20 Jun 2007

Howard the Infallible

By Evan Jones
The pundits responsible for propagating the myth of Howard's economic infallibility aren't the ones you'd think, writes Evan Jones

The media hysteria surrounding Labor's industrial relations agenda has an unspoken premise: that the Liberal Party is the natural Party of government.

A current runs through the media, reinforced by Letters to the Editor, that Howard's Coalition Government has the economic credentials, and that a vote for Labor will put good economic times at risk.

The message was given a fillip by the interest rate sound bite. Here is John Howard on Channel Nine's Today show, 30 August 2004: 'Interest rates are always higher under Labor governments and I've got evidence to prove it. I'm not making that up, it's not a scare tactic, it's a fact.' This line became a mantra for Howard.

As Malcolm Fraser's Treasurer from November 1977 to March 1983, the representative 90-day Bill rate (a key indicator of financial markets' expectations of short-term interest rate movements) blew out under Howard's watch. Well might Howard blame external events for this in particular the Federal Reserve Chairman Paul Volcker for causing an increase in US interest rates which had global ripple effects. But then, in the fight over the March 1983 election, Labor was to be held responsible for interest rate hikes under its watch, in the Whitlam years. Howard has pulled the same stunt perennially as Prime Minister.

If Howard had been in office during the mid- to late-1980s, interest rates would have been little different. The high interest rates that have come to characterise the period were a product of international forces, domestic financial deregulation, and the advice of the econocrat policy regime in the bureaucracy and the media.

So too was the recession that followed the heady 1980s. The Hawke/Keating Government doggedly converted the inherited Fraser Government budgetary debt into a surplus during 1985-89. The debt that the Howard Government inherited in 1996 was a product of the recession of the early 90s and it was already being reduced naturally before 1996 as the economy returned to growth. (The underlying federal budgetary cash balance blew out from $6.6 billion surplus in 1989-90 to $17 billion deficits in 1992-4, but had been hauled back to a $10 billion deficit when the Coalition took office in 1996.)

In short, the Howard Government has been the beneficiary of good times. Labor's wages Accord and later the recession killed off both inflation and inflationary expectations. Favourable terms of trade mineral exports up, Chinese imports down sustained the trend.

Thanks to Fiona Katauskas

The pundits have been relatively kind to Howard (note Howard, and not Peter Costello the Treasurer as cipher) and relatively unkind to Labor. Economic and financial journalists flayed Prime Minister Paul Keating when his Government planned to spend a moderate sum under the 1994 Working Nation program to assist the unemployed with getting jobs (and the prospect of tax retrieval after job growth). This was the same mob that supported the policies that brought on the recession in the first place.

A close examination of the press reveals that there has been criticism of Howard's legitimacy on economic matters. The Sydney Morning Herald's Alan Ramsey has had Howard's number from the start, but those outside his faithful readership are likely to treat him as a curmudgeon with little credibility in economic matters.

Age economist Tim Colebatch wrote assertive denunciations of Howard's interest rate claims before the 2004 Election. Wrote Colebatch:

If this drivel is the level of economic debate at the start of the election campaign, God knows where we will be by the end of it. It is inaccurate as history, ridiculous as economic analysis, and offers backward-looking smears instead of forward-looking policy.

The Sydney Morning Herald's economist Ross Gittins too has taken an increasingly critical stance, dissecting successive  Costello budgets, as involving disproportionate tax cuts to the well-off in response to business lobbying, with the evidence pointing to no causal links between such cuts and economic growth.

The most strident critic of the Howard era has been veteran The Age economist Kenneth Davidson. Davidson, alone among columnists, has highlighted   that the Government has debauched the budgetary process the most notable example being the Government's removal of the Consolidated Revenue Fund (the Constitutionally mandated fund into which all Commonwealth receipts must be paid and expenditures withdrawn) from the Auditor-General's oversight in 1997.

Special accounts were subsequently created whose content and use remains mysterious. The new Goods and Services Tax had been excluded from Federal taxation revenue figures. The Treasury was speculating (and losing) in the foreign currency market, without accountability. And $18 billion in asset sales had disappeared from debt reduction figures (as of May 2003), effectively being used for electoral pump priming slush purposes.

But none of this commentary has dislodged the now prevailing myth of Howard's economic legitimacy. Perhaps this is because the partisan touting of Howard over Labor is a continuing refrain. It is interesting to note the significant role of the political commentators on the anti-Labor bandwagon.

The Australian's Alan Wood has been a persistent critic of Labor in Opposition, especially during the Beazley years and the Latham candidacy. Wood has derided Labor initiatives, declining to take on their merits Labor's protestations of economic orthodoxy.

The Sydney Morning Herald's John Garnaut (son of Prime Minister Bob Hawke's economic adviser Ross Garnaut) encapsulates the myth, writing last year: ' Labor lost the last two elections because it had no answer to the Howard Government's assault on its economic integrity.'

Bollocks.

The Sydney Morning Herald's Peter Hartcher has committed himself to reinforcing the  myth. Hartcher did it again on New Matilda itself on 4 April with a reproduced excerpt from his Quarterly Essay. 'Howard will win,' Hartcher keeps repeating. This is lazy and mischievous journalism. Ditto the Australian's Steve Lewis.

Fairfax's Greg Hywood and Michelle Grattan played a similar role leading up to the October 2004 election. Mark Latham, who has an economics degree and is essentially economically orthodox, was treated shamefully. Here is Grattan in The Age (24 October 2004):

Yesterday Gillard, with two wrenches in hand, was assembling a new home exercise machine. With the help of an instruction video, she'd got through several of nine steps and cut her hand. A sort of metaphor for Labor.

And Grattan again in The Age (27 October 2004):

[Wayne] Swan and [Stephen] Smith have no easy task: making Labor credible with the big end of town.

What's going on? The big end of town as the broker on economic credibility? It is instructive to refer to American Joann Wypijewski's commentary on the second Bush Presidential victory:

As my friend the documentary filmmaker John Scagliotti puts it, 'Tell the lady in a trailer in Arkansas that you want to pollute her rivers, destroy Social Security, take her money and give it to your rich corporate friends and she'll tell you to get lost; tell her you're all that stands between gay people seducing the children and destroying the family and she's headed to the church meeting and writing a check.'

The real issue at stake in Australia is the wages and conditions of the workforce and the role of unions and regulatory authorities in facilitating a modicum of justice and trickle down of the economic bounty. Labor is naturally more disposed to supporting this agenda.

Here is Alan Wood in The Australian (7 March 2007):

Labor will lose the battle for economic credibility unless it attends to its exposed industrial relations flank.

Michelle Grattan is at it again in The Age:

[Unions'] omnipresence in this election is testing whether in this IR climate they will be seen as a benign force or whether people's old fears about them will be whipped up sufficiently to seriously tarnish the anti-WorkChoices campaign. This week, 'union power' as an issue seemed to be looming larger than before.

'People's old fears?' What fears? Unions' 'omnipresence' and 'union power' is an issue because Grattan et al choose to serve as a faithful conduit of the Government's rhetoric.

An ongoing reduction in the workforce's standard of living for the benefit of already well-heeled elites is a difficult message to sell. Better to couch the ambition as a desired labour market flexibility in a globalised age. Any article or editorial by the Australian Financial Review's Alan Mitchell is representative of the linguistic rules of engagement.

The language of 'economic credibility' and its reproduction in the media is a convenient camouflage for other battles. The electorate may have belatedly decided to read between the lines.

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