Rudd's $42 billion 'nation building' plan (2 Viewers)
- Thread starter Smithereens
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chicky_pie
POTATO HEAD ROXON
Well I'm getting a early tax money back mmmmmm but I'm still not going to vote for Rudd.
Okay... question: how can giving people $950 to spend REALLY "stimulate" the economy? Like... even if everyone spent it all, it'd only last for a week and then the economy will just go back to receeding again, right? Isn't the government really just treating the symptoms and not the cause of the problem (which was originally consumer confidence... but I guess it's a bit more complex now?). Enlighten me someone!
Craven, the idea is that when spending decreases in the private sector the government should suppliment that decrease with an increase in public expenditure. One persons spending is anothers income so if spending drops businesses' incomes drop so they lay off staff. Those unemployed staff then dont have an income so they spend less causing more people to lose their jobs. As more and more people hear about a looming rise in unemployment they tend to again spend less putting more people out of jobs. Essentially the Government is trying to stop this cycle of unemployment by keeping spending up.
Enlighten you? This whole idea of the government stimulating the economy is a scam cos the government doesn't exist "outside of the equation", all it does is take from one part of the economy and give to another. There is no 'stimulation' if you take $5 out of your left pocket and put it in your right pocket.
- Savings is the way out of this mess, not consumption. Savings actually allows for capital accumulation and investment.
- All the talk of "consumer confidence" and "business confidence" is misguided, a better term would be regime uncertainty. Put simply, people are tentative with their investment decisions because of an uncertain climate with regards to regulation and potential nationalising or bailouts etc. eg If you were thinking of investing in a 25 year project, you might want more certainty than what the government is currently providing because you never know if they'll just switch the rules after you've made the investment. See here for a better explanation.
- What the government is doing now, such as bail outs, "stimulation spending" and regulation such as the bank deposit guarantee is actually harming us, not helping us. It is mostly having the effect of attempting to either reinflate the bubble or sustain industries that are not sustainable. We actually need certain industries to go bankrupt to allow other industries that are sustainable to come up in their place. This may create some short term unemployment, but it is necessary to fix the economy, or otherwise more resources will be wasted in unproductive ventures.
- The government acting as a central planner of interest rates via its monopoly over the currency is actually changing our incentives in a bad way. The government is dropping the interest rates, meaning we are more inclined to consume goods now than later. We should be leaving the determination of the interest rate up to the market. In this situation, it's much more likely the market set rate for funds (the interest rate) would be higher, because savings is required for investment in the future
Things are only going to get worse because of what the government is doing. Things may temporarily and artificially spike up because of government actions, but the end result will be worse than if there was zero intervention. Expect to see high inflation in the future and loss of purchasing power of your dollar, if you can, buy physical gold or precious metals because these preserve their value much better.
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Yep but what then does a one-off payment do when that money could be spent on infrastructure? I don't mind the infrastructure spending in the package, but the payments seem a bit pointless (other than to win over voters).
It increases liquidity and consumer confidence while negating fear. If done right (i.e. in conjunction with other stimulus like infrastructure) it can last a lot longer than a week or month because these all factor into a feedback loop.
Gerald goes into more detail from the perspective of preventing further losses.
H@wkeye!
Member
Ok sdent40, first. The govt DOES NOT CONTROLL INTEREST RATES! they removed themselves from that power many many moons ago. Who'd vote for a government which increases interest rates. The power to control interest rates (through the CASH RATE) is done through the Reserve Bank, a board within. These are a few crusty old blokes who have successed in business and so think they know it all.
Next, the govt is NOT taking money from one pocket and putting it in another, it's called FISCAL STIMULAS, the money is that money that the previous fiscal year, DID NOT SPEND (the surplus) and the other bits are loans. They are putting money in the economy, not moving it around. It's basic economics, recession, put money in the economy (through monetary policy - interest rates -- through the RBA NOT Govt -- - and fiscal stimulas - the stimulas package(s))
Also, the govt DOES NOT control exchange rates, they couldn't even if they wanted to. The RBA keeps a few billion aside to starve off a currency collapse, but otherwise it's controlled through basic supply and demand of money! Called a floating exchange rate. If you really want to know how it all works, look up "hot-money" - that's the money that passes through internation exchange rates daily, trillions and trillions of dollars looking for minute increases in rates, money that comes from HUGE corporations, who can't invest in banks (they have too much to invest) so put it in other countries, some times only for seconds..... investment bankers deal with this stuff.
Ummm what else, Ah, you're missing out the whole political side. Industries going bankrupt looks very bad for a PM, so they have to throw money in, even if the industry is inefficient, corrupt and whatever else, so they have to attempt to get em on track. Next, short-term unemployment comes from cyclical unemployment, what's happening now, crashing industries creates structural unemployment, where people CAN'T get a job, because their industry (car industry perhaps?) no longer exists and they don't have the required skills to get another job, the whole story - I don't know anything else, i've worked there for 40 years...
Ok now onto savings. I agree, we need to save, however Australians are HORRID savers! my first year macro-economcs teacher, preeched it forever! Save money, don't spend etc etc. Savings is investment, growth! However, not controlling the interest rate (laise fair) would be a disaster. it results in monopolise, which create unemployment, and inflation etc etc.
Hawk
/out
Infrastructure spending takes longer to implement but you are right to think that infrastructure is a better use of the money IMO.
But the payments arent pointless by any stretch. As I explained before it keeps people in jobs.
H@wkeye!
Member
Something wrong with keeping people in jobs?
however, i do agree, infrastructure spending is a good idea, just takes ages for it to have any affect.
however, i do agree, infrastructure spending is a good idea, just takes ages for it to have any affect.
Government can't keep people in jobs or create jobs.
Only the market can determine that.
When government pumps money in inefficient industries they take capital away from other industries that are.
Keep in mind FDR did the same thing but prolonged the depression and Japan did the same thing duriong the 80's and 90's and had no effect and may have even made things worse.
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Btw Sdent the only part of what you said that is remotely correct is that some industries are inefficient and shouldn't be subsidised. Other than that its a collection of very bizarre comments.
government is part of the market!!!
And by giving it to consumers they can determine what industries are efficient and inefficient..
But that first sentence is clearly ridiculous. The Government could pay for people to dig holes and fill them up again (to quote Keynes) which would clearly keep them in jobs. Obviously they dont - they should pay them to build public infrastructure which the free market would otherwise not provide for.
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Well I gues if you believe in Socialism then that maybe true to you but we'll see where Rudd's "social capitalism" goes.
H@wkeye!
Member
Wow, i clearly looked away for too long!
Ok, have any of you ever head of "market failures"? These occur because MARKETS FAIL! i think it's a good example of what's happening right now. Poorly regulated markets created this mess (Sub-prime mortgage market in the US, or at least partly)
Govt's HAVE to step in. I'm not saying any one govt is better than another. Rudd is doing exactly what Howard would ahev done and throw money into the market to 'stimulate' it. Otherwise known as expansionary fiscal policy. The market is contracting, mainly through lack of consumer confidence. People are scared about the future, so instead of SPENDING they're SAVING and no money is going into the economy, so businesses are laying off people to keep their stock holders happy. Meanwhile stocks are going down due to businesses doing poorly and generally everyone's loosing money (even poor I have lost a few grand thanks to this *sigh* ).
Oh, my bad Gerald10, i missed the "arn't", thought you were saying it was all bad, the stimulas. Appologies.
Otheriwse, Yep, agree with you there Gerald10, let the market (peoples) decide which industry is efficent and which isn't.
Just make them spend it!
Ok, have any of you ever head of "market failures"? These occur because MARKETS FAIL! i think it's a good example of what's happening right now. Poorly regulated markets created this mess (Sub-prime mortgage market in the US, or at least partly)
Govt's HAVE to step in. I'm not saying any one govt is better than another. Rudd is doing exactly what Howard would ahev done and throw money into the market to 'stimulate' it. Otherwise known as expansionary fiscal policy. The market is contracting, mainly through lack of consumer confidence. People are scared about the future, so instead of SPENDING they're SAVING and no money is going into the economy, so businesses are laying off people to keep their stock holders happy. Meanwhile stocks are going down due to businesses doing poorly and generally everyone's loosing money (even poor I have lost a few grand thanks to this *sigh* ).
Oh, my bad Gerald10, i missed the "arn't", thought you were saying it was all bad, the stimulas. Appologies.
Otheriwse, Yep, agree with you there Gerald10, let the market (peoples) decide which industry is efficent and which isn't.
Just make them spend it!
H@wkeye!
Member
You edited it while i was replying
Ah, i was waiting for someone to pull that quote. Problem is that would create inflation, which isn't something that the govt has to worry about atm.
Scary thought though, STAGFLATION!