The Cold Calculations Of The GFC Stimulus - CATEGORY Report today: TITLE

Posted August 26, 2014 09:37:31

Seen to be active>> Photo: Why did Kevin Rudd and Wayne Swan push so hard for the stimulus? So they were seen to be doing something. (Alan Porritt: AAP)

A two-page memo released with Wayne Swan's new memoir reveals the GFC stimulus package wasn't an economic certainty, but instead a calculated a political move, writes Chris Berg.

Wayne Swan's memoirs of his time as treasurer, The Good Fight, spend a great deal of time on the global financial crisis.

As Swan presents it, the case for massive fiscal stimulus was a slam dunk. Only fools and knaves would disagree.

There's no sense in his memoirs that fiscal stimulus was a policy experiment under conditions of enormous uncertainty. The stimulus is just used as evidence that Swan isn't afraid to make the big calls, isn't afraid to back himself etc., etc., etc.

So more interesting than anything in the book is a memo, two short pages, prepared for an August 2008 meeting in the Lodge between Swan, Kevin Rudd, treasury secretary Ken Henry, and their staff. Swan released it as part of the pre-publicity for his memoirs. It's available here.

The memo underlines the policy trade-offs behind the stimulus decision, how political considerations swamped economic ones, and brings back into the picture an apparently forgotten pillar of Australian economic management: the poor old Reserve Bank.

In other words, this two-page memo is a better policy history of the GFC in Australia than anything yet published.

The memo was prepared just before the September collapse of Lehman Brothers turned an American housing crisis into a global financial one.

(For context, the first Australian stimulus package, $10.4 billion, was announced in October 2008. The big one came in February 2009. It was $42 billion.)

Economies with central banks have two policy options on the table when there's an economic downturn - monetary policy and fiscal policy.

The monetary response comes from the Reserve Bank as it adjusts the cash rate to balance inflation and growth. This happens once a month, in good times and bad, no matter what the elected government does.

The fiscal response has two parts. First are the "automatic stabilisers": economic downturns lead to increased government welfare spending. Second are discretionary stimulus packages, determined by political considerations and the sluggishness of policy implementation.

Why is fiscal policy needed? Well, monetary policy, it is widely believed, has a limit. When the cash rate is at or near zero (the "zero-bound") it can't go lower.

For economists like Paul Krugman, Brad DeLong and Larry Summers in the United States, the fact that interest rates are at the zero-bound means monetary policy has been neutered and fiscal policy has to take over. (For that argument, see this 2012 paper by DeLong and Summers.)

An alternative view is provided by Scott Sumner, who argues that the zero-bound doesn't mean monetary policy is ineffective - central banks have more tools than just the cash rate. (You can read Sumner's argument here.)

It's an interesting debate. But from an Australian perspective it's beside the point. We never got to the zero-bound. We never met the initial condition for discretionary fiscal stimulus. In Australia, monetary policy still had a lot of room to move.

The August 2008 memo opens with the observation that the RBA was deliberately trying to slow the economy down in the first half of that year. But the RBA had overshot. The slowdown was "occurring more sharply than initially anticipated". This was the context for the early stimulus planning - a bad RBA error.

In October 2008 the RBA changed course and cut the cash rate by a full percentage point. In his book, Swan writes how the rate cut news came during a cabinet committee meeting into stimulus planning. The committee was stunned into silence.

"Without doubt this changed the entire dynamics of events over the next 18 months."

What extraordinary timing. But should the October rate cut really have been such a cause for panic? Only insofar as it demonstrated how badly the central bank had misread the economic climate. Over the course of the next six months the RBA completely reversed its earlier policy, plunging the cash rate from 7.25 in August 2008 to 3 per cent in April 2009.

Tony Makin pointed out a few years ago that, from the perspective of individual consumers, this interest rate fall made the $900 cheques look like chicken feed.

But there it stopped. The cash rate never approached zero. It never got close. Even as the stimulus package was being rolled out the RBA began to lift rates. First in October 2009. Then in November. Then in December. Then in March, April, and May 2010.

Those increases were predictable. It's what the memo said might happen: "The Reserve Bank through its control over interest rates, determines the overall level of aggregate demand in the economy, and the Bank would likely take account of any fiscal stimulus in its monetary decisions - that is, more spending would keep interest rates higher than otherwise."

As Stephen Kirchner writes, that's a pretty good description of the "monetary offset". When a country has a central bank targeting inflation and growth, fiscal stimulus is redundant. It's both costly and unnecessary.

So why did the Rudd government push so hard for stimulus? Once again, it's right there in the document: because of "the potential political costs of being seen to do nothing in the face of slower growth and rising unemployment".

Monetary policy is hardly nothing. But the government couldn't take credit for it.

The decision to deploy massive fiscal stimulus set in train all the events and personality clashes that defined Labor's term in government.

The debt racked up in those few months crippled Kevin Rudd's policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials.

And for what? To avoid "the potential political costs of being seen to do nothing".

Chris Berg is Policy Director at the Institute of Public Affairs. Follow him at View his full profile here.

Topics: government-and-politics, business-economics-and-finance, money-and-monetary-policy

Comments (436)

Comments for this story are closed.

  • ateday:

    26 Aug 2014 10:04:45am

    IMHO the vast amounts of money could have been much better spent.

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    • Dave:

      26 Aug 2014 12:37:13pm

      "IMHO the vast amounts of money could have been much better spent."

      In EVERYONE's opinion (with the possible exceptions of Rudd and Swan), the money could have been much better spent. It's just that everyone's opinion about how to much better spend it is different. My spending priorities are different to yours.

      Democracy 101 ateday. Your opinion is one of millions.

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      • RayS:

        26 Aug 2014 1:53:04pm

        Even though Labor had to deal with the GFC, their average increase in spending (3.4% pa) was substantially less than the average increase of John Howard (4.3% pa).

        The facts show that in the five years from 2000-01, the Howard government increased real government spending by around 23%. In the five years from 2007-08, when Labor controlled the budget purse strings, growth in real government spending was a tick over 17%, including the 12.7% increase in 2008-09 when the GFC was bearing down on the Australian economy, threatening a recession.

        What is more, Howard relentlessly reduced taxation, especially mostly on higher income earners, by raising the higher income tax brackets to finally a top bracket of 45c for every dollar over $150k in 2007, from a top bracket when Howard came to power of 47c for every dollar over $50k.

        This could be a very fine country, the best in the world, if Howard had not used income tax reductions to buy elections.

        The IMF itself has criticized Howard for spending wastefully, but has praised Rudd and Gillard for spending effectively and necessarily.

        It is worth noting at this point that there were three years in the Hawke/Keating era and two years in the Rudd/Gillard era where there were cuts in real government spending, but over the last 40 years, the Coalition have never once cut spending while the Labor Party has delivered real cuts in five of its budgets.

        The cut in government spending in 2012/2013 under Gillard was the largest cut ever recorded in Australia.

        Yet the likes of Berg, in the interests of the right-wing Institute of Public Affairs propaganda machine, once again burps out falsehoods, spreading the lie that the conservatives are less wasteful, yet it simply isn't true.

        The conservatives have divested themselves from facts and the truth. They know that if you can shout from the bully pulpit of sympathetic media, owned by blatant self-serving rent-seekers, you can create a false truth or a myth.

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        • havasay:

          26 Aug 2014 2:23:31pm

          It's also totally absurd to say that there is only one 2 page memo created in all of the discussions on the GFC between the government and Treasury/Finance

          This is a total deflection and it is being driven by a finding in the most recent Essential poll


          "Out in the real world the Coalition's agenda and its dysfunctional implementation has sparked a sharp rise in pessimism about our economic future. And among its collateral damage is one of the enduring beliefs of Australian politics: that when it comes to the economy, Tories do it better"

          "Confidence in where the economy is headed is at a lower point than any time during the unpopular second term of the previous Labor government."

          Berg and the rest of the far right are starting to get seriously unnerved because Abbott is showcasing the vicious, ugly, domineering and anti democratic hyper right wing ideology they hold dear. Management of the economy is the only reason most people vote for Tories and Abbott is doing his level best to remove even that

          Go Tony Go you are the best friend progressive politics has ever had

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        • OUB :

          26 Aug 2014 5:23:07pm

          Havasay if you want to be taken seriously don't quote union-, Labor- or Green-sponsored research from Essential Media as evidence of anything.

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        • Dave:

          26 Aug 2014 3:31:34pm

          "The conservatives have divested themselves from facts and the truth. They know that if you can shout from the bully pulpit of sympathetic media, owned by blatant self-serving rent-seekers, you can create a false truth or a myth."

          Hockey would do himself quite the favour if he came out and criticised Howard and Costello for the directions their budgets took, as outlined well RayS. He'd have a lot more sympathy for his budget positions than telling us poor people don't buy petrol achieved.

          Of course, it would just make the PPL narrative all the more impossible to sell.

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        • AE:

          26 Aug 2014 3:37:48pm

          Don't forget that Howard was a great abuser of bracket creep for the first half of his term, a lot of those so-called tax cuts were just handing back bracket creep. Are we supposed to have those brackets stand still so you get to the point where even a minimum wage earner pays the top marginal tax rate?

          And what's wrong with people getting to keep more of what they earn? Why should the guvvament have first claim on every buck generated by the economy?

          I agree that his spending was too big for a supposed "conservative". Small guvvamernt wasn't in his DNA. I don't think the tax cuts were a bribe, all the family benefits were but, making single people and childless couples subsidise the welfare state.

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        • MJT:

          26 Aug 2014 6:41:48pm

          Bracket creep. My income didn't threefold over seven years and nor did the vast majority, only the executives and CEO's.

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        • AE:

          26 Aug 2014 7:41:11pm

          The brackets barely moved through the 80s and 90s. By 2003, the top rate kicked in at 60K, which at the time was 1.3 times the average wage. 1.3 times the average wage ain't rich!

          And even if the brackets did move faster then inflation (which they didn't over the long term) - what's wrong with that?

          If people were allowed to keep more of their own money, then less people would need welfare! But no, that just wouldn't do.

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        • Hinton John Lowe:

          26 Aug 2014 3:43:26pm

          'This could be a very fine country .... if' ... the Howard Government had not squandered the bonanza from the minerals resources of Australia- in a large part on subsidies and tax privileges for the megacorps and wealth elites who principally profited from it.

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        • Richard Flude:

          26 Aug 2014 4:08:18pm

          You mention only one side of the coin; spending. Ignoring revenue to make your argument.

          Howard's first budget, Keating's "black-hole" budget an example of reigning in spending to match revenue.

          The tax reform package including the introduction of the GST removed sales tax and reduced income tax rates.

          Personally I wasn't a fan of the Howard spending increases, however Costello's speech in delivering the 2007 budget speaks volumes:

          "For the 10th time, I am outlining a Budget that will be in surplus."

          Both parties took income tax reductions to the 2007 election. Labor won and enacted them.

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        • allaboutlies:

          26 Aug 2014 11:50:24pm

          After the introduction of the GST, income tax rates were reduced for high income earners.

          The GST replaced the wholesale sales tax but raised a lot more money because it applied to transactions that were not previously taxed. Where do you think that came from?

          The GST was all about getting those on low incomes to pay more tax - the problem is they/we don't even earn enough to support our families as it is. How can we afford to pay even more tax and at the same time be criticised for relying on welfare to get by?


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        • KateKnox:

          27 Aug 2014 12:10:12pm

          I like your thinking.

          Because a person on a high income, would have their dinner as a business dinner so its paid, then their car would be company car so again it's paid, then the car insurance, the petrol and service would be paid by the company again. So time and time again we are only getting the little tax from the company and this person is winning by not paying as much Goods & Services Tax.

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        • John:

          27 Aug 2014 3:44:29pm

          Think again, Kate.

          It doesn't matter who pays for the dinner, or the car. As long as someone pays, then the GST is levied and collected.

          What your argument might be regarding the fringe benefits enjoyed is quite a different thing.

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        • Stuffed Olive:

          26 Aug 2014 4:11:25pm

          Yes indeed. But the top rate of 45 cents in the dollars doesn't come in until $180,000. RayS - there are plenty of us who are more than heartily sick to death of this notion that Labor were basically useless spendthrifts when every fact under the sun says otherwise. Labor have been excellent at managing the finances - they actually put in the hard yards and when they do spend we have good things to show for it. The other current Abbott & Co mantra about building infrastructure makes me want to puke. Nearly 12 years under Howard saw nothing but the basics maintained plus a bit of railway between Alice Springs and Darwin.

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        • AE:

          26 Aug 2014 5:54:59pm

          Pfffft. My little town saw nothing of that stimulus. When people in mining here were getting laid off en masse in the GFC, there was no photo-op minister in a hardhat throwing billions around (and nor should there have been, you have to roll with the market economy, but I'm pointing out that they were selective about who gets what).

          Perhaps the homeowners whose house was burned down in that pink batts scheme, for instance, might not have such a rosy view of the "stimulus".

          All stimulus does is pull future consumption into the present - that's it.

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        • MJT:

          26 Aug 2014 7:10:46pm

          "All stimulus does is pull future consumption into the present - that's it."

          I think that is what we do when we buy a house with a loan.

          Fires from pink batts are caused mostly from halogen Downlights not installed to meet the requirements of AS/NZS 3000, this is why half the house fires are electrical faults. The government is not to blame, irresponsible home owners and State work place safety regulators are.

          It sickens me when politicians use the tragic deaths of young workers for their political gain. It can only be some form of mental illness.

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        • AE:

          26 Aug 2014 7:42:32pm

          Fair enough, but your house loan or mine are our problems - not everybody elses, unlike the national debt.

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        • jack44:

          27 Aug 2014 12:45:02am

          So, Olive, you are saying that Labour has delivered more surpluses than the LNP? I bet that sweet talking Keating dreamed of it relentlessly while he tinkered with his Louis XIV clocks.

          Or was that the pig farm?

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        • Stuffed Olive:

          27 Aug 2014 8:58:55am

          No, I didn't say that. Liberals produced 10 and Labor produced 6. It is a pity that none of your comment makes an ounce of sense.

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        • DangerMouse:

          27 Aug 2014 12:28:25pm

          Just to list a few:

          - uncosted, unfunded NBN

          - uncosted, unfunded NDIS

          - cash shuffling carbon tax

          - failed MRRT

          - failed and deadly housing insulation scheme

          - failed school hall scheme

          - failed asylum seeker policies

          - failed budget surpluses after being told time after time it was coming (almost up until budget day!)

          - failed $900 spendathon for everyone

          The fail's continue. In fact, they make an interesting Youtube compilation.

          But you're right Olive. Rudd/Gillard/Rudd Labor were right on top of the game.

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        • John51:

          26 Aug 2014 4:14:43pm

          RayS, I would suggest that Chris berg is not interested in the facts. I would suggest prefers to play the politics of the neo-liberal far right that have little if any relevance to the facts.

          Howard and Costello did what no government should ever do. For a start they gave tax cuts in the best of economic times that Australia had not really seen before. This had little to do with what the Howard government did and more to the overflow of cheap credit, funny money, funded by all sorts of flaws financial products in the global economy. Even the mining boom Mark 1 was built off the back of that cheap credit.

          Second they made those tax cuts on the back of the greatest sell off of one off public assets. You can only sell them once. And third they were starving the states of their proper share of revenue. They got away with that to an extent because the states were also sucking in revenue off the property and mining booms. They are called booms for a reason because they don't last.

          Yet Howard and Costello gave tax cuts on the back of one off situations when no government in their right mind should give tax cuts. And even worse most of those tax cuts went to the top income group. Little of those tax cuts went to the bottom half income group.

          I can remember one of Howard's tax cuts where the bottom tax rate got a tax cut of $6 a week while those on the top income group got a tax cut of $100 a week. Beasley was leader of the labor opposition at the time and when he objected to the tax cut he was crucified by the Howard government and the media. It appears many in the media who attacked Beasley and labor where in that top income group who would gain a $100 tax cut or greater. Talk about self interest.

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        • AE:

          26 Aug 2014 5:56:40pm

          I'm not really sure how you give someone who earns 25K a $100 a week tax cut, given that then they wouldn't have even paid that much tax.

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        • Applaudanum:

          27 Aug 2014 8:35:49am

          Then start from the other end, AE: give a $6 a week cut for every 25k per annum up until a figure like 150k.

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        • OUB :

          26 Aug 2014 6:12:58pm

          Come on John, give reality a big warm hug for a change. Show it that you care.

          Tax cuts don't need to be permanent. They can be reversed. Howard and Costello would have been better able to do that given their track records but evidently the thought never occurred to Rudd or Swan. The latter were already (2006/07) periodically muttering about how excess funds should be returned to taxpayers. I don't doubt that they were just covering both bases but you cannot ignore the political risk of building up a big warchest in the good times - you just provide you political opponents with an armoury of slings and arrows with which to attack you. Plus Labor could have - would have - made grand plans to piddle such money away, confident that new money would continue to fall from the skies forever. Do you think they could have bought a few more votes with those promises? I think so.

          I agree cheap foreign money was largely responsible for the global boom and that that spilled over into Australia. Remember all the talk of 'new paradigms'? Does that sound vaguely Ruddian to you?

          I fail to understand why you think governments should retain businesses forever. They don't run them very well and they get an unfair advantage over privately owned businesses in the form of very cheap interest rates. You remember of course that you don't like cheap money. In the past government owned enterprises were held hostage by unions and became semi-welfare organisations. Sit down and think whether you want competition in the economy or an economy dominated by governments. I prefer the former.

          I remember reports of the States loving federalism under Howard. Rather than being starved of funds they had to backstroke to stay afloat in all the liquidity. Seriously, COAG was a happy place.

          Didn't Rudd give a tax cut in the shadow of the GFC Costello had warned Labor about? The later tax cuts went to the top income group because the lower income groups were already paying so little tax. Lower income brackets were showered with middle class welfare measures instead. You know all this already, why try and distort the facts to confuse those easily led?

          Beasley had already spent his allocation of credibility by that stage. It is probably a bit dangerous to accuse others of arguing from self-interest, those kinds of claim are readily turned around for the most part.

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        • John51:

          26 Aug 2014 8:08:41pm

          OUB, come off it, Howard reverse those tax cuts. It is not in the LNP's DNA to raise taxes. As for labor, Abbott and Hockey fought every attempt at claw back of the Howard largess.

          Don't you remember how labor was accused of class warfare when they dared to attempt to impose a tax on Super pension. And that was only to cut in at a superannuation pension of $100 thousand. Oh, and Abbott and Hockey got rid of that the moment they came in to government.

          And that was only one instance of an accusation of class warfare at labor whenever they attempted to impose a means test on the upper middle-class welfare. So sorry, OUB, I can't agree with your accusation against labor. Although I agree that labor could have gone much further in the claw back of the largess Howard gave out to the upper-middle class and top income groups.

          As for your arguments against not privatising government services. All you are running out is all the normal ones that right run on the benefits of privatisation. You know I am still waiting to see any of those benefits that you claim it provides. Please tell me where the competition is in the privatised banking industry. All I see is big profits that could have gone into the government coffers and little if any competition.

          The same goes for the privatisation of health care. Where is the competition that has brought down the prices. There isn't. Costs haven't gone down all they have ever done is go up at an ever increasing rate. And the same goes for the electricity industry, the communication industry and just about every privatised industry.

          Look a the cost the privatisation of Telecom the now Telstra. All they did was create a virtual monopoly, especially if you live in regional Australia. Just think if we had not privatised pipes and wires of Telstra we could have had a far less expensive NBN. And we would probably have it now. We could have still privatised the service part of it as labor's NBN was going to be and we would have had greater competition.

          As far as I am concerned this whole thing about the private sector being more efficient is just a furphy, a con, a lie. All that privatisation has done is make some people very rich, especially those who run them and sit on their boards.

          These privatised assets have now become a very good lurk for ex politicians siting on their boards. And all these privatised assets have become is another rent seeker of government opening us up for greater corruption. If you doubt what I say look at what has happened with the privatisation of prisons in the United States. They are endemic with corruption of the political process.

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        • Jess:

          27 Aug 2014 3:15:13pm

          Just like the Public service buildings that were sold? Where the rent we have paid is now greater than the sale price.

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        • don't believe the media:

          26 Aug 2014 4:25:38pm

          Well put, Ray S and it warms the cockles to see that this current madness is waking Australia up from its political apathy.

          We must hold these criminals to account and show up these falsities for what they are: desperate attempts to take attention away from the actions of the Earth eaters.

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        • Sir Robert of Lindsay:

          26 Aug 2014 4:43:01pm

          excellent comment. For that you deserve a knighthood too.

          Arise, Sir Ray.

          The Labor machine disowning their previous record during the Howard years was a fatal miscalculation by Kim Beazley. Creen tried to correct the record, but by then the damage was done. It let Howard and his media masters rewrite history while white-anting the economy, and no-one took them to account for it until recent years when the absurdity of their vote buying came home to roost.

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        • Tator:

          26 Aug 2014 5:00:11pm


          try your data, with data from the PEFO, real growth average for the 6 budgets for the RGR government was 3.967% PA using CPI and 4% PA using NFGDP deflators. From the MYEFO it is worse but there were policy changes there.

          For the 12 budgets that Howard delivered, the real growth averaged 3.3% PA using CPI and 2.8% using NFGDP deflator. This is including the big increase due to the massive structural changes in Federal/State tax bases caused by the GST implementation where large state based taxes were repealed and the federally based GST replaced them causing a transferance of revenue which increased Federal spending on the states but with minimal overall changes in total state and federal revenues.

          As for the real cuts in expenditure, have a look at the spike in expenditure the previous years, Hawke and Keatings cuts were on the back of massive expenditure in 83 to 87 where expenditure was in excess of 26.7% of GDP for 4 years and brought back to 23% of GDP which lead into the recession of the early 90's

          The RGR govt was only able to cut growth in real terms by cost shifting from one year to another, bringing payments forward into the previous year and putting off other payments until the year after which blew out the deficits in 11/12 and 13/14 in comparison to the original budget in 11/12 and thus there was no real cuts to spending as it was all an accounting exercise for Swan to get his now infamous undelivered surplus.

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        • whohasthefish:

          26 Aug 2014 5:01:12pm

          Seems this modern breed of conservatives never let the fact get in the way of good spin. It has been a consistent within the conservative ranks under Abbott and Murdoch that rather than confront the facts they just simply ignore them, as well as ignore science, ignore independent experts and opinion and quite simply lie, distort and misinform to prosecute their hidden agenda. Just what that agenda is?, I, for one, have no idea. Their stated objectives seem to be in complete contrast to their actions.

          They say they are trying to balance the books yet they are reducing revenue by billions via repealing the mining tax. They say they must get rid of it because it is not raising enough money. How bizarre is that? Then they are planning to spend billions on direct action and paid parental leave and a medical research fund. Seems counterproductive to say the least. They say we have a massive debt yet borrow more and do nothing about it and in fact one of the first things they did was to doubled our debt ceiling. What the ....???

          Their only answer to unemployment is to make it harder to be unemployed and easier to be sacked. It makes no sense. Their answer to affordable education is to make it more expensive. The same goes for health. Their answer to shonky financial advisors is to remove the need for them to act in their clients best interests. Simply defies logic.

          Their answer to climate change is to remove a carbon penalty and pay the biggest polluters to do the right thing. We may as well pay bank robbers not to rob banks. Its all quite ridiculous and a worrying direction. Just where is Captain Abbott leading his Team Australia? That is my main concern, not some concocted hindsight revisionist history writings from Chris Berg.

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        • firthy:

          26 Aug 2014 10:51:19pm

          The Coalition have never cut spending? You need to look at the first Howard/Costello budget RayS. They cut spending very hard in that budget. Much harder than the current government is trying to do. And as for the Gilliard/Swan cuts - well it is easy to have a cut when in the previous year you have spent heavily. All one has to do is revert to normal spending and hey presto we have a cut. Now if only they had set out a path toward the funding of Gonki and the NDIS...oh that's right they didn't do that did they. Spend all the cash but don't ever figure out how your going to raise it (other than borrowing it of course).

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        • jack44:

          27 Aug 2014 12:37:41am


          Governments have no god given right to tax as they please. If you end the budget cycle with money in the bank, and sufficient cash flow, then you are quite entitled to cut tax. That particular argument re Howard is nonsensical, unless of course you're planning on throwing 90 billion around in NBN expenditure with no other argument other than "sounded like a good idea at the time"

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        • Craig Thomas:

          27 Aug 2014 1:10:39pm

          Thanks, Ray, for providing an antidote of Truth against Chris Berg's characteristic misinformation.

          Why is Berg being allowed to publish his amazingly useless propaganda on our ABC? He's not just wrong and responsible for poor-quality analyses, he is in fact quite obviously deliberately wrong.

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      • Colmery:

        26 Aug 2014 2:23:23pm

        I don't think it is just a matter of any opinion is as good as any other. However, Ateday and Chris Berg do seem to come in with about the same level of validity - that is - low.

        The government of the day is a bunch of amateurs - by design. The media makes a story of the contest for power and they fill their content quota with a slice or two of confected nonsense. Indeed we are here doing it ourselves ... and you know what they say about doing it to yourself.

        The reality is that what was done in 2008 to stimulate the economy was broadly in line with Treasury advice (read the note). When governments follow advice, the burden of proof for it being invalid is on whoever makes the claim, and, in this instance no case has been made against the argument - just to a peripheral comment at the end.

        As for the argument that the Reserve was excluded; where's evidence for that.

        Organisation like the IPA and GetUp do their bit to fill pages for the media but mostly revving up their respective supporters - little or nothing to foster intelligent debate.

        The "any opinion is worthy" argument will lead to the death of democracy because it's a parallel to the absurd notion of billions of monkeys at keyboards will eventually produce the works of Shakespeare. What billions of monkeys actually produce is much closer to what we share here.

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      • The Pav:

        26 Aug 2014 6:53:27pm

        The GFC stimulus spending totaled less than two years concessions on Superannuation.

        There is no budget crisis now but a need to make some hard but rational decisions. Reducing the tax expenitures is one way.

        Eliminating the rort on novated leases is a no brainer hence this govt will be incapable of doing it

        AS to the argument of leaving a debt to our grandchildren that's rubbish. After all they will benefit by using the facilities built such as schools and roads. Some sort of amortisation should apply to Fed Govt Capex to more accurately reflect the budget impact

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    • Moi:

      26 Aug 2014 12:58:40pm

      ateday, you obviously didn't like the funds being given to kiddies, pets, the deceased, expats and everyone other than the needy. Maybe you don't even believe what Gillard said about there being no votes in stimulus funds for the poor.

      But think of all those halls insulated with imported sisalation in the school colours before it was covered up by ceiling and wall panels. Galvanised structural steel that was then powdercoated then painted before likewise being covered up will make the halls last for millennia. What better legacy for Gillard and Swan?

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      • South of Saturn:

        26 Aug 2014 1:34:17pm

        Just remember that what the Labor government did at the time was a basic Keynesian economics pump-prime...need I say the right-wing are ideologically opposed to such economics...

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        • RCon:

          27 Aug 2014 6:21:42am

          Think you need to familiarize yourself with what Keynes acts illy said.

          But moving on, Swanny kept telling us we'd returned to "above trend growth", where was the contraction in govt spending the "Keynesians" would recommend? He just kept on "doing something", right? Horrible, horrible plan - borrow and spend up in the bad times and keep on borrowing and spending in the good times.

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      • Waterloo Sunset 2016:

        26 Aug 2014 1:40:36pm

        I imagine most of it went on purchasing Chinese imported goods.

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        • Gary:

          26 Aug 2014 2:05:58pm

          You can imagine anything you like. The facts are that consumer and business confidence collapsed in the wake of the GFC. The stimulus spending turned this around. It kept Australians spending and kept our economy afloat.

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        • Nacnud:

          26 Aug 2014 2:30:16pm

          Nope, most of mine went to Carlton United Breweries

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        • winston felling:

          26 Aug 2014 3:10:58pm

          At the time the complaint was that most of the money was used to pay down household debt

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        • Sea Monster:

          26 Aug 2014 8:08:55pm

          And the sooner people paid down debt the sooner they felt like spending again.

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        • DCO:

          26 Aug 2014 3:50:03pm


          Could very well be, since big business, with the help of Australian tax-payer funding, has gone off-shore to increase their profits. You can't have it both ways - either encourage local manufacturing and other industry, by such things as not privatising Telstra (so that we have an apprenticeship scheme in place), not killing the NBN, not destroying the massive potential of renewable energy initiatives etc., or accept the consequence, which is that we get to consume inferior imported products.

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        • Waterloo Sunset 2016:

          27 Aug 2014 6:23:44am

          The fact is that Telstra outsources its manual work too. Plenty of competent workers install hard infrastructure everyday - and undertake time frames - something that never happened under government bodies.

          We have done away with our hardware telephony now (even for facsimiles) and use 4G, so the manual work has decreased anyway.

          We should stop breeding apprentices!

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        • MDG:

          26 Aug 2014 9:18:48pm

          Even if that's true, those goods would have been purchased in Australian shops. The retail sector is a huge employer and was particularly grateful for those stimulus measures.

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      • Peter of Melbourne:

        26 Aug 2014 2:17:53pm


        galvanised structural steel imported from Chinese steel mills, as well as the thousands upon thousands of chinese manufactured PV panels and inverters costing our economy 10's of billions which had to be borrowed from foreign sources just like those thousands of 40' container loads of indian manufactured insulation batts which once again the funds had to be borrowed from the foreign market.

        these people (and i use the term extremely loosely when referring to politicians) should not be allowed near a household budget let alone a national budget.

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        • rusty cairns:

          27 Aug 2014 7:48:53am

          Gee Peter you don't mean those Chinese that bought all that Iron ore from us ?

          Or all that coal, wool, cotton, beef, lamb, lobsters etc ?

          I wonder if they got the money to buy these things from us by selling us things ?

          Do you think any gold mined in Australia get sold in India ?

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    • whohasthefish:

      26 Aug 2014 1:26:56pm

      Maybe it could have 'ateday'. Chris Berg like all others here are operating in the wonderful world of hindsight. The GFC posed real problems for our and every other economy.

      Mr Berg here makes statements to the opinions and reasoning of others for their stimulus decisions without be in the shoes of those making the decisions at the time of those decisions.

      The stimulus package was the correct decision for the time. No one at the time was confident that recovery of the worlds economies was even possible at the time with many declaring complete breakdown and disaster.

      I agree the stimulus was overdone but I can only offer that opinion with hindsight. The Rudd/Swan government acted both prudently and with caution in their assessment that it was better to over stimulate than to under stimulate our economy at the time, a measure that has proven to be successful and affordable.

      I give them a big tick for their actions at the time. No one can ever know where the effects of austerity measures as espoused by the conservatives of the time would have taken our economy. Would we have seem massive unemployment and a collapse of our domestic markets or would we have seen small changes that hardly effected us. No one can say.

      To do nothing as espoused by Chris Berg (with hindsight) would have put us in a position of completely depend on foreign economic managers to get things right in the hope that things would turn out okay. I don't think that was or should have been a realistic option especially during those very uncertain times.

      Like I said, hindsight is a wonderful thing, it is just that I want for my government to operate in the real world, to be proactive not reactive in their decision making (see global warming). I want for my government to lead and not blindly follow. I want for my government to represent all Australians.

      That is why I want for this government to either keep their election promises or call another election. They have no mandate and they are ignoring the wish of the majority. They were elected on lies and are implementing dishonest policies of austerity for the people and stimulus for big business when in fact bid business is doing quite well and the people are struggling.

      Stupid is as stupid does.

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      • Wise LOL:

        26 Aug 2014 3:49:24pm

        Correct and all this experts are apparently smarter then the greatest Economic Genius of all time. Allan Geenspan, who, got it wrong. Strange that.

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      • Stuffed Olive:

        26 Aug 2014 4:24:12pm

        Berg has no hindsight. With the stimulus we would have been in big trouble and the debt would have been huge due to massive unemployment and higher outgoings in benefits and less in revenue. It really is a lot like vaccination - its works. Don't vaccinate and then things go pear shaped.

        The current flow of lies dealt out by the Liberals has got to be pushed back by sensible people including what remains of intelligent MSM and all MPs outside the LNP - they are not doing their job.

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      • paulinadelaide:

        26 Aug 2014 5:04:15pm

        Hindsight? whohasthefish. Nothing like hindsight. Chris Berg is merely pointing out that the RBA hadn't run out of very powerful ammunition. The nasty coalition actually supported the first stimulus - once again as Chris Berg points out because politicians like to be seeing doing things in a crisis.

        At the time, while in total disagreement with the stimulus, I begrudgingly accepted S1 because that's what politicians do. But being poor politicians they misdirected the stimulus.

        I have always maintained a short sharp recession back in 08/09 would have been better than the slow crawl to recession we've experienced since, only held at bay by mining & China. Keep in mind they were forecasting a post GFC unemployment high of 5.8% & where do we find that number now?

        The only real issue at the time was whether or not our banks were safe, and people didn't accept their assurances for a while, for sound reason.

        To counteract the stimulus the RBA started to raise rates ending with the disastrous rate increase on Melbourne cup day 2010.

        Abbott, by the way, will call an election, sometime in late 2016.

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        • whohasthefish:

          26 Aug 2014 11:15:42pm

          paulineadelaide: You like myself and everyone else cannot say what other methods or implementations of stimulus or not, would have done to the Australian economy, we can only postulate as to outcomes.

          What we can say though is whatever our government did or did not do at the time worked. It may not have been perfect but it worked, and that is the true test of policy. It delivered the stimulus in a way and fashion that put money through as many hands as possible in every community in the land, and in short time.

          Credit where credit is due we can sit here and argue the merits of this and that but all in all it worked and should be applauded. We can now in the cold light of the post GFC world look at paying down that stimulus. I cannot see reason to talk down the economy and panic with emergency and disaster rhetoric when in fact we are in a very strong and robust economy thanks to past treasurers going back a long way.

          Isn't that what the plan was? Thants what I thought antway.

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      • OUB :

        26 Aug 2014 6:25:58pm

        WHTF at the time I thought it was foolish to use borrowed money to keep the economy racing along at boom time pace. Nothing to do with hindsight. I believed it would be more effective to stimulate when the economy had settled. We pay politicians to make considered decisions, we don't pay them to panic and exhaust their/our magazines trying kill shadows. The stimulus measures were poorly targeted. The resulting debt will weigh on us for a decade at least (more likely two). It saved Labor the political embarrassment of a recession but at great cost, even to your children.

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        • whohasthefish:

          27 Aug 2014 11:04:43am

          OUB : lets put some myths to bed. Lets look at facts.

          Howard left Labor with a $59 billion debt and a $60 billion future fund. 6 years later Labor left office with $279 billion in debt. and $98 billion future fund.

          This equates to total increase in debt of approx. $180 billion.

          During Howards 11 years the Australian economy grew from approx. $390 billion to $790 billion. During Labors 6 years our economy grew from approx. $790 billion to $1.5 trillion.

          You will see Howard did not leave us debt free and Labors debt strategy during the GFC proved to shore up the economy which allowed for excellent growth that easily outpaced any debt incurred. That's called good business acumen. Spend $180 billion to make well over $700 billion. They are good numbers.

          As far as my children are concerned. They will benefit immensely from the strong 3 x AAA rated economy bequeathed them as long as the LNP do not botch the job and plunge the economy into recession. A real concern.

          We now need to adjust and find ways to balance the budget and pay down debt. Strengthening the mining tax by following Ken Henry's original recommendation would be a start. A financial sector super profits tax would be appropriate as well considering the Deposits guarantee given the Banks during the GFC which gave them a market advantage that has seen sustained and record growth in the sector.

          A cut in superannuation tax concessions. Extending the period of the 'temporary tax levy' for high income earners to ten years would also be appropriate given the tax cuts they have benefitted from during the mining boom.

          The point is this government has choices as to how it balances the books and giving away an extra $3.5 billion on PPL, $2.5 billion on direct action and foregoing revenue from the carbon and mining taxes makes no economic sense.

          Labors economic management was an appropriate and successful response at the time to the GFC. Our strong AAA rated economy is by no accident. The results speak for themselves. You can postulate all you like but at the end of the day, no matter what else is said the Australian response to the GFC was very successful and the envy of the world.

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    • Stuffed Olive:

      26 Aug 2014 4:20:03pm

      How and how quickly in order to serve the purpose. In my opinion spending on schools was brilliant. Pity Liberals never think so unless they are all private schools (and they got it too anyway!).

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  • napoleon42:

    26 Aug 2014 10:09:40am

    So according to Chris Berg the economic stimulus achieved nothing. The government should have done nothing. And he is, I suppose, a self proclaimed Policy Director at the IPA. So what should have been done Mr Berg to deal with the GFC?

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    • Warshawski:

      26 Aug 2014 12:50:40pm

      The government should have waited to see if the RBA reducing interest rates was enough to stimulate spending. As it was Government spending caused Interest rates to increase reducing the ability of business to borrow and spend.

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      • Dazza:

        26 Aug 2014 1:20:31pm

        "As it was Government spending caused Interest rates to increase reducing the ability of business to borrow and spend."

        Care to have your little theory blown out of the water?

        Why then, did interest rates increase in 2007 when Howard hoarded funds for spending and claimed to have "paid off Labor's debt"?

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        • rattan:

          26 Aug 2014 4:26:08pm

          housing bubble needed beating

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        • Dazza:

          26 Aug 2014 7:22:26pm

          Is your comment supposed to end with a question mark, rattan?

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        • OUB :

          26 Aug 2014 6:32:04pm

          Hah. Have a word with John51 above, he accused Howard of not hoarding enough money Dazza. Interest rates rose in 2007 because Glenn Stevens panicked about the CPI rising above his target range, due to high prices for some goods such as petrol and bananas (cyclone). Neither of those prices were responsive to higher interest rates. It was a really stupid decision by Stevens, one that his predecessor MacFarlane would not have made IMO.

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        • Dazza:

          26 Aug 2014 7:26:01pm

          "Interest rates rose in 2007 because Glenn Stevens panicked about the CPI rising above his target range,..."

          Then, why did Howard blame State Labor governments for excessive borrowing and say "Don't blame me..."?

          Howard wasn't a good economic manager?

          He was an economic dunce!!

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      • John51:

        26 Aug 2014 4:33:31pm

        Warshawski, if the United States and the UK and most of Europe with a virtually zero interest rate did not stimulate their economy why was it going to stimulate ours. The simple fact is if labor had not used the stimulus measures it did the economy would have shrunk the budget would have been much worse off and the private sector would have shut down investment and with it jobs.

        You must have a short memory if you can't remember the mining sector quickly shutting down investment along with mines and mine production once the GFC hit. I can. I also remember that they also did not return to investing in the mining economy until the latter half of 2010. Oh, and it was after China started investing stimulus money into their economy.

        So tell me it is wrong for Australia to invest in stimulus measures to keep our economy going. Yet it is good if China and other economies invest in stimulus measures in their country. Or, are you saying that China should not have invested stimulus measures in their economy even though it also helped to stimulate mining investment in our country.

        Tell me are you against stimulus measures per say or is it only if labor uses stimulus measures. That is even if those stimulus measures kept people in jobs and businesses from going bankrupt.

        I will tell you one thing I know from over 60 years of watching politics and the economy. When government cut spending in the economy the private sector does not take up the slack left by the government. In fact all of the evidence says they do the opposite.

        Only neo-liberal ideologues like Chris blindly think that they do. But than that is the difference between ideology and the facts on the ground. I will go with the facts on the ground.

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      • rusty cairns:

        26 Aug 2014 5:06:22pm

        GDay Warshawski

        I see many have forgotten that the banks were not cutting their interest rates the full percentage points that the RBA had cut.

        The government should have waited until unemployment figures reached what percentage before implementing more stimulus ?

        What countries didn't see a huge drop in manufactured exports ? Even the poster boy Germany saw a 20% drop in export numbers.

        It seems government measures which allowed business to write of much of their upgrading of machinery has been missed too ?

        I also note that Breg has made no comparisons e.g. USA interest rates at 0% +government stimulus = much improved employment numbers now, on improving economic conditions.

        Eurozone interest rates 0% + austerity = still very high unemployment numbers now, still very poor economic conditions and still very high debt numbers too.

        It seems France the energy supplier to Europe poster boy many like to brag about, isn't doing to well in economic improvement, maybe Chris could explain why ?

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    • Esteban:

      26 Aug 2014 12:52:29pm

      He didn't say the stimulus did nothing. He pointed out that the stimulus caused interest rates to rise.

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      • John51:

        26 Aug 2014 4:43:20pm

        Esteban, "the stimulus cause the interest rates to rise". Please tell me what period of history are you talking about. If you remember at the time labor injected its stimulus measures the RBA also lowered interest rates because of the impact of the GFC on our economy. Rates when down significantly lower than what they had been under Howard.

        The interest rate rises happened much later after we had the flood of mining investment in the second half of 2010. The started to rise in the response to both the mining boom and restart of housing investment. Both of these were well after Rudd and Swan's stimulus measures. They had already started cutting back the amount of stimulus by then.

        I would suggest that you don't take Chris's word as gospel and go and look at the actual time line of things. Chris is simply running his neo-liberal ideological argument of small government etc as he always does.

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        • Esteban:

          26 Aug 2014 6:02:01pm

          Oct 2009 +.25%

          Nov 2009 + .25%

          Dec 2009 +.25%

          A short break then:

          March 2010 + .25%

          April 2010 + .25%

          May 2010 +.25%

          I got that from the RBA site and it concurs with what was in the article.

          Within months of the cheques going out interest rates had to be lifted 6 times. As plans for school halls were being arranged interest rates rose 6 times.

          Rising interest rates played a major role in the strength of the AUD and we know what that meant.

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        • John51:

          26 Aug 2014 8:32:28pm

          Esteban, you are twisting of the facts and Chris berg has done.

          This is a better explanation:

          "The Australian economy's unexpectedly strong performance during the global financial crisis was fueled in part by record-low interest rates that the RBA is now nudging higher to prevent inflation picking up. The central bank has singled out a run-up in housing prices - which jumped an average 4.2 per cent in eight capital cities in the September quarter alone - as one area of concern"

          The simple fact was that the RBA never particularly like letting interest rates get so low as did when they got down to 3.25%. They preferred to keep some ammunition in case their were further shocks from the global economy.

          And the other issue was the pressure put on the economy by Mining Boom Mark 2 which got into full swing by 2010. So sorry I have to disagree with you on your blame of labor's stimulus. That is too simplistic a view of the complexities of the drivers of those decisions both national and international.

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        • Esteban:

          27 Aug 2014 12:41:00pm

          I am not twisting the facts I am stating the facts. You can't twist dates. Those are the dates that the RBA raised the cash rates.

          That is also the period that the major components of the second stimulus package was being rolled out.

          The thrust of the article is that the RBA was applying the brakes with interest rates rises whilst the stimulus package had the foot on the accelerator.

          You are correct that the mining boom mark 2 was compounded by the stimulus. At the precise time the mining boom took off and required tradesmen there were thousands tied up building school halls etc.

          This skills shortage drove up average male wages after Rudd had linked the aged pension to average male wages driving a big hole in the budget. I don't blame Rudd for that because I think the previous method of linking the pension to CPI was bad for pensioners.

          However it is simply a fact that these things were a consequence of the stimulus package.

          To me holding onto a myth about the stimulus for political gain is not as important as learning from what actually happened, mistakes and all, so we can refine our future responses to economic downturns.

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        • Dan the economist:

          26 Aug 2014 11:33:12pm

          In hindsight, if we'd known how much money the US would be printing, we probably should have embarked on a bit of that ourselves.

          I thought the RBA were a bit hasty in lifting rates at the time. Labor had options, but even the idea of money printing could not be considered, given the political environment at the time. It's a very tricky policy area anyway and requires close cooperation with the RBA.

          Besides, there are also many benefits to having a high dollar, especially when your in the midst of importing alot of capital equipment for mine development. A strong dollar and low interest rates are also ideal for investing more locally. Unfortunately private sector demand across most sectors, and globally, has been lacklustre, so we haven't returned to above trend growth. Until we do, the budget will remain in deficit, although government fiscal settings, will have some impact at longer timeframes.

          A good option for Australia to take advantage of current economic conditions, would be to invest in a big, nationwide, productivity building, off books (at least until the US stops printing), infrastructure project.

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    • Danny W:

      26 Aug 2014 12:59:59pm

      Didn't you read the article napoleon42? Chris said the Reserve Bank were using fiscal policy to deal with it and still had plenty of room left to move on interest rates until the whopping stimulus package came into effect - after which interest rates had to again increase to counter the effects of too much monetary activity in the market.

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      • OUB :

        26 Aug 2014 6:35:42pm

        I will finish reading the article later Danny but the RBA only controls monetary policy. The government of the day has control over fiscal policy. The RBA often employs monetary policy to redress issues it has with the government's fiscal policy, raising rates to mop up government excesses.

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    • George Spiggot:

      26 Aug 2014 1:07:04pm

      'Austerity' would be Mr Bergs response.

      Cut, cut, cut (think Thatcher's Britain), who cares if it destroys the fabric of our society and pushes many into poverty?

      Same reasoning behind the ill-fated budget.

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      • Miowarra:

        26 Aug 2014 2:58:16pm

        "... if it destroys the fabric of our society and pushes many into poverty?"

        That's not a side effect, it's a prime intention.

        Capitalism requires a permanent pool of the desperate poor so that their conditions (including wages) can be held down and their poverty can be used as a lever to reduce he wages and conditions of workers who aren't poor - YET.

        Remember, "If you won't take the job for less than award rates, there are tens of thousands who will". That was the purpose of Work Choices and it remains the goal of the hardliners.

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      • Richard Flude:

        26 Aug 2014 3:29:38pm

        Your post presumes "aggregate demand" drives an economy. Whilst most economists today are Keynesian trained a few (Classical, Austrian) would point to the fallacy of such a position. The massive, ineffectual stimulus provided by many govts and central banks in response to the GFC (really a Atlantic crisis) would support these detracting opinions.

        Little value was created by the cash splash, none on the supply side. The principal and interest bill remains to be paid.

        Like most of their tenure, Rudd & Swan needed to be seen to be doing something. This they achieved, but little else.

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        • rusty cairns:

          26 Aug 2014 7:55:13pm

          Ahh Richard do we not trade with those whom experience the "really a Atlantic " crisis ?

          Don't all our trading partners trade worldwide ?

          The GLOBAL financial crisis saw many countries go into recession and have unemployment rates rise over 10%, even China, hence the $370 billion US stimulus package implemented there.

          Given that the Australian unemployment rate was kept below 6%, and the economy never stopped growing, what would you describe as value in a GLOBAL financial crisis which saw trade figures around the planet plummet ?

          Care to quote the reasons given explaining why the French government has resigned ?

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      • AE:

        26 Aug 2014 7:46:32pm

        Are you aware that inflation struck 27% shortly before she came to office? Should inflation have been allowed to run rampant, so that then everyone can demand big juicy pay rises? Then inflation gets worse, but everyone wants big pay rises to compensate......

        Meanwhile, everyones' savings are destroyed.

        Inflation hurts poor people much more than wealthy.

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    • JohnC:

      26 Aug 2014 1:09:35pm


      Chris Berg's opinion that the economic stimulus achieved nothing is probably based on the view that had the LNP been in power things would have been different. They would have done absolutely nothing and lets face it no one does nothing better than the Libs. Over the years they have perfected doing nothing as an art form of the highest order.

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      • John51:

        26 Aug 2014 4:49:45pm

        Oh, JohnC, the LNP do more than nothing. They make sure they look after the top end of town. It is the rest of us that they do nothing for. Well actually I an wrong. They bring in more user pays and if you can't pay well bad luck.

        After all if you can't pay than you must not have worked hard enough. Or that at least appears to be the logic. Not that I think it has anything to do with logic. After all it seems according to Hockey we are either lifters or leaners. I am just confused over who are really the lifters and who are actually the leaners.

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    • Todd:

      26 Aug 2014 1:28:10pm

      No, what Chris is saying that the stimulus meant that the Reserve bank hiked interest rates, so there was limited effect on aggregate demand frfom the stimulus as interest rates were therefore higher than they otherwise would have been. So, consumers with debt may have got a stimulus cheque, but then had to pay more on their mortgages, car loans and credit card debt.

      The ultimate effect, therefore, was limited in terms of aggreagte demand, however, it meant the AUD was higher due to higher interest rates in Australia compared with other countries. Higher demand for Australian deposits pushes up the AUD. A higher AUD is better for Aussie tourists, but disastrous for Aussie exporters or those Aussie companies that compete with exports ie pretty much all manufacturing industries these days.

      But I am no supporter of the current Government either, don't worry about that. Hawke, Keating and Howard make Rudd, Gillard and Abbott look like amateurs.

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      • Snake:

        26 Aug 2014 3:43:17pm

        I know we're talking economics here, but you can't dismiss the nation building effects of the NDIS and the Royal Commission into child abuse - both massive achievements for Gillard. Neither would ever have happened under a Coalition government. These are landmark achievements of a government that was governing for the nation, not just lobby groups and vested interests.

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        • whohasthefish:

          26 Aug 2014 11:30:27pm

          The Royal Commission into Institutionalised Child Abuse is the most important Royal Commission of my lifetime (I'm over 50) and the NDIS is. Say what you like about the woman but with a minority government she was able to manage our affairs and get things done. She was able to negotiate and run an inclusive agenda. A quality Abbott and Co seem not to have.

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        • harry:

          26 Aug 2014 11:59:12pm

          You do understand that the NDIS as "implemented" by Labor was (and still is) unfunded and never got beyond the beginnings of a trial.

          So much for "nation building".

          It's an "achievement" in the same sense as Swan's 2012 Budget Surplus.

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        • Jess:

          27 Aug 2014 3:31:27pm

          So the increase in the medicare levy was? the trial was rushed in to make it happen. If it hadn't been started it wouldn't have happened. Talk to people involved in the trials. Quality of life has improved massively

          How do you suggest national projects start?

          The Australian goverment has other things than the single line in the ledger that caculate nation building and achievements.

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      • John51:

        26 Aug 2014 4:56:55pm

        But Todd, the simple fat is Chris is wrong. Interest rates actually went down after the GFC hit including during the time of the stimulus measures by labor. They were in fact the lowest interest rates this country had seen for decades. If I am right they are still not back to the pre GFC period of Howard.

        The interest rates only started to climb again after mining Boom Mark 2 started in the latter part of 2010. And really they were in response to the re-insurgence in property investment and property prices that happened after Mining Boom Mark 2 started. So if Chris is blaming the interest rate rises on the stimulus measures of labor he has got it completely back the front. Chris should go and do his homework.

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        • firthy:

          26 Aug 2014 11:01:05pm

          wrong - just plain wrong as another poster has pointed out and as was noted in the article. After the GFC rates did fall but they were increased in late 2009 and 2010 - and those increases were partly due to stimulus mark 2 (and RBA at the time said so). The first stimulus was worth it but the second was simply a waste of money. And that ultimately is the point of this article. And on that note it is right on the money.

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        • John51:

          27 Aug 2014 3:07:42pm

          Firthy, I think you are getting stimulus mark 2 confused with Mining Boom Mark 2 which was stimulating certain sections of the economy. One of them being the rising prices of housing and with it property investment.

          The RBA have a habit of being rather skittish about increases in property investment and rising housing prices. They get rather skittish about increased private borrowing and their loans by banks. Once they see that happening they find it hard not to hit the interest rate trigger to increase interest rates.

          I didn't agree with it than and I don't now. And that was because outside of the mining industry and the real estate industry the rest of the economy was still struggling. 3% interest rates in Australia was once the norm and not the abnormal low as it has become and which sends the RBA in to fright mode at it being too low.

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    • Realist:

      26 Aug 2014 1:29:31pm

      Not 'according to Chris Berg' at all. That is just the standard strategy of shooting the messenger that has been employed through the last seven years.

      Now, compliments of 'memoirs' from Labor icons and their minions, we find that the Labor years were actually even more dysfunctional than the staunchest critics of the time highlighted. Yet those critics were howled down by the same 'according to them' garbage.

      Just read and weep mate. What little credibility Labor had after their six disaster plagued years in power is being steadily trashed by none other than Labor themselves. Only fools believe now that they had even a remote understanding of what they were doing and the messengers have been shown to have been right all along.

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      • Robert:

        26 Aug 2014 3:19:53pm

        Presumably Realist they were the same six "disaster plagued" years that saw us emerge from the greatest recession since the 1930's with the creation of 1 million jobs, in a low taxing, low debt, low interest rate, record investment, AAA rated economy?

        Bet you wish you could transport yourself back in time?

        Now, what's smoking Joe up to again?

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        • AE:

          26 Aug 2014 7:48:41pm

          Low debt hmmm? And silly me here was worried about 300 billion in gross debt.

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    • Joan:

      26 Aug 2014 4:17:58pm

      Rudd stimulus turned a multibillion surplus into multibillion dollar debt and has left Australia exposed and vulnerable to next GFC. Spending in moderation is always prudent , panic and over reaction is the path to ruin. Cool heads, reasoned thinking needed in face of any adversity - something lacking in Rudd and Co.

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  • AJS:

    26 Aug 2014 10:11:23am

    Thank you for dispelling one of the great Labor myths - I think the tag poor economic managers is now even more appropriate.

    Mind you, the revelation above should make a few on the right squirm as well - they did back the first stimulus (smaller) package. That was probably supported for exactly the same reason - need to be seen to do something.

    Basically the dysfunctional, autocratic Rudd did the country in to satisfy his ego.

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    • Alpo:

      26 Aug 2014 12:31:50pm

      Chris is not dispelling anything, and the tag "poor commentator" to refer to him is now even more appropriate.... The "revelation"?... What "revelation"?

      Thank Labor for saving this country.... and move on, please!

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      • muzzg:

        26 Aug 2014 12:50:12pm

        ear oh dear - dear Alpo, in how many forums do you have to hear that the ALP efforts were a great big waste of taxpayers money - i only care about my portion of that money, I do not give a fig about your nor the other loony left portions.

        Every economist now opinions the same thing as evidenced by swannys choo choo train of memories.

        For some serious commentary on the same subject - look up yesterdats OZ, the article by Mr H Ergas is brilliant reading, even an old chook like yourself will surley get a chukkle or few.

        NB - it was not his money that he threw away, I get a reel big feeling it was more of my money then yours, via tax paid!

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        • Smartest Person in the Room.:

          26 Aug 2014 1:02:54pm

          No not every economist. In fact not even 97% of economists. The economists I know wouldn't give Ergas the time of day.

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        • Alphamikefoxtrot:

          26 Aug 2014 5:28:25pm

          Probably the same ones telling Wayne Swan he would achieve a budget, and telling him to publish a publically funded brochure telling us he had. Sorry, I'll take Henry Ergas any day over your preferred clowns.

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        • Daniel:

          26 Aug 2014 1:14:33pm

          There is no 'every economist'. There is one big dominating economic school based on fairytales of perfect markets that completly failed to see the GFC coming or understand it and a wide range of alternate views some of which did see it coming some didn't. And each of those will give a different answer for any question you ask.

          The only way to prove who is right would be to go back and do it differently, everything else is theory and hard to confirm theory at that.

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        • don't believe the media:

          26 Aug 2014 4:40:06pm

          Exactly Daniel. Think Harvard and the like and you'll find they are privately funded for the most part.

          Companies like Wal-Mart and GE etc etc pay millions to those universities. Those who study economics were only offered one variety. Milton Friedman's Chicago School variant. Many students and lecturers opposed this obvious corruption and protested.

          The schools had to offer other versions of economics....unfortunately the students who took those classes could not receive credits upon completion.

          If the LNP was in power at the time of the GFC, it would have been the perfect opportunity for them to cut public spending and sell assets to multi nationals. They would have fired thousands of public servants, cut benefits to the least advantaged and plunged the economy into a black hole.

          Abbot's 'debt and deficit' disaster was the disaster he had to invent after missing out on the GFC. Of course good old divisive policies around racism and sexism got him the votes of the simpletons and now he is free to rob us of our society.

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        • Sir Trent Toogood:

          26 Aug 2014 1:16:18pm

          'Every economist.......'!!!

          Do you have evidence to back that comment up?

          Or could it be just another wild, unsubstantiated rant from an LNP enthusiast?

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        • Alpo:

          26 Aug 2014 1:26:15pm

          The Australian?... Henry Ergas?

          ... You have just lost all credibility, muzzg... Sorry.

          Come back with reputable sources and we can start talking.

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        • Robert:

          26 Aug 2014 3:21:03pm

          You want us to look up yesterdays OZ?


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        • Reinhard:

          26 Aug 2014 3:25:55pm

          "Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best designed Keynesian stimulus packages of any country. Rudd's stimulus worked, Australia had the shortest and shallowest of recessions of the advanced industrial countries. "

          From: "The Crisis Down Under" by Joseph Stiglitz, former head economist at the world bank and a Nobel Laureate in economics.

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        • OUB :

          26 Aug 2014 6:46:55pm

          Stiglitz is a joke for mine. He is praising Rudd etc for implementing the same policies he recommended to the Americans. They worked better here because of our debt-free starting point, not because Swan or Rudd had a clue. The idiocy of our adoption of the roof insulation measures put together by the Americans for their more extreme climate should be obvious to all. Not trying to be provocative Reinhard, I was deeply unimpressed by Stiglitz in his public performances here recently.

          Sorry to pick nits but we did not have a recession, not technically. But by laying in as much debt as we have we have all the material needed for a recession soon enough. That may not be a terrible thing, other than politically.

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        • Alpo:

          26 Aug 2014 7:26:22pm

          OUB, we were NOT debt free when Howard left. Do make an effort not to write nonsense, please. Cheerleading is a very bad habit, you know?

          Stiglitz did not have a position of power in the American Government at the time the GFC unfolded. Again, what the heck are you talking about?

          Stiglitz, in his public performances here recently, just told the truth as it is: the issue of wealth/income inequality in economically developed countries is reaching crisis point and this is the direct result of the Neoliberal revolution that started in the late 1970s early 1980s. The Neoliberal revolution is imploding all around the world. Are you sure you were awake when Stiglitz was speaking, OUB?

          You are right that we didn't have a recession thanks to the good Labor management.... but we may have one soon under this new management....

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        • John:

          27 Aug 2014 3:58:37pm

          Alpo, we WERE debt free when Costello left office. He bequeathed a $20 billion "cash in the bank" buffer to Swan.

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        • Reinhard:

          27 Aug 2014 10:00:15am

          If Stiglitz didn't impress you it would be due to your own partisan ignorance, not any shortcomings on his part.

          He was one of the first economists to predict the GFC

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      • Ravensclaw:

        26 Aug 2014 2:02:56pm

        LOL Alpo. Please explain how the Stimulus saved our financial sector from the GFC?

        Rudd saved us from nothing, but left a train-wreck and massive debt!


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        • Alpo:

          26 Aug 2014 5:13:35pm

          Ravensclaw, I gather that you haven't been following the economic developments around the world since 2007-8. Just compare the response of the Australian Government with that of most Governments in Europe and also in the US, see the difference in terms of unemployment rate for instance. After you have done that, compare the level of Government debt in those countries with that of the Australian Government (up until the 6th of September 2013)... then you will understand.

          Yeah, cheers indeed....

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        • Matt:

          26 Aug 2014 5:14:58pm

          "Train-wreck and massive debt!" Keep bleating that tosh and even you may come to believe it.

          AAA credit rating, low interest rates, low inflation, low unemployment and managable debt. All after the GFC. Yep, sounds like a "train-wreck"

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        • Ravensclaw:

          26 Aug 2014 8:00:34pm

          Yay, multis.

          Howard left the economy in top nick, not Rudd or Gillard.

          It was our financial regulations that saved our financial sector during the GFC, as it was with Canada and Sweden.

          Neither Canada nor Sweden required a massive stimulus, but Australia somehow magically did.

          You didn't actually answer how Rudd's stimulus helped our financial sector during the GFC. Your red herring back hand blow suggests you acknowledge my point but simply won't admit it.

          Most of those governments you mentioned either had massive debt and/or bad financial regulations before the GFC. Australia's starting position was net govt debt free thanks to Howard.

          I actually think you like Rudd specifically because he left a train wreck and massive debt.


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        • Jane Doe:

          26 Aug 2014 7:30:40pm

          Rudd saved us from 17% interest rates on home loans by injecting the stimulus payment into the economy.

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        • John:

          27 Aug 2014 4:00:02pm

          It was Paul Keating who inflicted 17% home loan interest rates on us, Jane Doe.

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      • AE:

        26 Aug 2014 3:42:19pm

        I work in mining (sorry, I know that's offensive to the Drum Crowd). I assure that that stimulus did nothing for our industry. But then, we aren't a big union industry, so as far as Laba is concerned we can go to hell.

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        • Alpo:

          26 Aug 2014 5:19:31pm

          AE, with all the subsidies, discounts and tax breaks the mining industry gets, what else do they want?... A "stimulus package as well"?... The mining industry didn't need the Government, they already had the China economic boom.... BUT we would have appreciated a better contribution from the mining sector during those years through less whingeing when the MRRT was introduced for instance.

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        • Robert:

          26 Aug 2014 5:29:08pm

          Who is the "we" you are referring to AE. What "team" do you profess to be on?

          What we do know is that mining was the only sector in which unemployment grew during the recession. Whilst small business, retailers, manufacturing, the finance and rural sectors all did their bit, the big miners, on the back of public funded subsidies no less, sat back and did nothing.

          Leaners I think you would call them!

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        • AE:

          26 Aug 2014 6:00:04pm

          We get no subsidies. I mean we in mining. It was our industry that stimulated the economy, through market forces, that made the dollar strong and allows people to have more purchasing power than ever before. Do you understand that? Sure, maybe a lot of that money gets spent overseas but that's freedom isn't it? People can spend their money better than the guvvamnet can.

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        • rusty cairns:

          26 Aug 2014 8:21:26pm

          Gee AE I delivered building products made from Bluescope steel products to builders, building infrastructure on school grounds. This infrastructure will be utilised on those grounds for decades. Those bluescope products were manufactured by using materials that were mined from mines just like the one you work in. Those builders were able to use the profits made whilst building those school halls to purchase other products that require the materials that you mine.

          Had there been no government stimulus more mine workers would have been laid off because less minerals would have been needed because there would have been less demand for them.

          Australian government stimulus did protect jobs in the Australian mining industry, even if it was spent on products manufactured in China and purchased here in Australia with the money supplied by the stimulus. More products sold by China means they require more minerals, i.e. demand.

          Why can't you understand that ?

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        • Toc:

          26 Aug 2014 5:36:48pm

          AE. It was the miners themselves who sacked people during the GFC. During a crash, nobody wants to buy anything, so miners aren't going to dig anything up to make things out of, so miners sack people. The minerals aren't going to go away, so we may as well dig them up when they can be sold.

          It's tough I know, but anyone in mining who isn't putting money aside for just those times is fooling themselves.

          BTW. I work in construction, mining and oil & gas. If I don't put money aside for when the work stops, who is to blame but me.

          You and me, we don't live in the same world as most people.

          For most people, Labor's response to the GFC was the best possible.

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        • AE:

          26 Aug 2014 7:50:32pm

          You're right, I was fortunate to avoid layoffs but those who don't put aside are stupid. Same as how people in our country who think we can just keep spending and never have to pay the bill....

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        • rusty cairns:

          27 Aug 2014 7:12:35am

          Ahh Who thinks that AE ?

          Our governments debt doesn't need to be paid totally paid by any date.

          The Japanese government has 5 times more debt than the Australian government, they have had this debt for years.

          Yet more than likely some of the minerals the mining company that employs you are sold to the Japanese.

          Just like Japan could, Australia could pay back the debt we have now, within a year, by using the money paid on pensions and government employees etc, but it would mean or economy would be devastated and people would starve to death.

          Mate, thousands of generations of Australian could live happy and prosperous lives with debt as long as it is managed.

          Australia could have 5 times the debt it has today and still manage that debt. Even if a country can't pay the bills it's people don't get evicted from the country.

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    • ScottBE:

      26 Aug 2014 12:33:37pm

      Yes Rudd had serious problems - which is why he was dumped. This wasn't a capricious action but Mr Rudd had become untenable as a PM.

      Yet the subject here is economic management. And the point Chris makes is focussed on one aspect of economic management only. Taken in context, as discussed by Colin below, Swan saved thousands from becoming unemployed and thus kept our economy moving and sustainable.

      Best not to ignore the whole picture AJS but to recognise the total good as well as the perceived singular faults.

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      • Realist:

        26 Aug 2014 1:36:47pm

        If the government just borrowed enough to pay the basic wage to those without a job then they could claim everyone was employed and there was zero unemployment.

        How wonderful, saving everyone's jobs like that.

        In essence that is what Labor tried to do. Borrowed massively to be able to claim they 'saved jobs'. In reality people will be unemployed for a long time to come as the economy labours under the massive debt that Labor created in an effort to 'be seen to be doing something'.

        'Being seen to be doing something' sums up the Labor years! Just a pity that fashionable pretence is so damned expensive.

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        • Dandelion:

          26 Aug 2014 2:18:59pm

          You would think that a "realist" would understand the difference between the budget and the economy. How exactly is the economy labouring, when the debt was incurred by the government? The government isn't the economy. A far greater problem for the Australian economy is the private debt owned by individuals and businesses, a whopping 2 trillion, most of it to purchase housing at inflated prices. The fact that the government has a debt of around 12% of GDP and a deficit at around 3% of GDP is largely irrelevant to the economic activity of the millions of individuals and businesses that make up our economy. Except of course if your keen on political rhetoric to scare the massess with talk of "debt and deficit disasters".

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        • ScottBE:

          26 Aug 2014 6:14:47pm

          Yes... no wonder the banks are making such huge profits... including reverting to unwise and inappropriate lending practices of sub-prime mortgages if the SMH report is accurate.

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        • Robert:

          26 Aug 2014 3:24:12pm

          Not just "saved" jobs Realist. Actually created 1,000,000 new ones. Certainly cant recall seeing a 6 in front of the unemployment rate.

          My how times have changed.

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        • don't believe the media:

          26 Aug 2014 4:41:58pm

          The third lowest debt to GDP in the third wealthiest country on Earth. Wake up, you are being used as a prole.

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    • Smartest Person in the Room.:

      26 Aug 2014 12:47:42pm

      Dispel myths? It does no such thing. Because the alternative wasn't explored. His claims on the effectiveness are just theoretical classical economic nonsense. Take an actual look at the data. Construction post GFC including in mining fell despite the lower interest rates. The BER scheme filled this void.

      Retail sales fell the stimulus check combined with the lower interest rates prevented further drops. Australians changed their spending patterns, saved more, the lower interest rates resulted in many Australians paying their mortgages down quicker. Sure the Chinese stimulus then kicked in, does the IPAs crowd claim that was a waste? A strategy of only relying on monetary policy was never explored so we're never know the result, but you cannot argue that the government spending had no effect on the economy.

      The great lie of the IPA and the Liberal party is that there wouldn't be a deficit if there wasn't a stimulus spend. This is nonsense as every economist with a brain knows that there was a structural deficit left by Howard and exacerbated by Rudd.

      Labor economic failure was not to increase taxes back to pre-GFC levels.

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      • Peter NQ:

        26 Aug 2014 1:38:26pm

        Who cares about retail sales. Its the Great White shark of the economic foodchain. The underlying plankton of bonds, cash rates, bank lending and primary industry is what really drives the economy.

        There's a dirty big bubble of housing which underpins bank lending. They better be watching that as it boils away to an empty pan, otherwise then we'll be in deep strife. Whats the asset ratio of the banks? 30 to one?

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        • clete:

          26 Aug 2014 4:42:37pm

          Agree on the housing bubble, Pete. It is getting scary.

          Unfortunately, we won't have anything close to a surplus to play with, if the bubble bursts.

          I'll be OK. It's the next generation I fear for. And, Labor/Greens are so determined to see this governments budget fail, they'll drag everybody down with them.

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      • Todd:

        26 Aug 2014 2:05:10pm

        Oh, the Builders' Early Retirement program. If you owned a building company, sure it was a great initiative. But paying two or three times the market value for work only means extra profit. I am sure these builders did not pay their employees three times the wages when the sucked the Government into agreeing to pay three times the price for an undercover area in a primary school. The vast majority of the funds went to the OWNERS of building companies, nobody else. The only increase in employment may have been in domestic services. Builders', I am sure, would have put on a butler or maid to help around the house - cleaning a 15 bedroom 6 bathroom house on the river isn't as easy as you think.

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        • Jess:

          27 Aug 2014 3:40:02pm

          NSW and QLD were the 2 states that had problems. Everywhere else had builders who tendered compeditavely to get the job. Many companies outside NSW and QLD had thin margins and actually bought more people on.

          Seems like a NSW and QLD Govt problem.

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    • Realist:

      26 Aug 2014 1:32:21pm

      So many Labor myths have been dispelled in recent weeks by the 'tell all' books of self focussed Labor icons that it is hard to know which are the 'great Labor myths' anymore.

      The more important question is "What Labor narrative was not a myth' and the answer is "None!"

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      • Sir Trent Toogood:

        26 Aug 2014 3:17:35pm

        What is not a myth, is that those economic geniuses in WA, the State Liberal Party, lurch from one fiscal disaster to another.

        The latest being another leading agency downgrading our credit rating.

        That makes two.

        These economic vandals have taken the debt from $3b to $26b, with virtually nothing to show for it.

        Here in the boom state, we have out of control utilities prices, choked roads, broken pre election promises and lies.

        Liberal governments are superior economic managers than Labor?

        I dont think so!

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    • Tarquin.:

      26 Aug 2014 1:52:26pm

      Wot, he said, no mention of the fact, that Labor, lost the election, but left a credit rating of AAA, only one of a few nations with this rating. How long will the last, not long by the look of things. By the way, did you notice the the richest state in Australia, WA, has had its rating dropped to AA1. Prior to the election, Abbott, said, "I want to run the nation, like Barnett runs WA." Well that,s one promise, he hasn,t broken.

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    • Tom1:

      26 Aug 2014 4:07:00pm

      AJS. "The big spend $42 bil came later." Well there is no global financial crisis now yet this present government can spend more than half of of the amount Berg is choking on his Wheeties over for no conceivable good whatsoever. It is being passed of as a productivity move, but it is intended to have no purpose other than to lift Abbott's standing with the women at the ironing board, digesting the fact that he said there would a PPL scheme over his dead body. You really need to revise your thinking.

      Then, perhaps you may be able to explain how productivity will lift above the cost of implementation after four years. No I suppose not!

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      • whohasthefish:

        27 Aug 2014 4:02:41pm

        I beg to differ Tom1. The thousands of contractors across the country were able to continue working. Those wages were then spent into the economy and was shared about. An estimated 200,000 jobs were saved and those wages spent. People whom would have lost homes and businesses were saved.

        Many, many thousands of people relied on that stimulus to stay afloat. I have absolutely no problem with the stimulus spending into the domestic economy and I think their should be more of it but next time use monies garnered from our resources, and our superprofiteers.

        Domestic stimulus is good for small business activity and the populous and can be easily targeted and is a way of dampening economic shocks and why not reap a larger cut of the huge rewards from our resources, energy and financial sectors as well as our science, research and development capabilities.

        Remove some of the more generous entitlements, start cutting them from the top with the overriding message being if you are very well off indeed then no entitlements, you should be thankful that you are part of a society that creates the environment, encourages your success, and values you efforts with substantial monetary rewards.

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    • John51:

      26 Aug 2014 5:05:41pm

      AJS, Chris has got his fact completely wrong, but that that is nothing new for IPA. His facts are so wrong they are the reverse of what happened. Interest rates went down substantially after the GFC hit even with labor's stimulus. Interest rates are still substantially lower than what they were pre GFC including when Howard was in government.

      Go and look up the RBA cash rate history on the internet. It is easy to find to completely dispel Chris's argument.

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  • Here we go again:

    26 Aug 2014 10:13:55am

    Chris Berg believes that Kevin Rudd and Wayne Swan should rocked up too the 2009 G20 meeting, the first after the commencement of the GFC, and told the other global leaders in no uncertain terms that it was their job to save the Australian economy with stimulus spending and not the Australian Governments. I am sure they would have all agreed with the economic sense of Australia keeping a budget surplus and keeping very low Australian government debt.

    What goes on in the minds of some people is extremely puzzling.

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    • ScottBE:

      26 Aug 2014 12:27:50pm

      ....... "What goes on in the minds of some people is extremely puzzling." ......

      I agree... but human nature is incredibly biased. We believe in something so all that does not fit within our belief can be negated or rejected. That is Mr Howard's belief and our govt is following as faithfully as they can manage.

      Bias, ignorance and mental myopia pervade the political landscape.

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  • Davies:

    26 Aug 2014 10:21:44am

    Another stroke of brilliance that saved us from the terrible crash in the US and The UK. This article is trying to justify the so called Sick Tax. When Tony Abbott committed 24 billion to buying planes from the US, and another 100 billion for the ongoing cost of defence spending Armageddon, you get the impression the cigar man is telling porkies in an a rage against the poor.

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    • Tator:

      26 Aug 2014 1:58:55pm

      $24 billion isn't the purchase price for the F35's. It is the whole of life cost over the operational life of the F35 which is expected to be 30 years and isn't paid up front.

      Firstly the purchase price of the F35's is only $12 billion, the other $12 billion is the cost to run the aircraft, which the taxpayer already pay out to run the F/A18's and are an ongoing cost including fuel, pilots salaries, spare parts, maintenance etc.

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      • don't believe the media:

        26 Aug 2014 5:05:10pm

        Tator, you may have omitted the fact that on top of the purchase price we also get to go and spend millions fighting the U.Ss dirty corporate wars with them. Abbot's busting to hang tough with the big bully and it will help his fear campaign.

        Nice little deal eh?

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      • Curious party:

        26 Aug 2014 5:18:28pm


        So if we chose not to spend the extra $12 billion after purchase, could we still use the planes?

        If, as is obvious, the answer is no, then the cost of the planes is $24 billion and you are just quibbling.

        The real question is whether we have better things to spend $24 billion on. Many of us think that we do.

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        • Tator:

          26 Aug 2014 6:21:16pm


          yes, but the extra $12 billion are operational expenditure over 30 years and in line with what we currently spend on the Hornets.

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  • Argus Tuft:

    26 Aug 2014 10:21:54am

    They govern best who govern least!

    People would have learned some very valuable lessons if they had been forced to settle up on their losses in 2008. Instead, we still have the same people placing the same stupid wagers.

    And who is paying for it all? The thrifty savers and genuine producers who are seeing their hard earned savings inflated away by money printing.

    And sadly, the problems are all now 7 years bigger.

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    • Alpo:

      26 Aug 2014 12:28:08pm

      "People would have learned some very valuable lessons if they had been forced to settle up on their losses in 2008."... Yep, they would have learned that Capitalism is rotten to the core and we would have a Marxist Government by now.... Thank Labor for saving Australia from Communism!

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      • Danny W:

        26 Aug 2014 1:03:10pm

        I say thank God for Labor Alpo. Without them the world would be doomed.

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      • Alphamikefoxtrot:

        26 Aug 2014 5:31:57pm

        'Thank Labor for saving Australia from Communism!' Great, I must have missed the announcement that Labor had ditched its nationalisation of banks policy..... No - hypocrite.

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        • Alpo:

          26 Aug 2014 6:53:26pm

          There is another GFC coming soon, Alpha. Tell the bunch of incompetents in government to follow the Neoliberal script word by word.... Ten months later, the Bolsheviks supported by the outraged People will take over in Canberra.... but this time, Labor won't be able to save the country...

          You obviously don't understand what Neoliberalism can do in a major economic contraction.... read about the 1929 Great Depression, mate, use your time more efficiently!

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        • AE:

          26 Aug 2014 7:52:32pm

          Read about more people being lifted out of poverty than any time in human history, mate.

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        • SilentCastaway:

          26 Aug 2014 8:27:07pm

          Yep, cos your neo-communism has worked so well around the world. Seriously, is there anything thicker than a died-in-the-wool socialist?

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    • Mick Podger:

      26 Aug 2014 12:28:47pm

      You can't produce anything if you've lost your job.

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      • Argus Tuft:

        26 Aug 2014 2:34:02pm

        Well a hell of a lot of Australians are out there right now, trying to do just that; survive without a job.

        They are called small business people.

        And their ranks are growing as an uncompetitive Australian economy loses jobs at a rate of knots; thanks to latte-sipping attitudes like yours; people who still think that a job is your entitlement, irrespective of what you do or don't produce to please a customer.

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        • whohasthefish:

          27 Aug 2014 1:34:58am

          You are cheering for the wrong side then Argus. Small business does well when people have money in their pockets and are confident enough to spend it. This government has undermined confidence by continually talking down our very strong and robust economy by fear mongering for cynical political purposes at every turn.

          This undermining of confidence has a huge impact on domestic economic activity and is the single greatest threat to our small business community. You want lower wages and less money in our domestic economy then no problems the LNP are doing just that, but do not believe for a second that austerity is good for small business.

          This government had choices to increase revenues from the very profitable big end of town multi national entities but has elected to instead fill that hole by reducing the amount of money in the hands of the people. Those very same people that are the small business mans bread and butter customers.

          This government does not represent small business at all, it represents the big end of town oligarchs at the expense of everyone else.

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    • Dandelion:

      26 Aug 2014 2:25:52pm

      I suspect you would have learnt a valuable lesson if you'd tried to explain to the thousands of contractors and tradies proppped up by BER, why they were much better off being insolvent and joining the dole queue instead.

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      • AE:

        26 Aug 2014 7:53:43pm

        Yes, it sure was great if you were one of these beloved "tradies", wasn't it?

        So why do they, and failed car factory employees, get all the love?

        Because they are union people.

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        • Dandelion:

          27 Aug 2014 10:22:57am

          That's a long bow, none of the tradies I know are in a union. Maybe they got the love, because the construction industry is a huge employer in this country. Not everything is a Labor/union run conspiracy you know.

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  • Colin:

    26 Aug 2014 10:37:08am

    Monetary policy can work when there is a supply of money that can be made cheaper to access. In the GFC the problem was the disappearance of available of money and thus, as many countries found, monetary policy alone failed dismally. Australia used the rational approach of boosting the amount of available money and so rescued the Australian economy from recession. To try to build a case against the Labor government on the basis of a single 2 page memo and a simplistic trust in monetary policy is far from convincing.

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    • Warshawski:

      26 Aug 2014 1:00:31pm

      You are talking about 2 separate issues, first is the cash splash of which this article is about which only managed to increase government debt and increase interest rates.

      The other the bank loan guarantee made cash available to the banks to lend because there was not enough internal savings in Australia to fund domestic borrowing.

      The cash splash had minimal impact on the amount the banks could lend.

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  • Waterloo Sunset 2016:

    26 Aug 2014 10:37:41am

    Spot on. And I've said so on many occasion.

    Labor is basically a committee. They should never be allowed to govern.

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    • Mark James:

      26 Aug 2014 12:24:11pm

      "Labor . . . should never be allowed to govern"?

      "Allowed" WS?

      You're aware that Australia is a democracy, and that we don't tend to ban political parties here?

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      • Warshawski:

        26 Aug 2014 1:08:07pm

        I agree mostly, in the past we have banned political parties and at the moment there are parties that claim to be political that are banned from forming in Australia.

        Perhaps Waterloo Sunset 2016 you need to review the constitution. You could always educate the population about economic management and long term consequences of short term popularity. That way the entire political process would work much better.

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    • ScottBE:

      26 Aug 2014 12:35:20pm

      What an absurd comment WS.

      Would you feel better if I said Liberal should never be allowed to govern? You would say I was stupid and you would be right!

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    • Aven:

      26 Aug 2014 12:58:46pm

      @Waterloo Sunset 2016

      What is the alternative to being governed by committee??

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      • Curious party:

        26 Aug 2014 5:21:09pm

        Of course, the most silly thing about WS2016s comment is that the LNP is also being governed by committee. The only difference is that the people who are running the shots are the mega-rich who are contributing large sums of money to their campaigns.

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    • jor-el:

      26 Aug 2014 1:03:36pm

      WS; How unfortunate your kneejerk LNP cheerleading is positioned so closely to Colins post above.

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    • Albo:

      26 Aug 2014 1:06:26pm

      The only reason we allow Labor the odd term in government is to remind the electorate just how incompetent they are and the imperative becomes obvious to get rid if them again to have a few terms of competent government to fix up their last mess !

      The article captures the essence of all Labor governments , with it all to do with politics and nothing to do with what's best for the nation. ! And we see it once again in Opposition today . Let the joint burn down as long as they can improve their primary vote in doing so !

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      • ScottBE:

        26 Aug 2014 2:05:32pm

        "The only reason"... what a silly comment.

        All political parties have problems. No one party is exempt. Right now we are seeing a most destructive budget. Are you implying that the Libs are truly better than Labor?

        The evidence speaks to the contrary view that all governments and parties include people who rise to positions of authority through bullying, collusion and manipulation rather than through genuine expertise.

        Currently we have a singular extreme example of this argument, while many talented and expert Liberal and National Party members sit on the back bench.

        Mr Rudd was another extreme example. And he was sacked by his party because of his dysfunctionality (Crikey, what foolishness to give him a second shot!).

        Chris' article takes one scenario from Mr Swan's book and uses this to cast the whole GFC package into some doubt. It does nothing to explain the whole situation. Neither does it do him much good (except that it encourages all the despondent Lib supporters to come out of their shame-holes)

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      • DWM:

        26 Aug 2014 3:58:44pm

        What have the libs. ever fixed?

        Howard fixed nothing with his profligate spending of the mining boom and asset sales. He is the reason we had to borrow to avoid the GFC. you need to get real and find out the truth about Howard and who was it that needed to do a repair job after his days as Australia's worst treasurer when he managed to preside over an interest rate or 22% in 1981/82. if you opened your eyes you would see incompetence at every turn with this pack of Howard era has beens.

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      • rattan:

        26 Aug 2014 4:30:02pm

        if we didn't the liberals wouldn't have anything to sell

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    • MD:

      26 Aug 2014 1:51:05pm

      Australia should only be governed by an autocrat that WS approves of. What an idiotic assertion! Tony Abbott is PM because he's the leader of....what?

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    • Tom1:

      26 Aug 2014 4:17:36pm

      Waterloo: The sad news is that the party you so fervently follow does not know how to govern. Therefore what is the best option. It may be best for you to put your prejudices aside, and let a party that has the experience to at least enunciate some policies even if they do not meet your right wing approval.

      After 12 months of a Liberal government the deficit is greater than when they started.

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    • don't believe the media:

      26 Aug 2014 5:12:19pm

      May i quote political scientist Michael Wolfe: " Conservatives cannot govern well for the same reason that vegetarians cannot prepare a world class boeuf bourguignon. If you believe that what you are called upon to do is wrong, you are unlikely to do it very well." "As a way of governing, conservatism is another name for disaster."

      I appreciate your tag though. Let's hope it's true.

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    • Algernon:

      26 Aug 2014 6:05:38pm

      My experience is that the LNP is riddled with the sad, the stupid and the lonely.

      Based on the last 12 months this lot haven't got a clue how to govern. Maybe they need a committee to show them how. Really if they don't have a clue they shouldn't be governing before they wreck the joint.

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      • Waterloo Sunset 2016:

        26 Aug 2014 7:29:58pm

        Well, I've had 3 responses censored; in lieu, it seems of the usual left gobbledegook.

        I'll try one to you Algy.

        Based on the last 12 months, I'd say that 'this lot' have got a clue how to govern.

        You see it's all a matter of perception. You think one thing, and I think another.

        In your case you're absolutely convinced that you know better - as do the other Drum regulars. That's why you blog in here. It's comforting isn't it, to be surrounded by like minded carpers?

        You complained about TA, all the way through the six horrendous Labor years...And now that the medicine has been scripted to rectify those foolish excesses (political of course - as Swannee, admits), you cry foul.

        How did you think that it was all gonna get paid for?

        Borrow some more from Norway, I suppose?

        Labor will be in exile for at least ten years,. I told you that last week. Burke will be getting ready to be leader of the opposition for his challenge once the economy has been rectified. The kooky Labor promises will seem viable then.

        Although, Its hard to see how anyone will be able to trump Malcolm's intellect, once he gets a Guernsey...He could be there for 15 years.

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        • Algernon:

          26 Aug 2014 10:54:34pm

          By what delusion do you come up with this tosh WS.

          I stand by why I think TA is unfit to be PM for reasons I have made plain since he became opposition leader in 2009. You choose to either ignore or refuse to believe anything being said against them.

          As a government they don't seem to be able to negotiate anything through the senate. They don't seem to get that they are actually NOW the government. Look at the Finance minister when asked about the budget. Its Labor this and Labor that, but when bought back the question what would the government do, he's struck dumb. Tough job when you've got a Treasurer berating the poor about their driving habits and an assistant fighting ICAC.

          It's their problem across the board WS. Confidence is down unemployment is on the rise all because the perception is that the government lies to them and are basically dishonest. The trust has gone and the polls are reflecting that.

          Whose talking about borrowing, I'm talking about being fair not cruel about being honest and not lying. If they were smart they'd move to Malcolm Turnbull fairly quickly to get some sort of creditability back. If they go to the next election with Abbott as PM then they're a one term government who will be lucky to hold 40 seats.

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        • Waterloo Sunset 2016:

          27 Aug 2014 9:19:37am

          The treasurer didn't berate the poor. he used a statistic that he deemed correct. Of course it was correct in the overall scheme of things, but not in terms percentage of income.

          He probably shouldn't have said it, however, it gets boring when you and some of the inferior reporters keep on focusing on politician's words instead of the real problems: Labor's recurring and - usually-perpetual-legacy: including job losses.

          As for The Senate: please?

          Now, you wrote, "he's struck dumb". They laid out a plan:- The Budget.

          Somebody wrote that it's 90% through. They can't be that dumb.

          There's just a few loose ends. And I'm on your side in agreeing that a few things need negotiating...Medicare fopr one. It's always that way. (pre-dates modern civilisation)

          Remember when Windsor, sold his soul for personal gain. It's part of the patina: negotiating.

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    • MDG:

      26 Aug 2014 9:27:33pm

      If you don't like government by committee, I suggest going to a non-Westminster democracy. Government by committee is actually enshrined in our constitution (albeit under the leadership of the Governor-General rather than the Prime Minister). Have you ever heard of the Cabinet? Or the National Security Committee of Cabinet? Or the Expenditure Review Committee of Cabinet? No doubt there are others, but I'm sure even you get the picture.

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  • ij:

    26 Aug 2014 10:41:15am

    As opposed to doing nothing, and sending us into recession, as Hockey would have done if he were treasurer at the time?

    It should be obvious to all that an Abbott government in power during the GFCs would have turned Australia into an economic basket case.

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    • Esteban:

      26 Aug 2014 12:48:38pm

      We know Australia would have gone into recession because Wayne told me. If the stimulus was a complete waste Wayne would have said so in his book.

      It is just that thing about The RBA putting on the brakes with interest rate rises while Wayne had his foot to the floor with stimulus that I can't explain.

      I know! The RBA got it wrong. That makes Wayne even more heroic because he battled the GFC with an incompetent RBA on his back. Quick write a new chapter Wayne.

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      • ScottBE:

        26 Aug 2014 2:09:57pm

        But of course the RBA was focussed on one aspect of economic management while Mr Swan was focussing on employment and business viability.

        Both actions worked well in concert and prevented much pain and suffering in the community.

        As I've said elsewhere, Chris has taken only one aspect of this scenario. In the broader view, we have to thank Mr Swan and the RBA for preventing a serious catastrophe.

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      • ij:

        26 Aug 2014 2:35:29pm

        I guess you feel it would have been so much better to follow the lead of the USA, or Europe, and go into a deep recession?

        Brilliant economic thinking.

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        • Esteban:

          26 Aug 2014 5:16:50pm

          Perhaps I missed the massive bailouts of Australian banks which happened in the USA and Europe. Credit seized up in the USA and Europe but not in Australia.

          Once again your only evidence that Australia was going to go into recession is that Wayne said so.

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        • ij:

          27 Aug 2014 7:39:48am

          Perhaps you also missed the fact that no one panicked.

          We had a strong economy, and it stayed that way.

          Look at what Hockey has done with his first budget. Pure incompetence.

          Fortunately for us, he wasn't treasurer during the GFCs, because there can be little doubt he would have panicked.

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    • clete:

      26 Aug 2014 1:14:47pm

      The Coalition in opposition supported the first tranche of stimulus spend, ij. It was the second massive, poorly targeted spend that the Coalition objected to. As it turns out, the Coalition had the more sensible approach, it seems!

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      • ij:

        26 Aug 2014 2:37:45pm

        Who cares?

        Labor had the reigns, and Labor did what the LNP would never have done - kept Australia out of recession.

        I doubt Hockey has understanding of economics to do anything but copy what the USA, or Europe, was doing. And we see how well that worked.

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  • hutja:

    26 Aug 2014 10:41:32am

    The Rudd-Gillard-Rudd Government can be distilled down to one simple notion - perception over substance. In every policy area they ever tackled ? Climate Change, the NBN, Fiscal Stimulus, Gonski, Mining Tax, Foreign Policy ? everything.

    Current and future Government's take note.

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    • Jerry Attrick:

      26 Aug 2014 12:58:13pm

      Hutja, if you had ever dealt with financial markets you would know that perception is EVERYTHING. The markets crash over news stories that frighten the fear-prone gnomes of the economics world.

      Producing the right perceptions is what keeping the economy stable is all about.

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      • Hutja:

        26 Aug 2014 3:59:38pm

        Underlying fundamentals are everything in creating a stable platform for financial markets to operate. Rapid changes in perception equal volatility, but it always comes back to the fundamentals. A great analogy for the Rudd-Gillard-Rudd era really, i.e. no solid fundamentals, only volatility and finally destruction.

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      • Curious party:

        26 Aug 2014 5:23:35pm

        Dead right Jerry - when we have a greeny protester in court over a simple hoax email that made a mining company 'lose' millions of dollars in value, we can see just how pathological 'the market' really is.

        And btw, that is the entity that the neocon right want to be in charge of our lives.

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  • will_r:

    26 Aug 2014 10:49:28am

    This effort is far below Mr Berg's usual standard and betrays an adherence to questionable ideology.

    1. "This interest rate fall made the $900 cheques look like chicken feed"

    Only if you had a mortgage. That $900 went straight from the hands of poor people into the retail trade. That was the point.

    2. "The debt racked up in those few months crippled Kevin Rudd's policy agenda..."

    No. It was It was Labor's fear of fully implementing the Henry Tax Review, with it's reform of trusts, mining taxes and so on that hobbled them and drained the coffers.

    If they manned up and implemented the Henry Review whole cloth, while sticking to their guns on an ETS (and avoiding the folly of axing Rudd) they'd probably still be in government.

    And we'd all be far, far better off... aside from the screeches and wails of the IPA and its plutocratic backers.

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    • Danny W:

      26 Aug 2014 1:05:50pm

      From my memory will_r, our commonwealth finances were doing just fine before the Henry Tax Review. What makes you think it went down the gurgler because it was not implemented? Strange logic indeed.

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      • Curious party:

        26 Aug 2014 5:26:38pm

        Your memory is faulty Danny W. The Howard years, and the decision by Rudd to honour the ill-advised tax cut he promised to get into office meant that the government revenue base was in a pitiful state. I mean, who'd have thought that reducing taxes on those most able to pay, then selling productive assetts and using the winfalls of the sales to make up the shortfalls would come back to bite us?

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    • Daniel:

      26 Aug 2014 1:23:21pm

      Very much so.

      If Labor had gone for real reform via the Henry Review we would be in a much better position now.

      Instead we have the Coalition pretending that their war on poverty is the only option. If they put public good ahead of their donors and short term political goals and applied the recomendations of the Henry review we could begin repairing the economy and closing the gap between rich and poor instead of widening it. And rewarding real enterprise not just property speculation.

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  • Dressy:

    26 Aug 2014 10:52:37am

    So glad Chris wasn't in charge of making decisions. Rome was burning and he would have been playing his fiddle.

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    • AJS:

      26 Aug 2014 12:34:31pm

      I think the point he is making is that 'Rome was not burning' but that the Rudd / Gillard /Rudd Gov't acted in a disproportionate way to a crisis

      Rome was not burning - there was a fire in the distance that could have been more easily managed by the fire brigade (Reserve Bank) putting it out with a few judicious hoses.

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    • Esteban:

      26 Aug 2014 12:40:55pm

      Rome was burning but there were no fires in Australia.

      The salient point is that Fiscal stimulus is the next step after interest rates hit zero. We never got to zero and in fact the RBA was putting up interest rates and applying the brakes while the stimulus was being rolled out.

      Swann saw a fire in Rome and turned on the sprinklers and emptied every fire extinguisher we had in Australia. He even borrowed fire extinguishers that we have to pay back someday.

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      • Dressy:

        26 Aug 2014 3:30:45pm

        Let's accept the point that the rest of the world was burning, but Australia wasn't. Who can guarantee that this would have continued! Very naive to believe Australia lives in isolation.

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      • Curious party:

        26 Aug 2014 5:32:00pm

        For interest rates to hit zero there would have had to be a far longer period of reduced growth/downturn, which would have caused more damage to our economy on the whole (especially in the background of a global downturn).

        Precipitous action through fiscal stimulus may well have stopped all of that from happening. The point is, though, that we don't know - we don't have a separate Australia which had no fiscal stimulus with which to compare.

        So again, we are doing the cherry picking of snippets of information to try to justify our own beliefs.

        But I might just say that I am disinclined to listen to the analysis of economic 'experts' who failed to predict the GFC in the first-place. That includes Glen Stevens.

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        • Esteban:

          26 Aug 2014 6:38:17pm

          We have to learn from our mistakes so we can refine our response on the next occasion the economy slides.

          To perpetuate a myth for political gain at the expense of having a better response to future downturns is not good for any for us.

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    • Albo:

      26 Aug 2014 1:19:04pm

      Better that Chris would have played his fiddle then , rather than some goose paying over the odds ticket prices to see washed up commercial rock stars sing about how tough the working class idyll has been !

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  • Tod C:

    26 Aug 2014 10:53:21am

    As every thinking person already knew, Labour got us in this huge debt for their own political expediency. They now wont pass the budget and reduce the mess they created, again - for their own narrow, selfish political interests. And some people actually believed that Labor cares for the country or the people?!!! Labor would always sell the country down the drain for their seats in parliament, particularly the seats at the treasury benches.

    What has, once great party, degenerated to - a bunch of selfish, greedy, unscrupulous union apartchicks.

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    • ScottBE:

      26 Aug 2014 12:43:43pm

      Labor AND LNP have each contributed to the debt... yes Mr Howard paid off the pre-existing debt from the 92 recession - but his little vote-buying tax cuts created the structural deficit that has caused our current "Budget Emergency"!

      Would you rather have had mass unemployment as most other nations did post GFC? Would you prefer to have the social disconnection and misery that comes from the full on crash that others had?

      I accept Mr Berg's argument here, but it is not the whole story.

      ..."Labor would always sell the country down the drain" is a meaningless and bigoted comment.

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    • FedUp:

      26 Aug 2014 12:53:07pm

      As every thinking person already knew, the Howard LNP government got us into this huge debt for their own political expediency. They now can't get their dog of a budged passed and it won't reduce the mess they created in the Howard years anyway - for their own narrow, selfish political interests. and some people actually believed that LNP cares for the country or the people!!! LNP would always sell the country down the drain for their seats in parliament, particularly the seats at the treasury benches.

      What has, once great party, degenerated to - a bunch of selfish, greedy, unscrupulous extreme apartchicks.

      There! fixed that for you. No need to thank me.

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      • Pat:

        26 Aug 2014 1:21:59pm

        Actually, both Tod and you are quite right.

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      • Miowarra:

        26 Aug 2014 3:03:59pm

        The Liberal Party was never "great".

        It was only ever reactionary, from the date of its establishment with the sole aim "to keep Labor out of government".

        That's hardly even reputable, let alone "great".

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      • Curious party:

        26 Aug 2014 5:44:00pm


        I think you have that a bit wrong. The LNP budget won't fix the revenue problem they created in the Howard years because they don't see it as a problem. Their small government/ user (the poor) pays ideology has been well served in this two-part strategy. They used boom times to reduce taxation rates while they could still afford to provide the same level of services due to bumper company tax revenue, with full knowledge that when that unusually high source of revenue fell they would be in a position to implement the second part of their plan - use poor revenue as an excuse to cut services which they don't believe the government should provide (ie all of them except the ones that protect the assets of the wealthy).

        The ALP were in a difficult situation due to the GFC and thus they couldn't fix the problem by raising revenue across the board (which they should do IMO, through a progressive tax increase). Vested interests worked through a willing media (and willing stooges in opposition) to prevent them from using targeted taxation to fix the revenue problem.

        But the biggest failing of the ALP is their lack of willingness to address the real argument now. They need to be out there arguing the case for the provision of government services. They need to be out there reminding us how much better off our society is AS A WHOLE than society in the US or in other countries that don't care about the poor. They need to be raising the case that paying more taxes means fewer costs for most of us in the areas of health, education, transport etc etc etc.

        But they are not doing that because they lack vision and/or foresight. An ALP with vision would have been able to withstand the GFC and the media bias against them. But we have not had that, and with Shorten in charge we aren't going to get that any time soon.

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  • Forrest Gardener:

    26 Aug 2014 10:53:51am

    Over and over again, what passed for logic under Rudd was always the same:

    1. We have to do something.

    2. This is something.

    3. Therefore we must do it!

    Labor never has understood what is required to govern effectively.

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    • Jungle Boy:

      26 Aug 2014 1:30:56pm

      "Labor has never understood what is required to govern effectively"


      So the Curtin government that got Australia through the dark days of the war was ineffective?

      So you give no credit whatsoever to the Hawke-Keating reforms?

      I'll give you a clue: Rudd does not equal Labour. Labour does not equal Rudd. (Similarly Abbott does not equal Liberal etc.)

      Maybe we should conclude: Forrest Gardener has never understood what is required to argue effectively.

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      • Curious party:

        26 Aug 2014 5:44:52pm

        Your conclusion, dear Jungle Boy, was what we call a foregone conclusion.

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    • Tedd:

      26 Aug 2014 2:22:15pm

      "Labor never has understood what is required to govern effectively" = a hasty-generalisation fallacy.

      The Rudd govt response to the GFC was encouraged by economists & others ie. it was not a decision in isolation.

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      • Forrest Gardener:

        26 Aug 2014 5:41:20pm

        Tedd, you'll have to take it up with the author. He disagrees with you.

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  • Culex:

    26 Aug 2014 10:54:01am

    Ah, Chris. As ever in the tired debate regarding monetary vs fiscal invervention, the "dries" manage to ignore the elephant in the room that is Japan...

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  • R. N. England:

    26 Aug 2014 10:57:19am

    If Rudd and Swan had handed the stimulus money directly to the finance industry, which bank-rolls The Institute of Public Affairs and the Liberal Party, Berg would have said it was good policy.

    Adam Smith knew about that order of men:

    "The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

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    • Forrest Gardener:

      26 Aug 2014 5:43:46pm

      The retrospective hypothetical "would have said" is pretty limp at the best of times RNE.

      That said, what a pity Rudd and Swan didn't take note of your quote from Adam Smith.

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      • R. N. England:

        27 Aug 2014 11:00:28am

        Adam Smith was talking about the people who live by profit. Your lot. He thought their influence on public policy stank of narrow self interest. What Berg and you have written are good examples of it.

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        • Forrest Gardener:

          27 Aug 2014 3:05:43pm

          RNE, I'd rather rely on Smith's words themselves rather than your slanted interpretation of them. Thanks all the same.

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  • DAvid:

    26 Aug 2014 11:00:53am


    I think you avoid alot of the big picture when you condense your argument to the "seen as doing nothing"

    Many experts in the IMF were giving very negative advice to senior politicans and Treasury departments, The Americans were almost at war with themselves with the Federal Reserve in a real spiral of doublt and lack of clear consensous.

    While I can see the political risk of being seen to be doing nothing your article completely ignores the very real risk of doing nothing to the economy, and the lives of millions of Australians.

    It is very similar problem in a micro sense to the decision the Labor Government made to build the much maligned DO water plant. At the time of the decision we had very low water storage levels around 28%, at 10 % the system wouldnt have enough water to flow. It was going to take 2 years to get it up and running and the general trend was water levels would continue to drop. 40 % of all industry in Victoria would have closed down if the water stopped flowing.

    So they made the decision to build it and mitigate the HUGE risk, with a very large outlay of capital. Now history tells you rains cme and the plant wasnt needed, but it doesnt mean it was the wrong decision. It was the best decision given the best information available.

    So did Labour spend the money based on the best decision given the best available informaton at the time... Of course they did!! did it also meet a political requirement sure but I think Chris you get the order wrong deliberately as it meets your political views.

    The GFC cost us just like everyone else... get over it.

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  • carbon-based lifeform:

    26 Aug 2014 11:01:07am

    So, Chris, the AAA rating that our economy was given is wrong?

    Or would you rather have a huge pool of poverty stricken workers that has happened where massive austerity measures were used?

    Yes, that is the catch-cry of liebertarians: reduce government influence and let big business take control!

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    • Jane2:

      26 Aug 2014 12:57:24pm

      You can be the smartest kid in your class and still be barely literate. The triple AAA rating is only a comparison to other economies, just like your ranking in your class is only a comparison to others in your class, it allowed it to borrow money mor cheaply than those with lower ratings but it does not mean we had a healthy economy.

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      • Mr chow:

        26 Aug 2014 1:55:26pm

        Jane you couldn't be more wrong. AAA is not a relative rating it is absolute. It does not compare you to other entities.

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      • Dandelion:

        26 Aug 2014 2:37:37pm

        Jane, can you also explain to us how much an Australian dollar is worth, preferably without reference to anything else.

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        • Peter NQ:

          27 Aug 2014 4:21:46pm

          The Australian Dollar like most currencies is worth nothing. Only what someone will pay for it, therefore it only has value when compared to something else.

          There is a helluva lotta money in the world, china's public sector debt was created since 2008 and is now close to the US's public debt. There was a lotta money created during Quantitiative Easing, let alone by the banks. Its all only worth as much as you're willing to take. If you're only getting a 2% pay rise and the amount of money in the world has doubled, perhaps you're not getting enough.

          but at the end of the day, more money wont save you. It is worthless. A shotgun and arable land are better investments.

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    • Lexx:

      26 Aug 2014 1:42:00pm

      Australia has had a AAA rating with two of the three major ratings agencies (and AA+ with the third) for more than a decade - ie prior to the Rudd-Gillard-Rudd years.

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      • Sir Trent Toogood:

        26 Aug 2014 3:22:18pm

        Yes, but not from all three of the leading agencies.

        Labor did it.

        For the first time ever.

        In this particular race, there is no prize for second.

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      • Curious party:

        26 Aug 2014 5:46:37pm

        Yes... the point he was making is that the ALP managed to maintain the rating despite the GFC...

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  • Septic the Sceptic:

    26 Aug 2014 11:04:52am

    This is simply right wing dog whistling to tarnish the examplary fiscal management of the glorious Rudd govts.

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    • AJS:

      26 Aug 2014 12:37:24pm

      'Glorious Rudd Gov'ts' - now there's an oxymoron.

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  • StopTheBleeding:

    26 Aug 2014 11:06:50am

    Being no expert regarding the GFC and how Labor endeavoured to manage it, it would be interesting to see a side-by-side comparison of what Labor did as a result of the GFC, what the Liberal party would have done, and the pros and cons of each.

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    • DavidR:

      26 Aug 2014 12:49:02pm

      Labor stimulous: invest $50billion in economy through school upgrades, energy efficiency upgrades for homes and middle class welfare in $900 cheques).

      - Allow automatic stabilisers in budget to do their work (that is, welfare receipts go up, tax intake goes down)

      Effect: Australia avoided GFC almost entirely, costs absorbed into budget debt over medium term deficits.

      Liberal stimulous: - give tax breaks to big companies and high income earners, increase middle class welfare

      - slash welfare spending

      Effect: The same place USA and UK are presently in, that is, two- three years behind Australia and only now JUST emerging from their high levels of unemployment.

      Be in deficit over medium to long term because double whammy reduced tax revenue and spending during GFC and on-going effect of tax breaks and middle class welfare which erode tax base into future (the effects of Howard's similar spending can be seen now).

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  • Clarke:

    26 Aug 2014 11:08:38am

    What Berg fails to confront is that the Captains of Industry - so revered were the IPA Randians and their fellow extremist loony travellers - are driven by an insatiable greed that caused the GFC. And the GFC hurt ordinary Australians - you and me, the people that the Randians despise as being "Moochers".

    Berg's utter contempt for those less fortunate than himself is breathtaking.

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    • Crisplion:

      26 Aug 2014 1:04:23pm

      That's the way Clarke - never advance an actual argument when an ad hominem attack will suffice.

      Would you care to point out where Chris Berg expresses the contempt you accuse him of? Alternatively, you could entertain the notion that he actually believes that -not- driving the country deeply into debt to fight what, for Australia, was a fictitious fire, would have, in the long run, been better for us all. You might well disagree with him, but at least then we could have a debate in good faith, instead of engaging in mud slinging.

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      • Clotho:

        26 Aug 2014 3:36:05pm

        " would have, in the long run, been better for us all."

        Talked to a pensioner lately?

        How is it that all the right-wingers whine about the $900 dollars but nobody mentions the increase in the Aged Pension?

        Glad that their parents/grandparents don't have to rely on handouts from them to help pay their bills?

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        • Crisplion:

          26 Aug 2014 7:06:06pm

          Clotho: I am citing what I take Chris Berg's argument to be, not stating my own position. My post was motivated by irritation at Clarke's use of ad hominem attack.

          For myself, I genuinely have no idea whether the stimulus was worth the debt it has caused, or whether we could have steered our way through on monetary policy. I simply don't have enough knowledge of the complex system that is the economy. Neither, I suspect, do many here. Rather, I suspect that most assertions on the matter are based more-or-less entirely on political loyalties. That's the way it usually seems to go, especially with those who make disparaging remarks about 'left-wingers' or 'right-wingers'.

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        • Clotho:

          26 Aug 2014 10:12:15pm

          "Rather, I suspect that most assertions on the matter are based more-or-less entirely on political loyalties. "

          I hope you included Berg and his diatribe when you typed that.

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      • DWM:

        26 Aug 2014 4:10:18pm

        are you going to tell the people that saw the value of their superannuation funds crash that it was a ficticious fire?

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      • Curious party:

        26 Aug 2014 5:50:52pm


        When one is as far from reality as Berg is it is very difficult to find actual facts with which to grapple over. Therefore, he only has himself to blame when people resort to ad hominem.

        Incidently, if we are talking about reasoning errors, shouldn't we consider Berg's acceptance of Stevens' argument (in retrospect no less) to be simply an argument from authority given the amount of expert disputation at the time?

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        • Crisplion:

          26 Aug 2014 6:54:35pm

          Curious - I agree with your second point, and drawing attention to logical errors and fallacies in arguments certainly falls within the ambit of good-faith debate. (On the point however, I'm not sure that accepting expert disputation as being ipso facto correct is itself anything other than argument from authority.)

          I find your first assertion a cop-out. Chris Berg is making an argument, which you and others can take issue with, citing facts. On the other hand, if one thinks an argument not worth engaging in, then one can choose just not to engage. The opinion that an argument is facile does nothing to increase the validity (or civility) of an ad hominem attack as a counter-argument.

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  • Alpo:

    26 Aug 2014 11:12:25am

    "So why did the Rudd government push so hard for stimulus?".... You still don't understand do you, Chris? Allow me to remind you of Ken Henry's famous words: "Go early, go hard and go households". Do you know why those words were so important and why it was so crucial for our response to the GFC that the good Labor Government followed the advice? Because the GFC's major threat to our economy was the plunge in confidence. When confidence plunges you need an economic stimulus that puts real money into the economy, and you also guarantee savings, as Swan did, to prevent everybody rushing to the bank and withdraw their capital. Playing with the cash rate does very little, because that's just lowering the cost of the money you have to borrow, but if confidence is low nobody borrows to invest, and therefore decreasing the cash rate is pretty useless in a crisis such as the GFC. That's why the Americans after decreasing the cash rate to naught had to start printing money, the famous Quantitative Easing, because the economy was still not responding.

    Learn Keynes' economics.... and you will understand.

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    • Mr chow:

      26 Aug 2014 2:24:08pm


      Keynes v the monetarist approach. I think you show a total lack of understanding of the latter to contribute appropriately. Both Keynes and the monetarist approaches have pros and cons. Keynes most famously said in times crisis monetary policy is like pushing on a string.

      QE was far more than printing money and a large portion of the American and European problem was a liquidity not a solvency problem. Money needed to be accessed to keep the credit system functioning, and ultimately money is a credit system not an efficient barter system.

      Maybe the answer would have been to wait longer read deeper into the problem. Maybe the response was right... What I do know is that it is entirely complex and probably something worthy of deep academic analysis.

      Learn monetarism and you'll understand there's more than Keynes.

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      • Alpo:

        26 Aug 2014 5:32:02pm

        Mr chow,

        I don't think that you have studied the GFC in much detail. I strongly recommend that you read this book for instance: Dumenil, G. and Levy, D. 2011. "The Crisis of Neoliberalism". This is a very detailed economic analysis of the Global Financial Crisis (also known as the Great Contraction). I strongly recommend it.

        You say that "Maybe the answer would have been to wait longer read deeper into the problem", but that's exactly what it was done in the face of the 1929 crisis, and you obviously are aware of the consequences. The response of the Australian Government to the GFC was highly marked by the lessons learned in the experience of the Great Depression.

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    • AJS:

      26 Aug 2014 3:21:56pm


      It is you who still doesn't quite get it.

      We didn't need to go that hard - we had plenty in the bank and with a bit of fine tuning we (Australia) would have got out very well. Instead the opportunism of a dysfunctional leader (his parties words not mine) running amok and uncontrolled sunk our country into a debt that we will take years to pay back.

      We now know that at the time of the GFC, Rudd's senior colleagues had serious doubts about his capacity as a leader, doubts about his capacity to not only manage his office but to manage the country.

      It is time Labour supporters acknowledge that by following the 2 word slogan of 'Kevin 07' (LNP supporters are 33% more capable with a 3 word slogan)they inflicted on this country one of the worst leaders and one of the worst debts imaginable

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      • Alpo:

        26 Aug 2014 5:45:27pm

        A bit of "fine tuning" AJS? Just as a little piece of evidence, do you realise that the All Ordinaries plunged from a maximum of 6779 in October 2007 to a minimum of 3296 in February 2009? That's a loss of 51.3% of the value of the index in 16 months!... and we still haven't recovered the level we reached in 2007. How many people saw their life savings disappear in a cloud of financial smoke?

        Thanks heavens Labor and Kevin were in charge. But hey, financial clouds are building up right now and something interesting may happen next year... but now YOU guys will be in charge .... are you ready? How much do you trust to be in Abbott's and Hockey's hands?

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    • Curious party:

      26 Aug 2014 5:52:35pm

      The Friedmanites will never understand Alpo. Unfortunately, they have a way of sounding like they have an idea about that which they are talking, and thus they wield far too much influence.

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  • Caffettierra Moka:

    26 Aug 2014 11:13:57am

    These are the same damn 'experts', the economists and the central bankers and the World's Greatest Treasurers, who didn't see the meltdown coming? After the fact, it was the most obvious thing in the world. If I have some time spare I will be at the IPA site looking for the articles warning us all about it and proposing just how the West could avoid the cataclysm.

    In truth, the only issue Mr Berg and his sponsors have is that the government of the day didn't implement any of their agenda. If the financial disaster had led to massive public sector sackings, the sale of the ABC/SBS, wages being slashed and the company tax rate dropped to near zero it would have been a 'wake up call to action'.

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  • Oaktree:

    26 Aug 2014 11:15:01am

    Whatever the reasons and the judgments, the stimulous certainly saved our regional area from a serious recession, and did a lot for business confidence. The pink batts have provided savings for countless homes, and schools benefitted from building programs, regardless of the isolated incidents that were used to knock the programs. I know I am always seen as a lefty apologist, but is this not far better than the current government's program to punish the poor and advantage the obscenely rich?

    I believe the ALP will have learned from its recent history, but Swan is now a liability and needs to depart.

    We need a government that is capable of considering social policy and thinks before it acts on international matters. This is not what we have.

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  • Sea Monster :

    26 Aug 2014 11:15:24am

    Someone had a useful idea to approximate economic behavior once. Assume humans are rational. It works, as I say, approximately.

    The problem the initial useful approximation (as with so many) is that people subsequently fetish it. They become seduced by its aesthetic appeal. They assume the rule of thumb us an immutable law of nature.

    So many IPA members are seduced by the aesthetic appeal of rational choice, in spite of the overwhelming evidence that people will routinely make irrational choices that are not in their best interests. At least I hope they are seduced, one other explanation for their enthusiasm is that they are cynically manipulating this irrationality because it heaps wealth and power on their bosses.

    But anyway this is where the IPA is coming from. Expect consumers are completely rational. Expect also that they have perfect information about the state of the economy.

    This perspective ignores a vital point. Human sentiment. The object wasn't a clinical operation to improve output by $X billion. It was to fight the negative sentiments of consumers. Or stir the positive.

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  • Sea Monster :

    26 Aug 2014 11:16:03am

    Someone had a useful idea to approximate economic behavior once. Assume humans are rational. It works, as I say, approximately.

    The problem the initial useful approximation (as with so many) is that people subsequently fetish it. They become seduced by its aesthetic appeal. They assume the rule of thumb us an immutable law of nature.

    So many IPA members are seduced by the aesthetic appeal of rational choice, in spite of the overwhelming evidence that people will routinely make irrational choices that are not in their best interests. At least I hope they are seduced, one other explanation for their enthusiasm is that they are cynically manipulating this irrationality because it heaps wealth and power on their bosses.

    But anyway this is where the IPA is coming from. Expect consumers are completely rational. Expect also that they have perfect information about the state of the economy.

    This perspective ignores a vital point. Human sentiment. The object wasn't a clinical operation to improve output by $X billion. It was to fight the negative sentiments of consumers. Or stir the positive.

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  • Mehmet:

    26 Aug 2014 11:16:41am

    "The debt racked up in those few months crippled Kevin Rudd's policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials."

    The budget might not be in the best shape now becuase of the stimulus packages but the alternative policy option was austerity. There is yet to be a sucsessful example of an economy that has recovered from the GFC via austerity measures.

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  • Tedd:

    26 Aug 2014 11:19:54am

    It would have been prudent for Swan & Rudd to also increase personal tax rates (by say $1-20 per week) to off-set the compensation packages.

    Then we'd be much less likely to be dealing with this current "budget deficit disaster" hyperbole.

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    • GJA:

      26 Aug 2014 2:08:09pm

      Robbing Peter to pay Paul isn't a stimulus plan. Taking with one hand and giving back with another just means the wrong parties are out-of-pocket at the wrong time.

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      • Tedd:

        26 Aug 2014 5:38:22pm

        No: everyone benefited from the $900 hand-out - could have bee covered by drip-feeding a pay-back

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    • Curious party:

      26 Aug 2014 5:54:43pm

      I agree that personal taxation should be increased, but at the time it would have sent the wrong message altogether. Signals are important, and the stimulus was more about the signal than about the amount actually placed into the economy.

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  • Peter NQ:

    26 Aug 2014 11:25:05am

    Finally something worth reading on the Drum that is, an analysis devoid of opinion.

    Now we aren't even allowed to start repaying and limiting the debt already incurred.

    For the ostritches out there, this is why there is a budgetary emergency, not because of the size of the debt, but because the debt was invested poorly in the economy through poor fiscal policy. It was wasted money, and the taxpayer saw no return on the debt incurred.

    Swan, Rudd, Gillard, Legard are all intellectual lightweights.

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    • Dressy:

      26 Aug 2014 3:40:13pm

      So it wouldn't have anything to with the huge tax cuts and middle class welfare in the Howard years, which created a vacuum in government total tax revenue, when the downturn occurred? Nothing at all? Seriously?

      Not saying, the above was entirely the problem, but to simply dismiss it is ideological dogma.

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    • Clotho:

      26 Aug 2014 3:46:39pm

      "Finally something worth reading on the Drum that is, an analysis devoid of opinion"

      Devoid of opinion?

      [[ There's no sense in his memoirs that fiscal stimulus was a policy experiment under conditions of enormous uncertainty. ]]

      You're kidding right?

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    • Oaktree:

      26 Aug 2014 5:58:26pm

      So, Peter, how much is being spent on finding a missing aircraft when no-one has any idea where to start looking, how much has been spent on "Operation Bring Them Home", when the Dutch were going to be there anyway and could (and did) act on our behalf, how much has been spent on allegedly "Stopping the Boats", while most come in by air? How much is being paid on a new port for coal?

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    • Curious party:

      26 Aug 2014 6:02:26pm

      And here Peter gives us an opinion devoid of analysis!

      We aren't allowed to start limiting the debt already incurred because the current government is so deluded that they believe they can go about it however they want. I mean if we didn't have to worry about simple decency or about public morals we could pay this debt off in a jiffy:

      1. Sell the unemployed as slaves to foreign countries - double whammy - cash upfront and reduced welfare costs.

      2. Instead of paying for life saving drugs and treatments, we could just pay for the palliative care ones. That'll really reduce waiting lists!

      3. Instead of bringing in 457 workers, we could just reinsitute Victorian era policies of children down the mine shafts - the education costs would go down, and the miners could save money by digging smaller holes.

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  • NgWallco:

    26 Aug 2014 11:27:23am

    Thank you for an enlightening article - very interesting to see internal memos from what was an extremely uncertain period for the economy.

    To an extent though, I disagree with this comment:

    "When a country has a central bank targeting inflation and growth, fiscal stimulus is redundant. It's both costly and unnecessary."

    I might be interpreting this incorrectly, but I take this to mean that there is no place for fiscal policy in an economy with an independent central bank, as any expansionary fiscal policy will just result in an offset in tightened monetary policy.

    This is only correct to the extent that the central bank believes that expansionary fiscal policy will more than outweigh whatever is dragging down growth, and would therefore increase inflation. In situations where economic conditions are poor enough, expansionary fiscal policy can go hand in hand with easing monetary policy without stoking short-run inflation.

    In this light, I still think the fiscal measures rolled out in 2009 are partly justifiable - probably too big, poorly targeted and politically motivated, but still economically useful.

    In some ways, fiscal stimulus forcing the RBA to raise rates throughout 2009 has provided the RBA with some room to move throughout the last 24 months - without those rises we'd surely be hovering close to the zero bound now and highly susceptible to any global economic downturns in the short-to-medium term.

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  • ScottBE:

    26 Aug 2014 11:27:47am

    So what is your message Chris? That the Rudd/Swan stimuli did nothing? That it was all mere squandering of the "Howard legacy" in the name of political popularity?

    Dry economic analyses and taking one side against another tells only a small part of the bigger story.

    Lets face one other important fact in concert with your expose. If Rudd/Swan had not acted as they did (regardless of whether it was only "political considerations") many people would have been thrust into unemployment - with all the drastic human disconnection and collateral impacts that losing one's job entails.

    I very much appreciate your non-partisan approach, but while we may look at this one aspect in isolation, it does little to undo the enormous benefit Australia received through the packages (no I'm not simply referring to the $900 check - of which I received not a cent!)

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  • RosieNottheCat:

    26 Aug 2014 11:30:21am

    No surprises there Chris: every single breath that Swan ever took was about politics, and I don't mean the public good, or the national interest, or any such thing. With him it was/is ALWAYS about winning, beating the other side, and being kingmaker in your own team. His whole tenure as treasurer and Deputy PM proves that. Had Rudd not defied him, he would have survived in the job.

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  • muzzg:

    26 Aug 2014 11:33:53am

    surprise surprise - who woulda guessed, the 'worlds greatest treasurer' not acting in the countries best interests???

    Funny thing is - we are not laughing & is if we didn't know already!

    but you lot of the loony left would never believe it eh?

    Thank god the adults are back in charge.

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  • struck dumb:

    26 Aug 2014 11:33:55am

    The problem with economic theory is its just that, theory. And this is a one-sided critique of a one-sided book, representing different schools of thought, plus a spot of political expediency on both sides that is justified with whatever theory one espouses.

    As for the statement "because of the potential political costs of being seen to do nothing in the face of slower growth and rising unemployment"; so what? It applies equally to this government, and to governments in the past and future.

    Puff piece: a lot of noise signifying nothing. The anti-Abbott brigade can come up with the same and use exactly the same methods to justify the critique.

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  • Mark James:

    26 Aug 2014 11:38:55am

    Come on Chris, to imply that Rudd's stimulus package was purely political is to attempt to re-write history.

    Support for a stimulus cut across the usual ideological boundaries.

    *The Business Council of Australia urged Labor to "spend up and send the budget into deficit" (Jan 30, 2009).

    *The usually anti-Keynesian writers at The Australian editorialised that "The case for a cash splash strengthened yesterday, with news that December retail sales were up 3.8per cent on the previous month, thanks to Canberra's $3.9 billion Christmas gift to millions of Australians." (Feb 5, 2009).

    *The Australian Chamber of Commerce and Industry called on Coalition senators (and Nick Xenophon) to reconsider their opposition to the $42billion second-stage stimulus package (Feb 13, 2009).

    *The IMF Board gave Labor's response to the crisis a tick of approval: "Their timely policy response, which has effectively cushioned the impact of the global financial crisis on the Australian economy." (Aug 2009).

    *Macquarie Bank economist, Rory Robertson responded to news of the effects of the stimulus (Australia's best trading performance in 48 years) with "Australia is certainly standing out as one of the remarkable performers in the sharpest global downturn since the 1930s." (Jun 3, 2009).

    *One of Australia's eminent economists, Max Corden, wrote a paper lambasting the reasons given for opposing the stimulus (July 2009).

    *The OECD's annual report stated that "Australia will be one of the Western countries to suffer least in the global financial crisis . . . the Government's stimulus has already had a strong effect in cushioning the downturn" (September 2009).

    Even Rupert Murdoch publicly declared in September 2008 that "I personally think it (the bailout) has to happen. There's no alternative."

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    • Dave:

      26 Aug 2014 12:29:27pm

      Well researched Mark James, I came to say something similar but your comprehensive demolition of the article's premise is very impressive.

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    • Jungle Boy:

      26 Aug 2014 1:45:46pm

      But Mark, how could these other opinions be real or credible, if they weren't mentioned in Mr Berg's 2-page memo?

      Indeed according to Mr Berg, the memo is somehow proof that there wasn't mountains of research and reports. Under IPA "logic", absence of evidence is evidence of absence.

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    • Instant Karma:

      26 Aug 2014 2:32:02pm

      "Support for a stimulus cut across the usual ideological boundaries."

      That doesn't give carte blanche to Rudd to just throw money at a "problem" though.

      Paul Kelly nailed it on Q&A last night when he said that Rudd inherited an economic reform template from his successors that worked, but, being too politically clever by half, he ignored it and just made things worse. That only happens when one doesn't understand what one is doing. There are ways of getting stimulus money out there that is functional and useful and then there's Kevin's way.

      I can just see the day, when Labor gets back into power somewhere and in their zeal to be seen to do something for the disabled, they give a bus driver's job to a person with motor neurone disease. In the implementation, they are clueless.

      How about Kate Lundy steering ASADA (consciously or unconsciously) into taking a particular line on the Essendon drug-taking scandal? There is a reason why agencies are set up to be at arm?s length from Government: so they can?t be manipulated or distorted for political ends.

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  • Jazzy:

    26 Aug 2014 11:39:32am

    Chris, I believe some modelling was done on what may have happened if there was no stimulus from the Rudd government. My memory of that modelling was that the government was going to be pushed in to deficit by about the same amount as was spent on the stimulus by doing nothing. Declining tax receipts, increased welfare payments etc, etc. If the modelling was accurate, then the government was stuck with the same deficit, but had to choose between much higher unemployment, business closures and the social dislocation that causes, or the path we all know about. Do you really think a Labor government would sit on their hands and do nothing? How much evidence do the economic Dry's need about the social and economic impact of long term unemployment? It took Australia years to drag itself out of our last recession (that we had to have). Why would any government actively encourage the same scenario again? Of course the stimulus was political. It had to be as economists don't factor in the social consequences of so many people being unemployed for long periods. Bravo Rudd and Swan I say. Now what are Joe and tony going to do about rising unemployment on their watch? This is the important question you should be asking, not questioning an obviously successful policy.

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  • Darryl:

    26 Aug 2014 11:40:22am

    This is bullsh*t.

    I have just read Wayne Swan's book. A sincere and detailed explanation of the efforts which he and his many advisers (and indeed international bodies from the IMF, to the elevating of the G20...) undertook in those dark days of the unfolding GFC.

    Of course they were concerned about the political cost of doing nothing too. They had just been elected with many plans for a future legislative agenda. The GFC came thundering down in the middle of it. They were also genuinely concerned to preserve jobs (which the IPA and Turnbull would not have done !)

    Ironically Swan was able to steer Australia through the GFC's deep shoals (alongside the Reserve Bank) to the better fortunes of us all. At the same time an agenda was implemented which has the Labor stamp of Nation Building on it. Well done.

    Credit where credit is due irrespective of some mistakes.

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    • AE:

      26 Aug 2014 12:48:08pm

      You know, it's not like he spent his OWN money. We all pay it back, with interest, for decades. And there is an opportunity cost, more interest paid today means less for hospitals, defence, and so on.

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      • Dandelion:

        26 Aug 2014 4:16:06pm

        The government spent it's own revenue to reduce the potential impacts of recession and to bolster employment. If they didn't boost aggregate demand at the time, they would have ended up earning less revenue and incurring higher costs. The unemployed don't just go away, no matter how hard we wish.

        Besides, one could argue that it is infact the governments money. After all without a them, there would be no such thing as the Aussie dollar. It's only a piece of paper until it's backed up by a sovereign government.

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      • Roscoe in the middle :

        26 Aug 2014 4:25:19pm

        In theory, if inflation % is more than than the deficit %, we don't even have to pay it back, infact in several decades time, $300 billion could be monthly earnings of a dole bludger, so we can just ask them to paid it off then. So we can both sleep better, now that someone's thought of the children.

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      • don't believe the media:

        27 Aug 2014 8:46:58am

        AE, this obsession you have with thinking that the depression saving efforts of the previous Labor governments were all done with your money is nauseating. May i also blame you for spending billions on supporting the private U.S war industry.

        Those many less hospitals of which you speak are the result of the greedy ideology of the fascist right, not due to any lack of money.

        If you really gave a damn about where your tax went, you'd read up a bit.

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    • clete:

      26 Aug 2014 2:01:09pm

      Darryl, nobody had a problem with the concept of the stimulus spend. It was how Labor targeted the spend, and the level they went to, which has been questioned ever since.

      Of course Swan is going to defend himself in his own book. This report shows what the Coalition argued at the time of the second tranche of stimulus spend - that is, it was too much and it was poorly targeted. As it turned out, it was even more poorly managed.

      Labor should stick to what they are good at - opposition.

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  • Dan:

    26 Aug 2014 11:40:48am

    Wow, what an attempt at revisionist history - well done Chris. But the problem is, you are confusing advice that was given before the GFC with advice that is given after the GFC. You note that yourself when you say the advice was given before the collapse of Lehmans. You are also ignoring the line that says a more severe global downturn would require immediate stimulus measures such as direct payments.

    All this memo shows, is how good Treasury were at predicting the best course for the country. It even warned against infrastructure projects because the economy would have recovered by the time they started. But I guess a story highlighting the competency of government advisors doesn't suit the smaller government narrative that the IPA wants to pursue.

    Thanks for highlighting the note though - it is interesting history, just not the way you think.

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    • Fred Longbottom:

      26 Aug 2014 12:40:32pm

      Dan, I pretty much agree with what you've said. The meeting recorded in the August 2008 memo discussed Treasury's outlook for the economy before there had been any significant impacts on the Australian economy. Treasury was expecting a slowdown and possible responses were discussed but no decisions are recorded. Chris Berg seems to be projecting a few aspects of an apparently routine discussion of the economy onto a later period when conditions had changed dramatically. Once the crisis struck, Australia's situation was far more complex. I don't think there's much that can be drawn from the memo at all.

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  • ardy:

    26 Aug 2014 11:41:33am

    Not surprised but dismayed by the reality of this level of disregard for the economy and our MONEY.

    Still there will be plenty of $ illiterates here claiming that Wayne Swan saved Australia and China's buying was just a footnote.

    So that Rudd and Swann can be seen to do something we now have a debt of 300bn and an interest bill of 1bn a month. And still the greens want to spend more money on solar and wind rebates.

    The Labor and Green parties are a bloody disgrace.

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    • AE:

      26 Aug 2014 12:48:36pm

      Agree 100%. Anyone would think Laba spent their own money.

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    • splod1:

      26 Aug 2014 12:49:46pm

      ardy: Chris has told you what you want to hear, so you believe it without question. Still, as an IPA director, that's his job. The IPA is about as objective as a union spokesperson. Both pick information that suits their world view and ignore the big picture.

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      • ardy:

        26 Aug 2014 4:46:24pm

        Splod the brain plod: Facts to refute what he is saying please. Your post implies that the only thing that counts is "The Big Picture" what a load of rubbish. The death of our economy was in the lack of details by Rudd, Swann and Gillard and not some grand bubble that someone dreamt up in a hot shower.

        In fact you have pointed to the real failure of all Labor terms of office, lack of attention to detail and too many grand schemes.

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        • splod1:

          26 Aug 2014 9:04:35pm

          ardy: If you spend less time being combative and insulting, you will note that I questioned the objectivity of the author, and indicated that spokespersons for unions are just as suspect. Try a little critical literacy: read the text with an awareness that the author has a particular bias. Check his syntax and lexicon, and be aware that he has selected some information from Swan's book that supports his premise, yet not chosen to present other contextual information. I have no doubt that there was a political agenda behind aspects of the stimulus, but that was not the only motivating factor. It just happens to be the only factor that suited Chris' purpose. Analysis should not be based on preconceived notions: it should be based on a desire to sift through the clues to find the elements of truth amidst a sea of subjective, emotive techniques.

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        • ardy:

          27 Aug 2014 7:22:29am

          splod the plod: I don't care about your analysis of my post, what I care about is a debt of $300,000,000,000. This seems to me that the elements of truth you talk about are not elements but screaming disregard and you don't need a fine tooth comb to find the nits in that.

          Yet the left are still playing as if $300,000,000,000 is peanuts and nothing needs to be done. I admit that this budget was really stupid and Hockey could not sell it to a sailor on pay day, even so the bill still needs to be paid off. The alternative is to leave it to our children to pay it off or watch the country go down the European toilet.

          If the Labor party was running a company in stead of the largest budget in Australia, they would be in jail now.

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  • prison:

    26 Aug 2014 11:45:51am

    Chris Berg, your partisan political agenda is the reason that after all of this analysis, you conclude that the stimulus was due to only one thing:

    "the potential political costs of being seen to do nothing".

    The implication that this was the only reason for the stimulus is a complete lie.

    Action was taken based on the advice of others, and it worked.

    We have a debt to deal with now, true, Lets just solve that problem in a pace that the economy (and the poor) can cope with.

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    • clete:

      26 Aug 2014 1:53:27pm

      In light of this report, the irony is that Labor are still determined to undermine the economy.

      Having mismanaged us into the mess in the first place, Shorten and his cohorts are doing everything they can to stop the Coalition from trying to right the ship.

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      • DWM:

        26 Aug 2014 4:31:04pm

        What is there in this budget that will even remotely have a chance of bringing the budget back to surplus? the only thing that this lot will do is sink the ship.

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        • ardy:

          27 Aug 2014 7:28:18am

          DeadWithMyopia: You are saying that the Liberals will sink a ship? The great ship Australia that Labor and greens loaded up with cast iron free batts, hand outs, school halls, NBN, free laptops for school kids, etc etc

          Is this the kind of sinking you mean, or that your socialist dream will go with some financial common sense?

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  • Christopher J:

    26 Aug 2014 11:46:19am

    The Article states.......... "It's an interesting debate. But from an Australian perspective it's beside the point. We never got to the zero-bound. We never met the initial condition for discretionary fiscal stimulus. In Australia, monetary policy still had a lot of room to move."............................perhaps waiting until you get toe zero-bound, before acting would be too late , and then seen as reactionary and a Government floundering......................The reality is we did fairly well at that time.

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  • Michael:

    26 Aug 2014 11:48:55am

    No? Really? A political party did something for political show rather then actual effect?

    That's unheard of..... Wait. No the other thing.... Umm what is that..... Oh that's right.

    That's completely common place.

    If you think governments do something for a reason other then political favour, either with the voters or industry or etc etc etc.... then you need a wake up call.

    Even the NBN. Labor introduced it and focused it's roll out to areas which could gain them votes. And the Libs used it to try and dismantle Labor. If you think either party were doing it with the nation in mind then think again.

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    • Peter NQ:

      26 Aug 2014 1:17:45pm

      good... use ... of .. dots.

      regarding the NBN: you're correct about the porkbarrelling, NBN connections in labour heartlands: the urban areas of capital cities. The places where it was least required.

      An objective bit of nation building should have started the NBN from the 'back of Burke' fibre connections back toward capital cities. It would have been much easier to lay. Taxpayer dollars should be spent, if at all, on projects where the commercial viabliity will not drive investment. Right now its been pissed up on areas that telcos would have covered with fibre anyway.

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      • Michael:

        26 Aug 2014 1:56:34pm

        I disagree.

        Nerve centres should have been built in business centres. But not connecting businesses.

        Then the businesses should have been made to pay to join onto the nerve centre, as they were going to be the best finantial benefit from the NBN, the money spent on that by business should have been used to expand the NBN.

        Finally the government under no conditions should be spending this kind of money to build a new network which they then, more or less, hand to a private company. That's just idiocy

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        • Curious party:

          26 Aug 2014 6:17:13pm

          Completely agree re the privitisation. If nothing else, imagine how much cheaper this would have been if they hadn't sold off the copper network during Howard's time?

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      • Curious party:

        26 Aug 2014 6:16:16pm

        Peter NQ:

        Do some basic research into the plan for the rollout. The idea was to defray taxpayer costs by starting it in areas where there would be a high take-up rate*. In urban areas that amount of customers serviced per metre of cable rolled out is much higher than in the bush**. If they had started in the bush the costs would have been astronomical.

        *Tasmania was a different story, but I believe that was selected because it was a self-contained population that could be a useful trial site. And it was probably some pork-barrelling tbh.

        **The laying costs in the city are much the same as in the bush, because although access is more difficult due to increased land usage, the pits and cables are more likely to have been maintained properly by the telecoms.

        In any case, if they really wanted to be fair about it they should have started in the suburban areas that have seen no upgrades in technology for the past decade and are still stuck using dial-up. Thousands of homes that could have been serviced and thousands of customers that could have funded the next stages of the rollouts.

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  • Monty B:

    26 Aug 2014 11:50:21am

    Sure you can stimulate an economy with changes to interests and stimulus measures.

    And sure the IPA has a preference for the former.

    But whereas the changes to interest rates will be a footnote to history the new facilities at our local school are there for good.

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  • RichardJ:

    26 Aug 2014 11:50:28am

    Chris, this is, with respect, an idiotic attempt at spin.

    The stimulus packages were necessary and worked. In particular, if they were unnecessary as you imply, then where's the massive jump in inflation and interest rates they must have caused? It didn't happen because of the scale of the impact of the GFC.

    And by the way, let's not forget the role of the Reserve Bank, by law as I recall, is full employment and price stability. It made the wrong decisions during the early stages of the GFC.

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  • PeterB:

    26 Aug 2014 11:52:19am

    Obviously you disapprove of government intervention so a government intervention that worked is absolute anathema to you. And it shows. There is absolutely no economic reason why monetary policy should be preferred to fiscal policy as you seem to imply and believe. Fiscal policy has a number of advantages in that it can specifically targeted to sectors of the economy whereas monetary is avery blunt tool.

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  • Aaron:

    26 Aug 2014 11:53:06am

    No - it can't be true.

    Labor would never have enacted policy on the basis of public perception and 24 hour media cycles.

    And Swan was the world's best treasurer......

    Gotta zip, my ceiling is starting to smoke.

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  • The Skeleton Inside:

    26 Aug 2014 11:56:31am

    But it worked, didn't it?

    The 'potential political costs of being seen to do nothing' would have been very high with the extremely effective opposition of Tony Abbott. He has been able to make political capital out of the stimulus package, despite its effectiveness. Imagine how bad it would have been if we had gone into recession?

    The debt and deficit under a recession may have been much worse than that we have due to dramatically lower tax receipts.

    I still say, good on yer, Swannie!

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  • clete:

    26 Aug 2014 11:58:02am

    "And for what? To avoid "the potential political costs of being seen to do nothing".

    Wayne Swan and the Labor movement as a whole have sprouted ever since the GFC that their stimulus measures saved the economy. Wayne even "swanned" around the globe accepting accolades as the worlds greatest treasurer.

    This proves the coalitions belief that whilst some stimulus was necessary, Rudd/Swan went way over the top, and unnecessarily squandered our surplus and indebted us massively - all to avoid the political cost of being seen to do nothing.

    Labor's economic credentials have never been good, and this episode has eroded it even further.

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    • Judy Bee:

      26 Aug 2014 12:37:25pm

      Evangelising doesn't enhance the Liberal Party fiscal status. It just demonstrates that financial management myth making is alive and well.

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    • The Skeleton Inside:

      26 Aug 2014 3:15:04pm

      How so?

      It worked, didn't it?

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  • bkeniry:

    26 Aug 2014 11:58:59am

    Shocking revelations. Politicians taking political concerns into considerations. Who could have imagined that.

    Whether stimulus was redundant or not is debatable, and certainly lowering interest rates would have a bigger impact on many parts of the economy than would stimulus spending, but given how badly the RBA had misread the economic climate (they were in the process of trying to cause an economic slowdown just as the world was heading into one of the biggest economic slowdowns in recent history) one could be forgiven for not just sitting back and trusting that the RBA would sort it all out.

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  • Zing:

    26 Aug 2014 12:00:46pm

    Labor had a simple strategy: "Throw tons of money at people - and make sure the poor and middle class see you doing it."

    It doesn't matter if policy is sustainable, effective or planned. If you can get money in people's hands, they'll think you're doing a good job even as the economy slumps.

    The proviso is that as people grab their free cash, a little part of their brain reminds them that there's no such thing as a magic pudding. People quietly wonder where the money came from and how it will all be paid for. The "free money" tactic only works as long as you can manage the fear and keep people calm.

    At first, Labor had the surplus and spending was hidden. When that was gone, they had to make "optimistic" predictions about revenue. Once those predictions turned out wrong and the accounts turned red, they started creating new taxes hoping to inflate revenue and make the accounts look better.

    Once that point was reached, people's brains were firing off like the fourth of July. When Labor started going on television dismissing all criticism, they put the nails in their own coffin.

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    • Peter NQ:

      26 Aug 2014 1:20:57pm

      Its a pity that it will be a long time till Swan, Gillard and Rudds coffins will be real.

      They should be cheap cardboard boxes at the back of the maximum security prison, that they should be dwelling in until that comes to pass.

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      • Curious party:

        26 Aug 2014 6:19:00pm

        To be honest, which politicians from either side don't belong there in the end? Very few I would suggest.

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      • MDG:

        26 Aug 2014 9:09:21pm

        Longing for the imprisonment and death of people with whom you disagree politically? I suggest checking out airfares to countries where you'd be more at home - Belarus is nice at this time of year and their political culture seems to be more aligned with yours than Australia's.

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    • ScottBE:

      26 Aug 2014 1:24:04pm

      Would you rather, dear zing, that many thousands would be tossed onto the rubbish heap of unemployment due to the GFC?

      Chris here is taking only one aspect of financial management. He over-simplifies at the end to make his own political point. In the bigger picture Swan (less so Rudd) saved our economy from the inevitable crash that was experienced elsewhere around the globe.

      Mr Swan's economic credentials remain intact despite this minor opinion.

      Now do you consider that the Abbott govt is doing a better job? Their budget is a dog's breakfast of odds and sods... of thought bubbles and bizarre ideas which will harm many thousands in our community. And still they have cash to splash around harassing families travelling to visit relatives or doing genuine humanitarian work which may result in their imprisonment if, on their return to Aus, they cannot prove they were not firing weapons alongside some terrorists.

      There seems to be no shortage of money if Mr Abbott wants it to wage war. And this is with a supposed "Budget Emergency"? What a farce.

      Try, if you can or dare, to recognise that Mr Swan did some good things too. However, I too am guilty of bias as I can see nothing that the Libs are doing as being beneficial to either our community or our nation.

      You may recall that Mr Howard also "rejected" any criticism just as the Abbott govt are now doing. Despite comments from economists and global experts from the IMF to the Aus Business Council to the contrary, they are adamant that their way is the "Only alternative"!

      What say to that zing?

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      • Jess:

        26 Aug 2014 3:48:51pm

        To be fair the Libs are extending hecs to the tafe sector. Which I think is good policy (SA at least was already doing this). Everything else though has bene terrible policy - usually more expensive to get to where we were going under labor.

        But keeping people in jobs is cheaper for every part of the big budget areas (health and education) on an ongoing basis.

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    • don't believe the media:

      27 Aug 2014 8:55:43am

      Your theories bear little resemblance to fact zing, and although from your previous postings i understand that facts matter not a whit, i'll just suggest you understand that the stimulus payments did just that, stimulate.

      It really didn't matter if you put it towards your home loan or your drug dealer. The money kept moving in the economy.

      Yes it may seem, to a simpleton, that the government stashing piles of our tax away to buy elections or to claim economic supremacy is good governance, but it's not.

      The deal is that we pay tax and the government uses its reach to maintain and improve our community.

      Infrastructure (and i don't mean roads for the oil companies) is vital. This government wants your money to be given to corporations. to privatise health, universities and every other government service that made this country great.

      Make no mistake, this government is involved in global organised crime and our petty blue v's rd squabbles don't help.

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  • ingenuous:

    26 Aug 2014 12:01:47pm

    This "potential political costs of being seen to do nothing" reasoning drives the majority of poor decision making in this country. It cuts across all political persuasions and exists in all bureaucracies large and small. It is something we desperately need to stop and yet there is no one even trying.

    I long for the day when politicians stand up and call for calm rational consideration of problems rather than going for wedge politics or grand and wasteful schemes that make them look good and do nothing useful.

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  • Instant Karma:

    26 Aug 2014 12:03:18pm

    "The decision to deploy massive fiscal stimulus set in train all the events and personality clashes that defined Labor's term in government.

    The debt racked up in those few months crippled Kevin Rudd's policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials."

    That's what John Lennon would have called instant karma.

    Now watch the lefties crawl under their rocks, particularly the ones that crowed incessantly about how wonderful Rudd's fiscal stimulus was and how he saved the country.

    It was always a pre-planned political stunt to divert the public's attention away from Rudd's policy panic.

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    • Craig Thomas:

      27 Aug 2014 1:12:26pm

      In fact, *economists* (you know, like NOTpeople paid by the IPA to write propaganda) all agree that

      - Howard's government was responsible for profligate spending

      - Swan presided over a very, very successful GFC response.

      That's the reality Berg is choosing to not tell you about.

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  • MarkWA:

    26 Aug 2014 12:05:40pm


    To keep the economy in get nick stimulus was just one pillar.

    The other two were the bank guarantee and the first home buyers grant.

    This stop a run on the banks and put a floor on the banks major asset base , housing.

    The Stimulus kept people employed and businesses viable.

    To do nothing and let the interest rate go to zero would have been madness , the RBA would have been grateful it never came to that as it would have meant we had gone into a crisis where we had much reduced options.

    The world bank , the IMF and every major economists in the world praise the handling of the crisis by the Rudd government and had nothing but great respect for Wayne Swan.

    This is just another case of the right side of politics trying to rewrite history , do everything they can so as not to give credit where it is due to anything the ALP has ever done.

    Chris Berg IPA ,LNP pedigree shines through brightly as ever.

    Very disapponting article Chris , I thought you had actually start to write some straight down the line stuff recently but you have reverted back to type once again.

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    • Peter NQ:

      26 Aug 2014 1:30:38pm

      Are you joking? The banks asset base is housing. How stable do you think that asset base is? As wages fall or lie stagnant, new money flows into this country at a reduced rate. The price people will be willing to buy at will fall. The housing boom in the late nineties would never be sustained. Compare the house price from 1997 to 2003 the difference is a couple of hundred percent. Sustainable not really.

      If interest rates reach 10%, what will be the average home price then? Why do you think banks are cutting interest rates independently of the reserve bank? Because they can see the value of their asset base being more and more based on paper and less on the market value. Reducing the interest rate is the only way to maintain higher house prices which allows them to loan money. Your house is only worth what people will pay for it and if you live in it, your need for shelter.

      The best thing that the stimulus did was only to delay the inevitable.

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      • Curious party:

        26 Aug 2014 6:25:50pm

        Of course it only delayed the inevitable. But by delaying the inevitable it gave us the chance to actually address the underlying the problems that have caused the overvaluation of the housing market.

        Unfortunately, neither government is interested in doing that. Where is discussion of negative gearing? Where is discussion of the actual productivity of property investment in general?

        The problem is, that any moves to address the overvalued housing market will see people lose money. The banks will be laughing, because they will still collect the inflated loans off the investors who were too silly to see they were buying into a Ponzi scheme*. But voters will lose money, and neither side has enough foresight to realise that one of them needs to take one for the team and bring in policy that will devalue housing (for which they will lose at least one election) to fix the economy.

        *I would think that this could be addressed through a super-profits tax on the banks and through redistribution of income, but people would still be unhappy.

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  • Judy Bee:

    26 Aug 2014 12:08:28pm

    In 2013, the IMF examined 200 years of government financial records across 55 leading economies.

    The IMF identified only 2 periods of Australian fiscal profligacy in recent years, both attributed to John Howard's terms in 2003, 2005 and 2007.

    Can we suggest the reason might have been to 'buy' votes. Fiscally irresponsible structural problems had their genesis during the Howard Years. (remember Peter Costello's disdain of the spending in 2007?)

    According to the IMF, the Rudd stimulus during the GFC does not rate as profligate.

    Chris, trying to evangelise otherwise is just plain dishonest. And biased.

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    • Tator:

      26 Aug 2014 12:52:41pm

      Judy Bee,

      Still pushing that crap working paper when the the official view of the IMF regarding the Howard/Costello years is contained in the 2007 Article IV Consultation with Australia.[2] The Executive Directors of the IMF noted:

      ?Executive Directors commended the Australian authorities for their exemplary macroeconomic management, which is widely recognized as being at the forefront of international best practice. Sound fiscal, monetary, and structural policies, against a background of sizable terms of trade gains, have created the conditions for a continued expansion, supported by high employment levels?. Directors praised Australia's very strong fiscal position, with fiscal policy firmly focused on medium- and long-term objective"

      With specific reference to the periods of ?profligacy? accusation, the IMF noted in 2007 that:

      ?Additional revenues resulting from the terms of trade boom have been managed prudently, and the 2007/08 Budget continues appropriately to target budget surpluses."

      Now you have two reports, one done by the executive directors of the IMF and is considered an IMF official report and a working paper done by researchers whose report was interpreted by journalists as showing prolifigacy.

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      • Alpo:

        26 Aug 2014 1:47:05pm

        "Additional revenues resulting from the terms of trade boom have been managed prudently"... But Tator, those revenues weren't returned to the broader economy (in order to improve our much neglected infrastructure, for instance!) because Costello was obsessed with keeping inflation as low as possible. So he put the money away into the Future Fund. But guess what, a big chunk of that money went down the gurgle with the GFC. In fact, between 2006 and 2013 the Fund produced a return of just 5.4% p.a., a lousy performance which is below the mandated long-term investment target of 4.5-5.5% above inflation. That IMF report that you quote is from 2007, just when the GFC was about to strike!

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        • Tator:

          26 Aug 2014 2:20:49pm


          Costello was following Treasury direction. A Treasury minute of November 24, 2006, signed by Treasury's senior fiscal officer David Tune. It said under the Budget Strategy heading: "Maintaining a strong surplus of around 1 per cent of GDP in 2007-08 is prudent, given the economy is operating with limited spare capacity and the risks of increasing inflationary pressures from any large increase in spending.

          "The strength in the budget position provides some latitude to make gradual structural adjustments to the budget over time, particularly as it looks likely that the Future Fund will not require much augmentation in later years to reach its target. Such adjustments ... could gradually draw down the surplus in the out-years to around a half per cent of GDP (or even a bit less) by 2009-10. Policy reform should focus on boosting the supply side of the economy."

          In addition, most infrastructure is the responsibility of the STATE governments who between 2002 and 2008 were all ALP governments and were all cashed up running budget surplusess of hundreds of millions of dollars between them during the same period. So who neglected infrastructure???

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        • Alpo:

          26 Aug 2014 6:00:13pm

          Yes, Treasury advises and the Treasurer (Costello in this case) takes final responsibility for any decision, of course. That's why Swan was crucified endlessly by the Coalition opposition for following Treasury advice.

          As for infrastructure, you surely are aware that major infrastructure projects are usually done in co-partnership between State and Federal governments.

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      • Judy Bee:

        26 Aug 2014 1:50:15pm

        The 2013 analysis comes after 2007.

        There is a good deal of evidence that The Howard government were the biggest taxers and spenders (as a proportion of GDP) the country has seen. So much for the free market.

        And if you want to go back into history, In June 1996, John Howard told a conference of international bankers that the Australian economy, inherited from the Keating government three months earlier was "really better than the 'curate's egg" and "there was no doubt that the Australian economy continues by world standards to enjoy very strong growth".

        John Howard was suffering an outburst of candour but he just might have been doing what a leader should do..sell Australia as a good place to do business.

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        • Tator:

          26 Aug 2014 2:12:16pm


          The timing of the reports is not the issue, it is the view of the IMF which is the issue, your working paper is not considered to be the official view of the IMF whilst the Article IV consultation is considered the official view.

          In addition your paper has been debunked completely in that all the prolifigacy inferences drawn were from untested methodology and also included total government spending which means the State ALP govts spending was included. And the years covered by the test were a period in which the Labor states were amassing debt, with rising debt in Queensland and NSW exceeding the increase in commonwealth gross debt.

          It is consequently simply incorrect to impute the outcomes of this test to the Howard government, as it jumbles together the fiscal performance of the commonwealth and the states.

          That said, the paper does develop three specific tests to pinpoint periods where significant shifts in fiscal policy occur. One of those tests selects 2003 and 2005-07 as years of Australian "fiscal imprudence".

          That is the result that you emphasise. But what you doesn't appear to realise is that the paper's other tests did not confirm that finding, and that the test you rely on is statistically unproven and, on the authors' own admission, unconventional. Indeed, that test gives many bizarre results. For example, it not only finds Italian governments to be consistent models of fiscal rectitude, but also singles out 2002-05 as years of fiscal prudence in Britain, even though that was when the Labour government's budget deficit blew out of control.

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      • Reinhard:

        26 Aug 2014 1:54:02pm

        True to form Tator you skipped over the most crucial comment..

        "Directors considered the recent increase in the official interest rate to be appropriate in light of emerging inflation pressures. "

        By "emerging inflation pressures" they actually meant to say "Howard's profligacy" that led to an overheating economy and 10 interest rate hikes in a row from 2006-2007

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        • Tator:

          26 Aug 2014 6:43:35pm


          So the interest rates rose to a more neutral level from a low base. The big rises didn't occur until Rudd took over, the banks lifted their rates independantly and Petrol prices spiked internationally driving inflation harder than any of Howards policies as Howard had inflation decreasing in 2007 from 4% to 2%.

          It is only your inference that emerging inflation equals prolifigacy as much of that inflation not the traditional cost push variety but more of a capacity issue with an economy that was nearing full capacity and approaching the NAIRU. Which btw, is lower due to Keatings EB approach and Howards Workplace Relations Act in 96 which moved wages away from centralised fixing and reduced the scope for wages flow on into other areas.

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        • Reinhard:

          26 Aug 2014 9:08:53pm

          The rates rises in 2007-08 had nothing to do with Rudd , the cash rate went from 5.2% in 2005 to the max of 7.2% in Jan 08, just when Rudd took office..

          The post GFC rate rises from Oct 2009 from 3% to 4.9% were pre euro crisis 2 while the RBA saw conditions improving

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        • Tator:

          27 Aug 2014 9:58:48am

          did I ever say Rudd had anything to do with the rate rises except push for them via Ken Henry.

          Anyway the inflationary pressures that were around in late December 07 and early 2008 were being delivered by the spike in international oil prices where the price doubled due to speculation on the oil price which drove petrol prices through the roof.

          This was the driving force for those rate hikes, plus then on top of that, the banks pushed up their margins by implementing their own rate hike, something that didn't happen under Howard.

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        • Reinhard:

          27 Aug 2014 6:53:35am

          "Well, Howard spent $4 billion on his own "cash splash" in his final budget, and promised another $4 billion in his election campaign, in the middle of a boom. In other words, there was no economic rationale whatsoever. On the contrary, Howard's handouts were helping to overheat the economy. These payouts were economic vandalism and political bribes designed to buy votes."

          Ref: "Rudd's challenge: how to resist the big swoon " Peter Hartcher - SMH March 21, 2009

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  • MB:

    26 Aug 2014 12:11:04pm

    This analysis may be correct to the extent of the impact fiscal policy can have in comparison to montary policy. However it incorrectly igonres the impact fiscal policy can have on consumer and business confidence. It's true that comparatively $900 is chicken feed in comparison to large rate cuts. But it did wonders to consumer confidence and therefore spending levels. That should not be ignored. Without confidence and actual spending by consumers the rate cuts on their own would not have worked.

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    • Esteban:

      26 Aug 2014 1:07:45pm

      Have a think about it MB. How does taking such an unprecedented action of handing out $900 help the long term confidence of the consumer?

      You don't think that the consumer thought "Wow things must be really bad if they are handing out money with instructions to spend it quickly"

      The effect of the $900 fizzed out very quickly and left the consumer worried sick about the future. Consumer spending has never recovered.

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      • Dandelion:

        27 Aug 2014 11:40:50am

        Well we could blame the cheques or just maybe it had something to do with smouldering ruins of the Eurozone and US with Abbott and pouring fuel all over to help him get elected. What I don't get, is why the LNP needed to keep talking down the economy once they got the keys to the lodge. Are they really that permanently insecure about their own abilities, that operation blame Labor seems to have no planned end date.

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  • Jerry:

    26 Aug 2014 12:11:28pm

    Berg shows the imitations of the black and white thinking pattern of the conservative mind. He infers that governments should do nothing until the interest rate is cut to 0% and the reserve bank has been neutered. This appears to be based on an assumption that the political views of government has n place in economic policy controls.

    The choice to intervene with the stimulus package was a political strategy, but that is the legitimate role of government. By acting to stimulate the economy, the government ensured that the Reserve bank was left with room to adjust the Cash rate without reaching the stalemate point of zero.

    Berg's analysis is poorly thought through and is the IPA is advising the current government, it is no surprise that the current budget is such a mess, strangled by the philosophical limitations of conservative thought.

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  • AT:

    26 Aug 2014 12:11:54pm

    Never mind that your interpretation of a couple lines in a memo is fanciful in the extreme, how on earth can you possibly deem it the catalyst for Labor's problems that followed?

    The economy was the last thing leading to Labor's downfall, but you know that. So what's this dissembling all about?

    I guess when your Tory mates make it impossible to write anything positive about them, you resort to your fallback position of attacking Labor, but this one is really scraping the bottom of the barrel. Thoroughly preposterous.

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    • Davo:

      26 Aug 2014 12:52:35pm

      So "the economy was the last thing leading to Labor's downfall".

      Given the pasting they took at the last election, perhaps you may care to explain what it was exactly which lead to their demolition.

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      • AT:

        26 Aug 2014 1:33:30pm

        What led to their demolition was in all the papers, all over the telly, shock jocks spewed their bile about nothing else and neither did Tony Abbott.

        But you didn't really miss all that, did you, Davo?

        No, of course you didn't. You're just making mischief, you cheeky imp, you.

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      • don't believe the media:

        27 Aug 2014 9:00:00am

        Despicable biased and bigoted press coverage, racism and sexism.

        Simple, but true for many.

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  • Rob:

    26 Aug 2014 12:13:11pm

    The stimulus may have been political but it was also economically sound- as many an economic instititution including the OECD and IMF attested.

    However Swan is just as guilty of ignoring and hiding the truth as is Chris Berg and just about every politician and financial commentator.

    Chris says " The memo was prepared just before the September collapse of Lehmann Brothers turned an American housing crisis into a global financial one"

    What a load of deliberate twaddle meant to hide the failure of the "free market" idealogy of the IPA and seemingly both the Government and the ALP.

    To quote the Institute for Dynamic Economic Analysis " the fundamental cause of the economc and financial crisis that began in late 2007 was lending by the finance sector that primarily finance spceulcation rather than investment/The PRIVATE debt bubble this caused is unprecedented. Its unwielding now is the primary cause of the sustained slump in economic growth... growth in soverteign debt is a symptom of this underlying crisis, NOT the cause.... the current political obsession with reducing sovereign debt will exacerbate the root problem of private sector deleveraging'.

    We can't solve problems by using the same kind of thinking we used when we created them"

    We need a new mind set not that of the IPA to reach a solution.

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  • dogeatslunch:

    26 Aug 2014 12:13:25pm

    Didn't PM Rudd have an agenda early 2009 to get Ruddbank up and running so as to save his commercial RE interests?

    5 years on and nothing has changed:

    - almost all politicians have a conflict of interest in regard to holding investment RE;

    - govt pretends that it can control the economy via monetary policy exclusively using interest rates settings while ignoring macroprudential policies.

    Thanks to APRA being unable to fulfill its mandate and not limit bank credit lending since the early 2000's, Australia is sitting in no-man's land in regard to another financial meltdown.

    No one sees it coming, the dog ate my lunch.

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  • Kieran Lacy:

    26 Aug 2014 12:13:36pm

    Europe using your preferred model or US and Chinausing a stimulus model. Mummmmmmm! enough of this neocon nonsense.

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  • Brian Francis:

    26 Aug 2014 12:14:23pm


    'The big one (Australian Stimulus Package of $42b) came in 2009'

    This is the part I just loved about the GFC.

    The dire circumstances and the serious fiscal challenges that confronted Australia, were satisfied by - yes you guessed it - a stimulus package of $42b.

    It always comes down to 42, when you can't give an answer that can be proved. How did $42b become the figure to throw at the Australian economy?

    Mr.Swan and his cohort, did what they thought was right, however it is the premise by which the decision was made that is now brought into question.

    If this was political and if it was to 'Appear to be doing something' it smacks of amateurism and poll driven opportunism.

    I would hope for Australia's sake and for the sake of the Labor faithful, that there is no foundation for this claim.

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    • Esteban:

      26 Aug 2014 12:59:15pm

      Yes $42 billion was the answer but by the time they had figured that out they had forgotten the question.

      So long and thanks for the fish.

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  • Nick Allan:

    26 Aug 2014 12:14:33pm

    Yes, and in the six months following this meeting, the Reserve Bank cut the cash rate by 4 1/4%, down to 3%. It's now at 2.5%

    You're fond of speculative reinterpretations of history, Chris, so tell us what the cash rate would need to have fallen to had the stimulus not occurred?

    As you yourself point out and as we've seen in the US, fiscal policy takes a while to kick in and if you wait until interest rates reach the zero lower bound, it's largely too late.

    I'm no fan of Rudd in particular but the evidence certainly supports the view that the stimulus was a contributory factor in Australia maintaining it's recent unbroken economic growth record.

    Notwithstanding the Coalition's scare tactics, the debt we've been left is not high by historical standards and is easily manageable in the context of a circa 5% unemployment rate, a solvent and functional healthcare system and largely-funded pension liabilities.

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  • foolking:

    26 Aug 2014 12:15:19pm

    It really was a surreal move, the only directive was, don't use it to pay off your credit card, which I thought was the worst decision. Only people who manage their money well don't have credit card debt(probably Drum readers). This would have added vastly to the Banks coffers and may have avoided the too big to fail guarantee debarkle here,and stymied the personal debt crisis that we now face brought about by underhand banking practice that successive govt.s won't address, a flagrant waste which is an environmental disaster and damages the fabric of society.

    Prudent financial management used to be advise imparted by banks who had their customers best interest at heart, it was the mid 80s when govt stopped talking about a work/life balance and only spoke in terms of work.

    Govt.and people in general constantly underestimate the sophistication of advertising and we are woefully ill equipped to deal with it in a beneficial way.

    It's not "nanny politics,"or anti competitive or socialistic, it's just good sustainable governance .

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  • saline:

    26 Aug 2014 12:15:45pm

    Living in an area of high unemployment and where lots of employers pay less than the rate for the job for whatever reason, I have to say that the unemployment figures would have gone about 10% higher without the 'stimulus'.

    At least one person in ten would have been put off.

    Unexpected money coming from the government to the bottom of the income bracket was spent when it arrived. The stimulation at the local level was guaranteed.

    It went to the motor garage, the dry cleaners, the clothing shops, the garden and lawn men, the plumbers, the cake shops, and other local business. You name it.

    It then paid wages, repairs, transport, etc, and a small profit. It circulated locally.

    People who had wealth were disgusted because the pensioners received this cash, but when I enquired what they would have done with it the answer was "straight to the bank. I wouldn't have wasted it."

    But it wasn't wasted, it circulated in a reducing quantity for months.

    Whether it was right or wrong, it was for the people.

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    • Davo:

      26 Aug 2014 12:55:02pm

      Mine was n't wasted Saline. I thank Rudd every day for the $900 reduction to my credit card debt.

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      • Jess:

        27 Aug 2014 3:57:27pm

        Which then allowed you a greater spend later and on an ongoing basis if you got rid of your credit card.

        I speant mine mainly on wants.

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  • Frank O'Connor:

    26 Aug 2014 12:17:43pm

    An Batchelor degree can carry you only so far in an economics argument, can't it Chris?

    The bottom lines are:

    1. Australian didn't go into recession during or after the GFC

    2. The IMF, the OECD and the World Bank attributed a great part of this to 'going in hard', 'going in fast' and going to the consumer level ... rather than as the US and UK did ... awarding all the stimulus funds to the banks and finance companies. But of course, they don't carry the weight of a Berg.

    3. Government bank guarantees probably prevented a run on the banks in the September to November 2008 period.

    4. The retail sector definitely experienced a consumption boom after the $900 payments hit the streets. Whether the moolah was productively spent is by-the-by ... but it definitely gave our economy a fillip when it needed it.

    I don't have a heap of admiration for Rudd and the ALP - and haven't voted for the ALP for more than 10 years, but revisionist nonsense like this serves no point and is so 'heart on the sleeve' obvious as a propaganda piece that I'm amazed the ABC printed it.

    Still, that's the IPA's version of freedom of speech for you ... isn't it?

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  • AE:

    26 Aug 2014 12:18:46pm

    I'm glad Swan was prepared to "back himself". It must be so nice to have hundreds of billions of OTHER peoples' money to throw around, and then stand in the spotlight and talk about how you "saved" Australia.

    And what the Laba propaganda always ignores is how they over-stimulated the economy, thus causing the reserve banks to raise rates, thsu taking money out of peoples' pockets. They never explain that fiscal and monetary policies were pulling opposite directions.

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    • Judy Bee:

      26 Aug 2014 12:42:08pm

      Hello AE,

      it is worth checking the interest rate hikes that occurred during the Howard period. Especially after 2004, when the Howard Government was re-elected based on the fantasy that 'voting for a Labor Government would remove the food from the plate..specifically a lamb chop. It turned out to be a fantasy on a grand scale, just check the interest rate rises after 2004.

      More than one lamb chop would have been removed from the family dinner, and quite a bit out of the family pocket.

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      • AE:

        26 Aug 2014 12:51:24pm

        You are right, rates were rising due to the strong economy, which is normal.

        But my point was that rates could have fallen lower and stayed there were it not for that massive spending.

        And if you think that stimulus is the answer always, how did America have a nearly trillion dollar spending binge, 0 interest rates for nearly six years now, and the weakest economic recovery post-World War 2? Family income is still lowere than pre-crisis, 5 years into there so-called recovery.

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        • Curious party:

          26 Aug 2014 6:33:28pm

          Because the crisis started over there - their economy was much more exposed than ours was.

          Because they stuck with monetary measures too long before moving on to fiscal ones (ie the very thing that Berg thinks we should have done).

          Because their economy was weaker than ours beforehand.

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  • Inky:

    26 Aug 2014 12:21:29pm

    I don't see that this brief actually means what the author of this piece implies. It is a brief that would be discussed rather than proof rudds government actually used the stimulus for only political gain.

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  • mahaish:

    26 Aug 2014 12:22:10pm

    this is all nice in theory,

    and true to form with the ipa's credentials, but we have a problem with the nonsense being peddled in this article.

    one. the central bank does not control the money supply. so trying to work out what the price should be means its constantly reacting defensively to monetary movements, and either over or under shooting the mark.

    whether monetary offset works effectively is up for debate.

    two. as consequence of the first deficiency, the central bank cannot control movements in domestic demand in the short run, especially in the middle of a credit crunch, even though it can be more effective in the long run. every 1% drop in the cash rate leads to a 20 billion dollar injection into the economy, and yes our central bank had a lot more to play with, but ask yourself the question ,

    where would the cash rate have bottomed out , without the government deciding to run a budget deficit to the tune of 4% of gdp over the forward estimates.

    i will bet we were staring down the barrel of sub 2% cash rate, heading towards zero.

    you wouldnt want to bet your house on the central bank getting the pricing right, so fiscal stimulus was the right call , and the right risk management strategy

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    • Todd:

      26 Aug 2014 1:42:10pm

      The cash rate would probably have bottomed out a little bit higher than other OECD countries' rates. This would have meant a lower AUD more in line with our long term average as it was our comparatively high interest rates that meant a higher AUD.

      Look, either the RBA got it wrong (saying the economy needed to be slowed down through higher interest rates) or the ALP/Greens got it wrong (saying the economy need to accelerate through fiscal stimulus). Considering the statement re political costs in the above article, I reckon it is more likely that Labor/Greens got it wrong.

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      • mahaish:

        26 Aug 2014 3:56:28pm

        ask treasury what their best guess was regarding the potential contraction in domestic demand at the time of the gfc . somewhere north of 5% of gdp. that translates into anywhere between 50 to 150 billion being pulled from the economy over a very short period of time depending on what assumption you make. look at it this way , it took a deficit of around 4% of gdp plus very large reserve bank interest rate cuts to avoid a recession. and we barely did that.

        the underlying sub text of chris's arguement , is that this is a supply side problem, in that the central bank adjusting the price is somehow going to create demand for credit and drive demand quickly, when the private sector has a balance sheet gearing problem and domestic demand looks like falling off a cliff. he argues the government doesnt need to get involved since the central bank can sort it.

        in the medium to long run scenario that might work depending on the initial starting position of the cash rate, but the odds are pretty high the cash rate would have been much closer to the zero bound as a consequence, and the unemployment rate and debt defaults in the banking system would have been miuch higher.

        the simple moral of the story is this. if we want to target a stable and low unemployment rate, what ever the private sector pulls out , the consolidated government sector , which includes treasury and the central bank have to put in. treasury does it by directly injecting net funds into the banking system, while the centreal bank tries to do it by adjusting the yield curve to allow for bank balance sheet expansion , and private sector portfolio adjusment.

        when you have to act quickly, using treasury is quicker than the central bank, because of the transmission mechanism. in our case we did both. part of the reason why we avoided a recession and the rest of the world didnt.

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      • Dandelion:

        26 Aug 2014 4:03:14pm

        Or monetary policy has major limitations and can't fix all things, you only need to look at the evidence from Europe, US, Japan to see this.

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      • Curious party:

        26 Aug 2014 6:36:43pm

        I'm not really interested in your guesses about what the cash rate would have done Todd.

        I'm not really all that interested in what the RBA thought would happen at the time either (incidently, the memo does say that stimulus would be necessary but Berg misrepresents it) - they were not able to see that the GFC was coming, so their ability to predict the future accurately was not all that great.

        I'm more interested in what did happen - ie we didn't go into a recession like all of the other countries that held off too long on engaging in stimulus responses did.

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  • Breach of peace:

    26 Aug 2014 12:22:12pm

    There is nothing "poor" about the Reserve Bank! The use of all of these semantical words and terms is nothing more than a bail out at taxpayer expense for principle and interest from those criminal banksters and the politicians who are in cahoots with them. Banks are finally being fined in the $millions for their criminality yet have made $billions in the process. We know that by deregulating the banking industry created massive fraud and deception. Borrowing money to bail out banks and corporations is a pretty poor demonstration of a complete lack of sound economics. It is a flawed ideology with unsound principles that proves Treasury Swan was not paying close attention and not astute enough to prevent such as massive payout to the banks and to the Australian economic system and cycle. It is always interesting when he pats himself on the back regularly. The test is to be judged from an outside independent agency that is not in league with the government.

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  • saline:

    26 Aug 2014 12:23:16pm

    "the potential political costs of being seen to do nothing in the face of slower growth and rising unemployment".

    I find it truly amazing that the stimulus is being said to be for no good reason when it's one of the few things that any government has done for the people.

    To go on and say that it stymied the future budgets is okay, but the political climate while Labor was in power was bad. It was much worse then than the situation T Abbott is in today.

    I guess the criticism of Labor would disappear if the stimulus had gone to mining or commerce. We wouldn't be discussing this now.

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  • MWD:

    26 Aug 2014 12:24:02pm

    The real reason the federal government is in financial difficulties today surely has a lot to do with the squandering of the proceeds from the mining investment boom - if memory serves me correctly, Howard gave us 7 tax cut budgets in a row and Rudd added another one for good measure.

    That's why the government is now scrabbling around for cash - it took temporarily surplus funds and used them to buy elections, not thinking about the future.

    And isn't that a recurring theme for Australian governments in the last couple of decades - not thinking about the future?

    So much for "adult government".

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  • Mick Podger:

    26 Aug 2014 12:26:33pm

    Changes in interest rates have a much longer lag time in their effect on growth than the type of stimulus used by the government. The idea behind it was to save jobs now. The fact that unemployment only rose moderately and there was no inflationary breakout is all you need to say about its worth.

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  • Esteban:

    26 Aug 2014 12:27:50pm

    When K Rudd went to the G20 he presented himself as a student of the great depression and warned that dangers lay ahead.

    He forgot to tell them that he was a student of the political dangers of the depression. The only one term Govt in Australia was a result of the depression.

    That the stimulus did not save Australia and in the end is holding our economy back now and will into the future is something I have posted about for years.

    However over time I have come to accept that the political imperative to be seen to do something is probably something any new Govt would have succumbed to. Perhaps an established treasurer such as Costello with a strong record would have resisted stimulus because he was held in high esteem.

    However a fresh treasurer in a fresh Govt had no such esteem established so they were unable to resist the politics of the stimulus. The alternative was to follow the same path as the one term depression Govt. The hilarious irony is that K Rudd never even got a chance to lose the next election.

    When you are a bad Govt the one thing you have to be good at is revising history and fighting to establish your myths. The myth of the ALP management through the GFC will be fought for generations to come because without that myth what is there to show for 2007 - 2013? An overdue Apology to the Aboriginals and a signature on Kyoto.

    I have no doubt that the ALP supporters who inhabit this site will fight tooth and nail to shape the history of the GFC but please be aware of the danger associated with your actions.

    If the myth prevails then every future Govt will be under pressure to replicate the actions taken by the ALP. Even more so for a future ALP Govt dealing with a future downturn because to do otherwise is a tacit admission that the ALP got it wrong during the GFC.

    Swann fired off every bit of ammunition that we had at an enemy that was out of range and not advancing on us. What will we do if the enemy does advance and come within range. More stimulus and debt?

    We can't afford to repay the debt and we can't afford not repaying the debt.

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    • Brian Francis:

      26 Aug 2014 1:33:12pm


      It all comes down to a selfish Australia. An Australia that would prefer to have all the goodies today and stuff tomorrow. The past Treasure ( bless him) was keen to not upset the people and wrap it all up in 'Saving Australia' from the GFC.

      I think from memory, Hawthorn won a Grand Final in AFL after a passionate appeal from the coach at that time (Kennedy I think): "Do something" was the call to the players and they did, giving them the trophy.

      Should this story from Chris Berg be accurate ( and I do not dispute it being so) then the former Teasurer and his cohort should be rightly ashamed. Ironically, it may be deemed the greatest move of selfishness ever performed, as history was written that the then Government, 'Saved Australia' from damnation.

      It worked for Hawthorn, it worked for Mr.Swan and a desperate measure it is without peer.

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    • Dan the economist :

      26 Aug 2014 10:03:53pm

      Esteban, it's not the ALP trying to rewrite history. Most independent economists agree and the evidence supports this, that the rapid fiscal policy response of the Labor government was very effective in staving off the worst effects of the gfc. The stimulus response propped up demand and confidence in retail, construction and housing, which is a big chunk of our jobs and wealth. It was never meant to be or had any chance of being neat and efficient, but it did it's job. Not long after we were fortunate that Chinese stimulus was also a pretty good defibrillator for the mining sector.

      Despite Berg's general ascertain, doing nothing most certainly would have had it's own economic and social costs. If economics as a discipline is to gain any respect, we must acknowledge what the evidence tells us, not what our theories or paradigms say. We can't simply dismiss the economic response to Labor's policy decisions, because we don't like them. Economists are paying attention and have noticed, whether it suits some or not.

      The structural issues in the budget were highlighted by the gfc, but not caused by it. Both Labor and Liberal are complicit in the state of the budget, starting with Howards tax cuts (no one really noticed those extra 3 bucks a week, but the budget since has).

      The political and economic environment hasn't exactly been conducive to seriously tackling the structural deficit, but politics is a tough job. The social costs can be just numbers on my cba, but they have to actually deal with the people and the consequences. Btw, someone's always trying to rewrite history, but it's usually the winners that get to do that.

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  • NotMyName:

    26 Aug 2014 12:30:54pm

    Why should anyone educated in finance before the GFC, and if they haven't changed how they educate students in finance after the GFC be listened too, as most money fiddlers were too busy looking at what they were ripping out for themselves to see the abyss they almost dropped us in? Whatever amount Rudd and Swan spent on the stimulus it wasn't as damaging to Australian families struggle to put food on the table and a roof over their families head as the continuing criminal damage of the five billion a year of tax funded speculation of negative gearing. When someone of with a finance background discusses the damage of speculation and corporate political lobbying honestly that person will be shunned from any job in finance.

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  • Alan:

    26 Aug 2014 12:31:18pm

    The decisions to do nothing or to do something will never be a point of agreement depending on your political swing.

    No matter what decision was taken the consequences were always going to be far reaching and a burdon to future budgets and generations.

    The fact that our debt/GDP is still relatively better than a lot of our counterpart nations would suggest that it was an ok decision that in hindsight needed to be managed a bit better in the period after.

    Personally I got little out of mr sheens stimulas package but my kids did well and used the money to reduce their debt, a decision they are thankful for now!

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  • Steven:

    26 Aug 2014 12:33:01pm

    A consideration in deciding to whether to use monetary policy or fiscal policy could be who is targeted. Reduced interest benefit borrowers such as mortgaed home owners and large corporates while the negatively affect savers such as retirees. Fiscal policy can be targeted, for example to payments families with kids and tax cuts for all. Where Labour stuffed-up was in some of the targeting. The schools funding program took too long to spend to stop the worst of the GFC. The home insulation program spent money quickly but ignored the huge boom then bust that was sure to happen in the industry as well as not supporting increased regulation of installers by the States.

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  • Craig of Bathurst:

    26 Aug 2014 12:35:02pm

    Lookout, Mr. Berg - you'll unleash the predictable tirade of 'But Swan was named best treasurer in the world award' or something.

    It's all relative. Australia at the start of the GFC were in a very good budgetary position, of no accident mind you.

    Labor, like all good socialist/collectivist think tanks, finds it is very easy to spend other people's money. Those left to clean up the mess have the difficult job.

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    • Dressy:

      26 Aug 2014 4:05:44pm

      Are you saying the Liberals;

      1. Are not spending other peoples money to enable the rich to have babies?

      2. Didn't provide the Reserve Bank with a $50 billion top up?

      I could go on....

      Here I thought it was the governments job to spend tax revenue. I'm shocked to find out otherwise.

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  • DavidR:

    26 Aug 2014 12:41:16pm

    I do not understand the point of this article. Certainly, first and foremost the purpose of any article written by a pundit of the IPA is to discredit the enemies of the Liberal Party, or is it to show that stimulus spending is unnecessary. Did it achieve that?

    The GFC stimulus came in at $50b, or some 20% of the total $250b in debt Labor had racked up between 2007-2013. The remainder obviously had to do with the massive hit to revenue. No discussion about that, or the merits of stimulus spending generally (something that EVERY G20 country took part in).

    If the point of the article is to demonstrate that that $50b was unnecessary spending, that would be more accurately done by looking at more than a mere memo about politicians talking politics.

    Hardly a smoking gun mate and the article is transparent in its aim to discredit Labor's success. It is right-wing propaganda and does not belong on the ABC.

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  • Freddie Frog:

    26 Aug 2014 12:41:19pm


    two pages of notes from one meeting in August 2008 is the entirety of the reasons why Labor went with the stimulus option. There were no other meeting in the meantime and no other advice was ever given.

    It was all at that one meeting and political reasons were the only driving force, clearly. The note says so.

    And the fact that interest rates didn't reach zero is ample evidence that the stimulus package achieved absolutely zero. Who needs actual economic facts and figures anyway.

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  • splod1:

    26 Aug 2014 12:41:20pm

    I have one little problem with this article, and its name is IPA. The Institute of Public Affairs is not, as the name suggests, an unbiased entity created to serve the public. As most people know, it is a conservative think tank, and its brief is to promote big business interests and those of our conservative party with the equally inappropriate title, "Liberal Party". I take everything that emanates from the IPA, and any Labor Party equivalents, with a pillar of salt! There is no doubt that Chris Berg's agenda is not simply to inform. That being said, Chris serves his masters well: this is a persuasive piece, as long as you ignore its source.

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  • Brian Francis:

    26 Aug 2014 12:42:34pm

    Chris Berg

    If you were wanting to 'Interest' a few people, reminding us of such heady times is just the way to get results.

    However, once again I question the necessity of stirring-up the faithful. We must have some more relevant things to bring to the table?

    Mr.Swan is as good as retired and his legacy is there for all to see. By his own admission he was a good Treasurer, I don't see the advantage in challenging that.

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  • AlterEgo:

    26 Aug 2014 12:44:32pm

    We'll of course Labor spent far too much money to avoid the effects of the GFC!

    This had the effect of a glancing blow only, leaving the vast majority of Australians unaffected.

    Labor would have done better to have let a few tens of thousands more end up unemployed, businesses closed, marriage break ups, walk off the farm, suicides, you name it.

    Makes sense when you think about it.

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    • Todd:

      26 Aug 2014 1:37:02pm

      Unfortunately, you guys do not understand economics. We did NOT need stimulus. Hence, the RBA increasing interest rates at the same time. Therefore, in the opinion of the independent RBA, the economy required to be slowed, hence jacking up interest rates. It was madness. It is like putting your feet on the brakes (higher interest rates) and the accelerator (fiscal stimulus) at the same time. You won't go anywhere, but you'll wear your tyres out. The stimulus and resultant higher interest rates simply meant a higher AUD. That is better fopr importers and tourists and worse for exporters or those companies that compete with imports.

      What really got us throught he GFC was good economic reforms under Hawke, Keating and Howard, but I know that will not be accepted by cheerleaders from either Labor or Liberal as it is always the other sides fault.

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      • Dan:

        26 Aug 2014 2:23:31pm

        Unfortunately Todd, you don't understand history. The date of the note was before the GFC. The RBA slashed interest rates to virtually zero in the GFC, which happened after Lehmans collapsed.

        And the higher dollar is a direct result of the terms of trade being higher because iron ore was at record highs. In other words people wanted more Aussie dollars than we had lying around. Lately its been due to money printing in the US reducing the value of the US dollar and Australia being one of few countries to have any sort of an interest rate.

        But Keating and Hawke did some good work -you got that right.

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        • Todd:

          26 Aug 2014 8:09:05pm

          As I said, cheerleaders from either party would say its all the other side's fault.

          Howard introduced a broad based consumption tax, which Keating championed before he realised that it was politically untenable at the time. That was a good move from Howard. The distribution to States, on the other hand, not so much. WA has lost it's good credit rating and it currently gets back less than 40 cents in the dollar on the GST. But one States insert is another's joy, I guess.

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  • Spook:

    26 Aug 2014 12:45:44pm

    Chris, thank you for pointing out what a lot already knew - the Labour myth.

    Now besides negativity, what does Mr Shorten and his party have on offer as a credible alternative for structural reform of the budget? Anyone?

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  • Huonian:

    26 Aug 2014 12:52:36pm

    The main motivation for just about everything Kevin Rudd did was the photo op. Superman saving the world.

    The stimulus could have been applied just as easily, and a lot more quickly (and therefore been more effective), via the taxation system. But how could you photograph a PM doing that?

    No, the $900 "gift". The pink batts. The school halls. And the never ending photos of the then PM with the requisite noddies in the background.

    What a pity that Lindsay Tanner wasn't the Treasurer during the GFC. A Labor man of genuine intellect. Instead we had Wayne.

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  • foolking:

    26 Aug 2014 1:07:35pm

    This article isn't up to Chris's standard of late, there is nothing wrong with making a move for political reasons, such as being seen to do nothing. I thought the $900 was bizarre at the time and had never seen anything like it, I know we have family allowance but handing out money? It was a brave political move and it worked.

    Now we have a manageable debt and restoring taxes to pre mining boom levels is the obvious way out and easily explained. The real issue is that every tax payer in Australia will be expecting the govt. to move on multinational tax accountability and some of the wealthiest tax advantages.

    Malcolm Turnbull is the only incumbent with the nous it seems( there must be others),and Labor has a golden opportunity to develop a tax package and ask him what he sees as workable. Bypass Hockey and Abbott, personality differences shouldn't stop them from working with the party and get on with a workable tax program that will benefit the country without increasing hardship on the vulnerable.Just keep the press out of it.

    It is also time for both parties to test the water with the Greens they both need to raise the status of the 3rd party of Australian politics it would be to everyone's advantage and a great time for relationship building, the first year of government.

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  • True Blue Ozzie:

    26 Aug 2014 1:07:38pm

    Its all good and well to criticize the Rudd/Gillard Government how Chris, but the unkown here is , what would a Liberal Government have done under the GFC, given that on many occasions the Libs denied there was ever a GFC. So to criticize the Labor Government, when there was nothing from the Liberal party to compare it with, is just rehashing old garbage.

    We have more important issues on hand to deal with, like Abbotts attack on the poorest in our society now.

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    • Ravensclaw:

      26 Aug 2014 2:54:53pm

      I can actually answer your question True Red. But first seriously, when did the coalition ever deny the GFC had a global impact?

      There was an Asian Financial crisis during the late 90's. It was the first major economic test of the Howard Govt. Howard kept Australia out of recession by introducing a business friendly budget. This encouraged job creation which in turn improved production and consumption. Costello emphasised strongly that he was keeping spending in check, and there was no mad stimulus.

      But what Howard really took from the Asian Financial Crisis, was how it affected our own financial sector. Howard ripped up the old financial regulations, introduced new ones with an empowered regulatory authority. This system's big test came during the GFC, and it was these regulations that protected our financial system during the GFC and made Rudd's massive stimulus moot.

      If we go back even further to the stock market crash of the late 80's Labor's Keating response was to cut spending and create a budget surplus. Keating did not even attempt to engineer a stimulus.

      Based on this post and others may I suggest a re-think on your initial perception that socialism = good and capitalism = bad.

      All the world's successful economies have a free market foundation. Most of the world's most notable economic basketcases of the 20th century were command economies i.e. socialist economies. The command economy has a 100% failure rate in delivering wealth and freedoms to its peoples. These are undisputable empirical facts that even a layman can work out.


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      • Reinhard:

        27 Aug 2014 9:50:33am

        The Asian crisis may have been a crisis in Asia but it registered barely a blip here, govt revenue growth slipped a few points but revenue did not actually drop as it did in 1991-92 , and 2008-09 & 2010-11. These were the only 3 Federal Budgets in the past 45 years where the govt had to deal with declining revenues, so thanks Paul and Wayne

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  • Daniel:

    26 Aug 2014 1:08:49pm

    Monetary policy is useful but it's not enough. You need to apply both and in some cases monetary policy is almost useless. You certainly don't wait until you're at zero interest to think about Fiscal policy.

    The RBA in 2008 was moving to slow the massive housing bubble and the raise was sensible, from a national point of view. Then the global housing bubble which we are connected to but a bit behind on went bringing the rest of the economy with it.

    So we reinflated our own bubble and played with rates but that was never going to be enough.

    Swan made a lot of mistakes and his Neo-Classical economic training showed in his surplus at any cost and impossible promises. But the stimulus was necessary and sensible. Rushing the details caused problems but it was the right overall plan. Immediate stimulus directly to the people instead of to banks was far cheaper and more effective than the USA's stimulus of trillions of dollars but to banks instead of people.

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    • Esteban:

      26 Aug 2014 1:39:37pm

      Your post does not address the issue of the RBA increasing interest rates to slow the economy at the same time the stimulus package was being rolled out to speed up the economy.

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      • Dandelion:

        26 Aug 2014 3:25:45pm

        Agree and I think Chris Berg also failed to explain the limitations and clunky nature of monetary policy and that being in the hands of an independant reserve bank, is largely beyong the governments control.

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  • Esteban:

    26 Aug 2014 1:18:17pm

    All those who are critical of the stimulus remember that it achieved its intended goal of helping the ALP to win the 2010 election.

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    • Reinhard:

      27 Aug 2014 1:41:10pm

      Yes it certainly did, but that's what comes from taking a risk that kept us in growth, saved us from recession and kept 200,000+ people in gainfully employment.

      If only Abbott and co could be so clever

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  • IC-1101:

    26 Aug 2014 1:18:38pm

    You could say the same thing about most major Labor policy between 2007 and 2013. There is zero compromise in discussing the cost benefits and consequences of their major policy. We *need* the NBN, so therefore its costs are irrelevant and it doesn't matter how inefficient or how costly the project is: the narrative was that we needed it, so therefore, asking to determine its actual value and cost is akin to being *against* is development *facepalm*. The logic is that if you disagree with the agenda, it must be for the WORST possible reason. It's abhorrent, and it degrades political discourse in this country.

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    • Jess:

      26 Aug 2014 3:34:19pm

      The copper needs replacement.. That's the starting point of the NBN. What do you replace it with?

      Complete wireless? - never going to be a solutions something to do with physics

      Copper? Copper is twice the price of fibre and 1/2 the performance and barely fit for purpose now

      Fibre? 1/2 price of copper, easier to lay, less maintaince, faster to get back online after disasters and has future capacity for the next 50 years +

      Most of the Labors policies if you looked a little deeper you could see a why the policy was created and the social benefit that was trying to be bought about.

      Alert moderator

  • Todd:

    26 Aug 2014 1:21:00pm

    Excellent article.

    The stimulus therefore had the effect of putting us into massive debt AND meaning a higher dollar than would have been as the stimulus meant higher interest rates which in turn lead to a higher AUD.

    Now, what are the biggest problems facing the Australian economy today? Massive debt and an overvalued AUD. Thanks, Labor/Greens.

    Dark days ahead for ALL, unfortunately. We have an out of control authoritarian Government that is economically responsible, but the only decent policies these current Liberals have, ie the Budget, are not going to pass the Senate. So we get all the bad stuff like monitoring all online activity of Australians but none of the good policies like repairing the budget. So, not only will we have the civil liberties of North Korea, we will soon be experiencing the economic life of North Koreans. If there was a positive to today's political reality, I would try to focus on that, but sadly, there is not.

    Why, oh why, did we have to vote the Howard Government out? That mistake will be haunting us for generations to come.

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    • Mark James:

      26 Aug 2014 1:59:42pm

      The trouble is, Todd, at the time, the stimulus was supported and praised by The Business Council of Australia, The Australian, The Australian Chamber of Commerce and Industry, The IMF Board, Macquarie Bank economists, The OECD and Rupert Murdoch, among others.

      None of these, I would have thought, would seriously fit your proposed Labor/Greens constituency?

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      • Todd:

        26 Aug 2014 8:33:29pm

        Hi Mark, all of the above institutions have a private agenda. Including the OECD. Just like we would like to see the Chinese increase their debt, as that means they spend more on our minerals. Their debt is not our problem, but their spending is in our favour. What do any of those institutions care that our children will have to pay off debt?

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        • Mark James:

          27 Aug 2014 8:35:59am

          So why did you label the supporters of stimulus as as "Labor/Greens" Todd, when it included business lobby groups, self-avowed right wing neoliberals, local banks, international financiers, etc?

          As for your 'they had a "private agenda"', it's a lazy charge you could lay at the feet of anyone anytime. It's a vague charge you could also lay at the feet of those who opposed the stimulus.

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    • Dandelion:

      26 Aug 2014 3:38:34pm

      Just to clarify, massive equals $42 billion spent of stimulus, right?

      Would you also consider the $300 billion decline in government revenue thanks to the GFC massive ?

      Do you think the alternative of say 10% + unemployment, would be considered "massive"?

      If only the Labor hadn't caused the GFC or made it up or whatever, then we could go back to the past and pretend it's still 1999.

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    • TC:

      26 Aug 2014 6:35:07pm

      I think you exaggerate too much. We will become like North korea? Thta is just silly. Gareth Evans was on Q&A last night supporting the metadata plans of the government. The fact is that terrorists use the internet to recruit and manage their foot soldiers; to not monitor the internet (just by computers which are programmed to look for suspicious activity) would result in an atrocity where everyone (including you!) would ask why nothing was done to prevent it. What do you on teh computer is hardly classifies top secret, what you look up and teh keywords you use are already 'mined' by companeis such as facebook and google.

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      • Todd:

        26 Aug 2014 8:16:46pm

        I know Labor support Big Brother but at least for Labor that's in their DNA. For a so-called Liberal government to support the Government interfering in every aspect of the lives of its citizenry is just wrong. Also, it leaves us with no real choice. Apart from the Liberal Democrats (who stand next to no chance of forming Government) one cannot vote for a party that respects Australians' right to privacy.

        I am not making a judgment as to whether privacy is a good or bad thing, just lamenting that we no longer have a choice in the matter. I admit, however, I support small government and privacy for individuals, but I am certainly not in the majority on that. But I think I am in the majority in thinking it would be good if our democracy accommodated real choice on the issue. Unfortunately, it no longer does. And for the record, the IPA are with me on the privacy issue.

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      • Todd:

        26 Aug 2014 8:24:24pm

        Oh, and TC, what is the difference between the Australian Government and Google/Facebook? The latter does not have the ability to cut off my Internet as proposed by the current Government, lock me up, or fine me where they BELIEVE (no trial or evidence required) I have visited a site of which they do not approve. Now, imagine that Corey Bernardi was compiling that list of websites? See the problem?

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  • JW:

    26 Aug 2014 1:29:13pm

    So Chris, even though I disagree with the premise of your argument, you are chastising Labor for doing things for political gains, as opposed to whats in the best interest of all Australians. Well I guess you'll be chastising the LNP for EVERYTHING they have done in both opposition and in government, as anyone with a little bit of intelligence can see that Abbott and Co. only make decisions based on the political ramifications. If they need to declare "budget emergency" to get into government they do so. When in government and they cant push their right wing agenda on the people based on said "budget emergency", its now not such an emergency and everything is fine.

    So Chris, will you hold the LNP to the same standard? Oh no, that's right, the IPA help fund and further the cause of the LNP so they can do nothing wrong!

    Whilst we need an even spread of political views being expressed on this site, do we really need a direct arm of the LNP writing articles. It is simply not possible for Chris to be fair and balanced as he is being paid not to be!

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    • Esteban:

      26 Aug 2014 2:14:14pm

      Your logic is wrong JW. Repairing the budget means taking money away from someone. You can argue who the someone should be but whoever it is will not be happy and that means political pain for the party trying to repair the budget.

      The easy path is to say that our debt is small and a surplus is bad for the economy and the prudent action is to have further deficits to help the economy. You don't have to take money off anyone and have a better chance of re election

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    • TC:

      26 Aug 2014 6:36:41pm

      JW Chris Berg regulay write columns criticising the Coaltion and their policies.

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  • Peter:

    26 Aug 2014 1:30:53pm

    To all the posters on this article saying "you'd think Labor were spending their own money" and "it wasn't Labor's money, it was ours!": Tell me, whose money exactly is Joe Hockey trying to spend? Is it the LNP's, or Joe's accumulated accommodation allowance, or Tony Abbott's MAMIL allowance? As far as I can see, it's not the LNP's, it's ours (especially the bits he's ripping off the poor and needy).

    I await your clarification.

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  • Tomas:

    26 Aug 2014 1:48:49pm

    My question is; why publish this plainly incorrect partisan nonsense?

    I mean it doesn't even pass the sniff test. Berg argues that monetary policy alone would have been enough to see us through the GFC. It implies - incorrectly - that monetary and fiscal policy have the same impacts on demand. This is plainly false, two easy examples are decreases in interest rates caused by monetary easing hurt certain classes of consumer income - for example retirees invested in government bonds, savings accounts, really any interest bearing investment for one, and fails to make a big impact on those not exposed to interest rates, renters for example, for number two.

    Secondly - and this is the real killer for the argument - dozens of countries tried hitting the zero-limit for central banks. The ECB even tried negative interest rates! It didn't work. The plain, bald fact is that those economies who relied on monetary policy alone went into recession. Every single one, without fail. Chris Berg is saying "well, if we didn't use fiscal policy, we might have been ok with just monetary easing", when *every single instance* of that occurring failed.

    Chris Berg clearly has an ideological agenda that pillories all government spending, and is rabidly anti-Labor. Sure, more power to him, if he wants to be wrong on his own time he can go nuts, and those who listen to him can be wrong too.

    But why, I ask again, are we publishing this nonsense? This plainly erroneous, demonstrably incorrect economical fantasy? Is it genuinely in the public interest to give the IPA yet another platform for their - at this point let's call a spade a spade - ideologically driven lies?

    Surely we deserve better than this.

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  • modus operandi:

    26 Aug 2014 1:51:13pm

    That's how the capitalist franchise works Berg.

    Build infrastructure/barnsale infrastructure/repeat.

    And the Berg just noticed one half of the cycle. LOL

    Alert moderator

    • Esteban:

      26 Aug 2014 3:59:40pm

      I see the debt but where is the infrastructure that can be sold to repay it. Second hand pink bats and bicycle paths? Subdivide schools and privatise the halls?

      Alert moderator

  • Ravensclaw:

    26 Aug 2014 1:56:58pm

    This is no surprise. Rudd was a megalomaniac who needed to be worshiped.

    The Global Financial Crisis started in the USA. It was called a Financial Crisis because a significant portion of the Financial Sector is the USA was collapsing or at risk of collapse.

    Canada, the USA's closest neighbour did not have a badly exposed financial sector and did not require any massive stimulus to weather the fallout. The 2 other notable countries who's Financial Sectors weathered the GFC were Sweden and Australia. Sweden saw no need of a massive stimulus.

    Of these 3 countries, only Australia had a massive stimulus program. No Australian bank required or even requested a bailout of banking guarantee, yet Rudd spent billions that did not need to be spent.

    And here is the reason. Howard introduced the financial regulations that saw our financial sector through the GFC, and Rudd couldn't handle the Howard Govt doing more for the Australian economy out of office, than what Rudd was delivering in office.

    Fairfax and the ABC of course lapped up Rudd's stimulus, making Rudd out to be some economic wonderkid. I doubt the journalistic staff of either had ever even heard of the Australian Prudential Regulatory Authority.

    That reckless spending from Rudd and Gillard will do more to hurt the future of unborn Australians than what the environmental effects of climate change will. Those double priced school halls (of which there were many), and hundreds of house fires from the pink batt scandal will fortunately be biting Labor for many years to come.


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  • fcg:

    26 Aug 2014 1:57:31pm

    May I remind Messrs Rudd and Swann that, according to Brutus, the evil that men do lives after them. Not that all this should bother Ruddy and Swanny as they ride off into the sunset clutching their gold passes and superannuation caskets . . .

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  • ram:

    26 Aug 2014 1:58:33pm

    Seems Labor and LNP financial policies are the same: "Print money and give it to your mates!"

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  • John in Brisbane:

    26 Aug 2014 2:02:46pm


    Your article hangs together pretty well. It does that by neglecting the glaring issues of recession and our housing bubble. Like him or not, because of Swan, we had just enough stimulus just in time for us to merely skim the surface of a recession. Because of that, we never had the double whammy of an economy going down, housing prices plummeting and what happens next when all those people with crazy mortgages start thinking about things. Honestly, do you even consider the opinions of others? Do you ever play situations forward in you mind? Or do you just reword the messages from on high that come in by carrier pigeon and vacuum tube? I don't care what was in that memo and neither would you, if you weren't looking for straws to grasp. We all - including the people who pay your wages - owe Swan a lot for acting as he did.

    That stimulus also gave us the breathing space on rates that very few other countries had. So much so that it pushed our dollar up as the money markets saw us as an island of safety. While annoying, this is a sign of how well we did Chris.

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  • Artful Dodger:

    26 Aug 2014 2:03:12pm

    Chris Berg must think we are all numbskulls.

    Well, I have news for him. There are some who will see right through his propoganda piece just as we saw right through Swan's surplus b/s.

    There are some who know the GFC was NOT caused by an American housing crisis but by the financial capitalism inspired debt trap beginning way back in 1970.That was the root cause of the crisis and it did not happen by accident.

    I am reminded of the words of David Huxley: " By means of ever more effective methods of mind manipulation,the democracies will change their nature. The quaint old forms.... elections, parliaments,supreme courts and the rest will remain.The underyling substacne will be a new kind of totalitarianiansm.

    All the traditional names,all the hallowed slogans (Free Market) will remain what they were in the good old days"

    In reality it is like the old song 'Another day older and deeper in debt- St Peter don't call me for I can't go- I owe by soul to the Corporation".

    Chris- some of us know the bigger problem is not sovereign debt but private debt.

    Where would the economy have been without that debt and how will it 'grow" without higher wages or more debt ?and how will deleveraging occur?

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  • bodin:

    26 Aug 2014 2:40:58pm

    I do not understand why such a casual and politics driven approach should surprise anyone.

    The Government was full of people who new the then PM was "not a team player" dysfunctional and all claim to have been aware of it whilst he was opposition leader.

    BUT HE WAS THEIR WAY TO POWER. Any risk to the nation in letting him loose was immaterial. This note simply confirms that RETAINING the prime position at the trough was more important than the national interest (if indeed that mythical beast ever got a look in).

    It has not changed, the budget will be fought as a path back to the trough, the hope being the economy will fix itself and another windfall will let all politicians play their infantile games, and us pay the bills.

    I ask would you employ any of them to manage your business?

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  • Dandelion:

    26 Aug 2014 2:52:23pm

    It's a nice neat hypothesis Chris, but you've failed to explain why monetary policy alone, didn't avert the GFC effects anywhere else on the planet.

    You also need to explain why the fiscal balance of Australian governments is now the only measure of economic credentials.

    Also, IMHO, accusing politicians of seeking political outcomes is not much of an argument. If we wanted governance decisions to be based purely on dry economic theories and to ignore social and political outcomes, we'd put the IPA in charge.

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  • Gr8Ape:

    26 Aug 2014 2:56:26pm

    I Agree! If you prevent a problem from occurring then obviously there won't be a problem and there would be no reason to try and avoid the problem happening in the first place!

    Even better, if you completely ignore the problem and don't care about the problems the problem could cause then evrything will naturally turn out tickety-boo. Society (if such a thing does really exist) and the economy are dynamic after all and therefore don't really exist. Their just figments of Reality!

    Thank God for think tanks! Where would we be if nobody pointed out how meaningless everything was?

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  • Redfella:

    26 Aug 2014 3:16:10pm

    Before banks were privatised the central bank cash rate had a greater impact on the end user's interest rate. Now it impacts the privatised bank's profits and they rarely hand on the full interest rate change. That should be recognised in this debate and questioned when discussing the impacts of privatisation.

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  • Reinhard:

    26 Aug 2014 3:18:27pm

    After a couple of uncharacteristic articles that dared to be critical of the Abbott govt in recent weeks, Berg has sadly reverted to type. This is yet more of the same humdrum IPA context-twisting selective quotation, designed to suit their historical revisionism agenda.

    Swan was a better treasurer than Costello and Hockey put together, so I suggest that you learn to deal with it.

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  • Sleetmute:

    26 Aug 2014 3:34:29pm

    Great to hear Chris is reading Scott Sumner.

    For the benefit of those who need things spelled out, Chris is highlighting that even New Keynesian economists like Paul Krugman agree that when interest rates are positive, there is no case for discretionary fiscal stimulus. That's the current literature from the world's leading mainstream macroeconomists. What Labor did was purely political and only achieved higher interest rates over 2009/10 onwards than would have been the case otherwise. Unfortunately, most of our mainstream economics commentators and bank economists are 30-40 years behind the literature and have no idea what they're talking about.

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    • mahaish:

      27 Aug 2014 9:24:56am

      if sumner and krugman were right,

      the americans would have avoided one of the deepest recessions in the last 30 years, and the 10% plus unemployment rate that came with it.

      the crisis started in 2007, and really got going in late 2008, and now its august 2014. its taken the fed a good 6 years for any of its strategies to work in terms of the non financial setor. the only think it did quickly is to stave off a collapse in the financial system, which it failed to supervise in the first place.

      chris is right that what treasury giveth the rba taketh away, eventually, but the macro effects are in the medium to long term. when you have a short lead situation of dmoestic demand falling off a cliff, due to a credit crunch, what the central bank does would be the equivilant of paris hilton throwing her panties into a room full eunuchs.

      Alert moderator

  • Michael M:

    26 Aug 2014 3:47:29pm

    Don't be naive, Chris. "Doing nothing" is never an option to a national government determined to keep a nation afloat. Political or otherwise.

    Except, of course, that was Coalition policy as the GFC unfolded, wasn't it?

    A preview of Abbott in gumnint?

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  • John51:

    26 Aug 2014 3:50:43pm

    "A two-page memo released with Wayne Swan's new memoir reveals the GFC stimulus package wasn't an economic certainty, but instead a calculated a political move,..."

    Wow, Chris, tell me how could it be any different? How could there be any economic certainty when the world had just fallen into a Global Financial Crises. The world including Australia had not seen anything like this since the Great Depression so there was never going to be any economic certainty.

    It is not as though Australia was some isolated island from the rest of the world economy. There was always going to be uncertainty no matter what Rudd and Swan did at the time. And that was because whatever we did in Australia was always going to be affected by what was happening in the rest of the world. It would be absurdity to think otherwise.

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  • John51:

    26 Aug 2014 3:52:54pm


    And Chris, of course it was a political decision. We are talking about government operating in a political process of what decisions are put on the table and what are not. Rudd and labor had the political issue of having to take into account both the short and medium term economic if not the longer term.

    I would suggest the need to make decisions for the short medium and longer economic terms is obvious. Some of the stimulus was aimed purely at the short term of keeping as many people in jobs and as many businesses from going bankrupt. While other stimulus, was aimed more at the medium term of the next two to three years. And the longer term as to how long to retain the stimulus and how to wind it back.

    All of that thinking was there in both their economic as well as political approach to dealing with the impacts of the GFC. Debt and deficits was always going to be an outcome. They were going to be an outcome whether the government acted or not.

    Just think of the debt that would have accumulated if the government had not acted and we had ended up with double or more the unemployment rate. We would have had substantial numbers of businesses going bankrupt. And we would have had the housing industry falling in a hole as people lost their houses in failing to be able top pay their mortgages and other debt.

    Chris, it was not just to avoid "the political cost of being seen to do nothing". I would suggest it was very much to avoid the economic cost to government and the budget. The economic cost to the economy and business. And the economic cost to individuals.

    If we thought the 1980's and early 1990's was bad in unemployment and the time it took to get back into work, inaction would have made it far worse. The United States still after 7 years is still carrying a lot of unemployment and underemployment and long-term at that. The same goes for Europe and the UK with even much higher unemployment and underemployment.

    So Chris, sorry, but I don't rate your argument let alone conclusions at all. I would suggest that they are very political and fail to deal with the actual facts.

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  • simon:

    26 Aug 2014 3:55:11pm

    Commentators such as the ideologically driven Mr Berg have short memories, a desire to rewrite history and the benefit of hindsight. The GFC presented a real a present danger to the economy. Labor acted wisely and decisively in conjunction with the Reserve Bank and Treasury. In contrast with other developed countries we avoided a major recession. The associated social costs if this would have created great harm to our social fabric. Massive unemployment would have caused a huge reduction in government revenue and simultaneously massive increases in government benefit payments. Many countries have not recovered. Australian net debt remains relatively low and on all key economic indicators we have been close to the best in the world (until the election of the Coalition government a)

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  • pero:

    26 Aug 2014 4:10:57pm

    If you are looking at the RBA rates and correlating this to the economy, things would have looked dire in Feb09 with a 4% drop in the cash rate over the preceding months (from 7.25%), and the rate still dropping by 1% in Feb09. This is after the first stimulus had been announced, and some of it had come into effect. The drops in cash rate at this time are big and frequent, with the possibility of reaching the zero lower bound by May 09. If you are in Feb09 looking at that cash rate data coming through, the expectation would have been that significantly more stimulus would be required, and quickly.

    The rates did start to rise slowly 8 months later indicating the economy was getting back on track, but even so all these increases came slowly (1.75% over 12mths), and left the cash rate still 2.75% below the cash rate leading up to the GFC. These later rises seem to indicate the economy was slowly recovering, but still not as strong as pre GFC. I don't think they would indicate that too much stimulus was poured into the economy and there was risk of inflation, if that was the case, I would have expected to see >7% cash rate some time after stimulus spending.

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  • don't believe the media:

    26 Aug 2014 4:22:05pm

    Ahh, more insight from the institute of privatising public affairs.

    Still on about the big bad debt, still calling a clever and appropriate Keynesian response to the Freidman economic disaster a political move.

    As for Labor's economic credentials, i suppose they were damaged if one read your mate Rupert's rags, but i prefer to pay attention to qualified economists from around the world. Not, of course those from the Chicago school hell bent on giving the ownership of all of the world's assets to a small group of Jabbas the Hut.

    i hope the squeals from the right about bias are just as loud after this Labor bash. Is the Australian still doing Kevin Rudd cartoons?

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  • Patrick:

    26 Aug 2014 4:29:09pm

    Youre saying Swan got lucky and saved our nation?, I feel vindicated now that I did not vote for Abbott and the LNP.

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    • KateKnox:

      27 Aug 2014 12:20:27pm

      me too.

      The unthoughtful budget, the 6month on off is dreadful.

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  • Cyn:

    26 Aug 2014 5:28:23pm

    No government could have been expected to to just leave it to the RBA when things were going that bad, just for the simple reason that the government does have a responsibility to manage the economy, and who ever in a million years said a government should wait to start stimulus, even when it seems like a good option, until the interest rate hits zero. Other countries hit zero percent or close to because their initial rate was much much lower, so getting to zero when they were hit harder than we were was far more likely. That said the stimulus wasn't spent as well as it could have been, Labor could have started building new public transport infrastructure there was and still is a need for that, or they could have started work on planning something like the NBN and investigating the feasibility of high speed trains on the east coast and funding renewable power projects, instead we got school hall upgrades.

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  • Daniel:

    26 Aug 2014 6:08:01pm

    In black and white. Politicians want to be seen to be doing something, anything.

    Hence they seek out opinions that support them doing something, anything.

    After all it's not their money they waste.

    A great insight.

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    • Owen:

      26 Aug 2014 6:57:57pm

      Labor saved Australia from the GFC. It did it so effectively that you apparently didn't even notice the GFC, using the same economic theory (Keynesianism) that China used to save its economy. I don't expect Liberal Party supporters to acknowledge that because Liberal supporters reject Keynesianism as an article of faith. If they acknowledged their debt to Keynes they would have to admit their whole world-view is based on ignorance and misinformation.

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  • old67:

    26 Aug 2014 8:14:35pm

    Australians don't you just love the LNP SPIN stories they love LABOR so much they cant stop talking about them. Maybe instead of running 2 or 3 word slogans they may complete a sentence do you think. But who cares there useless at anything.

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  • Mervyn:

    26 Aug 2014 9:22:54pm

    Yet Australia did it better than the other Western economies. Berg gets it wrong again.

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  • geo:

    26 Aug 2014 10:33:35pm

    The IPA has had a huge part to say in Liberal policy and the budget. Now that is all falling apart Berg is trying to deflect by making up stuff about Swan. Berg should instead take some responsibility for the mess the government is in.

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  • jack44:

    27 Aug 2014 12:31:32am

    Don't often agree with Chris Berg but there is a first time for everything. The first stimulus was explicable - the second was nonsensical. I note that Swan ( world's self proclaimed best Treasurer ) no longer trumpets his wisdom and Abbot's reluctance over the second release. And lets face it.....10 billion for the Labour party roughly approximates what their mates spill in the bar Friday nights.

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  • tomtoot:

    27 Aug 2014 1:07:31am

    The GFC as we know it (at the time) has had absolutely no affect in my regard - Yet, having been to Europe since the GFC I realise that the Rudd/ALP government was responsible for me avoiding the GFC.

    The GFC is still being addressed in most countries even today - Australia missed out on those problems thankfully.

    The worst crisis today for me is witnessing the reincarnation of Thatcherism under the guise of this LNP circus of clowns that we now have in Canberra. I'm not looking forward to the legacy that this anti-social, anti union, anti science and anti global warming government is forcing upon us and our children and grandchildren.

    Conservatives have always tried to delude and dilute the efforts, the ambitions and the hard fought rights of the working class - and Thatcher was a classical bitch at dividing communities

    If you don't believe me then research the archives of the funeral of Margaret Thatcher as to the testimony of hate and division she caused - it still has not been repaired to this day.

    Hopefully we don't go down that very same path

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  • JamesH:

    27 Aug 2014 9:34:59am

    Yes it saved us heaps and stopped Australia slipping into recession which Abbott would have let happen.

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  • BJA:

    27 Aug 2014 2:51:54pm

    I am not an economist, but I know highly intelligent and rational people who have worked with Dr K henry who hold him in the highest regard professionally.

    With my own ears and eyes I listened to, and watched Dr Henry heap unstinting praise on Mr Kevin Rudd for his Government's handling of the Global Financial Crisis and for Mr Rudd's personal contribution to this.

    Now Mr Berg seeks to belittle their efforts, and in the process to belittle Dr Henry's opinion by claiming that the entire matter can be sneeringly reduced to one virtually irrelevant, (although quite perspicacious) sentence in a memo by Mr Swann.

    The day when I take your opinion on matters economic rather than that of Dr Henry, Mr Berg, will be the day that I'll know that I've lost my marbles - all of them.

    Mr Rudd has been appointed to a senior position at Harvard working on matters of vital importance to the USA. I feel quite confident that the tribe of small carping detractors of this quite wonderful person will wait quite a while for a similar invitation.

    Instead of a Mandarin speaking Prime Minister with a mature world vision and wonderful plans for the people of Australia in that world, we have a misguided individual who learnt at the feet of Bob Santamaria, who championed the Catholic Rural Movement, who milks the public purse for bike riding and does strange manoeuvres on worn out tyres.

    Lucky Harvard - and poor fella my country.

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