Economic SOS

'Just now, Kevin Rudd is throwing money around like confetti at an up-market wedding'.

That's the verdict of Henry Thornton, writing in the Australian on Tuesday last. Henry's article was mainly concerned with finding words for his disbelief at St Kevin's grand gesture of spending up to $43 billion - billion, I still can't believe it - on a communications network that will not make money under the most optimistic forecasts, and likely will be almost completely redundant by the time it is finished.

Add to this jaw dropping amount all the other expenditure on stimulus packages, and soon you're beginning to talk real money.

$300 billion, in fact.

Here is the other Henry, Henry Ergas:

Rudd's errors are not merely the odd concession to economic folly, they go to the core of our economic prospects.

How can one justify reducing labour market flexibility when it will determine whether millions of Australians are condemned to unemployment? Rudd is fond of quoting Olivier Blanchard, the chief economist of the International Monetary Fund. Only a few years ago, Blanchard found that unfair dismissal laws increased the duration and severity of unemployment, in a result confirmed by a vast empirical literature.

How can one justify an emissions trading scheme that imposes large costs for purely symbolic benefits? Originally, the Government, adopting Churchillian tones, portrayed those costs as the white man's burden. That wore thin, not least because Rudd and Penny Wong look less like heroes than like dentists who might convince us to sit in the chair, but not to seek certain death on the barricades. Predictably, the replacement rhetoric was that the scheme wouldn't hurt a bit. Now the scheme's defenders are reduced to saying it could be worse.


How on earth, in a world short of capital, is a savings-short nation going to afford this? Especially as borrowing of this magnitude will place pressure on our credit rating, at the same time as we will have to raise the interest rates that we offer to investors in order to attract them to our debt?

Don't ask St Kevin. The man lives in a fantasy land where the economic rules don't apply.

From the start, when St Kevin gave his sermon on Friedrich Hayek to the gentiles at the Centre of Independent Studies, back when he was just the shadow foreign minister, it was clear that economic truths and laws were not something about which he was very concerned. During the election campaign, and for the first year of his premiership, he had to hide behind the veil of being an 'economic conservative' (whatever that is) in order not to scare the horses. But with his Letter to the Philistines that he penned for The Monthly, the mask has come off, and St Kevin has revealed himself as being someone who holds economics and economic tenets in disdain, who believes that there is a crucial role for government and government spending in shaping society, and who isn't one to think too deeply about the causes of economic phenomena and the consequences of his actions.

I hope you realise what has happened here. For the first time in 25 years, since the ascendency of Bob Hawke, we have a Prime Minister who holds sound economic policy in disdain, who can see little downside in large-scale government spending, who can't see any problem with imposing serious costs on business via the ETS and tighter unfair dismissal laws - even to the point of disdaining cost-benefit analyses - and who is going to act on his commitments.

This is, genuinely, a recipe for economic stagnation and decline.

You think I'm wrong? Consider what happens when a drunken sailor gets control of a country's Treasury benches.

Then also consider an alternative way of dealing with crisis. One which pays respect to the laws of economics, and the need for debtor nations to maintain their credit in the eyes of their creditors.

Then please spend some time with Henry Ergas.

By the way, Rudd's reforms to industrial relations aren't just having an effect on employment. The thugs in the union movement are also back, with their tails up, to make life miserable for the rest of us:

... by chance today, I had lunch at the Melbourne Press Club with the Victorian Police Commissioner Simon Overland.

I asked him this question: “How many police have been diverted to the Westgate Bridge inter-union dispute. Are you concerned that one group of unions has hired bikie gangs to intimidate rival union members?”

In his reply Overland agreed that the police had allocated significant resources to the Westgate dispute and he confirmed that bikie groups had been used by some of the unions and he was examining that.

Make sure you read the 'Japanese lessons' story referred to in that piece. Oh by the way, you know the Australian Building and Construction Commission - the body that has done so much to remove criminality from Australia's construction sites?

St Kevin has promised to close it down.

Do you get it yet? He doesn't care.