Liberal — even neoliberal (whatever that is) economic policies are correct, and have been followed by Labor and Liberal governments in Australia for 30 years.
This is the message of one of Australia’s finest economists, Professor Ross Garnaut, in his new book about the Great Crash of 2008.
The Australian’s Michael Stutchbury reports Garnaut as saying Kevin Rudd’s attacks on neoliberalism “risk an expansion of government that could damage the economy and even erode Australia’s democratic values”.
By further fuelling excess spending, the Rudd government’s budget stimulus ‘will have to be followed by “hard times” and lower living standards that the government has ‘barely begun to contemplate’.”
This is powerful stuff, whose main message is sharply underlined by yesterday’s unexpected (to most) increase in jobs and marginal decline in the “official” rate of unemployment.
This increase may be misleading (as ABS employment data is famously dodgy) but the far more reliable jobs data compiled by Roy Morgan and released last week foreshadowed the ABS result. If taken seriously, the Roy Morgan data would have made a brave bond trader as big a fortune as his courage would have allowed. But I digress.
The apparent surge in jobs was also foreshadowed by the two months of sharp increases in job ads, and there are several other important bits of data pointing to the same conclusion – the resilience of Australia’s housing market, the rebound in retail sales and the upward revision of investment intentions.
The good jobs data (following the RBA’s rate increase) caused stock prices to surge yesterday. Wall Street rose again overnight and today should see new asset inflation here.
It is looking increasingly likely that the neoliberal (whatever that is) paradise that is Australia’s economy is powering through the Great Crash with hardly a lost beat.
Lots of egg on lots of faces, of course. Treasury’s prediction of a peak rate of unemployment of 8.5 % is looking a bit sick, as is its enthusiastic support of massive fiscal stimulus. “Seriously misguided” Dr Henry?
This should be music to Malcolm Turnbull’s ears since, after a slow start, he has banged on about excess stimulus and wasted spending. But Rudd is massively ahead on the issue of best economic manager.
The economic strength supports Henry’s call for bold 50 basis point interest rate hikes as recovery builds, starting on the day next month when the Melbourne Cup is contested.
And the strength of Australia’s economy will be worrying Glenn Stevens, who may be honest enough to ask himself if he is again moving too little, too late in removing the punchbowl of emergency low interest rates.
Could Henry Thornton or Professor Garnaut point to any government anywhere in the world that persisted with neoliberal policies in response to the Global Financial Crisis ?
I am surprised that Professor Garnaut saw Rudd’s piece in the Monthly as anything other, than a bit of of opportunistic political grand standing.
If the Global Financial Crisis taught us anything, it is that ‘neoliberalism’ unfettered let the market rip capitalism, like all other dogmas eventually runs its course leaving others to pick up the wreckage.
Richard McGuire’s “capitalism, like all other dogmas eventually runs its course leaving others to pick up the wreckage” is rather odd, not because inevitably over-simplified models of reality eventually prove inadequate even when they are not susceptible to human feedback and consequent manipulation. The capitalism that has worked so well is, surely the private aggregation of capital for investing in enterprises that animal spirits, or occasionally sober calculation especially by those who have the ear of the government, suggest will be profitable. The contrast is with central control especially in economies clearly too large or too heterogeneous to be effectually controlled or in more prospective cases where too heavy a hand is applied (which wasn’t the case in Singapore but perhaps has been in Iceland – OK on second thoughts nobody knew what they were doing in Iceland). So, capitalism is not a “dogma” at all, or, if it is, what is that dogma?
Henry is usually on the money. I hope though, that he doesn’t start quoting again those economists who advised the Premiers in 1931 that, inter alia, “confidence has to be restored”, as part of a case against the fiscal stimulus. Note please that those economists were a couple of years late and what they said wasn’t actually true either. They said that subsidies and government make-work schemes couldn’t make business profitable. Really? How about the bloke (or his missus) with the home insulation contract and those he bought his materials from?
Richard: “If the Global Financial Crisis taught us anything, it is that …”
I think it is too early to say what it has taught us. But a lot of pretty smart people have been asking did the breakdown result from not enough government participation in capital markets, or too much? It’s not even over yet.
I’ll be taking a closer look at what Garnaut has to say (and trying to understand at least some of it).
In reply to Julias…. I am not opposed to capitalism as such. It’s just that I think it is in the interests of civil and just societies to have a little bit of government oversight occasionally. This is of course anathema to those who support neoliberal dogma.
In reply to James…. It should have taught us that in the absense of appropiate government regulation and oversight, greed and stupidity prevail. If it hasn’t, history will repeat itself.
I concede to Richard McGuire, despite a somewhat Ruddian (though no doubt more honestly motivated) reference to “neo-liberalism”, that I have come across those who are too dogmatically opposed to government regulation, often as latter-day converts, including one I can think of in the who was a clever opportunistic political operator who used to nonetheless think of himself (apparently) as highly principled