Matters of Public Interest: Economy
Wed, 4 Feb 2009
12:56 PM - Senator David Bushby
I rise to speak on a matter of public interest, that being the concerning ideological direction of the government in its economic management. As we head into 2009, it is becoming increasingly apparent that the fallout from the global financial crisis will pose great challenges to our nation with a vast array of worrying consequences for all Australians. The process will greatly test the government’s economic capacity. With unemployment set to rise, the hard-won Costello and Howard surplus exhausted and the global economy in downturn, left-leaning journalists, academics and politicians have lost no time in placing blame for this situation squarely at the feet of capitalism and globalisation. Indeed, they have been so successful that this message has pervaded the mainstream of Australian discourse. In the midst of the severity of the crisis becoming apparent, our own Prime Minister was seen urging world leaders to reject what he labelled ‘extreme capitalism’ and calling for a new world order of global financial regulation. Our self-professed economic conservative Prime Minister, together with the assistance of other fellow ideologues, has now engaged in composing fruitless reams of ideological diatribe—
Senator Cameron —Neoliberal claptrap.
Senator BUSHBY —I would not have gone so far as to call his essay claptrap, but if you would like to label it that then I will accept that. The Prime Minister is railing against the economic paradigm which he only last year so warmly identified himself with. Sixteen months ago, he went to the Australian people saying words to the effect: ‘I am an economic conservative. I won’t take the budget into deficit. You can safely vote Labor because, when it comes to the economy, we won’t do anything different from what the coalition has been doing.’ Yet here we have this self-professed economic conservative, in an essay for the Monthly, laying into the balanced, commonsense approach to government management of the economy so successfully practised by the coalition government and, to a limited extent, by the Hawke and the Keating governments—an approach that has placed us in what is almost certainly the best position of any nation in the world to tackle this crisis.
I find this backflip, this flip-flop, this complete turnaround, to be completely breathtaking in its enormity. I also say that I do not find it at all surprising. This is because I never believed our Prime Minister when he stood with his hand on his heart and told the Australian people that he was an economic conservative and that Labor promised more of the same. My suspicion, shared by millions of Australians, was that, in politics, the less scrupulous will sometimes say what they need to say to be elected. I am reminded of the overheard and widely reported comments by the now Minister for the Environment, Heritage and the Arts during the campaign, ‘We will say what we need to to get elected, but we will change it all when in government.’
There is no clearer evidence of that than the words of our Prime Minister in his essay in the Monthly. Here we have our ‘economically conservative’ Prime Minister declaring that he is a social democrat. I understand that he has since also declared that he is both an economic conservative and a social democrat.
Senator Bernardi —And a Christian socialist.
Senator BUSHBY —And a Christian socialist—it is like claiming that you are a constitutional monarchist who wants an Australian head of state.
Senator Cameron —Can you explain that?
Senator BUSHBY —Exactly! It is total inconsistency. The Prime Minister, in his essay, used the term ‘the emperor has no clothes’, in attempting to denounce the obvious success of the approach to economic management that seeks to encourage private enterprise and investment and to reward individual effort and freedoms. But the reality is that, in doing so, the Prime Minister has exposed himself as the emperor with no economically conservative clothes. The fact is that, in signalling a return to old-fashioned, big-spending, high-taxing, high-debt Keynesian expansionism, this government has sounded the death knell for the prosperity of Australians for generations to come.
The Prime Minister is correct when he says in his essay that this crisis may mark a turning point between one epoch and the next. But I for one will be extremely concerned if the next epoch marks a return to the failed socialist policy implemented as part of the social democratic experiments of the past. It will be our children who pay the price if the social democrats, the Keynesians and the socialists win the ideological argument now surfacing and such irresponsible economic policy rules in Australia. One need only glance briefly at the course of 20th century history to observe the failures of Keynesian overreaction. This is not to say that a review of global financial structures is not necessary, but such a review needs to be well considered and informed rather than reactionary. Two hundred years ago Adam Smith described the brilliance of capitalism. He said:
Let a man seek his own advantage; sometimes he will flourish. Sometimes he will flounder. But always, the process of innovation and failure will reward the ‘common good’.
In Smith’s words:
It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.
The employment of self-interest to generate outcomes that advantage others is more or less the simplified central assumption of capitalism. It is beautiful in its simplicity and, despite the scapegoat role it seems to play in the event of any sort of financial crisis, humanity has not yet devised a better system.
In 1944, a meeting of like-minded individuals was called by a great man by the name of Robert Menzies. These individuals were brought together by a common belief that freedom was paramount. They sought to provide the Australian people with an alternative to the postwar socialist agenda of the then Labor government. This was a great moment in Australia’s history. This was the birth of the greatest political force for freedom that our great nation has known: the Liberal party of Australia.
Government senators interjecting—
Freedom is what that was all about. In a policy speech at the 1949 election, at which the party was first elected to government, Robert Menzies said:
You cannot have a controlled economy without controlling human beings, who are still the greatest of all economic factors. You cannot socialise the means of production without socialising men and women.
As the founding father of the Liberal Party, Menzies very clearly articulated the link between economic freedom and political freedom that goes to the very core of the political philosophy of classical liberalism. Indeed the advent of the Liberal Party signalled a re-emergence of classical liberalism in Australia, following the long period of lagging economic growth and high levels of taxation and debt across the globe which followed the failure of Keynesian expansionism to adequately address the latter years of the post-Depression recovery. I must say that I feel we are heading towards very similar circumstances in the way that this government is going.
By the late 1970s and early 1980s this revival was in full swing, with the likes of Margaret Thatcher and Ronald Reagan at the helm. In his work Capitalism and Freedom, Milton Friedman very succinctly summed up what it is about the free market that has brought about the unprecedented prosperity and freedom of the past few decades:
Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.
The spread of capitalism on a global scale has brought about spectacular improvements in the quality of life of billions of people the world over. In 1820, 85 per cent of the world’s population lived on today’s equivalent of less than a dollar a day. By 1950 this had fallen from 85 per cent to 50 per cent, and today it has diminished to less than 20 per cent.
It is a simple fact that global poverty has plummeted over the last 50 years, more so than in the 500 years preceding. The spread of capitalism has also brought with it increased life expectancy and a greater scope for the pursuit of leisure and freedom from the burden of back-breaking physical labour, which, ironically, has allowed for the emergence of an educated class who may make a career out of criticising capitalism if they wish.
Intellectuals’ distaste for capitalism was best described by Friedrich Hayek in The Fatal Conceit. It was his belief that capitalism offends intellectual self-importance in its distrust of evolved systems which seem to function effectively without intelligent direction. Simply put, capitalism did not require any planning from anyone and it does not need anyone to run it, rendering those poor socialist intellectuals redundant.
Contemporarily, this criticism has engendered a broad range of adherents, with many who claim the moral high ground on such things as ‘greed’ and ‘materialism’. Of more economic relevance is the current blame game being played around the causes of the global financial crisis. As has often been said, capitalism was doing just fine until politicians and bureaucrats decided that they could do a better job. The now-infamous taxpayer funded Fannie Mae and Freddie Mac were created by the United States government to do what the free market would never have done: provide subprime mortgage finance, or finance to those who would not otherwise have qualified for a loan.
Fannie Mae’s status as a government business enterprise gave a false impression to the market that it was somehow guaranteed, leading to risk-taking behaviour on a massive scale. To cut a long story short, when the bubble finally burst the result was global financial chaos—what our Prime Minister in his glib bureaucratic fashion likes to call the ‘GFC’. Yes, there was risk-taking; yes, there was excessive greed; and yes, there was regulatory failure, but in no way can it be said that capitalism is to blame. It is the socialist adherence to the notion that somehow politicians and bureaucrats can improve upon the interactions of individuals in a free market that is largely responsible for this debacle.
And what of our fortunes in all of this? The International Monetary Fund says that Australia is in a comparatively strong financial position. But this strong position we find ourselves in did not just happen. No, our current good fortune relative to comparable nations comes as a direct result of 11½ years of responsible and prudent economic management under John Howard and Peter Costello. Under a coalition government we saw a dramatic increase in the number of Australians in work; consistently lower interest rates; an increase in the average wage of 20 per cent greater than the increase in the cost of living; and, very importantly, the repayment of the $96 billion debt so very generously endowed upon us by the last Labor government, resulting in a massive annual interest bill saving of $8.8 billion a year and every year. The situation that Australia would be in under the current economic circumstances had this debt remained does not bear thinking about.
Worryingly, given this government’s clear willingness to head us back into deep debt, we are staring down the face of massive deficits for many years to come. What benefits will my children and their children receive for the taxes they will be paying for many years to cover this massive exercise in political pork-barrelling that we see today? I contend there will be none. There is very little, if anything, in this new package—or in the last one late last year for that matter—that builds future productive capacity. It is all one-off spending that, sure, will temporarily boost economic activity and will show up in the figures but will not jump-start any ongoing or lasting future economic activity.
There is a generally accepted rule that a government should only go into deficit to fund activities that will benefit those who will have to repay that deficit—for example, to fund major infrastructure that will have a life of 20, 30, 40 or 50 years and will deliver ongoing benefits to taxpayers throughout those periods. But to place the burden of interest and principal payments on our children and grandchildren to fund one-off cash splashes that will only increase economic activity in the periods in which they are spent is both irresponsible and inequitable. To make things worse, the bills tabled in the House today include one seeking authorisation to increase borrowings by an amazing $125 billion—from their current authorisation of up to $75 billion to an astounding $200 billion.
Senator Mason —No!
Senator BUSHBY —Let me restate that: Mr Rudd is asking if he can extend the limit on his credit card from $75 billion to $200 billion.
Senator Boswell —What is his collateral?
Senator BUSHBY —He has no collateral. He has no plan setting out how he intends to pay it back either and he has not told the Australian people what services he will have to cut in the future in order to be able to afford to pay the interest he is going to have on a $200 billion credit card debt. That, if he takes it to its limit, could be up to around $20 billion per annum—and that is $20 billion you cannot spend on services or on schools. Worse, even if Mr Rudd remains Prime Minister for a number of terms, there is almost no chance that it will be him who has to make the hard decisions required to actually pay the credit card off. It will be future governments.
Senator Mason —Coalition governments.
Senator BUSHBY —Inevitably it will be a future coalition government that will have to come in and clean up the mess. It took us the best part of 10 years to pay off the $96 billion debt the last Labor government left us after a series of ‘temporary deficits’. In a little over 10 months in office the new Labor government has wiped out our surplus. Here, a few months later, we have this Labor government taking us back deep into debt—and for what outcome? As with the last economic stimulus package, we will see nothing more than a short-term upward blip in economic activity and no long-term solutions providing ongoing economic benefits.
Neoclassical economic theory has long decried the effectiveness of lump-sum payments in promoting economic growth, suggesting that individuals are more likely to adjust their spending habits when faced with permanent income changes such as tax cuts rather than once-off windfall payments like the Prime Minister’s flagrantly populist pre-Christmas spending spree and this newest massive cash splash. In short, Labor have panicked, and each of their responses to this crisis have been ill thought out and quite frankly threaten to undermine the economic and political freedoms that the previous coalition government fought so hard to uphold.
In addition to this heavy-handed, potentially ineffectual policy initiative, which will do little other than burden future generations with debt, the government’s bungled bank guarantee has left many Australians in dire straits, with savings frozen in investment and mortgage accounts. According to the Financial Review, the amount of bank debt guaranteed by the Rudd government— (Time expired)