Stephen Fyson The Spectator Australia 7 May 2023
Even before the Budget is given, we know it is false. That is because too much of the money on which it is based is false. And that is why any of the affirming smiles and cheers that are given to it offer a false hope. We are in a period of inflation for a number of reasons, but one of the overriding ones is the money we printed for so long during Covid. We paid people to not work, in huge amounts, for an extraordinary long time. Each week, we were printing dollars that were not linked to any increase in productivity – the money simply had no correspondence to any increase in making more products or delivering more service to people.
We must remember that money is just an agreed idea so that we do not have to engage in physical bartering – me giving you some eggs when you paint a room, for example. The idea of money only does its job when it has a link to real work – the making and giving of goods and services. When that link is weakened or broken, the worst policy is to generate more dollars that are likewise not representing increased productivity.
It is why inflation is so important to monetary policy. Put simply, inflation is the process that makes our money worth less over time – that is, each dollar buys less product or service. If our actions result in injecting more unconnected money into our society, we need more of it to buy the same amount. But if we get more of it without increasing goods and services, it continues to be worth less. That is the inflationary spiral our politicians want to avoid, but currently, their actions seem to be about hiding the real story with short-term feel-good hits to the pockets.
Inflation is one key reason why government spending on government cannot be too big. Some public servants produce a real service – think of those in hospitals, schools, and the police. In those instances, we pay for these real services through our taxes (the theory is that paying for them through taxes makes these essentials more universally accessible). But many of our public servants are administering ideological governance – too many of those work against productivity, because they slow down, inhibit or stop increases in the production of goods and services because they do not like the idea of those goods and services (rather than being concerned with real harm).
The self-imposed and market-distorting injection of billions of our dollars into alarmist environmental goods is another classic example of government-driven inflation. The reason that it is inflationary is that the price does not warrant the good. The subsidies represent spending our money on a good that does not and cannot deliver its worth.
If these alarmist energy producers could deliver something real to us consumers, we would willingly pay for it directly, not via taxes. It would provide what we really need – reliable and affordable energy. We would decide what was reasonable in how it was made and the price we were willing to pay for it. But no, this government spends our money in response to their unsubstantiated fearmongering, without an eye to the impact of how their unnecessary actions deflate the value of our money.
Then, dramatically, they trumpet how they are being so helpful towards those who are struggling. One example of this is how they constantly push for higher salaries without emphasising the need for increased goods and service delivery to go with it. When people are forced to pay someone more money for the same level of productivity, they are contributing to making our money worth less.
More ironically, to the point of perversity, the only reason our current leaders have survived this far is the taxes from the energy sources other nations buy from us, which we are not allowed to use here!
A more realistic understanding of inflation also explains why the simultaneous goals of full employment and low inflation do not make sense, unless those wanting full employment all the time are willing to sometimes recommend that people work for less pay. Only working for less pay will see the value of the dollar increase when in significant inflation. I remember this being dramatically demonstrated in the recession period of the 1980s. Steelworkers at one site were offered two choices: giving up their overtime (thus individually earning less but keeping more of their fellow workers with a manageable income), or the company implementing redundancy (thus increasing unemployment). I remember helping the ‘soup kitchens’ of the day to support the growing number of people looking for help with food, while their ’mates’ kept their overtime.
One of my grandsons has a laminated 100 million ZWD (Zimbabwean Dollar) note. That is what uncontrolled inflation can look like. That country has wonderful resources. It also has leaders who cannot be trusted (in many ways) because they will not support money being linked to real productivity. Instead, they run dicey money trails based on their clan-oriented relationships. Supplying a good or service and having a return in money relies on trust that you will get your just deserts. But how can that happen when political allies are more important than honest transactions? Similarly, we need to ask if our current government is running its policies with union-based clans in mind.
That is why the lament of some leaders in Australia is so false. The only response to their protestations is to laugh or cry, or both. They will bemoan the ‘supply issues’, the ‘war in Europe’, and ‘the unprecedented virus’ and will again promise to bring relief to the most vulnerable. But the hope they share is unreal.
Their moaning does nothing to give assurance that their priorities are based in reality. For example, states sitting on gas reserves allow their citizenry to suffer while claiming ‘the end of the world is near’! Why aren’t they confronted daily with alternative assessments, such as by Dr Steven E Koonin (former undersecretary of science for the US Department of Energy), who wrote: ‘The uncertainties in modelling of both climate change and the consequences of future greenhouse emissions make it impossible today to provide reliable, quantitative statements about relative risks and consequences and benefits of rising greenhouse gases to the Earth system as a whole, let alone to specific regions of the planet.’
Politicians rob us and then strut their charity in how they supposedly help us in our need, which is caused by their thievery. And so, we are left with false government investment that generates false money, leading to false budgets that bring false hope.
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