Supporting The Stimulus Package: They Got It Right

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Why did CPD fellow James Arvanitakis add his signature to the open letter in support of the stimulus package this week?

Whatever the election outcome this weekend, there is no doubt that political commentators will be talking about both the substance – or lack of it – for years to come.

It has been interesting that, despite guiding Australia relatively unscathed through the worst economic downturn since the Great Depression, the Labor Party has not been able to adequately sell its economic credentials.

Meanwhile, after 11 years of squandering surpluses on tax cuts and middle-class welfare while leaving Australia’s infrastructure to deteriorate, the Coalition can claim superior economic management.

It is hard to pinpoint why this is the case, but a contributing factor has certainly been the focus on issues such as government debt and interest rates  as the underlying fundamentals of our economy are ignored. Key here, from both major parties, has been an inability to envision a post-carbon, post-quarry economy – as opposed to one based on the proverbial sheep’s back (or on this case, the mining industry’s earth movers). There has also been limited discussion on manufacturing, the promotion of a renewable industries or taxation reform.

Repeated mantras like :we will always keep interest rates lower” and “the debt bomb” are both frustrating and false — and this week prompted 51 economists to release a statement supporting the ALP’s stimulus package in response to the GFC. It was organised by Emeritus Professor Raja Junankar and included the names of prominent economists such as Professor Steve Keen (UWS) and Professor John Neville (UNSW).

The statement is clear: without a decisive and massive injection of funds into the Australian economy, we would have rapidly followed the majority of the world into deep recession.

I was initially critical of the stimulus package when it was announced. My criticisms focussed on the design of the package rather than the size – raising concerns about $900 cash handouts and aspects of its implementation.

The question is, why three years later have I taken such a stance? The answer is quite simple: that while we can debate the make-up of the package it undoubtedly resulted in shielding the Australian economy from the GFC.

There are three reasons why the package must be praised. The first is its size: nothing but a massive injection of funds would have had appropriate results. The second aspect was its decisiveness: unlike the umming that characterised the Bush Administration’s response, Rudd and Swan made their intentions clear. Thirdly, it was generally well targeted: the focus on promoting building activity was fundamental in promoting employment and confidence.

There is a fourth reason why the stimulus package remains important: it was recognition that markets do fail and need intervention and regulation. This is not an “anti-market” position – rather one that recognises that in the contemporary world, we cannot rely on markets alone to deliver outcomes. A more complex policy mix is required as well as the ability to identify the point at which markets, left to their own devices, will not deliver the most efficient outcomes.

When describing the “invisible hand” of the market in the eighteenth century, Adam Smith made it clear it was a metaphor to depict a broad range of activities – it is a pity that contemporary politicians and commentators read it literally. The stimulus package confronted this myth – and Rudd and Swan should be commended for it – despite their other shortcomings.


More Than Luck is a collection of ideas for citizens who want real change edited by Mark Davis and CPD Executive Director Miriam Lyons. A to-do list for politicians looking to base public policies on the kind of future Australians really want, More Than Luck shows what’s needed to share this country’s good luck amongst all Australians – now and in the future. Click here to find out more. Like what you’ve read? Donate to help make good ideas matter.

2 Responses to “Supporting The Stimulus Package: They Got It Right”

  1. Gavin Kennedy

    It might be a good idea for James Arvanitakis to read ‘an invisible hand’ properly as a metaphor, as Smith suggested in his Lectures on Rhetoric and Belles Lettres ([1762] 1983, page 29): namely to express ‘in a more striking and interesting manner’ its object.

    It would be even better, to be accurate too. Smith never expressed the metaphor in relation to markets; that is an invention of modern economists (Samuelson, among many others).

    Smith’s three (only) references to the metaphor of ‘an invisible hand’ were not about markets.

    In his History of Astronomy (written: 1744-50s; published posthumously, 1795) its object was the heathen god, Jove (Jupiter); in Moral Sentiments (1759) its object was the ‘rich (feudal) landlord’; and in Wealth of Nations (1776) its object was some, but not all, merchants who preferred to trade locally rather than abroad (risk aversion) in a commercial mercantile economy noted for its domestic monopolies, tariffs and the Navigation Acts, none of which were remotely competitive markets.

    Reply
  2. jrbarch

    The stimulus package was too small for a sovereign government that:

    1) Defies its own RBA charter for full employment (perhaps illegally) by allowing 12.5% labour under-utilisation in this country, acting under the BELIEF (proven already as glaringly faulty Neoliberal logic) of the NAIRU;
    2) Issues its own currency, and therefore has no economic need to steal, beg, borrow, tax, prostitute itself or sell debt (provide corporate welfare) to raise funds, and spend – all it needs is a keyboard, internet connection and real resources that are up for sale;
    3) Lies to the public about the government being revenue constrained like a household, or that debt ratios to GDP prevent government utilising the above 12.5% resources or funding public benefit projects like the NBN (that need not be run as commercial enterprises) where real resources are accessible.

    References: The Letters Economists Write …

    jrbarch

    Reply

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