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We must bury 'economic competence' Big Lie or it will bury us

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?

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)".(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".

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.

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:

  1. ever greater crowding of our cities due to enforced population growth,
  2. delegation by government to the less efficient private sector of the responsibility for providing services that the government itself had previously provided, and
  3. 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.

This article has since been published on Online Opinion on 6 September 2007 as "Living standards and our material prosperity". Comments on this article form OLO readers can be found here. -  James Sinnamon, 9 Sep 2007

Footnotes

1. Quoted in "Economia", 2004, by Geoff Davies.

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.

Comments

This post is also to be posted the discussion forum on Online Opinion in resposne to the above article also posted to Online Opinion.

Rhian,

Glad that it has finally occurred to you, after three days discussion and five previous posts, to mention that you are "not indifferent to the fact that many people are struggling financially, and some are worse off now than they were in the past."

Apart from statistics from the ABS, which you insist, suggest "that most employees work the hours they want", you have barely answered any of the arguments in my article. (BTW not being a Micro$oft Windoze user, I can't use the SuperTable software to which you referred.)

If you are correct about those statistics, they run counter to my own personal experience, and it would seem, to the personal experiences of a number of others posting to this forum, much anecdotal evidence including that in Elisabeth Wynhausen's "Dirt Cheap" of 2005 and many studies done into the effects of the "WorkChoices" legislation.

In any case, I hardly consider 'most' to be good enough. Any figure which falls significantly short of 100% is not satisfactory IMHO.

BTW, does the fact that 'most' work the hours they want mean that they are working the hours they need to meet financial commitments or does it mean that they are working the actual number of hours they want to work?

I think that none other than John Howard inadvertently answered that question when he was heralding the "WorkChoices" laws in 2005.

He postulated that some workers would be willing to voluntarily trade in two weeks of annual leave and morning tea breaks for additional money.

Did this tell you anything, Rhian?

It told me that even Howard and Costello didn't believe their own bullshit about how much better off workers supposedly are due to their allegedly brilliant economic management.

For what reason, other than sheer financial desperation, would any worker contemplate giving away two weeks of their measly four weeks annual leave?

So, whatever happened to promises of shorter working weeks and longer holidays that all the newer technologies were supposed to bring to us?

This post is also to be posted the discussion forum on Online Opinion in response to the above article also posted to Online Opinion.

Let's put under the microscope Rhian's claims to have "tried to answer all (my) main assertions with reason and evidence."

My understanding of Rhian's 'case' is that:

  1. ABS stats show that average wage growth has substantially exceeded the cost of living, even though the whole point of my article was to dispute the very basis of such statistics,
  2. Evidence from the ABS which "suggests that most employees work the hours they want".
  3. An assertion that I have exaggerated the factors which have added to the cost of living and that for each 'negative' factor not included in CPI calculations he can find several other 'positive' factors (presumably also not included in the CPI calculations).

Rhian apparently has, in his own head, taken account of all of the the less-quantifiable 'positives' and 'negatives' as well as his beloved ABS statistics. From all of this he has computed the answer in his head, that is, "a balanced account would show our average living standard is indeed improving".

From this it follows that the picture we are given by the media of Howard's economic brilliance is the correct picture after all, and, being the only matter of any importance whatsoever (as opposed to climate change, peak oil, the Iraq war, the AU$290million in bribes paid to Saddam Hussein etc) we are all beholden to vote this year for return of John Howard's inspired government.

Those of us who aren't able to share in the joy that Rhian and Yabby are feeling are psycho-analysed as being afflicted with schadenfreude.

In regard to point 3: at the risk of being further diagnosed by Rhian as incurably mysanthropic, here are a few more negatives, which I don't believe have been accounted for adequately, or at all, in ABS statistics:

  • Bulk-billing has been emasculated. Before Howard stuffed up Medicare we could walk into a doctor's practice and get treatment without having to pay money and stuff around with Medicare claim forms and, when the cheques arrived, having to bank them. I estimate that it takes well over an hour of my time to do all this for each visit to the doctor and I am still out of pocket as the payment from the Government is less than the fee.
  • Credentials creep : a degree is necessary precondition for most white collar occupations, whereas year 12 used to be easily sufficient. Occupations which once required a degree now require postgraduate qualifications.
  • Loss of on-the-job training such as the apprenticeship and cadetship schemes run by Telecom (now Telstra) and other government owned utilities. Nurses and paramedics now require a degree.
  • Loss of career paths for entry level employees. On ABC Radio National's Street Stories of 24 June (http://www.abc.net.au/rn/streetstories/stories/2007/1954374.htm - audio file no longer available) a prostitute in Kalgoorlie revealed that she had turned to prostitution in order to go to University. Asked why she needed to go to University, she explained that she needed a degree to get promoted beyond her entry-level job in an advertising agency. Think about it: the only path to career advancement for this girl was through prostitution. A generation ago most employees who were good enough could hope for career advancement without having to sleep with the boss or turn to prostitution. Rhian, do you think this is a step forward or a step backwards?
  • Education is no longer free. Most of today's graduates have crippling HECS bills.
  • Each serious job application I make these days takes at least weeks out of my life. This is to update my resume, fill out job selection criteria, write applications and if I am lucky, to attend the interview. Given the number of applicants for the jobs I go for (when I can bring myself to face such an ordeal). Given the number of applicants fro each of these jobs, simply fining a newer better job can easily consume up to a year of one's life, so many just don't bother. Year's ago, I was able to walk into good jobs by simply talking to the boss. At most, a scrappy job application and a small amount of form filing was all that was needed.
  • The overheads of running small businesses have dissuaded many people I know from working for themselves. A generation ago, almost anyone could start a business without having to spend weekends filling out out paperwork, or, alternatively, employing an accountant part-time. Where is this shown in CPI figures?
  • Housing loan repayment periods are 30, 40 years - some institutions are even planning for 50 year periods - where they used to be 20 years at the very most.(See story about economists, employed by banks, having fiddled statistics to make housing appear more affordable than it actually is at http://www.abc.net.au/rn/science/ockham/stories/s1335462.htm).
  • Overheads of moving home for those growing numbers of Australians who don't own their own homes and are turfed out when their landlords sell or who have to move because they can't afford the rent increases. These include telephone, Internet (around $170 a hit on 5 occasions between 2001 and 2005 in my own case) electricity and gas reconnection, cleaning in order to satisfy demanding inspection requirements, time and effort searching for new accommodation and filing out paperwork, moving or selling possessions in order to avoid moving costs.

Let's now deal with some other examples which Rhian holds prove that we are better off and not worse off:

"Is the decline in youth suicide enough to offset the rise in youth drug taking?"

Can't say. Has suicide 'declined' over just the last year, last decade or last three decades? What about mature-aged suicide? All I know is that there is abundant evidence of the growing dysfunctionality of our society.

One example: When I went to school in the 1960's 1970's, I could walk alone or with a group of friends. These days most parents are frightened to let their children walk to school without the accompaniment of adults. So they are obliged to drive them, thereby making our roads more crowded and dangerous, or to run cumbersome parent-supervised 'walking buses'

"Is the reduced capacity to repair your own car (bemoaned at length in the article) offset by the improved safety and reliability of modern vehicles?"

The only cars which are safer and 'more reliable' are new cars. Once they are a few years old, keeping them safe and reliable becomes prohibitively expensive. Thankfully, my older car doesn't have air bags fitted. By the way, an ambulance officer once told me that he and fellow paramedics don't believe air-bags improve car safety and consider them a hazard to their own work. Another case of unnecessary expenses being foisted upon consumers to suit corporations.

"Is the increase in greenhouse gas emissions offset by the decrease in air pollutants such as SO2 that directly harm human health?"

What a stupid question!

If the people in control had done their job properly we would not have had to deal with either by now. Can you show us, BTW how we all stand to come out ahead, in your economic model, with the predicted increased frequencies of events like Hurricane Katrina which devastated New Orleans in 2005, no doubt helped by Australian coal exports?

If you had read my article I had conceded that significant numbers of ordinary Australians were likely to be somewhat better off, notwithstanding the negatives I have mentioned.

However this has almost nothing to do with Howard's economic management. It is simply their good luck to be sitting on our bounty of our finite non-renewable mineral wealth at a time when the Chinese and Indian economies are expanding with all of the grave hazards that this poses for our global life support system.