One Million Unemployed
The Liberal/National Party Coalition in Australia has two great indictments on the former ALP Treasurer and Prime Minister, Paul Keating. The first is ‘17% Interest Rates’ and the second is ‘One Million Unemployed’. Here’s Peter Costello long-term Lib. Treasurer in 2007 stringing the insults together into his party-preferred summary of Keating’s anti-achievements
I love seeing Paul Keating out on the media. And I would say: Paul, keep it going, remind people of what it is like under a Labor Government. And you saw all of the old vitriol coming out and it reminds people of a million unemployed, 17 per cent interest rates, a budget deficit of $10 billion, Commonwealth debt at $96 billion
Was Keating clueless on Employment ? Could he have done better ? What do he do wrong ?
Keating The Chiropractor
The high profile Blogger and academic John Quiggin scores Keating low on Employment, claiming Keating had no focussed Employment Policy apart from a brief period following the 1993 election with the program Working Nation and even that ran for only a short time before being overtaken by other priorities.
See Quiggin in his article from 2000 ‘Unemployment: Still Hoping For A Miracle ?’
The main reason for pessimism is the fact that unemployment is at the bottom of the policy agenda, just as it has been for all but a few years in the past two decades. In the absence of a serious policy response, we are reduced to ‘hoping for a miracle’. (p.3)
The Working Nation program, […] was introduced by the Labor government
in 1994, cut back in 1995, and slashed by the incoming Liberal–National coalition
government in 1996…(p.19)
Quiggin regards Keating as a technocratic, neo-liberal economist, who aimed merely to calibrate the economy so that it would function efficiently, thereby producing Employment as a natural by-product of health. If true that would make Keating’s approach to the economy rather like that of a Chiropractor, attempting to maximize the efficiency of the body’s nervous system and waiting for natural feedbacks to produce a vigorous equilibrium.
Mega An’ Me
I decided to find out more about what Keating did on Employment and started by borrowing ‘The Longest Decade’ by George Megalogenis from the local library. Lo and Behold, Chapter 1 summarized Keating’s Economic Project as Treasurer/Prime Minister and gave me an outline of what Keating did and its effects on the broad economy.
I enjoyed the chapter so much I have decided to blog The Longest Decade as a series of posts called ‘Mega An’ Me’…maybe.
Mega Loves Paul
From Chapter 1, I would say Mega loves Paul (Keating). He makes it pretty clear that he regards Keating as having done the hard work of reform and that Howard was the beneficiary of Keating’s brave reforms. Mega says:
“[Keating’s] interest rates begat another recession…[but Keating] wanted praise for ending the speculative orgy of the 1980’s. At first we thought he was crazy […] but history has validated […] Keating […] The decade that followed his recession (which began in November 1990) expired on 24 November 2007 [with the defeat of the Howard Government]”
The catch for Keating is that the longest decade still belongs to Howard.
– The Longest Decade, pp.9-10
Mega claims, I feel a little blithely, that most people did not feel any pain in Keating’s recession.
Neither number [17% interest rates or one million unemployed] happens to be mainstream.[…] In NSW only one out of 24 workers were retrenched… Three out of four households were on a fixed interest rate of 13.5%, the ceiling that applied before April 1986…Also the banks shielded the remainder by extending the term of the loan, so repayments did not rise…
Longest Decade, pp.12-13
…but there has to be some reason for that ALP vote in 1996 shrinking to post-Great Depression lows. People were feeling it. Pretty much only the rusted-ons stayed attached to the ALP in 1996.
As it is, Keating and Mega are supported in their views by Ian McFarlane, Reserve Bank Governor from 1996. Mega quotes McFarlane addressing the Australian Business Economists Annual Conference in 2005 as Governor Of The Reserve Bank, where McFarlane stated Keating’s recession should be regarded as a ‘policy triumph’ as it delivered Australia ‘a low-inflation, stable growth eceonomy’.
Is VIC There ?
Mega traces the pain of Keating’s recession squarely to Victoria. He notes that three-quarters of the job losses of the recession were sufferred in that State due to the reduction of tariffs on the automotive and other manufacturing industries. In Mega’s view those job losses were the price that Victoria had to pay for being ‘dragged into the global economy’ pp.18-19
One might also apply those comments to South Australia, another state that had Manufacturing Industry job losses at that time.
Mega supports his case (only VIC and SA suffered) by presenting results from the 1996 election that show the ALP losing 9 seats in Victoria, but picking up 5 seats in NSW and Qld combined. He could also have mentioned that the ALP was almost obliterated in SA, being reduced to only 2 seats out of 12.
Keating’s Interest Rates
Keating portrays his 17% interest rates as necessary evil required to finally conquer the inflation monster that had risen in the middle of every boom. Wage inflation was being controlled through the Accord, but Asset inflation notably house prices but running at 15% with the help of the newly deregulated financial sector. Keating pumped interest rates until they trumped asset inflation (Longest Decade pp.13-15)
Keating’s interest rates deepened the recession but they were the tool employed to kill inflation which allowed The Longest Decade of stable growth and therefore deserve to be lauded as a policy triumph.
So Was Keating Clueless On Employment ?
I’ll go with ‘Probably Not’. Mega and Keating spin a very plausible yarn on tariffs and the task of destroying inflation but Quiggin speaks in other articles of ‘paths not taken’ on employment policy. I would like to hear some of those other voices.
Mega also makes the point that the international economy was not vibrant in the early 1990’s which gives PJK some further excuses.
But the Coalition are shameless to criticise Keating for his reforms, since they voted for all of them. Have they ever explained what magic wand they would have waved over Victoria to prevent job losses in a manufacturing sector denied its tarrif barriers ?
Note to self: I do not really understand why it is necessary to destroy asset inflation unless maybe to forestall wage demands to cover said inflation.
There are some other strands of this story to be covered such as Keating’s ‘jobless recovery’ inlcuding the changing technological profile of work and jobs which meant that lost blue-collar jobs could not be immediately replaced. Having peeked ahead I know these topics will be covered in due course.