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Faking it

Written By: - Date published: 10:36 am, February 15th, 2009 - 24 comments
Categories: economy, spin - Tags:

It’s a bit late but I thought I’d draw people’s attention to the work Pundit’s Tim Watkin has been doing on the government’s stimulus package. Or more rather the work he’s been doing on the government’s re-releasing of already approved spending under the guise of a stimulus package.

Because the interesting truth is they’re faking it.

According to Watkin the “stimulus package” is mostly made up of preannounced spending such as the last Labour government’s tax cuts and the purchase of Kiwirail.

Yes you read that right, this government is so clever it’s managed to go back in time and convince the last government to buy the railways to help stimulate the economy from a recession that nobody at the time knew was coming.

Remember all that malarkey from the nats and their supporters about “train sets” and “block of cheese taxcuts”? Turns out it’s now the cheese train that they think going to pull us out of the recession. And it was all their idea. At least that’s what they’re trying to tell us.

All aboard.

24 comments on “Faking it ”

  1. IrishBill 1

    And I strongly recommend you read Watkin’s piece:

    http://pundit.co.nz/content/the-truth-about-nationals-so-called-stimulus-not-a-penny-more

    It raises some extremely concerning issues.

  2. expat 2

    It’s all a matter of context Bill.

    If you thought, in a growing or normal economy a $9Bn package was going to be inflationary and were going to cut that amount then in a shrinking economy (i.e. todays) then perhaps $9Bn is a prudent amount to be spending.

    And lets not forget the reason Labour did commit to spending all that money – a) to stop National saying they’d do it b) to try and buy their way into a 4th term

    Oh, and there is the tiny fact that NZ can’t afford to spend any more without being downgraded by S&P’s and heading the way of Iceland.

  3. gingercrush 3

    I have read both those pieces and his argument is in favour of something like Obama’s plan is because its 5% of GDP. Well that is fine and all. But what is that 5% of GDP being spent on. Is it being spent in the best areas. And lets not pretend for a second, that Obama’s stimulus package doesn’t contain numerous amounts of pork. You don’t simply spend a percentage of GDP and expect to somehow save your economy and create jobs. Such thinking is surely stupidity at its best.

    In fact how many jobs is Obama’s stimulus package meant to create now? 4 million. Keeps creeping up and yet does anyone who have read even parts of Obama’s stimulus package expect such jobs to created?

  4. IrishBill 4

    gc, what I took from the articles wasn’t that the 5% was the only way to go but that there is concern about the Nats going one way but trying to tell us they are going the other. That’s basic dishonesty. If the nats really believe that the pre-recession spend is enough they should come out and make the argument for it rather than treating the electorate as fools.

    Obama’s package may not do what it claims but at least he has had the guts to publicly release the policy and make it clear what it is as well as releasing the documents that informed it.

    expat, much has been mad of the S&P issue but the weight of their ratings has dwindled a bit since they gave big ticks to sub-prime products.

  5. RedLogix 5

    Oh, and there is the tiny fact that NZ can’t afford to spend any more without being downgraded by S&P’s and heading the way of Iceland.

    Expat nails it. Bill English has a terrible problem. It comes in several parts:

    1. A structural $15b pa current account deficit. The Reserve Bank can no longer borrow to fund it and is at present selling off assets to keep the NZ dollar from collapsing to worthlessness. Obviously they can only do this for a limited period.

    2. The banks operating in NZ currently require about 30% of their funding from short term sources overseas. Those lenders are looking at our total private sector indebtedness and (despite govt guarantees) are getting rather nervous about the currency exchange risk.

    3. Unemployment is rising rapidly, placing a huge strain on govt cash flow.

    4. National’s tax cut package has badly damaged the govt’s income base. Tax revenue essentially comes in three parts:

    a. PAYE. Stable and predictable.
    b. GST. Fairly stable, but prone to downturns when spending (or the velocity of money falters) or when people focus on repaying debt. (Financial services are GST free.)
    c. Company tax. Very volatile. The current downturn will put many businesses into a loss, and this source of revenue will go negative, storing up tax losses for years to come.

    By slashing PAYE National has hit the stable, predictable portion of govt revenue. And although Michael Cullen bequeathed him a good starting point, Bill English is going to find that lenders are going to look at his diminished ability to service and repay debt (plus the total indebtedness of NZ Inc.) with considerable scepticism. Besides, they are already stretched to the limit coping with their own domestic crisis. The simple truth is that National is NOT going to be able to compensate for the crisis with increased borrowing from overseas.

    The only alternative source of cash will be for the RB to print money. If they go down that path, it will only throw fuel on a hyper-inflationary bonfire already bearing down on us because of the current account deficit. Moreover the Australian banks (hugely exposed to NZ asset values) will revolt at such a move. If this worst case scenario does play out (triggered by the RB’s inability to hold up the value of the NZ dollar), expect NZ to finally abandon the Kiwi dollar, and become the newest State of the Australian Federation.

  6. Redbaiter 6

    They’re all faking it. From Obama to Key to Krudd in Aus, its all smoke and mirrors, and its not going to work and it never was going to work. The idea that more socialism can fix a system already bogged down by an excess of socialism is something only the left would be stupid enough to try.

    This is the depression that had to happen, as its the only way of bringing to an end the destructive and suicidal entwining of government and commerce.

    IT NEVER WORKS.

    SUSTAINABLE prosperity will only ever exist under small governments and an independent and self sufficient population. Once government becomes too big and erodes those two important factors in the citizenry, the decay sets in, and collapse then becomes only a matter of time.

  7. RedLogix 7

    RB,

    God you rise to the bait every time don’t you? When is it going to occur to you that the ONLY places in the world where your small govt libertarian fantasies are even remotely approached, are either ungovernable hell-holes like Somalia or Northwestern Pakistan… or figmentary relics of pre-Industrial history re-painted in rose tints to suit your agenda.

    Small govt is perfectly adequate if your population is indeed small, scattered and self-sufficiently independent. But that has not been a reality for at least a century, we now live in a world where billions of people, ideas and technologies live cheek by jowl in close and intimate interdependency. All societies have evolved larger and more complex governments in response. NONE of them successfully got smaller and less complex as you advocate.

    The only attempt to do so led by Thatcher and Reagan, based on the so-called Chicago school of Economics ideas about smaller govt, has set in train a series of increasingly unstable business cycles, that as with any under-damped oscillatory system, have gotten bigger and bigger until finally something fundamental has been broken.

  8. Redbaiter 8

    Sorry Redillogix, its Sunday, and I’ve better things to do than respond seriously to the insane interminable rantings of ivory tower brain damaged c*mm**s. Have a good deluded day.

  9. RedLogix 9

    Name calling.. is that all you have left? Your heart really isn’t in it any more is it?

    The sad part is that I could have told you how we will one day reach the liberated, small govt society you dream of. The dream is a good one, but you are going 180deg in the wrong direction.

  10. Ari 10

    You know that Reagan’s economic recovery actually stymied and entered another recession when he balanced the books after the new deal, right?

    Paying off your debt and shrinking down government spending are policies for boom times, not for the middle of a bloody recession. And even then, the tax cuts you cry for take away money that is far better saved under high interest rates then paid out in fast, well-targeted packages during the next bust.

    Look up Herbert Hoover next time you want to argue about small government during the middle of a recession.

  11. Redbaiter 11

    Y’know Ari, it just shows how narrow the average leftist’s mind is, and how confined their information sources are, and how blinkered they are in their political vision, when you advise me to “look up Herbert Hoover” in apparent gross ignorance of the fact that there is a substantial school of thought out there that believes Hoover’s reactionary thinking and misguided actions actually prolonged the depression unnecessarily.

    Get out of your ivory tower you damn insular self obsessed bore, and stop interfering in people’s lives when you know fuck all about that condition.

  12. RedLogix 12

    Hoover’s reactionary thinking and misguided actions actually prolonged the depression unnecessarily.

    The parallels between the outlook of the Hoover/Mellon Administration, and the Key/English one are rather remarkable.

    If Andrew Mellon had not so dramatically slashed taxes prior to the Depression in 1928, then Hoover would have not been forced to raise them again in the 1932 Revenue Act to prevent total Federal bankrupcy in the face of a nation about to collapse. Yet prior to this point Hoover was largely complicit with Mellon’s reactionary laissez- faire viewpoint, and completely failed to react decisively to the onset of the Depression allowing matters to deteriorate badly through 1930 and 1931. Then just when things were starting to recover in 1932, he is forced to savagely raise taxes pushing a huge fiscal contraction back into the economy, prolonging the downturn.

    Of course I’m not sure if you realise that this was probably Ari’s point at the outset.

    Hoover finished up (not entirely fairly) one of the most hated men in America. Wonder how Mr Key will fare?

  13. Redbaiter 13

    “Of course I’m not sure if you realise that this was probably Ari’s point at the outset.”

    Why don’t you let Ari speak for himself?

    As for what you have volunteered, its not really necessary to realise anything other than that any history written and revisied by any leftist is worthless history. I’m not impressed by your claims that x did this in reaction to y doing this and z was the outcome. Its all fantasy.

    Academia is infested with leftist propagandists who revise history to reflect their warped political perspectives, and this poisoned version is passed down to political neophytes who know no better, and if the neophytes never succeed in escaping the clutches of academia, never will, and so the misinformation spreads ever outwards like ripples from a stone dropped in a pond, and whole generations are infested with what is little more than delusional fairy tales dressed in all the false trappings of politically motivated academia. An academia there not to bring truth and light to young minds but to ensure there is another shoal of unthinking lemmings ready to subscribe to the drivel of unhinged power obsessed neurotics like Helen Klark.

    Its my money on the table. Not the taxpayer’s. I deal in reality. That’s why I’m not going to argue a million clouded points of history with someone so politically and socially stunted as yourself.

  14. Redbaiter 14

    “Of course I’m not sure if you realise that this was probably Ari’s point at the outset.’

    Why don’t you let Ari speak for himself?

    As for what you have volunteered, its not really necessary to realise anything other than that any history written and revised by any leftist is worthless history. I’m not impressed by your claims that x did this in reaction to y doing this and z was the outcome. Its all fantasy.

    Academia is infested with leftist propagandists who revise history to reflect their warped political perspectives, and this poisoned version is passed down to political neophytes who know no better, and if the neophytes never succeed in escaping the clutches of academia, never will, and so the misinformation spreads ever outwards like ripples from a stone dropped in a pond, and whole generations are infested with what is little more than delusional fairy tales dressed in all the false trappings of politically motivated academia. An academia there not to bring truth and light to young minds but to ensure there is another shoal of unthinking lemmings ready to subscribe to the drivel of unhinged power obsessed neurotics like Helen Kl*rk.

    Its my money on the table. Not the taxpayer’s. I deal in reality. That’s why I’m not going to argue a million clouded points of history with someone so politically and socially stunted as yourself.

  15. RedLogix 15

    An academia there not to bring truth and light to young minds but to ensure there is another shoal of unthinking lemmings ready to subscribe to the drivel of unhinged power obsessed neurotics

    That’s more like the real RB man! Almost putting heart and soul back into it. For a moment there I was tempted into imagining you had lost your way.

    That’s why I’m not going to argue a million clouded points of history with someone so politically and socially stunted as yourself.

    Well you never do. Why start now? Hell that would bugger all my pre-conceptions. We crouch here in stunned awe at your towering knowledge, wit and wisdom… why argue facts and put all that hard earned rep at risk?

  16. More evidence that there is little difference between the National socialists and hard Labour.

  17. Quoth the Raven 17

    The only attempt to do so led by Thatcher and Reagan, based on the so-called Chicago school of Economics ideas about smaller govt, has set in train a series of increasingly unstable business cycles, that as with any under-damped oscillatory system, have gotten bigger and bigger until finally something fundamental has been broken.

    You better reread you’re history books if you think government got smaller under Thatcher and Reagan. Government spending and debt actually increased under Reagan. Governemnt spending also increased under Thatcher. So really government got bigger not smaller under both Thatcher and Reagan. And their programs of deregulation can be more aptly described as re-regulation. Why? Because they know as well as anyone else that the corporate plutocracy can’t survive without heavy state intervention in the economy.

  18. RedLogix 18

    You better reread you’re history books if you think government got smaller under Thatcher and Reagan.

    Yes of course it was all a conjob. But despite the fact that their reality and rhetoric did not mesh at that level, their programs of ‘re-regulation’ still had the effect of undoing many of the hard lessons learnt from the 1890’s and 1930’s Depressions that unmoderated capitalist markets (there is of course no such thing as a ‘free market’… all markets are regulated one way or another) create social disaster because they are inherently unstable.

    What Keynes made clear was that a degree of government regulation of the right kind was required to dampen the system so that it might function sustainably serving peoples need for both security and opportunity in balance. This was more or less achieved from the New Deal through to Reagan/Thatcher. Since then the business cycle has become increasingly unstable, with each successive boom/bust bigger and more dangerous than the previous one.

    Of course it is entirely possible to completely overdo the dampening as did the communists, but I think history is showing that so far the Social Democrats tend to get the balance about right. (And I appreciate that from the Libertarian’s point of view, nobody else gets anything right… so please don’t bother telling me all over again.)

    As an engineer who routinely tunes process control loops in real industrial processes, this is a pretty natural way for me to think about the relationship between politics and the economy. You can model it all mathematically with great rigour and precision, but in real life after you have tuned many hundreds of loops, you simply KNOW well enough what is happening just by looking at the trend plots.

  19. Quoth the Raven 19

    Redlogix – I suppose it depends whether you think much of the regulation is to make the market work better for ordinary people, a naive view, or that much of the regulation is there to sheild large corporations from competition, from organised labour, to caretlise industry at the expense of the consumer, to externalise their diseconomies of scale onto the taxpayer and consumer, to keep unemplyment artificially high, &c – just generally to enforce corporate plutocracy. I admit governments may do a bit of both, but you’ve got to ask yourself in what direction does the general thrust of it move.

  20. RedLogix 20

    QoT,

    Agreed. I keep coming back to that relatively simple, but powerful measure of social performance: % of GDP as Employee Compensation. Rooseveldt’s New Deal (largely built on the work initiated by Hoover’s RFC) dramatically shifted this ratio in favour of the working/middle classes, ushering in a period of unprecedented stability and prosperity in the USA.

    Of course the oligarchs would prefer more of the pie for themselves, and have assidously worked to undermine the New Deal ever since, with the ratio recently falling pretty much back to where is was in the 1920’s. (Sorry I could reference a graph, but I’m slogging my way onto the net via an exceedingly crap Nodafone 3G connection…grrr… thieving capitalist bastards have way oversold their network capacity, but charge us for it all the same.)

    Government can regulate to moderate the extremes of wealth and poverty, or it can regulate to exacerbate them. This to my mind one of the defining moral issues of our era. Technology makes wealth creation easy, we are fabulously more productive than ever in all history. Ordinary middle class people access a standard of living, that in many respects, could not be attained by even sovereigns and emperors of just a few centuries ago. Yet in many ways we still struggle with the question of HOW all that wealth is to be distributed, and to what uses we should put it.

  21. northpaw 21

    Because they know as well as anyone else that the corporate plutocracy can’t survive without heavy state intervention in the economy.

    So… what they have to do.. is corporate colonize it.. yes? [aka in some circles as ‘lying in unison’.]

    Very interesting thread.. yep, altogether..

  22. George.com 22

    Anyone who is interested in some further reading may like to have a look at the piece David Harvey (neo-marxist geographer and a worthwhile thinker) wrote a few days ago comparing the results of the US and Chinese stimulus responses.

    www dot creative-i dot info/?p=4659

    e is pessimistic that the US response will long term rethrone the states as the primary global hegemonic power. He thinks China is in a better position to cope with the financial crisis. He places a degree of trust in Keynesian responses but points to several weaknesses in the current US political economy to achieve this: a reluctance to redistribute wealth to the working class, a fixation with tax cuts over social investment, a predominance of military keynesianism over social keynesianism and a hysterical fear of anything even vaguely collective/socialist. China, he thinks, will have no problem enacting collective/social measures, if merely to quell rising discontent amongst the un/under-employed. In short, the contradictions of US neo-liberalism. Within the politics lie the seeds of its demise, the inability to cope with a major financial crisis.

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