the regulations passed over that period. When you compare it to those replaced by them you get a genuine look at the myth of deregulation. Sure the old directed credit system has (partially) gone (the CRA is a part of its legacy in the US), but compared to this byzantine tangle of contradiction, it was possibly preferable.
More reading required for you, I am afraid.
Ever heard of Lehman Brothers (the lynchpin of this whole crisis)?
Unregulated investment banks were at the heart of this crisis. By unregulated, people mean banks not under the aegis of the Federal Reserve (and not subject to its strict rules).
For instance, Bear Sterns was an unregultated investment bank and the Fed got around the rules and was able to save it only because it convinced J.P Morgan – with the sweetener of a huge loan – to take it over.
All those exotic instruments like credit defaults swaps were essentially unregulated. The people who bought them didn’t understand them, let alone the governemnt.
It’s a sad day when lefties like me have to explain this kind of thing to right-wingers. More reading definitely is required!
…sorry for the typos tonight – having a shocker.
No Ginja, he understands them.
He’s just hoping you don’t.
…Bear Stearns, BTW. Shocker!
Only the little people pay tax.
I’d add that the chipping away at the Glass-Steagall Act – much of which was opposed by Democrats in Congress – allowed previously staid banks to get involved with mortgage-backed securities and the rest of the jiggery-pokery.
The right’s deregulation agenda is at the heart of this crisis, pure and simple.
Knowing the inclination many politicians have to legal action, I’d like to retract what I said earlier in the thread about Turnbull and Hockey being big fat liars.
While Hockey is undoubtedly big and fat, a better way of putting it would be people who should – and do – know better. But they’re both still clowns.
Ginja,
Sorry to disappoint you, but both Bears and Lehmans were regulated banks – by the NY Fed if I remember correctly. Both the buyers and sellers of these instruments were, for the most part, regulated institutions – UBS is regulated in Switzerland, the US and the UK, for example.
Oh – and the Glass-Stegall act was not “chipped away”. It was repealed after most of the banks affected by it had been given permission (by the regulators) to get around it anyway.
More reading still required by you…
Oh – I should add in the other regulators. I think this list is fairly complete. The SEC (companies regulator), the NYSE (it was listed) and the NY State financial regulator. I think it was also regulated by the OCC, but I am not sure. It was not FDIC regulated, so you were right with one of them.
Sorry Andrew Reyolds – you need to dig a bit deeper than a Wikipedia check.
You’re simply wrong about Bear and Lehman. Glass-Steagall was important because it pulled down the barrier between investment banking and Fed-protected banking. Investment banking was never regulated to the same degree because it was thought that they didn’t run the same risk of a “run on the bank”. I said “chipped away” because Glass-Steagal wasn’t repealed in one fell swoop.
You’d think the Gordon Gekko fan club would know more about the institutions of capitalism.
As for being listed companies and therefore regulated, don’t make me laugh. ABC Learning was a listed company in this country! Banking is an inherently risky enterprise, and history shows they just can’t be regulated like any other enrerprise.
Ginja,
Wikipedia is an interesting resource – I wrote some of it – but I do not need to check it to know banking regulation. I have been working in that area for over 20 years – starting my career investigating a bank collapse in 1988.
I note that you did not look at the other regulators.
History shows nothing of the sort. If you actually have a good look at it (and not simply take conventional wisdom) unregulated banking tends to be more stable than regulated banking.
Back to school.
…that truly is frightening – for Wikipedia and the banking industry. Explains why wikipedia is full of mistakes.
Deregulation has proved such a success – so can all countries get rid of their central banks now?
Ginja,
Centralised control has proved an enormous success. Inflation over the last century has been wonderfully controlled. Virtually no bank failures etc. etc. etc. {satire off}
Meanwhile more and more and more regulation. The banks are drowning in it. Are you not even prepared to consider the possibility that this is a problem?