Free Dog Days: Australia After the Boom (Redback) by Ross Garnaut Page B

tightening budget policy too little and monetary policy too much in the late-1980s boom. The idea of budget policy being too loose sounds strange when the Hawke government was running surpluses with as big a share of the economy as any before or since. Strange, but in retrospect true. This lesson has not yet been properly absorbed into economic thinking – as reflected in the general acceptance that the Howard surpluses in the bigger private-sector boom of the early 2000s were big enough.
    Few in the community understood either of these issues. It was the recession itself that damaged the standing of economic analysis in policymaking.
    HOW ELECTORAL DYNAMICS AFFECT POLICY
    There is a Gresham’s Law of electoral competition over policy. Bad policy ideas drive out the good. If one of the major parties offers something that is genuinely good for economic fortunes overall but which appears bad to part of the community, electoral fortunes can be won from fierce resistance to change.
    There are several reasons for the electoral bias against reform in the public interest. Negative messages can be simple; reform and its consequences are usually not easy to explain in slogans. Simple messages have advantages in an electoral contest. The power of simple negative messages has been increased by changes in the media landscape since the Reform Era. The status quo is known, while reform inevitably carries uncertainty with it: ‘Better the devil you know’; ‘If you don’t understand it, don’t vote for it.’
    Successful reforms in the public interest invariably hurt one or other vested interest. Those who are hurt know who they are. Ease of identification and concentration place the losers from reform in a good position to invest in opposition – to contribute to negative popular campaigns, to influence policy through campaign contributions, to finance the production and dissemination of misinformation.
    The beneficiaries of reform are diffuse and harder to organise. The greatest beneficiaries may not be present at the time of reform, coming into existence only in response to the policy change.
    In addition, the wider public is generally deeply resistant to the messages of mainstream economic analysis. It believes, or at least wishes, that trade protection increases employment and incomes. It will rarely see great strength in arguments for cutting spending now to reduce the risk of problems at a later date. It sees any immigration as reducing the chances of Australians finding and keeping a job.
    For all of these reasons, reform in the public interest starts a long way behind in an electoral contest. It is only likely to succeed politically if there is effective advocacy of a clearly worked-out reform programme by a leader in a strong political position. The chances of success will be enhanced if a well-developed centre of the polity has absorbed influential people from both sides of the political contest (consensus being an unrealistic hope) who will increase the cost of appealing to populism by exposing the flaws in the simple arguments against reform.
    The change in political culture between the Reform Era and the Great Complacency seems to throw up impossible barriers to far-reaching reform in the public interest. And yet the Reform Era is as much a historical reality as the Great Complacency. Australians now have large reason to return to the approaches to policy that underpinned the Reform Era.

 

CHAPTER 4: THE HAIR OF THE DOG
    Australians now have to live with the hangover from the biggest housing, spending and resources booms in our boom-and-bust cluttered history. So far our response has been to take another drink, with no end in sight during the 2013 election campaign. Our spending and our real exchange rate have risen to levels far beyond what is sustainable. The challenge now is to manage their falls in ways that do the least damage to employment, our living standards and the quality of our society.
    THE RESOURCES