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Economy needs a kickstart to avoid perfect storm

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Cartoon by Paul Dorin / @DorinToons

Raising the Newstart rate is one possible step towards preparing our economy for chaos brought on by factors such as COVID-19, writes investigations editor Ross Jones.

IT'S BEEN A LONG TIME since I winged an economics degree. Way before Keating waxed lyrical about levers and the recession we had to have.

Things have changed since then.

But some things remain true and one of them is that if you are steering en economy that is heading for the rocks, your go-to response should be to get things going.

And the best way to get things going is to give people money.

Think Costello’s 2001 $14,000 first homebuyers' giveaway and Swan’s $950 each in the 2009 GFC to buy whatever you could.

Which many, but not all, did. Some paid down debt, some stuck it in the bank, some spent just a fraction of the Government’s largesse.

Costello’s bucks contributed mainly to house price and building materials inflation, so, good for banks and speculators, but the Rudd/Swan cash washed through the whole system to create a surge in demand sufficient to defeat the GFC.

There is an index called the "marginal propensity to consume" (MPC).

If you get an extra dollar and spend it all, you have an MPC of one. If you get an extra dollar and stick it all in the bank to pay down debt, you have an MPC of zero. There is a full range in between, so that if you spend 50c you have an MPC of 0.5, 65c has an MPC of 0.65 and so on.

Just going anecdotally, not everyone spent all the Rudd money on stuff, at least not straight away. Give $950 to some people and it just goes into the pot called money.

Hard data on the Rudd/Swan MPC is not readily available – at least to my rudimentary research skills – but you can bet your bottom dollar the MPC average was way less than one in the time frame that counted. It still worked.

But the GFC might be chicken shit compared to the upcoming confluence of events facing the running-out-of-luck country. We are talking perfect storm here.

COVID-19 has basically screwed anything to do with China, at least for a considerable time.

Tourism and education will take years to recover, mineral exports will keep falling until Chinese manufacturing picks up, imports from China, the stuff we all use every day, will be disrupted for some time.

From Hyundai (Korean with Chinese parts) to Bunnings, things are grim.

Even The Australian and Sky are gloomy:

‘The Australian's Adam Creighton says it's "almost certain" Australia is "in the midst of a recession" as the coronavirus continues to spread and infect people globally.’

The rise of China has seen the erosion of the Australian manufacturing base, presided over by corporate profiteers and irresponsible governments.

Layer on top of this Australia’s reliance on part-time and casual workers, many of whom have no safety net whatsoever and you can see much social unhappiness right around the corner,

No one in Australia will be exempt.

There are currently 722,000 Australians registered for Newstart.

Newstart pays $230 week to singles, $252 each to partners.

Even John Howard and Barnaby Joyce think the amount sucks:

Former Prime Minister John Howard has suggested the freeze on lifting the rate of the Newstart Allowance had "probably gone on too long", while former Nationals leader and current backbench MP Barnaby Joyce, said living on the allowance would be "difficult, especially in regional areas".

To receive this pittance, recipients must subject themselves to a demeaning regime of behaviour monitoring:

If you don’t keep looking for work your payment may reduce or stop.

 

Read more about:

If you don’t tell us about changes to your situation, you may get a debt you’ll need to repay.

Going back to the MPC thing, what do you reckon the MPC of a Newstart recipient would be?

My guess is 1.

So if Newstart was increased by $100 per week (say), that would be about $72 million a week going into the local economy.

That is a lot of demand, some of which will be directed at Australian manufactured goods.

Possibly more than some, as Australian manufacturers, knowing there might be a quid in it, regain enough confidence and step in to fill the gap left by import unavailability.

That means jobs.

So why won’t the Morrison Government increase Newstart?

Because they are ideologues and punishers. Mixed with mad Christian tongue-speakers.

These people hate to think anyone further down the ladder can have any fun.

While faux-Christians and pompous farts are a big part of the problem, they are egged on by the venal, destructive force of bullshit intellectualism that is the Institute of Public Affairs (IPA), the go-to comfort blanket for the rapists and pillagers of the Australian economy.

The users.

The argument that the economy could not afford a Newstart increase is a complete furphy.

Back in 2018, the IPA wrote:

This week, the Australian Council of Social Services (ACOSS) called for the Newstart Allowance to be increased by at least $75 per fortnight, to $625.20 a fortnight from the current payment of $550.20.

 

Poverty in Australia is a great moral challenge, and the only path out of poverty is work. Any change to the welfare system must have as its objective to get as many Australians into work as possible.

 

The unemployed and disadvantaged should be viewed as assets that need to be developed, not liabilities that need to be managed.  The way to allow Australians to reach their potential is through policy settings which are aimed at getting them into work and off welfare.

I say feed the krill and the whales will look after themselves.

Investigations editor Ross Jones is a licensed private enquiry agent and the author of 'Ashbygate: The Plot to Destroy Australia's Speaker'. You can follow Ross on Twitter @RPZJones.

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