How bad is it when the Treasurer of the nation fails a test in basic national accounts (the material that is covered in Macroeconomics 101)? And how bad is it when he also reveals a fundamental ignorance of the basic operations of the monetary system? When the Senate moved to block the luxury car tax yesterday, the Treasurer Wayne Swan was quoted (see http://www.abc.net.au/news/stories/2008/09/04/2354836.htm) as follows: “If the surplus is raided to a significant extent that will be on the head of Mr Turnbull and the Liberal Party, who are clearly saying that into the future, they prefer a higher level of interest rates than we otherwise might have”. In fact, if he had even the remotest understanding of the way the modern monetary economy works he would know that surpluses put upward pressure on interest rates, other thing equal, while deficits put downward pressure.
The economy is now slowing fast because the Treasurer persists in running surpluses while at the same time the unelected and unaccountable central bank has been scorching expenditure with the sequence of interest rate rises. The problem is that monetary policy is so blunt and indiscriminate that: (a) you only find out that things are bad when it is too late; and (b) the poor are the worst hit.
Another term for macro policy in Australia over the last decade or more is economic vandalism. We have had all this growth yet labour underutilisation remains close to double figures and we are now about to see official unemployment increase quickly.