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Posted: September 21, 2006 Report from Europe I am presently working in the Netherlands at the University of Maastricht. A couple of things to report. First, the Dutch Government brought down its budget statement last Tuesday (third Tuesday in September as is the norm over here). In summary, a surplus of 0.2 per cent of GDP announced. Reactions were that it should have been higher. The Dutch Government is claiming it is about ... wait for it ... the demands that will be placed on it by the ageing population. Seems that this nonsense is influencing budget outcomes everywhere. I should note that the Dutch unemployment rate is rising, they have huge numbers of people sidelined into activity via disability support pensions and they have huge levels of underemployment via the disparate growth of part-time and casual work. Given those fundamentals the last thing the Government should be doing is running a surplus which is equivalent to a negative contribution to the growth of the economy.The strange thing is that there is an election coming up in November and this is being hailed as an "election budget". Go figure that one!! It just goes to show how far the general population have been conned by this nonsense about the equivalence between fiscal responsibility and budget surpluses. Budget surpluses rip liquidity of the private sector and constrain growth. They force the private sector to reduce their wealth holdings (other things equal) and consumption. If not, they force the private sector into increasing levels of indebtedness. We are now seeing the consequences of this in Australia with the record levels of debt being carried by households who are now in precarious positions approaching financial collapse. Further, as I have said many times, running surpluses now does nothing to increase the capacity of the government to provide for an ageing population in the future. The government is not financial constrained. The best thing it can do for the future is create the conditions whereby income and wealth generation are maximised (subject to environmental constraints). This ensures that the private sector can achieve maximum savings and provides the conditions for rapid technological development to find new cures etc for disease. The only constraint in the future will be real - that is, will their be enough resources available to meet all the varied demands of the population. This has always been the constraint. There will never be a financial constraint on the government buying any resources should they be available. What resources it decides to buy and make available (for example, medical care versus weapons) will always be a political issue rather than an economic one. Second comment to make is on local (Australian) news. The ABC news site reports that "Australia's second largest retailer Coles Myer has announced it is cutting 2,500 jobs ... The company says one-in-three head office support roles will be shed as part of the plan. The job losses were revealed this morning as the company announced a record net profit of $1.2 billion. The profit has been attributed to a $600 million profit on the sale of the Myer department store chain earlier this year, as well as a 14 per cent rise in earnings from its regular operations." Meanwhile, the share price of Coles Myer surged after its record net profit announcement. The ABC reports that "Shareholders will also receive a nine cent increase in the annual dividend to 42 cents per share." So the shareholders gain as the workers lose despite the workers generating record net profits (even if you take out the once-off sale of Myers). Priorities! Go figure number two! Blog entry posted by bill |