Economics Dumbed Down

Reposted in full from the Centre for Policy Development, 25 July 2010

'Given the distortions in the Opposition’s rhetoric on economics, it’s worrying that polls consistently show voters rate the Coalition so highly on economic management, writes Ian McAuley

Notice something strange in the opinion polls? Essential Media polling has surveyed Australians on a number of specific issues, asking which party they would trust to handle various issues. On education, jobs, industrial relations, housing affordability, climate change and the environment Labor easily scores ahead of the Coalition.

Yet on the question “management of the economy”, the Coalition still leads by a comfortable margin.

There is a strange contradiction in these figures. If economic management isn’t about ensuring high employment and harmonious labour relations, conserving scarce environmental resources, keeping housing affordable, and investing in education, what is it about?

The answer lies in the rhetoric of the Opposition, for whom “economic management” has come to mean keeping a balanced budget. Counter-cyclical economic management to stave off the recession suffered by most other countries has been framed as “reckless spending”. Spending on infrastructure can be sacrificed in the interest of bringing the budget back to an early surplus. And a responsible market-based policy to put a price on carbon is called a “big new tax”.

This dumbing down of the economic debate is serious. Most seriously it has frozen us into inaction on climate change. Rather than seeing environmental sustainability as a basis for economic sustainability, we have come to accept the notion that meaningful action on climate change requires economic sacrifices – as if we place no value on our (and the planet’s) environmental resources.

Budgetary management is but one aspect of economic management. Most economists agree that over a business cycle recurrent government expenditure should be balanced by tax and other income. Similarly, economists do not have a terror of public debt: what counts is the use of that debt. If it is used to finance current consumption then that is reckless, but if it is used to fund productive infrastructure then our economy is strengthened. If anything can be called “reckless” it is a policy which puts a “balanced budget” ahead of investment in productive infrastructure. (Imagine how shareholders would respond if a public company were to cut its capital expenditure and reduce its debt to zero.)

Already in this election campaign the Opposition has exploited this puerile construction of “economic management” to stymie carbon pricing and to devalue even the Government’s paltry infrastructure spending. The blame lies not only with the Opposition, however; political parties are opportunistic and to expect any different behaviour from the Opposition would be as naïve as to expect sailors to practice celibacy on shore leave. The Government too must take some blame, for it has had three years to explain economic policy to the electorate, and has failed to do so.'