Wednesday, 24 June 2009
Matters of Public Importance
I know it has been fashionable with Senator Cameron since he was a little boy—when Keynes was around—but when did it become fashionable again? Where is the proof that it works? Which countries has it lifted out of recession? The accelerator theory demand injection approach to fixing the economic slowdown, in the epic proportions that it is being carried out by the Labor government in Australia, is going to leave us with a crippling debt that will dramatically reduce the productive capacity of the economy in the long run and leave us far more vulnerable to any aftershocks that the global financial crisis may introduce down the track.
There are two ways of creating demand: either you can print money or you can borrow it. If you print it, you will end up with inflation—something we will end up with eventually anyway—and if you borrow it then you severely reduce the availability of, and severely increase the cost of, funds for private investment. In the first week of June, 21 economists endorsed the government’s spending program. Some 364 economists gave Margaret Thatcher the same sort of advice in 1981. Fortunately she disregarded all 364 of them and the British economic downturn was subsequently reversed. It is a great shame that Kevin Rudd has not disregarded this advice, as then we would see a reversal on the way. (Time expired)