by Alan Thornhill
Europe’s debt issues have already touched Australia in a very sensitive spot – its confidence.
This is shown in the latest issue of the Westpac Melbourne Institute Index of consumer confidence, which rose by a “disappointing” 0.3 per cent in June, despite two successive monthly cuts in interest rates.
“Westpac’s Chief Economist, Bill Evans, said: “clearly other factors are dominating the minds of consumers.
“Those factors are concerns about the domestic economy and international conditions.”
The two are linked.
If people in Europe and the United States are spending less, because their economies are depressed, China, the new workshop of the world, will, consequently, be exporting less.
And, as China is Australia’s best customer, we don’t have to be told what that means for us.
So what is to be done?
The Nobel prize winning economist, Paul Krugman, makes a bold attempt to answer that question, in his latest book End This Depression Now.
Your correspondent has just read this book, and was mightily impressed.
Krugman says today’s leaders have both the knowledge and the tools to end this suffering.
His theme is simple.
The time to spend is when the economy is low.
Booms are the times to stop spending.
That, essentially, reflects the mantra of the great Depression era economist, John Maynard Keynes.
As you will have guessed, from all this, Krugman, himself, is an unreconstructed, unapologetic and proud Keynsian.
But he notes: ““From the beginning….political conservatives – especially those most concerned with defending the position of the wealthy – fiercely opposed Keynsian ideas.
Krugman says this is still happening, with a vengeance.
He sees those, advocating severe austerity measures, now, as abandoning economics, and turning instead to “morality plays.”
Austerity programs, championed, conspicuously by the German Chancellor, Angela Merkel, effectively protect the bankers and shadow bankers, whose excesses contributed so much to the present crisis, Krugman argues.
And they leave the unemployed to suffer, needlessly.
Krugman notes that immediately after the collapse of Lehman Brothers, in 2008, just about all major governments applied the lessons learnt from the Great Depression of the 1930s.
“But a funny thing happened in 2010,” he adds.
“Much of the world’s policy elite – the bankers and the financial officials who define conventional wisdom – decided to throw out the textbooks and the lessons of history, and declare that down is up.”
They decided, instead, to go for spending cuts, tax hikes and even higher interest rates, even in the face of mass unemployment.
Expansion was out.
Austerity was in.
That’s the wrong remedy entirely, Krugman argues, in his very timely, lucidly argued book.
It can be ordered from http://books.wwnorton.com/books/978-0-393-08877-9/.
The price is $US24.95.
Your correspondent, though, was mightily impressed, at being told this book was waiting for him at the
Dickson branch of the ACT library service, just a few days after he had asked for it.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Tuesday May 21
The Dow Jones Index fell 18.97 points to 15,335.40
Unions are seeking a rise of $30 a week in the National Wage Case, which opens today
The latest Morgan Poll shows support for the L-NP down 1 per cent to 55 per centover the past week and the ALP at 45 per cent, 1 per cent, on a two-party preferred basis.
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