Extract from The Guardian
The realisation that the 80s consensus won’t work in our current
economic circumstance is a boon for Labor, and it’s putting the
Coalition in a muddle
Some
big shifts in political thinking have been going on while we’ve been
distracted by voting changes and shouty Senate pyjama parties and the
“will he won’t he” speculation about a double dissolution election and
the Coalition’s public stream-of-consciousness thoughts as it tries on
different tax policies for size.
Australian thinkers, and political parties, have been grappling with a growing wave of thought that the economic challenges of the 2010s cannot be solved by the old 1980s political consensus – the consensus that said economic growth is best achieved by market deregulation and lower taxes and lower spending that generate growth, and allow “all boats to rise” by providing the revenue for governments to pay for social programs and do something or other about poverty.
The rethinking has been going on for quite a while internationally, from Thomas Piketty through to the major international economic institutions. And it turns the old consensus on its head – arguing that rising inequality harms growth, that smart social spending is not the kindly thing governments do after they raise the revenue, but rather a first order revenue-boosting exercise in itself, and asserting that governments need to intervene more to get their economies through this economic transition.
The IMF now says income distribution matters for growth. “Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth,” an IMF discussion paper said.
The OECD is preoccupied with inclusive growth, too. “The linkages between the productivity and inequality challenges are still to be fully explored,” it said in a paper. “Each may have its own solution, but there is also good reason to think that there is a nexus between them.”
Former treasurer Wayne Swan, as a member of the Inclusive Prosperity Commission chaired by Lawrence Summers and Ed Balls, argued that around the world working people had “watched their wages stagnate and business profits soar, but didn’t necessarily see the quality jobs and higher living standards they were assured would follow.” The Chifley Research Centre is undertaking an Australia-specific version.
In a new essay for Griffith Review, Time for a New Consensus, Jonathan West and Tom Bentley argue that Australian politics has been spinning its wheels precisely because the 80s consensus won’t work in our current economic circumstance but we haven’t quite figured that out yet.
In his latest Quarterly Essay, writer George Megalogenis reaches a similar conclusion. “The debate we have to have is on the role of government in the economy,” he writes. “It is being forced on us by the market failures of the twenty-first century.
“Both sides cling defensively to the open model because it tells them a reassuring story of Australian success. But that open model has been exhausted by capitalism’s extended crisis and the end of the mining boom. It cannot guarantee prosperity in the future without an active state.
“The open model excels when the economy is strong, and in response to a global shock. But it struggles when the economy is in transition, because the market forces it is responding to are compromised …
“The political system cannot restore public confidence without a more responsive government. And the economy won’t stabilise without a more active government. The default setting of politics in the twenty-first century – to trust in the market – has proven to be bad economics, even for Australia, the only high-income nation to avoid the Great Recession. It has left us with gridlocked cities, growing inequality and a corporate sector that feels no obligation to pay tax.
“If politics waits any longer to address these issues, we will muddle into a recession and government will have to prop up the economy, but from a position of weakness, with the budget in deficit and interest rates too low to cut in a meaningful way.”
So are politicians in Australia digesting these views?
In the case of Labor and the Greens, the answer is yes. It has been evident for some time that Bill Shorten is running a high-risk campaign based on these very ideas, using values-based policy to overcome the fact that he trails Malcolm Turnbull in a head-to-head popularity battle.
And I’d argue this is the real reason Labor is growing in confidence. Organisations tend to work best when they know what they are doing and why they are doing it. It helps to have a sense of purpose.
Labor’s answer was in part spelled out in a kind of foundation document released this week by Shorten and families spokeswoman Jenny Macklin.
Its starting point was that inequality is an impediment to growth, which means spending money on schools and universities and hospitals and employment programs are economic, as well as social, investments.
And this certainty of purpose also handily fits into Labor’s central political attack – the claim that Turnbull is inauthentic, a man who can’t govern in his own voice because his views are out of step with his party.
Shorten sounded convincing at the National Press Club this week when he said; “I don’t have to pretend to be who I’m not. My Labor party doesn’t have to pretend who it is not. Isn’t that one of the great challenges of leadership? It is hard to lead a nation when you have to pretend to be something that you’re not.”
I’d argue Labor’s new policy thinking is also part of the increasing vitriol between it and the Greens, along with other things like the deal on Senate voting changes.
It brings the two left-of-centre parties closer together, it makes their arguments a bit harder to distinguish. When Labor was holding firmly to the 1980s consensus, former finance minister Peter Walsh could dismiss the then Senate balance of power holders the Australian Democrats as “fairies at the bottom of the garden” when they advocated higher spending. But when Labor advocates cutting negative gearing and superannuation tax concessions to pay for health and education, and then the Greens say, let’s keep the 2% personal income tax deficit levy to raise even more, the difference is really one of degree.
And I’d argue uncertainty and disagreement about how to handle this shift is at the heart of the Turnbull government’s political difficulties.
Some of what the Coalition has done since the change of prime ministership fits the idea of more activist government, of some intervention and direction in the running of markets. Some of it has been a long way from what used to be considered truly “Liberal”.
For a start, Turnbull’s slogan has been “fairness, jobs and growth”.
He is reportedly considering issuing government bonds to invest in new economic infrastructure and to reshape cities. That would, of course, increase government debt, which was once so abhorred by the Coalition that it was depicted as a “bomb” on election posters.
Turnbull’s defence white paper was an example of government intervention that would have made 80s economists blanche, a massive investment in manufacturing and regional job creation that happens to be for defence purposes.
But his government has been giving mixed messages. Scott Morrison’s slogan is just “jobs and growth”. He describes Labor’s policies as “tax and spend”, which is, in his view, clearly a very bad thing, no matter what the money is spent on.
Asked about the idea that rising inequality is a drag on economic growth, Morrison responded on Friday as any treasurer in the 80s or 90s would have done.
“You have to grow the economy to share the proceeds ... if you don’t grow the pie there is not as much to share,” he said.
Turnbull says all policy will be judged dispassionately against the evidence. The treasurer pushed the old economic orthodoxy when he argued for a GST rise to pay for personal income tax cuts. The prime minister insisted on the modelling that showed the advantages didn’t add up.
Now the government is considering a reduction in superannuation concessions for the very wealthy and other revenue raising measures to fund a company tax cut. They are going to need some strong evidence that they know what to do about multinational tax avoidance to get away with that plan. And the at times unhinged scare campaign against Labor’s policy to reduce concessions for negative gearing hasn’t always been evidence-based either.
And all the while policies from the Abbott years remain on the books – including things like deep cuts to higher education that run entirely counter to the new economic thinking.
In short it’s a muddle, neither entirely sticking with the Abbott-era faith in the old consensus nor striking out with a national economic explanation that is new. Presumably all will be clear, and the differences reconciled, when the government brings down its budget in May – both from what it does and from the Abbott-era policies that it ditches.
But that’s very late in the electoral cycle to be telling voters what you believe in.
Australian thinkers, and political parties, have been grappling with a growing wave of thought that the economic challenges of the 2010s cannot be solved by the old 1980s political consensus – the consensus that said economic growth is best achieved by market deregulation and lower taxes and lower spending that generate growth, and allow “all boats to rise” by providing the revenue for governments to pay for social programs and do something or other about poverty.
The rethinking has been going on for quite a while internationally, from Thomas Piketty through to the major international economic institutions. And it turns the old consensus on its head – arguing that rising inequality harms growth, that smart social spending is not the kindly thing governments do after they raise the revenue, but rather a first order revenue-boosting exercise in itself, and asserting that governments need to intervene more to get their economies through this economic transition.
The IMF now says income distribution matters for growth. “Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth,” an IMF discussion paper said.
The OECD is preoccupied with inclusive growth, too. “The linkages between the productivity and inequality challenges are still to be fully explored,” it said in a paper. “Each may have its own solution, but there is also good reason to think that there is a nexus between them.”
Former treasurer Wayne Swan, as a member of the Inclusive Prosperity Commission chaired by Lawrence Summers and Ed Balls, argued that around the world working people had “watched their wages stagnate and business profits soar, but didn’t necessarily see the quality jobs and higher living standards they were assured would follow.” The Chifley Research Centre is undertaking an Australia-specific version.
In a new essay for Griffith Review, Time for a New Consensus, Jonathan West and Tom Bentley argue that Australian politics has been spinning its wheels precisely because the 80s consensus won’t work in our current economic circumstance but we haven’t quite figured that out yet.
In his latest Quarterly Essay, writer George Megalogenis reaches a similar conclusion. “The debate we have to have is on the role of government in the economy,” he writes. “It is being forced on us by the market failures of the twenty-first century.
“Both sides cling defensively to the open model because it tells them a reassuring story of Australian success. But that open model has been exhausted by capitalism’s extended crisis and the end of the mining boom. It cannot guarantee prosperity in the future without an active state.
“The open model excels when the economy is strong, and in response to a global shock. But it struggles when the economy is in transition, because the market forces it is responding to are compromised …
“The political system cannot restore public confidence without a more responsive government. And the economy won’t stabilise without a more active government. The default setting of politics in the twenty-first century – to trust in the market – has proven to be bad economics, even for Australia, the only high-income nation to avoid the Great Recession. It has left us with gridlocked cities, growing inequality and a corporate sector that feels no obligation to pay tax.
“If politics waits any longer to address these issues, we will muddle into a recession and government will have to prop up the economy, but from a position of weakness, with the budget in deficit and interest rates too low to cut in a meaningful way.”
So are politicians in Australia digesting these views?
In the case of Labor and the Greens, the answer is yes. It has been evident for some time that Bill Shorten is running a high-risk campaign based on these very ideas, using values-based policy to overcome the fact that he trails Malcolm Turnbull in a head-to-head popularity battle.
And I’d argue this is the real reason Labor is growing in confidence. Organisations tend to work best when they know what they are doing and why they are doing it. It helps to have a sense of purpose.
Labor’s answer was in part spelled out in a kind of foundation document released this week by Shorten and families spokeswoman Jenny Macklin.
Its starting point was that inequality is an impediment to growth, which means spending money on schools and universities and hospitals and employment programs are economic, as well as social, investments.
And this certainty of purpose also handily fits into Labor’s central political attack – the claim that Turnbull is inauthentic, a man who can’t govern in his own voice because his views are out of step with his party.
Shorten sounded convincing at the National Press Club this week when he said; “I don’t have to pretend to be who I’m not. My Labor party doesn’t have to pretend who it is not. Isn’t that one of the great challenges of leadership? It is hard to lead a nation when you have to pretend to be something that you’re not.”
I’d argue Labor’s new policy thinking is also part of the increasing vitriol between it and the Greens, along with other things like the deal on Senate voting changes.
It brings the two left-of-centre parties closer together, it makes their arguments a bit harder to distinguish. When Labor was holding firmly to the 1980s consensus, former finance minister Peter Walsh could dismiss the then Senate balance of power holders the Australian Democrats as “fairies at the bottom of the garden” when they advocated higher spending. But when Labor advocates cutting negative gearing and superannuation tax concessions to pay for health and education, and then the Greens say, let’s keep the 2% personal income tax deficit levy to raise even more, the difference is really one of degree.
And I’d argue uncertainty and disagreement about how to handle this shift is at the heart of the Turnbull government’s political difficulties.
Some of what the Coalition has done since the change of prime ministership fits the idea of more activist government, of some intervention and direction in the running of markets. Some of it has been a long way from what used to be considered truly “Liberal”.
For a start, Turnbull’s slogan has been “fairness, jobs and growth”.
He is reportedly considering issuing government bonds to invest in new economic infrastructure and to reshape cities. That would, of course, increase government debt, which was once so abhorred by the Coalition that it was depicted as a “bomb” on election posters.
Turnbull’s defence white paper was an example of government intervention that would have made 80s economists blanche, a massive investment in manufacturing and regional job creation that happens to be for defence purposes.
But his government has been giving mixed messages. Scott Morrison’s slogan is just “jobs and growth”. He describes Labor’s policies as “tax and spend”, which is, in his view, clearly a very bad thing, no matter what the money is spent on.
Asked about the idea that rising inequality is a drag on economic growth, Morrison responded on Friday as any treasurer in the 80s or 90s would have done.
“You have to grow the economy to share the proceeds ... if you don’t grow the pie there is not as much to share,” he said.
Turnbull says all policy will be judged dispassionately against the evidence. The treasurer pushed the old economic orthodoxy when he argued for a GST rise to pay for personal income tax cuts. The prime minister insisted on the modelling that showed the advantages didn’t add up.
Now the government is considering a reduction in superannuation concessions for the very wealthy and other revenue raising measures to fund a company tax cut. They are going to need some strong evidence that they know what to do about multinational tax avoidance to get away with that plan. And the at times unhinged scare campaign against Labor’s policy to reduce concessions for negative gearing hasn’t always been evidence-based either.
And all the while policies from the Abbott years remain on the books – including things like deep cuts to higher education that run entirely counter to the new economic thinking.
In short it’s a muddle, neither entirely sticking with the Abbott-era faith in the old consensus nor striking out with a national economic explanation that is new. Presumably all will be clear, and the differences reconciled, when the government brings down its budget in May – both from what it does and from the Abbott-era policies that it ditches.
But that’s very late in the electoral cycle to be telling voters what you believe in.
No comments:
Post a Comment