Tuesday, December 9, 2008

What Do They Know That We Don’t?

Spend! Spend! Spend! It sounds like the sale of a lifetime, rather than serious advice to the community from our political leaders. And yet that is exactly the catchcry from Kevin Rudd and Wayne Swan. You can be sure that the message is not just for the recipients of this month’s welfare bonuses too. While the aged pensioners, the parents and the carers will all no doubt find useful purposes for their money, the Government is hellbent on telling us all that blowing the cash is in the national interest to help prop up the economy. If others in the community also get inspired by the call to spend and open up their purses too, well then so much the better for the economy.

Or is it?

Malcolm Turnbull has pointed out that economic boost is like a “sugar hit” and can be expected to have no lasting benefit. National Party Senator Barnaby Joyce is on the same wavelength, suggesting that the government ministers sound like “spruikers at a bargain basement sale”. Senator Joyce says that instead of long term employment on infrastructure projects we will have imported plasma TVs. Both Mr. Turnbull and Senator Joyce make an important point.

It’s not wrong to give a helping hand to struggling pensioners in an economic downturn, but to urge them to “spend, spend, spend,” isn’t of itself going to save the economy. Like any one-off windfall, once it is spent it is gone. What happens next week, next month, next year? Even if the whole $8.7 billion dollars worth of bonus money gets spent back into the economy, where is the long term investment in jobs? And equally important, where is the long term solution for pensioners existing below the poverty line?

There are many indicators pointing to the possibility of the Global Financial Crisis becoming worse next year, not better. The government has openly stated that another economic stimulus package may be necessary next year. But how much more can be splashed up against the wall of consumer spending without greater investment in productive infrastructure? Is pouring money into the economy likely to be enough without also reforming the structure of the economy so that it is more suited to the new financial landscape?

As for Kevin Rudd and Wayne Swan urging all and sundry to “Spend! Spend! Spend!”, well it has a sound of hysteria about it. Really, as far as the welfare bonuses are concerned, people would have been likely to spend that money anyway. That’s just the way people behave. The government has maintained that the Australian economy is sound and is forecast to continue growing, but to hear the spruikers bellowing at the top of their lungs has me wonder just how desperate they must be. Is the outlook for Australian economy really so bad that we have to rely on the pensioners spending every last cent of their bonuses to keep afloat?

What does the government know that the rest of us don’t?

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