It's All About the Economy

It's All About the Economy

I was reading an article in the Australin concerning the economic debate going on in that country. Simular to the one going on here except they are making more sense. (http://blogs.theaustralian.news.com.au/mikesteketee/index.php/theaustralian/comments/the_blame_game1/)

It seems that Mr. Howard , the previous PM, had presided over one of the longest periods of unbroken growth in Australian history, unemployment fell to the lowest levels seen in years and the stock market flourished, a period very similar to what this president has presided over. However , even without the higher expenditure of the war on terror which the US has faced it seems that Australia is now facing a recessionary period and the question is being asked, why?

Some of the answers forthcoming have been,1) slack budget policies, (2) failure to invest in skills and the infrastructure and (3)to lift workforce participation. (That means getting the every day working folks involved, I'd think)

I thought , hmmm sounds a bit familiar doesn’t it. One of the great differences is that Australia has a budget surplus unlike any the US has ever seen(cash surplus of $13.7billion dollars) . That’s cash, not paper, folks, no smoke and mirriors and no cooking the books, just cash and this years surplus is expected to be not less than $10.7 billion and may even exceed that $13,7 billion of 06-07 . Now, how , you ask can a country with this much cash surplus be facing a recessionary period. The US doesn’t have a surplus and never has had one like this and we are also experiencing the beginning of the same thing . Amazing isn’t it?

Of course the problem began with overspending both in the Howard government and in this government. Throw money at the problem and it will go away seemed to be the solution to the problem in both country’s government leadership. It didn’t work! Never has worked, and never will work.

Now the solution. The current PM , which is of the opposite party than the previous, says that his package will include: On the demand front , a tighter fiscal policy with a budget surplus of at least 1.5 per cent of the gross domestic product , achieved by spending cuts. It will attempt to rein in private spending by diverting money to savings.(that hasn’t been announced yet but rumor has it that there will be some type of tax incentive for savings, which I believe one of those running for president has also mentioned but has gotten lost in the sound bites that sound like something free.)

Couple of things should stand out here, 1. SPENDING CUTS, something that our government, especially Congress doesn’t know anything about or lacks the intestinal fortitude to do anything about. It seems they have gotten to use to lining up at the trough and inventing ways of wasting money rather than saving money. Earmarks, pork attached to every bill that goes through the House or the Senate, all created for one thing, buying votes and staying in power. 2. DIVERTING MONEY from private spending to savings which is another idea that it seems that our Congress has forgotten, well at least a good number of them who can only think of taxing the individual so there is nothing left to spend much less save. One of the current crop running for president has mentioned something to this effect but I wonder if anyone has heard it over the sound of the other 15 -30 sec sound bites filled with free fluff and stuff rather than solutions.

On the Supply side: they intend create jobs through increased training and training sites. They will conduct an audit of infrastructure needs and co-ordinate with the states and private investors to expand capacity in transportation, energy, communications and water. It will provide incentives for people to enter the workforce by including more subsidies for child care and tax cuts. OMG there is that horrible word TAX CUTS. How are they going to fund all this supply side stuff if they cut taxes? Simple 1. cut spending on other non-essential items, i.e. pork is going to be scarce and 2. they found out that TAX CUTS do work for they discovered that the tax cuts did create a surge in investment and jobs which in turn created a larger tax base. Difference in how the two governments handled the tax cuts and the increase in tax base is how that money was invested by the governments. One used it to expand savings growth and more job creation. The other used it to expand spending on pork. ( I’ll let you guess which did what and it won’t take a rocket scientist to figure it out , I bet. )

I might add that Australia has one of the better health care programs in the world, tied, by the way ,to private insurance and the best Social Security program (called Superannuation) that I have seen which is tied to private investment by the worker. In other words they privatized their SS and now those retiring have one of the highest retirement incomes in the world.

Could we learn something from the Aussie’s ? I say most certainly. What say you?