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  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.
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“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.