The Australian Federal Government has collected $22 Billion more money than it needs to pay for its services.
This is good news for Australia. In 1995 the government was running a $10.3 Billion deficit and public debt was around 20% of GDP. Today we have all but paid off that public debt - it is now minus 4.8% of GDP - in other words, the government has completely paid off its debt and is now saving money.
This may sound good... but it is even more remarkable when compared to other nations. Here are some public debt figures courtesy of the CIA factbook:
United States of America: 64.7%
United Kingdom: 42.2%
Italy: 107.3%
Belgium: 93.6%
New Zealand: 21.4%
Note: The CIA has Australia's 2005 public debt at 16.2% which seems at odds with Australian budget figures in 2005 of 0.7%. A different methodology is probably used but even the CIA figures show Australia's debt is exceptionally low.
We need to understand that the Australian government's fiscal state is unique not just in the world at the moment, but also in terms of economic history going back 30-40 years. No other industrialised government (OECD), as far as I know, has managed to completely pay off its debt.
Of course, it is silly to assume that somehow deficits are bad and surpluses are good - this is the error of mercantilism. Economics is all about balance, which means that if Australia keeps running larger and larger surpluses into the future and has greater and greater public savings, it is actually a bad thing.
In the past I argued firmly that surpluses need to be used to pay down government debt. Now that the debt has been paid off, what to do with the extra money?
The first thing to remember is that Keynsianism is not dead: Fiscal policy still has a place in "pump priming" a slow economy and putting the brakes on an overheating one. In practice, this should mean that the government should move into a deficit during a slow period and move into a surplus during a good period, with public debt figures moving around accordingly as well. If Australia can manage to keep public debt/savings within 5% of GDP, things should run well. Anything beyond that should be reined in.
Note: It's important to state again that running large surpluses and having large amounts of public savings is not desirable. Our surplus would be another government's deficit, or a private sector deficit - that's how economics works.
That's why I'm not all that impressed with the tax cuts mentioned in the latest budget. Australia's economy is running (relatively) well which means that tax cuts are superfluous at the moment since they would stimulate an economy that does not need it. Granted, there is some recent economic data to cause concern - but nothing concrete yet that is impacting the economy badly.
The second thing to remember is that the "twin deficits theory" is obviously now dead in the water. This theory, which linked government debt with the current account, has been proved to be false simply by looking at the figures. As I have mentioned, public debt is now minus 4.8% of GDP, but Australia's net foreign debt (that is, the total amount of money that the entire economy - not just the government - owes the world) is running at around 51% of GDP.
So while the fiscal status of the government is great, Australia's foreign debt levels are still pretty bad. Back in "the day", it was thought that the best way to reduce net foreign debt would be to reduce public debt - to balance our debt with the rest of the world we needed to balance the government's budget.
There's no doubt that fixing government debt levels has affected our net debt and our current account - yet all the evidence shows that the "twin deficits theory" was too simplistic a model to work out in reality. One economic problem has been solved (government debt) but another one remains (foreign debt).
It should therefore be a top government priority to fix this level of debt. One way would be to use the surplus to purchase Euro, Yen and US-dollar denominated bonds, thus increasing our international currency reserves. The selling off of Australian currency and the purchasing of foreign currency by the government (via the Reserve Bank) would put downward pressure on the Australian dollar, making it cheaper and thus making Australian goods and services more competitive. This would then increase our exports and decrease our current account deficit. As soon as the current account goes into surplus, our net foreign debt would begin to decrease. Hopefully, as years go by, this current account surplus would reduce our foreign debt levels to zero, much in the same way as federal government budget surpluses have eliminated public debt.
The third and last thing to remember is that reducing public debt has meant that more money can be spent in the future. This is an argument that many left-leaning people need to remember, especially those who argue that government debt is nothing to be worried about.
In 1996, which was the height of Australia's debt crisis (and when Howard and Costello began their work to reduce it), interest payments on this debt was around 1.5% of GDP. In other words, all the money that the Australian government had borrowed meant that interest payments alone were around 1.5% of GDP. Given the fact that tax revenues were around 30% of GDP, it meant that $1.50 in every $30 the government gained was spent in paying interest. With the removal of public debt altogether, so too are interest payments removed. This means that the government can spend more money on health, education and the environment without having to worry about going into deficit.
This is the problem that besets OECD nations like the USA, Italy and Belgium. With public debt levels at high levels, more and more tax revenue is used to pay off that debt, which means that it becomes harder and harder to fund important government spending in health and education. When 50% of your income is spent paying interest on your credit card, you know that something needs to be done before you become bankrupt.
So while I have nothing but disdain for the Coalition's stance on the Iraq war and immigration, I can at least give them the kudos for their fiscal prudence. In this sense, the Australian Coalition government is actually truely more "conservative" than its profligate American cousin, the Republican Party. And it is also good that Coalition politicians like Malcolm Turnball - who seems to believe in "supply side economics", objectivism and other stupid American ideas - can sit in the background grinding their teeth while the leaders of their party make (reasonably) sensible economic decisions. I'm hoping Turnbull - who is on record as wanting to make massive tax cuts for high income earners - will not unduly influence too many Australian politicians with his voodoo economics.
Erratum:
I need glasses I think. The external link to the budget papers actually shows that public debt is NOT -4.8% of GDP but -$4.8 Billion, which is -0.5% of GDP. Moreover, from the same paper we learn that public debt in 1996 was 18.5% of GDP - which is still very low by international standards today. (11 May 2006)
From the Osostrian School Department
© 2006 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/
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St. Barnabas, Broadway, has gone up in smoke.
Maybe it was God's wrath for their wretched preoccupation with all things N.T. Wright?
In actual fact, it was a blessing from God.
Take this true story told to me by Archie Poulos in 1994 or 1995:
I was on a train one day and I was sitting next to a guy who looked a bit like a crim. Despite this, I felt it was important to speak to him and see if I could have a gospel conversation with him.
Fairly quickly into the conversation the guy told me that he had recently been in jail for arson. When I asked him what he had done, he admitted to me that he had burned down a church!
I thought about the totally impractical architecture and design of the historic St Matthias church in Centennial park: the dusty flags, the ageing roof, the echoey expanse under the ceiling. Surely the building had been designed without Gospel ministry in mind.
I turned to the guy and asked "Do you have a business card?"
(This was the general gist of the conversation, not a verbatim record)
The News of the World apparently had a secret camera that caught his latest "romp".
My thoughts?
Warne is not a Christian and he is divorced from his wife. Yes, what he is doing is sinful and I hope that one day he will repent. Apart from those facts I am just sick of the coverage of his sexual escapades. Leave the guy alone. He's a great cricketer but a complete jerk off the field - but everyone knows about that these days.
Tom Ascol is a Baptist Pastor in America. He also heads a group called "The Founder's Ministries", a committed group of Baptists within the Southern Baptist Convention who wish to return the denomination to its Reformed and Calvinist roots - which means of course that the guy has a LOT of hard work ahead.
Tom has just recently posted about the disgraceful way in which the majority of SBC Baptist churches report their Baptisms. Essentially he points out the fact that most SBC Baptist churches overstate and "fudge" the amount of baptisms that their church has when they report them.
The idea is that each Baptist church reports to the SBC on an annual basis the amount of baptisms that were performed in the previous 12 months. Because Baptists see baptism as the natural consequence of conversion (which, as a Presbyterian, I say "yes... but"), a successful Baptist church is seen as one that has seen more people converted to Christ - a process that is (theoretically) highlighted by the amount of Baptisms.
But Ascol's article points out that many Baptist churches get away with reporting false figures (ie inflating the number of baptisms) or baptizing many who have been baptised before (multiple baptisms) or baptizing people who have no real genuine faith in Christ. The figures look great, but a deeper analysis shows that there is something deeply wrong with the SBC.
It needs to be pointed out that the SBC is the largest protestant denomination in America, with over 16 million members. Moreover, it is, these days, a thoroughly conservative and evangelical church. So when we think about American evangelical Christians, we have to take into account that a large swathe of them are Baptists - and anything that afflicts the SBC will afflict American evangelicalism as well.
Back in the 1970s and 1980s, conservative evangelicals fought a bitter but successful war with the liberal/modernists who had taken over many important church positions, including teaching positions at various seminaries. But it appears as though this victory has proved to be hollow. Sure, the "scourge" of modernist theology may have been removed, but it is increasingly likely that it has been replaced by shallow pragmatism.
Fudging the numbers of baptisms - something that Ascol says is rife amongst the SBC - is a serious problem. It is a problem not just because the real picture of SBC church life is hidden (census figures indicate that the SBC is declining in number) but because the process of "fudging" indicates a complete lack of spiritual maturity by church pastors and deacons.
In order for a pastor or church leaders to deliberately fudge these figures, they need to have justified this sort of action in their mind. Moreover, they obviously feel that they need to impress men, rather than God - who, after all, knows exactly how many people have been coverted and/or baptized from the previous 12 months. This desire to impress men rather than God will obviously be translated into the pastoral relationships with members of the congregation to ensure that the church leaders are "seen" to be godly and successful. The congregation will model this behaviour to ensure that they, too, are "seen" to be godly. As a result, all sorts of sinful behaviour is covered up and/or justified.
Ascol argues that Considerably less than half of (the members of the church) show any consistent signs of being born of God's Spirit. Jim Elliff, former resident consultant for the Midwestern Center for Biblical Revival at Midwestern Baptist Theological Seminary, says this about the Southern Baptists:
Out of the Southern Baptist's 16,287,494 members, only 6,024,289, or 37%, on average, show up for their church's primary worship meeting (usually Sunday morning). This is according to the Strategic Information and Planning department of the Sunday School Board (2004 statistics). If your church is anything like normal, and is not brand new, your statistics are probably similar. In other words, if you have 200 in attendance on Sunday morning, you likely have 500-600 or even more on your roll. Many churches have an even worse record.
Discerning who among us is regenerate is not an exact science, but a closer look at these numbers will at least alert us to the fact that most Southern Baptists must certainly be dead spiritually. That is so, unless, of course, you claim that there is no difference between a believer and a non-believer.
In the average church you can cut the 37% Sunday morning attendance by about two-thirds or more when counting those interested in a Sunday evening service, or other gatherings held in addition to the principal meeting of the church. In 1996, the last time the SBC kept these statistics, the number of Sunday evening attenders was equal to only 12.3% of the membership (in churches that had an evening meeting). One might ask what makes us claim that the rest are Christians, if they involve themselves with God's people only on such a minimal, surface level? How are they any different from the people who attend the liberal church down the street—the "church" where the gospel is not even preached?
Something is rotten in the SBC. Here in Australia we have a protestant denomination called the Uniting Church that has been dominated by gospel-less liberalism for decades. As a result, their churches are closing all over the place as congregations dwindle and merge with others. The result of gospel-less churches is always the same - decline and degradation.
But it seems as though the "conservative revival" within the SBC has not led to spiritual renewal. The gospel is not being truly proclaimed in the SBC and the word of God is not being taught either. Without the work of the Holy Spirit in and through the proclamation of the gospel and the word, the church starves.
Fortunately, people like Tom Ascol and the Founder's ministries are committed to long-term renewal. We need to pray for them and for the effect that they will have upon American evangelicals in the future.
From the Theosalient Department
© 2006 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/
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2 die of boredom in mine collapse
Good for him, and the gospel as well, and for the glory of God etc etc etc.
*Sigh*, when will I ever get a chance?
The guy didn't kill anyone, but he planned to. All in all the only reasonable sentence he could get was life in jail, so I'm fairly happy with this decision.
If anyone is angry about this being too lenient a sentence, just remember that it took America less than 4 years to deal with Japanese aggression (7 December 1941 to 15 August 1945). It'll be 5 years since 9/11 this year, and Osama - the real murderer - is still free.
With the death of John Kenneth Galbraith, America has lost its last great social economist - a rare breed of economist who valued human life and social advancement as goals that the market should serve, not the other way around.
Having not read any of his books, I can assume that much of his thinking was considered obsolete during the "attack of the Monetarists" during the stagflation wars of the 1970s.
Europe, far more so than America, believes that the economy should serve society, and not the other way around. The differences between Europe and America is as wide as the ocean that separates them, and both have their advantages and disadvantages.
In America, the free market is king, which has led to massive amounts of wealth, low unemployment (around 5%) and strong growth in a flexible economy. Paradoxically, America also has huge amounts of poverty and social dislocation, disturbingly poor rates of health (including an infant mortality rate that is bettered by Cuba) and decaying public infrastructure.
Europe is the flip side of America. Europe (including the Euro area) has generally languished in economic growth, has less wealth and has around twice the unemployment (over 10% in many areas). Additionally, many European nations have large and growing public debt levels that need to be fixed. On the other hand, Europe has less social problems (even the recent riots and protests in France were quite sedate), admirably high educational levels and a health system that produces better outcomes for two-thirds of the cost of the American health system.
Since I describe myself as a market socialist, I accept both the importance of the free market in developing economic growth, as well as the importance of diverting resources for the public good. The best goal to aim for would be if Europe could somehow be able to maintain its superior social statistics while matching the US in economic performance.
The solution that I am suggesting is nothing new, but is rooted way back in the days when economists like Galbraith held sway.
The fact is, and I hate to admit it being the socialist that I am, that when minimum wage levels are lowered, the market has more chance of employing a person. This is the basis of the solution - reducing the minimum wage level.
Let's take a major European country with 10% unemployment - France. At present, France legislates their minimum wage at €7.61 per hour - which, according to today's exchange rates (US$1 buys €1.2579), is around US$9.57. When you consider the fact that the US minimum wage rate is set at $5.15 per hour, you can see how much harder it is for French businesses to employ staff.
But, of course, imagine if French politicians attempted to legislate a drop in the minimum wage to €4.10 per hour to match the American wage rate - the keywords here would be Bastille and Guillotine.
Moreover, while I certainly agree with the notion that a lower minimum wage level would decrease unemployment, it would also certainly cause that great American institution of "the working poor", ie people who live in abject poverty but who are fully employed at the same time. So what's the solution?
Easy - wage subsidies.
Such a solution may seem like something out of the socialist scrap book, and it is true that wage subsidies in the past have not been successful - mainly because they have been punitive and market distorting. My suggestion is different in that the wage subsidies would be universal - every working person would receive a subsidy. This is far different from subsidising certain industries or employment groups that socialist government have done in ages past since the effect of the subsidy would be felt equally throughout the economy.
So imagine this situation. The French government first legislates that the minimum wage be dropped from €7.61 per hour to €3.50 per hour (which would be lower than the US minimum wage level, US$4.40 per hour). Then it legislates that a universal wage subsidy be introduced at the same time, say €4.50 per hour. This means that the market would pay for labour at a nice low level, but the labour itself would actually be paid at a higher rate than before.
Of course, where would all that money come from? If the French government is going to spend all this money, it has to spend €4.50 per hour per person in the labour force, some 27.72 million people. The solution is simple - a flat income tax rise that produces revenue commensurate with the amount spent on the subsidy. A flat tax to pay for a universal wage subsidy may sound a bit radical, but the net effect would be positive for those on lower levels of income.
Such a subsidy/tax system is not new. A Pigovian Tax is what this system is based on.
I'm using France here as an example. I am unsure of what other European nations pay their workers but I am fairly certain that the levels are unrealistically high. While the specifics that I have given above cannot apply to places like Spain, Italy, Germany, Poland and others, the general principle - lowering the minimum wage below that of the United States, giving a universal wage subsidy that ensures low paid workers have enough money to live comfortably and having a flat income tax increase to pay for the subsidy - is what I am pushing here.
Opponents of such a scheme would point out that such a major government intervention in the economy would distort the natural workings of the marketplace. As the person who is proposing this scheme, I would certainly agree - it is distorting, but that is the point. If the market could, in fact, redistribute wealth in a way that ensures that there is both zero unemployment and zero poverty, then I have yet to see it. While I believe that the market is a powerful force, I do see its limits. The market is not god, and the actions of the marketplace will oftentimes hurt both society and itself by its behaviour. Only via careful intervention by the government can the poor and dispossessed enjoy the benefits the market brings.
For a similar model, see my article Zero Unemployment Economic System.
From the Osostrian School Department
© 2006 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/
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