Gerard Jackson
BrookesNews.Com
Monday 6 October 2003

Alex Millmow, a lecturer in economics at Charles Sturt University in Riverina, NSW, stated in Rupert Murdoch's Australian that the surplus is "a direct result of our booming economy"(Sweet and sour 2/10). Not so. The surplus is a result of our booming money supply, not a booming economy.

Moreover, our so-called boom has been caused by the Reserve Bank of Australia's reckless monetary policy. From January 1996 to July 2003 currency expanded by over 61 per cent and M1 by 88 per cent. This monetary expansion raised nominal incomes and spending, which in turn caused government revenues, federal and state, to swell. It has also laid down the foundations of another recession.

Having completely misunderstood the source of the surplus, Millmow then argued that it would be better to spend it on "community goods" which "might create jobs". Once again we are back to the fallacy of transferred demand (The budget surplus and economic fallacies). As James Stuart Mill sarcastically said of this particular piece of economic illiteracy: "You do not benefit the producer by taking his money, provided you give it again in exchange for his goods" (The Influence of Consumption on Production 1829)

Not surprisingly, Millmow pushed the fallacy further with the statement that "public spending in the present economic cycle would be expansionary." This is nonsense. Transferring spending power from one group to another does nothing directly for total spending. Government spending only becomes expansionary when it comes from the printing press.

Taking a Keynesian line Millmow claimed that increased government spending would raise the "economy's productive potential over the longer term." This is truly appalling nonsense. What makes a country productive is its capital structure, which consists of complex stages of production. Only savings can produce and expand this structure. Heavy taxation and government spending will eventually shorten it and so reduce living standards.

I'm not going to attack Millmow for his shocking ignorance of Austrian capital theory because our so-called establishment rightwing is no better informed. Nevertheless, as a lecturer in economics he is expected to have enough intelligence to at least figure some of this out for himself.

Mounting his high moral horse, this taxpayer-funded leftwing academic then smugly tells us: "Giving a tax cut merely panders to more private affluence and public squalor." That this so-called "private affluence" has been earned in the market place cuts no ice with this character. Clearly people who want to keep more of their own money are a bunch of greedy selfish bastards. As for "public squalor", whatever the hell is that supposed to mean?

Finally I come to Kenneth Davidson of the Melbourne Age, aka The Spencer Street Soviet. I can honestly say that no criticism of lousy economic commentary would be complete without occasionally mentioning good old Ken. A man who still thinks you can borrow money from yourself. Ken also thinks government borrowing is only a burden when foreigners lend the money

According to Ken "the burden of debt [has been] shifted from the Government to households." In his peculiar economic world, people do not bear the burden of government borrowings. Now who actually pays the interest on these borrowings he does not say. Nor does he tell us who will eventually pay the principle. Maybe he thinks it is the Keynesian Tooth Fairy.

Ken argues that the "surplus should be seen as a burden rather than a boon. It is money that has been taken from the income-expenditure stream unnecessarily because it could have been used to create extra economic growth and jobs (Why Costello's $7.5b surplus is a burden, not a boon 2/10)."

Keynesian tripe. The surplus came from monetary expansion. In the absence of monetary growth a genuine surplus, i.e., an increase in government cash balances, would have a deflationary effect and prices would fall.

However, Ken does occasionally make sense. His attack on those who want to tighten work tests in the absence of jobs is spot on. Such proposals smack of callousness. It would be better for everyone if Melbourne's self-appointed free market elite gave greater consideration to the plight of the unemployed and spent less time thinking up ways to make life more difficult for them.

Gerard Jackson is Brookes' Economics Editor