Riddle me this: if “free market” politicians think that the role of governments is to get out of the way, then what do they do all day while “managing the economy”?
Interest-rate policy has been delegated to the Reserve Bank of Australia and the Coalition’s fiscal policy is to offset any new spending measures with spending cuts somewhere else, so what economic levers does a Coalition treasurer have to “fine tune” the economy with? I have lived in Canberra for 20 years and I’m yet to see the room with dials from which our treasurers kickstart a failing economy or put the brakes on a booming one.
And if politicians do manage the economy, are Scott Morrison or Gladys Berejiklian to blame for Sydney house prices falling 10%? I know, I know, imagine how far they would have fallen if Labor had been in power – but if the government is managing the economy, then why did they have to fall at all? Are politicians to blame for the demise of the Australian car industry? Can they take credit for the spectacular growth of companies like Atlassian? In short, which bits of our economy are governments actually managing?
Maybe treasurers and prime ministers, like an orchestra’s conductor, are somehow responsible for the sum of all of the economy’s parts. But if it is the macro economy they manage, why are more than 660,000 people unemployed today?
Here’s a tip: if something goes well in the economy, it’s because of “good economic management”; and if it goes badly, it’s “market forces”. Heads I win, tails you lose.
The government crows about the million jobs it created since coming to office, the reality is that population growth of 1.7 million people (over 15 years old) during the same period “created” those jobs. So if the Coalition is managing the economy, why did they grow the population rather than create jobs for those who were already unemployed?
Back in 2013, Australia had a “budget emergency”. After five Coalition budget deficits in a row, the level of public debt has more than doubled. If reducing public debt was in some way related to managing the economy (it’s not), then the Coalition has failed.
Of course, it’s not just the Coalition who says silly things about being great economic managers – most parties have a taste for it. But the Coalition makes the silliest claims, most regularly. Tony Abbott produced this gem back in 2014:
“This government will deliver Australia’s economic future because only a Coalition government can. As Liberals and Nationals, sound economic management is in our DNA.”
As an economist, I have no idea what that means. As a close observer of politics, I understand exactly. Australian politicians spend far more time managing the public’s perceptions of the economy than managing the economy itself. And while I’ve never seen the secret room where they manage the economy, I have most certainly seen the rooms in which polling is evaluated, social media comments are monitored in real time, and economic talking points are dispatched to armies of talking heads.
In the US, the president gives the State of the Union address, but here in Australia we get the state of our public sector finances. It says much about Australia that the annual budget speech is the biggest political event of the year.
The budget speech is given at 7.30 at night to give the treasurer primetime television exposure. Likewise, journalists are held in the budget lockup all day to keep the most senior journalists away from any more interesting stories. And the only reason the budget speech isn’t given at 10 in the morning is to manage the media and manipulate the public.
Budgets are important documents. But budgets are not central to the management of the economy.
The economy has a far bigger impact on the budget than the budget has on the economy. Forecasts for revenue are always out by billions of dollars, and even allocating billions of dollars to a program such as the NDIS doesn’t guarantee that money will be spent. This doesn’t mean that government decisions never affect the economy, but the effects are smaller than our public debate would suggest.
Paul Keating’s “recession we had to have” was a devastating policy miscalculation, as was Peter Costello’s decision to use the temporary revenue of a mining boom to justify enormous and permanent tax cuts. Wayne Swan’s decisive action during the GFC, on the other hand, spared Australia from the worst of the global financial crisis. Good economic management is more avoiding head-on collisions than fiscal fine-tuning.
Budgets matter, but not in the technocratic terms of “economic management”. They can make a big difference to the lives of individuals in the short term and to the shape of our society in the long term.
Australia is one of the richest countries in the world for the simple reason that, over the past 70 years, we have avoided war on our own soil, invested heavily in our people, encouraged people to trust each other, and built the kind of social and economic infrastructure that makes individuals and companies believe that investing in new ideas and new ways of doing things will be a safe and profitable thing to do.
History and international experience make clear that it is not the specifics of a country’s tax or industrial relations system that determines economic success, but the willingness and ability of communities to trust each other, trust their institutions and work towards agreed long-term goals. If cutting taxes was the key to growing economies, then the Nordic countries would be broke.
Paul Keating once said that when you change the government you change the country, and he was right. But it’s time that Australian politicians stop insisting on the speed at which they will drive the economy, and instead started asking where the population actually wants to go.
It doesn’t matter how fast the economy is growing if it is heading in the wrong direction, and if 30 years of continuous economic growth hasn’t made us rich enough to afford the services we once had, then why would anyone believe that another 30 years of “great economic management” will make things any better?
Richard Denniss is chief economist at The Australia Institute @RDNS_TAI. His new book, Dead Right: How Neoliberalism Ate Itself and What Comes Next, is out now.