Interest rates or surplus at the heart of the economic problem?
For two weeks before the Federal budget, the commentariat focused on the Reserve Bankâ€™s misreading of the economic entrails arguing that it has overestimated the rate of inflation which was occurring and hence kept interest rates too high.
When we have a two-speed economy with a mining boom in the north and west and virtual stagnation in the manufacturing and services that dominate the south and east, it is very difficult to use a single lever, bank rate, to influence its behaviour.
The Bank may have overestimated the rate of inflation, though the underlying rate it is still within their preferred range, but high interest rates, in international comparison, is not the sole or even the primary cause of the current malaise.
It is equally likely that the federal and Victorian governmentâ€™s shared obsession in returning their budgets to surplus in the next financial year has already had an impact, even before the significant cuts they are going make to their spending to do so.
The deflationary impact of public spending cuts is likely to kill what little optimism was beginning to surface with the prospect of interest rate reductions.
The international evidence is accumulating that the austerity measures adopted in Greece, Spain, Ireland, Portugal and other European countries are causing their economies to contract.
There is little sign of the promised restoration of confidence which is supposed to be a precondition for renewed, sustainable growth.
Why should Australia be different?
Unemployment is over 5 per cent and likely to rise judging by the sackings which have already occurred and the others which are in prospect.
No doubt both Western Australia and Queensland are going to continue to have shortages of skilled workers for their mining and energy projects, but these are capital rather than labour-intensive industries.
Their ancillary and support industries and suppliers are often overseas so the multiplier effect of their investment may not all translate into more domestic Australian jobs.
The mining boom has helped sustain the Australian dollar, though it has come back from the highs it reached a few months ago.
Australiaâ€™s terms of trade have been very much in our favour and imports have seldom been cheaper.
But this has put real pressure on our domestic manufacturing and though this will provoke change and possibly a resilient response in time, the immediate impact may well be a rise in unemployment.
So it is inaccurate to focus on the Reserve Bank and interest rate settings as the main cause of current difficulties.
There is no doubt that a reduction in rates is called for and that the protected major banks need to pass this on in full, rather than squealing about the rising cost of borrowing overseas.
They continue to say that they are not making an outrageous return on the capital they employ, but their absolute profits, which are underpinned by the security they have under current policies, are rightly regarded as obscene.
If they really want to sustain their future profitability and success they should bear some of the pain which has fallen on other sectors of the economy in the short run.
Finally, there is a sense in which we are all responsible for some of the current problems.
Before the global financial crisis we were all spending and borrowing for finance spending and investment well beyond our means.
Now our savings habits have changed and we are collectively rebuilding our reserves.
That means less consumption spending and hence less employment in the sectors affected by lower levels of demand.
While a return to the pre-GFC pattern is not called for, it would help the overall economy if we loosened the purse-strings a little.