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Shorten planning to regulate his way to growth

Tuesday, 08 August 2017

Shorten planning to regulate his way to growth
Source: ABC News | Nick Haggarty

Nick Cater writes in The Australian:

We should give thanks for small mercies. At least Bill Shorten still believes economic growth is a good thing, even if he harbours strange ideas about how to achieve it.

“Equality is a precondition to successful growth,” he told ABC’s Radio National, a safe space for such declaratory nonsense where such assertions can be made without fear of contradiction.

The causal link between “equality”, however defined, and “growth” is an economic fact so obvious that it needed no further explanation, apparently.

“This corporate tax cut will impede growth,” Shorten continued. “Poor old Mr Turnbull and everyone else, they’re saying, well, we’re going to hand away a lot of money in corporate tax relief, tax give­aways, but they don’t explain where the replacement revenue is coming from.”

It was more than enough for the Business Council of Australia, which accused the Opposition Leader of trashing the evidence. There was a straight line from reduced taxes to increased business investment, which in turn leads to higher productivity and higher wages, Jennifer Westacott pointed out. She might as well have been talking to the gatepost.

Economic irrationalism is the new orthodoxy for Labor, a party that once insisted on more rigorous empirical standards. It was a party that once held that business, not government, was the engine of prosperity and that lower taxes, not higher, stimulated growth. It was once a party of deregulation with faith in market forces. It was a party that believed economics was a science, not a faith.

Labor under Shorten has finally succumbed to fallacies that have been fermenting on our campuses since the late 1980s when discontent about so-called economic rationalism set in. It was later renamed neoliberalism, an ism so poorly defined that it embraced everything that infuriated the muddled left.

Economic rationalists were “extraordinarily impervious to evidence”, wrote Robert Manne from the concrete cloisters of La Trobe University. Economic rationalism, he asserted, was “the most tenacious and intolerant religion of the contemporary world”.

To be fair, Manne’s loathing of rational economics gripped him during a recession, the last one Australia experienced.

One doubts, however, that 26 years of unbroken growth, due in large measure to the policies they detest, has caused many economic irrationalists to change their minds. Indeed, the notion that the state should intervene in the economy more loudly and more often has gained considerable ground since the global financial crisis, when Kevin Rudd prophetically proclaimed that the duty of social democrats was to save capitalism from itself.

Since then an ethical economic policy, rather than an empirical one, has become Labor’s preferred approach. Recalcitrants, like Martin Ferguson, Gary Gray and Simon Crean, who held the 1983-96 Hawke-Keating government in high regard, were purged or retired exasperated, leaving the field to lanyard-wearing issue managers who mistook a masters in business studies for a qualification in economics.

“Inclusive growth” — the notion that ethical social policy strengthens the economy — is the fashionable thing these days among the lanyard-wearing classes of the left. Job growth must be contained within sectors that promote “sustainability and equality”. Public spending, the argument goes, is as much an economic investment as a measure of social protection. Shorten, like his British counterpart Jeremy Corbyn, is determined to give this experiment in absurdity a go.

A Shorten government will tax and spend its way to prosperity, believing — against experience — that wealth can be created by taking from the rich and giving to the poor. Hence last week’s assertion that “when you have increasing inequality that is a brake on growth”. Or his answer to Leigh Sales’s deceptively simple question: “Which of your policies will drive up wage growth?”

“Well,” said Shorten, “if we restore penalty rates, that’s a start.”

It’s simple, really: if wages are falling you push them back up by imposing restrictive and selective labour laws.Or you could introduce a clean energy target, a measure Shorten claims “guarantees more jobs”. Not only that, but it will put “downward pressure on electricity and gas prices, and of course takes real action on climate change”.

Old-school observers might be taken aback by the assertion that the state can regulate its way to higher growth, higher wages and cheaper prices.

Experience points to the opposite conclusion. The causal relationship between economic freedom — lower taxes, smaller government, light-touch regulation — and economic growth, is more reliable than the supposed link between equality and wealth.

In any case Australia is, if anything, a more equal society, not less, even if the reasons for the levelling out — taxes and welfare — are nothing to boast about.

All other things being equal, Shorten’s snake-oil remedies would be easy to refute. Yet they align with the popular zeitgeist at a time when everything the average household needs seems to be going up — except wages.

It is a message specially attuned towards younger voters for whom HECS repayments add another layer of disheartenment, particularly when they have good reason to question whether the cost of a university degree is well spent.

They are also inclined to arguments about fairness, an expression of empathy rather that practical resolve. It is a generation that puts ethics before empiricism and in public policy values good intentions higher than good outcomes. It is a generation that has become convinced that trickle-down doesn’t work. The argument that a strong economy creates opportunities for almost everyone, and that wages are closely tied to productivity are lost on many of them.

What this means for the country’s future is anybody’s guess. But then, as Shorten once said: “If you don’t know where you’re going, any road will get you there.”

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