The release of the national accounts always brings into stark relief the contrast between fact and rhetoric in public discourse. Before Wednesday we knew Australia’s economy had contracted slightly in the last few months of 2008, which was certainly nothing to get too excited about given the economic ups and downs of the past quarter century — and certainly not a big deal in the context of Australia’s whole economic history. Now we know the economy actually grew in the March quarter, by 0.4 per cent!
The country has not even experienced a mild recession, let alone a crisis. ‘Not out of the woods yet’, says the Prime Minister — we were evidently never in the woods. Yet Australians have heard continually for the past eight months how we are living through the greatest economic crisis since the 1930s, and that the government must act and act immediately. It is becoming increasingly clear that, for Australia at least, such talk has been ridiculous. Unfortunately very few have derided such claims — although as far back as October The Spectator Australia’s editorials have routinely recommended political leaders ‘Get a Grip’.
Indeed, it is instructive to make the case that the current ‘crisis’ is actually a boon. It is not so difficult to do. For young people in particular, the fall in share prices and slight falls in house prices are a rare gift, an opportunity finally to afford over-priced assets. And young people today will need them. They face unprecedented levels of taxation to fund the retirement and sustain the health of the current owners of those assets. The Rudd government’s blatant attempts to stymie the natural correction in the property market by propping up the price of houses with taxpayers’ money (the Non-Home-Owners Gouge, as we call it) is especially distressing.
For the 95 or so per cent of the labour force that have jobs, the current environment is especially fortunate. Interest rates are extremely low, in fact essentially negative when inflation is also considered; borrowing to invest or splurge has rarely been more affordable. And the decline in inflation associated with the general level of economic fear is good for those individuals whose incomes are nominally fixed.
If something truly fundamental had altered, Australians might at least expect their financial institutions or large corporations to start losing money. Not so. Large retailers like Woolworths and Myer continue to make significant profits, and have even increased their sales. Perhaps the profitability of the four large Australian banks best belies the idiotic notion that Australia is enduring a great crisis. In the six months to the end of March 2009, the four largest banks made around $8 billion profit: some crisis! The Australian stock market has reverted to an upward trend.
More than eight months into the ‘crisis’, we reflect on the costs of unchecked and overblown rhetoric. The Australian government has been able to get away with rash policy. The unlimited guarantee of bank liabilities stands out as the most important decision of the Rudd government’s first term. It was entirely over the top. It brought a perfectly viable non-bank sector to its knees at the same time as the major banks have been allowed to buy up their smaller competitors (St George Bank, Bankwest). Its main effect now is to boost the bottom line of a particular set of private companies and ensure their senior staff continue to be paid massive ‘performance-linked’ incomes. Former prime minister Ben Chifley would be turning in his grave.
Much of the ‘stimulatory’ economic policy applied by the Rudd government reminds us of the old medical practice of leeching patients and then, when the emaciated soul finally improves, hailing the healing power of the leeches. Keynes’s name is constantly bandied about in justification, as if his nuanced theoretical prescription for the 1930s is suited to a mild economic lull in early 21st-century Australia.
Everything uttered in public is couched in terms of whether it will be ‘good for the economy’, or whether it will ‘create jobs’. Considering what is morally right rarely gets a look in. Massive government borrowing and spending will likely stimulate economic activity in the short term, but at the cost of higher taxation of citizens; that is to say, at the cost of greater infringement of citizens’ liberties. The possibility of transient unemployment might not actually justify suspension of such timeless principles, quite apart from the long-term economic cost of repaying interest. And keeping interest rates low might be good for borrowers, but for those people who have chosen to save for their long-term goals — which used to be thought a worthy effort — the reductions are damaging.
The Australian media have mainly been derelict in their criticism of public policy. It is rarely pointed out, for example, that so-called recessions provide an easy opportunity for the expansion of government spending and bureaucracy, and not just for a couple of years, as the ‘theory’ suggests, but permanently, as practice suggests. The history of the 20th century is largely one of expanding and increasingly powerful government.
On the bright side, perception of a crisis provides a platform for salutary reform. Vested interests can be overwhelmed where normally they would prevail. The government’s inquiry into corporate governance offers the chance of beneficial change, for example; yet so far victory in this ‘crisis’ goes to kneejerk populism.