EDITORIAL FRIDAY 06.02.09.
For most of us, working out whether Malcolm Turnbull or Kevin Rudd is right about the government’s economic stimulus plan is all too hard. Most of us don’t have economics degrees or careers in merchant banking to provide us with the tools to make sense of the arguments for and against. Most of us can only rely on a combination of our own experiences and common sense. But who are we to believe? Kevin Rudd and what appears to be his ideological crusade against what he calls neoliberals? Or Malcolm Turnbull and his determination to stand for what he says is fiscal discipline?
It seems that everybody agrees that things are bad. It seems that almost everybody agrees that the government should provide some sort of stimulus. And it seems that most agree that going into deficit is OK in the short term if it is only until the crisis is over. From that perspective, it only seems that there are two main areas of dissent; how much to spend, and what to spend it on. But is that really all there is to it?
The great concern expressed by Mr. Turnbull is that mortgaging the future to pay for the present will leave a legacy of public debt for future generations, leading to higher taxes and higher interest rates for years or even decades to come. Other conservative leaders around the world have expressed similar fears. But I’m not sure that is the complete picture.
The recent years of prosperity have been built upon a mountain of debt, only it has been private and corporate debt rather than public debt. Much of the effect of governments using taxpayers money to prop up the world’s financial markets will be to simply transfer debt from the private to the public sector. Yes there is a price to pay, but the debt is diluted as it is spread across the shoulders of the taxpayer. The result is that the system is saved from collapse and the economy continues to function. The benefit is that upheaval is reduced, money continues to flow, and more jobs are retained than would otherwise be the case. The point is that the debt is not new. It already exists. All that happens is that it is transferred, as I said, from the private sector to the public.
If we accept that the fundamental problem has been caused by reckless debt in the first place, it follows that reducing debt is a good thing. But that’s misleading, because substantially reducing debt also shrinks the overall economy. So the idea that debt can be transferred from one sector to the other, and diluted across the broad base of taxpayers does provide away of keeping the wagon rolling while we slow it down gently. The alternative is to let it crash, creating casualties in the form of increased business failures and job losses.
Yes there will be a legacy of debt for the future. But that is because there is no such thing as a free lunch. Sooner or later somebody has to pay the tab for the gravy train. What has effectively occurred then is that the Wall Street stewards of the gravy train have raided the world economy through their management fees and performance bonuses, feathered their nests, and left the rest of the world to pick up the pieces.
That’s why President Obama’s cap on salaries for Wall Street firms receiving government assistance is not only sensible, it is justice. Such a cap is not necessarily needed here in Australia as the circumstances are not as extreme, although the idea is attractive to many. But what is necessary, both here and around the world, is a realization that the corporate buccaneer practices which unleashed this disaster are not only unsavoury, but are in fact bad business.
To have corporate executives rewarded with multi-million dollar remuneration packages that are out of all proportion to actual performance is ridiculous. Shareholders have been powerless to stop the privateers boarding the boat and ransacking the hold, only to leap overboard as the ship is sinking. That has to stop, and it shouldn’t take government intervention to do it. Company boards now have to recognize that paying silly bonuses is nothing more than bad business. Managers are just employees themselves after all, it’s not as if they are the ones who created the business or financed it with their own capital. When it’s their own enterprise, then they can pay themselves what they like, otherwise they must be held accountable to the board and the shareholders, and not allowed to pillage the company unchecked.
And that’s the real drawback to the idea of government intervention to prop up the economy. Yes, Malcolm Turnbull is right when he suggests that there will a debt to the taxpayer for years to come. But that’s not anything new, and that’s not the real problem. The basic flaw in Mr. Turnbull’s argument is the idea that not spending government money will somehow save the taxpayers. If the government does nothing and the economy contracts, the poor taxpayer will lose his job, probably lose his house, and maybe lose all hope for the future. One way or the other, it’s the taxpayer who will suffer.
No, the real downside of the taxpayers footing the bill for the economic bailout is the risk that the same corporate buccaneers who created the debt disaster in the first place, and the business practices which allowed it to happen, will actually survive this crisis and nothing will change. Once the dust has settled, and the economy begins to grow again, it will be business as usual with a new generation of corporate raptors ready to consume the carcass of capitalism.
But why should it change? It’s all a cycle and this downturn will eventually pass, and at some stage in the future there will be another boom, followed by another bust, and so on until somebody works out a better way to manage our economy.