Kate Carnell – The Pauline Hanson of Economic Commentary

On my commute to work this morning I was blessed enough to hear the addled ravings of Kate Carnell, spokesperson for the Australian Chamber of Commerce & Industry, suggesting how Australia was going to go the way of Greece without “painful reform”. As I was dropping my son off to school at the time, the poor kid was the recipient of my usual cloud-shouting about the idiocy of what she was saying. I thought the dreadful segment would never end, and I’m sure he felt the same.

Here’s some of the more execrable nonsense she was suggesting…

PETER RYAN: Kate Carnell, you say that without major reform the system will break and Australia will end up in painful austerity like Greece, and to a lesser extent Spain. Isn’t that a pretty dramatic comparison to make?

KATE CARNELL: Well it is a dramatic comparison, but I think dramatic comparisons are necessary. You know, in Australia today, every day the Government raises about $1 billion and spends $1.1 billion, so every day we have to borrow $100 million.

Bzzzzt. How about we stop now Kate, before you make a complete idiot of yourself? No? Okay, go on…

Now everyone can understand that you can only do that for a period of time before you go broke really.

First things first. When the government spends $A, regardless of whether the fiscal position is deficit or surplus, they do not borrow that money. Australia has a “sovereign currency”, and the federal government is the sole ISSUER of it. It makes no more sense for them to borrow $A than it would for Coles to borrow Fly-Buys points from their customers – or even their competitors – so they can issue them. It may be called debt, but it is not debt in the sense that we as USERS of the currency understand the term. The government is not like a household, and to use a household analogy for budgeting is to wilfully misrepresent – or utterly fail to understand – macroeconomics.

As for the second quote above, the government issues the currency. It is simply not possible for them to run out $A. That’s just an idiotic thing to suggest.

Now, to this Hellenic Hell we are bound for…

PETER RYAN: You’re not saying now, but perhaps later unless there’s harsh budgetary medicine. Even so, Greece is back in recession, their jobless rate is above 25 per cent.

Here in Australia the economy has been expanding for more than two decades and the jobless rate is at 5.8 per cent. So Australia is not in an economic crisis yet.

KATE CARNELL: No, look it certainly isn’t.

But I think everyone understands if you spend more money than you raise in the end you run out of money.

Or in the end your borrowings become so significant that they really impact upon governments’ capacity to deliver services.

Now that’s what happened in Greece. Now I’m not saying that we’re anywhere near that now, but isn’t it sensible to start the process of reform – and I think the Government’s done some of that already – but much more needs to be done to get the budget back into balance so we don’t end up losing our Triple A credit rating and having borrowings that impact on service delivery.

Again, we have the “running out of money” line. But now the important bit that shows how fundamentally Carnell misunderstands what’s going on here:

Or in the end your borrowings become so significant that they really impact upon governments’ capacity to deliver services.

Greece is not a sovereign currency issuer. They gave up their fiscal independence to join the Eurozone. Greece now uses a currency they do not control, which severely limits their fiscal options. Ultimately, what that means is that Greece is more like an Australian state. Tasmania cannot issue $A, they have to raise funds through taxation or borrowing.

Australia has no such limitation. That is not to say that the Federal government can spend like sailors on shore leave – spending beyond the productive capacity of the economy will surely lead to inflation. But the government faces absolutely no financial constraint in providing services that can be bought for $A. The only limitations are “real” things: human resources, raw and manufactured products and so on. And, one could argue, political will.

PETER RYAN: These are obviously red-hot issues, particularly in an election year, and particularly as the Prime Minister’s backed away from raising the GST.

How confident are you that the Treasurer Scott Morrison will tackle any of this in the May budget?

KATE CARNELL: Look I’m hopeful that he will.

Now Scott Morrison has brought down expenditure, but we’ve got to get Government expenditure under 25 per cent of gross domestic product, of GDP, if we are to get the budget back into balance.

That means Scott Morrison’s got some work to do to continue to reduce Government expenditure.

What is the economic basis for this assertion that government spending should be under 25% of GDP? This is cloud cuckoo-land stuff. How will introducing more “austerity” measures magically increase GDP? Seriously, how? It’s nonsense to suggest that aggregate demand can be increased by reducing the spending capacity of the population. Cutting government spending by reducing pensions and some of the other suggestions proposed by Carnell can only have the effect of reducing aggregate demand. If spending falls, businesses reduce production and lay off staff, and so the cycle goes downwards. The “automatic stabilisers” will almost certainly guarantee increasing deficits if this advice is taken.

I can understand the blatant self-interest when Carnell gets on the radio to talk about penalty rates, but you really have to wonder why the spokesperson for the Australian Chamber of Commerce and Industry would be bloviating about policies that can only lead to reduced consumer spending. How can that be in their best interests?

The commercial channels get characters like Pauline Hanson on to stir the possum on topics like immigration. In spouting this ignorant rubbish, the ABC have allowed Carnell to be her economic equivalent. Peter Ryan is supposed to be business editor, it’s outrageous that Carnell’s foolish, misguided, economically illiterate and self-serving comments were allowed to go unchallenged.

Advertisements

About ret56fe

Ohhh, that guy.
This entry was posted in economics, My Stuff. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s