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Setting the economic agenda

Wayne McMillan

Economic and financial commentators, central bank gurus, policy research spokespeople and treasury boffins use a language that could be called econo-speak. They talk as if anyone that has difficulty understanding them must be an economic ignoramus. They frame the economic agenda and decide what items will be discussed, how they will be discussed and the terms of discussion. If any Australians dare decide to discuss economic issues that are outside the boundaries set by this self-proclaimed economic literati, then they should be prepared either for ridicule, waspish biased criticism or arrogant refusal to even contemplate differing views.

Considering the economic disaster arising from the global financial crisis and the bald fact that 99.9% of econo-speak commentators were unable to predict this event, it doesn’t stack up that they are the font of all economic knowledge. Even worse, if we dig a little deeper and delve into the economic theories that these commentators draw from, we also find out that these are the very flawed theories upon which the global economic crisis was built.

And if we search hard enough, we can read or listen to well-known economists alive or dead across the political spectrum, telling all and sundry that orthodox economic theory needs to be rethought as it has failed us. This isn’t a new phenomenon; it has been with us for some time. I attended a talk by internationally acclaimed Nobel Prize winning economist Joe Stiglitz in 2014 at the Sydney Town Hall to a packed audience. It was attended by a broad cross-section of people. Stiglitz was adamant that the Anglo-American constructed economic theories had failed many countries, especially the USA, and warned Australians not to go down the road of austerity policies or follow American orthodox economic ideas.

In the light of these revelations, any discussion about economic matters should be up for grabs and no new economic hypotheses or ideas should be labelled nonsense until they have been scrutinised carefully and proven to be empirically invalid. We need to have open, free debate about issues relating to budget repair, taxation, deficits and surpluses. The time to drop TINA (There Is No Alternative) rhetoric is long overdue.

I don’t believe that most Australians think that the economic problems we face are simple to solve, but some of our economic commentators give the impression that this is the case. One of the problems facing us is that many of our politicians follow these commentators like glue, so this doesn’t help to enlighten the public about the range of policy choices available.

A major simplistic technique used by some politicians to explain the federal budget is to compare it to an ordinary household budget, which comparison is patently false. Fiscal and monetary policies are far more complex than just balancing the books. Federal budgetary policy, being an important aspect of ‘fiscal’ policy, has a stabilisation role for the economy which is necessary for future economic development and differs greatly from the role of household budgets which seek to enable a family to live within its means. Confusion over levels of public and private debt has been deliberately propagated. Australia doesn’t have a high level of public debt, but it does have a high level of household debt.

When we come to the financial sector, there is still much confusion and secrecy about how central banks and ordinary banks operate. What does our central bank actually do and what is its role? Can governments who issue a sovereign fiat currency that is free floating, ever run out of money? Do banks create new money out of thin air in the economy when they lend to people they see as a good risk, or do they loan out the money of savers?

There are many interesting questions that have arisen in the wake of the global financial crisis. New and developing economic theories abound and they deserve further objective investigation. We need to sort out the wonkish and ridiculous ideas from those theories and hypotheses that have a firm, empirical basis. We need to look at the facts and relevant circumstances first before we assume any given outcome.

No economic theory comes out of the ether. Each economic theory possesses a firm foundation in a distinct mix of social, political and ideological contexts. Our media today is not unbiased (and I include the ABC in this category); it tends to label certain ideas and theories through a prism of so-called assumed norms and mores, which are supposed to be common knowledge. This is a self-perpetuating myth.

To introduce any new policies it will require a range of sound tests and there will be an element of trial and error. There are no easy answers to complex socio-economic, problems, so it will be necessary to go back to the drawing board more than once. Therefore, economic education is needed for the ordinary Australian, to ensure they are not fooled by economists, politicians and economic commentators, who have a vested interest in pushing their own ideological point of view.

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