The myth of the economic credibility of the Liberal Party

Preface: This piece was originally authored back in November of 2007 before the marked acceleration of the downturn on Wall Street and the associated Global Financial Crisis. On the matter of comments I made regarding the degree to which governments act as economic managers; I maintain my position that by and large, modern Western governments do not act in the same interventionist manner as they did prior to the Keating Government, and much less compared to pre-Hawke governments, both Labor and Liberal. I would add however, that the Keynsian manner in which the Rudd Labor Government, in response to the Global Financial Crisis, engaged in a “stimulation” of the Australian economy during 2008-2009 that constituted a divergence from the comparatively passive economics of the last few decades. This stimulation however, while a legitimate and successful example of economic management, pales in comparison to pre-Hawke government Keynsianism, and was confined to the context of the Global Financial Crisis as a temporary measure.

On the matter of disclosure, I have since resigned from the Australian Labor Party. 

Changes to some of the original text have been made for the purposes of style and flow, however the substance of the arguments remains the same.

***

If after hearing what Howard and Costello have had to say, you’re still willing to have the size of your housing repayments or pay packet riding on this lot (The Howard Government), then you’re either so stinking rich as to not have to care about such things, or you’re just being mislead. There is no reason at all to think that the Libs will deliver “strong economic management” for you.

For most Australians, let’s face it, the credibility of the Government on the economy stems from gut feelings. This is understandable given the complexities of the issue and the amount of spare time working Australians have available to consider such issues. If you are like many, by the time you get home from work and get in front of a newspaper, the net or the telly (assuming the kids or paper work haven’t gobbled up what’s left of your time), you’re already pretty worn out and a long-winded discussion is going to tire you further.

The Libs have been great at exploiting this. With this kind of environment for voters, it understandably takes time for any disinformation the Government have spun to be analyzed in public discourse and exposed as false. By the time the truth is well known, it can be too late. The truth of “children overboard” took time to filter through so that when the facts were out, the election was well and truly over. Scrutiny of the role of DFAT in the AWB scandal was so protracted that by the time DFAT’s role was beginning to surface, people had switched off.

The economy is at least as complex as any of these examples of postponed and protracted public debate.

So I’ll try my best to be concise with your time in mind. Please do follow the links if your curiosity is aroused.

Peter Martin, Economics Editor of the Canberra Times, comments on the economic bombshell that the next Government will have to diffuse in ‘Congratulations on winning, here’s the bad news’;

“Yesterday’s Reserve Bank statement on monetary policy, in which Ken Henry was in some way involved through his membership of the Reserve Bank, provides a clue as to what is likely to happen on or just after Sunday November 25.

The incoming government will quite likely be told that far from “going for growth” as John Howard had been talking of doing (in an eerie reprise of his government’s 1983 slogan “we’re not waiting for the world”) what is urgently needed is something to slow down an economy accelerating dangerously fast.”

(Peter Martin, 2007)

Note that he doesn’t tie this to who wins the election? This is potentially a serious problem and it won’t go away based on who wins the election. Just like interest rate rises didn’t go away just because people voted (overwhelmingly) for the Liberal party at the last Federal Election.

Why is that do you think? Ask Rory Robertson of Macquarie Bank.

“With few macro-economic policy levers to pull in Canberra these days, any modern treasurer’s job often resembles Head of Government Marketing – Economic. That is, it’s at least as much about absorbing incoming economic news here and abroad and providing upbeat economic commentary for public consumption, as it is about making macro-economic policy…”

(Sydney Morning Herald, 2007)

Or in other words, if either get in, then they are going to have about as much power to steer the economy as each other: very little! When Costello and Howard talk about their economic prowess, they may as well be talking about the Easter Bunny or Father Christmas.

But this kind of truth takes time to get out, as was the case with interest rates and the last election. The last election that somewhat ticked off the Reserve Bank (who are the lot that actually set interest rates). Just ask “The Cane-toad” from Canberra.

“…we were told simply that the government could be trusted to keep interest rates low. Not just “low”, but at “record lows”.

In fact, by suggesting it controlled interest rates back then, the government got up the nose of the Reserve Bank. The bank was so annoyed that it considered speaking out, but in the end decided against it.”

(Laurie Oakes, 2007)

And see what Laurie has to say about Howard and Costello’s dissembling about the current US sub-prime crisis and inflation rates.

“The government has argued, for example, that the sub-prime crisis in the US and other international developments could threaten Australia’s growth. There have been dire warnings of “turbulence” ahead.

But the Reserve Bank says the world economy is expected to continue to grow at an above average pace. And it shoots down the claim made by Howard and Costello when CPI figures came out on October 24 that those figures were “bang in the middle of the target range” within which inflation is supposed to be kept. The Bank is concerned that by the March quarter next year both the headline figure and the crucial measure of “underlying” inflation will be above three percent — the upper limit of the bank’s target band.”

(Laurie Oakes, 2007)

Now either Howard and Costello are fibbing about this, or they believe what they say and are just plain inept. The projected impact of the sub-prime crisis and projected inflation has been all over the news. Not the mistake of a “strong economic team”, but perhaps the mark of deceptive spin-doctoring. Or perhaps both.

If little that Howard and Costello do is actually driving the economy, then what could have possibly set us on this course of growth we have had?

“Steering the economy through a boom fuelled largely by China’s demand for Australia’s minerals has served Mr Howard well up to now.”

(The Economist, 2007)

A demand that is overstimulating the Australian economy I might add. We aren’t in danger of unemployment any time soon, irrespective of whoever gets in. Despite more categorically false claims by John Howard that he is somehow magically the “candidate for employment”, whereas Rudd can’t keep unemployment down. Worry about keeping inflation down!

But back to what’s really driving the economy.

If you knew in advance the date and time of an eclipse, and went before a people who had little knowledge of how an eclipse works or when it would occur, you could pretend to be able to summon it. It’s a plot so preposterous it was used in cartoon form by Bugs Bunny. John Howard is doing the same thing in taking advantage of the Australian people, except it’s not an eclipse, it’s growth stimulated by demand for primary resources driven by China’s growth.

Sadly, unlike Bugs Bunny and the eclipse, Howard’s stage show is not a cartoon. Real families, real singles, real lives with real mortgages and real bills are the real victims of this dupe. Is it really that hard to accept that Howard could just walk on past people’s suffering in lieu of his own political opportunity? (You be the judge of that.)

It’s not just the resources boom that Howard and Costello are riding the wave of either. Oh no, oh no. Again, consider The Economist;

“The country has had 16 years of continuous growth, the past 11 of them under John Howard’s conservative coalition. In that period, the economy has regularly grown faster than other industrialised countries (see chart). Thanks to reforms inherited from its Labor predecessor, its own prudent fiscal management and a revenue boom from China’s demand for Australia’s minerals, the government is blessed with an enormous fiscal surplus, low inflation, unemployment at a 33-year low and a reputation for competent economic management.”

(The Economist, 2007)

The fiscal management and fiscal surplus go hand in hand of course. Starve the states of funding (despite the “GST Windfall”, they have indeed starved the states under a kind of un-cooperative federalism) and of course you’ll get a budget surplus (while the states will languish in debt, a debt the Federal Government can then conveniently blame on them). Importantly though, you can see in The Economist’s article the factors that drove everything bar the surplus, have had diddly to do with the current Government’s “economic management”.

There is more. Take for example;

“Australian Labor Prime Minister Bob Hawke in the 1980s, confronted with an economy held in check by competition-stifling regulation, embarked on a series of significant but painful reforms especially in labour markets…”

and…

“The economic revival that began in 1991 persevered through 2006 without recession, increasing real per capita income by more than 40 per cent…”

(‘The Age of Turbulence: Adventures in a New World’, 2007)

This is hardly nostalgic center-leftist reverie. This is from the autobiography of conservative economist Alan Greenspan, first appointed as chairman of the US Federal Reserve under the conservative Reagan Administration. And here he is, attributing growth in recent decades to reforms enacted by Labor.

For those wanting a little more context, the reforms of the day that Greenspan alludes to were reforms like monetary deregulation, enterprise bargaining (and “The Accord”) and the deals done under the Uruguay round of the then GATT. All policies, reforms and multilateral deals born of Labor I might add. (You can thank Labor for the Cairns Group who in the day took our interests to the table far more robustly than our current Government ever has.)

The Libs have always been peripheral to all of this. Despite Liberal IR reforms, enterprise bargaining still to this day covers most employment contracts, monetary reform since the Keating Government has been peripheral and many of the agreements put forward by the Uruguay round of GATT are still in effect to this day, being signed and done deals before the Howard Government ever came to power (the more recent Doha round has been relatively quiet in as far as Australian involvement is concerned).

It is doubly dishonest to call the current Federal Government strong economic managers. Firstly, the strength of the economy is not because of their management and secondly, “economic managers” grossly overstates their roll in driving the Australian economy. They are not strong economic managers, they are the opportunistic guys and gals who just happened to be around when the economy got stronger, like Bugs Bunny taking credit for the eclipse.

~ Bruce

Disclosure: I am a member of the Australian Labor Party, however, I encourage you to be sceptical of similar claims made by Labor during this election. No part of this article has been dictated or suggested to me by the party.

Acknowledgement: Ninglun and Dave Bath for pointing me in the direction of some pertinent articles (and quotes). Oh, and to “Dave from Albury” for the link to the Howard pedestrian pinball incident