July 2015


Of clowns and treasurers

By Richard Denniss
Of clowns and treasurers

Treasurer Joe Hockey is congratulated after delivering the 2015 budget at Parliament House, Canberra, May 2015. © Lukas Coch / AAP

Joe Hockey and the myth of Coalition economic management

I remember my first lesson in economics like it was yesterday. I’d never heard a bigger bunch of crap in my life. It made no sense. The assumptions were flawed. The examples were ridiculous and the conclusions worse.

Burned into my memory from these first lessons is the sense of frustration and shame I felt. No matter how hard I tried to express my concerns, no matter what I said, my teacher’s face told me that he’d heard it all before. If I wanted to pass, I would have to agree. Greater minds than mine had puzzled over economics. My job was to remember it, and regurgitate it. And regurgitate it I did.

My high school economics teacher was a great teacher and a nice bloke. But I hated his class more than all my other classes. It wasn’t him that was frustrating; it was the language of economics. I decided to become an economist, vowing never to make anyone who doubted what economists had to say feel stupid.

Catholic priests once preached to the people in Latin to ensure that their audience had no idea what was being said. The purpose of the sermon was not to explain or persuade. The purpose was to silence. How can you criticise something you don’t understand?

Economists often speak in Latin, and in Greek. We love to wear folk down with a few deltas and gammas before finishing them off with a bit of ceteris paribus. But one of our best tricks is to use words that sound like English but to which we attach our own very specific meaning. We use simple-sounding words like “efficiency” and “unemployment” to draw the unsuspecting into our conversation. Then we slam the door on their fingers when they admit to thinking that unemployment is measured by the number of people on the dole (it’s not) or that efficiency means reducing waste (not to economists it doesn’t).

While economics provides a bunch of simple tools to help break down complicated problems, the language of economics is more frequently used to confound and confuse. Especially when it’s politicians talking about economics.

The primary purpose of the econospeak that fills our airwaves, most of which is complete nonsense, is to keep ordinary Australians out of the big debates about tax, fairness, climate change and the provision of essential services.

Econospeak is a great way to limit the options on our democratic menu. Would you like a small tax cut and a small cut in services or a big tax cut and a big cut in services? What? You want to spend more money in health and education? You must be mad. Just imagine how “the markets” would react to such a suggestion.

The whole strategy has worked a treat for the past few decades. But even the most impenetrable language can’t keep people believing that preventing climate change or letting sick people see a doctor is unaffordable, or that the best way to help the poor is to cut taxes for the rich.

A year ago, the Coalition government said we were “living beyond our means” and faced a “budget emergency” that, if not addressed, would lead us “into the eye of an economic storm”. Sound scary?

Relax. Joe Hockey did. This year there is no budget emergency. Indeed, during the May budget speech Treasurer Hockey was decidedly chipper. In 12 months he shifted from doom and gloom to urging everyone to look on the bright side of life. He used his budget speech to tell Australians to “have a go” and after the recent interest rate cut he urged us to borrow up big.

Joe Hockey spent six years in Opposition talking down both the health of the economy and the Rudd and Gillard governments’ management of it. While the international community applauded Australia’s effective response to the GFC, Hockey quibbled over the cost of individual school halls built in a rush to keep the construction industry going.

Last month Hockey dismissed those worried that the economy was slowing dangerously as “clowns”. He would know.

The problem for most Australians is the same one that I had in my first economics lesson, namely that there is a big difference between knowing something doesn’t stack up and knowing how to express it in the language being spoken at you.

But just as you don’t need a black belt in karate to call out bullying when you see it, you don’t need to be an economist to call out nonsense when you hear it. I’ll let you in on a little secret: most people talking about the economy have got no idea what they are talking about. They aren’t economists. Most of what they say has no basis in economic theory or evidence. And the vast majority of actual economists can’t believe anyone takes what politicians have to say about the economy seriously.

Last month, the government’s senior economic adviser and treasury secretary, John Fraser, sounded the alarm when he said that Sydney and parts of Melbourne were in a housing bubble. Prime Minister Tony Abbott, who dabbled in journalism and the priesthood before settling on politics, indicated that not only was he unconcerned about any possible bubble but that the rising house prices were good.

One of them is wrong.

When the prime minister contradicted his most senior economic adviser, the media barely commented. They know the prime minister is just saying the words he needed to say that day. That’s not economics; it’s politics in disguise.

The report last year from the National Commission of Audit into Australia’s public finances was the most politically damaging document produced in Australia since FightBack! sank John Hewson’s political career. Not only did it lay bare the inequity of the Coalition’s ideological beliefs but it also provided the blueprint for the most unpopular and unsuccessful budget in modern Australian history.

The audit was led by Tony Shepherd, the former president of the Business Council of Australia. Like most, he is not an economist. But clearly the prime minister thought that because Shepherd was a businessperson he was well placed to advise the government on everything from tax reform to health policy. It didn’t go well. The Commission of Audit marked the high point of neoliberal ideology in Australia and the nadir of evidence-based policy.

So what went wrong?

Like the literary classics, economic reports are more widely discussed than they are read. The Abbott front bench swarmed the media to ensure that the public all heard Shepherd’s dire warning that the budgetary sky was falling and that poor people would need a big dose of bitter medicine.

The Commission of Audit ignored the need to rein in the cost of tax concessions for millionaire superannuants, but told us there was an urgent need to cut the age pension. It ignored the need to slash the profits drug companies make, but told us sick people must be charged to see the doctor. And of course it recommended a cut to the minimum wage.

After decades of health policy that encouraged everyone to get their skin spots checked early and middle-aged men to ask for help rather than tough things out, the Commission of Audit decided we had been heading in the wrong direction. Shepherd thought we were going to the doctor too often, and that charging a co-payment would be a good way to “fix” the “problem” that he had discovered.

In explaining his rationale, Shepherd said that the average Australian visited a doctor 11 times per year, and he didn’t think that Australians were “that crook”. Despite Shepherd’s beliefs, the average Australian sees a doctor around six times per year. In fact, most Australians see a doctor far fewer times than that; a small number of people with chronic and terminal illness significantly raise the average. After six months of research and a budget of $2.5 million, the Commissioner of Audit was out by 100%.

The Commission of Audit report and the Abbott government’s first budget that came two weeks later were so ideological, so full of errors and so inequitable that nobody felt they lacked the language to critique them. Everybody simply said they were unfair.

That simple word destroyed the Abbott government’s first-term agenda.

The more the government spoke, the further it sank in the polls. No one but the Abbott front bench believed it was the lifestyles of the poor that were causing a “budget emergency”.

In calling for the Commission of Audit that its president subsequently ran, the Business Council of Australia argued that Australian governments were showing signs of squandering their economic opportunities “due to the proliferation of short-term political fixes and deterioration in adequate levels of due process” and that “what will restore confidence in the immediate term is a return to full integrity of process in policy development”.

Within two years of demanding a commission of audit, Tony Shepherd had chaired one, released a report, seen his recommendations incorporated into the 2014 budget, and then seen most of them thrown out in the 2015 budget. So much for his condemnation of “short-term political fixes” and his demand for “integrity” in the policy process.

Great economic managers like Shepherd make outrageous and incorrect statements about “the economy” and “what it needs” all the time.

The minister for employment, Eric Abetz, claimed last year that Australia was suffering from a “wage explosion”. In fact, wage growth is so low that in this year’s budget low wages were partly blamed for the fact that the government is collecting a lot less revenue than Treasury expected.

Joe Hockey has said that we are a high-tax country and that Australians spend the first six months of the year working for the government with tax rates at nearly 50 cents in the dollar. In reality, Australia has one of the lowest tax rates in the developed world as a share of GDP, and half of Australian taxpayers pay an average tax rate of less than 19%. Even someone on $300,000 per year pays an average tax rate of only 40%.

People like Shepherd, Abetz and Hockey are not talking about what the economy needs; they are talking about what their interest groups or constituents want. Econospeak helps dress up self-interest and political interest as national interest.

Almost nobody knows what the Nikkei, the Dow or the Hang Seng are. And the tiny minority who care about such things are hardly tuning in to the Channel 9 news to find out what happened to their investments. So why do commercial television stations waste so much prime time on finance news each night? Presumably for the same reason that economists speak in Latin.

The overwhelming majority of Australians think that we should spend more money on health, education and public transport. The vast majority also believe that Apple, Google and Gina Rinehart should pay more tax. Nearly everyone agrees that big corporations should be banned from donating money to political parties. But even though we live in a democracy, the vast majority’s desire for change is not sufficient to achieve it. “Business leaders” tell us that we can only make such changes after we “consult the markets”.

Like the gods of cultures past, “the markets” can be angry. They can be vengeful. And they can punish non-believers. We must consult them cautiously. To simply inquire into the fall in the iron ore price, for instance, might spook them.

While markets are real, it is absurd to suggest that they have feelings, needs or demands. A market is a place where buyers and sellers of a product come together. It might be a physical place, like the fish markets, or a virtual place, like eBay or the stock market. But markets never have feelings.

Rich people have feelings. Rich people who own billions of dollars’ worth of shares in a company often have very strong feelings, especially when it comes to government policy and tax rates. But the feelings of rich people are quite different to the feelings of “the market”. Consider the following example of how effectively economic language can conceal what’s going on. Both of the following statements are describing the same proposal:

1. Markets reacted angrily today to news that the government is considering tightening thin capitalisation provisions that have provided foreign investors with strong incentives to expand their Australian operations.

2. Rich people overseas reacted angrily today to news that they might have to pay tax on the profits they earnt in Australia. After the government announced that it was considering clamping down on some of the most lucrative forms of multinational profit-shifting, some very wealthy Americans threatened to take their bat and ball and go home if they were forced to pay tax.

Governments, and citizens, should be concerned with the impact of changes in government policy on businesses. But the notion that Australia, one of the richest countries the world has ever known, can’t change its laws without the approval of “the markets” is as absurd as it is alarming.

The trick only works when, like a monster in a horror movie, “the markets” seem close enough to feel threatening but not so close that we can see they are made of papier-mâché.

The ASX, the Hang Seng, the Nikkei and the Dow are on the nightly news to remind us that “the markets” are watching and judging us, and there is much that we don’t know and don’t understand. Greater minds than ours have puzzled over these things.

Of course, in reality the market doesn’t want anything. It is a metaphor, and it can no more judge our actions than Zeus or Apollo. The real question is whether or not the people droning on about market sentiment all the time know that. As the saying goes: the best patsy doesn’t know they are a patsy.

According to economists at the International Monetary Fund (IMF), Peter Costello was Australia’s most profligate treasurer of the past 50 years. According to global doyens of fiscal responsibility, the man described by John Howard as Australia’s greatest treasurer spent like a drunken sailor when the economy was booming. In doing so he poured fuel on the mining boom’s fire, pushed up interest rates for those with mortgages and helped cause the current budget deficits that Joe Hockey was so worried about last year.

But wait, I hear you say, Peter Costello delivered budget surpluses. He must have been a good treasurer.

Econospeak is used to conceal, not reveal.

Anyone who has ever bought a house or a new car has run a “budget deficit”. If you earn $100,000 per year and buy a $700,000 house, you will rack up a big deficit that year and, inevitably, a big debt. Is that reckless? Or irresponsible? Most people, and most financial planners, don’t think so. Neither do most companies.

BHP has been in debt for most of its 130-year history and has no plan to change that. Indeed, during the mining boom, when coal and iron ore prices were at all-time highs, BHP was running budget deficits, and its total level of debt rose from US$16 billion in 2004 to US$66 billion in 2013–14.

Most treasurers choose their words carefully. Most people interpret deficit as a problem, and a surplus as a good thing, but it’s not necessarily the case; a surplus of morphine, for example, could kill you. The following two statements convey exactly the same economic information but they have entirely different political meanings:

1. The budget deficit has grown rapidly in the past three years even as the economy has grown strongly.

2. Over the past three years the government has invested heavily in the new infrastructure that rapid economic growth requires.

Just as there is nothing “irresponsible” or “unsustainable” about an individual borrowing to buy a house or a company borrowing to invest in a profitable new project, there is nothing irresponsible about a government borrowing to invest in the infrastructure that a rapidly growing population and economy need.

Tony Shepherd knows that better than most. During his time as chairman of Transfield its debt ballooned from $282 million to $1606 million.

While Joe Hockey was claiming last year that debt was bad, he was simultaneously arguing that students should responsibly incur bigger HECS debts to help the government pay down its irresponsible debts. His message wasn’t just mixed, it was puréed.

Peter Costello played a simple trick on the Australian people during the Howard years. While economists see budget deficits and budget surpluses as tools to help manage the economy, “Profligate Pete” redefined the budget outcome as the ultimate objective of economic management. Put simply, he told us that surpluses were good and deficits were bad. So if he delivered a surplus, he must have done a good job. Right? Wrong.

Costello squandered a mining boom and convinced millions that he’d saved the country. And Hockey and Abbott have been trading on the myth of Coalition economic management ever since.

While budgets are an annual affair, economies respond to much longer cycles than the time it takes the Earth to revolve around the Sun. All sorts of unexpected shocks – some good, some bad – affect our economy. And as the unexpected boom in China’s demand for resources clearly shows, there are often a lot of kilometres, and many years, between cause and effect.

The ups and downs of the Australian economy are known as the business cycle. While academic economists argue about definitions and measurement, the economy slows down around every seven or eight years. By the middle of the noughties Australia was about “due” for a recession. But we got lucky. Instead of a slowdown we got the biggest resources boom we had seen in a century. The prices for our biggest exports rose rapidly, and so did corporate profits and corporate tax receipts. The impacts were obviously good for the budget’s bottom line.

Rather than stockpile the windfall, Costello and Howard introduced permanent tax cuts in response to a temporary increase in revenue. Costello cut by half the tax payable on income from capital gains. He trebled the threshold for the top tax bracket. He made income from superannuation entirely tax-free, even for those who earnt millions per year. He also handed out tens of billions of dollars worth of benefits to middle- and high-income earners, while arguing that the government couldn’t afford to increase unemployment benefits, disability benefits or the age pension.

The windfall revenue was so great that, despite his largesse, the budget was still in surplus. With repetition, and with vocal support from a cheer squad of “business leaders”, he convinced people that simply delivering a surplus proved that he was doing a great job.

The idea that a budget surplus is proof of good policy has no basis in economics.

Imagine an ice-cream shop in a small beach resort. In the summer months it does a roaring trade; in the winter months it’s a nice quiet place for the staff to read. Now imagine that you are the owner of the shop. In the middle of a long and very hot summer you see an ad for the car of your dreams. With ice-cream sales at record highs, you would still be in surplus even after the enormous monthly repayments. Would you buy the car on that basis?

According to the pinko lefties at the IMF, Peter Costello hosed the mining boom up against a wall. Indeed, according to the Reserve Bank of Australia, Costello’s tax cuts and middle-class welfare pumped so much money back into the booming economy of the late 2000s that he forced it to increase interest rates to “take the heat” out of the economy. (That’s another nasty economic phrase that not enough people understand. When the RBA says it is increasing interest rates to “take the heat” out of the economy, what it really means is “increase everybody’s mortgage repayments to lower their disposable income in the hope that they spend less money in the shops and cause a bit of unemployment”.)

Tens of billions of dollars worth of tax cuts and new benefits were pumped back into an economy that was already booming. Virtually all economists agree that such a fiscal stimulus when the economy is already booming is the exact opposite of responsible economic management. Theory and history say such stimulus would push up inflation and interest rates. Which is exactly what happened.

Costello must have known his tax cuts and middle-class spending splurge was economically irresponsible. Treasury told him. The RBA told him. And the IMF told him. He wasn’t doing economic policy; he was doing politics. He owned the ice-cream shop during a hot summer and gave away free ice-cream to all of his friends. The books looked OK during his tenure, but all the freebies meant that it would be a long and broke winter for the next owner.

Costello didn’t want to manage the Australian economy; he wanted to permanently reshape Australian society – to shrink the public sector and let the market provide more of our health, education and welfare services. All the things that Abbott and Shepherd have said we had to do. But to achieve his vision, he would have to cause budget deficits in the future, deficits big enough to scare the public into accepting big cuts to the services and safety nets that Australians are quite proud of. While it was easy for Costello to sell tax cuts in the boom, the big cuts in spending in the future would be a tougher sell. The task fell to Joe Hockey, and he failed at the first hurdle.

Poor Joe Hockey. It’s not his fault that Chinese demand for resources is collapsing, and it’s not his fault that Costello’s tax cuts and concessions have made the budget impossible to balance. But the job of managing those problems landed on his watch. He put more effort into blaming Labor than developing a workable plan.

The world economy has a much more significant impact on our treasurers than our treasurers have on the world economy. But politics, like astrology, needs to conflate causation with correlation. If it happened after I did something, it must have happened because I did something.

It wasn’t Gough Whitlam who caused the OPEC oil crisis and the collapse of the world economy. It wasn’t Costello’s budget surpluses that caused China to double its demand for our resources. And, despite what the Coalition argues, the meltdown of the global financial system and subsequent world recession wasn’t really caused by Wayne Swan.

In reality, most of the movement in monthly economic indicators is driven by events beyond our borders or by policy decisions made years ago.

Iron ore prices have collapsed – true. The Senate isn’t co-operating – true. Consumers and investors lack confidence – true. No treasurer has ever had it so hard – what rubbish.

While the iron ore price has fallen dramatically, it is still higher than it was in 2007. Why would Hockey have made long-term plans based on a short-term price spike?

The Senate is doing exactly what the Constitution put it there to do, and there is no evidence that it is particularly obstructionist. The Democrats insisted on fundamental changes to Howard’s GST. The Coalition and the Greens blocked the Rudd government’s Carbon Pollution Reduction Scheme. And of course, Malcolm Fraser’s Senate blocked supply and destroyed the Whitlam government. If anything, the current Senate seems to have saved this government from itself. The Coalition backbench certainly think so.

While it’s true that consumers and investors are reluctant to make long-term decisions, that’s in part because Hockey and Abbott spent so long saying that we were in the midst of a “budget emergency” and that the forecasts in the Intergenerational Report in March would “knock people off their chairs”. Consumer confidence actually picked up after the Senate blocked the worst ideas in the budget.

Stripped of all the complaining and blaming, Hockey seems to have been arguing that if everything was going well and nothing unexpected happened he could do a great job of “managing the economy”. That’s probably true, but it’s as relevant as a doctor saying they excel at treating healthy patients. Hockey has been crushed between the needs of the economy and the needs of politics. He has delivered for neither.

Since Hockey became treasurer, the number of unemployed people has grown from 688,700 to 725,200. But while mining busts always follow booms, somehow the recent collapse in mining investment took the Coalition by surprise. What’s worse than their foresight is the lack of any clear agenda for the broader economy. While Abbott believes “coal is good for humanity”, the world’s most populous country is committed to buying a lot less of it. Just as he ignores his treasury secretary on the housing bubble, the prime minister ignores economic trends that don’t fit in with his politics.

So far the policies of the Abbott government have made the impacts of the mining bust worse, not better. Rather than help the manufacturing industry recover as the exchange rate finally began to fall, it decided that the end of the mining boom was the right time to end all assistance to the car industry. Ford and Holden will soon leave Australia once and for all.

Although Abbott came to power having explicitly promised to leave the Renewable Energy Target in place, he decided to put identity politics ahead of stable policy. As a result, investment in large-scale renewable energy fell from almost $2 billion in 2013 to just $207 million last year – a fall of 90% in 12 months. (Tilting at real-life windmills on Alan Jones’ radio show last month, Abbott declared, “What we did recently in the Senate was reduce, Alan, reduce, capital R-E-D-U-C-E, the number of these things that we are going to get in the future. Now I would frankly have liked to have reduced the number a lot more.”)

Virtually every economist would agree that, in the long run, investment in education is the best way to boost productivity, labour-force participation and GDP growth. In its first budget the Abbott government decided to cut funding for schools education by $30 billion over ten years, one of the few big measures it decided to stick with in its second. Investment in research and development is also important; it cut spending on the CSIRO as well.

As the economy slows, unemployment inevitably rises. History makes that clear, as do the budget forecasts, which anticipate that next year there will be more than 800,000 unemployed people in Australia, with a million more underemployed. As firms stop recruiting, new entrants to the labour market are always hardest hit; youth unemployment is now running at 13.5%. The Coalition first opted to blame the victims, trying unsuccessfully to make young people wait six months before they could get unemployment benefits, then proposed a wait of “only” four weeks. Why can’t they all just get “a good job that pays good money,” as Hockey recently suggested?

Hockey tried to blame Sydney’s housing affordability crisis on the low wages that young people earn, seeming to imply that if they – and child-care workers and nurses – earnt more, there wouldn’t be a problem. Again, his words have nothing to do with economics and everything to do with politics.

Despite the jump in investor confidence after the 2013 election, even business leaders soon realised that it would take more than the removal of the ALP government to kickstart the economy. Consumer and investor confidence are now both very low by historic standards and, unsurprisingly in such an environment, so too is new investment spending by business.

Tony Shepherd made clear before the last election that business confidence was tied to policy stability. Who could have imagined that he himself would play such a major role in generating so much instability and uncertainty?

So what should the Coalition do?

While enthusiasm for Keynesian stimulus is by no means universal among economists, almost none of them think that cutting government spending when the economy is slowing is a good idea. In a recent essay on austerity policies in Europe, the Nobel Prize–winning economist Amartya Sen observed, “As it is quite common these days to blame economists for failing to see the real world, I take this opportunity to note that very few professionally trained economists were persuaded by the direction in which those in charge of European finances decided to take Europe.”

Two other Nobel Prize–winning economists, Joseph Stiglitz and Paul Krugman, have argued repeatedly that cutting spending while the economy is slowing is proven to increase unemployment. They have also pointed out that policies increasing inequality rarely produce long-term social or economic benefits.

Significantly, while Ken Henry, the treasury secretary during the GFC, and his successor, Martin Parkinson, supported Wayne Swan’s GFC stimulus package, John Fraser has expressed support for austerity policies and concern with fiscal stimulus. Fraser, a former banker, was appointed by the prime minister in 2014 after Parkinson became the first treasury secretary to be removed by a government since Federation.

Put simply, if Hockey wanted to prioritise reducing unemployment, he would have called for greater government spending and bigger budget deficits. But Hockey is a politician, not an economist, and his party won government on the back of a simple slogan that debt was bad. His expertise in econospeak has prevented him from expertly managing a slowing economy.

In a recent speech, the Reserve Bank governor, Glenn Stevens, warned that the next round of growth figures were likely to be weak, and he called for extra infrastructure spending by governments. Of the three broad sectors of the economy – households, governments and corporations – Stevens said households likely have “the least scope to expand their balance sheets to drive spending”. Instead of the government spurring on an already over-leveraged household sector (“Go out and spend!”), he argued that a better way to boost demand would be to spend more on infrastructure.

In what sounded remarkably like a rebuke to the government over its mixed signals, Stevens spoke about creating “an agreed story” about a long-term investment pipeline. “Impediments to this outcome are not financial,” he said. It would be “perfectly sensible” for the government to borrow for such work. Physical infrastructure was only part of the solution, though. “Skills, education, technology, the ability and freedom to respond to incentives, the ability to adapt and the willingness to take on risk” were also crucial.

The only things controversial about Glenn Stevens’ advice are the political ramifications. Does anyone outside the Abbott government really doubt that investment in infrastructure will deliver greater long-term benefits than investment in bathroom renovations?

As the mining boom ends, the short-term outlook for the economy is more uncertain than usual. But rather than use government spending to provide some certainty in the short term, and boost productivity in the long term, the Coalition’s threat of future spending cuts will affect consumer and investor confidence up front, and reduce productivity and economic growth rates down the track. The “plan”, or whatever it is, has nothing to do with economics. The primary goal is to manufacture policy differentiation from the ALP to justify the continued use of simple slogans about debt and tax.

As unemployment, the budget deficit and Commonwealth debt continue to rise, the government has a choice to make. It can admit that, like the Rudd and Gillard governments, it has found managing an economy in government a lot harder than talking about one in Opposition. Or it can double down in its rhetoric and blame the unemployed, the Chinese, the asylum seekers and, of course, the Rudd government.

“Starving the beast.” That’s what American conservatives call the strategy of causing budget deficits to justify cutting services. I call it the “right-wing ratchet” and it works like this.

When the economy is booming, cut taxes for the wealthy. Tell people it will be “good for the economy” and that “the markets will respond well”. You bet they will. When the economy is in recession, cut spending on the poor. Introduce co-payments, tighten welfare eligibility criteria and, if you’re feeling brave, cut taxes for the wealthy again. Announce that it will “give investors confidence”, and that “the markets will respond well”. They will, again.

It’s hard to believe that such a simple strategy could work so well. But then again, it’s hard to believe that priests managed to make entire populations feel guilty for having sex or insist that only men could be leaders. Speaking in Latin can make the ridiculous seem plausible, if only to people who don’t speak a word of it.

After it became clear that the Senate would not pass the spending cuts proposed in last year’s budget, Hockey flirted with collecting more revenue. He conceded that tax concessions for superannuation needed reform, and he called for a “national conversation” about tax. It lasted only a week.

The only thing Tony Abbott and “the markets” hate more than budget deficits is collecting the revenue to fix them.

The “markets” don’t want a “conversation” about tax. When corporate Australia was presented with the choice of paying more tax or having bigger deficits, their concern about the budget emergency evaporated. Funny that.

Economic language is like a castle wall that will never be breached by the slings and arrows of the masses. It is impervious to any frontal attack based on arguments of logic or democratic preference. Consider the following.

The world’s climate scientists have warned us that dangerous climate change is already happening and will get much worse. They have told us that it will cause storms bigger than the one that destroyed New Orleans and droughts worse than any we have ever endured. They have given us a timeline and a target. But we are yet to act. Getting the world’s nations to take decisive and expensive action in a timely manner is, we are told, just not possible.

Hold that thought.

The world’s economists were divided over whether or not the global financial crisis was inevitable. Those at the US Federal Reserve were convinced everything would be all right. When the GFC hit and some of the world’s biggest banks faced bankruptcy, the leaders of the 20 biggest countries met and in a relatively short amount of time agreed to spend upwards of a trillion dollars propping up their financial systems and bailing out banks. No economist was sure it would work, but the world’s leaders decided that timely, decisive and expensive action was worth trying.

It seems we can act quickly, and expensively, when we want to.

Tens of millions of people in the US were outraged that the people who caused the GFC were paid bonuses after taxpayers had bailed out their banks. They were appalled that no one went to jail. But because they couldn’t speak economics, they were trivialised. Protestors did a poor job of explaining that “recapitalising the bank” was just doublespeak for taxpayer bailouts. The angry young students couldn’t critique the effectiveness of “quantitative easing” as many of them didn’t realise it was the same thing as “printing money”.

It was a choice to throw a trillion dollars at the bankers. And it is a choice not to throw a trillion at tackling climate change. Our politicians pretend that it is a choice made by “the markets”. It’s not. It’s a choice made by our politicians.

You don’t need to be an economist to call out crap when you hear it. But unless people start calling it out and stop worrying about “what the markets think”, then one of the richest countries in the world, living at the richest point in world history, might continue to believe that we “can’t afford” to invest in a better health or education system. Indeed, we might even continue to believe that we need to double our coal exports in order to fund the fight against climate change.

Economics doesn’t tell us that we need to cut taxes for the rich or cause climate change if we really want to help the poor. And “the markets” don’t tell us that either. Those are the sentiments of some wealthy people, and some politicians who represent them. But they say it in econospeak because it sounds so ridiculous in plain English.

Richard Denniss
Richard Denniss is the chief economist at The Australia Institute.

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In This Issue

Leaping Lefers

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Favours and foreign affairs: Joko Widodo’s first year as Indonesian president

Citizenship and its discontents

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The campaign to repair the single parenting payment was a model of how research and advocacy can push government to face the cruel effects of a policy and change course

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Animal welfare concerns have long plagued the greyhound racing industry, but in Victoria a campaign from covert investigators now has a parliamentarian leading the fight

Kakadu National Park

Park of the covenant

With the Ranger Uranium Mine now closed, Kakadu’s traditional owners want the government to make good on the original promise of a national park in their care

Ningaloo, Western Australia

Writing in nature

The laureate of the Western Australian surf break sees a task ahead for our essayists, our novelists and our poets alike in the fight against climate catastrophe

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Image representing a film still of abstract colours

Tacita Dean and the poetics of film editing

The MCA’s survey of the British-born artist’s work reveals both the luminosity of analogue film and its precariousness

Image of David McBride

David McBride’s guilty plea and the need for whistleblower reform

The former army lawyer had no choice but to plead guilty, which goes to show how desperately we need better whistleblower protections

Installation view of the Kandinsky exhibition at the Art Gallery of New South Wales, showing three framed abstract paintings hanging on a wall

Kandinsky at AGNSW

The exhibition of the Russian painter’s work at the Art Gallery of NSW provides a fascinating view of 20th-century art’s leap from representation to abstraction

Image of Margret RoadKnight playing guitar and singing.

The unsung career of Margret RoadKnight

Little-known outside the Melbourne folk scene for decades, singer Margret RoadKnight’s 60 years of music-making is celebrated in a new compilation