During the election campaign, LP will be cross-posting selected items from the Centre for Policy Development’s discussion of policy issues, Thinking Points. Readers may also be interested in the CPD’s collection of policy ideas and priorities for the next term, More Than Luck.
Whatever the election outcome this weekend, there is no doubt that political commentators will be talking about both the substance – or lack of it – for years to come.
It has been interesting that, despite guiding Australia relatively unscathed through the worst economic downturn since the Great Depression, the Labor Party has not been able to adequately sell its economic credentials.
Meanwhile, after 11 years of squandering surpluses on tax cuts and middle-class welfare while leaving Australia’s infrastructure to deteriorate, the Coalition can claim superior economic management.
It is hard to pinpoint why this is the case, but a contributing factor has certainly been the focus on issues such as government debt and interest rates as the underlying fundamentals of our economy are ignored. Key here, from both major parties, has been an inability to envision a post-carbon, post-quarry economy – as opposed to one based on the proverbial sheep’s back (or on this case, the mining industry’s earth movers). There has also been limited discussion on manufacturing, the promotion of a renewable industries or taxation reform.
Repeated mantras like :we will always keep interest rates lower” and “the debt bomb” are both frustrating and false — and this week prompted 51 economists to release a statement supporting the ALP’s stimulus package in response to the GFC. It was organised by Emeritus Professor Raja Junankar and included the names of prominent economists such as Professor Steve Keen (UWS) and Professor John Neville (UNSW).
The statement is clear: without a decisive and massive injection of funds into the Australian economy, we would have rapidly followed the majority of the world into deep recession.
I was initially critical of the stimulus package when it was announced. My criticisms focussed on the design of the package rather than the size – raising concerns about $900 cash handouts and aspects of its implementation.
The question is, why three years later have I taken such a stance? The answer is quite simple: that while we can debate the make-up of the package it undoubtedly resulted in shielding the Australian economy from the GFC.
There are three reasons why the package must be praised. The first is its size: nothing but a massive injection of funds would have had appropriate results. The second aspect was its decisiveness: unlike the umming that characterised the Bush Administration’s response, Rudd and Swan made their intentions clear. Thirdly, it was generally well targeted: the focus on promoting building activity was fundamental in promoting employment and confidence.
There is a fourth reason why the stimulus package remains important: it was recognition that markets do fail and need intervention and regulation. This is not an “anti-market” position – rather one that recognises that in the contemporary world, we cannot rely on markets alone to deliver outcomes. A more complex policy mix is required as well as the ability to identify the point at which markets, left to their own devices, will not deliver the most efficient outcomes.
When describing the “invisible hand” of the market in the eighteenth century, Adam Smith made it clear it was a metaphor to depict a broad range of activities – it is a pity that contemporary politicians and commentators read it literally. The stimulus package confronted this myth – and Rudd and Swan should be commended for it – despite their other shortcomings.