In his Lowy Institute paper “Beyond the Boom”, John Edwards has lined up a series of cherished Australian despondencies and blown them up.
· There was no mining boom, really, so it isn’t ending
· In any case, increased volumes will offset the decline in prices
· Incomes rose less during the decade to 2012 than the decade before
· Australia has not been complacent
· It is not a high-cost country
· Any export price windfall has been saved
· The budget deficits are due to lower revenue, not higher spending
· Most of that fall in revenue was due to John Howard’s tax cuts
In short, Australia has not been living in a fool’s paradise during a mining boom, and there is no crisis now.
John Edwards is one of Australia’s most distinguished economists, and is currently a director of the Reserve Bank.
He writes: “In all important respects -- savings, investment in physical assets, and in human capital, workforce participation, moderation in both household consumption and housing spending -- Australians during the resources boom have been more frugal, hard-working and attentive to the future than they were during the two previous decades, though those two decades are often recalled as models of exemplary behaviour compared to our later fecklessness.”
He describes it as the “black armband account of Australian economic history”.
“Australia’s economic history is often portrayed as one long sequence of policy errors, corrected only occasionally and only as a prelude to another period of complacent neglect engendering new errors.”
Dr Edwards’ argument that there was no boom and now no crisis will be inconvenient for those looking to use crisis to push a political or ideological agenda, so he’ll no doubt be accused of being an adviser to former Labor Treasurer and Prime Minister, Paul Keating -- which he was.
But his statistics and analysis are compelling: there’s not much doubt that Australians are beating themselves up and worrying about nothing.
Two serious questions emerge from his work: first, as the barman said to the horse, why the long face? And second, how can the success be sustained?
Dr Edwards answers the first question thus: because it’s felt that “only a crisis can motivate worthwhile change”.
So even though participants in the economic debate are well aware of Australia’s record of achievement, the whole tenor of the debate is often influenced by the premise that the Australian economy has failed in order to promote reform.
“It is a habit of mind, a routine, a trick of public conversation congenial to media headlines and Question Time histrionics.
“It is not entirely harmless. It very often disguises as imperative reforms in the general interest, proposals that in reality merely benefit one group … over another.”
I think there is a little more to it than that: economic commentary that just says everything is fine and that nothing needs to change doesn’t seem very weighty, not really worth the price of admission.
Far more credible and worthy is a column or speech that delivers a stiff lecture about the reforms that are needed, or warns of an impending crisis, or both. Satisfaction is both given and received.
Another reason, in my view, is that too much attention is paid to political oppositions in this country. Australia’s generally diligent media tries to give equal voice to both sides of politics; in fact the Opposition’s response is often the lead to a story on a government announcement.
The Opposition’s job is to constantly argue that everything is terrible because of the shortcomings of the government. Some do this better than others; the more effective the Opposition, the more convincing and prevalent the idea that everything is terrible.
Tony Abbott’s Coalition was a very effective Opposition indeed, helped by the fact that the Labor Government was hopelessly ineffective at communication, especially about economics. For example, the political pitch that there is a budget emergency and that the carbon tax has caused an industrial crisis has been so successful that a sale was made; the propositions have been purchased.
As for the question of how Australia’s success can be sustained, John Edwards basically concludes that not much is needed. To the extent that something is required, it is all about people and businesses, not the government.
“Australia’s future success depends less on changing government policies than on the responses business and individuals make to the growth of the vast regional economy based on China.
“How the Australian economy engages with this regional community and particularly whether it can extend the engagement beyond mining products into food, manufacturing and services, is to my mind the most interesting challenge … Continuing success will mostly depend on the skills of Australians -- the nation’s human capital.”
But overall, John Edwards’ treatise is a soothing one: “Within reach of a quarter-century of unbroken economic success, and with trends in the global economy suiting Australia, it is surely not remarkable that revolutionary changes are not now required.”
And unlike most pieces of economic cheerfulness, this one feels weighty.