[This article is excerpted from "Economics in One Lesson". It was first published in 1946.]

THE ECONOMIC GOAL of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor. It is for this reason that men began putting burdens on the backs of mules instead of on their own; that they went on to invent the wheel and the wagon, the railroad and the motor truck. It is for this reason that men used their ingenuity to develop a hundred thousand labor-saving inventions.

All this is so elementary that one would blush to state it if it were not being constantly forgotten by those who coin and circulate the new slogans. Translated into national terms, this first principle means that our real objective is to maximize production. In doing this, full employment—that is, the absence of involuntary idleness—becomes a necessary byproduct. But production is the end, employment merely the means. We cannot continuously have the fullest production without full employment. But we can very easily have full employment without full production.

Primitive tribes are naked, and wretchedly fed and housed, but they do not suffer from unemployment. China and India are incomparably poorer than ourselves, but the main trouble from which they suffer is primitive production methods (which are both a cause and a consequence of a shortage of capital) and not unemployment. Nothing is easier to achieve than full employment, once it is divorced from the goal of full production and taken as an end in itself. Hitler provided full employment with a huge armament program. World War II provided full employment for every nation involved. The slave labor in Germany had full employment. Prisons and chain gangs have full employment. Coercion can always provide full employment.

Yet our legislators do not present Full Production bills in Congress but Full Employment bills. Even committees of businessmen recommend “a President’s Commission on Full Employment,” not on Full Production, or even on Full Employment and Full Production. Everywhere the means is erected into the end, and the end itself is forgotten.

Wages and employment are discussed as if they had no relation to productivity and output. On the assumption that there is only a fixed amount of work to be done, the conclusion is drawn that a thirtyhour week will provide more jobs and will therefore be preferable to a forty-hour week. A hundred make-work practices of labor unions are confusedly tolerated. When a Petrillo threatens to put a radio
station out of business unless it employs twice as many musicians as it needs, he is supported by part of the public because he is after all merely trying to create jobs. When we had our WPA, it was considered a mark of genius for the administrators to think of projects that employed the largest number of men in relation to the value of the work performed—in other words, in which labor was least efficient.

It would be far better, if that were the choice—which it isn’t—to have maximum production with part of the population supported in idleness by undisguised relief than to provide “full employment” by so many forms of disguised make-work that production is disorganized. The progress of civilization has meant the reduction of employment, not its increase. It is because we have become increasingly wealthy as a nation that we have been able virtually to eliminate child labor, to remove the necessity of work for many of the aged and to make it unnecessary for millions of women to take jobs. A much smaller proportion of the American population needs to work than that, say, of China or of Russia. The real question is not how many millions of jobs there will be in America ten years from now, but how much shall we produce, and what, in consequence, will be our standard of living? The problem of distribution on which all the stress is being put today, is after all more easily solved the more there is to distribute.

We can clarify our thinking if we put our chief emphasis where it belongs—on policies that will maximize production.

The venerable Glenn Stevens has announced to our 'surprise' that Australia has a housing bubble... the only problem is, he's only 10 years too late.  So what happened in the United States will inevitably happen here, house prices will crash and many Australians are going to be servicing mortgages that are worth more than their houses.

Will the Howard or Rudd governments admit that they were central in inflating this bubble with the first home owner's grant... no.  Will the central bank admit that they shoulder most of the blame for this bubble through artificially lowering the interest rates for the past 10-15 years... of course not.  The funny thing is that right the national argument is whether the government should take over healthcare from the State governments.  So this tragedy will probably see both the central bank and the federal government gaining more power when the real economic crises begins here at home.

The original article can be found at:  http://www.news.com.au/business/story/0,27753,25847312-462,00.html

Evidence of the housing bubble: http://www.debtdeflation.com/blogs/2009/03/22/fhb-boost-is-australias-sub-prime-lite/

God bless,

Dr Washo

[This article is excerpted from "Human Action". It was first published in 1949.]

The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain’s orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.

The consumers patronize those shops in which they can buy what they want at the cheapest price. Their buying and their abstention from buying decides who should own and run the plants and the farms. They make poor people rich and rich people poor. They determine precisely what should be produced, in what quality, and in what quantities. They are merciless bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction. They do not care a whit for past merit and vested interests. If something is offered to them that they like better or that is cheaper, they desert their old purveyors. In their capacity as buyers and consumers they are hard-hearted and callous, without consideration for other people.

Only the sellers of goods and services of the first order are in direct contact with the consumers and directly depend on their orders. But they transmit the orders received from the public to all those producing goods and services of the higher orders. For the manufacturers of consumers’ goods, the retailers, the service trades, and the professions are forced to acquire what they need for the conduct of their own business from those purveyors who offer them at the cheapest price. If they were not intent upon buying in the cheapest market and arranging their processing of the factors of production so as to fill the demands of the consumers in the best and cheapest way, they would be forced to go out of business. More efficient men who succeeded better in buying and processing the factors of production would supplant them. The consumer is in a position to give free rein to his caprices and fancies. The entrepreneurs, capitalists, and farmers have their hands tied; they are bound to comply in their operations with the orders of the buying public. Every deviation from the lines prescribed by the demand of the consumers debits their account. The slightest deviation, whether willfully brought about or caused by error, bad judgment, or inefficiency, restricts their profits or makes them disappear. A more serious deviation results in losses and thus impairs or entirely absorbs their wealth.Capitalists, entrepreneurs, and landowners can only preserve and increase their wealth by filling best the orders of the consumers. They are not free to spend money which the consumers are not prepared to refund to them in paying more for the products. In the conduct of their business affairs they must be unfeeling and stony-hearted because the consumers, their bosses, are themselves unfeeling and stony-hearted.

The consumers determine ultimately not only the prices of the consumers’ goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, pay ultimately the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent the consumers determine the direction of all production processes and the details of the organization of all business activities. This state of affairs has been described by calling the market a democracy in which every penny gives a right to cast a ballot.12 It would be more correct to say that a democratic constitution is a scheme to assign to the citizens in the conduct of government the same supremacy the market economy gives them in their capacity as consumers. However, the comparison is imperfect. In the political democracy only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence policies. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes. The publishers cater not only to the majority by publishing detective stories, but also to the minority reading lyrical poetry and philosophical tracts. The bakeries bake bread not only for healthy people, but also for the sick on special diets. The decision of a consumer is carried into effect with the full momentum he gives it through his readiness to spend a definite amount of money.

It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way. Thus the owners of the material factors of production and the entrepreneurs are virtually mandataries or trustees of the consumers, revocably appointed by an election daily repeated. There is in the operation of a market economy only one instance in which the proprietary class is not completely subject to the supremacy of the consumers. Monopoly prices are an infringement of the sway of the consumers.

The Metaphorical Employment of the Terminology of Political Rule

The orders given by businessmen in the conduct of their affairs can be heard and seen. Nobody can fail to become aware of them. Even messenger boys know that the boss runs things around the shop. But it requires a little more brains to notice the entrepreneur’s dependence on the market. The orders given by the consumers are not tangible, they cannot be perceived by the senses. Many people lack the discernment to take cognizance of them. They fall victim to the delusion that entrepreneurs and capitalists are irresponsible autocrats whom nobody calls to account for their actions.[1]

The outgrowth of this mentality is the practice of applying to business the terminology of political rule and military action. Successful businessmen are called kings or dukes, their enterprise an empire, a kingdom, or a dukedom. It this idiom were only a harmless metaphor, there would be no need to criticize it. But it is the source of serious errors which play a sinister role in contemporary doctrines.

Government is an apparatus of compulsion and coercion. It has the power to obtain obedience by force. The political sovereign, be it an autocrat or the people as represented by its mandataries, has power to crush rebellions as long as his ideological might subsists.

The position which entrepreneurs and capitalists occupy in the market economy is of a different character. A “chocolate king” has no power over the consumers, his patrons. He provides them with chocolate of the best possible quality and at the cheapest price. He does not rule the consumers, he serves them. The consumers are not tied to him. They are free to stop patronizing his shops. He loses his “kingdom” if the consumers prefer to spend their pennies elsewhere. Nor does he “rule” his workers. He hires their services by paying them precisely that amount which the consumers are ready to restore to him in buying the product. Still less do the capitalists and entrepreneurs exercise political control. The civilized nations of Europe and America were long controlled by governments which did not considerably hinder the operation of the market economy. Today these countries too are dominated by parties which are hostile to capitalism and believe that every harm inflicted upon capitalists and entrepreneurs is extremely beneficial to the people.

In an unhampered market economy the capitalists and entrepreneurs cannot expect an advantage from bribing officeholders and politicians. On the other hand, the officeholders and politicians are not in a position to blackmail businessmen and to extort graft from them. In an interventionist country powerful pressure groups are intent upon securing for their members privileges at the expense of weaker groups and individuals. Then the businessmen may deem it expedient to protect themselves against discriminatory acts on the part of the executive officers and the legislature by bribery; once used to such methods, they may try to employ them in order to secure privileges for themselves. At any rate the fact that businessmen bribe politicians and officeholders and are blackmailed by such people does not indicate that they are supreme and rule the countries. It is those ruled—and not the rulers—who bribe and are paying tribute.

The majority of businessmen are prevented from resorting to bribery either by their moral convictions or by fear. They venture to preserve the free enterprise system and to defend themselves against discrimination by legitimate democratic methods. They form trade associations and try to influence public opinion. The results of these endeavors have been rather poor, as is evidenced by the triumphant advance of anticapitalist policies. The best that they have been able to achieve is to delay for a while some especially obnoxious measures.

Demagogues misrepresent this state of affairs in the crassest way. They tell us that these associations of bankers and manufacturers are the true rulers of their countries and that the whole apparatus of what they call "plutodemocratic" government is dominated by them. A simple enumeration of the laws passed in the last decades by any country’s legislature is enough to explode such legends.

[1] Beatrice Webb, Lady Passfield, herself the daughter of a wealthy businessman, may be quoted as an outstanding example of this mentality. Cf. My Apprenticeship (New York, 1926), p. 42.

This morning's article on news.com.au was "Aussie mums leading economic recovery", which was published in the Courier Mail.  The article predictably goes on to celebrate the actions of the mighty all-powerful Federal Government in response to the economic crisis and the subsequent response from the general public, specifically moms, to SPEND.  This spending has given the consumption sector, roughly 70% of our economy, a necessary boost to weather the passing storm.

So let's start thinking for ourselves and switch off the telescreen with Big Brother's face on it and what do we find?  Well, the government expanded the Federal deficit by about $300 billion... unnecessarily as the fall in tax revenues would have only taken us back to the 2007 budget (yes, a whopping two years ago).  The government borrowed billions to give most of us $900 to spend money... something so incredibly immoral and idiotic I can hardly contain myself... that money wasn't a tax break, it was borrowed money, which means you and your children will be paying off this ludicrous and childish cash-splash with higher taxes and inflation well over the $900 you received.  House prices were set to collapse, so the government increased and extended the first home buyer's grant to squeeze as many Australian citizens into mammoth debt and an elimination of their savings as possible to delay the pain.

And what do we hear from the Federal government non-stop: spend, spend, spend, spend.  Not save, be prudent, save for a rainy day, work hard and protect your money because we haven't begun the depths of the financial crisis in this country yet... no, SPEND.  'The consumer is the engine of this economy', which given the size of this sector in this economy is true, but is a serious imbalance that needs to be corrected via RECESSION.

ANY IDIOT CAN CONSUME... if you give a 16 year old girl a credit card, drop her off at Myer or Cotton On, she will quickly become adept at the art of CONSUMING.  This is essentially what we have done in this country, already burdened with a mortgage, car loan, and some credit card debt, the government has commanded asked us that the solution to our problems is to go the mall and SPEND, run up the credit card or line of credit from your house even more.  Do you see how stupid this all is?

CREDIT comes from SAVINGS.  SAVINGS comes from CAPITAL accumulated from an increase in PRODUCTION.  You cannot CONSUME if you have NO PRODUCTION as you will have nothing to TRADE and thus NO CAPITAL.  The only way we can CONSUME WITHOUT PRODUCTION is by BORROWING other people's SAVINGS.  

And the party is over Australia, this cannot continue forever.  Sooner or later we are all going to pay for the most irresponsible generation in modern history, and we're going to have to go back to work producing stuff that can be bought by people who are also producing stuff and have money, like China and India.

God bless,

Dr Washo

Yahoo Finance just published an article stating that grocery prices are rising faster than inflation, apparently as most of us expected.  Here's a quote:

"Research by the Reserve Bank has confirmed what most supermarket shoppersalready know: that grocery prices are rising faster than the current inflation rate of 2.5 per cent.  The research published in the latest Reserve Bank Bulletin shows that prices for food, beverages and tobacco as a group have increased by an average 4 per cent each year since 1993."

AND

"However, the cost of staples such as fruit and vegetables (up 4.1 per cent per annum), dairy (up 4 per cent per annum) and bread and cereals (up 3.8 per cent per annum) all exceeded the average inflation rate of 2.7 per cent per year."

Wow... I'm speechless, no not really.  If the actual inflation rate was 2.5% then I would be 'outraged', as the government and central bank would like me to be.  As I've discussed previously on my blog and this blog, the actual rate of inflation is substantially higher than the official RBA statistic.  Why, because they quite literally fudge the numbers... like most OECD countries, hedonics are used to calculate the rate of inflation via the consumer price index (which incidentally is not a measure of inflation, more on that later).  To get a break down on how the process works you can visit: http://en.wikipedia.org/wiki/Hedonic_regression.  The effect of this method, combined with the RBA's select basket of goods to calculate the CPI, you get a rate of inflation lower than reality... designed to make politicians and plebs happy.

But how do you really know that the rate of inflation is much higher than the opium-induced number provided by the RBA... well as I have discussed previously, the savings interest rate in your local bank will always be below the real rate of inflation (which has been confirmed to me personally by two bankers and an accountant), which incidentally means that you lose money each year that you keep it in the bank.  So what is the average savings rate... according to http://www.ratedetective.com.au/savings-accounts, it is approximately 5% (give or take a few basis points).  So this means that the real inflation rate is somewhere above the 5% level and to make matters worse, your salary is indexed to the CPI, which as we now know is below the real rate of inflation, which means that grocery prices are getting just a little beyond your reach every year.

In short, the prices of groceries have risen comparably with the actual rate of inflation.  Have a great weekend folks, sorry to leave you with some sour news.

God bless,

Dr Washo

For more information of government statistics and how they are manipulated, check out: http://www.shadowstats.com/article/consumer_price_index

Continuing from my last post, I was reflecting on why people just don't seem to care about the increase in size and interference of government in their daily lives.  At first, I must admit, I just thought people were stupid... they either didn't care, understand or cared to understand.  I thought the Australian people were distracted by sport (the national religion) or raw entertainment on TV, DVDs, internet and did I mention sport?

I have now come to the conclusion that it is none of the above (at least directly).  Individuals are rather clever people, and if you sat them down and reasonably explained things, they might start asking meaningful questions that would challenge the tyrannical laws that are often passed by the government.  But people don't want to know, they don't want to care and sadly, they don't want to listen... not because we are stupid, but because we love Big Brother.  Yes, we love Big Brother.  We want the crushing warm arms of the state to embrace us, tuck us in at night and protect our crib like the spoiled babies that we are.  We have made the historically fatal mistake of exchanging our physical, emotional and economic liberty in exchange of temporary security.

A guy called Benjamin Franklin said something about this (I love this quote): Those who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety.

This guy Franklin knew something about human beings and human action, we love to follow the path of least resistance... so you there, the man with the gun, keep me safe from harm and worry and I will care not for the cost; take the gun from me while I go about the business of pleasure.  To contend not for liberty is to devalue it, and once it is devalued, it is lost.  The freedom to defend yourself, the freedom of private property, the freedom of thought without vilification and prosecution, the freedom of religious expression, the freedom of money that is not seized by the government... this is worth contending for.

Practical:  How do you defend freedom and liberty in this country?  How do you fight the idea of legalized and loved tyranny?  Simple, not easy, but simple... fight it with another idea.  The battle must be fought intellectually and culturally and you must dare to do what they FEAR the most: think for yourself.

God bless,

Dr Washo

[This article is excerpted from "That Which Is Seen, And That Which Is Not Seen". It was first published in 1850.]

Have you ever witnessed the anger of the good shopkeeper, John Q. Citizen, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even 30 of them, by common consent apparently, offered the unfortunate owner this invariable consolation: "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions. Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade — that it encourages that trade to the amount of six francs — I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen. If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not.

Now let us consider John Q. Citizen himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window. In the second, where we suppose the window not to have been broken, he would have spent six francs in shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window. Now, as John Q. Citizen forms a part of society, we must come to the conclusion that, taking it all together, and making an estimate of its enjoyments and its labors, it has lost the value of the broken window.

Whence we arrive at this unexpected conclusion: “Society loses the value of things which are uselessly destroyed;” and we must assent to a maxim which will make the hair of protectionists stand on end—To break, to spoil, to waste, is not to encourage national labor; or, more briefly, "destruction is not profit."

What will you say, Moniteur Industriel? what will you say, disciples of good M.F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?

I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen.

The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, John Q. Citizen, represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another, under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labor suffers proportionally by the same cause. It is this third person who is always kept in the shade, and who, personifying that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favor, all you will find will be the paraphrase of this naive question — What would become of the glaziers, if nobody ever broke windows?

Hey everyone,

So Justin is going to be away for a little while and I've been staring at the home page of aussienomics for the past few days blankly, waiting for some sort of inspiration to descend or arise upon me... sadly nought.  I do have several small thoughts that I guess I can post as regularly as I can until I come up with something long and profound to post.  In any case, feedback and interaction makes the experience better for all of us.

Recently I watched the movie 1984, based off the novel written by George Orwell.  I don't recommend people watch the film, unless you want to see the fantastic acting performance by Richard Burton.  The book is sensational, I'm about 10% of my way through the book myself.  What hit home to me today is that governments around the world are heading for that dystopian destination.  I once thought that it was virtually impossible for that level of tyranny to occur within my life time... I now believe differently.  Sadly, the level of apathy and disengagement of the population has me worried about the future.  My beef is not with the politicians, as they are just men and women with the same power complex that average individuals possess.  My discontent is with you, the person reading this article and the persons who are not reading this article.  My disappointment is with all of us, past and present, who have allowed, either actively or passively, this monstrosity to occur.

What am I talking about, it's simple: legalized tyranny.  In this country you cannot defend yourself with a weapon without fear of imprisonment, they restrict the ability to defend yourself by making it virtually impractical to have a gun in your home and use it for self defense.  The crazy thing about it is, people actually think this is a great idea.  My response is this, if a murderer breaks into your home, which scenario would you prefer:  1) Call the cops and wait 10-20 minutes before they arrive OR  2) Have the means and ability to personally defend yourself without fear of imprisonment for manslaughter?  How about economic tyranny... an income tax, a GST, a corporate tax, property tax, capital gains tax and now, the upcoming carbon tax.  I've said it before, one day the government will find a way to tax you for every breath of CO2 you exhale.

Last in this tirade, but not least, the inflation tax... the debasement of the value of the money you keep in the bank.  I've discussed this previously, but did you know that the money you keep in the bank depreciates in value despite the interest you earn in the bank?  The central bank of Australia (i.e. the RBA) continues to print and print money, perpetuating a fraudulent banking that loans money into existence.  Now as I wrote this sentence I know that people's brains have 'glazed over', they don't know what I'm referring to.  The term 'fractional reserve banking' is a foreign term, much like 'magna carta' or 'habeus corpus'... concepts and principles too difficult to invest time for learning.  And what is the price for this ignorance, this intellectual slavery to our overlords... it is not the suffering that we are enduring now, no that would be too obvious.  The penalty for our unconsciousness is the fact that people LOVE to be enslaved and will defend tooth and nail to 'return to Egypt, for it was better for us there...'.

This is an angry post, and I am angry at all of us... we must wake up before it is too late and we all end up distracted by 'Dancing with the Stars', 'Master Chef' or 'Gossip Girl' and surrender our brain, wallet and soul into the hands of a Beast.

Dr Washo

PS    Love mercy, truth, freedom, knowledge, wisdom, understanding and love itself rather than entertainment, lust and greed.

I'm taking some well-earned leave from work and as such won't be able to post with the usual frequency. Hopefully Dr Washo will continue posting his excellent articles, but even if he doesn't i've queued up several articles which will appear every Wednesday until I return (September) so make sure to check back at least once a week - some are quite interesting!

I started my day like any other, by going to my poultry selection of internet news providers.  I prefer the Drudgereport the best, but there doesn't appear to be a good equivalent for Australia unless someone happens knows one?  Anyway, I go to news.com.au on 1 July (the beginning of the new financial year) and to my surprise I find out that we've all received a tax cut.  I should be happy, I should be joyous... but I'm not.  You know why?  One word: inflation.

Here's a summary of the changes they made:

1)  The 30 per cent income threshold is increased from $34,000 to $35,000

2)  The 40 per cent tax rate is reduced to 38 per cent

3)  "... An individual on $40,000 a year will get an extra $2.88 a week, while someone on $100,000 a year will get an extra $10.58 a week."

Wow... amazing.  Big deal, they moved the tax bracket around a little, by a whopping $1000.  Lest we forget the 2% decrease in the 40% tax rate, what a bold gesture.  My favorite part is point (3)... an extra $2.88/week if you earn $40K, $10.58/week if you earn $100K.  Let's take a closer look at the numbers:

1)  $2.88/week = $149.76 at the end of the next financial year.  If you earn $40K, this represents a 0.3744% increase in your income in a year.

2)  $10.58/week = $550.16 at the end of the next financial year.  If you earn $100K, this represents a 0.55016% increase in your income in a year.

The depressing amazing part of this is that the rate of inflation in Australia, according to the RBA (which cooks the books), is 2.5%.  Now we just know the real number is sooo much higher than that, but for the sake of argument let's roll with this number.  Let's go back to the numbers:

1)  $40K income...   2.5% inflation = $1000, this means you lost $1000 of purchasing power in one year.  The new tax cut gave you $149.76.

2)  $100K income... 2.5% inflation = $2500, this means you lost $2500 of purchasing power in one year.  The new tax cut gave you $550.16.

The 'phenomena' of inflation is that it is like the wind... you can't see, but you feel it's effects.  Even though nominally you still have $40K, in reality, you've lost money at the end of the day.  So the tax cut the Federal government gave you was really an 'inflation subsidy' gesture.  

But let's take it a step further.  An Australian banker once told me that the % interest on your savings account in the bank will always be below the rate of inflation, one assumes the 'actual' rate of inflation after you calculate it correctly (for an example go to http://www.shadowstats.com).  So the rough average is about 4.45% according to http://www.ratedetective.com.au/savings-accounts, which means that the actual rate of inflation maybe somewhere near 5%.  This means:

1)  $40K income...   5% inflation = $2000, this means you lost $2000 of purchasing power in one year.  The new tax cut gave you $149.76.

2)  $100K income... 5% inflation = $5000, this means you lost $5000 of purchasing power in one year.  The new tax cut gave you $550.16.

So how's that tax cut looking now?

Australia, you got served.

God bless,

Dr Washo

There are quite a few people who still think it was the "free market" or "Capitalism" that failed. On the contrary, it was the government, regulation and central banking that failed. Lets see what the dictionary has to say:

Main entry: cap·i·tal·ism
Function:noun
Date:1877
: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

Hmm, no, we definitely never had Capitalism...Maybe this is what we have:

Main Entry:mer·can·til·ism
Function:noun
Date:1838
1 : the theory or practice of mercantile pursuits : commercialism
2 : an economic system developing during the decay of feudalism to unify and increase the power and especially the monetary wealth of a nation by a strict governmental regulation of the entire national economy usually through policies designed to secure an accumulation of bullion, a favorable balance of trade, the development of agriculture and manufactures, and the establishment of foreign trading monopolies

Ah, that sounds better! This crisis was caused by Mercantilistic (Keynesian) policies, not Capitalism. There is no 'flaw' in Capitalism. Allowing the free market to do its thing with minimal interference is the road to relative wealth and prosperity for all. A continuation of the failed policies of the Mercantilists will slow any potential recovery. Unfortunately it appears our omnipotent leaders have decided they want more of the same; indeed, it will be owed to what we have left of the free market when we eventually get out of this slump, not the actions of Rudd, Swan and Gillard which have been nothing but detrimental to recovery.