When Opposition Leader Tony Abbott talks about Labor's inability to manage the finances of this country because of their poor credentials who are you going to trust - Tony Abbott or a Nobel Prize-winning economist?
Will you trust Professor Joseph Stiglitz, the former chief economist of the World Bank whose theories and research won him a Nobel Prize or Tony Abbott?
He gave the UQ Centenary Oration on Monday at the University of Queensland.
Professor Stiglitz told a packed UQ Centre that Australia's economic stimulus package was the best designed in the world.
AND he said natural resources - coal, iron ore - should be properly valued at market just like the electromagnetic spectrum.
The government auctions the spectrum to the highest bidders who want to operate mobile phone networks, cable companies, television and radio stations.
Basically, a country - like Australia - will end up poor if doesn't get the best price for its assets - and natural assets are not renewable, once they are gone they are gone. If the proceeds from the sale of these assets are not invested in infrastructure to support and grow other sectors the economy (manufacturing and value-adding, goods creation) then a country and it's people will not prosper - HELLO! HELLO! Drowning not waving.
"It should be subtracted from Gross Domestic Product (GDP)," he said. "You are selling off assets at a very low price if you don't have adequate taxes on mining - you are being cheated," he said to audience applause.
He thinks resources should be auctioned off to the highest bidder - the free market at work. Of course, the mining industry will make all kinds of threats.
To everyone's amusement he joked about how mining companies bamboozled, threatened and bribed governments of developing, fragile nations.
"I assume that's not the case in Australia," he mused.
To prosper, a country needs to set up a stabilization fund (from a mining tax, if not a resources auction) for nation building.
This is what he calls an investment fund for building infrastructure and to grow value-adding industries, maintain education, job creation.
Not only that but the sell-off of natural resources should appear on a country's accounts as a kind of depreciation of assets - otherwise the accounts are not accurate.
((This kind of faulty accounting by banks led to the lovely GFC - Global Financial Crisis.))
He made these comments at the end of the oration after he explained the difference between the financial sector and the economy - the economy is not the financial sector.
The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
He said the bubble was not real - the imbalance is reality.
And no government is doing very much to redress this problem - the big bailout of banks in the USA basically allowed these culprits to continue "business as usual" by transferring something like $$US4 Trillion dollars of bad debt to the public sector. He's actually amazed at the fact that these guys - the bankers and the regulators (who don't really believe in regulation) - aren't even embarrassed. They didn't use the bailout money to extend credit to the struggling economy, to grow (or save) businesses and jobs. No. They just padded their own bottom lines. It's one of the reasons why, he says, the global economy is going to be staggering around for a long time to come yet.
The solution? Proper regulation.
The only time there has been any economic stability in the world economy is in the three decades after the Great Depression which heralded good banking regulation - perhaps this is why Baby Boomers have been able to thrive and prosper and pass on well-honed consumption patterns to their offspring. ;)
However, back to the oration.
Professor Stiglitz said that the deregulation started by Thatcher in the UK and Regan in the US basically led us to what we enjoy today - a free market in free fall, an overbloated financial sector, a stumbling economy, people borrowing more than 100 percent of their income to buy overpriced houses, bankers believing they could turn F-rated mortgages into secure A-rated assets worthy of being in the portfolios of pension funds.
Part of the solution is investing in clean new industries and addressing poverty so that more people get jobs and pay taxes and have money to spend to boost the economy - because consumption is key to recovery. He's not a socialist but his research blows apart the idea that the "invisible hand" of self-interest in a free market free of regulation will address imbalances. The GFC proved this again, he said. (Are you listening Tony Abbott?)
He talks about quite simple economic principles which somehow seem to have been covered over by people shoveling shit - sorry those are my words, not his.
And as for Climate Change and the price of carbon and waiting for the rest of the world before we do anything?
Economies are not restructuring because there is no carbon price. The western world worries about the growing and changing consumption patterns of China and India.
Professor Stiglitz doesn't believe the West should begrudge them at all.
It's not consumption that's evil - it's profligacy. WASTE! Now, I wonder who wastes more the West or countries raising people out of poverty?
India and China will follow the wasteful ways of the West if the world fails to set a carbon price and force everyone to consume less to save the planet - the planet will force us to change in the end (*he says).
"If we had agreed to have a price on carbon at Copenhagen that would have been the answer," he said. "It would have provided an increase in global aggregate demand (global economic spending) as firms all over the world needed to retrofit (their business to meet pollution standards)."