The preceding cartoon got me to thinking about the 'Deficit Hawks' in our own country, such as the conservative economist, Warwick McKibbin, and, of course, the squawking 'Debt & Deficit' Hawks in the Opposition, (dis)ably led by Tony Abbott, Joe Hockey and Andrew Robb.
For a nanosecond, when confronted, they will admit that the Australian economy is performing 'well' at the moment. Outstandingly well, if you ask me, but then as soon as is humanly possible they use the opportunity presented to them by the journalist to rail at the ‘massive debt’ that the ALP has ‘racked up’, and how Labor are committed to ‘out of control spending’, or ‘unable to rein in their spending’, or ‘cut back on the stimulus program’, as if negating the tail end of the response to the GFC would make more than a hill of beans of difference, but which would, in all probability, have a negative effect on the economy, GDP and, in all likelihood, the Budget Deficit, as larger welfare payments would have to be made to the newly unemployed.
Also, as the above cartoon demonstrates (and, for your information, the cartoonist is a former banker, so, as a result of bitter experience he would know what he was on about), when Conservative Deficit Hawks squawk about ‘slashing spending’, when pressed it's always the other guy’s programs that they want to cut into, not theirs.
Deficit Hawks fuel 'Deficit Hysteria'.
Probably there is no hotter topic for us politics tragics than deficit control vs. budget spending against the potential of recession, during and after the GFC.
The two camps – Deficit Hawks and Spending Doves – are clearly separate. Arguments are exchanged at the speed of light across the Internet, and in the media, and we have little time to digest the facts.
On the one side have been those governments and treasuries, the 'Spending Doves', who urged aggressive fiscal expansion policies, with government deficit spending and debt growth, facing up to the uncertainty of the forecasts of the likely outcome of the GFC, including the risk, at the present time, of a 'Double Dip Recession' for some countries.
On the other side are those who think the moment of exit from Keynesian and pro-cyclical strategies arrived yesterday, after their mates in the Banks had their butts pulled out of the fire by the taxpayer, now justified 'due to high levels of government debt’, a fiscal deficit, and public debt ratios that will 'depress future growth in the economy'. These are the 'Deficit Hawks' fuelling 'Deficit Hysteria'.
Now, if you really want to read the proof to justify not believing the debt hysteria hype, you could consult learned exposés, such as, Deficit Hysteria Redux? Why We Should Stop Worrying About US Government Deficits
(and if they believe that you shouldn't worry about the US government deficit, why the heck are people worrying about ours?), and Does Excessive Sovereign Debt Really Hurt Growth?
, both by Yeva Nersisyan and Professor L. Randall Wray (And note how that hot button term 'Sovereign Debt' gets dealt with as no big deal anyway).
What they basically argue is that deficits do NOT burden future generations with debt, nor do they crowd out private spending or borrowing. Conclusion: 'Sovereign governments are “default proof”, even if their non-government sectors are still crisis prone.' Thus, what people in the political parties of capital are essentially worrying about is the collapse of private enterprise, not 'beggar thy government'. Fair enough. However, they should be transparent about the fact that they are attempting to preserve their base, as opposed to the specious fear mongering about government 'Debt & Deficit'.
Now, if, like me, you have no way to avoid Joe Hockey's 'blatherings' about the economy, so ubiquitous are they, you will notice a couple of well-worn 'debt hysteria' slogans above that have slipped from his lips repeatedly of late, when criticising the Labor federal Government's Stimulus spending program. That is, that future generations of Australians will be burdened with the debt being created by this ALP government, and, that the government borrowings, “$100 million per day!!!” to fund the debt, are 'crowding out' private borrowing and private spending. When, as we can see, the empirical economic evidence by erudite economists suggests the exact opposite.
If you really want to get to tin tacks on why Hockey, et al. are wrong, Yeva Nersisyan explains it this way:
'They (debt hysterics), don't seem to understand the operational realities behind government spending and taxing. A sovereign government doesn't finance its spending in the way private sector entities, and this includes families, do. It spends by issuing IOUs/Bonds (document acknowledging debt). Hence, the arguments regarding crowding out effects, as well as this argument that governments will, of necessity, need to raise taxes in the future sometime to finance the deficit (Ricardian Equivalence), are all wrong.'
And, in fact, the real risk to the economy, as the Rudd government ably addressed during and after the GFC, is all around deflation/inflation prospects, and employment/unemployment.
As Yeva Nersisyan explains it:
“Yes, sovereign government spending is not constrained by tax and bond revenue, but by inflation. The issue is the distribution of real labour resources that are relatively fixed in the short run; this leaves less for the private sector to consume if the government starts competing with the private sector. If the government starts competing with the private sector for the use of these resources, then this may lead to inflation. It's a real resource constraint, not a financial constraint. Hence the issue is not solvency, but sustainability. In the current crisis the private sector obviously is/was not able to employ all the available labour resources. At times such as this inflation is not a concern; most developed economies are under the threat of a deflation. Ideally, in this situation the government needs to step in and hire all those left unemployed, or provide the capital to hire those left unemployed by the private sector. Once the private sector gets back on its feet the government can release those workers back into the private sector, by withdrawing the stimulus, to avoid inflation. A job guarantee/government stimulus spending program is an automatic mechanism designed to achieve precisely this.
So there you have it. It sounds exactly like the program the Rudd/Gillard government instituted during and since the GFC, which it is winding back carefully now.
If I was a conspiracy theorist I'd say that those members of the Opposition that actually understand economics, like Robb and Hockey (yeah, I know, you've got to wonder sometimes), would know all this to be true, but instead are deliberately engaged in a malevolent campaign of disinformation, destabilisation, and disruption to the smooth and effective functioning of ALP economic policy, such as we have been seeing effectively playing out since the GFC.
I mean, it's one thing to prattle on endlessly about 'Debt & Deficit', but the Coalition would surely know that you really shift votes permanently into your column when the punters start losing their jobs, as Paul Keating found out to his detriment after 'The Recession We Had to Have', and President Obama in the US also discovered in the recent 2010 Midterm elections. If large upticks in unemployment do happen then the criticism about economic incompetence sticks like Super Glue, because nothing hurts more than not being able to buy the latest mobile phone, or car, if you've lost your job for no good reason other than the economy tanking as a result of the government not being able to save jobs, which factors into your perception of their actions in the face of the recession. John Howard surfed to glory on this realisation, and I'm sure Joe Hockey would love to too.
Ain't gonna happen though, as Gillard & Co. are smarter than that.
Finally, as the cartoon alluded to, another fact that is conveniently overlooked by the 'debt hysterics' is that when they call for 'Spending Cuts', as the Coalition has, it is code for cuts to Welfare. I can't lay out the argument for that assertion any better than in the following article from The London Review of Books
, conveniently published this week by Professor Ross McKibbin, of St John's College Oxford:
It may be about the British economy and politicians, but it has direct relevance to Australia and our Conservative politicians' rhetoric about the Australian economy.
The two most important points he makes are that the budget cuts that Conservative politicians call for never make any serious attempt to drag the wealthy into the 'circle of suffering'. I mean, did the Coalition advocate for the abandonment of Tony Abbott's profligate Paid Parental Leave Scheme that favoured the wealthiest mothers in our society? No. Or, any Means Testing of Private Health and Education subsidies? No. Or an end to overly generous 'Agrarian Socialist' Rural subsidies that favoured their partners in the Coalition, the National Party, and their cohorts? No. Or, an end to Capital Gains Tax or Superannuation tax concessions that favour wealthy property investors and wealthy 'Self-Funded Retirees'? No. Just more of the same old attack the 'dole bludgers' and 'Disability Pensioners' rot and Tonynonsense.
This goes to the heart of Professor McKibbin's second, and most important point about Tory attacks on Labo(u)r governments’ 'Debt & Deficit'. That is, that crises like the GFC allow Conservatives to transform a crisis of the banking system into an attack on the Welfare State. As he says, “this, they hope, will enable them to restructure government and 'shrink' the state and its welfare systems once and for all, something they have been trying to do for the last 30 years.”
However, with this knowledge, and, as I have said, having taken the time to read the whole article, we can be forearmed with the knowledge required to counterattack the spurious assertions of the ideologically-driven Conservatives, who are truly 'Deficit Hawks' cloaked in 'concerned' clothing. Concerned for their own interests, that is.
What do you think?