Only a short blog post today as it is Wednesday. My father, in fact, used to say that ‘leopards do not change their spots’, when referring to people who in one period behaved one way and then when sprung would pretend they were reformed. I was thinking about that when I noted that the queue to the magical reinvention door is getting longer by the day. This is the process, whereby a person, who previously advocated neoliberal macroeconomic policy interventions from the sidelines (as an academic economist or media commentator) and/or executed them from a position of power (say, as a Treasurer or Minister of Finance), starts attacking present day governments, who inherited their own fiscal surplus obsessions, and are, like they did themselves, driving their economies into the ground as a result of the same obsessions. Who is in the spotlight today? None other than the former Australian Treasurer, Paul Keating who was reported in the press this morning (October 30, 2019) – Paul Keating slams Liberal party ‘surplus virus’ (paywall) – as being critical of the current government for keeping the “Australian economy ‘idling at the lights'” as a result of “running Australia’s budget like a ‘corner shop'”. He urged the government to stimulate the economy with fiscal policy. Now before we get too excited, and this applies to all the goons who come out claiming they wanted fiscal stimulus all along, these characters typically blow their cover and reveal their true DNA when they reflect on their own track records on the subject. But it is an interesting, if not amusing, pastime watching these characters try to revise their CVs to look like they ‘knew it all along’ as they try desperately to retain relevance and get on the right side of history. We are not that stupid though.
In today’s article, Paul Keating was critical of the current government for acting:
… as if “it’s naughty not to be in surplus”.
He said that:
The budget of the commonwealth of Australia is not like the budget of a corner shop, that you must … be able to close the door on Friday night and be in surplus.
The economy is idling at the lights … it’s like the car idling at the lights and waiting for the lights to turn green to take off again. The economy at 1.4 per cent is simply idling …
I received several E-mails this morning when the article came out from friends or others suggesting that Keating was now channelling Modern Monetary Theory (MMT).
Don’t hold your breath though.
He also told the journalist that:
I had four surpluses in my years, the first since the 1950s … Peter Costello, after me, was right about surpluses. But I think Peter’s … put a surplus virus into the Liberal Party bloodstream. They think you’ve got to have a surplus.
This is the DNA give away.
Keating became Treasurer in 1983 and inherited the emerging neoliberalism about deregulation, privatisation and the obsession with the pursuit of fiscal surpluses.
He inherited a weak economy but set about pursuing surpluses as soon as he could and by 1987-88 fiscal year recorded the first of three consecutive surpluses – 0.4 per cent of GDP, 1.5 per cent of GDP and again, 1.5 per cent in 1989-90.
The data shows that he only recorded three surpluses during his period as Treasurer.
Further, his praise for the Costello surpluses (he became Treasurer when the Conservatives took power in 1996) and was only able to achieve those surpluses because the financial market deregulation mania that both Keating and Costello implemented reduced regulations on banks and oversight by the authorities and led to the credit binge that saw the household saving ratio move into negative figures and household debt rise from about 60 per cent of disposable income to 180 odd per cent.
Without that unsustainable credit binge, the economy would have tanked under the strain of Costello’s fiscal drag (the surpluses) and he would have been back in deficit quick smart.
Just as Keating experienced after his obsessive pursuit of surpluses.
In 1990-91, Australia had its worst recession since the 1930s.
Paul Keating was then Treasurer, a Labor Treasurer and subsequently became Prime Minister for a few years.
He flippantly said in November 1990, when still Treasurer, that Source:
The first thing to say is, the accounts do show that Australia is in a recession. The most important thing about that is that this is a recession that Australia had to have.
The recession was incredibly damaging in terms of lost incomes, rising unemployment and underemployment became entrenched for the first time as employers scrapped full-time work and converted the tasks into casualised fractional jobs. That was a one-way street – underemployment has never come back down to pre-1991 levels.
This was in the early period of monetary policy dominance and the fetish for fiscal surpluses that paralysed fiscal policy and created the conditions for that recession in Australia and elsewhere.
The following graph shows what happened.
At the same time, towards the end of the 1980s, the RBA had pushed interest rates up to the ridiculous levels claiming it was fighting inflation but really just setting the economy up, accompanied by the fiscal surpluses for a major crash.
This was in the context of the dominant view that had emerged that monetary policy should be left to do the counter-stabilisation functions, in this case, to slow the economy to wipe out inflation and the reduce the trade deficit, while fiscal policy had to be about running down the federal government’s debt balances.
It was straight neoliberal myopia.
And here is what happened to unemployment and underemployment.
The problem was that Keating refused to ease up on the contractionary fiscal stance despite the economy heading into its worst downturn for 60 years. He kept claiming there would be a ‘soft landing’ and there was no need to relax the tight fiscal policy.
He also believed that the cuts in the interest rates, as the RBA finally realised the ridiculously high rates were damaging the economy, would allow the economy to slow down and then transit back to strong growth.
This was the mindless faith in monetary policy to solve the spending gaps that occur over cycles. The problem was that monetary policy is incapable of doing the job these characters require of it. And exacerbating a declining economy with tight fiscal policy just guarantees a recession.
Eventually, Keating conceded and introduced a modest fiscal stimulus – but the damage was done and it took years before the unemployment rate fell much.
He was the architect of exactly the same crimes that the current government are committing in the name of ‘fiscal responsibility’.
In 1992, I published an article – Too Little, Too Late? – which is one of many articles I wrote at the time, both in academic circles and Op Ed outlets, criticising the Keating approach.
In that article I argued that in the decade leading up to the 1991 recession, there had been a major decline in public infrastructure as a result of the surplus obsession of our government.
I commended the Federal Government at the time for announcing a major infrastructure spending program (called “One Nation”) but was critical of the unwillingness of the Government to engage in large-scale job creation.
At a time when unemployment was at obscene levels due to government inaction (and surplus sabotage), the official line was that the mass unemployment was a “structural” problem “requiring more training provision”.
I did some calculations on how the Government could wipe out unemployment with a large-scale job creation program and argued that it “would quickly increase consumer and investor confidence, while lessening the social costs associated with high unemployment and low household income.”
My argument was that the “recession was engineered by restrictive policy” and that the solution was “an immediate and direct stimulus … followed by medium term initiatives like training and public infrastructure development”.
So, I welcome anyone who can concede they were completely wrong in the past and have changed their ways.
I do not welcome into ‘our’ camp those who criticise the current policy makers for doing exactly what they did themselves in the past and who still hang onto the myth that their pursuit of fiscal austerity was responsible.
The obsession with surpluses caused the monumental recession in Keating’s period as Treasurer and he was too obdurate to change positions quickly enough. The same fate is approaching for Australia as the current government practices the same fiscal obsession.
Japan Speaking Tour – November 2019
Here are the details of my trip to Japan. I leave for Tokyo tomorrow.
- November 2, 2019: Seminar at Kyoto University from 14:00 to 17:00. The venue is the Shirankaikan, which is a conference hall in the Faculty of Medicine.
- November 4, 2019: Seminar at Ritsumeikan University, Kyoto organised by the Rose Mark Campaign group from 13:30 to 16:30. There are limited places for this event so write to firstname.lastname@example.org for more information. The location is the Kyoto City International Foundation. For Details
- November 5, 2019: Tokyo Symposium and Press conference at the Diet Members’ Office Building (Parliament) from 14:00 to 17:00.
- November 6, 2019: Press and media engagements and private meetings.
- November 7, 2019: Press and media engagements and private meetings.
If you want to meet with me while I am either Kyoto or Tokyo then please send me an E-mail and I will see what I can arrange. The schedule is very tight though.
The Green Old Deal
Given we are all going green these days, I thought I would listen to this classic – probably some of the best guitar playing one could ever hope to hear.
This was recorded in 1967 and appeared on the expanded release version of the album – Crusade – recorded by – john Mayall & The Bluesbreakers – when the band had the incomparable – Peter Green – on guitar going out the door and the pre-Rolling Stones Mick Taylor coming into the band as an 18-year old.
Peter Green joined Fleetwood Mac after he left John Mayall.
On this track – Greeny – we have John Mayall (keyboards), Peter Green, Aynsley Dunbar (drums) and John McVie (bass).
It was John Mayalls’ third studio album and was released on Decca Records on September 1, 1967 (and followed the magnificent – Hard Road – album released earlier that year).
One cannot imagine better playing really.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.