A response to this rather infuriating article:
Paul Sheehan has a rather glaring contradiction in his article on Monday, accusing “Comrade Rudd” of being a great illusionist. To claim on the one hand that the Prime Minister falsely represented himself as an economic conservative, but argue on the other hand that following Keynes’ General Theory is not economic conservatism appears somewhat contradictory.
Keynes’ ideas of macroeconomics had been largely displaced by Milton Friedman and the Chicago School of Business’ laissez-faire monetary approach since the 70s, so it seems that a return to older ideas would indeed conform to the ideas of conservatism in the field of economics. Applying the approach used to solve the Great Depression of the 1930s seems like the very model of conservatism.
It is also telling to read the full text of Niall Ferguson’s quasi-blog-post. Sheehan very selectively quotes from the source, which is primarily focused on proposing a solution for America and its banks.
Niall Ferguson’s article focuses on the fact that the US and UK governments are deeply indebted, along with their banks. He proposes that the US Government effectively seize American banks known to be holding large volumes of potentially bad debt, rewriting mortgages in more favourable terms for borrowers, and reprivatizing seized banks in 10 years. It’s an idea that is widely circulated, and has the backing of Paul Krugman, the Nobel Prize for Economics winner for 2008.
Does Sheehan expect that Kevin Rudd follow this example for the Australian banks? The solutions Sheehan hints at in Ferguson’s “solution” have nothing to do with Australia and the Government’s attempts to stimulate local demand, and would have Sheehan screaming about socialism by any other name. To imagine that these solutions could be brought about without increased government spending and debt is also fatuous.
Australian banks not affected to the extent of their international peers, for which regulation is but one factor, so Ferguson’s proposed solution is largely irrelevant to Australia, despite the allusions Mr Sheehan draws to solutions which “space precludes listing.” Ferguson’s contention that more debt is a problem, which Sheehan has latched onto, is only to set up the argument that the further debt should be targeted more directly at fixing bad loans in America. Paul Sheehan seems to have missed that part.
Caveat lector – let the reader beware – ought to proceed Sheehan’s article.