What 09 really taught us

So what have we  learnt, economically, from the year that is now passing?

Firstly, perhaps, that the economics of John Maynard Keynes are not dead, after all.

The new neo-classicists, who held that markets, alone, could be trusted to keep economies strong, were proved wrong, yet again.

Just as their predeecesors were back in the 1930s, when Keynes argued that monetary authorities and governments must intervene directly, at times, to support economic growth.

Ideologically, at least, Australia’s Liberals are still close to the neo-classicists, at heart.

That’s why the Opposition’s Treasury spokesman, Joe Hockey, was signalling shortly after the crisis struck, late in 2008, that the opposition’s response would be based, primarily, on tax cuts for those in the middle to high tax brackets.

That is, precisely, those who are most likely to save, not spend, any extra money they might receive.

That is not, necessarily, a hot way to tackle an all too imminent recession.

The Rudd government’s response, through stimulus packages, was much more full blooded – and effective

But Joe Hockey does have a point, when he says budget deficits can’t go on forever.

So has the Rudd government overshot the mark?

Two Treasury economists, Dr David Gruen and Colin Clark, made some pertinent remarks about that, in an article published earlier this month.

“…Federal governments of both political persuasions have demonstrated the resolve needed to bring deficit budgets back into surplus after the economy has recovered from recession,” they say.

The economists add, too, that governments, of both persuasions, have also “committed themselves to increasingly well articulated medium term policy frameworks for fiscal policies.”

Comforting thoughts, eh?