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November 02nd 2012 print

Peter Smith

Our terminally lucky country

Natural wealth has insulated Australia from the consequences of the same Keynesian follies and exercises in social engineering that have laid low the economies of Europe and the US. We inhabit a world of dreams, but a rude awakening awaits


We are fortunate in Australia. We are, as Donald Horne once told us, a lucky country. Primary industries, whether farming or mining or both, usually prop us up in difficult times, and have made us increasingly prosperous; and we act as though it is all the product of good management.


The end result has been anaemic and peripheral politics. We are disengaged from the battle that may well decide the future of Western civilisation. This is an overdue battle of economic ideas being waged in Europe and in the United States. It is being waged there and not here primarily because they are not nearly so lucky as us.

To be fair, it has not just been luck. Using figures reported by Alan Moran in this month’s Quadrant (“The Western Way of Economic Decline”) we apparently spend “only” 16% of GDP on social welfare, compared with 23%  in the EU and 20%  in the United States. This suggests we haven’t travelled quite as far down the nanny-state road as Europe and the US.

But you have to say that the pressure is all in the same direction. The enormously expensive national disability scheme, the dental scheme, the inexorable pressure to increase the dole (and by inevitable consequence long term unemployment), the constant whining for affordable childcare from middle class families, all point to our preparedness to catch up.

All Western industrial countries built rich estates, which they duly passed on to the stewardship of successive generations. Unfortunately, the generations since the Second World War have been increasingly wasteful and profligate heirs. They have run down their rich estates under the influence of progressive pipedreams and the guidance of Keynesian economic quackery. For the most part, their legacy now is crippling debt.

In the United States this has given rise to the Tea Party and to a conservative shift in the Republican Party. In Europe it has broken the cosy consensus on the welfare state by creating a sharp division between those favouring austerity and those wedded to the same old road to ruin.

In Australia we are stuck arguing about border protection, the carbon and mining taxes, the pokies, and the tawdry Thompson, Slipper, and Gillard-Wilson affairs. Now these are all important in their various ways, some more than others, but they do not speak to a deep divide on the conduct of the nation’s economic affairs.

Wayne Swan, the world’s greatest treasurer, congratulates himself for getting us through the GFC relatively unscathed. While it is easy to poke fun at Swan’s claims there is no reason to suppose that Joe Hockey would not be similarly self-congratulatory, if he’d been treasurer. His policy responses to the GFC would not have been any different in substance. Maybe slightly more restrained, but that is all.

Hockey showed signs in a speech in London in April that he got it by foreshadowing “the end of the age of entitlements”. That was then in London. In Australia, the Coalition couldn’t wait to climb on board the new disability scheme bandwagon, oppose means testing of the private health fund subsidy, and oppose the reduction in the baby bonus. And let’s not forget Abbott’s promised infamous and extravagant parental leave scheme.

I may have missed it but I haven’t seen any thoroughgoing proposals by the Coalition to reduce the size of government and the growth in welfare spending. And we shouldn’t blame the Coalition too much. No political party is willing to risk outraging special interests until the economy becomes buried in unaffordable debt. We are not there; not yet.

In the meantime, we are mere spectators viewing what is perhaps the most important battle of economic ideas that has ever occurred. It is being played out in the United States. Its denouement will be on 6 November.

Either Romney-Ryan will win, resuscitate competitive capitalism and self-reliance, and make America stronger and a continuing beacon of hope; or Obama/Biden will win, double down on crony capitalism and the welfare state, and make America weaker and increasingly peripheral.

All those in Europe and Australia who are carping critics of America, and there are many of them, would find the world less secure and safe if they were no longer able to hide behind the shrinking shield of a debilitated America.

Luckily for the lucky country and the rest of the civilised world, Romney (I believe) will win. Obama will have served good purpose by showing what can happen if the far and feckless left that he represents ever get into power again. That’s as good a valedictory that I can come up with.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics