Magic Puddings

I think this might have been the most sensible thing that Tony Abbott has ever said:

THE Howard Government came to believe in “magic pudding” economics of lower taxes and increased spending during its last years in office, Tony Abbott says.

No kidding, eh?

“The fact we could have lower taxes, higher spending and bigger surpluses for about five years – in other words, we could have a magic pudding – led some people to think that thrift, prudence, responsibility had somehow become irrelevant.”

Remember those ad’s about “equity mate”, and the comments from the former member for Bennelong that we “have never had it so good”?  Those times were built on the back of the commodity boom, and very little of the boom-money was spent on infrastructure.

By the way – where is Howard’s debt truck?

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44 Responses

  1. The problem was that all of the debt was shifted onto the individual even debt that should have been carried by the state and business. Everything that could be privatised was, resulting in mass debit and rising service costs for the individual consumer and mass profits for the same wealthy few.

  2. Well it’s taken a while, but agreed joni..Tony Abbott has finally said something sensible. Shame that he didn’t speak up, say about 5 years ago.

  3. Too busy with his underhanded “People for Honest Politics” group I reckon.

  4. I’d prefer a magic pudding to a sh*t sandwich any day.

  5. Now we’re talking Joni. And Abbott has just awoken to this fact? Stop on as well Kitty. It takes me back:

    Weekend talkback
    Tim Dunlop
    Friday, June 22, 2007 at 11:22am
    http://blogs.news.com.au/news/blogocracy/index.php/news/comments/weekend_talkback5/
    Talking about mediocrity posing as genius, JWH has me worried and more than a little concerned about his true understanding of economic reality. He keeps repeating the same dangerous mantra ‘interest rates are lower and people can borrow more.”

    Household debt hits record

    John Howard said the heavier debt burden reflected rising affluence.

    “It is the case that people are buying ever more expensive houses, and they are doing that because of a number of factors,” the Prime Minister said. “One of them is that interest rates are lower and people can borrow more.”

    Are more and more people getting sucked into a dangerous debt trap that could lead to financial ruin for many? Lets look at some of the alleged facts and the potential downside, as I see them:

    “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.”

    However, the Reserve Bank’s figures on household finances show that assets are rising faster than debt. Households now have assets, including housing, superannuation and other investments, that are equal to eight times their annual income.

    This is a capital gain over the past three years equivalent to 60 per cent of a full year’s income.

    It is not only housing debt that is rising. Margin lending to buy shares has soared 40 per cent over the past year to reach $30.2 billion in March.

    Credit card debt rose at its fastest rate in three years, increasing by 8 per cent to just under $40 billion.

    Remember the Commonwealth Bank ‘Equity Mate’ commercials? Housing prices were booming and the Commonwealth Bank were encouraging everyone to borrow against their growing equity. The message was: take on debt while interest rates are low and your capital gains are BOOMING

    My point, growth in assets measured by capital gains from rising market levels can create an illusion that people are indeed becoming wealthier until at least some of these markets actually correct themselves – which is likely to happen when interest rates increase. Take the recent surge of money being thrown into superannuation funds and the corresponding rise in stock market prices – excess money (sometimes often highly leveraged – refer margin lending) thrown limited markets tends to push price levels to new and unsustainable highs – this no doubt increases asset/equity growth and the belief that money is being used productively – but what happens when the bubble bursts? – as it surely will – Billions of investment gains will magically disappear.

    AND LENDING ON MARGIN TO INVEST IN STOCK MARKETS IS AN HISTORICALLY DANGEROUS THING TO DO – taking on debt in the hope of making a profit in an historically high stock market have brought ruin to many an investor in the past.

    Something to think about, maybe?
    John McPhilbin of NSW
    Fri 22 Jun 07 (12:46pm)

  6. Life is like a shit sandwich, the more dough you have the less shit you have to eat.

  7. We’ve all been left with the shit sandwich – taxpayers propping up magic pudding economics.

  8. Someone needs to have a whisper into big Mal’s good ear as well.

    Deficit is not a dirty word in time of crisis
    http://business.smh.com.au/business/deficit-is-not-a-dirty-word-in-time-of-crisis-20090403-9q77.html
    One of the most common criticisms of budget deficits is that they will leave future generations lumbered with a crippling load of debt. It’s an emotive claim that the Opposition has been peddling for months. Malcolm Turnbull’s howls of indignation have been particularly shrill.

  9. By God! I think we’re all on the same page again.

  10. Absolutely brilliant quote from Tim Dunlop. Thank you John McP for sussing this out for us.

  11. I’m actually glad that I fell asleep through all my economics lectures. I could have developed some really crap ideas.

  12. Nice trim cut & paste john – well done 😉

    Tax Cuts Turnbull has a weird belief that if you relieve the wealthy of their tax responsibilities then everybody is better off! Doesn’t want the poor people having any cash bonuses.

  13. Hey Min, it was my own comments I was quoting (wink). There’s no way I’m giving Dunlop the credit – still haven’t got my Mark Davis book “the Land of Plenty’, yet. Lol.

  14. But, trickle down economics DOES work, or so sayeth the link linked to from this link

    (I am starting to get link envy 😦 )

  15. kittylitter, on April 4th, 2009 at 2:23 pm Said:

    Nice trim cut & paste john – well done 😉

    Thanks Kitty, I was just thinking the same thing

    I’m having one of those rare days when I think to myself “F%&k I’m good” Lol

  16. Kitty..I don’t think that Turnbull actually believed it aka the filtering down effect. It was something about his eyes flickering to and fro, trying to make it sound as if it was something that he really believed it.

    Re John McPh..nice and trim..about time for a new avatar isn’t it John 🙂

  17. Seriously JQ, nothing beats J.K. Galbraiths..

    “Trickle down is the idea that if you feed the horse enough oats eventually some will pass through to the road for the sparrows.”

    Lol Brilliant!

  18. Oh No Min, There’s more bad news to come, however, it seems we’re starting to get a good handle on why it’s happening and what we can practically try to do to address it..

  19. John..a good handle is why Howard lost not only government, but lost his own seat. Rudd was elected re ‘what to do about it’.

    But can Rudd do anything about it minus popular support and there has been one heck of a lot lately trying to shoot big holes into this.

  20. Trickle-Down Economics: Four Reasons Why It Just Doesn’t Work (via contributor salient green from Tom R’s link)

    However, what this study does show is that any attempt to stimulate economic growth by cutting taxes for the rich will do nothing — it hasn’t worked over the past 50 years, so why would it work in the future?

  21. The simply fact will always remain that those with least are most likely to spend whilst those with the most are most likely to hoard.

    Spot on Kitty

    Min, the Rudd Government are doing all they can and since learning they’ve fast tracked afforadable housing as well, I can only support him and his government. Nobody has all the answers and I maintain that had Howard won the last election we’d be much worse of than we are now and are going to be. The Howard Government left us in a very vulnerable position.

    Mark Davis’s comments ring true

    Land of Plenty: guest post by Mark Davis
    http://blogs.news.com.au/news/blogocracy/index.php/news/comments/land_of_plenty_guest_post_by_mark_davis/41522/P40/

    Australia’s ‘age of prosperity’, as Peter Costello calls it in his memoirs, has been underwritten by the mining boom (even as manufactured exports stagnated during his tenure) and massive increases in household debt (now more than $1 trillion about the same as the annual national output), even as the government has wound down its own debt. The national debt has in effect been privatised while, at the same time, risk has been shifted away from government and business onto the shoulders of ordinary people, in the shape of long working hours, casualisation, and the sort of uncertainty that is written in the fact that Australians take the least holidays of any western nation.

    So much for the magic of markets.

  22. Finally the Monk blurts-out something that makes sense. He had to do it sooner or later.

    Some will say that this only goes to prove the old adage that an infinite number of monkeys, given an infinite number of computers and an infinite amount of time will eventually come-up with War&Peace (or, in this case, The Magic Pudding).

    Here, however, one monk(ey) managed it in a decade. Brilliant. Take a bow, Tony Abbott.

  23. Evan, on April 4th, 2009 at 2:59 pm Said:

    Finally the Monk blurts-out something that makes sense. He had to do it sooner or later.

    Some will say that this only goes to prove the old adage that an infinite number of monkeys, given an infinite number of computers and an infinite amount of time will eventually come-up with War&Peace (or, in this case, The Magic Pudding).

    Here, however, one monk(ey) managed it in a decade. Brilliant. Take a bow, Tony Abbott.

    He does deserve a banana for that, I agree Evan (Lol) Who’d have thunk that he’d break ranks with all the other monkeys though?

  24. Yairs. there’ll be a bit of bother in the old Primate Cage we call the Liberal Party tonite.

  25. He’s one courageous monkey alright. I’d back him against all others simply because he’s such a nasty monkey.

  26. Hi John McPh…just thinking..don’t Peter Costello’s memoirs sound a wee bit silly. Don’t you think? Phrases such as ‘Australia’s Age of Prosperity’…sound a bit odd now. And it’s within a very very short time span in the scheme of things.

    And now we have Abbott saying basically that his boss Howard was an idiot who got it all wrong.

  27. Well, he’s a battler, but don’t forget he’s up-against the current Aplha-male silverback, Malcolm.

    Whatever the outcome of that stoush, it will no-doubt be survival of the fittest, something consistent with the
    Social Darwinist principles that are all the rage inside the Cage.

    I just wish the lot of them would evolve.

  28. Ok..so what is Abbott’s motivation he isn’t a potential silverback and so who’s team is he on?

    Abbott has shot down in flames the Howard Years of the ‘magic pudding’..sooo he’s not on Costello’s team.

    Got it..We’re not the same team..it’s Turnbull.

  29. Min, on April 4th, 2009 at 3:09 pm Said:

    Hi John McPh…just thinking..don’t Peter Costello’s memoirs sound a wee bit silly. Don’t you think? Phrases such as ‘Australia’s Age of Prosperity’…sound a bit odd now. And it’s within a very very short time span in the scheme of things.

    And now we have Abbott saying basically that his boss Howard was an idiot who got it all wrong.

    Lol Exactly Min – This is giving me a stitch from laughing.

    Evan’s got them pegged when he says:

    but don’t forget he’s [Abbott] up-against the current Aplha-male silverback, Malcolm.

    Whatever the outcome of that stoush, it will no-doubt be survival of the fittest, something consistent with the
    Social Darwinist principles that are all the rage inside the Cage.

    I just wish the lot of them would evolve.

  30. John just posted. I recon’ – Abbott cannot be an alpha male (choke, choke), isn’t on Costello’s team due to running down the Magic Pudding Years. And so he is now backing Turnbull.

  31. You know, this quote of Howard’s about Australians never having had it so good gets trotted out over and over as some sort of testament to what a bastard he was. It was simply the truth economically. He was talking about unemployment and inflation, and yes, they had never before been simultaneously lower. He was right. Even the poorest of the poor were better than they had been before. FFS Australians need to get a bit of perspective. I don’t think he ever said that life was perfect. How do you measure “well off”? Is it a measurement of how you’re going against your neighbour, against Kerry Packer, or against how you were faring previously?

    As for the quote about debt in relation to equity, do people realise that in the same interview John Howard also stated “and I would take the opportunity of counselling people not to go too heavily into debt. I think some people do go too heavily into debt and I think some people do overgear themselves.” To me that reads a lot differently to “Gear up, Aussies, there’s plenty more where this came from”. Now given that it seems that Australia has entered this GFC thingie in the best regulatory shape of just about any nation, exactly what should the Coalition have done? And try to apply some political realism when answering this question.

  32. This monkey political analogy is habit-forming.

    The winner gets the females and territory the loser gets to groom the winner and pick-and-eat-nits from his neck.

    The public version of the pick-and-eat thing is called a press conference.

    Hasn’t anyone else noticed that whenever there’s a joint press conference called after a bit of political unpleasantnesss, the loser is always standing behind the winner with a fixed grin on his mug?

    That’s what he’s doing: Picking and eating. Thus the forced grin (they taste terrible).

  33. Re

    James of North Melbourne, on April 4th, 2009 at 3:27 pm Said:
    You know, this quote of Howard’s about Australians never having had it so good gets trotted out over and over as some sort of testament to what a bastard he was.

    James, it was a testament about how ignorant he was. Howard stated: You’ve never had it so good because you’re assets are now worth so much more.

    Sadly..he got it wrong..

  34. Min, you are mixing up quotes and therefore misrepresenting what he said. The reference to never having had it so good was to do with unemployment and inflation. He was not referring to home valuations, but living standards. And he was right. At the time, Australians HAD never had it so good. And in truth, for all the complaining, it’s not so bad now. 7% is not such a bad unemployment number historically. It’s not a great number, but it’s been an awful lot worse.

  35. James..t’aint the world of Google a wonderful thing.

    Moi: You’ve never had it so good because you’re assets are now worth so much more. James: you are mixing up quotes and therefore misrepresenting what he said

    From the SMH: http://www.news.com.au/dailytelegraph/story/0,22049,21948323-5001024,00.html

    John Howard said the heavier debt burden reflected rising affluence.

  36. Tom R, on April 4th, 2009 at 2:26 pm Said:

    But, trickle down economics DOES work, or so sayeth the link linked to from this link

    Well, I for one am still waiting for even a slow drip.

    John McPhilbin, on April 4th, 2009 at 2:14 pm Said:

    Someone needs to have a whisper into big Mal’s good ear as well.

    Deficit is not a dirty word in time of crisis
    http://business.smh.com.au/business/deficit-is-not-a-dirty-word-in-time-of-crisis-20090403-9q77.html
    One of the most common criticisms of budget deficits is that they will leave future generations lumbered with a crippling load of debt. It’s an emotive claim that the Opposition has been peddling for months. Malcolm Turnbull’s howls of indignation have been particularly shrill.

    John, one of the Tory opposition in Britain gave an impassioned dummy spit in the British Parliament over that very thing the other day.

    He was interviewed on Lateline last night and is one of the hand sitting brigade, also in favour of tax cuts during economic downturns. I don’t know whether Malvolio has been p*ssing in his ear or vice versa.

    However, all the hand-wringing about debt and our children and their children and their children etc etc seems a bit hyperbolic when Costello apparently paid off an alleged $96 billion debt in about 5 minutes, socked away $20 billion and handed out tax cuts and middle-class welfare like a drunken sailor in an economy going from recovery to booming in 11.5 years.

    I’d dispute the unemployment figures, James, since anyone working 1 hour a fortnight was classed as employed even though they would obviously be collecting the dole unless they were on an AIG executive’s hourly rate.

    Clearly, 1 hour’s employment/fn does not make anyone employed in a real sense, as they couldn’t possibly survive without a welfare payment.

    Min @3.35pm, spot on. Their assets were worth more, but their equity was low to zero because they’d borrowed so much money to acquire the assets and the majority were living within a bee’s what-not of financial ruin.

    We all remember the absolute panic the prospect of even a tiny increase in mortgage payments engendered in the aspirationals.

  37. And addendum from the above source:

    Credit card debt rose at its fastest rate in three years, increasing by 8 per cent to just under $40 billion…The data suggests that Australians are more confident about their ability to take on more debt, as well as meeting the greater servicing burden,” CommSec economist Martin Arnold said yesterday.

    “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.”

    Umm….

  38. More from Abbott:

    LIBERAL frontbencher Tony Abbott has admitted for the first time that the Coalition made a mistake by refusing to apologise to the Stolen Generations while in power, reversing his position and publicly contradicting John Howard.

    Does the road to Damascus run through Manly?

  39. Jane et al. I hung (hangded) onto this one since for ever. It’s worth a read.

    http://www.roymorgan.com/news/papers/2003/20030801/

    “It’s Time” for a Realistic Measure of Unemployment in Australia

  40. joni @4.47pm, I’m astonished at Abbott’s U turn. Pity he didn’t have this much spine when they were in government.

    The 2 comments horrified me, though. The second commenter’s IQ was obviously far lower than his/her arrogance, racism and stupidity quotient combined.

    Min @4.49pm, I knew I’d read an article on the subject at some time, but I didn’t realise it was so long ago.

    I don’t hold out much hope of honest unemployment figures from governments of either stripe, though, but that sort of dishonest fudging increased under the Rodent Regime.

    Can we hope that the present government will do something to address it? Sadly, I think not. The unemployed are too useful as whipping boys.

  41. Some of the latest figures Min

    More to joblessness than official estimate of unemployment
    http://www.cch.com.au/au/News/ShowNews.aspx?ID=30343&Type=F&TopicIDNews=9&CategoryIDNews=0&u_i=39595
    SYDNEY, March 27 AAP – The number officially unemployed is heading toward 600,000, but there are many more than that who are without jobs and want to work.

    Every year the Australian Bureau of Statistics (ABS) publishes its estimates of people of working age not in the labour force, or NILFs as they are known within the bureau.

    To know how someone would end up being tagged an NILF, you first have to know how the labour force is defined.

    It consists of the employed and the unemployed.

    So it may be something of a surprise to find that, as at September last year, there were no fewer than 1.54 million people 15 years and older who were jobless and wanting to work but who were not counted as unemployed, ABS figures released on Friday show.

    This was more than triple the number, 483,000, fitting the official definition of unemployed in September.

    Since then the global credit crunch has caused the labour market to deteriorate markedly, lifting the number unemployed by around 100,000, but the total – 590,500 after seasonal adjustment in March – will still be dwarfed by the number of jobless NILFs.

  42. And going by the official figures there’s been a singificant increase in the last 12 months.

    Short-term unemployment rate in Australia jumps by 45 per cent
    http://www.theaustralian.news.com.au/story/0,25197,25291237-12377,00.html
    THE number of short-term unemployed has risen by 45 per cent as the global financial crisis bites, figures show.
    Centrelink figures reveal the number of people who have been looking for work for less than 12 months jumped 45 per cent to 203,173 across Australia between September 2008 and February this year, the Sun Herald reports.

    According to the figures, a total of 576,888 short and long-term job seekers were now getting some form of income support, a rise of 17 per cent.

    In Sydney, leaps of more than 40 per cent in the short-term jobless rate in some suburbs, including Baulkham Hills, Chatswood, Ryde and Hornsby, point to new areas of disadvantage.

  43. Another positive step, this is getting too much (wink)

    Loan relief for sacked staff
    By Lisa Mayoh
    http://www.news.com.au/dailytelegraph/story/0,22049,25291190-5001021,00.html
    April 04, 2009 11:17pm

    PRIME Minister Kevin Rudd will on Sunday announce 12 months of mortgage relief for the unemployed.

    In an unprecedented move, Australia’s big-four banks have reached the landmark agreement to help prevent struggling families from losing their homes.

    Part of a comprehensive package of assistance for workers, the Commonwealth, National Australia, Westpac and ANZ banks will put a freeze on mortgage payments in hardship cases.

    Mr Rudd will announce the welcome relief at a community employment forum in Melbourne in front of 150 people, some of whom have recently been retrenched.

    In his speech, The Prime Minister says the stress of paying mortgage and car payments are “real bottom-line concerns around kitchen tables right across Australia”.

    “The immediate problem facing many families whose breadwinners have lost their jobs is the anxiety and fear that arises from, `How do I pay my mortgage, how do I pay off my car?” Mr Rudd says.

    “That’s why, some time ago, I asked the Treasurer to negotiate an agreement with Australia’s big-four banks on a comprehensive package of assistance to workers who lose their jobs.”

  44. John

    I have put up a new thread on the mortgage relief. I wonder how Malcolm Tumbleturn will try and spin this as being bad, because I am sure that the public will give this a thumbs up.

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