A worsening of the economic conditions here and overseas dictates that the federal government must chart a new course on economic policy.
In a severe shock to the global financial system, the US last week was subject to its first credit rating downgrade in history.
This is more than a symbolic blow, as it will force the fiscally beleaguered US government to pay higher interest rates on its $US14 trillion ($13.4 trillion) debt.
Even before this mark of reduced economic confidence by credit ratings agency Standard & Poor's, the US sharemarket had been in a tailspin.
This is because investors in US shares had already reacted harshly to the insipid political deal on the US debt ceiling, allowing the Obama administration to continue mortgaging the future while cutting projected, but not actual, spending.
As Julia Gillard and Wayne Swan have rightly indicated, Australia is not immune to adverse international economic events.
Just last week, $100 billion was wiped off the value of Australian shares on the back of the developments in the US.
Our sharemarket meltdown has meant an instantaneous reduction in wealth for retail shareholders, not to mention all of us with superannuation funds tied up in shares.
Despite the hoopla from the Prime Minister and the Treasurer that the Australian economy is doing fine, Australia is in a worse position now than before the last global financial crisis.
Gross domestic product per head of population has declined over the past 12 months, compounding the innate sense of growing hardship felt by many Australians.
The Reserve Bank of Australia has cut its growth forecast this year by a full percentage point, while inflation is now expected to exceed its target range of between 2 and 3 per cent.
National labour productivity has been in freefall over the past few years, spelling growth problems ahead if economic reform is not enacted soon.
The economic bad news continued last week, with news that retail spending figures were at their lowest levels in 50 years, another sign that consumers are tightening their belts in expectation of worse to come.
The decision to imitate the economic sick nations of Europe and the US by introducing fiscal stimulus in 2008-09 still haunts the federal government, in the form of a budget deficit and $107bn of net debt this year.
There is no question that the government and its economic top brass are right now contemplating how to respond if the rest of the world, and perhaps Australia, sinks into another recession.
With the national economy in worse shape today than before the GFC, the government should concede that the Keynesian strategy pursued last time was an economic failure.
The frittering away of $900 cheques, knocking down functional school halls to build costlier new ones, and the tragic home insulation program clearly demonstrated that you cannot grow an economy by breaking windows.
Next time around, if it comes to that, the government would need a new economic strategy to support growth and increase national productivity.
It can do this by stepping aside, allowing private entrepreneurship to thrive and enabling Australians to find their own solutions to the economic challenges as they emerge.
I suggest a four-step program for the government, if circumstances require it.
The first step is to revive economic confidence and secure Australia's position as a worthy place to invest, by abandoning the economically destructive carbon and mining tax schemes.
The second step should focus on genuine expenditure reductions, by cutting spending commitments in the short term rather than shaving projected spending growth in the budget out years. The location of the spending meat axe, reportedly last seen underneath Kevin Rudd's hospital bed, would be ideal to reduce the 165,000-strong commonwealth public service.
Third, the government should use some of the spending cuts to fund tax reductions. Personal income tax cuts would boost the labour supply by increasing the incentive to work, while lighter company taxes would enliven business investment outside the mining sector.
Finally, the government should act swiftly to deregulate the economy, allowing the private sector to discover new ways of delivering economic value. Labour market regulation poses a significant barrier to employment. If the government is serious about getting more people into work, it should scrap the unfair dismissals law as a starting point.
There are many other opportunities to deregulate markets in the national interest, as the recent Productivity Commission report on retailing shows.
This four-pronged strategy would free up resources away from Canberra and put them back into the hands of individuals and businesses to create new economic activity as they see fit. It would draw on the inherent capabilities and talents of the millions of Australians whose economic pursuits are guided by profits and losses, rather than being nudged towards inefficiency by a government that doesn't know best.
If the government reduces its reach over the economy, putting its faith in individuals and businesses instead of itself, in challenging times it would belatedly show it is willing and able to learn from its previous mistakes on economic policy.