Perhaps the most striking aspect of the Institute of Public Affairs’ media presence is not the fact that a fringe group with extreme rightwing opinions gets such a good run in the newspapers, but that whoever appears in the media from the IPA their views are always uniform, predictable and lacking in evidential support.
For instance, Julie Novak from the IPA has an article in today's Oz where she considers the unfolding crisis in the global financial system and how we should respond. So, after taking into consideration all the relevant facts and nuances of this unique situation what does she propose? Well, Julie boiled the policy prescriptions necessary into a four point action plan to save Australia. Turns out that what we need to do is:
1 - Stop the mining tax and carbon tax
2 - Slash government spending
3 - Cut taxes
4 - Deregulate the labour market
It's certainly a happy coincidence that what the economy needs in this moment of uncertainty is exactly the same as the IPA's longstanding agenda, and a carbon copy of the IPA's solution to every single economic problem we ever face.
But in case you were thinking that Novak has just lazily regurgitated a stubbornly held ideological position, she gives us some arguments, supported by very confident assertions, to bolster her case.
Firstly Novak notes:
"Despite the hoopla from the Prime Minister and the Treasurer that the Australian economy is doing fine, Australia is in a worse position now than before the last global financial crisis"
That's right folks, three years on from the biggest global economic crisis since the Depression, with the USA and Europe in dire straits, Australia's economy is not quite as strong as it was before the crisis, when the entire Western world was at the high point of a decade long boom. Shock horror. But wait, that's not the only revelation we have in store. In the next paragraph Novak announces even more outrageous news:
"Gross domestic product per head of population has declined over the past 12 months, compounding the innate sense of growing hardship felt by many Australians. The Reserve Bank of Australia has cut its growth forecast this year by a full percentage point."
Reading that sentence you might reasonably imagine that Australia’s growth was appallingly low as a result of an inherently weak economy. However, when Novak says that GDP growth has declined what she means is that GDP in the past 12 months grew at a slower rate than in the preceding 12 months. Despite this it was still a healthy 2.7%, one of the highest growth rates in the developed world. Novak also fails to mention that Cyclone Yarsi and the Queensland floods knocked more than 1% off GDP growth for the past 12 months and that without that impact growth would have been in line to grow at an even more buoyant 3.7%. As to the cut in the growth forecast, even with the 1% reduction in the Reserve Bank prediction (largely caused by the Queensland floods impact and worries about Eurozone debt), growth is still expected to be 3.25% in 2011. Ask the UK (predicted growth 1.6%) or Ireland (0.5%) what they think of this growth rate and their response is unlikely be as pessimistic as Julie Novak’s.
In the middle of all this factless scare mongering though, Novak does point to one area of genuine concern - consumer confidence:
“The economic bad news continued last week, with news that retail spending figures were at their lowest levels in 50 years, another sign that consumers are tightening their belts in expectation of worse to come.”
So what is her plan to restore confidence in the economy, apart from writing paranoid newspaper columns that make the economy out to be in much worse shape than it really is? Simple, all the government needs to do she says is ”reduce the 165,000-strong commonwealth public service” and deregulate the labour market. She urges the government to “scrap the unfair dismissals law as a starting point”.
Got that? The way to increase consumer sentiment and stop people “belt tightening in expectation of worse to come” is to make tens of thousands of people redundant and then reduce the job security of every single employee in Australia. People will be out flashing the cash in no time in those circumstances!
Another option might be to boost the economy through fiscal stimulus and certainly this is the opinion of the IMF which this week wrote of Australia "If global financial markets become severely disrupted or world growth falters, macroeconomic policy is well positioned to respond. There is also fiscal space to delay the return to surplus and, if needed, to take temporary discretionary measures, given the low level of government net debt (6 per cent of GDP)."
Novak cautions against this though, warning that:
Novak cautions against this though, warning that:
“The decision to imitate the economic sick nations of Europe and the US by introducing fiscal stimulus in 2008-09 still haunts the federal government, in the form of a budget deficit and $107bn of net debt this year.”
Don’t you love that language? Imitating the ‘economic sick nations of Europe’. If that’s the case where was Iceland’s stimulus package? Or Ireland’s or Greece’s? They didn’t exist because those economically sick nations couldn’t afford it. China on the other hand protected its 9% GDP growth by successfully rolling out a huge economic stimulus package. If Australia imitated anyone, it was not the sick nations of Europe but the world's strongest economy.
And what of the debt level in Australia that ‘haunts’ the government? By the sounds of things that is at scarily high levels like the sick European economies too. Except that it isn’t. Australia’s government debt to GDP ratio for the period Novak is talking about was 22.4% (it's now close to only 6% as the IMF notes) even lower than the Scandinavian economic power houses of Sweden, Norway and Denmark. Compare Australia’s 22.4% to the UK (76.5%), Ireland (92.4%), Italy (118.1%) or Greece (144%) and then consider that the debt will be paid off by 2013 anyway (something Europe and the USA are no way near to) and it starts to look like very small potatoes indeed.
The truly disturbing statistic about debt in Australia is that private debt is currently sitting at almost 200% of GDP, but this worrying debt exposure is entirely the product of the markets and can only be blamed on the government through their lack of action, not their intervention, so Novak is uninterested in it. In fact she seems to be fairly uninterested in any statistics at all. Take her appraisal of the Rudd government stimulus for example, where pronounces with a characteristic lack of data and surplus of certainty:
“With the national economy in worse shape today than before the GFC, the government should concede that the Keynesian strategy pursued last time was an economic failure.”
Just read that sentence again and soak in quite how ridiculous it is. The stimulus package that was designed to avoid recession in the face of the most extreme global financial collapse in eight decades, which it did, was a failure because the economy is in worse shape now than before the GFC.
Most people would think that a fair comparison would be to look at the impact of the stimulus package against countries that didn’t stimulate their economies in such a direct way (for instance the UK and USA which both had bitter recessions) or to look at GDP predictions for Australia without the stimulus factored in (the IMF did this and concluded that the stimulus package was a success). But not Julie Novak, she believes the best way to measure the success of a solution to a problem is to compare the outcome with the state of affairs that existed before the problem came along.
I’m just grateful she is only a researcher in a right-wing think tank; imagine if she worked in medical research – ‘the patient’s health improved greatly with this treatment, but it is still significantly worse than before she contracted the terminal illness so I must conclude that the treatment is a failure’.
I’m just grateful she is only a researcher in a right-wing think tank; imagine if she worked in medical research – ‘the patient’s health improved greatly with this treatment, but it is still significantly worse than before she contracted the terminal illness so I must conclude that the treatment is a failure’.
Novak doesn’t stop to give the stimulus package any actual assessment beyond her own prejudices, but goes on to recommend tax cuts and spending cuts as the policy prescription in a future downturn. Now let’s be generous for a second and pretend that massive spending cuts at the beginning of a downturn wouldn’t completely destroy demand in the economy (I know, I know, but just pretend for a second) and look at the impact that tax cuts would have had during the last GFC-induced downturn.
On IMF figures every $1 spent on government stimulus generated $3 in the economy, and that is a dollar figure that ignores the social benefits of the infrastructure projects the government invested in. Not a bad return at all. By contrast tax cuts would have generated 30 cents in the economy for every dollar lost in tax revenue; that's ten time less bang for your buck. It is plain to see that the IPA’s favoured policy of tax cuts and spending cuts would not have saved Australia from recession in the same way that the stimulus package did. However, you can only see this is you take off your ideological blinkers which Julie Novak and the rest of the IPA team seem incapable of.
On IMF figures every $1 spent on government stimulus generated $3 in the economy, and that is a dollar figure that ignores the social benefits of the infrastructure projects the government invested in. Not a bad return at all. By contrast tax cuts would have generated 30 cents in the economy for every dollar lost in tax revenue; that's ten time less bang for your buck. It is plain to see that the IPA’s favoured policy of tax cuts and spending cuts would not have saved Australia from recession in the same way that the stimulus package did. However, you can only see this is you take off your ideological blinkers which Julie Novak and the rest of the IPA team seem incapable of.
Novak concludes her article by warning the government that it would be wise to “show it is willing and able to learn from its previous mistakes on economic policy.” All I can say is 'libertarian, heal thyself!'
