Macro Economics Articles

The very definition of harmful advice is found in the Treasury’s five yearly Intergenerational Report, the latest edition of which was handed down on Monday.  In The Australian, Treasurer Josh Frydenberg acknowledged “there remains much work to be done”, but praised the report for its policy guidance.    

In his piece, Josh quoted one of Paul Krugman’s rare insights “Productivity isn’t everything, but in the long run it’s almost everything”.  

Last week the Australian Bureau of Statistics released figures showing new private capital expenditure rose 6.3 per cent in the March quarter. 

Treasurer Josh Frydenberg told parliament, “Manufacturing investments had the biggest jump for 16 years. This is the product of our policies.”  

Well, yes.  There are lies, damned lies and statistics.  

The recent lift in the United States annual inflation rate to 4.2 per cent, the highest in ten years, has caused fears that the massive injection of money into the economy (33 per cent in the latest month) might now be igniting a general lift in prices. Below is the Consumer Price Index (in red) and money growth (in black). 

Economic growth requires political stability and secure property rights. Its drivers include low taxation, an educated, skilled workforce, and technological innovation. But the overwhelming influence for nations such as Australia is investment in business activities, roads and other infrastructure.The budget papers note that Australia has weathered the COVID crisis better than other nations. Treasury maintains, “new business investment .....

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Sometime in the next five years, the Chinese economy will overtake that the United States.  China’s workforce may already have peaked but still has surplus labour in the 25 per cent of people working in agriculture, a share that is likely to fall to under 5 per cent.  Savings, the engine of growth, as a share of China’s GDP remain well in excess of 40 per cent – twice that of the US (and Australia). 

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A 7 per cent fall in GDP during the June quarter is pretty much to have been expected. Led by spending falls on transport (down over 80 per cent) and in cafes (down 56 per cent), household spending was down 12 per cent.  But there is no shortage of demand – the household saving rate has shot up from 6 per cent to nearly 20 per cent. Though precautionary saving is doubtless a factor, people have limited opportunities to spend their ​

The shutdown in Victoria is devastating the state economy retarding the national recovery.  The data on which to assess the actual downturn and longer-term national costs is confusing.  Measured GDP has seen a reduction of only 2.75 per cent.  But this is largely a consumption-based measure and has been underpinned by JobKeeper/JobSeeker payments that represent borrowing from the future.​

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We can but wish…

“It’s only fair”, Victorian Premier Dan Andrews said as he announced that he and his Cabinet would work for no payment over the course of the Phase 4 Shutdown he’d just introduced.  “Backbench MPs and their staff, who like a million other Victorians are unable to go to work, will surrender their salaries and accept the same JobSeeker payment as other workers no longer able to earn a living.  

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Alan Kohler considers the current crisis provides the ideal laboratory for applying the catchily titled Modern Monetary Theory — MMT.  He sees this as a paradigm change whereby the government just keeps spending money with little concern for debt in order to maintain employment.  He considers this to be a modern version of the stimulus to counteract a downturn, one that goes much further than policies favoured by Keynesian economics.   

Relative to GDP Australian government spending to address COVID-19 has been among the highest in the world. The Morrison government seems pleased to have been a world leader in mortgaging the future to combat the crisis. Its package, totalling $320 billion, comprises five elements: • The PM’s initially anno

Writing in The Australian, Janet Albrechtsen has pointed out that the statistical value of life used in regulatory assessment is $4.9 million for someone expected to live another 40 years — $213,000 per year Such measures are income-dependent; in the US the value was put at $9 million and a 2012 study for 

 I have a piece in Quadrant where I estimate the person-years lives saved in Australia at 80,000. Each person-year is worth, on the government’s data, $219,000, hence saving is quantified at $17 billion. The cost in outlays and lost production I estimate at $235 billion, fourteen fold the benefits in lives saved. If

The $320 billion in costs the Australian government has incurred to sustain and stimulate the economy in light of the COVID-19 crisis is money spent for consumption without it attracting any corresponding production. It is a permanent loss that can only be retrieved by increased production. Two areas where r

When the Prime Minister and Treasurer appointed Stephen Kennedy as the Treasury Secretary, they opted for a bureaucrat who had been the architect of Turnbull’s potentially disastrous carbon tax. They would also have known him to have been a senior adviser on Kevin Rudd

It started with Mirko Bagaric in The Australian — “Release super to boost economy” — who, while justifiably railing against the superannuation funds’ fees, argued that allowing people to access 10 per cent of their super could inject up to $300 million into the economy. Mirko has separately suggested that the ac

In normal times we have a healthy disdain for the insights and capabilities of our political leaders. In Australia, the commentariat has just emerged from agendas that blamed them for not acting fast enough to combat the bushfire crisis — even having contributed to it — and from looting taxpayer funds to cur

We have mixed messages on coronavirus: Angela Merkel has said 60-70 per cent of Germans will contract the disease, while the latest data from China and South Korea shows new cases having peaked and, in the case of China, recoveries closing in on new cases.  Aside from spending on health precautions and seeking to staunch the spread, what do governments do? 

Deaths from coronavirus were up yesterday (March 16) on the previous day. Although death rates lower than one per cent are being quoted, the macro data (deaths/deaths-plus-recoveries) is 8 per cent, and 15 per cent in Australia (see the chart below). Hopefully that will improve. Otherwise, if Angela Merkel is cor

Keynesian policy lever pullers at the RBA and Treasury, as well as the Opposition, have been urging the government to inflate the economy. Some are calling for deficit spending, others are urging tbhe authorities to force interest rates even lower than the current barely positive levels.  Even if ignorant of the imp

Keynesian policy lever pullers at the RBA and Treasury, as well as the Opposition, have been urging the government to inflate the economy. Some are calling for deficit spending, others are urging tbhe authorities to force interest rates even lower than the current barely positive levels. Even if ignorant of the impos

One disturbing factor regarding the Australian economy is its sluggish growth.  Per capita growth was negative in 2018/9 and has not had a sustained run above 2 per cent since the pre-2007 Howard/Costello years.  The key drivers of growth are capital investment (with its associated technological gains) and

Nick Cater in The Australian rightly lampoons a Harvard study that, by placing its focus on manufacturing, manages to rank Australia ninety-third in the world economic complexity league table. By contrast, another study, Credit Suisse’s Global Wealth Report, puts Australians second in the world in terms of​

The Australian economy has been flagging for many years now.  Over the past year we actually saw a decline in GDP per capita and per hour worked.There are many reasons for this but all come back to government intervention – excess spending on unproductive welfare measures, over-taxation of business inc
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The Productivity Commission’s latest bulletin shows labour productivity annual growth has fallen over recent years, from an average of around 2.5 per cent since 1975/6 down to a negligible increase in 2017/8. Capital growth was also lower and the contribution to output from capital deepening was actually nega

The different rates of change in world income levels have provided Australia with a magnificent base on which to build our own prosperity. But, though our standard of living is testament to some success, political measures have blunted the potential level of achievement.

The Australian economy has been flagging for many years now.  Over the past year we actually saw a decline in GDP per capita and per hour worked.
There are many reasons for this but all come back to government intervention – excess spending on unproductive welfare measures, over-taxation of busi

Although the economic cycle points to a downturn in the US, growth and especially the stock market is surging.  A newborn confidence is evident and the tax reforms are augmenting investment and hence economic health. That growth in investment was already evident prior to the passage of the tax reforms.

In Korea earlier this month, President Trump contrasted North and South Korea which in 1950 had similar levels of income per head. Today South Koreans, having embraced free markets based on low taxes and secure property rights, earn 40 times more than their northern counterparts.

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

IN this week’s federal Budget, the Coalition implemented policies established in the Rudd/Gillard years. The expansions in health, education and welfare budgets — now comprising two thirds of spending — were confirmed. Over the next four years, annual spending will increase by $50 billion to $340 billion — a levy on the average non-government worker of more than $30,000 a year.

Australians are now worse off than they were a couple of years ago. Our export prices have weakened so that we now need to raise export quantities by one third to pay for our imports. That alone has wiped six per cent off our real income. In addition, private investment has peaked,

LAST week saw the completion of the National Reform Summit. This brought together a kaleidoscope of speakers from politics, business, unions and non-government lobby groups. Participants agreed that we need greater productivity to enable higher living standards. The contention was on how to achieve this. Unions and social groups

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

CLOWNS is what the Treasurer called those doubting the Australian economy’s strength. This followed the release of national income data covering the first quarter of 2015. Even though the economy’s growth rate was a lacklustre 2-3 per cent, 

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

Following the Prime Minister’s expectantly close-to-death experience, the government has been expending greater energy on policy announcements.  Not all of these have been sensible — think the proposal to tax foreign home-buyers and the half proposal to restore subsidies

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

Catallaxy File articles may be available by searching on Trove archive - National Library Australia

The government is kite flying a one-off income tax surcharge for the budget, perhaps to be deceptively called a deficit levy, to side-step the "no new taxes" pledge. Commonwealth expenditure has blown out as a result of long-term commitments made under Rudd and Gillard. As a share of GDP, it grew from 23 per cent in 2007/8 to 26 per cent this year

Rejecting SPC Ardmona's application for $50 million in government "co-investment" support, Treasurer Joe Hockey announced "the age of entitlement is over, the age of personal responsibility has begun".

As well as establishing the Commission of Audit to ferret out savings, Joe Hockey has foreshadowed a sweeping inquiry to commence next year into Australia's financial system. Such reviews in the past have focused on how to get a more level playing field between different financial institutions and how to overcome regulatory distortions.

After six years of economic misery in the developed world everyone is desperate for growth to resume. Every sliver of good news is greeted as a hopeful sign, only to be dashed by other indicators offering contrasting evidence. For example, this week saw a welcome increase in US employment but this was followed by stories that France and Italy are shedding jobs and seeing their economies shrinking further.

Tony Abbott is fleshing out his policies for government. Hard on the heels of repealing the carbon tax and mining taxes, he has nominated spending cuts and reductions in regulation as priorities. Australia is over-regulated and over-taxed. And once regulations and spending programs are established they are difficult to cut. That's because once in place they spawn interest groups that benefit from them.

Trade Minister Craig Emerson has listed 13 reasons on why he is optimistic about Australia's growth prospects. Among these is an improvement in national savings and increased investment. As has always been the case, investment is the key to growth in gross domestic product. And savings are the prerequisite for investment.

On this day in 1781 the British army in North America surrendered to George Washington at Yorktown. Six years later an independent United States adopted the world's first modern constitution, on which Australia's 1901 Constitution was modelled.

Next month will see the release of state and federal budgets with both focusing on lower deficits. The Commonwealth's spending cuts will include reducing excessive staffing levels. But its main action will involve tax increases masquerading as spending cuts on items like fuels used in mining.

Ted Baillieu plans to shave 3600 jobs from Victoria's bloated public service. The state of Wisconsin in the US, with a population similar to Victoria, is the battleground for rolling back excessive public service spending.

A recent AcilTasman report shows Australia's productivity performance has slowed, with Victoria, post-2005, collecting the wooden spoon. One cause of this in Victoria is increased regulation, including requiring higher spending on expensive renewable energy.

The global financial crisis left vast holes in the world's major advanced economies. The US, Japan and European Union all ended 2009 with their national income levels 2.5 to 5.5 per cent lower than in 2007. For the first time in more than a year, the recent September quarter saw the world's major economies record positive growth.

National governments protect their citizens' interests in many ways. They negotiate trade deals to get better overseas market access, raise loans at the best interest rate and aggressively promote their countries' merits as tourist destinations. This same pursuit of citizens' interests is equally evident within federal systems like Australia's.

Treasury modelling has placated many politicians' concerns about the adverse effects of a carbon emissions cap-and-trade tax. Treasury puts Australia's gross domestic product loss from cutting 80 per cent of CO2 emissions at about 5 per cent by mid-century, 

Treasury's refrain regarding the economic outlook is, "Not out of the woods yet." In a global setting, the International Monetary Fund, the Organisation for Economic Co-operation and Development (OECD) and other international agencies are even more cautious. They are calling for increased spending to insure against a relapse of the tentative signs of recovery.

The Federal Government is keen to triumphantly declare that it has conquered the recession. Germany and France -- but not other European Union countries -- recorded positive economic growth in the June quarter.

With Road to Recovery, Kevin Rudd has once again offered his views on where we came from, where we are and where we are going. Once again he is exposing his own individualistic views on how economies tick and how he is the man to make the tick louder and more enduring.

World share markets took another nosedive this week triggered by the World Bank's publication of downbeat growth forecasts. For 2009, the World Bank sees US real income falling by 3 per cent, with Europe and Japan down by 4.5 per cent and 6.8 per cent respectively.

What is needed is to correct the imbalance between deposits and consumption. This past week, 21 economists endorsed the federal government's spendathon as an antidote to recession. Similar advice has previously been offered by economists. In 1981, 364 economists advised British prime minister Margaret Thatcher against trying to balance the budget.

The Treasury chief simply doesn't understand how the economy works, writes Alan Moran. Treasury secretary Ken Henry says very large fiscal packages have been designed by governments across the world, suggesting they "have learned something from history". That would be the governments that have taken the advice of their treasury departments

When Wayne Swan says it will be seven years before the budget is back into balance you know he means he can never achieve this. Still less can he build the surpluses to pay back the hundreds of billions of dollars of debt budget deficits will accumulate in the interim.

The media, including The Australian Financial Review, were keen to ventilate material yesterday from the Prime Minister's office that Kevin Rudd had finally managed to acknowledge that Australia is in recession. Actually, as early as March 21 Rudd told Channel 9: "It's clear that the impact of a worsening economic global recession will make it virtually impossible for Australia to sustain positive

A quarter of a century ago governments throughout the Western world realised they were no good at running businesses. Government businesses tended to be hostage to narrow employee interests, resulting in overmanning and high costs to taxpayers and consumers.

From London, our globetrotting Prime Minister is preaching for regulations to rescue capitalism. But Mr Rudd's policy record provides no confidence in his own capacities. Mr Rudd pledged to downsize government. But his spending splurges will increase the federal share of national income from last year's 24 per cent to 29 per cent. Mr Rudd has also consistently misread the economic outlook.

A perfect storm has brought the disastrous economic tidings confronting the Australian economy. The US was the incubator of the present world recession, not only because it is the world's biggest economy. America's reckless, government-induced credit growth stored up inflation.

The present economic downturn is widely recognised as being, at the very least, the most serious since the end of World War II. It is without parallel in that never before has virtually every major bank in the world's leading economy (and in the UK) essentially become insolvent.

In his essay in The Monthly on the global financial crisis, Kevin Rudd named me as a neo-liberal (which he didn't define, but which roughly translates as liberal meaning bad and neo meaning very) for proposing cuts in public sector wages.

On Monday, Prime Minister Kevin Rudd told a news conference the government would "move heaven and earth" to support the economy. That's a tall order, even for a practicing Christian, but the Prime Minister says this is what he's trying to do.

Australia's second pump-priming stimulus announced yesterday will prove every bit as wasteful as last October's $10.4 billion package. Predictably, the failure of the first stimulus merely brought Keynesian deficit adherents to claim that things would have been much worse without it,

WHILE it is obvious that financial markets and the markets for goods and non-financial services are linked, stock exchange bubbles and crashes have not always spread misery to the wider economy. Until the 1930s, recessions tended to be short and sharp, and financial ruin was largely confined to the speculators whose exuberance

Prominent New York fund manager Bernard Madoff embezzled $US50 billion from his investors. In doing so he increased public awareness of the meaning of a ``Ponzi Scheme''. This involves collecting money ostensibly to invest but actually using new collections to pay existing investors.

Kevin Rudd's announcement that he would inject a further $4.7 billion of infrastructure funding into the Australian economy brings the Federal Government direct contribution to $15 billion. On top of this, the 3 percentage points reduction in official interest rates means a total of some $40-50 billion

Parlous developments in the NSW government's finances are a timely reminder of the familiar Australian cycle of change. In its mini-budget delivered last week, NSW became the first Australian jurisdiction to be forced to recognise the crisis in state government taxing and spending.

THIS time last year, the Reserve Bank was forecasting growth a tad lower than the previous year's 4 per cent. It now sees growth in June 2009 at only 1 per cent. Even this looks optimistic. Worldwide, reductions of 20 per cent are now being built into many companies' production schedules.

Anna Schwartz co-wrote with Milton Friedman the signature piece of work on money and economic stability. Now 92 and still working, she recalls that in 2002, now US Fed chairman Ben Bernanke said in a speech in honour of Friedman's 90th birthday:

The Reserve Bank of Australia has proven itself unable to comprehend, still less to control, the nation's money supply. Like the US Federal Reserve, the RBA is trying to address the market meltdown with the tools that analysts consider would have worked in previous crises.

The meltdown on Wall Street will hit all world economies. The cataclysm follows from bankers combining and repackaging mortgage and other debt to make it attractive to different sorts of investors. The mortgages on our houses or businesses no longer remain with the bank we borrowed from.

In his April 15 Melville lecture, Reserve Bank governor Glenn Stevens noted that, beyond modifying the bank rate, central banks had traditionally sought to control liquidity by buying or selling only "gold-plated" securities.

Even though the decision of Mitsubishi to close its plant in South Australia preceded Wednesday's interest rate increase, the two are closely linked. The interest rate increase was the eleventh since mid 2002. And it has come in an environment when the US Federal Reserve is reducing interest rates.

Since the middle of last year the US Federal Reserve has reduced interest rates from 5.25% to 3%, most of that reduction coming in the past fortnight. Faced with a looming recession, the housing debacle and a sharemarket reaction, the Administration, Congress and the Fed have reacted with deficit spending and an expansion of credit availability.

Building on the Bracks policy base, he has tidied up some loose ends. He is consolidating Labor's position as the natural government in a business-friendly state. In doing so, Mr Brumby is gradually sucking up the oxygen that the Liberals need to differentiate their product in an electorally competitive fashion.

High court judgments increasingly leave state governments as service managers and providers rather than policy makers on industry development, labour laws, welfare and the like. Even so, mismanagement can drive Victoria towards bankruptcy in the 21st century just as it did in the Cain/Kirner days.

With the appropriate last-minute drama, an Australia-US free trade treaty is to go ahead and the Howard Government will be preening itself on cutting a deal that offers Australia major benefits.

Currently, the big trade news is the US decision to put barriers on steel imports. As a major steel producer at BHP's Westernport plant, Victoria has a real interest in this issue. Any moves that diminish our exports threatens jobs. This is especially unfortunate in an industry like steel where Australia is highly efficient.