Damien Grant on the deficit

March 11th, 2012 at 12:00 pm by David Farrar

writes in the HoS:

The medical profession no longer drills holes into fevered skulls because science has demonstrated that such measures do not work, often kill the patient and leave a shocking mess in the surgery room.

When it comes to economics, however, there is no shortage of amateurs recycling discredited miracle cures: deficit spending and printing money.

Bryan Gould has been complaining that austerity does not work and is no solution to our current woes. He points to Greece, Spain, et al, to illustrate his point.

Greece, however, is a mess precisely because it has never practised austerity. Greek governments used to print drachmas, and lately borrowed euros. If borrowing money was a path to riches then Greece would be wealthy. It isn’t.

And he deals with the other fad:

If that sounds unpleasant, do not worry. Bryan Gould and Bernard Hickey have an idea – we can print the $13.6 billion. All we need to do is write ourselves cheques for $3000 each. Christchurch will be rebuilt, our butter will be cheaper and the Auckland man-drought will end as our talented lost-boys rush back.

Sadly, this will not work. Printing money to stimulate growth worked when citizens could be tricked that inflation meant economic conditions had improved.

Quantitative easing, a modern form of printing money, has been used overseas to help bolster the capital base of failing banks and prevent deflation in Japan. It does not create jobs.

There is no miracle cure. It is time we stopped listening to the snake oil salesmen.

We need to live within our means, not borrow more or start printing money.

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26 Responses to “Damien Grant on the deficit”

  1. Falafulu Fisi (2,176 comments) says:

    Damien Grant must have been following Not PC‘s blog.

    http://pc.blogspot.co.nz/2012/02/hopeless.html

    Good job Damien Grant.

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  2. thor42 (900 comments) says:

    What an idiot this Bryan Gould is. Wonderfully typical of the people on the left.
    They wouldn’t know good economics if it jumped up and bit them in the balls.

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  3. kowtow (7,581 comments) says:

    Greece was also riddled with corruption. Even the tax inspectors were on the take. It looked like everyone was. It was endemic.
    Debt was once shameful, now it’s normal.

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  4. Graeme Edgeler (3,262 comments) says:

    There is no miracle cure.

    Sell Assets! Switch Taxes! etc.

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  5. bhudson (4,734 comments) says:

    Graeme,

    Which is why the mixed-ownership models and the tax changes have never been presented as miracle cures.

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  6. Falafulu Fisi (2,176 comments) says:

    From Not PC again.

    That’s not “austerity,” dickhead. *This* is austerity, and it works.

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  7. tom hunter (4,366 comments) says:

    It’s a sad commentary on NZ that it has a “business journalist”, Bernard Hickey, who is not well-liked by many on the left because of “pro-business” leanings – yet has so poor an understanding of capitalism that he can promote the idea that we can print away our debt.

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  8. Scott Chris (5,869 comments) says:

    Sadly, this will not work. Printing money to stimulate growth worked when citizens could be tricked that inflation meant economic conditions had improved.

    A lot of you, including Damien Grant need to get up to speed with Modern Monetary Theory

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  9. tom hunter (4,366 comments) says:

    As an aside on wasting money in both the private and public sectors, when is our government going to grasp another nettle and can the ETS?

    I ask because another of the few remaining practical arguments for it – that we have to appease our trading partners, particularly Europeans – would appear to have just died:

    The European Union’s ambitious low carbon plan collapsed yesterday when Poland vetoed plans to reduce greenhouse gas emissions drastically after 2020.

    Awwww. Looks like the Poles don’t have the cash to switch from coal to gas, allied with the unspoken concern that they’d be buying the latter from their old mates, the Russians, led by Vlad the Impaler. What a confidence booster to the Polish economy that would be.

    But the broader message is this:

    Back in those halcyon times when the Davoisie were convinced that a global green carbon treaty was just around the corner, EU diplomats and journalists used to boast incessantly that climate activism was the centerpiece of a new and dynamic European diplomacy. Now both Europe and the climate agenda are in near-total disarray, and the EU has been unable to legislate for itself, much less for all mankind.

    How much worse will our economic problems have to get before we dump these and other illusions.

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  10. Michael (894 comments) says:

    Muldoon tried spending NZ to prosperity. It all ended in a pile of deficit and debt.

    The Mother of All Budgets. It was an extreme austere budget, 18 months later 7% growth and budget surpluses for 15 years.

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  11. Falafulu Fisi (2,176 comments) says:

    Mr Scott Wikipedia Chris, so you think that Keynesian economic framework works? Can you for bloody once stick to what you know rather than trying to be expert in anything & everything solely based on wikipedia? Can you try and debunk the argument based on real data that Peter Creswell has put forward? FFS, stop embarrassing yourself by trying to be expert in everything & anything from fluid dynamics, economics, AGW, blah, blah, blah. Get some real knowledge man rather than being an expert Wikipedia. Produce data that contradicts what Mr Cresswell pointed out in his articles.

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  12. tom hunter (4,366 comments) says:

    A lot of you, including Damien Grant need to get up to speed with Modern Monetary Theory

    Here’s fun. Why don’t you explain to us the difference between what MMT describes and what has been done over the past few years by the US Federal Reserve, Bank of Japan, ECB, and countless other central banks around the world.

    By the way – since it was first described in 1895 can it still be said to be “new”?

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  13. Scott Chris (5,869 comments) says:

    so you think that Keynesian economic framework works

    Falufulu, monetarism ain’t Keynesian.

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  14. Falafulu Fisi (2,176 comments) says:

    Scott, how about you try and debunk Not PC’s data using your MMT?

    Go, on, please enlighten us, with your economics thoughts? Not PC has produced graphs and data in his articles. Show us that his interpretation is wrong? I’m awaiting your response.

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  15. Scott Chris (5,869 comments) says:

    Why don’t you explain to us the difference between what MMT describes and what has been done over the past few years by the US Federal Reserve, Bank of Japan

    A more pertinent question would be, what would the world look like if those various central banks hadn’t implemented quantitative easing…

    Thing is, boffins, not politicians far smarter than you or me exercise control over these matters thank goodness.

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  16. tom hunter (4,366 comments) says:

    A more pertinent question would be, what would the world look like if those various central banks hadn’t implemented quantitative easing …

    And the answer to your question can be found here: Why You’ve Never Heard Of The Great Depression of 1920.

    It’s a 45 minute lecture but well worth and quite an eye-opener.

    Thing is, boffins, not politicians far smarter than you or me exercise control over these matters thank goodness.

    Ah. The left-winger and The Team Of Experts (TM). Sad to see otherwise intelligent people who are quite happy to defer to argument from authority, but it was ever thus.

    I’ll ignore that you can’t explain the difference between MMT and what has actually been done: after all, I can’t see the differences either.

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  17. rg (197 comments) says:

    ACT was the only Party at the last election to campaign on cutting wasteful govt spending. unfortunately the public rejected that and voted for National which is spendding like a drunken sailor. Welfare payments to people on 6 figure incomes through WFF, super for millionairee retirees and 65 year olds who aren’t retired, kiwisaver and interest free student loans etc etc. subsidised doctors visits for the wealthy etc . It goes on and on, Labour brings in these flakey schemes and National keeps them. National just thinks it can do socialism better than Labour.
    So Athens here we come. our only chance is a post John Key National Govt with some spine and a strong ACT Party to make them do it.
    John Key, Mr popular, remind me what he did for NZ again?

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  18. nickb (3,658 comments) says:

    Where do our media find these so called “economics” commentators?

    Another example is Gareth Morgan. He can’t even move his own Kiwisaver fund off the bottom of the performance charts and yet he pretends to have the answers to a whole country’s problems.

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  19. Inky_the_Red (734 comments) says:

    It seems that many on the right think that people are here to an economy that makes a few rich and the rest should be happy with their lot.

    The fact s like all other animal humans existed long before there was any economy as we know it today. The economy is here to make it easier for people. It should assist people so there is a greater common good, not to create slaves for the few elite.

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  20. Pete George (22,731 comments) says:

    rg at 1:48 pm: ACT was the only Party at the last election to campaign on cutting wasteful govt spending. unfortunately the public rejected that and voted for National which is spendding like a drunken sailor.

    National are working on modestly restricting spending and are copping a lot of flak for it, they understand the need for incremental change if you want to get something done.

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  21. Pete George (22,731 comments) says:

    Inky_the_Red: you seem to be in the wrong country and/or age. Anyone is free to start up their own business or commune or cooperative here. Most would like to be rich, most try to achieve it a bit at least.

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  22. Grant Michael McKenna (1,156 comments) says:

    It seems that many on the left think that people should be subject to an economy that makes a few rich and the rest should be happy with their lot.

    The fact is like all other animal humans existed long before there was any economy as we know it today. [The economy is the term used to describe the combination of the various entities that provide the economic structure that defines the social community, and can be organised in different ways. ]

    One of those ways is socialism, which claims to act for the greater common good, and not to create slaves for the few elite. Even as their fantasies collapse before the reality that doing good with money they did not earn, and distributing wealth they did not produce always creates societies of the ruled and the rulers, succeeding only in distributing mediocrity and poverty instead of generating wealth and real welfare, even then they persist in their claims that they are the moral superior of those who work for a living.

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  23. DJP6-25 (1,268 comments) says:

    I think the Carers Advisor at your grand kids high school will be very busy. The kids will have to be prepared to look for a second job that best suits their abilities. However, with less people around, there will be less demand for goods and services. So there will be less second jobs to go around. Pity there won’t be less demand for tax, and debt repayments. Thanks socailists.

    cheers

    David Prosser

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  24. Inky_the_Red (734 comments) says:

    Peter George, can you tell me when it was decided that a capitalist economy was more important than people?

    I missed the referendum

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  25. wreck1080 (3,721 comments) says:

    Some of the worlds finest economists have supported the printing of money. It is insulting to call them amateurs for a start.

    Who knows , if the UK hadn’t have printed money then maybe their banks would have folded causing even more chaos.

    I’m not expert in economics, but it would appear there is no good way to solve the GFC. Case of swallow 1 rat or 2.

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  26. Ben Wilson (523 comments) says:

    The credible objections to printing money that I’ve heard so far are:

    1. The danger of hyperinflation
    2. Objections to wealth redistribution
    3. Objections to people having a living without earning it

    1 still seems to me like the only real objection that is worthy of economic analysis. 2 and 3 are ideological – they don’t prove the system can’t work, they would be even more shrilly against if it were proved that in fact it did work. They do deserve some looking at though, but the hyperinflation question is the most important one.

    Without even going further into it, it’s pretty obvious that the “hyper” part of any money printing inflation would be entirely dependent on how much money was printed. If the government printed one new dollar, it wouldn’t be noticed. It’s quite possible for a target rate to be set and achieved by printing the right amount of money. So this argument would have to be about printing *too much* money. In other words, it becomes about what is *too much* inflation.

    That’s IF it’s inflationary at all, in small doses. Since the printed money supply isn’t the only source of inflation, it could be possible for the printed money to actually attack the inflation caused by other means. This is how it usually advocated, by most people who are thinking about the issue. For instance, it could pay down debt, at the same time as higher levels of debt control are brought in.

    So how much is too much inflation? How can an number even really be settled on at all? I don’t have an answer, I’m curious if anyone does, accompanied by a rationale.

    I’m also genuinely curious whether there are any other *theoretical* reasons why printing money is economically dangerous – it’s held up as received wisdom so there must be lots of things I’m missing here.

    Objections 2 and 3 aren’t unimportant. A lot of people don’t like the idea of any redistribution at all. Others think that progressive taxation is a better way to that end – although sometimes for opposite reasons (one person might think it’s good because it taxes rich people. A rich person might think it’s good because it’s easily avoided).

    Other people think that “free money” is just inherently dangerous all by itself, that it would lead to a collapse of the economy perhaps because people would not be incentivized to work at all. Some of these people are even consistent enough to apply that argument at both ends of the wealth extremes, thinking that the free money that comes with being born wealthy is also very dangerous because it deincentivizes the wealthy from work. But strangely few believe this. Usually it’s aimed at one end or the other, depending on which one the person aiming is at.

    I’m not actually appraising any of these objections, really. Just want to lay them on the table. Are there more? Because printing money as a solution is clearly a possible direction that could be taken, and to have it removed off the table altogether really does need to have a strong justification.

    It does seem clear to me that money printing will not in itself cause wealth to flow into NZ. Wealth generally comes from production, and the nation isn’t likely to become more productive even if the money-printers’ best case is what happens, rather than the naysayers’ worst case. At very best it could employ the unemployed, and improve the profitability of any business that sells goods internally in NZ, and stop mortgage repayments mostly leaving the country to the foreign owned banks that effectively own most of our real estate. It won’t cause factories to grow out of the ground, or more milk to flow out of the cows.

    But the same could be said for any fiscal policy.

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