I feel I have to highlight one of the rare moments when the unseen consequences of governmental manipulation of markets becomes seen:

ENVIRONMENT Minister Peter Garrett will keep his job but thousands of workers will be sacked after the abrupt scrapping of the disastrous $2.5 billion household insulation scheme yesterday.

And Mr Garrett's own department admitted that as many as 80,000 homes across the country may have been left with insulation that does not comply with the official guidelines. Source

We know that when the government distorts the price system through, for example, incentives such as insulation subsidies or grants, the higher prices - which indicate to people where the most urgent shortages as dictated by true consumer preferences currently are - lure entrepreneurs and workers like moths to a flame into that industry. When the program ends, these people are suddenly not needed - they were employed in an area not aligned with consumer preferences. We will have thousands of unemployed insulation installers who might have become plumbers or gardeners or something else actually aligned with the true demands of consumers.

The failure of this program comes as no surprise to anyone who has read Bastiat's What Is Seen and What Is Unseen but 90 per cent of the time the majority of the voting population never look beyond what is seen. It's unfortunate that it took the loss of human life to expose it this time (another unfortunate consequence these programs have a habit of causing) - no doubt the government will be calling for more money, better people and better regulation to 'get it right' the next time.

Treasury Secretary Dr. Ken Henry has stated what everyone already knows: if the stimulus is wound down early, jobs will be lost. Absolutely. No one is denying this. But the problem from a year ago has not changed one iota: government spending cannot create permanant jobs. The state takes its money from the private sector. It does not produce its own wealth. It cannot create any kind of meaningful employment.

"If all the stimulus scheduled to impact in 2010/11 was cancelled that would mean a further detraction of 1.5 per cent from GDP (gross domestic product) growth and the loss of up to an additional 100,000 (jobs)," he said.

The jobs are going to go anyway. I think what Dr. Henry means is that he wants to delay the job losses as long as possible to give his lackeys down at the Reserve Bank enough time to kickstart another fiduciary boom. You see, if we can get enough funny money into the economy before the stimulus is wound down then these jobs created out of nowhere suddenly look sustainable and indeed necessary to businesses around the country. They get misled into thinking we have all been saving more than we actually have been and that capital is abundant when in fact it is anything but.

Eventually we have to bear the costs of these inflationary policies. The longer we delay it, the more painful it becomes. But, luckily for Dr. Henry, Kevin Rudd and Glen Stevens, they will all have retired on fat government pensions by then. Ah, the beauty of short-term solutions!

In other news, Jesús Huerta de Soto has given a speech on the causes of the crisis which everyone should check out if they have the time.

Have a good weekend.

It has to. The extreme—unprecedented—moves that respective governments, policy makers and central bankers have taken in the past year are going to have an effect on the long-term health of the economy.

Let us take a brief look at what happened and what is still taking place in Australia.

In response to the crisis the RBA followed the lead of the central banks of the US and UK and increased base money considerably—from approximately $47 billion to over $72 billion, an increase of over $25 billion in just four months, something that has never been done before in Australia.

Although we don’t know exactly where the money went (the RBA does not comment on particular counterparties), based on the data it is safe to say that it went into the banking sector, either to encourage banks to keep lending to each other or simply as a direct subsidy by taking securities off the bank’s balance sheets and giving them cash in return.

The thing is, unlike the US and UK where the massive increase in base money is still sitting in reserves at their central banks (they receive a ‘safe’ level of interest and are keeping the reserves on hand for future asset write-downs), the Australian banks have already decided to use the new money. I’ll touch on where it has gone in a moment, but for now this means that at least some of the new money has already entered the wider economy and will have to have an inflationary effect at some point in the future. Historically it can take up to two years for an increase in the money base to end up in the CPI (a horrible, heavily manipulated figure)…but who knows this time. What it has done though, in the short term, is keep assets inflated, preventing prices in financial markets, housing, credit markets and so on from adjusting downwards.

So where has the money gone? A quick glance at the data for long-term securities reveals that a lot of the new money has probably entered that market with the amount invested, both public and private, increasing significantly since the money was injected. So the banks are monetising at least part of the government’s deficit with RBA-created money. This is important to note, because fiscal spending is not inflationary under one condition: when you as an individual buy a government bond. When you do this you are making a loan to the government; you are putting part of your cash holdings into the hands of the treasury. There is then no increase in the total quantity of currency or credits available and hence no inflation.

Now, when the banks buy government securities from their new reserves, as I suspect they have been, it is just as inflationary as effects of issuing more paper money. It is under this scenario that the government’s fiscal spending will create future inflation as the loans funding it are not sourced from real, productive savings: there are now more dollars chasing the same amount of goods.

Loans are still relatively stagnant, reinforcing the view that the banks are choosing to invest the new cash in relatively safe long-term securities instead of issuing new loans (although there’s hardly been a ‘crash’ in loans – loan growth is still close to 10% YoY and appears to be turning upwards).

So what does this all mean? For one thing, it appears the banks received a good ol’ fashioned bail out, although the RBA was much more covert in its efforts than the Fed. While this will probably prop up the financial sector in the short term, it can’t be good for the wider economy as prices, production and consumption have failed to coordinate…I have no doubt one of the reasons the market hit records recently is because a lot of the new money was being channelled into the stock market (it often is).

In the short-term the RBA is going to be under pressure to raise rates – I wonder if they can hold out until the election next year (Rudd and Swan will be putting a lot of pressure on them to hold off till then). I’m not sure if the RBA will fight the upwards pressure on interest rates by issuing more money (the only way they can keep it down) or if they will let rates rise…if they keep rates down until next year then inflation will be guaranteed in the medium-long term.

On the subject of inflation/deflation, the best indicator for future inflation has to be M3—coincidently, it is a figure that has been rising at near record levels over the past couple of years (34.8% from July 2007 – July 2009[1]).

Gold is also a good leading indicator for inflation; the AUD gold price (indexed) historically trends close to M3.

The above seems to indicate that inflation rather than deflation will be on the cards for Australia in the near future. Yes, there are plenty of bad debts that need to be written down but I don’t think we have to worry about deflation: the RBA will monetise most of the toxic assets and prevent the money supply and prices from falling too far. It is politically suicidal—for both Glen Stevens and the government—to allow deflation to occur on their watch.

This leads me to the fiscal issue. The reckless “stimulus” undertaken by the government has to have caused massive structural instabilities and further malinvestment in the economy. Rather than let the necessary restructuring occur, they have simply—at best—delayed it. At worst they have caused even more malinvestment and imbalances that will radiate throughout the economy for several years. It’s important to understand that the government can only create what it has first taken from someone else. All of the jobs the stimulus created are temporary in nature—they cannot be maintained unless the government keeps spending. They are not in areas demanded by the preferences of the consumers but by the fancies of Julia Gillard. Building roads to nowhere and new gymnasiums is wealth destruction plain and simple.

If the stimulus is wound down—a necessity to restore economic health—and the inflationary fears forecast above both take hold, stagflation is a distinct possibility. Especially considering that once rates start to rise again the glaring bubble that is the property market will come under stress and put further pressure on both the mortgage industry and jobs related to it (housing, construction and so on).

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved," -- Ludwig von Mises, Human Action

However, we do have more room to move than the US and UK (we actually export stuff and so have a larger pool of real savings to exhaust through government waste and bank subsidies), so it might be possible for the powers that be to keep this fiat regime going and avoid the necessary deflation (or hyperinflation and a collapse of the currency).

The beauty of monetary inflation is that it is never the same and does not necessarily affect the same industries. Loose-money policies at home and overseas could very easily create another asset bubble in our economy. Only time will tell.

[1] M3 growth has only matched this rate twice in Australia over the past 40 years. Those years were 1973 and 1989 and were followed with two recessions.

The latest ongoing debate amongst our political nomenklatura is about the $14 billion hard-earned tax dollars that are being spent on knocking down and rebuilding school buildings. When you consider that fourty-two percent (yes, 42%) of Australian families either don’t pay tax or receive more in government benefits than they pay in tax, this amounts to a significant ‘investment’ in education – but is it actually going to provide any long-term benefit for Australia or is it simply yet another example of the broken window fallacy [see Bastiat or Hazlitt], in other words a colossal waste of resources?

I’ll spare you the banter that’s being thrown around in parliament (a brief summary: Labor is defending the spending, saying it will “…modernise school facilities and support jobs in the local community,” and that it represents “…value for money;” the Liberals are calling it “wasteful and reckless spending.”) and instead focus purely on the numbers and whether or not it will ‘stimulate’ the economy – which was, after all, the whole point of it.

Fourteen billion dollars ($14,000,000,000) equates to almost $1,800 for every tax-paying Australian (assuming only 8million people pay tax). Now that’s a significant amount of money those taxpayers no longer have to spend or save – in other words, our omnipotent government has decided that they know how to spend the money better than you, the person who earned it. Whereas the taxpayer earns their income by satisfying the infinite and ever changing wants and needs of the consumer (whether as an entrepreneur or employee of an organisation that does), the government is under no such obligation. They’re not bound by profit or loss; indeed, on the contrary, all they care about are the various interest groups to whom they sold their souls to move up the political ranks.

The stimulus spending on education will not help our economy one iota. Yes, it will create, or rather maintain jobs in the building and construction industry. But at what cost? Going back, what about the $1,800 that taxpayers no longer have to spend or save? Lets assume this money was saved in a bank – that money would added to the national pool of savings which, due to supply and demand (and the subsequent reduction in the interest rate), would lower the cost of borrowing for businesses who would then been able to expand (invest) and spend on ‘productive’ consumption – that is, consumption that will enable future production and increase the total productivity and wealth of the nation. Not only that but it would create jobs in the process; jobs allocated by the market rather than through bureaucratic whims. The difference? One is sustainable while the other can only continue for as long as the stimulus does.

To answer my initial question, will the ‘stimulus’ of knocking down and rebuilding schools help the economy? Will it enable an increase in future production? Will promoting malinvestment and creating jobs in areas where they’re simply not needed achieve anything other than furthering political careers by gaining support from certain unions and interest groups? Unfortunately, no.

“Experience shows that nothing is operated with less economy and with more waste of labour and material of every kind than public services and undertakings. Private enterprise on the other hand naturally induces the owner to work with the greatest economy in his own interest,” Ludwig von Mises

Aside from boosting GDP statistics in the short term, the only thing that will be achieved by this stimulus (aside from shiny new school buildings for the kids of course) is a delay in the necessary reallocation of scarce resources from areas of malinvestment to areas where they’re most urgently needed. The reckless spending embarked on by this government is incredibly short-sighted and there is no doubt that in the process they have lowered the standard of living for all future Australians.

One of the arguments I've noticed flying around the blogosphere lately by uninformed (I say uninformed because I do believe they've been legitimately misled by politicians and their court economists - this isn't entirely their fault) individuals is that the stimulus payments will help us fly out of the global financial crisis ahead of the rest of the world and put us in a great position to pay off the debt 'down the road'. These individuals have debated with themselves two perceived alternatives: one, to plunge along with the rest of the world into the depths of the global financial crisis; or two, take on (public) debt and 'stimulate' our way to prosperity, only to worry about the debt during the next 'boom' when it will be far easier to repay.

The first misconception, or fear, that we'll plunge further into the doldrums of the crisis if no 'stimulus' is undertaken by the government is only partially true. If the government sat on its hands but continued to take tax and other revenue from the people (while 'doing nothing'), less resources would be available for the people to spend, save and invest and therefore the economy would be worse off. The appropriate action for the government to take is an immediate reduction in taxes aligned with a cut in spending. This would provide the private sector with additional capital that they can then use in line with consumer preferences and 'stimulate' the economy (unlike government spending which is more often than not wasteful and not in line with preferences). The cash handouts issued by the government were nothing more than wealth redistribution disguised as good policy as the majority of tax revenue is collected from the top echelon of Australians, the very people who saw none of the stimulus.

While the fear of inaction is partially justified, the response of the incumbent government was not and is nothing more than political opportunism of the lowest form. At the end of the day, regardless of how many flawed economic models or cherry-picked statistics the government produces to justify itself, every dollar 'injected' into the economy must first be taxed or borrowed out of the economy. Thus, as mentioned earlier, it's nothing more than income redistribution. It does nothing to increase productivity or employment and therefore nothing to create additional income - and that's the best case scenario! More likely, government expenditure will weaken the private sector by directing resources toward less productive uses (e.g. more consumption and less productive investment) and thus impede economic growth.

Before moving on to the issue of deficit spending, I would just like to address one obvious argument that always seems to arise: that government spending takes from 'savers' and gives to 'spenders' which produces multiplier effects (more spending, growth), ad nauseum. To answer this justification of government spending, lets look at two types of savings (obviously there are more - real estate, shares, and so on, but that's irrelevant here): one, people simply hoard cash in their mattress; and two, people 'save' it in a banking deposit account. In the first case, the only way someone could believe that this would be bad for the economy (result in a 'deficiency' of aggregate demand) is if there exists confusion between 'money' and 'wealth'. If people accumulate money for the sake of accumulating wealth (e.g. stuffing it in their mattress never to be seen again), the price of commodities will continue to fall relative to money, therefore 'deficiencies' in aggregate demand will never result. If there is less money chasing the same number of goods, everyone else holding money will benefit through an increase in their purchasing power. The second case on the other hand is more straightforward, with any money deposited in banks being subsequently lent to others to spend. So regardless of what people do with their money it will be used!

To move on to the second claim that a deficit is not an issue because it will be easy to pay off in the future, let’s take a look at the area where there is an apparent "consensus" amongst economists: deficit infrastructure 'investment'. It's true, our highways are probably collapsing; our schools are dilapidated and badly in need of upgrades; and our public transport systems are third world. But the solution is not more tax dollars funnelled into this bottomless pit of bureaucratic waste. These services should be privatised: yes, roads, rail, buses, all of the so called 'social' infrastructure should be placed in the hands of the market, the only system that is capable, reliable and efficient enough to own and operate them. The fact that most people can't even consider private roads (beyond the token quasi-private toll roads) shows how effective the government run education system has been at manipulating and misleading people with false economics, filling the minds of entire generations with an inert fear of the market and into believing the fallacy of "public goods". Privatised infrastructure and the market price system - aligning investment with the preferences of the people rather than bureaucratic whims - is the only way to avoid further infrastructure waste.

That issue aside, lets examine the claim that infrastructure is one of the best ways to 'stimulate' the economy. The first claim is that it creates thousands of jobs, but one need not look far to show the stupidity of this idea. Yes, infrastructure will create jobs, but only because it is displacing them from where they are more urgently needed (it's impossible to tell if they are actually needed in infrastructure because that sector of the economy is socialised and is therefore guesswork at best - the price system is the only efficient method of allocating labour and capital). The only way the government can create these jobs is by taking money from the private sector, thereby replacing efficient jobs (that may well never be created) with inefficient and unsustainable jobs with the overall gain to the economy quite possibly negative! Only by chance can the government stumble onto a productive investment that increases future growth and productivity, but the amount of capital that is certain to be wasted in other projects will more than offset the potential gains.

The idea that these projects are justified because they're funded with borrowed dollars instead of tax dollars is equally ludicrous. The money from deficit spending has to come from somewhere and as the government produces no wealth of its own, we either have to print the difference, raise future taxes or do a bit of both - all of which hurts the economy. By borrowing, the government raises interest rates for the private sector, restricting the available capital for business. If they decide the debt is too hard to service with future tax dollars alone, they will start printing, resulting in inflation that takes real value away from the private sector and anyone who holds dollars. Whatever the government does to finance the deficit they will crowd out private investment and waste resources through countless pet projects, pork barrelling and other bureaucratic waste.

Finally, there is often a claim that there are "idle resources", in other words unemployment in the economy and that government deficit spending helps to re-employ them. The problem with this, as Henry Hazlitt clearly outlined, is that "...unless there were some serious lack of coordination among prices, costs, and wages, mass unemployment would not exist in the first place. When it does exist, the only appropriate cure is individual adjustment of prices, costs, and wages to each other - the return of coordination. But this can be brought about automatically only if the competitive forces of the market are given free play." Allowing these forces to work by removing their causes - government intervention - is the road to recovery, not the foolish notion that more wasteful debt and spending by government will somehow fix our economy.

When Wayne Swan claims that his spending will still be "flowing through the economy" for ten years, he's correct: his reckless spending will alter future economic growth for the worse. Economic growth results from producing more goods and services (not from redistributing existing income), and that requires real savings and productivity. We're going to be paying for the reckless socialist policies of this government for many years to come and only when people begin to realise the fallacies behind big government, stimulus and deficit spending do we have a chance at reversing this course.

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.

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

That's right folks, the government estimates that the new National Broadband Network (NBN) they're going to fly solo with will cost working-aged Australians (15-64) approximately $2,935 each. That's assuming the project is completed -- our government has a bad habit of either quitting mid-way (i.e. after an election) or having the project substantially increase in both duration and cost.

• Government rejects all five private sector bidders for the national broadband network, saying they do not provide value for money.
• National broadband "fibre-to-the-home" network now to be built over eight years by a company established by the Government.
• Network will give 90 per cent of homes, schools and businesses a connection of 100 megabits a second, 100 times faster than now.
• Those remaining will get a service of 12 megabits a second through wireless technologies.
• Will support 25,000 jobs a year for each year of construction, with 37 000 jobs in the peak year of construction.
• PM Kevin Rudd says infrastructure project is the biggest ever undertaken by an Australian government.
• Majority share of the company will be held by the Government, with private sector investment capped at 49 per cent.
• Up to $43 billion will be invested by the company in the project, including the $4.7 billion already allocated by the Government.
• Once the project has been up and running for five years, the Government will begin selling its stake in the company. -- Source
  

The government, in their wisdom, decided that the private sector couldn't provide 'value for money'. I suppose nothing would provide government with value though, those pesky private sector companies actually have to think about their customers and shareholders, while the government doesn't pay for anything themselves -- they simply take it from the taxpayers! How is the government creating these jobs? Everyone knows that the government doesn't produce anything, don't they? These 'jobs' are simply jobs that the private sector can no longer create (productive jobs I might add). They're jobs for something the people, individuals, aren't demanding: not only that, but they're jobs plus a layer of bureaucracy, in other words wasted capital.

All day the government has been stressing this is 'stimulus'; yet it's nothing more than fulfilling #6 on the Community Manifesto! We're moving further and further towards a socialist state and the noose around our necks has just been tightened again. If they really wanted Australian's to have fair internet, they would remove all of their regulations and controls on the industry; they would allow the market to function. But we all know Rudd doesn't have the people's interests at hand.

Then they have the galls to say they're going to start selling their stake -- that will surely end well! Why don't the government just skip this middle step (the NBN) and allow private competition with previous government monopolies (Tel$tra) to be free and unhampered!? Privatising this network, when the time comes, is hardly fair: the government has taken from taxpayers around the country to fund this project and is going to ask us to pay them, again, for the privilege of privatisation? Why is the government entitled to the revenue from this taxpayer funded project? It's ridiculous.

I'm not looking forward to being an Australian taxpayer when we eventually have to pay for all of this Ruddish. Expect either inflation (courtesy of the banking monopoly the government has: the RBA) or massive tax hikes or both in the future -- perhaps a return to the 1950s of 75% income tax is on the cards?

The Motor Traders Association is suggesting that we destroy all of our old vehicles to "stimulate" the industry,

The Motor Traders Association of NSW has written to Treasurer Wayne Swan explaining the benefits of the initiative, while the Motor Traders Association of Australia (MTAA) has commissioned think tank Access Economics to produce economic modelling on the costs.

The MTA NSW has asked the Government to pay up to $3000 to crush cars more than 10 years old.

Once the car was destroyed the owner would get a certificate to be presented at a car dealership to receive $3000 off a new car.

That sounds logical, right? Wrong. They're confusing need with demand. Just because the government and interest groups think we all need to replace these old vechicles, it doesn't me we're entitled to them. We have to produce something, to accumulate purchasing power before we can demand ! However, I do agree with the comment below that this will help the auto industry, in the short term about this there is no doubt,

"We need to help the industry, including 103,000 small businesses that make a living from the car industry and 318,000 workers."

While this "stimulus" may create more work for the car industry and small businesses supported by it, it's actually just a diversion of demand to this industry from others. While these guys are out building cars that no one is actually demanding , other products, the ones people do actually demand, are never created. If the arguments put forth above are really true, then why doesn't the government immediately wreck our old plants, planes, houses, whatever and recycle (or just junk) the old parts? How do they know when something needs to be replaced? Quite simply, they don't.

There exists an optimum level of replacement, a period when the benefits derived from replacing an old piece of machinery overtake the benefits of keeping it. This isn't for the government to decide, it's for the individual. They alone should decide if the vehicle has no value to them anymore and needs to be replaced.

Even if this "stimulus" does increase GDP in monetary terms (i.e. raising prices or 'national income'), it will not be creating any additional wealth or production in our economy: it will destroy it. It's the same reason why most natural disasters result in an increase in GDP, because GDP only measures output, not real wealth.

The sad thing is, this policy is just stupid enough to appeal to the economic illiterates that run this country.

Some gold from Malcolm today, he really is running out of ideas. From the ABC:

Opposition Leader Malcolm Turnbull says Prime Minister Kevin Rudd is scaring people by describing global economic conditions as a cyclone.

"Using this type of extravagant language is very counter-productive," he told ABC Radio's AM program.

"Anyone that listens to that is hardly going to take their $900 and spend it - they're going to use it to pay off debt and put it into the bank."

According to Malcolm Turnbull, now that we're too scared to spend we might actually, gasp, start the road to recovery by increasing savings and paying off debt. Yet he chooses to use this as an opportunity to criticise the government?! This shows that both major parties have no idea what they're on about regarding economics. More spending on consumption will not create jobs; it will not pull us out of this crisis. It will only delay the recovery process. We need real savings and for people to pay off the debt they accumulated while living beyond their means. We need a reduction in the size of the state, not an increase. We need to remove the coercive cartel that the state has over banking and money, starting with the RBA. That is what Malcolm should be attacking the government over, not that we're "too scared to spend".

In reply to Malcolm, Wayne Swan chipped in with some usual idiocy,

"I simply reject the notion that there has been no significant impact flowing through from the Government's efforts to stimulate the economy," he told Radio National.

"The alternative is to sit and wait and do nothing and what that will produce is far higher unemployment, far higher lost output and enduring damage to our economy for the long term."

Mr Swan has refused to speculate on whether the country is already in recession but he admits that the nation faces a huge challenge.

"I don't think anybody can say what will occur as we go down the road with this global recession," he said.

Ah, the old "we didn't do enough" fallacy, the "it would have been much worse if we hadn't acted" Keynesian response to the repeated failures of their theory. Their "stimulus" will increase unemployment, it will distort the structure of the economy and will result in further pain in the future.

I have a pretty good idea of what will happen as we go down this slippery road to serfdom: a short-term "fix" through the continuation of a 'stop-go' inflationary policy (in other words, subsidise the banking sector -- Bernanke plans to inflate the money supply to the 'old' level that existed before the bank-created money began to unwind, in effect clearing the banks' debt by devaluaing the currency -- in other words, stealing from anyone who holds USD). Following the 'recovery', inflation will pick up and they'll start to 'tighten' their monetary policy, in the process causing all of the malinvestments that are only around because of the increasing rate of inflation to go broke. In the process, jobs 'created' there will be destroyed and we'll have unemployment in those sectors. We then have the next recession which will come around sooner and will be more severe. Unless these structural issues are resolved, we're destined to have booms and busts, becoming more frequent and severe each time.

Either we have a fundamental change in the way banking and money operate (i.e. free banking) and end this vicious cycle, or...and this is what I'm afraid of...we eventually fall into full-blown socialism.

This year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgin.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set or some such thing, thus stimulating the economy.

Q. But isn't that stimulating the economy of China ?
A. Shut up.

Below is some helpful advice on how to best help the Australian economy by spending your stimulus cheque wisely:

If you spend that money at Kmart, all the money will go to China .
If you spend it on petrol it will go to the Arabs.
If you purchase a computer it will go to India .
If you buy a car it will go to Japan .
If you purchase useless crap it will go to Taiwan .

And none of it will help the Australian economy.

We need to keep that money here in Australia . You can keep the money in Australia by spending it at garage sales, going to a cricket match or footy game, or spend it on prostitutes, beer and wine (domestic ONLY), or tattoos, since those are the only businesses that may still be owned by Aussies

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