Economic Stimulus Package
11 February 09What on earth does a stimulus package actually mean? Let us have a consideration first of all as to what is going on around the rest of the world. Clearly, the rest of the governments around the world have been jumping on the bandwagon and going economic stimulus packages for this and that and whatever else. Some have been handout, some have been tax cut, some have been infrastructure spending, and Australia has been there. They have done exactly all of those things.
Now, I am a little bit cynical as to the underlying purpose behind the stimulus package. Part of it is definitely political and making a political statement about how good we are in taking action and all of those sorts of things. I think the stimulus package that was announced, whatever it is that gets through the senate is a different story altogether but it has good points and it has bad points.
I am not someone who is in favor of direct handouts. Now, to some of you that might sound hard particularly if you are doing a little bit though at the moment, but it is like a drug addict for that respect. Getting to more drugs is not going to help. What you need to do is to cure the problem and the problem is not not having enough money. The problem is the squeeze and the lack of money going round and just spending more money is not necessarily going to solve that, or handing out money that the stimulus package that was put together in the handouts were given at pre-Christmas. You know, surveys show there is only a third of that that was actually spent. So, you have got really the purpose that was intended for and I do not believe it was.
Infrastructure spending on the other hand is a totally different story. I am majorly in favor of that and I think most of our governments have not had enough of a full thought and forward vision and thinking generations ahead to have the guts to stand up and spend money on those areas. Unless you have a clear leader that is going to do that, the country ultimately will stagnate and that is what has been happening.
So spending money on infrastructure is a good thing. Now, whether it goes into schools or whether it goes into hospitals or roads or technology or packages that stimulate business to get out there and do things and create an Australian-made and jobs here in the Australia, I think that is actually what is more important than just government spending. So we will employee a few people to build a couple of roads and a few schools. Sure, that is going to help but it is not going to be the real core answer to the problem.
There is a reporter that I particularly like. His name is Allan Cola and I will read you a little excerpt from one of his commentaries on the stimulus package.
“Yesterday, the prime minister said something like this. ‘The world economy is totally bugged but here is a few bucks for some of you and we are going to pay for a whole lot of more schoolrooms and give a few of you something to do.' Well, that might be a cynical synopsis of what the stimulus package was all about. What was actually said, it goes along something a little bit more like this. ‘We now face an economic recession with a massive impact on jobs right across the world.' And then later on in the announcement, the prime minister said ‘the policy of this government is to act and to act decisively'. Well, if that is not a political statement, I do not know what it is.”
He has possibly got it right in my opinion and we do need to be looking towards the future but the real core has not been addressed and it has nothing to do with the government. It is actually all to do about public sentiment, it has to do with media hype and it has to do with the financial institutions that have put a complete squeeze on our economy.
What is actually going on is that they stopped lending. They have stopped lending to businesses, they have stopped lending to investors, and they have basically stopped the whole entrepreneurial world from getting out there and taking risks. And if you do not have an entrepreneur out there that is willing to get out there and take risks and a financial institution is prepared to back them, you have an economy that has stopped because they are the ones that create employment. They are the ones that create profits. They are the ones that make the money go round and round and round. And unless we keep that within these shores and not sending it all for all around the world and selling all of that technology and letting all of our amazing young talent with the creative ideas and inventions go off overseas and develop them elsewhere, we do not benefit and that is exactly what we have been doing over the last 10 or 20 years.
All of our talent has had to go overseas to get the recognition and the backing to make things happen. We need to call that back. We need to call that back onto the Australian shores and that is what the government should be encouraging. And I guess they partially are in some respects, but I do not think they really recognize just how much of an impact that had over a longer period of time in our economy. We need to stop letting—in fact, the steel industry. Take that as an example. Okay, we produce iron ore. We have got great reserves of iron ore. We are a lucky country in that respect, so we have got good mining resources and we ship it overseas to places like China. They turn it back into steel and then we buy it back at inflated process.
What do you think that is doing to us in the long term? Sure, we get a short term benefit because we get the sale but what that means is we then are buying it back at high prices. We should be at least at a bare minimum, producing enough steel in this country to supply our own needs. Sell the rest of the iron ore off to China if you want to do that, but that is the type of stimulus that we should be encouraging here, the capital and the infrastructure to might that happen.
You know, technology is so cutting edge these days that we can be competitive if we keep up to date on the technology and innovation and those types of things. Sure, our wages are always going to be higher. Our cost of living is higher. Our standard of living is higher. And I do not think any of us want to change that but we need to be a little bit more parochial about Australia and our economy and our economic futures, and everything that it means to be Australian. I think that is the thing that is going to change this country.
You know, when you look at the infrastructure spending that was actually announced, there is instillation, the schoolrooms is 350, road black spot upgrades is 200 sets of boom gates, there is 650 million of road maintenance and then urgent maintenance on 2500 vacant social commission homes, 20,000 new vacant social housing. All of this stuff, yes it is going to work in the longer term but it is not enough. The dream is not big enough.
You know, you take JFK. He said, “We are going to go to the moon.” This might be debatable as to whether they actually got there or not, but it changed the nation. You know, American president is announcing that we are going to have a rile link-up around the country. That is what is dreams are made of. We need to have bigger dreams. We need to be looking at pipelines that go into the—and to put water into the center of Australia to open up all of that country, and all it is missing is water. We need to be looking at programs to capture the water that is now flooding through Cannes at the moment. What is happening to us? It was all just running off into the ocean and in tons and tons to the south, those types of things. We need to be focusing on solar power. We need to focusing on green. We need to be focusing on all of these other things and that is where some money should going.
Back in the 1930's, there was a gentleman by the name of John Maynard Keynes I think his name was. He created the name Paradox of Thrift. And it is quite interesting when you look at that word Paradox of Thrift. What does that really mean?
Well in the 1930's, it was used to describe what happened if everybody saves more and spends less. Now, saving is good at an individual level but if everybody does that, exactly that, they save more than they spend, national output fall and employment rises, and incomes fall. So that is the paradoxical bit where you have an increase in the savings, right. Actual savings results decrease. That is why it is called a paradox because savings can reduce both income and savings. It is one of those funny economic quirks, if you like.
But in this case, what we are actually saying is a paradox of stimulus. To justify the spending of $42.5 billion plus $10.4 billion last year even though tax revenues have actually fallen by $115 billion over the last four years, the budget is already in deficit. The government is basically scaring the living daylight of everybody because what is actually happening is the fear that is being creating contracts the economy, which far outweighs any of the positive effect of more money in the system going round. That is because companies fight with similar big revenues, are cutting costs and reducing debt, and household to doing exactly the same. No matter how much spending the government does or the debt that they are actually incurring to do so, the crises will not end until owners of capital and consumers start risk taking again.
Entrepreneurs, get out there and start making things happen. What we have is a credit crisis characterized by a general collapse in the willingness or the sentiment or the confidence to get out there and take risks.
Banks are not lending, businesses are not investing, and consumers are not spending. No matter how much the government tries to counter all of those things or to replace them, it is just not happening.
The first thing we need to lobby and to be outspoken about and get the meteor on the bandwagon of is make the banks start lending again. Start free up the system. Our banking institutions have not hurt like the international ones. They are not in that same credit crisis. They need to be free and the things that is holding a lot of the investor market back is the mortgage insurance industry here in Australia, which is all owned by America. And because America is hurting, the company generally is hurting out of the results they have over America, nothing to do with what is going on in Australia.
Consequently, America is their major market. They have contracted so they just said, “Do not worry about little Australia. They are only a part of our market even if they are making a profit and have not had the foreclosures and have not had any of the problems that the American head office has.” What they should be doing is cutting us free and let us run our own race because we are not into trouble while everybody else is.
Anyway, I have said enough for today. I have been on my soapbox for a little too long. So that is my review of the stimulus package. Get out there, be patriotic, be Australian, buy Australian, spend Australian, and manufacture Australian. We need to get out there and take control back of our destiny of this country instead of selling it off to everybody else around the world.
But that is my viewpoint so I will leave you with that and I will talk to you again next week. See you guys! Have a great day.