Chief economist at The Australia Institute, Richard Denniss, on the subject of Coalition economic stories........
Australian
economic debate relies more heavily on metaphors than it does on
evidence, experience or expertise. While the prime minister,
treasurer and self-appointed business leaders drone endlessly about
what the economy “needs”, they simply refuse to provide any
evidence that they know what they are talking about. For decades the
inanity of Australia’s economic debate has been concealed behind
the sugar hit of surging world demand for our exports, and surging
population growth on house prices and retail profits. But in the
deepest recession in modern history, the shallowness of Australia’s
economic debate is about to become clear for all to see.
Treasurer
Josh Frydenberg’s admission last week that his favourite
politicians were Margaret Thatcher and Ronald Reagan was as
informative as the fact that my favourite Marvel heroes are Thor and
Iron Man. Given that Thatcher oversaw burgeoning unemployment and
Reagan doubled the US government’s debt, you can see why our
current treasurer might have an affinity for his cold war heroes. But
for those of us interested in the Morrison government’s actual
plans to get us out of the hole we are in, the treasurer’s last big
interview told us even less than his recent “mini-budget” did.
According
to Frydenberg, Australia’s economy will shrink by a record 7% in
the current quarter. To put that into perspective, the entire 1991
recession saw GDP fall by 1.4% and the 1983 recession, which saw four
quarters of contraction in a row, saw GDP fall by “only” 3.8%.
For the 60 years we have collected quarterly GDP data, the biggest
previous quarterly contraction of GDP was back in June 1974, when the
economy contracted by 2%. But apart from drawing inspiration from
Thatcher and Reagan, what exactly is the government’s plan to
create jobs for the almost million people who are already unemployed,
let alone for the many more who are predicted to be unemployed by the
end of the year?
In
March and April, the Morrison government was more enthusiastic about
stimulating the economy than many expected but, by July, it had grown
tired of its flirtation with Keynesianism. In his mini-budget,
Frydenberg simply turned his back on all that economics has to offer
and – at the same press conference where he announced the largest
ever decline in GDP – he announced his government would be cutting
spending in September this year. The consequences of that decision
will be disastrous for the economy and, most likely, for the
Coalition.
If
private demand and investment is falling (it is) and if foreign
demand for our exports, including education and tourism, is
collapsing (it is), the only thing that can stop GDP spiralling
downwards is a big increase in government spending. That’s not
ideology or theory, it’s just maths. GDP is the sum of its parts,
and if the private-sector parts are shrinking (they are), virtually
every economist agrees it’s a good idea for the government to spend
more. Morrison and Frydenberg spent the first half of year pretending
to understand and accept this most simple of economic tenets but, as
of last week, they have clearly decided to put storytelling ahead of
solid evidence.
In
explaining why they had to cut government spending on unemployment
benefits – and in turn cut the amount of money the unemployed spend
in their local shops – the prime minister and treasurer dusted off
old anecdotes, unsourced, about unemployed people turning down work
because life was “easier”. To be clear, there are currently 13
unemployed people for every job vacancy.
The
Coalition love to tell stories about what great economic managers
they are, despite ABS data suggesting otherwise. But, of course, in
Australia the key to being a “great economic manager” isn’t
delivering high rates of economic growth or budget surpluses (neither
of which the Abbott/Turnbull/Morrison governments have actually
done). On the contrary, the key to being a great economic manager is
to tell great stories.
Central
to the Coalition’s economic narrative is to take credit for
everything good that happens in the economy and shift the blame for
anything bad. When unemployment is falling, say it’s because your
tax cuts are working to “strengthen” the economy. When
unemployment is rising, blame the unemployed and say you need to cut
unemployment benefits.
The
same applies when telling stories about the budget. When times are
good, cut taxes for your friends and, when times are tough, cut
spending on those who never vote for you. Likewise, with productivity
growth, consumer confidence or private investment. If things are
looking up, link it to your tax and welfare cuts, and if things are
going badly, blame it on union power and lazy workers.
Conservatives
have masterfully implemented the old adage to “never let a crisis
go to waste” – successfully blaming the victims of Australia’s
economic system for all of its failings, while taking credit for
managing all of its successes. But they have never had to tell a
story about an economy that shrank 7% in a single quarter, driving
unemployment to 10%……
Unemployment is about to rise, and the economy is not going to “snap back”. Increased training will not create jobs. Cutting unemployment benefits will not create jobs. Industrial relations reform will not create jobs. The reason that companies are shedding staff is that there aren’t enough customers with enough money, or enough confidence, to buy the things that companies sell. The only thing that will pull Australia out of this nosedive is a big increase in government spending, and the government has just announced it plans to cut spending. Strap yourself in – the storytelling is about to go fantastical as the economy goes very, very quiet.
