Senate Inquisition on the Economic Stimulus

This is a brief report on the “uncorrected proof” of the Senate Inquiry Transcript on the Australian Government Stimulus Initiatives.

It’s an extract from the submission and subsequent interrogation of Professor Davidson by the Australian Senate committee but in particular Mr Cameron. You can read the Professor’s  submission by clicking the link above. After I read the transcript it seemed it was more like an inquisition than questioning the Professor about his submission and ideas. It clearly shows how there can be no rational debate on the Stimulus and it’s effect on the economy and how any attempt to present a different view to the governments is attacked and when that doesn’t work, personal attacks quickly follow.

The Chair should have demanded that Mr Cameron show respect for Professor Davidson and his ideas.

But Professor Davidson gives a good account of himself in the face of the personal attacks on him. Senator Cameron starts as he finishes with a provocative line of questioning, ignoring the submission contents completely.

The implication is academic economists are not real economists. And the IMF does not have a good reputation but is used as an authoritative club with which to beat Professor Davidson.

Senator CAMERON—Professor Davidson, you are an academic economist. Is that correct?

Prof. Davidson—That is correct.

Senator CAMERON—You have never worked in industry?

Prof. Davidson—No, that is not correct.

Senator CAMERON—I am just asking the question.

Prof. Davidson—I have worked.

Senator CAMERON—As an economist?

Prof. Davidson—No.

Senator CAMERON—So all your economic analysis is based on an academic point of view and not what happens out there in real life in the economy?

Prof. Davidson—I do not understand your point.

Senator CAMERON—You have never actually advised a company or the Treasury; you have simply been an academic economist.

Prof. Davidson—Yes. That is one way of looking at it.

Senator   CAMERON—In   terms   of   this   issue   you   raised   earlier   about    modelling   and   the stimulus package, did you raise any concerns when the previous Prime Minister, John Howard, decided    to  invest  $10.4   billion  in  the  Murray-Darling     Basin  without   going   to  cabinet   or Treasury?

Prof. Davidson—I do not know the former Prime Minister.

Senator CAMERON—John Howard.

Prof. Davidson—No. I have never met him. Why would I raise a concern with him?

Senator   CAMERON—I   am   not   saying   personally   with   him;   I   am   saying   in   terms   of   the political and economic outcomes of a decision like that.

Prof. Davidson—No, I did not, because I have no interest in water economics.

Senator CAMERON—So you have no interest in water economics.

Prof. Davidson—No, and I did not have the Oxford Economics model available to me at that time.

Senator CAMERON—So a $10.4 billion  investment   in the economy did   not attract any of your attention at that time, even when that investment did not go to cabinet or to the Treasury.

Prof. Davidson—Similarly I have not complained about the $43 billion National Broadband Network, because I do not actually know anything about broadband either. So it is really a case of saying things where I can make a contribution beyond, ‘Gee, that’s a lot of money.’

Senator CAMERON—Let us see what contribution you have made here.

CHAIR—Commendable.

Senator CAMERON—Sorry?

CHAIR—I just made a comment.

Senator CAMERON—What was that? To me?

CHAIR—No, to the witness. I said ‘commendable’.

Senator CAMERON—Let us see where that commendable contribution leads us. Professor Davidson,   why   are   you   at   complete   odds   with   the   IMF,   the   World   Bank,   the   OECD   and   the treasuries   of   major   advanced   economies?   Why   have   you   got   it   so   different   from   the   bulk of economic   thinking—and   some   of  those   economists   would   not   be   labelled   Keynesians   by   any stretch of the imagination.

Prof. Davidson—The difference   between  my  view and that of the IMF, the   OECD and the World Bank and what have you is that last February I said the stimulus packages were a terrible idea and were not going to work, and they have not actually worked. Those economists all said, ‘Spend billions of taxpayers’ dollars on stimulating the economy to prevent recessions, ’ and they have failed. They now have to say something.

Senator   CAMERON—So   the   IMF   are   just   saying   something,   and   all   of   their   analysis   is wrong. Is that what you are putting to this inquiry?

Prof. Davidson—No, I am suggesting to you that I do not agree with the   analysis of those multinational organisations. The   very  important thing to remember about the OECD, the IMF, the World Bank and what have you is that those organisations are not Australian taxpayers. They are not going to be paying   for the consequences  of all this reckless spending, unlike   my good self, who is an Australian taxpayer. So I have a far more vested interest in making sure that my advice is right, as opposed to them.

Senator CAMERON—But Ben Bernanke and other senior economists are indicating that all of the debt is manageable. Particularly, the IMF has indicated that Australia’s debt is eminently manageable.

Prof. Davidson—Australia’s debt relative to, say, the United States or Japan’s level of debt is manageable. It is not a question of whether or not we can manage to pay off money that has been wisely   invested.   It   is   whether   or   not   we   want   to   pay   off   money   that   has   been   irresponsibly invested. We need to think about what value we are getting for our dollar that has been spent. I put it to you that we have not got good value for that money.

There is more on this in the transcript if you wish to read it. But it goes to the heart of the matter. There can  be no debate because the economic and financial justification for the massive stimulus packages and out-of-control spending make no sense both economically and financially. In the long run we the people are all going to be poorer for it. They the government will still get their pay and benefits. There is no downside for them.

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