Tuesday, 23 February 2010

How Australia’s Stimulus Destroyed 77,000 Manufacturing Jobs [updated]

by Kris Sayce

If it was possible for a market to whistle without a care in the world that’s exactly what it would be doing right now…

Greece on the verge of default – [whistle].

China trying to engineer a soft economic landing – [whistle].

US Federal Reserve increasing interest rates – [whistle].

Australian property bubble bubbling – [whistle].

Millions of your taxpayer dollars wasted on home insulation stimulus – [whistle].

But funnily enough, it’s the mainstream response to the last one that baffles us the most.

After four insulation installers have been killed – and doubtless tens or hundreds of others have been injured – and at least 87 fires have resulted from the installations, Environment Minister Peter Garrett has abandoned the scheme.

Of course, already, billions of taxpayer dollars have been spent on this monumental waste of money.

But here’s the thing we don’t get. At the time all these whacky schemes were announced, the mainstream told you that it was necessary to spend money because spending money was good for the economy.

You remember that don’t you?

Well, if spending money is good for the economy, then surely the disastrous outcome of the housing insulation scheme is an unexpected boost for the economy.

Because if simply spending money is good, then surely spending more money is even better.

The government now has to fork out hundreds of millions of dollars more to arrange for inspectors to make sure the work on at least 48,000 properties has been done properly.

Doubtless it hasn’t – hence the four deaths – so those inspectors will need to arrange for the work to be fixed up. That will cost more money.

Then we’re sure that just to be on the safe side, the government will send inspectors out again to make sure the fix-ups are safe – there’s even more taxpayer dollars spent.

According to the lame thinking of the mainstream that should all equal a boost to the economy, as more taxpayers dollars are spent.

Not surprisingly, the mainstream press haven’t mentioned any of this. Either because they’re too thick to work it out, or because they realise how illogical the idea of stimulus spending is, but they don’t want to admit it. After all, spending other people’s money is fun!
Aside from the wasteful spending, the 6,000 job losses suffered in the home insulation sector is another perfect example of how the misallocation of resources can permanently damage the economy.

As Paul Howes, national secretary of the Australian Workers Union points out, “77,000 jobs went in manufacturing, and the knock-on of that will be felt for years and decades ahead as factories were shut that will never re-open.”

Of course, what Mr. Howes fails to point out is that it’s the unions that help to ensure there are job losses. Their push for higher minimum wages guarantees that Australian businesses will either go bust or have to ship the work offshore.

And he doesn’t mention the millions of other manufacturing jobs that have vanished over the years thanks to the trade union movement.
But here’s the bigger problem. All the excitement about the stimulus programmes ‘creating’ new jobs masks the fact that those jobs which didn’t benefit from direct stimulus spending – such as manufacturing – lost jobs.

Not only that, but once a factory has closed down, as Mr. Howes correctly points out, they “will never re-open.”

If it was uneconomical to maintain a manufacturing business, it will be ten-times more uneconomical to try and re-start one from scratch.
Yet, all those jobs that were ‘created’ by the government to install insulation, what’s happened to them? Oh, that’s right, the programme has been cancelled. So the billions of dollars spent on ‘creating’ jobs have not only destroyed 77,000 manufacturing jobs, but it’s not even benefited the industries that were supposed to gain.

As we wrote a year ago on 4th February 2009:

“The government economic stimulus package will have no positive impact on the broader economy whatsoever. None.”

Yet again we’ve been proved right, and the mainstream press proved wrong.

At the time we also quoted some of the shrill headlines from the mainstream press:

“Rudd throws $42bn at economy” – Australian Financial Review
“Schoolyard blitz to avoid recession” – AFR
“We’re all in this together: except Turnbull” – AFR
“Rudd and the Reserve free up billions to beat recession” – The Age
“Rudd splashes the cash” – The Age

Every last one of them cheering for the government to spend your money to save the economy. Not a single journo was capable of expending one brain cell to figure out what the terrible consequences for the Australian economy would be.

An economy that believes the best solution to national wealth is to build, and then buy and sell houses between each other.
But there’s the consequence for you. One industry gets a bunch of stolen taxpayer money to keep prices sky-high and the credit bubble growing. The other industry gets swamped and ravaged by trade unions and minimum wage legislation which forces it to close down forever.

The upshot is the Australian economy hasn’t benefited one jot from the billions spent in the stimulus programme. All it’s done is allocated resources to prevent a bubble from popping – for now – and ensure thousands of people have received training for an industry that can’t possibly sustain them without the presence of taxpayer money.

Because if it could, then they wouldn’t need the stimulus to begin with – it’s not rocket science.

Despite the complete failure of stimulus spending we’ve little doubt the spin doctors will continue to call for more taxpayer dollars to be thrown at the economy – especially the housing sector.

And as long as that happens then we’ll continue to see headlines such as this:

“Housing debt in overdrive”News Ltd

According to journalist Anthony Keane, “Total housing debt is set to reach $1 trillion within a year. The figure itself is not a worry, but there is concern the pace of borrowing is exceeding household income growth.”

“Not a worry”! Is he mad?

Nearly $1 trillion isn’t a worry? Oh Lordy. We’ve heard it all now.

Says Art Carden:

    “I'm reminded of other ventures that create "prosperity," such as when rural Chinese peasants were melting down useful pots, pans, tools, and doorknobs to meet iron and steel production quotas under Chairman Mao (of course, most of the metal they ultimately produced was worthless) and when Hurricane Katrina created prosperity by wrecking New Orleans.”


  1. While I agree that government intervention usually results in a significant deadweight loss for the economy and wasteful spending, the case for abandoning the insulation scheme is overstated here.

    Firstly, extra inspections are not the most onerous of burdens here, and I'm sure that the costs of the government inspection and the refitting of insulation are borne by the company that installed the installation, and only initially by the taxpayer.

    Secondly, there is a significant positive from home insulation subsidies that the author has forgotten about- that taxpayer healthcare costs for those living in these now warm and dry homes will significantly decrease, and thus worker productivity will also rise due to less sick days for them and their vulnerable children.

    This sort of common-sense approach to increasing healthcare outcomes for a population is long overdue in NZ society, where the MOH will frequently reach for the low-hanging fruit of an ineffective $200 million MeNZB vaccination program, rather than do the hard yards by getting these kids into warm and dry homes which would actually do some good. I think the good at least cancels out the bad here.

  2. Absolute rubbish.

    I'm with Krugman on this, cause him and Bernake were so accurate about explaining the causes of the financial crisis.

    We need to spend as much as possible as quickly as possible.

    The only way to fix a credit boom-bust is to suck up hoards more credit.

    Lets completely rebuild a major city, like Auckland.

    First level it, then build it again.

    Think of the 10s of thousands of jobs that will create!

    Think of all the infrastructure benefits!

  3. It is arrant nonsense to suggest that forcing the taxpyer to insulate NZ houses has more than an infinitesimal effect on healthcare costs, however this is always used to justify throwing hundreds of millions of dollars at someone's pet rort. If it was actually true, they could take the money out of the health budget.

  4. Johnnieboy

    Did you read the NZ Herald this morning? Seems there was a feature about an businessman whose company is getting put out of business by the national socialist government of Reichfuhrer Key. It turns out that the NZ Nazi Party is subsidising that businessman's commerical opposition. The opposition companies can cut their prices well below his, as the govt bails them out no matter how inefficient or poorly run they may be. So far the businessman has had to lay off two staff...

    When he closes the door he won't be back to start again.

    And when the present banal cabal of govt MPs get the sack and a replacement pack of half-breeds swaps places with them (say in around 4-5 years time), then the subsidy will likely be removed. After all that money will be required for schemes that benefit a different cohort of well connected cronies and chums. At that point the Nazi subsidised outfits, presently ascendent, will fall over.

    What a complete fuck up! And the tax payer gets to pay for all the waste.

    Common sense? Common imbecility more like.

    Anyway, the point here is that you don't get the point.


  5. Wille

    For just a moment I almost believed you!


  6. The perfect storm is building.

    Remember the story of the three little pigs? Some PIGS houses are going to be blown in.



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