Tuesday, April 21, 2009

Stimulus Packages Are Not A Failure

The admission by our Prime Minister that recession is inevitable, was itself inevitable. While there are very good reasons for those in government not to jump the gun and make such a declaration ahead of the official figures, it was always only a matter of time before the admission would have to be made. After all, it would be pointless to appear to be stupidly holding out hope for a miraculous improvement in conditions while all the evidence was pointing the other way. It would be like standing in a burning house and saying that there was no fire because the smoke detector had not yet sounded the alarm.

Of course, if we continue with the same analogy, it is obviously more important to reach for the fire extinguisher than it is to stand about wondering when to shout “Fire!” That’s why the government moved so quickly to introduce the stimulus packages even before it was clear just how bad the downturn would become. Now that it has become evident that the fire is much worse than initially feared doesn’t mean that reaching for the fire extinguisher was the wrong thing to do. But it would appear that that is exactly what Malcolm Turnbull is saying.

The federal opposition has taken the line that the continuing deterioration in the economy is an indication that the stimulus packages have not worked, and have been a waste of money. Unfortunately, that is a view which misses the point. It is, in effect, like standing in the blackened ruins of that burning house and suggesting that having saved only half of your possessions means that using the extinguisher was a waste of time.

The scope of the Global Financial Crisis is such that Australia is being subjected to the effects of a worldwide economic tsunami, and the implementation of stimulus policies cannot be expected to stop that from happening. That might have been the case if the downturn had been less severe, but the real purpose of the stimulus policies is to reduce the damage as much as possible so that once the fire is over, rebuilding can begin.

The opposition has also highlighted concerns that the current level of government spending will leave the nation in debt for generations to come, suggesting that this will inevitably lead to higher taxes, and that is a concern with considerable legitimacy. But let’s not kid ourselves; we are still going to be paying taxes no matter who is in government. What counts is what those taxes are spent on, and if the government has chosen to hand some money back to us now to see us through the difficult times, perhaps the important thing is for all of us to use the money wisely.

For some that will mean paying off some bills or reducing some debt, for others that will mean putting the money towards savings, and for others it will mean buying something useful. But to say that the stimulus packages have not worked simply because the rest of the world continues to fall apart is misleading, because the purpose was never to stop the tide from coming in, but to provide some sandbags.

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