In 2012, while unemployment and underemployment was still at elevated levels after rising in the early days of the GFC, non-government spending was weak, the external deficit was around 4 per cent of GDP, real GDP growth remained well below its trend in the 5 years before the GFC, and the economy was no-where near full employment, the then Treasurer, Wayne Swan launched into the largest fiscal shift away from deficit in recent history (in the modern era since 1970). He was obsessed with ‘getting the budget back into surplus’ in the following year because somehow he had gleaned from the work of John Maynard Keynes that a responsible government has to pay back deficits with surpluses. The Australian government’s deficit had risen because tax revenue had fallen as a result of the slowdown in activity and because the Government introduced a rather large fiscal stimulus, which saved Australia from going down the recession route that other nations were mired in. Maintaining that deficit or enlarging it with further stimulus is what a responsible government should have done. But Swan, apparently thought that with Europe heading further into the morass (as a result of mindless austerity) that he had to show the world what a good government does – run surpluses. Apparently, he thought the credit rating agencies would close the government down. Apparently, he thought inflation would runaway from its low levels. Apparently, he believed the lie that fiscal deficits pushed up interest rates. Apparently, he didn’t know that introducing fiscal contraction when non-government spending was weak would further slow the economy and damage confidence. All of which happened. Quite obviously he didn’t know a thing. Swan, ever the politician (but in opposition now) is apparently thinking differently – now he is claiming fiscal deficits have to rise to push the economy towards full employment. This chameleon-like performance is rather sickening given the damage he caused when he was actually the Treasurer in charge of fiscal policy and full of neo-liberal lies and confusion.
Last week (March 15, 2017), former Australian Treasurer Wayne Swan, now an Opposition backbencher, gave a speech in Adelaide – Beyond the GFC: Foundations for Prosperity and Inclusion – at one of our universities, which were compromised by Federal spending constraint while Swan was Treasurer (2007-2013).
He castigated the G20 for being “woefully impotent in meeting the challenges posed by these trends”. This is a G20 that he himself praised as being on the ball during the crisis ((Source).
He claimed that “In the United States in particular, this failure of leadership has allowed radical populists to seize the initiative.”
What, instead of Hillary and her corporatist bankster-type mates implementing neo-liberal attacks on the poor and increasing inequality even further?
His message was that:
… it seems undeniable we are witnessing the most significant shift in the tectonic plates yet of the European-American political and economic order …
[and] … that this is not a time for “business as usual” in this political and economic climate.
1. “Policy makers need to implement new reforms to kick start inclusive growth.”
2. “The trend towards rampant inequality has to be reversed, and economic growth must be reshaped to deliver benefits for all.”
3. “Let’s look beyond the GFC and talk about the role government has to play in this challenge.”
Which all sounds fine to me.
But then he starts articulating what he means by these statements. Wheels fall off at that point.
He lauded the fiscal intervention that he introduced as Treasurer (while still in government) in late 2008 and early 2009.
As the crisis unfolded it became increasingly clear it was no ordinary financial crisis. We quickly realised we were staring into the economic abyss …
[We were] … willing to do whatever it took to spare the wider community from the horrors of another Great Depression.
…. Our willingness to embark on two significant stimulus packages, totalling just over $50 billion in the face of significant domestic political and economic opposition set Australia apart from most other advanced economies.
And we knew that the political fallout would see us held hostage to Tea Party scaremongering particularly from the Liberals and their allies in the Murdoch press.
Daily we faced the confected fear campaign about higher debt and the inevitability that there would be implementation issues associated with the roll out of such a large number of construction projects.
And the Government, initially resisted all that mindless pressure and the stimulus did save the country from recession, albeit with a slowing of growth and a rise in labour underutilisation because the intervention wasn’t large enough (that is, they didn’t fully ignore the neo-liberal squawking).
He then turned to what the “Economic Role of Government in the 21st Century (Fiscal Policy)” should be.
He was correct in saying that:
Wealth Isn’t Just Created In Mahogany-lined Boardrooms
Central to combating populism is government and society’s view of the generators of growth.
We need to recognise that nurses, builders, teachers, construction site labourers, hairdressers, shop assistants, waitresses and truck-drivers are all as much generators of growth as bankers, investors, businesses and multinational companies are.
As the IMF has shown increased inequality erodes the spending capacity of the middle class who support the demand necessary to drive economic growth.
Spending equals income. A nation cannot cut spending without cutting income.
Which then exposes the massive gap in what is largely a self-congratulatory speech by Wayne Swan.
Yes, we did well to avoid recession but what did we (HE) do then?
In late 2008 and early 2009, the Federal Labor government in Australia introduced a significant fiscal stimulus program encompassing cash handouts to stimulate immediate consumption (the so-called ‘flat screen’ stimulus – because there was a rush on new TVs) and two large infrastructure initiatives (school building enhancement and insulation in all homes).
It worked virtually immediately as it was designed and while the rest of the world was falling into the morass of recession, Australia barely noticed the GFC.
It was a very sound intervention from a macroeconomic perspective even though the design of the programs did not yield enough jobs per dollar spent and the stimulus wasn’t large enough.
Wayne Swan was Treasurer then.
Prior to the crisis emerging, he was pumping the line the the biggest threat facing Australia (and the World) was inflation, which at the time had little foundation in reality. He thought it sounded ‘responsible’ to play into the hands of the conservative lobby who wanted even bigger fiscal surpluses despite broad labour underutilisation remaining around 9.5 per cent (at the peak of the last cycle).
Then came the stimulus which saved Australia from recession.
Within a short period though, Wayne Swan was back to appeasing the neo-liberal ‘fake knowledge’ crew (most economists) trying to claim that while he was a Keynesian and that meant he had to return to fiscal balance back to surplus as soon as possible.
In the 2011-12 Fiscal Statement (aka ‘The Budget’), delivered in May 2011, we read that:
The Budget will get back to surplus in 2012-13 as planned, get more people into jobs and spread the opportunities from Mining Boom Mark II to more Australians.
Things were deteriorating in Europe and Britain (after the first George Osborne efforts) and in December 2011, the Australian government issued its Mid-Year Economic and Fiscal Outlook which said:
… the Government remains on track to deliver a budget surplus in 2012-13 … downward revision to the economic outlook from Budget has reduced tax receipts by over $20 billion … Lower employment growth since Budget is impacting on taxes on wages and salaries, and volatile financial markets are affecting equity prices and hence capital gains receipts …
While the revised outlook for revenue has made the return to surplus more difficult than at Budget, the European sovereign debt crisis has underscored the importance of maintaining fiscal credibility.
In his preparation for the 2012-13 Fiscal Statement, he told the ABC News (March 7, 2012) – see Surplus in the spotlight as economy slows – that:
I believe it’s really important to return the budget to surplus … It sends a very clear message to the world that Austra