Wednesday, November 14, 2007

Consistency would be helpful

Economic pedantry aside it is time that our political establishments selected and stuck with one model, rather than the hotch potch we are currently presented with. While I’m not friend of the current ‘set and forget’ monetarist model, Reaganism – Thatcherism – neo-conservatism – neo-liberalism – economic rationalism…; the names go on.

The key to this model and its variants is that they are ‘set and forget’; they don’t cope well with any intervention. My criticism is that the model serves big money and ignores social imperatives.

But what our conservative leaderships are finding is that they need to win votes, which means playing with the fiscal controls and throwing the machine out of whack.

The current Australian election campaign offers a good example.

The top end of the country’s economy is booming, trade and budget surpluses are going through the roof. But under the ‘set and forget’ system, any distribution of that wealth is going to distort the economics and drive inflation. That is happening here now, and getting worse during a bloody election campaign.

I don’t like this model, but if it is the current paradigm it should be adhered to.

Instead the money is being used to buy votes, worsening the current inflationary trends. Either run a ‘hands on’ or a ‘hands off’ model, but don’t mix and match!

Having intervened, our politicians have tried to second guess the electorate on what will win their hearts and minds; in the process driving an impending economic disaster.

The desperate need in this country is to rebuild neglected social infrastructure, i.e.; health and education. Rather than commit money directly to these sectors the idea is to deliver assistance through individual tax breaks.

Now someone might care to correct me on this, but it seems to me more money in individual’s pockets each pay period isn’t going to make hospital beds, nurses or emergency rooms available when Joe Blogs slips off his wallet and breaks his back.

The education tax breaks have already been revealed as barely sufficient to cover basic school costs, with no hope of covering actual term fees for those a choosing private school education.

In both sectors the real needs are for underlying infrastructure, it is a nonsense to give the money to individuals to spend on ensuring facilities are able to meet demand. More to the point, tax breaks are more likely to be absorbed meeting increased rent and mortgage commitments in the face of rocketing interest rates.

In effect, our political leaders are undermining their preferred economic model by intervening – tinkering with it. Then they are making the wrong choices; choices which do nothing to address the real issues we are seeing.

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