In politics, as well as life generally, there’s always an eternal struggle to comprehend what might have been when we lived through what was.
Labor’s crisis management and stimulus through 2008 and 2010 avoided a recession, but people who lived through the period never felt the bullets Australia dodged. Nor did they understand the depth of the recession in those countries where the bullets didn’t miss.
As this decade ends there will be a vigorous debate about what would have been had the Morrison Government not acted as it has.
The New York Times observed “crises expose problems but they do not supply alternatives, let alone political will. Change requires ideas and leadership. Nations often pass through the same kinds of crisis repeatedly either unable to imagine a different path or unwilling to walk it.”
This time the bullet of recession will find its mark in Australia and I believe we need a deep discussion about a new social contract for the 21st Century.
Unquestionably, there is resistance to more activist government, but though deeply-held, it is narrowly-based. A series of powerful business interests and their handmaidens in the media and the Liberal and National Parties and that’s about it.
Even business doesn’t really believe it, being heavily into the “socialise the losses” section of the business cycle that I recognise so well from 12 years ago. Businesspeople who laud themselves in the pages of the Australian and the Financial Review as globe-spanning capitalist demi-gods but are the first in line with their hands out to government when the market turns down.
And that’s the point. In a crisis, the rich and powerful are well-insulated, but we learn all over again how the deck is stacked against working people and those in precarious jobs across the economy.
Many on the conservative side will continue to wring their hands about the enlargement and sustainability of government and the accompanying deficit and debt.
However the response to this crisis has required different policies to those used in a normal recession-fighting playbook. Wage subsidies are but one example.
Back in October 2008 Labor adopted the mantra of “go hard, go early, go households.” When the global economy fell off a cliff over the Christmas of 2008-9 we resolved to use overwhelming force. An additional stimulus was deployed in February 2009 of $80 billion in today’s dollars targeted this time at infrastructure investment as well as cash payments.
Its size shocked the nation. Our political opponents derided it as excessive, over the top and began a 12 year long deficit and debt hysteria campaign targeted at undermining Labor’s economic credibility.
History records that stimulus saved our economy as the rest of the world plunged deeply into recession.
Initially the response of G20 economies following the collapse of Lehman Brothers in 2008 was to embrace a Keynesian approach, but most G20 developed countries moved rapidly back to an austerity model.
Australia didn’t, and while Australia, one of only two advanced economies to avoid recession prospered, the global economy suffered the deepest recession since WWII.
As the aftershocks of the GFC rocked the global and Australian economies in the latter part of 2010 and 2011 our public investments in schools, education and infrastructure, along with mining investment, assured we out-performed the rest of the world.
Despite this success, the conservative campaign against stimulus lasted from the day we announced it to March 30, 2020.
Nevertheless our economic stewardship was subject to extraordinary viciousness from Prime Minister Abbott, Treasurer Hockey and current Prime Minister Morrison.
They portrayed the Australian economy as “a trashed house with spiders in the cupboard” and the price on carbon as “a tax on everything.”
You won’t hear it again.
Until their third stimulus in March this year, the conservatives had not learned the lessons of the last crisis.
Eleven years on, the Morrison Government delivered a $130 billion stimulus package, centred on wage subsidies that Labor had campaigned for.
This change of heart on stimulus prompted many to observe that everyone, including Liberals, are “socialists in a pandemic.”
I welcome this package as the world is facing the biggest drop in global demand since the Great Depression.
But I am sorry to say history tells us there will have to be more support for our economy.
It’s by no means certain we are witnessing enough sea change in the Liberal’s attitude towards deficit and debt because the smaller government, less tax and lower wages trifecta has always been at their core.
What they never understood was the enormity of the Great Recession which hit output across 23 high-income countries so badly it was the equivalent for the developed world, of the entire German economy disappearing overnight.
The global economy has been stuck in a low-growth trap for the dozen years since 2008.
The reliance on monetary policy rather than fiscal policy in other advanced economies after 2010 shone a light on the trickle-down mind-set.
It showed that weak and anaemic growth was a product of growing income inequality.
In 2015 even the IMF, once a bastion of neo-liberalism concluded that a declining proportion of GDP going to low and middle-income earners was a handbrake on growth and higher living standards for all.
Their empirical work shows conclusively that when the benefits of growth are concentrated growth is weaker and when the benefits are more fairly shared growth is stronger.
It’s now well documented that the low wages and insecure work imposed on working class communities, along with the hollowing out of middle class, caused political polarisation that has led to the rise of radical right wing populist movements.
As Covid-19 threatens populations and smashes global growth the world had already been experiencing weak and anaemic growth and political volatility it hadn’t experienced since the 1930s.
So as this latest crisis hit we were still living with the economic and political consequences of the last one.
The conundrum is: will the Australian government and other G20 economies, after putting in place their initial response to this pandemic, make the same mistake that was made after the Great Recession and continue with the neo-liberal model – small government, less taxation, less regulation and lower wages?
Make no mistake. When Scott Morrison speaks about “snap-back”, this is what he wants to snap back to. He might have retired the phrase after it tested badly, but he won’t retire the thinking behind it.
What we require now is what the world required and didn’t get following the Great Recession, is to imagine a new social contract.
We all know that healthcare for all, education for social mobility, a decent social safety net, strong progressive tax systems, a stronger voice for labour, and strong regulation for the environment are the best weapons we have against cynicism, right wing populism and hate mongering.
We also know the virus of trickle-down economics hasn’t gone away. We shouldn’t forget the Liberal’s 2014 austerity budget, their fostering of a dramatic increase in underemployment and insecure work, and the destruction of the carbon price.
Over the next six months we will get a lot of centrist gushing about no red or blue teams but we still get the exclusion of a million casuals from the wage subsidies, and no visionary investment to drive the economy beyond September.
It all points to a “snap back to trickle-down”.
So what are the challenges as we try to chart a new course?
Can we ditch the over-reliance on monetary policy and succeed in deploying fiscal policy with full employment as its central objective?
Can we re-invent monetary policy for a new age of secular stagnation?
Can we succeed in redefining the status, pay and conditions of our lowest paid and casualised workforce?
Can we achieve an enduring community consensus that all of our workforce is ultimately the economic and social strength of the nation?
Can we construct a new framework for industry and climate policy where national interest concerns drive both public and private investment into key sectors of our economy?
Can we end the financialisation of our economy where profit maximisation and shareholder primacy dominates, and move to an environmental, social and governance investment model?
Can those on the left and centre-left of politics, learn the lesson of the last election campaign and devise a policy program that appeals to a majority of voters regardless of whether Morrison is the leopard who changed his spots or not?
Its no stretch of the imagination to think we can all heed the experiences and lessons of the last crisis to walk a path from which we will emerge a stronger nation with deeper resilience to shocks be they economic, health, climate or security.