Gillard’s analogy; or Economics by Dummies

The Prime Minister has come up with an economics lesson for all of us with her “Economic to Per Capita Reform Agenda,” in which she attempts to exonerate the government from its woeful record on the economy. 

In it, we learn that the problem is not that the government has spent too much, but that there is a revenue shortfall.  To anyone reading much political news from America, this argument will seem vaguely familiar.

For those she refers to in the speech as “economic simpletons and sloganeers,” she has come up with a charming analogy explaining slowly, and in simple terms for us Labor’s idea of home economics, to show why we shouldn’t cut spending. 

In the analogy, we meet wage earner, John, employed in the same job throughout the last 20 years.  During the latter part of the Howard years, his boss gives him big bonuses that he knows wont last.  The boss stops the bonuses but promises a 5% wage rise each year on which he bases his financial plans.  He is then told he won’t get the increases for the next few years but his income will get back up after that to where he was promised it would be.

Then Julia explains: 

What is John’s rational reaction? 

To respond to this temporary loss of income by selling his home and car, dropping his private health insurance, replacing every second evening meal with two-minute noodles. 

Of course not. 

A rational response would be to make some responsible savings, to engage in some moderate borrowing, to get through to the time of higher income with his family and lifestyle intact and then to use the higher income to pay off the extra borrowing undertaken in the lean years.

It is reasonable to assume that ‘John’ works in the Treasury Department not to figure out that with the breach of every promise the boss makes, the latest one will most likely not be honored.  It would be great to be a fly on the wall when he meets with his bank manager and tells him that in spite of the history of broken promises, this time it is real and he just needs a loan to finance his lifestyle, until the boss’s latest promise comes to fruition.

He really must work in Treasury; only a central banker would consider such a proposition rational.

It is hoped that nobody follows Gillard’s advice here, but at least it gives us some concept of Labor thinking.