Saturday, July 9, 2011

How does a fiscal stimulus work these days?

It seems logical in this time of high unemployment and increasing poverty to be talking about stimulating the economy; for the federal government to throw money into the general economy and let businesses and consumers take up the slack.

In my hometown in the 1950s a bit of extra money received by families would have improved the lives of many people. There were - at this time - plenty of resources from which to draw to expand the production of food and other commodities and services. (An energy shortage was a concept we didn't give a moments thought to.)

In the middle of the 20th century a large range of economic activity was locally based. The milkman three miles down the road (and the father of a family friend) delivered his product to the back door as did the local baker (my aunty and uncle). The wheat was grown in the paddocks surrounding the town and bread was baked in a small central shop in the main street and so were the pies and cakes we gobbled up for school lunch. The local butcher obtained his meat from grazing farmers just outside of the town boundary. Cuts of meat were prepared onsite, usually only few hours before the townsfolk purchased their weekly supply. My mother preserved many jars of fruit for the winter from fresh supplies of pears and peaches obtained from orchards in a nearby town. As I walked home from school I passed the local cordial factory and the enterprising neighbourhood bottle recycler. At the local picture theatre my sisters and I spent money in the intermission between the two movies at the owner-operated fish and chip shop.

At home, eggs were often purchased from a neighbour across the street.

Today, all but one of those small local businesses have disappeared. The bakery remains. The milkman, butcher, many farming graziers and local orchards have been replaced by the provision of pre-packaged food in a supermarket owned by investors that probably live in a different country. The products we buy are not made locally and their origin and quality is often impossible to trace. A fish and chip shop was replaced a few years ago by a McDonalds restaurant and the last picture show in the Sanger Street 'flicks' happened sometime in the late 1960s.

More money spent at one of Australia's oligopoly supermarket chains and at McDonalds would mostly flow straight out of the town and go to absentee investors somewhere else.

So how does a stimulus work these days?


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