Labor’s Conservative Tilt

My piece in yesterday’s Fin. The write-off and headline didn’t quite capture the distinction I wanted to make between Gillard (total embrace of neoliberalism) and Swan (Keynesian but not Keynesian enough).

Set piece speeches and articles setting out a government’s thinking are something a rarity these days. But in recent weeks both Julia Gillard and Wayne Swan have entered the fray. Their contributions provide a lot of insight into the thinking behind the forthcoming Budget, not to mention the contrast between the government’s current approach and that set out in Kevin Rudd’s much-cited Monthly article from 2008.

Gillard’s speech was more notable for its omissions than for its positive content. There was no mention of equality, poverty, unemployment, justice and injustice,, rights or freedom.

Gillard’s rhetoric was more reminiscent of John Howard than of Gough Whitlam, as in her declaration that “We have moved beyond the days of big government and big welfare”.

Gillard’s positive view of what Labor stands for is startlingly limited. Labor’s historic mission is, she says ‘to ensure the fair distribution of opportunity’. Even in this context, Gillard cannot bring herself to utter the word ‘equality’.

The Liberal Party of Australia, in its Federal Platform, is not so squeamish, asserting that it believes ‘In equality of opportunity, with all Australians having the opportunity to reach their full potential in a tolerant national community’ . Similarly bold statements in support of equality of opportunity have been made in the past few months by the British Conservative Party and even the US Republicans, who declared ‘Where opportunity is unequal, we must make it open to everyone.’

So, Gillard shares the goals of the political right, but is unwilling to to take any serious action to promote them. In particular, she has effectively abandoned the ‘Education Revolution’ which was the flagship of the Rudd governments attempts to promote opportunity, and has carried on the Howard government’s system of school funding.

Wayne Swan’s contribution in a recent Fabian essay, defending Labor’s Keynesian credentials, is an altogether more serious effort. Swan correctly argues that Labor’s fiscal stimulus in response to the Global Financial Crisis saved us from a recession.

He goes on to make the case that ‘if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again. That means a speedy return to surplus’

That case is certainly sound in principle, but there are some obvious problems with the way Swan is applying it now. The first is one of timing. The 2009-10 Budget, which included a large deficit as a Keynesian stimulus, proposed a return to surplus by 2015-16. This was seen at the time as quite ambitious but, by May 2010, with economic conditions much stronger than expected, it seemed as if the government had not been ambitious enough and the target date was brought forward to 2012-13.

Over the past year, however, the economic news, both locally and globally, has mostly been bad and tax revenue has fallen short of expectations. On the government’s current policy settings, the return to surplus would be delayed, though probably still ahead of the original 2015-16 target.

From a Keynesian point of view, that’s exactly what should happen. Although the slowdown isn’t enough to justify an active fiscal stimulus, the standard Keynesian prescription would be to allow the automatic stabilizers to work, smoothing the path back to full economic recovery. Unfortunately, that’s not what the government is doing.

Rather than adjust the target to reflect the fact that the strong conditions of last year have not been sustained, the government is planning sharp spending cuts, not justified by any evaluation of costs and benefits, to ensure that the target is met on the new timetable. An even bigger problem, reflected in Swan’s rhetoric about “making way for the private sector” in the recovery is the government’s insistence on holding down the size of the public sector relative to national income.

As Kevin Rudd observed in his Monthly Essay, such thinking was discredited by the Global Financial Crisis. The crisis demonstrated the dependence of modern economies on the ability of the state to act as a financier of last resort and as a source of fiscal stimulus.

In these circumstances, there is no justification for holding down the size of the public sector if it means rejecting policies for which the benefits outweigh the costs. A genuine revival of Keynesianism requires a hard look at all the ideas that produced the global financial crisis, and were discredited by it.

30 thoughts on “Labor’s Conservative Tilt

  1. Between the metooism of Beazley on boat people and the lurch to embrace the values of the right from Gillard, it is has become quite apparent that Rudd, flawed as he was, represented the high-water mark for social democratic values in the ALP. The fact that Swan is now on the left of Gillard ought to give pause to anyone who holds similar values.

  2. @djm
    I think you are right djm. We voted for Rudd and we got Gillard and something big went missing in between.

  3. Im still cranky about workchoices and broken promises. Did big Red done and dust them? NO. She did not.

  4. Interestingly, Milton Friedman, Ayn Rand, Freddy Hayek, and a great variety others who certainly were not in favour of equality or rights, or at least not in their ordinarily interpreted meanings, would also amost certainly subscribe to Gillard’s “to ensure the fair distribution of opportunity”. Although, again, each of their interpretations of “the fair distribution” being somewhat non-standard.

    More and more, Gillard seems to be channelling not only John Howard, but that other notatable red-head. Maybe Gillard is already eyeing the post-PM life which may be best supplied by cosying up to the big-end of town.

    With the increasing inability of the democratic process to provide any representation at both state and federal levels, maybe now is the time to start wondering when we will have our Arab Spring?

  5. Perhaps Julia’s advisors correctly predict just how ludicrously successful the Ayn Rand movie Atlas Shrugged will be, especially when leveraged by the right.

    How do you get Gillard to hire advisors who actually share a progressive, dare I say communitarian philosophy and how to promote it, rather than trying to appease the libertarians?

    I’m feeling quite sick about all this…

  6. Equality of opportunity is an admirable goal. Equality, on the other hand, is arguably beyond the province of government. True equality prohibits freedoms. Giving everyone equal opportunity not only leaves rooms for freedom, but it promotes freedom. I think it is the right line for any political party to be taking.

  7. I wonder if Paul Howes’ AMU Sabre -rattling today doesn’t indicate another reason for Gillard playing it so cautiously. Does his unhelpful bunkum presage a destabilisation campaign from with the ALP, after all.
    Why keep government when you can indulge in the vicarious thrill of knifing a factional opponent?
    The Humungous Transnational Corporations will be happy Howes, but who else? To me it looks more like the Gunns saga all over again, only writ large.

  8. Freelander:

    “With the increasing inability of the democratic process to provide any representation at both state and federal levels, maybe now is the time to start wondering when we will have our Arab Spring?”


    1. “inability…to provide representation”? We have independents and minor parties delivered by exactly that process to, hopefully, keep some check on the worst of the main parties.

    2. As for going all Egyptian, hey why not? But in this country it would start with the offices of News Ltd and their mirrors in the ABC then, if necessary, move on to those of the ALP and LNP.

    That is how a true ‘pro-democracy’ movement would look in this country.

  9. @Ron Lubensky
    says “I’m feeling quite sick about all this…”

    It should be the Gillard government who is feeling quite sick about all of this. I remain astonished by NSW Labors complete inability, within the internal workings of the party, to be able to see the rising tide of condemnation for their mindless privatisations, their slavish adherence to the decrees of US ratings agencies to keep their triple A rating (what for when they never borrowed to build jack?) their inability to deal with growing infrastructure problems, their complete devaluation of local councils decisions, and their arrogance in doing so.

    Surely it should serve as a warning that we dont want the same from Federal Labor. Does Gillard see her own neoliberal monologues as appealing to the majority of voters? Betrayal of labor voters is rife in the party, it seems to me.

    Maybe those NSW minders got jobs in Federal labor and set to dressing up Gillard in fluoro jackets and hard hats with the stock standard speeches they used to deliver to Kenneally.

    If I was Gillard Id be afraid, very afraid.

  10. Prof. Quiggin or: How I Learned to Stop Worrying and Love the Labor Party.

    As cold as the comfort is I am impressed by Labor’s ability to lead it’s flock to “the party of self-interest” with total disregard for the long term consequences of the action.

    I’m too young to remember that there was once a party of significance called the Democratic Labor Party, and I might not be too old to see the Labor Party suffer the same odium.

    That said, the recent NSW election was a good start.

  11. It seems to me that the main issue is that Julia Gillard, and a certain group of ALP staffers, are intellectually timid precisely because they think they can get away with an insipid pandering to conservative media, rather than paint a bold intellectual picture with attendant commitment to action. They are afraid of being held hostage by the media – gun to head with 5 chambers a’rockin – wondering at the fallout once a policy action hits its first hurdle. They were already right of centre in their thinking, but once a few of the more traditional left leaning ALP ministers got lashed for preconceived crimes of “waste” by the media, they too fell in with the notion that intellectual retreat is the way foward. They futilely hoped that the media would take a positive view on this equivocation and that the mug voter wouldn’t notice; risibly it is the other way round, for onetime supporters of the ALP (like quite a few regular posters here) have noticed and been quite rightly offended by this, and yet the media have apparently not detected the significant shifting of the goal posts, perhaps because they simply assume that conservative-right is “normal”.

    I suspect that the none-too-subtle changes in the mission of MSM over the past five years or so has spooked upper ranks of the ALP. Media reporting is now more in the nature of a drive-by shooting than a considered and thoughtful analysis of news-worthy items; with the ex PM John Howard carefully stacking of the ABC board to be entirely from the conservative side of the political spectrum; with that same ABC board moving in the IPA to have an unrepresentatively large voice and impact via ABC sourcing their “content” (aka “shite”): all of these things made the entire media, from public broadcasting through to the most conservative radio station (eg Alan Jones in NSW) mean that the ALP can get air time, but not on terms that suit it. There is nowhere to turn for the MSM is the principal means of gaining the widest reach. My opinion is that the ALP has by a process almost of default, adopted a small-target, conservative-target strategy, the foremost purpose being to avoid media shut-out. Meanwhile, they hoped the voters wouldn’t notice, but how could we not? The meaning behind the brand has changed, and they cleansed that very brand by removal of its elected leader (bye-bye, Kevin ’07).

    The most recent seismic shift is probably driven, once again, by a perceived need within the senior ALP ranks to distinguish themselves from the Greens. Once again though, this preconception is viewed through the media lens and gets it arse-backward: the media should not be the catalyst of change, and yet it is. The media criticise the Greens and so Labor run a mile from their own coalition partner, rather than defending against what are so often infantile critiques. The ALP’s future is not going to be a good look, if they keep this up.

  12. @Brad

    Equality isn’t equalisation. Equality of opportunity can often be nothing more than code for the status quo, or a move toward greater inequality. Equality is about equal rights and about providing all with the where-with-all so that their opportunities are equal and their rights can be exercised, rather than allowing those with existing advantages of class, social position and wealth to lever whatever other advantages they have to always scoop all the prizes in perpetuity.

    You don’t have equal rights if you don’t have the basic where-with-all to exercise any of those rights, in much the same way as to talk about a quadriplegic having the ‘right’ to skip or jump is completely meaningless.

  13. Ayn Rand probably thought that Atlas Shrugged was a novel that was all about the importance of equality of opportunity.

  14. said it before:

    ayn rand—-illegal immigrant.
    —-married to obtain citizenship.
    —-wrote fiction.

    “equality of opportunity” smacks of glass walls and mealy mouthed mutterings.

    get a grip Jools–just because your advisers have spent their whole working life doing nothing but politics doesn’t mean they know what they are talking about.
    ask yourself,while you could go back to private sector employment,could they?

    if OZ is to be a regional financial powerhouse why doesn’t the ASX buy the SGX?

    keep it as a branch office subject to Aust control and all the benefits spuiked about the reverse action are gained plus oversight and access to the region.

    of course the lee family might not like that .

  15. Freelander, equality of opportunity is greater than equality of rights. You can’t have equal opportunity without equal rights.

  16. @Brad

    You can if you simply provide everyone with the equality of opportunity to earn their rights. That way they can’t whine if they didn’t ‘earn’ their equal rights. After all, they had the chance.

  17. I remember my US right-wing Econ 101 teacher yammering on about how the US had gone past equality of opportunity and that our system had already become too “communistic”.

    I could only think of “communistic” ideals about the abolition of the family. To me, that is the only way to achieve true “equality of opportunity”.
    The phrase, “equal opportunity”, has been so co-opted that I feel it means nothing.

  18. Slaves in the antebellum South had equality of opportunity. After all, they could purchase their freedom. What they suffered from, was an absence of cash!

  19. Somehow this thread reminded me of “The Life of Brian”, and the argument about a man demanding the right to have a baby if they want to – it is pointed out that you need a womb, but no, the man insists on having the right, even if not the means. I think it was in TLOB, but Monty Python crew in any case. Those were the days, watching TLOB, swilling beer and being indolent bludgers 🙂

  20. Pr Q said:

    Swan correctly argues that Labor’s fiscal stimulus in response to the Global Financial Crisis saved us from a recession.

    This is a gross misreading of history and dubious Keynsian apologetics. It was the L/NP and RBA which did most of the heavy lifting in helping AUS to avoid a recession. Swan and Left-wing economists have hyped up the virtues of fiscal policy for partisan ideological reasons.

    For a start, AUS’s recessionary tendency was barely noticeable. No doubt the fiscal stimulus did its bit to help us dodge the bullet. But its impact was greatly overrated. Far more important than fiscal policy was factoral, financial and forex policy.

    Ironically, fiscal policy that did most to save AUS’s bacon was run by the CCP of the PRC, not the ALP in AUS. Keynsian economists should be getting down on their knees and kow-towing to the Politburo. Instead they tend to express vague hopes for a democratic uprising in China. Thats gratitude for ya.

    The core factoral policy that saved AUS from recession was Howard-Rudd astronomical rate of immigration which underpinned the housing market. All those Asian students bolstering demand for Residential Investment Property meant very few mortgages went bad.

    Next was financial policy, Treasury reinforced the Big Four banking oligopoly which was more conservative and easier to regulate, so not so prone to M&A derivative excesses. Plus the RBA’s four per cent cut in the cash rate, started six months before Lehman’s went belly up.

    And finally fore-ex policy was expansionary. The AUD declined by about 20% in the aftemath of the GFC, which greatly compensated for the adverse effect of the Terms of Trade on Gross National Income.

    Its important to not in retrospect that in the run-up and height of the GFC Pr Q was talking darkly about prolonged recession and definitely tending towards the Steve Keen view of impending doom. Whereas in OCT 08 I predicted that AUS would be “odds-off for a recession”.

    Obviously my prediction was closer to the mark, therefore my model of AUS’s economic policy must have been more true to life. But Pr Q would rather appear as a contestant on the Biggest Loser than acknowledge he got beat by me on this debate.

  21. Since the only game in Canberra seems to be winning the right to polish the Treasury benches with their bums, I await the day when the ALP goes into coalition with the libs so that both sides can “win” in perpetuity and running the country can be left to Rupert, Gina, Clive, James, Lachlan, Andrew etc etc; the people who have demonstrated that they are more equal than everybody else.

  22. I note with disgust some happenings with Obeid. First he purchases a house for 8.5 million in Hunters Hill from a friend called Hakim after it was on the market immediately before for 13.5 million. A current creditor bank of Hakims gets mightily ticked off at the below market price and puts pressure on the bank holding the current mortgage (NAB if I recall correctly). The current mortgage holder plays it safe and says “right – this property must go to auction”.
    The real estate agents arrive at the first open for the auction campaign to find someone has broken in, turned every tap on for days, the place is flooded and damaged…

    Does anyone think like I am thinking that there is an extra 4 to 5 million or so that was offered for this place under the table and both buyer and seller are annoyed?

    Is this Australia or the Middle East?

  23. @Alice

    Modern Labor, bastion of self interest. Don’t you just love it.

    Not that I’m suggesting anything suss was happening. Depriving creditors of their coin just doesn’t happen in an Ayn Rand moral reality.

    Nudge, nudge; wink, wink. Say no more…

  24. How Fast Eddie would love to escape this hellhole for the comparative luxury of a straw mat and half a bowl rice, on the streets of Calcutta. Still, a humungus great mansion, but it’s hard to
    “always look in the bright side of life”, for these gnarly handed sons of toil.

  25. @Alice

    Those ATO b’stards alway picking on the rich and powerful. Look how they have hounded poor old Crock-of-hidden-Gold Dundee!

  26. @Freelander
    I sort of like Mr Ascenzio Freelander. He has never given me any trouble and he is on the right track. I just wish he would give the Obeids and Hakims a bit of a going over.

    Avoidance of tax with funny money going on over a house in Hunters Hill!

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