The meme that the steadily growing economy of the last decade owes a lot to a) luck, and b) the Hawke-Keating reforms of the 1980s and 1990s, has been steadily propogating after, seemingly, starting out as a few grizzles in various corners of the blogosphere. The grizzles have, however, been getting louder, and now economist Andrew Charlton has come to the party with Ozonomics. In his new book, Charlton puts the various pieces of this critique together to form a rather comprehensive debunking of the myth John Howard and Peter Costello successfully built up for themselves about “good economic management”. Even better, it’s a highly accessible and entertaining read along the way.
Below the fold, an outline of the book, and some thoughts.
The book starts off with some anecdote-laden and well-written introductions to some basic ideas that underpin the latter part of the book; productivity, free markets, and their limitations. Through this section, Charlton critiques both the “neoconservative” (economic libertarians) and the “populist nationalist” (with which he associates both Hansonites and the old Labor left), arguing for a “progressive globalist” approach to economic policy. To greatly simplify, Charlton believes that the populist nationalist case for protectionism has been exposed as windmill-tilting by the experience of the past few decades; the neoconservative approach ignores the important role governments should play in providing opportunities and compensating the losers in a globalised world.
The next section of the book discusses at a more practical level the policy levers that influence economic growth in Australia, using the idea of the economy as racing car that should be driven as fast as possible – that is, economic growth be pushed as high as possibble – without crashing in an inflationary spiral. In this model, the Reserve Bank is the car driver. However, it is the government that engineers the car, and it is economic reform that allows the car to be driven faster, and it is at this point that Charlton introduces the reform record of the Hawke-Keating years, noting the success of the Accord, the floating of the currency, and tariff reductions, compared to the very limited reforms of the Howard-Costello years. It also examines the “recession we had to have”, making a good case that the recession allowed the Reserve Bank to keep inflation low for the subsequent boom years.
Finally, Ozonomics debunks, one by one, six key “myths” that Howard-Costello have used to bolster their image of economic competence and attack Labor:
- The Budget Surplus Myth: pretty self-explanatory, debunking the idea that budget surpluses are always a good idea.
- Debt is a Four-Letter Word: about government and private debt, while government debt has dwindled (thus leading to the neglect of infrastructure and the rise of expensive PPPs) private debt has soared.
- Workplace reform: Howard v Higgins>: the economic case for WorkChoices is thin to nonexistent, and noting the ever-rising share of the economy going to profits and the ever-shrinking share to wages.
- The Boy Who Cried ‘Interest Rates’:about the myth of interest rates under Howard, showing that the amount spent on bank interest has risen hugely and examining his historical record as Treasurer in the 1980s.
- The House Price Heist: – how the huge rise in house prices has transferred wealth from younger generations to the Boomers.
- The Tax Myth: attacks the idea that the GST, or massive tax cuts to the wealthy, have (or will) bring substantial economic benefits
The book ends with a very brief discussion of “what’s left”, the main point of which is that future progressive governments need to take into account the poor across the world, rather than thinking the world stops at Australia’s borders.
As noted above the fold, the ideas here are not new – if you searched around the Australian blogosphere and the more informed economic commentators in the media, the six “myths”, and others, have been discussed at length in the past. But this book provides a huge service in collecting the material together and presenting it in such an easy-to-read fashion and supplying much of the essential context, to the point where maybe even the Press Gallery can grasp it. Certainly, I’d expect the readers of LP to make very short work of it!
With any book like this that tries to summarise complex ideas for a wide audience, there are going to be quibbles. I’m sure the actual economists in the Australian blogosphere can do this better, but I had some questions on reading. One trivial quibble is Charlton’s use of the Baltic countries – Latvia, Lithuania, and Estonia – as evidence that flat taxes aren’t a panacea for the economy. I was there last year, and those countries’ economies are going like gangbusters, thanks very much. The contribution of flat taxes compared to the catch-up effect, joining the EU, and the enormous quantities of EU development aid probably have a lot more to do with it than the specifics of the tax system, however. More seriously, however, is any absence of the environment in Charlton’s discussion. Perhaps this is a deliberate choice in tackling the Howard myth on its own terms, but it’s rather unsatisfying. Has the Howard government’s tardiness in tackling climate change left us far more exposed to economic shocks than it would have otherwise? I suspect so, but I’m not the economist. I think it’s such a fundamental question for Australia’s future economy (and potentially damning for Howard) that it merited a least a brief chapter.
One point that I’m sure many LP’ers might dispute is Charlton’s view of the future of sectors competing directly with low-wage countries. This LP post about Thatcherism after Blair had some discussion about the preservation of a manufacturing sector. Charlton makes no bones about his view that government intervention to preserve such industries is futile “sandbagging”.
Regardless of your view on that issue, this strikes me as a very accessible, clearly written, and credible takedown of the myth that only the conservatives are able to manage the Australian economy. Hopefully, the message will spread.
If you want a taste of Charlton’s thesis, this SMH op-ed is well worth a read.