Appropriately enough, if you have read the Hitchhiker’s Guide to the Galaxy, or heard the original BBC Radio series, this post is driven entirely by coincidence.
But has it struck anyone as a little odd that the answer to the current GFC is $42 billion, an answer which is derived from a model in a computer which is inaccessible? Ken Henry appeared to be coming-up with a variation on “The Vogon ate my homework” when he claimed that Treasury couldn’t say whether or not they had looked at other scenarios and whether they gave the same results, because that might reveal what else their client (the government) was looking at.
At least Malcolm Turnbull appears to have read the cover (to the Guide, not the book about the book) as his message appears to be “Don’t Panic” or perhaps “Don’t Panic as much”.
Must be a good model because around 3 months ago it was confidently predicting no recession, and that was without any idea that $10.4 billion, let along a total $52.4 billion, would be spent. But then, readers of this blog know my opinion of opaque computer models.

(Cross posted from What the people want)
Federal Parliamentarians are debating whether tax cuts or cash grants are more effective in encouraging spending. Our research suggests that it probably doesn’t make much difference.
Between January 30 and February 3, 1573 Australians gave us their views on politics and the economy. This research is qualitative, and we normally use quantitative results to place the qual in context. However, it would appear that despite the limitations of our quantitative figures they are likely to be better than anything else currently available.
I will be releasing the research results over the next few days, and am releasing these figures first in response to circumstances.

How much of the $10.4 billion cash grant was spent over Christmas, and on what?

68% of our respondents received nothing. Of the 32% who did, 53% spent the money (including 20% who used it for house maintenance or improvement). The balance saved it.

What would you do with any surplus funds?

This question was deliberately held neutral so that we didn’t mention tax cuts, or cash. So in one sense it doesn’t answer the question of which is more effective, because it could have been that respondents had one or the other in mind, and there is no way of telling.

However, what the figures actually show is that there is no predictable answer to this question because the answer depends on who you are and what your needs are. While 30% say they would spend as their one or two preference, 37% say it is their last or second last preference. This seems fairly flat. But if you remove expenditure on housing because it may have qualities of both spending and saving, then the trend is quite clear.
So, whatever form the money comes in, people say that they are most likely to either save it, or spend it on their largest capital asset. So perhaps a voucher for your local hardware store would be the best way of getting money out into the economy.
And if you take the housing effect out of the Xmas figures, the proportion who spent declines to 33%.
All of which suggests that it probably doesn’t matter how you provide the benefits, if people think that things are getting worse, then the rational thing is to hoard.
There is a lot more depth in the data, and we’d be happy to provide more in-depth analysis if you think you need it. Email me if you do.

Kevin Rudd should be thanking Malcolm Turnbull for holding up his $42 billion recession buster bill. Not only will a process of review make the bill better, but he now has an opportunity to demonise the opposition and drive their vote down even further.
And we need a better process of review.
How is anyone supposed to know what this bill is designed to achieve, let alone what it will do, when the last official government forecast for Australian growth we have is 3% from the Treasury, back in December 2008. That forecast was laughable then, and even more laughable now. But it is all we know about the government’s official view on likely growth.
More realistic is the IMF’s -0.2%, although that may also prove a little optimistic.
But if the IMF is right (and even more so if Treasury is right) that doesn’t justify expanding budget expenditures by around 15%.
Which is why I particularly like a couple of ideas floating around at the moment.
Tom Worthington has started a discussion on our forum about using open source technologies to tackle the problem.
This reflects an article in The Age by National Forum Chair Nicholas Gruen called Reduce the bugbears with some beta-tested policies.
The welfare lobby has been quick out of the blocks using the GFC to push their own agendas. These are not necessarily the ones we should be adopting. The welfare housing one, for example, won’t help the poor and will raise the cost of housing, the reverse of what is required. But the housing situation isn’t one that will be fixed by spending money on it, but rather by a complex matrix of reform in planning laws, moderation of immigration and reform of local and state government taxing laws. There is some room for government to build housing, but it is limited to very special circumstances.
It’s time that others with a more holistic view of what Australia needs staked out some parameters of what is needed and what can be done. The Internet seems a good way of doing that, and On Line Opinion stands ready to play its part. Please send submisisons to the editor.

The Australian government has announced a $42 billion “rescue” package for the Australian economy.
What sort of economic analysis says that we have gotten ourselves into trouble by maxing out the collective credit card to buy consumer goods, so here is another credit card, max this one out too and buy, buy buy, that will solve your problem?
These measures are ill-considered, yet publicly hard to argue against.
The economic debate has been framed around a number of fallacies.
1. Recessions are avoidable
2. Unemployment is avoidable
3. Governments have unlimited ability to spend
4. We can go on tomorrow as we went on yesterday
5. Consumer spending is good.
In fact we find ourselves in a situation where assets have become over-valued relative to those in the rest of the world and the over-valuations used to leverage-up consumer spending.
As a result economic growth continued long after it would normally have stopped, and there are people who are in jobs now, who would never have been in jobs in normal circumstances and businesses rolling in surplus who in normal times would have been doing OK, but not this brilliantly. We have larger houses, and they are filled with more and better furniture than ever before, with more and better cars sitting in the driveway for their owners to use when they aren’t on holidays.
The government pretends this can continue when it can’t. Assets have to come back to prices where investors will buy again, the banking system has to be sorted so they can do this without excessively relying on equity, and we have to wait and allow our entrepreneurs to work out how to make a living for the rest of us in the “new” environment. This statement does none of those things.
This economic statement is not just hair of the dog, it tries to keep the binge going.
At a time when a small economy like Australia’s should be working out how to redeploy assets to deal with the reassertion of reality we are trying to keep our assets (including our people) exactly where they are now. It’s like one of those herbal tea remedies for obesity.