I attended a function in Melbourne around the turn of the 1990s at which Allan Pease, the body language chap, was speaking. He brandished a book he’d produced called ‘the achievements of the Labor government’. Its pages were entirely blank. No-one found this puzzling in Victoria in the times of John Cain, Rob Jolly, and Joan Kirner. No-one of any judgement should find it puzzling to have the same book brandished now in the times of Gillard and Swan.
Announcements are not achievements. This takes care of the promised Gonski educational extravaganza – a recipe developed by someone who apparently believes in the self-evidently absurd proposition that educational outcomes can (or should) be made independent of parental wealth. It also takes care of the NDIS chimera — a recipe for unfunded and unaffordable future liabilities and for (cruelly) raising unrealistic expectations.
The boats keep coming in larger numbers. This takes care of Gillard’s "clever" solutions and deals to secure our borders. The unevaluated, off-budget and onerously expensive NBN rolls on to surely become an example of an antipodean white elephant for the Macquarie dictionary.
Then we have the "exquisitely" timed mining and carbon taxes. One targets Australia’s most productive industries when commodity prices are falling. The other undermines the competitiveness of manufacturing industries when the high dollar already has them reeling; in, wait for it, a quixotic attempt to cool the planet. For the benefit of any aliens watching from other "unextincted" planets; no, that last bit isn’t a joke.
Some achievements! But wait, didn’t Swan get us through the GFC unscathed? Most everyone says so, even those who think he might have spent too much of our money. Not for the first time in history, most everyone is wrong.
Howard and Costello had a hand in saving us from the GFC. The Reserve Bank had a hand. China had the largest hand. Swan’s efforts made us worse off. He borrowed money on our behalf and threw it away on mad schemes, leaving us with massive debt and interest payments and nothing productive to show for it. Only very imaginative and delusional people could ever construe that as an achievement. Who are they? Where are they? Are they institutionalised, you might ask? No, these people are among us. They are called economists.
Economists, with just a few grounded exceptions, like Quadrant contributor Steve Kates, are taught and believe that throwing money away on mad schemes is good for the economy when there is unemployment. They believe that if someone, say the government, spends a dollar on anything it will create a dollar’s worth of production-and-more, because the person receiving the dollar will also spend part of it.
This is an alluring theory. None of us is averse to spending. And if spending does the trick, then let’s spend with abandon; as indeed Swan did, urged on by his Treasury economists.
The catch is that the economy doesn’t work that way. Imagine we are stranded on a desert island. What comes first before we can eat and sleep under shelter? We have first to pick the coconuts and berries, and catch the fish, and collect, assemble and bind the fronds. You will notice something about this process. Production comes first and has to be well directed. Lots of berries and no fronds would be ill-directed. The excess berries would waste and create no value; while the time taken to pick them results in an absence of fronds and an effective destruction of value.
A complex monetary economy tends to obscure the direction of economic relationships, but they are there, just as on a desert island. Unemployment is remedied by well-directed production. Production is generally well-directed when it is determined by businesses whose success depends on making and selling goods that people or other businesses are prepared to buy at a profitable price.
What happens if a business makes a mistake? It has unsold stock; it goes out of business; it sacks its employees. It will have spent money on buying raw materials and hiring labour, but spending doesn’t do the job. It will not have contributed to enduring employment or to the creation of value. It will have wasted resources.
There is another cost which we don’t see; the opportunity cost. The physical resources and the financial capital wasted might well have been used by other businesses to good effect.
Spending money on building over-priced, superfluous, school halls and installing Chinese-made pink batts is similarly wasteful and, similarly, does not contribute to enduring employment. Moreover, when government commandeers resources, using the bottomless pit of the public purse; the capacity for waste and misdirection is much greater than for a business facing the discipline of the marketplace.
Swan’s legacy is debt, of many multiples of any value created, and the lost opportunity of the resources and capital involved being used productively rather than wastefully. This did not add to the economy’s wellbeing. It detracted from it.
The gullible and impressionable (most commentators evidently) say that it must have worked because unemployment remained quite low. Well the Americans spent just as much (relatively speaking) and, not to be outdone, equally wastefully, as did numbers of European governments, and their unemployment rose steeply.
Either Swan has a magic fiscal elixir unknown to the rest of the world or he is kidding himself. Let’s plump for kidding himself. At least he has the excuse of not claiming to be an economist. Swan’s economic management is not an achievement among the government’s debacles. There are just wall-to-wall debacles.
Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics