return to letters list

Keynesian ghost haunts Europe
letter published in The Australian Financial Review, 15 November 2011

Your reports of government policy failures in Europe indicate that official forecasts of growth in 2012 have dropped to 0.5 per cent at a time when excessive government debt in almost all countries is forcing budget deficits to be cut.

Ironically, the large increase in government debt to GDP ratios since 2008, in both Europe and the US, is importantly due to the Keynesian policies adopted at the G20 meeting in February 2009.

The continued poor growth performance since, despite such policies, suggests the fiscal interventionism in 2009 was inappropriate when debt to GDP ratios were already above or close to the official 60 per cent limit. They also surely suggest the urgent need, not for policies that add to external financing from the likes of the IMF, but policies most likely to increase activity initiated in the private sector.

An analysis of private debt ratios would likely add to questions about the desirability of such fiscal interventionism and external bail-outs. Far too little attention has been given to possible limits to such ratios and the apparent reluctance of central banks to have regard to them as well as to inflation.

Australia’s participation in the G20 Keynesianism schemozzle in 2009 also apparently added little if anything even to our short term growth and, thanks to the low base inherited by the government, did not raise our government debt ratio to dangerous levels.

Even so, given Australia’s prospective mining investment it is important that in his address of 9 November Treasury secretary Parkinson endorsed the need to cut government net debt as “the immediate focus”.

Des Moore
Director, Institute for Private Enterprise
South Yarra Vic

return to letters list