I’ve been thinking quite a bit over the past few days as to why the people in charge and the leading economic “thinkers” consistently fail to see the real, fundamental causes of the current crisis. The guys in charge are smart people – they wouldn’t be where they are if they hadn’t proved that. I think the reason lies somewhere deeper than that, that it must lie in their failure to reject the axiom of "government exists to serve the people," and therefore by deduction legal plunder by government is justified for the good of society. If they were to reject this axiom, then the blame would begin to be apportioned to the right people and this is a risk that governments aren’t willing to take. As Mises said,

"It is impossible to invalidate the economists demonstration that all privileges hurt the interests of the rest of the nation or at least a great part of it."

Indeed, it is impossible to refute these demonstrations, unless you maintain the above – and incorrect – axiom. For if you believe that government, by forcefully "helping" a few people is justified in their impoverishment of the rest of the nation, then your entire idea of what is “valid” takes on a different definition as well. Any decision is automatically justified when this axiom is upheld; if you create 100 jobs for troubled teens by robbing a few wealthy farmers, the decision is “justified” and “proof” that government is a necessary evil. Even if the economist can demonstrate that while the money taken has created 100 jobs, it has likely cost 150 other jobs (government created jobs are always less-optimal than private created jobs and thus there is a deadweight loss to society) from ever being created, they will still vote for the policy anyway (well, everyone except for the farmers!). In their minds they have done the right thing, when in reality they have wasted resources and prevented 50 people from obtaining productive work. As Thomas Woods said (cited in Jeffrey Tucker here), “the reason people miss fundamental truths about economics is that economic thinking usually requires at least two steps of logic to arrive at truth, whereas the common man is only willing to take one step at most.” But this doesn’t explain why professional economists, highly intelligent and very well paid, fail to take this second step; they fail to move beyond the axiom of government and therefore miss the real economic truths.

So perhaps this is the reason why they come up with endless cock-and-bull theories of economics to try and explain something that is so obvious. There “must” be a better way they say; there “must” be a way government can fix all of the woes of society, when the real culprit is staring them in the face. They don’t even consider that the axiom they start every thought process with is incorrect. Take this recent example, a speech given by Luci Ellis, head of the RBA’s “Financial Stability Department” (what an amusing name!), where she spouts fallacy after fallacy, trying to find the real cause, because she simply can’t even comprehend that the real cause is in fact herself and her fellow government officials across the globe:

"Perhaps the most basic underlying driver of the crisis was the inherent cycle of human psychology around risk perceptions."

It’s fair enough that people will lose confidence once they realise they've been duped into believing the pool of capital was larger than it actually was but it's hardly the "driver" of the crisis. So she assumes that human psychology operates in "cycles" and this must be the cause of economic fluctuations!

"But there is also recognition in many quarters that low interest rates were not – and shouldn’t be – enough to cause such a crisis on their own."

In other words, the central bankers of the world have decided that they're not to blame (of course lots of other factors were involved, but this was the main culprit).

"A lack of appropriate financial regulation in some countries is widely regarded as one of the important causes of the crisis."

Sure, you undertake "quasi-deregulation" but stay heavily involved in market manipulation, maintain control of rating agencies and so on. She concludes that we obviously need more regulation rather than less government tinkering!

"Perhaps most crucially, many internationally active banks failed to perceive, or appropriately manage, the risks involved in certain financial products and markets, and regulators did not make them do better on this front."

When there's massive credit expansion, no risk of a bank run, no personal repercussions for the people in charge, obscene cases of moral hazard...she wonders why risk is priced cheaply? Of course, as above, the solution is better regulation. If only the right people were in charge!

"In this environment, banks’ perceptions of risk increased, and they started to tighten lending standards. A feedback loop started to develop. Banks were becoming more risk-averse, but so were their customers, who started to pull back on spending. The major industrialised economies of the United States, euro area and Japan were already experiencing economic contractions by the first half of 2008."

Yes, so banks and consumers alike realised that they were living a lie, they found out they had been duped by the central banks and government of the world and, gasp, started to accumulate capital in an attempt to restore the wealth that was destroyed in the boom?

"However, it appears that good quality borrowers can still obtain and roll over credit."

As they should be able to...it's the marginal borrowers who were only able to stay in business because of the low interest rates that need to fail for economic health to be restored.

Her "countermeasures" are too long to list here...but they basically involve bailing out the entire financial sector to restore "confidence". She wants to "de-risk" everything. Finally, she wants to increase regulation across the board...because now they're so much wiser, they won't possibly get it wrong again.

I think she honestly believes that the only reason we had this crisis was because people decided they'd had enough which triggered the vicious "feedback cycle". Then to fix it, simply restore confidence and you'll get a "reverse-feedback cycle" and we can start another "cycle of human psychology?" It sounds fantastic doesn’t it; it’s so simple, and allows her to step back, wipe her hands clean, and get a good night sleep now that her conscience is clear.

Personally, I can't support a system of economics that operates with the above axiom, that "hurts the interests of the rest of the nation" to support certain interest groups. I believe that economics should seek to identify actions that can "benefit the interests of the whole nation." To me, economics is therefore one and the same with individual freedom, justice and liberty. What is it going to take for the people who maintain the “government” axiom to take the second step of logic? I honestly don’t know, and even if they do, most are paid far too handsomely (in the case of economists) or already rely far too much on the welfare state and productive labour of others to start doing something about it now.

Continuing in the same vein as the previous post, the unions are protesting a two year delay in the aged pension as announced in the recent federal budget,

The Federal Government is facing a protest from two of the country's biggest blue-collar unions against its plans to raise the pension age to 67 by 2023.

The Construction, Forestry, Mining and Energy Union (CFMEU) and the Australian Manufacturing Workers Union (AMWU) say it is unpalatable to expect people in arduous jobs to work to that age.

The pension age increase was announced in the Federal Budget and unions say they will fight the decision.

Is anyone surprised? Union officials deciding to fight a measure that will delay their opportunity to feast at the public trough by two years. That's expected though and isn't the real issue here: government and the pension itself. The two year delay is a classic knee-jerk response to the looming old-age crisis and while the government can claim it's a "responsible reform to meet the challenge of an ageing population and the economic impact it will have for all Australians" until the cows come home, it's a policy that will, at best, keep the system running for a few years longer. Unfortunately it does nothing to address the real problem: artificial disincentives to work and save and a heavier reliance on the welfare state.

Why does the government feel the 'need' to get involved in welfare? Quite simply because they created the 'need' to. While in the past family, markets, mutual aid, charity, and work (savings) were ways people provided for themselves, the lure and security of the trough has removed or severely diminished most of those. The whole thing is just one big contradiction: on the one hand, government forces companies and individuals to contribute to a super fund, bemoaning a lack of savings and the looming crisis, while on the other hand they're firmly committed to a policy which continuously diminishes the purchasing power of the dollar! While hypocritically pretending to fight inflation, they encourage massive amounts of credit expansion and constantly increase the amount of money in circulation. There is simply no incentive for the average Joe to save when the government will simply inflate it away (and psychologically obscure this danger with the 'security' of a pension).

Old-age security is too important to be left in the hands of the state but the first step to fixing it isn't to simply delay the pension age. The solution is to bring back incentives to save, cease debasing the dollar and put some responsibility back into the hands of the people. The unions can fight for the pension all they like, but if by the time they hit 65 or 67 it's worth considerably less (as far as purchasing power goes) and reduces them to near-poverty, they might find that the old-age 'security' the state provides them and unions 'won' for them isn't so secure after all.

Here's a perfect example of why a "retirement age" is is just another invention by the government along with unions and other interest groups who want people to exit the workforce before their time that amounts to nothing more than a big waste of resources,

British adventurer Sir Ranulph Fiennes has reached the summit of Everest on his third attempt at conquering the world's highest mountain, a spokeswoman said.

The 65-year-old arrived at the top of the 8,848-metre peak just before 10:00am (Australian time), she said.

He began his latest attempt to climb the mountain three weeks ago, according to the BBC, and now becomes the oldest Briton - and the first British pensioner - to scale the mountain.

Joking about his advanced age, which in Britain brings free travel on some public transport, Me Fiennes was quoted by the BBC as saying: "It's amazing where you can get with a bus pass these days." -- Source

If a 65-year-old can climb Everest, surely people can keep working (especially desk jobs!) well into their 70s and beyond. Rather than just play golf and watch TV all day they could be using their skills productively. That said, everyone should have the option to retire, regardless of age, but the government should stop providing endless incentives to exit the workforce once you turn 65 (pensions, discounts, access to super, and so on).

It goes much deeper though -- there's a huge disincentive to save in our society with the constant debasing of the dollar, debtor bailouts, heavy taxes and so on. Rather than forcing people to save (super) and providing them with a pension and other benefits if that's insufficient, a return to sound money so that savings aren't forever eroded (indeed their purchasing power would increase over time) would be a good start to bringing back some incentive to save.

I love how Kevin Rudd justifies his decisions. Here are two perfect examples of deflection and utter nonsense:

From The Age,

[Responding on criticism that the budget is too large] "Australia's net debt will be the lowest of any major advanced economy in the world for the next decade."

From the ABC,

[Responding to the $2m spent on travel during the parliamentary winter break last year which he tried to hide by releasing on the same day as the budget] "I would say that Mr Howard's $20 million travel arrangements when he was prime minister, which have been defended by Mr Turnbull this morning, are quite clear."

"The benchmark - which has been established by the previous government - we've acted within that."

Classic deflection. Has it honestly never occurred to these clowns that just because someone else is doing it or did it in the past doesn't make it right? It's the old childhood story your parents tell you, "if your friends jumped off a cliff, would you follow them?" I can't believe that this defense holds up to any kind scrutiny, the media is really doing a poor job of critiquing Rudd's policies. Are people really so obsessed with left vs right, labor vs liberal that they can't see that, maybe, just maybe, they're both wrong?

The crisis we face today has revealed how backwards Australian economists really are. There exists a serious, fundamental problem in the way economists are trained in Australia. I cannot fathom any other reason as to why, when economists in other nations (albeit a minority) can see the problems we face so clearly, yet in Australia the "contrasting" opinions are so confused. All of the debates in the media, regardless of political spectrum, always make the same assumption: that government is the solution; that it is a necessary evil to provide us with prosperity. I hope to show, as briefly as possible, that this assumption is unfounded and is indeed detrimental to our prosperity, freedom and liberty.

For the basis of this argument, I'm going to look at a recent article by the ABC entitled "Economists tackle the deficit and debt debate", which supposedly shows some contrasting views from well-known Australian economists. The article begins with a witty quote, stating that:

"It is said that if you put ten economists in a room you will get eleven different opinions."

"This has certainly been true of the federal budget analysis, with rare exceptions such as the general support for the Government's increased infrastructure spending."

The article takes opinions from three economists: Dr Stephen Kirchner, an economist from the Centre for Independent Studies think-tank; Professor Bill Mitchell, the director of Newcastle University's Centre of Full Employment and Equity; and Associate Professor Steve Keen from the University of Western Sydney. I'd like to address the fallacies, indeed the dangers, of taking the advice of these vastly contrasting "economists".

Dr Stephen Kirchner

Our of the lot, Dr Kirchner is probably considered the "free market" economist, or at least the closest thing to it, but even he fails to see that a deficit was not necessary.

"There's no question that we were going to go into deficit, and this was necessary to soften the blow from the global economic downturn," he said.

"But it is a question of degree, and overall about two-thirds of the deterioration in the budget balance is due to slower economic growth, but about one-third is due to discretionary policy actions which have made that downturn in the budget even worse."

The best way to soften the blow from the global economic downturn is to remove the cause, not treat the symptoms. Yet Dr Kirchner, indeed none of the economists mentioned in this article, seem to understand what the cause was: the manipulation of the market by the central banks of the world and their enablers, their governments. A decline in government revenues isn't an excuse to increase the size of government, relatively speaking, to that of the private sector. Dr Kirchner continues,

"I don't know that there's been much evidence to suggest that there's been a positive impact on employment creation from the fiscal stimulus packages."

"There's a long-run crowding out effect from government borrowing that will probably persist well after the recovery is underway," he said.

In this, Dr Kirchner is only partially correct. The stimulus packages did create jobs, it boosted the retail industry, the construction industry and many others connected to them. It's fantastic; indeed wonderful, to see this marvellous plan succeed in creating jobs for the people! But one has to ask, where did the government get the dollars to pay for these jobs? It had to tax from other people, people who you never see. The $900 it took from Joe the businessman to pay for Steve the construction worker is now $900 that Joe never gets to spend: he may never buy a new suit, costing the local tailor work; he may leave his garden unkempt, costing the gardener work, and so on. So not only is Joe robbed, at a loss of $900, but the many industries he would have spent it on also suffer, not to mention the net loss incurred through the layer of bureaucracy that was involved in the redistribution process. There is no reason why Steve should deserve more sympathy than the tailor or gardener who no longer have jobs. The "stimulus" is no more than a mere displacement...there is no net gain to the economy.

As for the long-run crowding out effect from government borrowing, Dr. Kirchner is correct. Any money they government sources - whether from tax, borrowing, or inflation - is now money that the private sector, the people, no longer have.

Professor Bill Mitchell

Prof Mitchell, unfortunately, epitomises the state of academic economics in Australia. He believes that government is the solution to all of our woes, that it is this great almighty utopian being that can do no wrong,

"[if the government didn't intervene] There would have been a very severe economic contraction with much more substantial unemployment, much higher negative GDP growth rates, and we would have really regretted it."

"[on the 1990s recession] They allowed the recession to occur and deepen before they intervened, they intervened very late and, as a consequence the economy was already starting to turn, that is grow, before they really started to pump money into it," he said.

"We had a very tepid recovery, and unemployment kept rising for several years after that, and it took us nigh on 14 years to get the unemployment rate back to where it was before the '91 recession began."

Everything the government does is contradictory in one sense or another. If it seeks to aid one industry, it must take from another industry. It's at best an illusion that everyone can live on the back of everyone else. The government can never restore more to the public than it has already taken. It's an impossibility for it to confer a particular benefit upon an individual, or group of individuals, as part of a community, without imposing a greater cost upon the community as a whole.

On the basis of the above, how can Prof Mitchell possibly, logically, justify his case that government can reduce unemployment or boost the wealth of Australians (to be fair, he mentions GDP, which includes government expenditure and not the costs associated with it, so the government can "boost" that statistic)? He can't, so he resorts to the following,

"The Government does not need to fund its net spending. The Government is not like a household - households like my household, if we want to spend we have to find a source of revenue, we are revenue constrained. The federal Government is not revenue constrained, it issues the currency," he said.

"When the Government does issue debt, it provides us with a safe haven for our savings. The debt repayments and the debt servicing the Government makes provides us with income and allows us to earn income from our savings in a risk free way," he said.

"It's something that superannuation funds can invest in much more securely than some of the more high risk assets."

There are fallacies abound in the above comments, so let's start from the top. I don't think Prof Mitchell is advocating a return to the printing press, although if he is, any ounce of respect I may have had for him would be completely gone...I think he's stating that because that option is there, and the government takes a constant stream of taxes from its people, it never needs to back its debt with real, productive revenue (a good thing too, because government has no revenue of its own merits!). It's this argument, and that government issued debt is a safe haven for savings, that I will address.

Let me begin by saying that government debt, contrary to what Prof Mitchell says, has no upside. In order for government bonds, required to finance debt (I ruled out the printing press), to sell, the government has to make them attractive. To raise $60bn in capital, as an example, the government is going to have to issue, say, 630 million bonds, each with a face value of $100, paying 5% interest over the course of a year (each bond would then fetch $95.24 from a capitalist, and $95.24 x 630 million = $60 billion). Each year the government has to redeem the maturing notes for $100 and reissue the bonds - thereby losing money ($3bn a year), unless they either issue more bonds next year or finance the interest payments as another way to recover the loss.

To summarise,

YEAR 1: 630m bonds * 95.24 = $60bn revenue for government

YEAR 2: 630m bonds * 100.00 = $63bn back to the investors

NET LOSS FOR GOVERNMENT = $3bn

The problem, of course, is that for this debt to be paid off (and for the cycle to end - issuing more and more bonds can't go on forever), it is necessary for the government to tax the general public to repay its commitments. Each government bond therefore represents a future claim on taxpayers. While a select few might benefit - perhaps the superannuation funds that Prof Mitchell mentions - it's at the expense of someone else (people who Prof Mitchell fails to see), as the money to pay for the interest comes directly from the taxpayers. The only other option, of course, is for the RBA to buy up the bonds and monetise the debt - thereby causing inflation, which is another form of tax (and punishes the poor, the very people the government is claiming to be help with their deficit).

What Prof Mitchell fails to grasp is that whenever the government buys something, it consumes resources that might have been devoted to other ends, and in particular might have been devoted to the production of capital goods. It can never give more than it takes. Government debt will almost certainly reduce the amount of gross investment, and hence production in future decades will be lower than it otherwise would have been. This cannot be offset by pieces of paper issued by the Treasury.

Associate Professor Steve Keen

Despite his good intentions and sound knowledge of economic history, Steve Keen's fanatical attacks on debt and the "roving cavaliers" (bankers) leave him blinded to the very tools that enable them: the central bank and government. His recent popularity makes him the most dangerous of all of these "economists", because while he called the crisis correctly, his misunderstanding of the real cause and his unwavering obsession with Minsky is likely to lead us into more trouble than the well-known fallacies of the previous two "experts". He says:

"We have had far too much debt, more than the system can actually cope with, we therefore can't get out of this the way we used to get out of it by re-encouraging private lending once more," he said.

"People who got a thousand dollars through a tax cut, used that thousand bucks to borrow ten thousand dollars to speculate on real estate and margin loans," he said.

"The reason we had a boom at the same time as running gigantic surpluses was because the private sector was running up enormous amounts of debt, spending it, and then giving us a paper economy that looked pretty good for a while."

"Ultimately, we're going to see governments changing across either to abolishing debt, or to literally printing money rather than running out debt to finance their spending," he said.

"We know this crisis was caused by too much debt, how on earth do we think that getting into more debt is going to solve the problem."

"The financial system has broken the capitalist system, and I'd rather break the financial system in return and start building capitalism all over again, than leave us in the debt trap we've ended up in."

Most of what Steve Keen said is true, to an extent. Before beginning to critique him, I'm going to clarify something: the article I sourced this from by Michael Janda adds the following paragraph before the direct quotes, which I have a feeling misunderstands what Mr Keen is saying:

"He advocates a drastic solution to the debt problem - that is for the Government to get rid of the debt by causing higher inflation or by simply cancelling it and nationalising the banking system."

Nowhere in what Mr Keen said does he "advocate" those solutions - he merely states that they're the likely outcome. Based on that, I'm hesitant to criticise him for something he may not be advocating, so instead I'm simply going to focus on what he has said, not what Mr Janda thinks he said.

Steve Keen believes that private banking is the source of instability, rather than central banking. He considers an unstable banking system a normal feature - and, it seems, almost a necessary feature - of a dynamic capitalist economy. The 'necessary' part, however, is given without any real argument. Just because banks can create unbacked credit, it doesn't mean it's a flaw of the free market: what enables this to occur without a bank run? Quite simply, the existence of a central bank allows private banks to expand credit (debt) to a much higher level than the free market would permit, preventing the efficient functioning of capitalism.

In a free-market economy, intermediaries such as banks have difficulty expanding unbacked credit, because if a particular bank engages in an unbacked expansion of credit this bank runs the risk of being "caught" (a bank run). Consequently, the threat of bankruptcy is likely to deter banks from pursuing the expansion of unbacked credit. As such, it's unlikely that there's an inherent tendency in the capitalistic economy to generate unbacked credit that destabilises the economy.

This is the problem with Steve Keen - the framework he follows, that of Minsky and Marx, may help him to describe what went wrong (excessive debt, etc), but it doesn't explain. It arbitrarily puts the blame for instability on the capitalistic economy without even making the slightest attempt to establish a logical verification for this claim. Thus, Mr Keen's recommendations - the movement away from laissez faire towards bigger government - are incorrect and unfounded. His suggestions are merely a recipe for progressively slowing the accumulation of real wealth and hence lowering the living standards of all Australians. This is why Steve Keen and his followers are dangerous (apologies for not sticking entirely to the comments made in the above article, part of this critique is based on prior readings of Mr. Keen).

The article finally concludes with:

"Given the long-term nature of the debt commitments Australia is entering, it will be years, and maybe more than a decade, before economic historians can look back and continue arguing which view was right."

Historians can argue all they want: there are still some poor deluded souls who think that the "New Deal" got America out of the great depression, and likewise there will be people who will point to the government when we get out of this one. But the fact of the matter is, government intervention caused this crisis, indeed it has caused almost all of the boom-bust cycles throughout history, and attempts by the government to restore prosperity will only achieve the opposite: to delay recovery and, in the worst case, further impoverish us all.

To conclude, the state of economics in Australia is a disgrace. Not only have most never heard of the Austrian school, although this isn't their own fault: they're indoctrinated throughout the education system to believe that Keynes can fix our woes; that the free-market is inherently unstable; that "greed" is evil, but the very suggestion that government may not be the solution to all of our problems is met with immediate hand-waving, accusations of being "anti-Australian", or "fanatical", or a "capitalist pig". They're so occupied with attacks against each other - left and right - that they can't even comprehend the idea of freedom and liberty, they've never even questioned the very system itself! What is it about the concept of "free to choose" that is so hard to grasp? Why is it always assumed that there's some personal gain to be had; some motive behind the fight for protecting individual freedoms other than the very principle in its own right, regardless of the situation? For example, when defending the rights of individuals to smoke, you're labelled as "irresponsible", or a supporter of the "evil tobacco companies". On the flip side of the coin, when arguing against government spending on a project, let's use the example of an art exhibition, any economist who objects is accused of disapproving of the project itself rather than just disapproving of the government support; you're accused of being "anti-art"! The result is the label of anti-every kind of activity, when on the contrary all we're asking is for those activities to be free and to seek their own reward: to justify their own existence without coercion. Just because something isn't supported or regulated by the government, doesn't mean it should cease to exist - if the people really want an art exhibition, and I'm inclined to believe some would, they will go about achieving that gratification. All government involvement does is displace enjoyment, displace labour, displace gratification, displace resources, and displace wealth - usually for the purpose of preserving its own existence, an existence dependent on the work of others (and their votes!).

The Howard government squandered a unique opportunity: rather than reducing the role of government in our lives, he used his power to expand spending, become involved in pointless wars that put Australia on the terror map, vastly increase regulatory power, and stole freedoms and liberties from every Australian, all under the watchful eyes and support of his legion of "economists".

This laid the perfect platform for Rudd and the Labor left to further expand and destroy the economy and individual freedoms. The struggle between right and left is futile; both are a vote for the same thing, the same system, the only difference being where the resources are taken from and to which politically-connected interest groups they're distributed to. I'm asking for a change, for some form of decency in Australia; a consideration of freedom and liberty, a shift away from the reliance on government and a move to sound economics.

Analysing and critiquing the entire budget would require a significant time investment and a substantially long piece of work. Unfortunately, as a ‘wealth-producing' member of society, I don't have the time to do that (unlike the government, who employ thousands of staff to compile this extravagant, multiple-hundred page document with someone else's money). So instead, I'm just going to look at the key points (namely, what the Treasurer mentioned in his speech).

Before I get started, lets just quickly touch on how the government plans to pay for most of this, as Mr. Swan claims that "...every single cent of new spending for the coming year has been more than met by savings elsewhere in the Budget." However, he also mentioned that he's going to sell $60bn worth of government bonds - that's not savings, but it is a good sign that they plan to monetise the debt through inflation in the future (the RBA will have to either print to buy the bonds or to keep interest rates at the 'target' level). By issuing bonds and paying an above-market "safe" return (otherwise no one would buy them), it starves the market of private capital and credit; it means that increasingly, private savings are being siphoned away from productive investments and into wasteful and counter-productive government expenditures. These bonds represent nothing more than credit extended to companies and projects that are proven market failures. Creating these bonds is a way of institutionalising the principle of buying low and selling lower, all "backed" by future tax and inflation.

Enough of that though, let's get to the budget.

The Working Families Support Package
Mr. Swan announced $55 billion dollars to support so-called "working families...[who] demand little more than a fair go". This is in the form of tax initiatives, child care, education, housing, and other "essential" components of family budgets.

Tax Cuts
Apparently the proceeds of the boom were "skewed" to those already "doing well" and that the people "doing well" weren't paying their fair share. "Fair" is a key component stressed throughout the budget - indeed it's mentioned six times in this relatively short speech. But what is fair? The common definition of fair is:

"...free from favouritism or self-interest or bias or deception."

To me, Mr. Swan's version of "fair" sounds like the usual lie perpetuated by governments of both sides (left & right) to distribute income to whoever they're more "fair" towards. Indeed, when you look at the facts, the tax burden isn't fair at all![1]

A more recent report by the Treasury[2] shows that the bottom 20% of taxpayers account for 6.5% of taxable income but only 2% of tax paid, while the top 20% accounted for 45% of taxable income and 59% of tax paid! Looking at the above table, it's also clear that most of the tax benefits go to the so called "working families". Sorry Mr. Treasurer, but they're asking for much more than a "fair go".

Whenever the government takes tax money and doles it out to someone other than the person who paid the tax, it becomes no different from a common thief. And even if it does dole the money out to the person it took it from - then what's the point of taking it in the first place? It becomes a legitimate exchange, a role the private sector is more than capable of performing. It's utter nonsense to say that the government will spend tax money for the "wealth" of our nation; the common thief would do the same, as would the person it was taken from had he not been stripped of his wealth by the government. If this is nothing more than welfare, then simply state as much. But please don't cloud it with false economics, as if somehow the "...backbone of our economy" is a class that gives more than it takes (it is, but it's not the class Mr. Swan thinks it is!).

Child care costs
The government plans to "...ease the burden of child care costs". Everyone who has a child (assuming they fit into the "backbone" category) gets a $7,500 payment along with a 50% child care rebate, for a total cost of $1.6 billion over four years. Again, this is nothing more than welfare. Not only that, but it also has far more severe consequence: it will obscure incentives and reward poor people who have children. Rather than giving people a "fair go" and lowering the tax they pay, it's giving them more money than they even pay in tax (they can actually make a profit off of another tax payer)!

This is a policy that rewards childbirth, warps the marketplace and blurs economic reality for parents, resulting in a perverse outcome: more children born into poor families. It will serve to increase the welfare state we live in, but also boost the pool of future voters for the Labor party. I can really see how this is going to help the economy.

Education costs
So to help all of the families that were lured into having more babies, the government is also going to educate them in the ways of the state. For a meagre $4.4 billion over four years, and further taxes for the top 20% of income earners (paying the majority of taxes already obviously isn't "fair" enough!), "...eligible parents will be able to claim a 50 per cent refund on eligible education expenses for children undertaking primary or secondary school studies - up to $375 for a primary schooler and up to $750 for a secondary school child each year". So not only is it cheaper for poor people to have more children, it's cheaper for them to provide for them as they get older. No doubt this army of children (the new welfare class?) will grow up to be ardent supporters of government, because they "owe them" so much for "helping" them throughout the years.

Improving housing affordability
We're now "helping" the very same people all the other spending promises are "helping" by providing affordable housing, at a cost of $2.2 billion dollars. If the government was really interested in helping the welfare class, they could start by ceasing their debasement of the dollar, the hidden tax on the poor that makes it very difficult to get away from the trough. It's much easier to become productive and achieve wealth when the target isn't constantly moving away from you. Likewise, artificial credit expansion only raises the price of houses - along with all of these grants that are supposed to "help" the poor. They're nothing more than a subsidy to the building and construction industries!

Supporting older Australians and carers
Welfare for the elderly-at least Mr. Swan doesn't hide this under the guise of economics. But who's going to complain about more money for the elderly and carers? Unfortunately, the presence of the state in retirement security creates calculational confusion, resource misallocation and mismanagement along with harmful free riding. The real cost of this will be borne by future taxpayers, who are paying for the pensions of the present retirees but can expect to receive little in return. If the government really cared, they'd remove forced retirement and let individuals and families make rational and responsible decisions that enable them to provide for their old-age needs. A good start, as above, would be to cease immediately the debasement of the currency so that people would be more able to calculate how much in the form of savings they would actually need to retire on.

Easing cost of living pressures
More powers for the ACCC as people are worried about "...the cost of essential goods such as groceries and petrol". Nothing to see here - a simple justification for government expansion on the basis of a government created problem (again, the debasement of the currency results in higher prices: it's the low-income people who struggle to keep up with government-sponsored inflation).

NEW ERA OF RESPONSIBLE ECONOMIC MANAGEMENT
Mr. Swan is claims he's going to be responsible, yet just released a budget deficit that's going to take 20 years to repay. Apparently, he's simply redirecting spending to "...more pressing priorities". It's the fall in revenues that's to blame, not the increase in spending. Of course! We need these services! The government always knows where to best allocate other people's resources for their own good (you see, people can't be trusted to make decisions for themselves). The most bamboozling quote of all is this one,

"Mr Speaker, some Australians have been asked to bear a greater burden than others, that's true. But in the end, if we're to beat inflation and build prosperity, we have no choice. We simply cannot go on as before, spending irresponsibly, and allowing inflation to build."

I'm not quite sure what Mr. Swan is trying to say here. Inflation is purely a government phenomenon. It's caused by the inflating of the money supply: I can't print dollars, my neighbour sure can't, and other countries can't. If he was serious about stopping inflation, why not return to sound money and cease debasing the currency? I agree about ceasing government spending, but this budget is the highest spending budget in our history. Mr. Swan is trying to have his cake and eat it too: he's contradicting himself.

MEETING OUR COMMITMENTS
For one, only half of Australian's voted for you Mr. Swan. Where was the "none of the above" option, where I'm able to opt out of paying tax and also opt out of all of your "help"? He continues with "...we will begin tackling the big challenges on Australia's horizon, by providing long-term plans, not short-term bandaid fixes." Translation: we're going to plunge the country into long-term debt and wealth destruction, big government, and a removal of individual freedoms, rather than let the market fix itself (which would likely happen in the short-term!).

Education Revolution
The education promise is $5.9 billion dollars over five years to increase the skills of our workforce. How, again, does Mr. Swan know what skills our workforce needs? In plainer words, how is it possible for bureaucrats, so disconnected from the real world, to know what the market demands more than the market itself? Surely entrepreneurs would be better placed to determine the type of workers they need and invest in their education and training accordingly. The education industry in this country is a government-protected monopoly that forcibly restricts competition and needs to end.

Better hospitals and health services
By pumping yet more money into a health system that's riddled with free rider and moral hazard issues is not the solution to our health woes. If people had to bear the costs of their own decisions - whether through insurance, savings, or charity - they would likely be far more responsible with their own wellbeing (by the way, "insurance" isn't the perverted system we have now. Only government could be so deluded to think that planned, optional procedures should be covered by insurance). Rather than piss away more billions on "educating the people", give them some responsibility back!

Tackling climate change
We're getting more funding for "green" alternatives. One can only wonder how far we'd already be down this road if governments removed their subsidies on "dirty" energy and people had to pay the appropriate price for these products. It's always a good laugh when government-run energy companies plead on prime-time television for people to cut back on their electricity usage. It's the perfect example of why government can't be in business and shouldn't be providing services - they have no idea how the price system works! Can you imagine if McDonalds started advertising, telling people to stop consuming so many burgers?

Supporting business
I'm sorry, but if you want to "support" business, remove all taxes and regulations (and no, I don't want quasi-deregulation, which can cause far more problems than it prevents).

Regional and Rural Australia
Mr. Swan here provides more welfare for "rural" Australians, who choose to live there of their own free will, yet constantly plead for aid (out of someone else's pocket). One thing to note is the funding for "water for the future", which brings "...a comprehensive and coordinated approach to water supplies". Only when the government manages a resource, such as water, are we faced with shortages. If the market, the pricing system, was allowed to work, there would be far less squandering of this precious resource than exists today. As per the above example, the government is an organisation who actually advertises - even forces people in the form of water restrictions - to not use their product! Ridiculous!

Indigenous Australia
More welfare for the indigenous, like they need any more "help" from the government. Welfare only increases their dependence on the teet of the state. Welfare is a key cause of unemployment. If they would level the playing field (by ceasing any and all involvement), there wouldn't be any need to supply a continuous stream of "aid" to this cause.

National security
Mr. Swan promises more funding for the military and mentions part of our overseas network. Obviously the Labor party is no different to the Liberals in foreign policy - both seem to be heavy advocates of cooperating with the U.S.'s "empire building" policy, as much as they try to disguise it otherwise.

INVESTING IN THE FUTURE

"Mr Speaker, this is a Government of nation builders.

We have no intention of hoarding the strong surplus for its own sake. This money is not ours, it belongs to the Australian people."

How correct he is (on the latter part). The only problem, of course, is his government isn't giving any of it back to the people it was taken from. On to the more pertinent issue of "nation building", our infrastructure may or may not be lacking, but why is the government best placed to decide where investments should be made? Why should we hand over more power and money to the government, further entrenching government employees in their overpaid, underworked jobs? We don't need more government involvement, we need less. Government lacks the incentive to fix problems, especially in infrastructure. Even with incentives, there's the calculation problem associated with allocating the use of resources, as I mentioned earlier with water and electricity shortages. Private markets, on the other hand, excel in this area. Whilst they may not be perfect, resources are used efficiently to solve the most urgent demands as revealed in the system of profit and loss. As the government lacks this mechanism, everything becomes arbitrary at best and political at worst.

Building Australia Fund
See above, $20 billion dollars for "critical" infrastructure that the government can't possibly know is critical. At best they can have a guess (surveys and so on?), but without the price mechanism, it's impossible to know what people really want.

Health and Hospitals Fund
Mr. Swan pledges an initial $10 billion dollars on hospitals, equipment and so on. Please see the free rider and moral hazard issues above. "Free" healthcare is not only not free, but it can't work (well).

Education Investment Fund
You wouldn't be far off if you thought these sums were from some kind of fantasy land, because there's over $17 billion going into education. But when money grows on trees (or you can print it), who cares, more for all! See above (Education Revolution).

COAG Reform Fund
$78.6 billion for the states (I love how he includes the .6 - what's $6,000,000 when you're talking in billions and it's not your money anyway?). I wonder what strings are attached to this payment...

Future Fund
$3.9 billion dollars for retired public servants - not only have they done nothing productive throughout their lives, living off the fruits of the private sector, but they haven't even provided for themselves in retirement (although to be fair there was no incentive to - the government does promise to take care of them!).

Australia's Future Tax System
This is the scary part because it's so vague: we need something that "builds the nation"; one that's "fairer"; "respects the environment and demographic challenges"; makes us "internationally competitive"; and "creates incentives to invest in our productive capacity". One would think, reading that, that Mr. Swan was advocating for the removal of the tax system, such is his play on words! It's clear that our leaders are floating off in some mystical utopia, because as long as the system stays in its current form or goes the way Mr. Swan wants - towards big government - it's unlikely any of the above will be achieved.

CONCLUSION
Despite all of the big talk, behind the smoke screens Mr. Swan has carefully laid out, at the end of the day the government has plunged the nation into major debt that is going to take considerable amount of time to repay, all on the back of fear mongering tactics and economic fallacies (see the issue with "jobs" in the previous post).

The money for deficit spending has to come from somewhere. It either comes from taking on more debt, printing the difference, raising taxes, or some combination. When the government takes on more debt, it raises interest rates for private borrowers, thereby hurting the economy. As the RBA fixes interest rates (at present, probably too low), it will have to print money, resulting in inflation that takes real value away from the private sector. Finally, if the government raises taxes to pay for the deficit in the future, then it again takes from the private sector. Regardless of how it funds the deficit, the government will crowd out private investment and redistribute or even destroy wealth, thereby slowing economic recovery.

No matter how much Mr. Swan will assure you to the contrary, the world will not come to an end if government "does nothing". Indeed, we'd probably all be better off. The real motive behind sinking us into debt is the love for higher taxes and for higher government spending for their own sake, or, rather, for the sake of expanding statism and collectivism as contrasted with the private sector. It's hardly a very cleverly hidden agenda but for some reason most people still can't grasp it. And no, I doubt the Liberals would be any better.

[1] Ann Harding and Neil Warren, "WHO PAYS THE TAX BURDEN IN AUSTRALIA? ESTIMATES FOR 1996-97" Discussion Paper no. 39, February 1999

[2] http://taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_3-03.htm

Mr. Rudd states that:

"Treasury's advice to be published in the Budget tomorrow is that the measures that we have put in place will support Australian jobs and significantly reduce the length of the Australian unemployment queues," he said.

"This Treasury advice finds that if the Government had done nothing national unemployment in Australia would have been forecast to reach 10 per cent."

He might be right. We might have had more job losses in certain areas of the economy; it's impossible to attach a figure to this (the Treasury wizards can guess all they like - I recall them saying in 2006 that this boom was going to stay strong for 'many decades to come'). But are job losses necessarily a bad thing? The whole reason the world is going through this recession is because there are fundamental structural problems throughout the world economy. There are resource misallocations, misallocations caused by irresponsible monetary and fiscal policy that need to be fixed. Any attempt to prop up prices, or jobs, by injecting capital into areas of said misallocation is a bad idea. It prevents the market's corrective mechanisms from working; it destroys yet more wealth even after the errors of the bubble have been revealed. Hasn't anyone ever told the people in charge that throwing good money after bad is never a smart thing to do? I suppose if your job involves spending the fruits of other people's labour, with no personal repercussions, then it doesn't matter how much you squander, especially if it wins you votes.

But let's not skirt around the issue: this was never a matter of economics. Our leaders may be very well aware of the fallacies of "stimulus" (although this author is sceptic) and are only pushing these plans for political considerations; in that case, it's an attempt to prop up pet industries (infrastructure comes to mind) and increase the size and power of government (i.e. them). Assuming, as we are told, these expenditures are temporary, what happens when the resources shift out of these areas? There's no way for the government to know where consumer, saver and investor preferences lie and therefore they have no idea whether they will survive in the long run. As I've said before, if these projects actually had merits, they wouldn't need to justify them with moral or sentimental reasoning. Simple accounting would be sufficient!

As Mr. Swan keeps telling us, "...tonight's Budget is about three things - jobs, nation-building and a path back to surplus". To look further at the issue of jobs, we need to ask the question: is it that hard to create employment? Keynes suggested we should bury old bottles with money in them, cover them with garbage, then let ordinary incentives get people out there digging. But this misses a fundamental point: employment is not a goal in itself. Wealth, value and production are the goals. Stimulus may create jobs, but it's likely a net destroyer of wealth.

Can government spending attract resources that are currently unemployed? Given that most of the labour force is currently employed, and that leisure does have a value, it's doubtful. More likely, it will simply divert resources (capital, labour) and increase the cost of capital and labour for the private sector, preventing them from expanding and creating jobs themselves.

Arguably the largest issue with stimulus and deficit spending is the debt created to finance it. Either higher taxes in the future or inflation (through the monetising of the debt) are required. In either case, future wealth will be lost as productive activities are penalised. Will the wealth created today, if any, be worth the cost of future losses in wealth? I highly doubt it.

So if massive stimulus packages and "nation building" investments aren't the way to get ourselves out of this mess, what is? The first thing to keep in mind is that spending that prevents or inhibits the reallocation of resources from areas of malinvestment will only prolong the current recession. Not only is this type of spending not better than nothing, it's far worse than nothing.

We need to allow market adjustments to take place. Prices and wages need to be allowed to realign; only when this happens will economic activity resume and will wealth again be created (of course, if other factors: productivity, technology and so on, somehow manage to increase at a greater rate than that of government wealth-destruction, it is possible to achieve a net gain in wealth in spite of the gross government waste).

Government should also be reducing tax to reduce the demand to hold money and increase the desire to lend, borrow, invest, and consume (notice that tax cuts aren't directed by the whim of a bureaucrat: private individuals are able to allocate resources in line with their own, voluntary, preferences, making them more likely to be sustainable).

However, it's important to realise that a cut in tax must be followed by a cut in government spending. Otherwise there will simply be tax increases or inflation in the future to pay for the tax cuts today. In other words, any cuts must be sustainable.

Finally, it's critical that we overcome the fallacy of "jobs" and instead focus on what matters: wealth. A jump in job data does not necessarily equate to an increase in standards of living; let's not forget that some of the poorest places in the world have close to "full employment". Stimulus and grandeur spending promises are nothing but a recipe for wealth destruction. With wealth creation, jobs will follow and prosperity is increase for everyone. With a focus on jobs, it's unlikely that wealth will follow. Indeed, we're more likely to see "trickle up poverty" than "trickle down wealth". Contrary to what they tell us, the free market, or a focus on wealth, is a plan for the people; a focus on jobs, or big government, is a plan for the politicians and wealth destruction. The free market had nothing to do with this crisis: interference in the market by government, the refusal to allow production and consumption to coordinate, is what caused this mess. More of the same will not restore prosperity, it will only destroy it. Blaming 'greed' is akin to blaming gravity for airplane crashes.

Tonight's budget should go down in history as one of the most irresponsible acts ever committed by an Australian government. Deficit spending of $60 billion dollars, or almost 10% of our GDP, will be a burden we're going to have to bear for decades. Unfortunately I fear that the propaganda machine, already in full gear, will distort public opinion to the contrary. The budget will go down as our "saviour", and the old Keynesian mantra of "imagine how bad it would have been if we did nothing" will be utilised to it's full extent. It's a rigged debate that the market can't win.

WANTED: Consumers
Work Type: Full Time
Sub-Classification: Public Relations
Advertiser: Department of Treasury and Finance
Salary: $80,000 - $100,000 + super + bonus

*These are vital roles that need to be filled immediately and are necessary to help Australia recover from the global financial crisis!

You may have noticed that the Australian Government is in the process of releasing stimulus plans as part of our Recession Recovery Plan (RRP). In accordance with this policy, we are currently looking for Consumers to join our recovery team and take part in a range of consumption-based activities. You will report directly to the Treasurer and undertake consumer stimulus activity across the nation.

As an Australian Consumer you will abstain from any kind of productive work; our economists have advised us that there are already enough people working and producing. Your role involves only consumption to further trade and economic development in Australia.

The successful candidate will have tertiary qualifications from a government funded institution, preferably in Arts. Any prior experience in relation to consuming the productive work of others will be looked upon favourably.

You will also need excellent communication skills, strong attention to detail, great follow-up skills and the ability to think outside the square. Your nation is counting on you!

To apply for this position, please email your resume and a covering letter to Wayne Swan, Treasurer, .(JavaScript must be enabled to view this email address).

I was reading Henry Hazlitt's The Failure of the "New Economics" and saw a reprint of Patrick Barrington's 1934 poem "I Want to be a Consumer" at the end of chapter 10. I thought I'd repost it here because it humerously shows how misguided any attempt to "stimulate" consumer spending is. It goes like this:

"And what do you mean to be?"
The kind old Bishop said
As he took the boy on his ample knee
And patted his curly head.
"We should all of us choose a calling
To help Society's plan;
Then what to you mean to be, my boy,
When you grow to be a man?"

"I want to be a Consumer,"
The bright-haired lad replied
As he gazed into the Bishop's face
In innocence open-eyed.
"I've never had aims of a selfish sort,
For that, as I know, is wrong.
I want to be a Consumer, Sir,
And help the world along."

"I want to be a Consumer
And work both night and day,
For that is the thing that's needed most,
I've heard Economists say,
I won't just be a Producer,
Like Bobby and James and John;
I want to be a Consumer, Sir,
And help the nation on."

"But what do you want to be?"
The Bishop said again,
"For we all of us have to work," said he,
"As must, I think, be plain.
Are you thinking of studying medicine
Or taking a Bar exam?"
"Why, no!" the bright-haired lad replied
As he helped himself to jam.

"I want to be a Consumer
And live in a useful way;
For that is the thing that is needed most,
I've heard Economists say.
There are too many people working
And too many things are made.
I want to be a Consumer, Sir,
And help to further trade."

"I want to be a Consumer
And do my duty well;
For that is the thing that is needed most,
I've heard Economists tell.
I've made up my mind," the lad was heard,
As he lit a cigar, to say;
"I want to be a Consumer, Sir,
And I want to begin today."

While Federal Finance Minister Lindsay Tanner says the latest retail sales figures[1] show the Government is taking the right steps to fight the economic downturn, the truth is probably the opposite. While I'm going to ignore the blatant issue with cause and effect (we have no idea based on the evidence alone whether the stimulus worked or didn't work. What if retail sales are up on some unrelated issue?), the downturn we're experiencing is a response to an artificially inflated economic structure, not a lack of consumption and spending.

Loose credit, courtesy of the Federal Reserve in the US and our own RBA, was lured into certain sectors and industries in an unsustainable way, known as malinvestment. The natural response is for failed businesses to sell off assets and allow the labour and capital currently held up in those industries to be reallocated.

Some real good news would be further declines in retail spending, which would perhaps indicate that consumers were taking on less debt. They might be saving more. They might be adjusting their time preferences and thinking about long-term plans rather than short-term wants. Unfortunately, it seems that the stimulus is serving its purpose: prolonging the downturn and the misallocation of capital so that the political muppets can claim a victory based on some government statistics.

All of the above (less debt, more savings) are pre-conditions for recovery. The sudden increase in retail sales is only good news if one adopts the crude theory that economies are sustained by consumer spending. Consumer spending is simply the 'reward' for the real foundations of growth: real savings and investment. I find it highly unlikely this recent jump in retail sales are a result of an improvement of those foundations; the more likely answer is that it was caused by further capital destruction for short-term gains.

[1] Source: Sales surge 'shows stimulus success', ABC Australia, 06/05/2009

Mr. Brumby yesterday announced that he will ‘stimulate’ 68,000 jobs through a capital works and training program. But in doing so he ignores the century’s old lesson of one Frédéric Bastiat; he ignores the unseen and only focuses on what is immediately in front of him.

The creation of these jobs is financed by taking money from the taxpayer. In doing so, their wages are reduced by the same amount that those of the building industry are increased by. In effect, there are no jobs created. All that will occur is a reallocation of jobs—as public spending is always a substitute for private spending. While it may well support one worker in place of another, it adds nothing to the economy when taken as a whole.

The claim that public infrastructure spending “creates jobs for the workers” is an incredibly dangerous proposition. It serves no other purpose than to automatically qualify the most absurd spending decisions. If a road or railway has sufficient utility to justify the capital outlay then that argument alone should be sufficient in justifying its creation. But if, as is the case with Mr. Brumby, that’s not possible to do, he’s forced to resort to the fallacious position of “creating jobs”.

When considering your support for these programs, ask yourself this: what would the taxpayers have done—and can no longer do—with the same billions that are now being spent on public enterprise. There’s no question that these projects will give jobs to certain workers. That’s what’s seen. But it deprives other workers of employment. That’s what’s not seen.

Throughout the Howard years the Liberal party preached, as if gospel, that by delivering budget surplus after surplus they were and still are the only party to be trusted to ‘responsibly' manage the economy. In contrast, Labor is demonised as ‘irresponsible' economic managers due to their spend-happy history, which, at present, they appear to be living up to.

This constant debate of Labor deficit vs. Liberal surplus floods the media every day, both sides trading blows with seemingly no resolution in sight. In this brief article I'd like to set the record straight: both parties are wrong and both will cause considerable harm to our economy.

The Surplus
The legacy of the Liberal government as they'll relentlessly stress was the art of maintaining a budget surplus throughout their term in office. They call this fiscal responsibility, prudent management or some other play on words that makes it sound as if a surplus somehow helps the taxpayers. On the contrary, budget surpluses are not surpluses at all; they are simply a result of the government charging too much in taxes. When Peter Costello tries to equate that a budget surplus is, in effect, the same as if a private company made a profit, all he's doing is demonstrating his dishonesty.

Firms make profits by satisfying the most urgent needs of consumers. They manage to keep costs low enough to earn a differential between said costs and the market price of their products. This is in sharp contrast to how the government does business: rather than meeting the needs of consumers, the bulk of government products and services are provided for the people who pay relatively little in taxes.

A government surplus is earned by seizing property from citizens and then not permitting those same citizens to use the services that they are financing. If someone in the private sector attempted to act in this way they would be prosecuted for theft and fraud. Perhaps next time Mr. Costello orders a meal at an expensive restaurant he should pay the bill and then be told that it's "unfair" to "working people" and that the meal will instead go to someone "more deserving".

Throughout their term the Liberal government, while keeping a budget surplus, failed to decrease the size of government at all; in fact, the size of government grew, making it oh-so-easy for Labor to just continue the big government trend at a faster rate.

A budget surplus is NOT a good thing. It is quite simply money that the private sector no longer has to spend. Entrepreneurs have that much less money to meet the demands of consumers; the very needs that the government claims to be "helping" with their spending policies. While the logical response to a surplus should be to lower taxes, the relentless greed for other people's money that is inherent in any government - left or right - the plunder of citizens under the pretence that it's "for their own good", instead results in the opposite - more spending!

This leads us to the budget deficit.

The Deficit
In stark contrast to the Liberal party, Labour claim that budget surpluses are evidence of the government ‘underspending'. To them, it's not because taxes are too high. Indeed, they baulk at the suggestion of a tax cut, because the result is that the government will be deprived of revenue that it "needs" to help the "battlers". Using this logic, if surpluses aren't the result of too much tax, then the huge budget deficits that Labor enjoys running are not the result of taxes being too low but rather too much spending (and they should cut spending and not raise tax to end them).

The current Labor leader, Kevin Rudd, is a self-proclaimed "economic conservative". Funny how as soon as he was elected he discovered a great number of exceptions that required more funding and moved from economic conservative to socialist, spouting phrases such as a "new world" and how everyone has to "do their part [i.e. pay more tax]".

Deficit spending hurts Australians more than surpluses, on that there is no question. The so called (Keynesian) justification for it, to "fill the void" left by the private sector, is a myth that has been disproven so many times that it's not worth citing. Deficit spending only diverts capital resources from more desirable to less desirable uses, with a side effect of increasing the size of government. That aside, here are some other side effects of deficit spending:

• Higher interest rates (if the government borrows domestically)

• Increased inflation (if the RBA monetises the debt)

• Weakened export markets (if the government sells debt abroad)

• Tax hikes

• All the above in some combination

In addition, while the deficit spending is continued, entrepreneurs in the private sector will have to guess about the particulars of the deficit accommodation, hedge as best they can, and take their chances. If they guess wrong, they stand to lose a lot of money. While the private sector may be good at satisfying consumer demand, it's not very good at guessing what (or where) the next "road-to-nowhere" is going to be. As a result of this, many would rather stay liquid until the deficit is gone to avoid potential losses.

The result of every deficit and all of this increased government intervention for "our own good" will, in the end, have to be paid for by the taxpayers. Rather than selling government owned enterprises to private entrepreneurs or raising the prices charged to the customers to a level where no deficit remains, the government interventionists would rather take from the "wealthy". Somehow it's "fairer" for these people to bear the burden of someone else's consumption. The problem is that this imaginary pool of money that the rich people are "hoarding" can't last forever; there's only so much the interventionists can take before they start simply taking from each other! To quote Ludwig von Mises,

"The interventionist in advocating additional public expenditure is not aware of the fact that the funds available are limited. He does not realize that increasing expenditure in one department enjoins restricting it in other departments. In his opinion there is plenty of money available. The income and wealth of the rich can be freely tapped. In recommending a greater allowance for the schools he simply stresses the point that it would be a good thing to spend more for education. He does not venture to prove that to raise the budgetary allowance for schools is more expedient than to raise that of another department, e.g., that of health. It never occurs to him that grave arguments could be advanced in favor of restricting public spending and lowering the burden of taxation. The champions of cuts in the budget are in his eyes merely the defenders of the manifestly unfair class interests of the rich."

Left? Right? Irrelevant.
What we need is a balanced budget. We need to gradually remove governmental services and move towards a smaller government, not a larger one. This involves a progressive decline in government expenditures, privatisation of government enterprises, a reduction in the regulation burden and massive tax cuts (to follow the spending cuts - remember, we don't want a surplus either). We need to ween the dependant class off the ‘welfare teet' that we've created and Kevin Rudd is intent on expanding. We need to work harder and more efficiently, save more, invest more, and produce more. That's the only way to increase wealth and income for everyone. If these reckless policies continue, the "trickle-up poverty" effect will destroy a considerable amount of wealth and lower the standard of living for all Australians (except of course the politically connected, or nomenklatura).

Earn or Learn: that's the message the government is now sending to the Australian Youth,

"Any Australian under 25 will need to be either working, studying or training under a new plan agreed to by the Federal Government and state and territory leaders."

The government, together with the unions[1], have progressively increased the cost of youth labour to the extent that the government feels obliged to pass yet another law to fix "youth unemployment". This is nothing more than a bandaid policy aimed at fixing a problem caused by government intervention. Rather than forcing youth to do what a group of bureaucrats think is "right", how about first they allow them to choose whether or not they want to work or study. As it stands right now, with the minimum wage at a staggering $14.31 per hour (set to increase further in 2009), it's no wonder fresh high school graduates can't find work. They're products of an education system that leaves them barely qualified to operate a dishwasher yet alone function in the workforce; they're being systematically dumbed down by compulsory state-run education and this move will do nothing but add yet another taxpayer-funded burden to our economy.

Businesses are already being subsidised by 'free' government education. They don't see the need to invest in their staff because they're (being forced into) paying for training already. As the direct beneficiaries of training and education, if the government gradually removed their involvement in the education industry and allowed the market to function, business should and would bear the costs, voluntarily. It would probably be a lot cheaper, practical and relevant to boot! Who can honestly say that what they learnt in high school is useful to them in the workforce; I had to 'unlearn' most of what I was taught as soon as I left!

If our leaders are serious about 'helping' "...young people avoid slipping into long-term unemployment", then they should repeal the minimum wage laws. They should let people work at the level where the cost of labour is equal to labour productivity. Every young man and woman willing and ready to work should be allowed the opportunity to do so. A free labour market would welcome young people, which would not only exhort and restore the spirit of work but also improve labour skill and know how. The labour productivity of Australian youth would likely rise and exceed the ominous minimum levels that presently condemn millions to idleness.

On a more cynical note (seem to be doing this a lot these days...), what's the bet that the next Australian Bureau of Statistics (ABS) unemployment data will show a remarkable decline in unemployment, considering that the government has literally made it illegal for under 25's to be unemployed. Kevin Rudd will be grinning with glee at the success of his latest scheme...but it's just a superficial, statistical, (at best) short-term 'gain', just like every other government initiative designed to "help us". The cost to production, to wealth, whether in lost labour or the cost to the taxpayer who has to foot the bill, will be untold.

[1] Just a quick note: I have no problem with voluntary unionism so long as they're not backed by the government, don't receive government handouts, 'favours' and so on and don't make any contributions to government or party officals. In other words, unionism is fine as long as the union doesn't engage in coercive or violent activity (sadly, that's the definition of the modern union!).