We Need to Move Beyond Free Markets

trickle-downSuddenly our leaders and their lackies are all over the airwaves warning the unwashed hordes of the perils of rejecting the glorious benefits of free markets and free trade, as those ingrates have done in the US and UK.

Their favourite line is “Twenty five years of uninterrupted economic growth.” You hear it almost every day. It represents unparalleled economic success. It is uniquely Australian, because no other country avoided the 2008-9 recession. It’s all because of Australia’s lean, deregulated, open, agile economy, managed brilliantly by [insert current Treasurer].

Except for two little caveats. Australia’s economic performance during the neoliberal era has never matched that in the post-war decades to the early 1970s. And we avoided severe recession in 2008-9 only because the Rudd Government intervened heavily in the economy.

GDP growth during the neoliberal era, which started here in 1983, has averaged a modest 3.4%, and has never matched average growth from 1960 to 1973 (4.7%). Postwar unemployment averaged a miniscule 1.3%, but since then it has rarely been much below 5%.

Our recent record would look decidedly weaker if Kevin Rudd had not departed dramatically from neoliberal doctrine in 2008-9 by boosting government spending, thus avoiding recession following the Global Financial Crisis.

The international picture is rather bleaker. Growth was modest from 1980 up until 2007. Then came the biggest crash since the 1930s, followed by anaemic growth for most of a decade, with no end in sight.

In the 1960s the Australian Government was much more directly involved in the economy. It owned major enterprises (a bank, two airlines, telecommunications) and went into debt to build infrastructure (universities, the Snowy Mountains Scheme). Unions were powerful and strikes were frequent. Worst of all, the Australian economy was heavily protected by tariffs on imports. It was all presided over by that pinko lefty Bob Menzies.

A not uncommon response, if the post-war success is mentioned, is that those times were different. I have yet to see any persuasive case made for that contention. It is not plausible that a transient adjustment spike would last 25 years. There was a postwar bounce in consumer demand, but there was also a huge drop in government war-related demand.

Economic managers were in fact worried that without war spending the world would slump back into depression. So they spent on infrastructure and education. They ensured the wealth was spread around. Ordinary people use their wealth to buy stuff and keep the economy moving, unlike the very rich who play parasitic money games and spend unproductively on asset speculation, fueling booms and busts.

You might debate those issues, but let’s look at it from the other side. According to today’s doctrines the 1960s economy should have been a basket case.

Today’s commentators talk as if the entire pre-1983 economy was a basket case. They ignorantly (or otherwise) conflate the difficulties of the 1970s with the whole post-war period to 1980.

Two big problems of the 1970s were a quadrupling of the price of oil and inflation, stoked by the US floating its dollar and printing money to pay for the Vietnam war. You thought I was going to say mismanagement by the Whitlam Government.

There were some problems, but in the Whitlam years Australia was the only developed nation not to go into recession. That sounds familiar. Government stimulus can have some benefit, even if it was compromised by inflation. So “basket case” does not even apply to the 1970s, and Whitlam was not the big bogey man he’s made out to be (and I’m not saying he was a saint either).

The post-war social democratic era was a time of unparalleled economic success. Wealth was generated faster than ever before or since, and it was shared more equitably through the population. Those facts are not disconnected.

The subsequent neoliberal era has been a time of economic mediocrity, of debt rising to unparalleled levels, and of that debt triggering the worst crash since the 1930s. The continuing debt burden keeps many countries and regions in deep recession or depression.

I could explain how none of this is surprising, because free-market theory is bunkum and because mainstream economists ignore the critical role of private debt, but that’s another story. Its moral is that markets need to be managed and banks need to be reined in, as they used to be.

For decades all attempts to argue that neoliberalism is a false god have been brushed aside. But people know when they’re getting a raw deal. Resentments have been rising for a long time. Now they’re bursting out, destructively.

The various factions of the mainstream are now running around accusing each other of being elitist. But they have all been misguided and hubristic. They have shut down healthy debate and let the problem fester.

They have brought us to dangerous times. Inequality has risen dramatically, the social fabric has been riven and environmental destruction has accelerated.

There are approaches that can constructively address the mounting problems without us turning hatefully against each other. Minds need to be opened and the ultra-correctness of mainstream economics needs to be cast aside, so we can get on with the urgent tasks at hand.

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4 thoughts on “We Need to Move Beyond Free Markets

  1. Bill Williams

    Excellent Geoff. This is the first article I have read, apart from my own comments on various social media, that directly makes the point that Trump’s election represents a popular rejection of the neo-liberal “free market” doctrine. I am not completely convinced that the Brexit was exactly the same. There are some common issues, but Trump came out and specifically promised strong government infrastructure spending and strong action on Free Trade Agreements that disadvantage US interests. Nobody in the economic press has identified that Americans are so fed up with neo-classical, free market economics that they are prepared to put up with a man like Trump as long as he changes the prevailing economic doctrine.

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  2. don owers

    Dear Geoff,

    One, (perhaps the only one) of the great achievements of Friedrich Von Hayek was to produce a book on economics that politicians could understand. And its beautiful – you don’t have to make decisions, just leave it to the market and if it all goes pear shape then its not your fault is it? To day we might have called it economics for dummies and that it was apparently read by Ronald Regan easily makes it worth a nobel prize.

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  3. Pingback: ALP: Blocking Democracy and a Tolerable Future | Better Nature: commentary by Geoff Davies

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