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Three major speeches offer contrasting economic approaches

Three major speeches from our key economic officials this week offer quite different takes on the task of economic management, Glenn Dyer and Bernard Keane write.

This week was unusual in giving us three major speeches from three of the most powerful economic officials in the country — outgoing Treasury Head Martin Parkinson, Treasury’s head of macroeconomic group David Gruen and RBA governor Glenn Stevens. And they were three quite different speeches.

We discussed the address by Stevens to a Hobart conference of econometricians yesterday. It brought to mind that old Alan Greenspan observation that if he turned out to be particularly clear, you’ve probably misunderstood what he’d said — but in reverse: it was an unusually clear statement of the RBA’s position by the governor, aimed at giving markets a reality check. But in other ways it was the normal Stevens speech — the dry, measured tone, coupled with a feeling for the national good and even a moral centre to his thinking.

Gruen’s speech was to the same gathering. Gruen isn’t afraid to range widely across the economy in his speeches, and certainly not afraid to offer controversial views — Gruen has in the past earned the wrath of the prostatariat at The Australian for daring to suggest Australia’s productivity problems might be the fault of our business executives as much as anyone else. And yesterday, in examining the end of the mining investment boom, he politely demolished part of the recent commentary on the resources boom from Professor Ross Garnaut.

Will we see a relatively seamless transition, as economic activity and employment opportunities in the non-resource parts of the economy take up the slack left by declining resources investment? Or, alternatively, in Ross Garnaut’s [2013] words: are the salad days behind us, and the dog days upon us? The commodity price boom delivered a huge windfall income gain to Australia. Professor Garnaut argues that it was squandered, contributing to a loss of economic reform momentum during what he describes as ‘the Great Complacency’. With commodity prices now falling as supply capacity comes online, Professor Garnaut’s thesis is that the Australian economy faces a hard landing in the absence of bold productivity-enhancing reform.

There are good reasons to take these warnings seriously, not least because Australia’s previous terms-of trade/resources booms definitely did end in dog days. And this boom is considerably larger than its predecessors. But looking at the performance of the economy, I think the appropriate conclusion is ‘so far, so good’.”

Gruen is hardly Pollyannaish about our current economic position, saying:

I don’t want to downplay the hardship associated with unemployment. But, to my mind, if the unemployment rate peaks at around 6% or a little above — as Treasury and many other forecasters think it will — then that will be little short of an astounding achievement given the size of both the boom and the subsequent adjustment now underway.”

Both Gruen and Stevens — without mentioning him — give a nod to former treasurer Wayne Swan’s management of the investment boom, emphasising that this was the first boom that didn’t end in a wages explosion. As Stevens says:

Unlike in all previous such booms, we did not experience serious overheating in the upswing. What is being attempted now is to negotiate the downswing phase without the slump that characterised the aftermath of all the other booms. The fact that the upswing was managed without the excesses of the previous episodes is no guarantee of success in the next phase, but it has to be a good starting point.”

Gruen also takes issue with Garnaut’s claim that the boom has been squandered, showing that consumption has actually fallen in Australia during the boom and is much smaller than in other Anglophone countries:

For Australia, the corollary of a declining share of consumption in national output was a gradually rising share of gross national saving… Rather than the income gains from the boom having been consumed, it would be more accurate to conclude that they were invested.”

Parkinson covers similar territory, but his tone is rather different. Moreover, and unusually, he elected to pick a fight with the federal opposition. This may or may not have been wise — presumably Parkinson now doesn’t hope for a recall to government service in the unlikely event Labor wins the next election — but the issue on which he picked the fight was poorly judged.

It is one thing to argue that reform proposals should be designed with fairness in mind — nobody would disagree with that. It is quite another to invoke vague notions of fairness to oppose all reform.  Using this kind of concept to defend what is clearly an unsustainable status quo means consigning Australia to a deteriorating future. Put another way, if there can be no losers from any individual element of a reform proposal, even if the aggregate package advances the nation’s interest, this makes it virtually impossible to have a sensible debate about policy choices.”

Apart from making his speech sound like a warm-up for Treasurer Joe Hockey’s address to yesterday’s right-wing frolic in Melbourne, Parkinson’s argument had two flaws, unintentional or otherwise. Parkinson creates a straw man and proceeds to give it a flogging, claiming budget critics don’t want any reform if anyone is going to lose out from it. This is a deliberate misrepresentation of the criticism that the burden of budget cuts falls primarily on low- and middle-income earners, and associated measures adopt a punitive approach to low-income earners and students — something quite different from insisting no one be out of pocket.

And in arguing that, Parkinson misses the key point that the government itself has missed, that equity must be at the heart of successfully selling reform. Parkinson’s view is not merely that of Hockey’s chief official, but that of an econocrat who views the electorate as simply an inconvenient hurdle to be overcome in pursuit of a better economy, rather than seeing economic policy as a tool  to serve the electorate.

Contra Parkinson, it is possible to have a sensible debate about policy choices while focusing on fairness — indeed, that is the only way such a debate can be had. Otherwise, the electorate perceives economic policy as being about serving the interests of high-income earners and corporations — which is exactly where we are right now.

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  • 1
    David Hand
    Posted Friday, 4 July 2014 at 2:43 pm | Permalink

    The problem with equity being at the heart of reform is that someone has to create the wealth that is then redistributed across the community. The danger with Australia’s economy today is that the GDP growth needed to fund such largess won’t occur.

    There has been a tendency by both sides of politics to rush into huge hand outs in order to bribe electors to vote for them and this has become unsustainable with the Rudd / Gillard governments.

    Spending commitments made by them were conveniently loaded into years beyond the 4 year forward estimate of the budget process and those years are not appearing. As the Abbott government opts not to honour those unfunded spending commitments, Shorten and the left can gleefully go running round shouting “spending cuts the hit the most vulnerable!!”. This is good politics but dismal leadership for the economic good of future generations.

  • 2
    David Hand
    Posted Friday, 4 July 2014 at 2:45 pm | Permalink

    Should be “those years are now appearing”

  • 3
    Sailor
    Posted Saturday, 5 July 2014 at 8:26 am | Permalink

    David Hand, when did the rAbbott CEASE going “gleefully .. running round shouting “spending cuts the hit the most vulnerable!!”.” when in opposition??

    Agreed, “This is good politics but dismal leadership for the economic good of future generations.”, and that’s the mob of drongos & proven useless, brainless, zombies & drones you (presumably) were overjoyed to see voted in. A bit of payback must be almost impossible to resist for Labort, especially given the spiteful vindictive cretinous performance of the dopes you elected - bullies in power, it is obvious to me,

    I doubt you agree. Tough.

  • 4
    bushby jane
    Posted Saturday, 5 July 2014 at 4:43 pm | Permalink

    Martin Parkinson seems to have sold out.
    I’m with Garnaut, I think the gains from the mining boom were/are being squandered, as we as a country are gaining very little from the huge profits that the mining companies are making. They actually don’t employ heaps of people, do not pay much tax, get huge relief from fuel tax that I don’t think is deserved (no linking of road funding and fuel tax), and nearly all other Australians have suffered hugely from the high dollar which the mining boom has largely created.
    Howard did not even build any infrastructure to speak of with his windfall, only give people tax cuts that they didn’t need and what we seem to be now stuck with when we could do to be collecting more tax revenue.

  • 5
    David Hand
    Posted Saturday, 5 July 2014 at 10:16 pm | Permalink

    Oh yes, I voted for them.
    Abbott’s not my preferred leader but they didn’t ask me.

    Abbott faced a different situation when he was in opposition. He had a truly incompetent administration to oppose. Not because they were ALP. I think the most visionary federal government in my lifetime was the Hawke/Keating ALP government.

    Bever have we plunged into debt so fast and with such disregard for the next generation. Staying in power and doing deals to achieve it were the only objectives, particularly of the Gillard administration. Selling the carbon tax to the Greens, smooching Peter Slipper, abandoning Wilkie, announcing grandiose unfunded commitments that were utterly unsustainable gave Abbott plenty to oppose.

    At least Tony is doing unpopular things. Hey, you can vote him out in 2016!

  • 6
    tonyfunnywalker
    Posted Sunday, 6 July 2014 at 2:38 pm | Permalink

    David Hand we propose to if not sooner. Abbott went to the electorate with 3 word slogans and no policies. His policies are the 75 point IPA wish list which this incompetent government is pathetic in its ability to achieve anything; even to execute even its 3 word slogans seems beyond its capabilities.
    This is the worst Government ever that spends most of its time pandering to donors than sponsors rather than generating reforms that will benefit Australian Society generally and this article is a good illustration of this.
    Totally out of step with everyone and guided by a self-serving oligarchy of cronies and lobbyists the Abbott government has lost touch with reality.
    A Government driven by arrogance and malevolence that Australia has not witnessed since the days of colonial rule where corruption and patronage was rife.
    The objective to demonise and impoverish most of the population is not what the electorate was offered in September 2003. The hidden agenda, the deceit and the lack of any moral fibre at all; has become the hallmark of right- wing Liberalism in the guise of reform by deploying the totalitarian tactics of deceit, secrecy and propaganda to achieve its ends –more reminiscent of the 1930’s than of a modern democracy.
    To promote economic slavery prompted by debit and the imposition of 17th Century economic philosophy using strategies that would even make Machiavelli rewrite the Prince for its evil intent is the Abbott agenda — offered in the guise of reform and creating a “better” society.
    As I predicted the election of Abbott would herald 1000 days of terror – a modern day Caligula but David the countdown is progressing to his electoral demise in the meantime a focus on damage control is paramount if Australian values are to be preserved.

  • 7
    David Hand
    Posted Sunday, 6 July 2014 at 6:34 pm | Permalink

    Wow Tony.
    I went through your impressive rant twice, looking for any comment at all about the issues canvassed. I expect there is some substance in the background but twice is enough.

    I am guessing you want the carbon tax kept, onshore processing to resume and everyone to be paid the same by the government irrespective of the contribution to the economy they make. I’m only really guessing because it wasn’t that clear from the froth-filled venom in your post.

    Anyway, that seems to be the general thrust of your view. Oh, and you are not a supporter of Tony Abbott. I did work that out.

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