Rudd’s hidden economic legacy; or why we still have an economy to debate over

by John August

Looking back past the controversies around the Carbon Tax, before Tony Abbott took over the Liberal Party, there was the Global Financial Crisis. Rudd, Tanner and others took a stand, and initiated their stimulus package. ┬áMany saw this as meaning Australia “dodged a bullet”, but the Libs and other commentators felt otherwise. But, now its something I want to look at again; maybe it’s the only reason we even *have* an economy where we can debate the effects of a carbon tax on it.

There were claims Australia was buoyed up by the Chinese economy, so the stimulus package wasn’t needed.

Sure, if not for the Chinese economy, we’d be stuffed. It was true then, and true now. But, we’re not the only country that trades with China. Germany, Japan and Taiwan are ahead of us as China’s trading partners – and they had recessions. China is about 20% of our foreign trade – we also trade with Japan, South Korea, the United States and the UK – economies that went south. Other economies that trade with China went into recession – and we didn’t. You can’t just hang it all on China. Yes we had a good economy – and we have to acknowledge past Labor and Liberal Governments for that – but are we the only nation on earth with a good economy ? Yes, there was some debt. But, as former Governor of the reserve bank Ian Macfarlane has noted, we don’t see the counter-factual. We see what happened – not what we avoided.

When an economy avoids recession, people remain employed. Yes, we have to pay the debt associated with the stimulus. The alternative is that there’s no debt to pay, but people aren’t employed to pay it anyway. That’s what we avoided. We kept the economy ticking over. And what about the controversy – the batts and the wasted facilities at schools ? Yes, things could have been done differently. People should have engaged more thoughtfully with the potential problems. We need to consider the different criticisms. Is the principle flawed, or is it the implementation ?

It’s not really clear how the criticisms fit together. If the principle were flawed, there would be no need to criticise its execution. There are criticisms to make, but the Libs did not so much criticise constructively as make a free kick. Its difficult to implement any significant policy. Human beings are going to make mistakes. Observing there were some mistakes falls way short of showing the whole thing was flawed; a lot of political criticism seems to rely on the idea that unless something is absolutely flawless it must be absolutely worthless. Labor has no monopoly on making mistakes any more than the Libs have a monopoly on competence.

If Labor had a record of making mistakes and failing to learn from them, OK we have a problem. But that’s a broader argument, and you have to look further than just the stimulus program to see that. A later review found the programs to be worthwhile, though there were some valid concerns.

Joseph Stiglitz, Nobel Prize laureate economist, said there will always be waste with such programs. However, looking at what was avoided, he said that waste was preferable to the waste of human and capital resources that would have resulted if there had been no stimulus. Joseph Stiglitz was not the only economist to give the package credit. A group of 50 Australian economists was also willing to.

The IMF and OECD also gave it credit. Of course, economic views can be embraced or criticised, depending on how the wind is blowing. Looking outside of economics, the Howard Government was happy for religious Australians to cheer them on when they spoke of “values”, but told them to get their noses out of politics when the talked about social welfare. Yes, we should be informed by economics, and not take it for granted. We should be able to understand the arguments, and not just lean on authority.

Still, the Libs dismissing this far ranging economic opinion seems a bit convenient when they’d otherwise lean on economics to shore up their credibility. Economics does of course have different approaches. One is “Keynesian” – supporting stimulus spending. Others such as the so-called Chicago-Hayekian school challenge the worth of stimulus packages. The US Cato institute sponsored an advertisement signed by 200 economists saying – to Obama – words to the effect of : “with respect, Mr President, it is not true that we are all Keynesians now”. This was signed by Buchanan, Prescott (both Nobel winners) and Cochrane (Chicago). It is certainly possible to dismiss Keynesian approaches as coming “from the left”. However, it is important to recognise that the anti-Keynesian economists are a diminishing proportion.

Further, the IMF, a body frequently criticised by the left for the austerity measures it imposes, backed Rudd’s stimulus package. And other economists such as Stiglitz see the Chicago-Hayekian approach as the *cause* of the GFC. US economic inequality has increased significantly in recent decades – probably the result of Chicago style market fundamentalism. In the light of the failure of market based ratings agencies, many see the need for tighter regulation of financial markets; Obama has tightened them to some degree.

While a majority of economists blame prior Republican policy for causing a large part of the GFC, it seems that 3 or 4 years later, they will come back to power. Partly it was difficult to make sense of, but also because of people’s short memories. The Libs have not engaged with the underlying economic reality – or the fact that so many not necessarily left oriented economists endorse stimulus packages like Rudd’s. A Government needs to manage the economy prudently. Looking back, this is what Labor did. In the midst of controversy and a rock throwing opposition, they took a stand and acted decisively – and Australia dodged a bullet. It was an achievement that we have since lost sight of. How short our memories are.

John August is President of the NSW Humanists, and convenes the Sydney Shove, an economics and politics discussion group. He has had a long interest in ethics, science and philosophy – and also the institutions that stand behind our society.

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