Ian McAuley. Are Conservatives better economic managers?

Here’s a short quiz.

Over the last fifty years Australia has had 17 federal treasurers. Which two have won the coveted Euromoney “Finance Minister of the Year” award?

As a memory jogger, below is a list of treasurers in chronological order.

William McMahon (Lib)
Leslie Bury (Lib)
Billy Snedden (Lib)
Frank Crean (Lab)
Jim Cairns (Lab)
Bill Hayden (Lab)
Phillip Lynch (Lib)
John Howard (Lib)
Paul Keating (Lab)
John Kerin (Lab)
Ralph Willis (Lab)
John Dawkins (Lab)
Peter Costello (Lib)
Wayne Swan (Lab)
Chris Bowen (Lab)
Joe Hockey (Lib)
Scott Morrison (Lib)

Keating won it in 1984, in recognition of the government’s role in structural reform, and Swan won it in 2011 in recognition of the government’s deft response to the global financial crisis.

It would be arrogant (and a violation of the principles of statistical inference) for any partisan commentator to suggest this means Labor outshines the Coalition on economic management. But it is certainly inconsistent with the popular view that the Coalition is more capable of handling the economy than Labor.

Opinion polls consistently reveal that belief. In early April, even after Treasurer Morrison had paraded his ineptitude on taxation policy, when an Essential poll put the question “Who would you trust most to handle Australia’s economy – the Treasurer Scott Morrison or the Shadow Treasurer Chris Bowen?”, Morrison at 26 percent came out ahead of Bowen at 22 per cent. Even more extraordinary was a similarEssential poll in August 2014, just three months after the Coalition’s disastrous 2014 budget, that gave Hockey a score of 34 per cent compared with Bowen’s score of 23 per cent.

If there were to-and-fro movement in such polls that would be understandable, but that pro-Coalition bias has endured for a long time, and all the major polls give the same ranking on similar questions: the Coalition is consistently seen as better at economic management than Labor.

There are three possible explanations for such a divergence between popular and expert opinion.

First, Labor has been in office at the wrong time.

Labor has a knack of winning government at the wrong time. In 1929 the Scullin Government won office just as the Great Depression was unfolding. In 1972 the Whitlam Government was met with a trifecta of the greatest economic shocks of the postwar era – the 1973 middle east oil embargo, the end of the Bretton Woods exchange rate arrangements, and the severe contraction of the US economy as its military spending (on the Vietnam War) was cut back. And in 2007 the Rudd Government was in office for the other major postwar shock, the global financial crisis. All these three administrations were short-lived.

By contrast, the Coalition has had extraordinary luck, holding office during the long booms from 1949 to 1972 and from 1996 to 2007. The only time Labor had a similar good run was from 1983 to 2006, but these were not easy times for those whose lives were disrupted by Labor’s reforms, and most of the economic dividends of those reforms were realised during the time of the Howard-Costello Government.

It’s not surprising therefore that such timing may have led to negative associations with Labor governments and positive associations with Coalition governments.

We’re now seeing for the first time in many years the Coalition in office in difficult times, and it is telling that it is encountering many of the same problems that bugged the Whitlam, Rudd and Gillard governments.

Second, many people have a simplistic view of economics.

Over the last ten years, particularly during the years Abbot was Opposition Leader, the budget balance and public debt have become the almost sole indicators of economic management, as if there is something good about a “surplus” and something bad about a “deficit”. All other economic issues, such as economic structure, and the notion of a government balance sheet with assets as well as liabilities, have been cast aside.

This narrow construction of economic management results in part from the pervasive doctrines of neoliberalism and “public choice”, which have tended to dominate since 1980.  Their messages are simple: all government expenditure is wasteful, government is just a big bureaucratic overhead, and governments are intrinsically inefficient. If public spending rises for any reason that’s a clear sign of profligacy.

It is revealing to look at another recent Essential poll that asked the question “Do you think the following groups of people would be better off under a Liberal Government or a Labor Government?” and went on to list 15 groups. Respondents were in no doubt that “large corporations” and “people and families on high incomes” would be better off under a Liberal Government. But “people and families on middle incomes”, “average working people”, “pensioners” and “single parents” would all be better off under a Labor Government.

These responses reflect a strange understanding of what “economic management” means, as if economics is antagonistic to social objectives of inclusive prosperity, as if what happens in people’s lives doesn’t matter, just so long as indicators such as GDP growth are showing positive values.

Other polls consistently show people believe Labor governments do better on health and education, but these positive findings don’t change people’s negative perceptions of Labor’s economic management. It’s as if health and education have no economic value.

Any economic system that does not contribute to human well-being is meaningless, and, indeed, there is no serious economic philosophy, “left” or “right”, that does not see widespread prosperity as a desirable economic objective. (Disagreement is mainly about means.)  To suggest that there has to be some tradeoff between “economic” and “social” objectives makes no more sense than the (probably apocryphal) story from the Vietnam War “We had to destroy the village in order to save it”.

The Murdoch media, with its partisan bias, hasn’t helped. But neither have economically ignorant and gullible journalists in other media, who too readily accept propositions that there is some tradeoff between “economic” policy and “social” policy, and who look to a few simple fiscal aggregates, such as the budget deficit, as indicators of governments’ economic competence.

The “left” itself must accept some of the blame for this situation, because so many of its more strident voices have been contemptuous of economics. People like Chris Bowen must come close to despair when he hears some people on the left parade their economic ignorance.

Third, we think rich people are clever.

On ABC Radio National Barnaby Joyce, commenting on the upcoming election, quite clearly played to this belief when he said:

People are going to have a clear choice between someone who has actually made a quid in their life, made a success in their life, which is Malcolm Turnbull, or the nation being run by Bill Shorten.

That’s it. The rich are rich because they’re clever. In fact, as some followers of John Calvin may assert, their prosperity is testament to moral virtue. They’re respectable people, who know how to run the show. They’re well-spoken and so reasonable, not like the rough and uncouth unionists who turned up at the “’royal” commission into trade unions.

Like the fool in Shakespeare’s plays, Joyce has said what others prefer to leave below the surface.

It would be patronising to readers to point out the fallacy in this belief. But it’s important that we recognise its appeal.

Economic management is difficult. Just as no administration gets everything right, no administration makes a complete mess of it. Some governments enjoy fair weather, some take over the helm in times of tempest. All are seeking much the same ends.  We should be wary of any partisan generalisations about economic competence.

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One Response to Ian McAuley. Are Conservatives better economic managers?

  1. Greg Bailey says:

    A very good article, Ian. Certainly the Australian public has a minimal understanding of macro-economics and quickly become confused if anybody talks about net corporate or net government debt, let alone transfer pricing. And the politicians encourage this and the business economists–lets say they became influential from 1978 onwards–have been very successful in getting their faces in the media, especially because they are prepared to look at the short term and make predictions about interest rates and the currency, even where their listeners will not understand the relationship between these. They have been brilliantly successful in their public relations campaign, just like the ratings agencies, but unlike economists such as yourself, Steve Keen and John Quiggin, who are realistic and take an historical view.

    Equally, I think there is a strong affection–emotion intended–with the small business model, associated as it is with personal freedom, competitive behaviour and initiative. The Liberal Party is identified with this model, and have long been. This helps them assume the title of responsible economic managers, even though they only support largely monopolistic corporations. In this sense the mythological image trumps the reality of macro-econoic organisation in a neo-liberal state. Moreover, small businesses have a human face, big business does not.

    The question is this: how do we change this perception, and wind back the neoliberal state?

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