OK - re the stupid stimulus efforts by Labor - my view expanded:
Think of the Stimulus as Economic Nutrition. You, as an economy, can buy Coke, Chips and Chocolate or Meat, Potato and 3 veg. You'll get a feed with your money and your blood sugar will rise, avoiding a crash, but there is a big difference to what happens after.
The 40 Billion in payments was an economic sugar hit. It avoided a crash but to what ends and at what cost? The lost opportunity makes me cry blood. They wanted to protect jobs and stimulate the economy right? Most people are employed in SME's. When they have jobs, when business is confident, they keep spending. The staff buy consumer goods but business also spends on itself - on IT, equipment, staff, new projects, r&d etc. I am not talking about investments in Australian Equities. I'm saying that if the money was meant to be a STIMULUS, why not stimulate a part of the economy that might KEEP stimulating. There are no performance requirements or required rates of return - its a STIMULUS.
Imagine if that 40 BILLION had been allocated as early stage Venture Capital for SME expansion and new business startups. The VC model sort of works on the basis that out of 10 investments half will sink after a period of time (during which they spend money on staff, equipment, marketing, rent, r&d etc - WIN), some keep bubbling along as small but unspectacular businesses and one or two will take off in a big way. Lets say even HALF of it was allocated this way and $20,000,000,000 was still handed out like so much candy, just reduce the $900 odd dollars to a bit less than $500 - still a nice hand-out right? But now we have a 20 BILLION dollar fund going to SME's and Start-ups and no expectation or requirement for it to even be that carefully handled (it's a stimulus after all - the point id for it to be spent), as long as it is spent on approved things (like non-owner related staff, plant and equipment, tooling, manufacturing, marketing, business and strategic plans etc and not on a new Ferrari for the owner) - and it needs to be spent within a certain period of time.
Lets say it's 1 in 10 go Big and only 2 in 10 bubble along, with the rest failing after 2 years on average but having put money and liquidity into the market and employed people during that time. That is a worse than historical scenario. Fact is out of these 7 Duds, a couple will get snapped up by competitors or re-birthed and will still provide value in the economy even if their entities crumble. How many Rippers and how many Good businesses would we now have in place of the nothing, the sugar withdrawals, we have instead?
If you start out with a potential allocation of $1,000,000 per business (no guarantee they'll get it all, and it gets dropped in with tranches) so you can allocate follow on funds and really accelerate them hard and do it in tranches so if they falter you can pull back and re-allocate those funds to better prospects, some get 1.5 mill, some get $500k - but all in relatively short order you have just launched or dramatically changed 20,000 businesses. TWENTY THOUSAND.
10 percent of them will go gangbusters - 2,000 new or dramatically larger businesses going nuts - new markets, new products, new technology, new staff new exports, new opportunities.
You also have 4000 businesses doing pretty well but not as spectacularly as the stars.
And for a couple of years, 14,000 other businesses did not sack anyone, tried hard to expand, tried new things and kept the economy moving. Some of those will have been start-ups and they will have disappeared. Some will have been existing businesses that just don't get any bigger, but they are still here when otherwise they might not have been or would have contracted - so even at this level there have been lasting as well as immediate benefits for the economy. Plus, some of these businesses that went pop still made something useful, it just got sucked into some other business because it wasn't a business in it's own right, maybe just a great product. That activity is probably still having a lingering positive effect.
So there you have it. It all could have been managed by existing institutional VC firms and government commercialization and grant bodies and what we would now have would be vastly different to the dead cat bounce we ended up with.
It is such a missed opportunity. Makes me want to throw up on my shoes.
It's not fly-by-nighters popping up to claim Insulation Grant money, or throwing $1Mill at every man woman and child. Early Stage Venture Capital and the model for rapid, tranche based investments in fast growth companies is well established. Frankly, if you allocated 10 Billion to companies at a maximum investment of $500,000 in 3 tranches and allocated any unused portion (not all companies will get all of the $500k) plus the other 10 Billion as a Follow-On Fund for those in the first round that can justify and utilise it that would actually WORK better, but this is as much about the stimulus of spending the payments as it is about the end result. You can get the 1:2:7 ratio I mentioned with well aimed shots at a Dartboard, and getting the funds out there quickly is important. It wouldn't be getting thrown at mum and dad type corner stores, hair salons and such anyway. Think of the types of businesses that are in Technology Incubators around the country right now, alternative energy companies trying to fund r&d, all of the sme's engaged with State Government commercialisation programs already, those applying for limited, competitive grants, and those out there with turnovers around 2 to 5 million that need capital to expand and grab new opportunities.
$900 to single mums and low income earners to buy crap or $500 to them and a 20 BILLION Dollar investment in early stage and fast growth SME's.
