The myth of the Howard Government's superior ability to manage the Australian economy may prove in this election as in the last to be the Achilles heel of an otherwise damning case against Howard. The indicators that purportedly confirm this myth are incessantly drummed into our collective consciousness by a news-media sympathetic to the Howard Government. These are low (but no longer quite so low) interest rates, low inflation, low unemployment, the elimination of Labor's debt, economic growth and 'real wages' growth.
These claims of economic management superiority have not only been left largely unchallenged, but have sometimes even been propagated, by people who ostensibly oppose the Howard Government. Perversely, even former Labor Prime Minister Paul Keating has endorsed Treasurer Peter Costello's management of the economy on at least two occasions.
For this reason we have the strange situation where opinion polls show low public support for the Government but favorable support for its economic policies.
Unless this situation changes we may find the same dynamic that got Howard over the line in 2004 will play out again this time. Past experience should have taught Howard's opponents that simply exposing Howard as deceitful and heartless will not win the day.
As the elections draw closer, the newspapers will try to further downplay public concern over the Iraq War, the AWB scandal, the Medicare shambles, cuts to spending on education, privatisation, health, research, social welfare, industrial relations, record high immigration and the Government's failure to act in a more timely and decisive fashion against the threat of global warming. Instead, the news media will seek to focus public attention very narrowly on its depiction of the Australian economy and what's supposedly in it for us.
The issues of concern may still hold the attention of some voters but many are likely once again to swallow the notion of a necessary trade-off between dealing with those issues of concern or ensuring their personal material wellbeing by opting for Howard's allegedly superb economic management.
Uncertainty about the economic prospects under the alternative Labor Government or narrow short-term self-interest may again convince sufficient numbers to vote for the return of Howard's Government.
So just how valid are those claims of the Government's impeccable economic credentials?
#GDP" id="GDP">The GDP is a poor measure of prosperity and economic performance.
The measures of inflation, from which real wage figures are calculated, as well as the Gross Domestic Product (GDP), which supposedly measures our national prosperity, are seriously flawed. Even the GDP measure originator, Simon Kuznets of the United States, warned in 1934 that: "the welfare of a nation can scarcely be inferred from a measure of national income as defined (from the GDP)".#fn1">(1). The vast economist herd has ignored this warning, but thinking economists have not.
In his article "How Far Will the Crash Go, and What Do we Do Now?" published in the Atlantic Free Press on 20 August, Richard Cook tells us that although "the U.S. producing economy has been in a recession for the last year," this has been masked by factors which include "the government's phony GDP numbers, where the 'churning' of financial transactions masquerades as production"#fn2">.
As people are increasingly aware, the GDP measure interprets all economic activity as adding to national prosperity, including that generated by debt, natural disasters and man-made ills.
In spite of these glaring shortcomings economists persistently use the GDP to depict the economic performance of right-wing pro-big-business governments such as John Howard's in a far more favourable light than is warranted.
#PoorEconomicPerformanceMeasures" id="PoorEconomicPerformanceMeasures">Poorly performing measures of inflation and real wages.
Inflation figures, upon which claims of real wages growth are based, do not accurately measure many increases in the cost of living for ordinary people. The most scandalous example is the omission of the cost of land from the Australian Bureau of Statistics' Consumer Price Index. Given the galloping inflation in costs of housing, of which land is by far the greatest component, the Government's claimed 20 per cent increases in average real wages bear little relation to the reality that many Australians face when struggling to pay off mortgages or rent.
The average distance involved in commuting to and from work has steadily climbed for increasing numbers of people obliged to live in new outer suburbs. These suburbs don't have adequate public transport and the public transport that there is, in any case, is increasingly neglected. A reliable car has become a necessity.
In the past many people still had a large yard and a shed in which they could repair their own car. Even in the outer suburbs now, garden, yard and shed space is shrinking and this affects garage and workshop activity. When people lived closer to work and had good public transport there was less urgency associated with having a vehicle available. The car owner could take their time doing their own repairs or shop around for a reasonably priced and reliable mechanic.
An added complication is that newer cars also have complex computerised parts that cannot be repaired by non-specialists. The upshot is that most people now have little choice but to pay whatever it takes to have the car fixed quickly by the first available mechanic.
For many, mobile phones and the Internet are not just a convenience, they are an expensive necessity for employment and business. They entail substantial costs for equipment and subscriptions.
It is easy to come up with many other examples of newer overheads of work and daily life which are not measured by inflation figures. These overheads are necessary to deal with the ever escalating complexity of our lives.
Amongst other factors, this complexity is the result of:
- ever greater crowding of our cities due to enforced population growth,
- delegation by government to the less efficient private sector of the responsibility for providing services that the government itself had previously provided, and
- the government's own propensity to increase the amount of red tape that citizens need to comply with.
Many things that were once either free or very cheap are now out of reach for ordinary people. In the 1950s and 1960s it was possible for my late grandfather to take his family to a holiday by the beach at Maroochydore on Queensland's Sunshine Coast each year for the entire six weeks of the summer holidays all on the single wage of a primary school teacher. Today, such a holiday is completely beyond the means of ordinary Australians.
Many Australians work longer hours, often as unpaid overtime, often involuntarily, for low wages. Then there are a lot of people who have low hourly rates and are unable to find enough hours of work to make up a decent wage.
The hours worked are often organised in shorter stretches for employer convenience. Thus the unfortunate employee has to make more commuting trips consequently spending more time and money travelling. In all cases the average overall intensity of work during the hours of workday has increased. This means that people who cannot continuously keep up the pace are not able to participate in the workforce as they would like or need to.
If the ABS inflation figures were to comprehensively measure these costs, and attach monetary values to the various ways in which the quality of life for many has declined, the "real wages" figures would probably reveal a substantial drop in the actual standard of living of most Australians and a massive drop for many on the lower end of the income spectrum.
To be sure, a significant number of Australians employed in areas like the mining industry, where some skills are in high demand, do enjoy more material prosperity. If, however, they were to ponder the above factors they might realise that this prosperity is not nearly as great as it superficially appears to be.
The material prosperity we do have, moreover, depends upon high consumption of material goods manufactured mostly in countries like China and India in highly polluting processes which increase the greenhouse effect.
Objectively our natural capital is being destroyed, so we are moving backwards and not forwards.
#fn1" name="fn1" id="fn1">1. Quoted in "Economia", 2004, by Geoff Davies.
#fn2" name="fn2" id="fn2">2. See" How Far Will the Crash Go, and What Do we Do Now?" by Richard C. Cook published in the Atlintc Free Press of 20August 2006 at www.atlanticfreepress.com/content/view/2212/1.
More on this topic on this site
For another discussion of the problems in media-popularised measures of economic performance, see on this site, Australian ERA Economist, John Hermann's "Five myths about the economic performance of the Howard Government". "Five myths" identifies and destroys those myths used dishonestly to depict the Howard Government as a brilliant economic manager.
The myths, also referred to above, are lower interest rates, lower inflation than under Labor, low unemployment, the fallacy of the government's economic growth promoting policies and lower government debt. So there are many reasons why the constantly chanted claims of rising living standards and Howard and Treasurer Costello's brilliant economic management can be challenged head on.