18 October 2015
by Jane Goodall

Poverty in parliament


Three-word slogans flowed freely during question time this week.

The Turnbull government’s first full parliamentary week coincided with National Anti-Poverty week, and the synchronicities didn’t end there. On Monday, when Australia’s richest-ever prime minister took his seat at the despatch box, the Nobel Prize in economics was awarded to Princeton’s Angus Deaton “for his analysis of consumption, poverty and welfare.”

By the end of the week, Labor was engaged in a misfired campaign against the offshore processing of Turnbull’s millions in the Cayman Islands, while new figures from the Bankwest Curtin Economics Centre in Perth showed that some 2.3 million households are living in poverty and more than 800,000 in severe financial stress.

On the floor of parliament, the ironies abounded. Joe Hockey looked on from the backbench as Turnbull and his ministers defended the economic principles behind his 2014 austerity budget. The new frontbench team was bullish in response to questions about the impact of penalty rates on low-paid workers, falls in public infrastructure spending and the impact of the Trans-Pacific Partnership on Australian workers.

The policy formula, as Scott Morrison articulated it, was a no-brainer. “To put the budget in balance you need to ensure that your expenditure – are you with me? – is less than your revenue.” A simple case of right way/wrong way. “Those opposite” had the formula in reverse. “They want to increase revenue so it is higher than expenditure,” Morrison crowed. A Dixer from the Member for Braddon gave the treasurer an opportunity to recite a little more of the catechism: the way to a strong economy is to promote growth, keep taxes low to encourage saving and investment, and inspire business confidence by controlling government expenditure.

Evidently Scott Morrison and his advisers had not read this year’s UN Trade and Development Report, which was released (in another coincidence of timing) last week. Nor had Malcolm Turnbull, going on his pronouncement that “our prosperity depends on our embracing the dynamic growth in the global economy.” The UN report is concerned with what it calls “a vanishing growth frontier” in developed countries, a phenomenon attributed to widening inequality. The share of income taken by the richest households has increased, but this hasn’t flowed on to increased consumption and expenditure. The save-and-invest habit is actually serving to keep money out of commercial circulation, says the report, while the decline in the wage share of poorer households means that small businesses are struggling with low demand for goods and services. And the situation is compounded when businesses respond by using their profits to invest in financial assets rather than in production and employment.

So which structural reforms might counteract this stagnation and spur entrepreneurial dynamism? Reducing public debt and correcting perceived rigidities in product and labour markets “tend[s] to worsen rather than solve the problem,” says the report. These options might be “presented with a good deal of conviction,” it adds, but “there is little indication of where the growth impulses will actually come from.” There was no lack of conviction from the government frontbench on the matter of perceived rigidities, or on the prospect of correcting them by reviewing penalty rates and eliminating tariffs via the Trans-Pacific Partnership, or TPP.

Growth, it is assumed, will follow as day follows night. If the certainty and persistence with which the government invoked future growth were not enough to browbeat the electorate into believing in it, where were the indicators of how and where it would happen? Wine sales to Canada might go up under the TPP. New markets could open up for pork and Bundaberg soft drinks. Many Australian industries, said Barnaby Joyce, were set to be “benefactors” from the elimination of tariffs into Vietnam.

That slip in vocabulary had a Freudian twist. On future modelling of growth from the TPP, Vietnam comes out way ahead: 10.5 per cent to just 0.5 per cent for Australia. We may indeed be more benefactors than beneficiaries of the agreement. In moral terms that might seem a good thing, but it is clearly not the government’s objective.

But back to Anti-Poverty Week, which aims to strengthen public understanding of the causes and consequences of poverty around the world and here in Australia. The new Nobel laureate Angus Deaton, like most leading economists, is concerned with the growing disparities between the rich and poor in developed countries where, if free-market economics were really the panacea, poverty would be history by now. But Deaton is no ideologue. He is first and foremost a methodologist, and a stern critic of ambit claims about causality in macroeconomics.

The treasurer’s claim that the government can “grow” the national economy and create jobs by making savings and controlling expenditure exhibits a cause-and-effect rhetoric that is entirely unsubstantiated by evidence or particulars. It doesn’t stack up against the kinds of analysis in which Deaton has engaged: he would want to know what, how, why and where. These are not the kinds of question that often get answered – or asked, for that matter – on the floor of parliament, but the level of debate this week would be seriously worrying to anyone who has an eye on the international trends in thinking to which Deaton’s work contributes.

Deaton, though, is an optimist. He thinks the poverty trap has been progressively releasing its victims since his own early childhood in a Yorkshire mining town. At the other end of the mood spectrum is Wolfgang Streeck, recently retired director of the Max Planck Institute for the Study of Societies.

In January last year, Streeck gave a lecture at the British Academy for Humanities and Social Sciences, in which he suggested that capitalism is facing its Götterdämmerung, that it is “dying from a surfeit of itself.” Unlike Deaton, Streeck is not averse to broadbrush causality. He draws a direct and mutually causal relationship between the increase of inequality and the decline of growth. The free market exhibits the Matthew principle, and his source here is the Gospel of St Matthew: “For unto everyone that hath shall be given, and he shall have in abundance: but from him that hath not shall be taken even that which he hath.”

This, Streeck argues, has become an inexorable principle. The invisible hand of the free market doles out poverty and wealth in ever more polarised measures, and cannot do otherwise. It is a mechanism that works something like this. Growth depends on the pursuit of profit, which in turn decrees the business maximisation of revenue and the minimisation of costs, including taxes, wages and tariffs. Without sufficient checks and balances – in the form of union protection of workers and government demand for taxes and tariffs – profit spirals ever upwards, investing in itself through the financial markets. Employment rates fall, and so does government revenue. Public debt rises, and governments seek to escape the revenue gap by plundering the public domain through underfunding and privatisation. High rates of residual unemployment become the new norm. More and more people have less and less to spend, so the retail sector and services industries make further cuts to wages and employment. Growth is depressed. Governments try to encourage activity with more tax cuts and further cuts to public spending, and so the vicious cycle continues.

The logic here is the exact reverse of that deployed by the government in parliament this week. Of course, reasoning can always be contested. There are always arguments and counter-arguments in economics, and it is up to the government to make the case for its continuing belief that the future still belongs to the markets, if only their invisible hands are untied.

Turnbull has put himself on notice as a prime minister who will offer effective economic leadership through an explanatory style that respects people’s intelligence and offers something better than three-word slogans. This week in parliament, the three-word slogans flew thick and fast: “work, save, invest”; “control the expenditure”; “grow the economy”; “opportunities for expansion”; “greater business confidence.” Instead of explanation, we had pugnacious bluster. Every question was treated as a dumb question: “The member opposite should know…”

For all their claims to superior economic leadership, so far Team Turnbull is presenting not so much a rationale as a credo, based on a set of convictions that may be dangerously out of kilter with the realities of the contemporary global economy.