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.