Parliament

Apparently the Parliament of Australia is keeping tabs on my work:

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;adv=;db=;group=;holdingType=;id=;orderBy=;page=;query=MajorSubjectId_Phrase%3A562;querytype=;rec=6;resCount=

Sad Reality

The Australian economy is on the brink of recession. The American economy has been in recession for the past twelve months. Politicians in Washington and Canberra are feverishly planning strategies to combat the looming depression. It may be easy to conflate the American experience with the Australian future, but there are distinct issues that differentiate each governments approach to solving the current credit crisis.

 

In the simplest terms, the current economic situation was caused by an over consumption of debt. After September 11^th, on the back of numerous rates cutes by the US federal reserve, millions of Americans binged on debt to build larger houses and buy bigger 4WDs. When the housing market took a slight decline, the house of cards collapsed upon itself with the domino effect of foreclosures, lower housing prices and increasing unemployment.

 

The American solution to the current recession is to ease "the log jam" in the credit markets. As US Treasury Secretary Henry Paulson so often says, "access to credit" is essential to allow the economy to grow. Yet, politicians in the Bush White House have forgotten that the current crisis was not caused by a lack of credit, but too much credit. How can a crisis created by debt truly be cured by more debt?

 

The American government is trying to restore access to debt, so that consumers and business alike will again live off their brother's back and consumer more than they earn. In George Bush's dream, if his bailouts works, consumers will again swipe their credit cards and take up large home loans. American Politicians are seeking to rebuild the house of cards, in the false hope that that a society built on debt will not collapse again.

 

The American response to the credit crisis is as logical as suggesting that the problem of domestic abuse can be stopped through more wife-beating. Fighting fire with fire will only see the world burn. Fighting debt with debt will only see individuals, families and companies selling tomorrow's bread to feed today's stomachs.

 

Contrast the American strategy of kick-starting their economy through debt with the Rudd Government's plan to bring massive infrastructure projects forward. Instead of relying upon consumers to spend more and indebted themselves, Australia is taking the logical solution and spurring job growth through productive contributions to the overall health of the nation. Through roads, bridges and public transport, we are building a fifteen billion dollar foundation to future growth. To see the returns on these investments may take decades, but growth and productivity will certainly proliferate from them.

 

Antithetically, if lowering interest rates and cheapening debt convinces American consumers to spend, they will quickly rise out of a recession. However, this will not be supported by productive growth, as in the Rudd strategy, but the charade of increasing indebtedness. Debt is the illicit drug of the modern economy: It takes individuals to great highs, consuming more than one could normally consume, but then drags one to greater lows, destroying today's future for yesterday's pleasure.

 

The foundation of the great society must, therefore, be in productive gains, slower growth and a stronger foundation, like those found in the Australian strategy. Bailouts and stimulus packages may treat today's symptoms and propel economies to higher highs. But any heroin addict will tell you, the higher the highs, the lower the lows. The American medicine of treating debt with debt will only create another bubble waiting to burst.

 

Aron Ping D'Souza is a doctoral candidate in the University of Melbourne.