by Alan Thornhill
As we all know, visitors can sometimes reveal deep secrets.
They don’t usually mean to betray their host’s confidence.
They just don’t realise, all too often, just what they have done.
A visiting World Bank economist, Vikram Seth had just such a moment last week.
“In my experience,” Mr Seth told Private Briefing over lunch, “stimulus packages can quickly become pro-cyclical, rather than counter cyclical.”
Like all economists, Mr Nehru talks in riddles, at times.
But his meaning was clear enough, in context, at the time.
(Your correspondent had hardly touched his wine, at that stage).
Mr Nehru was saying that government spending, meant to boost a flagging economy, all too often actually inflates an already recovering one.
Of course, as Shakespeare put it, this is “a consumation devoutly to be wished,” in the world’s present circumstances.
The US Fed chief, Alan Greenspan, has, of course, predicted that America’s recession could be over by late this year, or early next year, if that nation’s banks can be fixed by then.
At present, though, Mr Greenspan is as a voice crying in the wilderness.
But Australia’s Treasurer, Wayne Swan, did admit in Parliament, late last week, that the Federal government’s response to the global economic crisis, which erupted suddenly last September, had been “swift.”
And even the government’s critics admit that it has also been bold.
The main critic, Malcolm Turnbull, has also argued that an approach based on tax cuts would have been much more effective.
But the Prime Minister, Kevin Rudd, disagrees with the Opposition Leader.
Mr Nehru, though, has identified a risk that neither has said much about, at least so far.
The government’s stimulus packages does contain substantial plans for infrastructure spending.
There has been much talk of many of these projects being “shovel ready.”
Most, though, are not.
And if the government is still spending heavily even on, perhaps worthwhile, infrastructure projects, like new roads, bridges and rail links, that spending could well, in Mr Nehru’s words, prove to be pro-cyclical.
That is, it might well boost inflation, when the economy is already recovering.
If that happened, the consequences could well be serious.
And we all saw, last September, just how quickly an economy can turn.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Wednesday December 4
The Federal government and the Greens have reached a deal, under which the cap on Commonwealth debt will be abolished
The Dow Jones index fell 94.15 points to 15,914.60
NSW Energy Minister Chris Hartcher quits after ICAC issues search warrant against him.
Economy grows by 0.6% (seasonally adjusted) in the September quarter 2013:ABS
The Federal Government may be on the brink of striking a deal with the Greens to scrap Australia’s debt ceiling altogether in exchange for greater transparency over Government spending.
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