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19 January 2015

How to sell the Economy

Beyond all the programs and policies it takes to the next election, Labor’s biggest challenge will be selling its economic credentials. While their record in health, education and foreign affairs is admirable, future policies will always be threatened when the media and the Coalition ask the question: How will you pay for it?

Labor’s record of managing the economy from 2007 to 2013 was much better than most people think and they have every reason to be proud of what they achieved, particularly when the GFC is factored into that assessment. Their weakness, however, is public perception. For some inexplicable reason, the Coalition have been able to convince many that Labor were economic vandals.

As false as that was, and is, it remains an issue that needs to be addressed. That means the next federal campaign must be planned in such a way that any repetition of that scare mongering which will, no doubt, be based on false premises, can be cast aside with superior economic arguments that treat it with the contempt that it deserves.

Various opinion polls, then and now, suggest that clever politicking by the Coalition has contributed to a misunderstanding of how successful that period was for Australia economically. We were the only OECD country not to experience a recession, yet the perception was one of impending doom.

When in opposition, Tony Abbott and Joe Hockey demonstrated how easy it was to attack a government’s credibility in economic matters, particularly when a compliant media gave them plenty of exposure. It didn’t seem to matter that their claims, e.g. ‘budget emergency’ and ‘debt and deficit disaster’, were false and misleading.

Mud tends to stick and polling today still shows that the Coalition is seen to be the better economic manager. This defies the comparative record of the two and says more about the myth than it does about the Coalition’s tactics, but, at the moment, the perception and the myth are one

As many of us expected, over the past year the government’s own economic credentials have been put under the microscope and they have been found wanting. They are failing to produce the results they boasted of in opposition and failing to reduce the debt and deficit disaster they claimed was so damaging to the economy. They are now fending off criticism from nearly every neo-liberal economist in nearly every mainstream newspaper in the country.

Joe Hockey’s foolish claim that he would deliver a surplus budget in his first year and each year thereafter has come back to bite him. He is staring down his worst nightmare. He can cut as much spending as he likes but he will never deliver a surplus budget without an increase in revenues.

If he was any good at his job in opposition, he would have known that.

Worse still, he cannot see that the major stumbling block to sustained national growth, higher tax revenues, increased demand and a positive terms of trade, is unemployment and underemployment.

This is where his problem lies and where the real waste lies. It is a waste to the tune of $4.7 billion per month. Deficit spending is not the problem. Nor are ballooning health or education costs. It is the under-utilisation of the available work force that needs to be addressed.

Deficit spending on value-adding projects is good for the economy. Eighty-two of the last 100 years of Federation involved deficit spending, a body of fact that has contributed to where we are today. Are we burdened by those deficits? Are we cursing our parents and grandparents for making us the beneficiaries of this debt? I don’t think so.

This is where Labor needs to concentrate its efforts because when the public understand this, everything else becomes possible. When a nation’s workforce is fully or near to fully engaged, healthy GDP growth is assured. This enables proper funding for health and education. But to achieve near full employment job creation programs are required and that will require deficit spending.

To do this, they need to explain the nature of government debt, the issuance of bonds and treasury notes, the time frame over which these issuance’s are dealt with, how the interest is paid and where it comes from; that buying bonds from government is no different from opening up a term deposit account at your local bank.

They need to consign the ‘debt and deficit disaster’ to the garbage bin once and for all. But most importantly, they need to demonstrate in simple terms how deficit spending creates demand.

They might also take a serious look at tax expenditures like superannuation concessions and the private health insurance rebate, but that won’t create employment.

The Coalition will, of course, cry more debt and deficit disaster. They will demand to see it fully costed. It will be an utterly hypocritical cry but it will be loud and it will resonate. Labor has to make its case with vigour and conviction, but most of all, with facts.

They need to show how important deficit spending has been over the past 100 years and the importance of the workforce in realising a nation’s potential. The Coalition doesn’t understand this simple principle, or if it does, it is so beholden to its financial backers that it ignores it and won’t deliver what is best for the people.

It will only deliver for those who have the money and lobby the hardest.

If Labor could succeed in exposing the deceit that accompanies the government’s surplus objectives, they could render neo-liberal conservative governments extinct. To achieve this they need superior economic minds whose sympathies lie with social cohesion. It doesn’t involve any policy changes, just a simple explanation of how this system actually works.

They cannot do it alone.

Engaging the assistance of people like Bill Mitchell, Professor of Economics at the University of Newcastle, and director of the Centre of Full Employment and Equity would give them an enormous boost. Steven Hail is another from the University of Adelaide. These are individuals who can clearly articulate the fallacy of supply side economics.

The sheer simplicity and logic they demonstrate will silence the pseudo economists within government ranks and embarrass right leaning media economists into silence. The rest will follow and fall into line.

Those who have blindly followed outdated textbook theories and think as we did when sovereign economies were based on the gold standard will be forced to confront the reality that these theories no longer apply and have, in practice, been seen to fail time and time again. They are failing now, in Europe, the UK and the USA.
This is also where people like Joe Hockey and conservative think tanks like the Institute of Public Affairs can be made to look so far out date they are drowning in their own ignorance. The challenge for Labor is to articulate its credentials convincingly and do it with authoritative voices in support.