Worst economics reasoning ever!

[costargh]

Lift pensions and stimulate the economy says Australia Institute
October 12, 2008 - 2:20PM

Aged pensions should be increased to help struggling pensioners and provide an immediate economic stimulus at a time of global financial turmoil, a new study says.

The paper, released today by the left-leaning Australia Institute, says pensioners spend all their income with little vanishing abroad on imported cars or foreign holidays.

Authors, AI executive director Richard Dennis and researcher Josh Fear, said raising pensions would provide immediate economic stimulus, unlike major infrastructure projects which could take years.

They said there was a compelling case for improving the plight of pensioners, which was accepted by the vast majority of Australians and most political leaders.

"The current economic situation provides an additional reason to increase the pension immediately as it would provide a simple and effective mechanism to stimulate the Australian economy," they said.

Dr Dennis and Mr Fear said the use of monetary policy to stimulate the economy was constrained by the refusal of banks to pass on the full benefit of last week's 100 basis point official cash rate cut.

Non-bank lenders also faced difficulties in securing funds.

The government was also constrained from using more conventional fiscal policy measures such as tax cuts and infrastructure spending.

The government announced $30 billion worth of tax cuts last year, while infrastructure spending involved significant time lags.

"Given that the pension will need to be lifted eventually, it makes good macroeconomic sense to lift it now," they said.

The government has resisted calls for immediate pension increases, saying a review is considering all pensions in the context of the next budget.

But the opposition has proposed an immediate $30 rise with Opposition treasury spokesman Julie Bishop saying today that would help pensioners and stimulate the economy.

An AI survey shows public support for an aged pension increase. Of 1,000 survey respondents, 81 per cent agreed the pension should be increased.

Most said they would be willing to pay more tax in order to increase pensions.

Dr Dennis said the most surprising finding was that the wealthiest were more likely to think that the aged pension of $281 was enough to live on.

"While 56 per cent of Australians living in households with incomes of less than $40,000 per year were willing to pay higher taxes to fund an increase in the aged pension, only 34 per cent of those with household incomes above $150,000 agreed," he said.

http://www.theage.com.au/national/lift-pensions-and-stimulate-the-economy-says-australia-institute-20081012-4yzg.html

[Collin Li]

This sort of Keynesian economic thinking will only serve to increase inflation. We have a choice of experiencing both a deflation and correction, or "surviving" the depression by entering into a bout of horrible inflation.

[costargh]

An AI survey shows public support for an aged pension increase. Of 1,000 survey respondents, 81 per cent agreed the pension should be increased.

Most said they would be willing to pay more tax in order to increase pensions.

I find this most interesting. Donations?

[brendan]

Wasn't it just like a few months ago that policy makers were trying to restrain aggregate demand.

[ReVeL]

An AI survey shows public support for an aged pension increase. Of 1,000 survey respondents, 81 per cent agreed the pension should be increased.

Most said they would be willing to pay more tax in order to increase pensions.

I find this most interesting. Donations?

No thank you?

Yeah, I also find it hard to believe 81% surveyed would pay more tax to increase pension.

They probably surveyed 55 year olds who are about to retire.